-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TCCp3rRxN58Vz1E6Y+Bgi2qA8tiMNoHt9PL+gVPACq8E0zm2RUgr0w3KvaQod4j3 OZGget8LebHwzCWmjp27Pw== 0000006207-98-000002.txt : 19980803 0000006207-98-000002.hdr.sgml : 19980803 ACCESSION NUMBER: 0000006207-98-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980430 FILED AS OF DATE: 19980729 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMREP CORP CENTRAL INDEX KEY: 0000006207 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 590936128 STATE OF INCORPORATION: OK FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-04702 FILM NUMBER: 98673005 BUSINESS ADDRESS: STREET 1: 641 LEXINGTON AVENUE STREET 2: 6TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2127054700 MAIL ADDRESS: STREET 1: 641 LEXINGTON AVE STREET 2: 6TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN REALTY & PETROLEUM CORP DATE OF NAME CHANGE: 19671019 10-K 1 4TH QUARTER FILING SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended April 30, 1998 Commission File Number 1-4702 -------------- ------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from__________ to __________ AMREP CORPORATION ------------------------------------------------------- (Exact name of registrant as specified in its Charter) Oklahoma 59-0936128 - ---------------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 641 Lexington Ave., 6th Floor ______New York, New York____________ 10022 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 705-4700 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered Common Stock $.10 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _ X_ No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] Aggregate market value of voting stock held by non-affiliates of Registrant, computed by reference to the last sales price of such Common Stock on July 24, 1998, on the New York Stock Exchange Composite Tape: $31,134,346. Number of shares of Common Stock, par value $.10 per share, outstanding at July 24, 1998 - 7,368,650. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents of Registrant are incorporated by reference into the indicated parts of this report: Definitive Proxy Statement for 1998 Annual Meeting - Part III _________________________________________ PART I ------ Item 1. Business - ------- -------- GENERAL The Company* is a real estate developer and builder of housing, national distributor of magazines and provider of fulfillment and related services for publishers and others. Data concerning Industry Segments is set forth in Note 14 of Notes to Consolidated Financial Statements. The Company's foreign sales and activities are not significant. REAL ESTATE OPERATIONS The Company is the major developer and builder of single-family homes at Rio Rancho, New Mexico and has regional offices in the Denver, Colorado and Sacramento, California metropolitan areas. Real Estate Operations consist primarily of (i) the construction and sale of housing, (ii) the development and sale of housing sites, and (iii) the sale of tracts of land for residential, industrial and commercial uses. HOUSING OPERATIONS The Company builds and markets a broad spectrum of housing, principally affordable to medium priced single-family homes ranging in size from approximately 900 to 2,500 square feet. It presently is building in Rio Rancho, New Mexico; the Denver, Colorado metro area; Portland, Oregon; Reno, Nevada and the Sacramento metro area of northern California. In addition, in the Sacramento area the Company is developing and building multi-family housing through a joint venture in which it is a participant. The Company builds a number of different models of houses at its developments, which it changes periodically based on experience and market research. At Rio Rancho, almost all the houses are designed by the Company's own staff. The Company acts as general contractor, supervising all development and building activities, but employs subcontractors for most construction work. However, at Rio Rancho, the Company also performs some site preparation work with its own equipment and personnel and its employees do final preparation and cleaning work on housing units. At its developments in Colorado, California, Nevada and Oregon, the houses are designed by an outside architect or engineer. The Company acts solely as general contractor and employs subcontractors for all construction and site preparation work. The Company's single-family housing is of frame construction, and the Company does not anticipate difficulty in obtaining necessary materials as needed. When possible, the Company enters into contracts with subcontractors and suppliers of materials pursuant to which prices are established for a specific period, usually six months. Such contracts are usually used for all subcontractors and all suppliers. The Company has construction and development departments in its regional offices in the Denver, Colorado and Sacramento, California metropolitan areas, as well as at its headquarters in Rio Rancho, New Mexico. ________________________ * As used herein, "Company" includes the Registrant and its subsidiaries unless the context indicates otherwise. 2 Rio Rancho, New Mexico This community consists of 91,049 contiguous acres in Sandoval County, New Mexico, near Albuquerque, of which some 72,500 acres have been platted into approximately 111,000 homesite and commercial lots and 16,300 acres are dedicated to community facilities, roads and drainage with the remainder consisting of bulk unplatted land. At April 30, 1998, a total of approximately 79,000 of the lots had been sold. The Company currently owns approximately 24,000 acres at Rio Rancho, of which some 8,000 acres are in contiguous blocks suitable for development. The balance is in scattered lots which may require the purchase of a sufficient number of adjoining lots to create tracts suitable for development. Rio Rancho (most of the populated portion of which is in an incorporated city) has a population of over 50,000. The majority of the Company's building is at Rio Rancho, where the base prices of the homes and condominiums presently being sold by the Company range from approximately $76,000 to $200,000, although most are in the $90,000 to $126,000 range. Presently, the Company is predominantly delivering homes from two major subdivisions. In fiscal l998, the Company delivered 405 housing units at Rio Rancho at an average price of $110,000. Colorado The Company entered the suburban Denver market in 1993. Its major project in this market is Bradbury Ranch in Parker, in the southeastern part of the Denver metro area, where in 1994 it acquired 484 acres of undeveloped residential property zoned for approximately 1,700 homes. Development work at Bradbury began in fiscal 1995. As of April 30, 1998 the Company has closed 110 homes in the $130,000 to $175,000 price range, in the first phase of the project (65 in fiscal 1998). In fiscal 1998, the Company also delivered 84 homes in several other smaller projects in the Denver metro area, at an average price of $140,000. The Company owns approximately 700 additional lots at such projects, some of which it plans to sell to other builders. During fiscal 1984 and 1985, the Company built 102 of a projected total of 800 units of townhouses and apartment condominiums at another project in the Denver area, but stopped construction because of Denver's economic slow down. Construction of an additional 98 units at this project recommenced in 1997, and the Company delivered 75 units in fiscal 1998 at an average price of $94,000. California, Nevada and Oregon In September 1997, the Company's subsidiary, Shasta Real Estate Company, purchased substantially all the assets of SKK Enterprises, Inc. and related entities ("SKK"), a homebuilder and land developer with operations in the Sacramento metro area of northern California; Portland, Oregon and Reno, Nevada. In most cases, there are equity participants with Shasta in each of the projects in which it purchased an interest from SKK and in each of the projects which have subsequently been started. The projects are most frequently organized as partnerships or limited liability companies. In many cases, the other equity participants have significant rights of control over the activities of the joint venture, and Shasta therefore accounts for these entities under the equity method of accounting. Shasta acquired SKK's interests in three projects which were underway in the Sacramento area with a total of 327 homes under construction or planned to be built. Shasta also acquired interests in one project in Reno, Nevada with 55 homes planned, and two projects in Portland, Oregon with an aggregate of approximately 37 homes planned and approximately 300 lots to be developed for its own use and for sale to other builders which were in various stages of pre-construction development. 3 Since the acquisition, Shasta has delivered a total of 74 homes in all of its projects, including 43 homes in projects accounted for under the equity method. It has also acquired and begun the development of two new projects in Sacramento and acquired the land for an additional project in Portland, consisting of an aggregate of 220 lots at the three projects. Several other projects are now under review. At April 30, 1998, Shasta was also developing 2 projects for multi-family housing in the Sacramento area with a total of approximately 564 units. One project, which is owned with other equity participants, has commenced construction. The other project, which was wholly-owned, was sold in June 1998. With regard to the multi-family projects, Shasta utilizes the expertise of outside design and management firms to plan and build the projects. Other Projects The Company is the general partner with a 50% interest in a limited partnership which in 1990 commenced construction of a townhouse project in Freehold, New Jersey. The project was substantially completed in fiscal 1998. The Company participates in a joint venture which builds single-family homes in the Eldorado at Santa Fe, New Mexico subdivision, although the Company is not the builder. In fiscal l998, the venture sold 2 homes. Until January 1994, the Company was the general partner and majority owner of a limited partnership which owns a congregate living rental facility in West Palm Beach, Florida. In January l994, an unrelated third party became the general partner of the partnership, and the Company became a limited partner, with a continuing equity interest in the partnership. In December 1997, the entire facility was sold to a third party by the limited partnership for approximately $27.3 million, and the Company recognized a gain of approximately $3.0 million upon the sale and distribution of cash to the Company. Until fiscal 1994, AMREP and a subsidiary held all of the partnership interests in a limited partnership which owns 247 units of moderately-priced rental housing in Orlando, Florida. There then was a restructuring of that partnership in which an unrelated third party became the general partner and the Company became a 50% limited partner. The Company's management subsidiary continues to manage the project under a year-to-year contract. Substantially all of the units currently are leased for terms of from 6 to 12 months. DEVELOPMENT OPERATIONS The Company develops residential and non-residential sites at Rio Rancho and housing sites at Eldorado in New Mexico and at its projects in Colorado, California and Oregon. The development activity includes the obtaining of necessary governmental approvals, installation of utilities and necessary storm drains, and building or improving the roads. The engineering work is performed by outside firms and, in Rio Rancho, by Company employees as well, but development work at all locations is performed by outside contractors. The Company sells developed residential lots to outside builders at Rio Rancho, Eldorado and at some of its projects in Colorado, California and Oregon. The Company sells undeveloped lots to outside builders and other commercial purchasers at Rio Rancho and in California, and may begin to do so in Colorado. Rio Rancho, New Mexico In fiscal 1998, the Company sold 140 lots to builders at Rio Rancho (of which the substantial majority were undeveloped) for an aggregate of $2.1 million. Since early 1977, no lots have been sold to consumers except with houses on them. Over 50,000 lots were sold prior to 1977, and most of these are in 4 areas where utilities have not yet been installed. However, under certain of the contracts pursuant to which the lots were sold, if utilities have not reached the respective lot when the purchaser is ready to build a home, the Company is obligated to exchange a lot in an area then serviced by water, telephone and electric utilities for a lot of the purchaser, without cost to the purchaser. The Company has not incurred significant costs related to such exchanges. The commercial areas at Rio Rancho presently house in excess of 500 business and professional offices, 15 shopping centers with over 1,250,000 square feet of store and office space, and a 55,000 square foot office building in part occupied by the Company. In addition, a number of individual office buildings and stores are located throughout the community. Eleven financial institutions have offices at Rio Rancho. The industrial areas presently have approximately 77 buildings with over 3.2 million square feet, including a manufacturing facility containing approximately 2.1 million square feet built and occupied by Intel Corporation. Eldorado at Santa Fe, New Mexico This subdivision, consisting of approximately 2,000 single-family homes on 6,000 acres platted into lots, is located 10 miles southeast of Santa Fe, New Mexico. Approximately 40 lots remain to be sold. In fiscal 1998, the Company sold 29 developed lots at Eldorado for an aggregate of $1.3 million. Colorado The Company is currently developing approximately 160 acres of the 484 acre Bradbury Ranch project into 582 lots. It intends to sell at least half of the lots to other builders and build and sell its own houses on the remaining lots. The Company has sold 183 of these lots to other builders through April 30, 1998. From time to time, the Company may also sell developed lots from its other projects to builders; the Company sold an additional 5 lots to other builders from one other project during fiscal 1998. In fiscal 1998, the Company sold 102 developed lots at the Colorado projects for an aggregate of $3.2 million. California, Nevada and Oregon The Company's business plan for Shasta's operations call for it to develop and sell sites to builders for residential use and also to acquire and re-sell undeveloped property. In fiscal 1998, the Company, through joint venture arrangements, sold 35 developed lots in California and 24 developed lots in Oregon. SALE OF NON-RESIDENTIAL TRACTS The Company sells developed and undeveloped tracts at Rio Rancho to commercial users and may sell tracts from its Bradbury Ranch property in Parker, Colorado. The Company's plans for future projects in California include a small number of non-residential tracts. In fiscal 1998, 27 tracts of varying sizes were sold at Rio Rancho at an aggregate price of $18.3 million. MARKETING The Company's homes are generally purchased as principal residences. The designs of the various models built by the Company are based on market research, which is done principally by Company personnel. At Rio Rancho, the Company sells its housing almost entirely from on-site models, both directly and through brokers. At the Colorado developments, the Company sells its housing through brokers operating out of on-site sales offices. In California, Oregon and Nevada, the Company sells directly from on-site models with brokers. 5 Non-residential land at Rio Rancho is marketed by a separate department, both directly and through brokers. At all other locations, land sales are most often sold through brokers. There is no significant seasonality to either housing or tract sales. However, unusually severe winter weather can disrupt construction activities, and when this occurs, there can be a slow down in housing sales in the immediately ensuing months followed by a "bunching" as deliveries catch up. BACKLOG Almost all contracts for the sale of housing by the Company are subject to the buyer's ability to obtain financing and the Company does not consider any such contracts to be firm. Historically, approximately 75% of the persons who signed contracts to purchase housing actually closed their purchase. At April 30, l998, at all locations, the Company had signed contracts for the sale of 272 units of housing for an aggregate purchase price of approximately $33.3 million. At April 30, l997, it had signed contracts for 247 units with an aggregate purchase price of approximately $29.3 million. At April 30, l998, at all locations, the Company had contracts for the sale of 206 lots to builders for an aggregate purchase price of $6.5 million and 5 contracts for the sale of commercial and industrial real estate for an aggregate purchase price of $5.5 million. At April 30, 1997, the Company had contracts for the sale of 260 lots to builders for an aggregate purchase price of $6.2 million and 5 contracts for the sale of commercial and industrial real estate for an aggregate purchase price of $5.5 million. COMPETITION The construction and sale of homes is a highly competitive business. Each of the Company's housing projects competes with other builders who offer similarly priced housing. To a limited extent, the Rio Rancho development competes with developments in other places having climates attractive to those who wish to escape the rigorous climates of the north, although a large majority of the housing there is purchased by New Mexico residents. Historically, the Company has generally concentrated on the construction of housing with relatively few options, leaving custom house building and relatively expensive houses to other builders. During the past several years, the Company has been increasing the upper price level of its houses to accommodate a broader income spectrum of buyers. The Company has recently entered the semi-custom market at its Rio Rancho development and is expanding its design-services to include more options at its Rio Rancho and Colorado projects. The California, Nevada and Oregon projects already include homes for which a large range of options are available. MORTGAGE FINANCING The ability of the Company to sell houses is dependent upon the availability of adequate mortgage financing on terms prospective customers can afford. Buyers at all locations utilize various conventional mortgage lenders. In Rio Rancho and Colorado, the home buyers most frequently arrange mortgages with funds made available or guaranteed by state housing authorities and federal housing programs. The Company has operated a mortgage brokerage company at Rio Rancho since 1988. The California acquisition included a mortgage brokerage operation as well. The Company plans to coordinate activities at the two locations and expand its mortgage brokerage business there. 6 MAGAZINE DISTRIBUTION AND FULFILLMENT OPERATIONS Through its wholly-owned subsidiary, Kable News Company, Inc. ("Kable"), the Company (i) performs subscription fulfillment and related services and (ii) distributes periodicals nationally and in Canada and, to a small degree, overseas. As of July 1, 1998, Kable employed approximately 1,240 persons, approximately 1,010 of whom were involved in its fulfillment activities and 230 in distribution activities. FULFILLMENT SERVICES Kable's Fulfillment Services division performs a number of fulfillment and fulfillment related activities, principally magazine subscription fulfillment services, list services and product fulfillment services. The division accounted for 68% of Kable's total revenues in both fiscal 1998 and 1997. In the magazine subscription fulfillment service operation, Kable processes new orders, receives and accounts for payments, prepares labels for mailing each issue, handles subscriber telephone inquiries and correspondence, prepares renewal and statement notifications, maintains subscriber lists and databases, generates marketing and statistical reports, and prints forms and promotional materials. Kable performs all of these services for many clients, but some clients utilize only certain of them. Although by far the largest number of magazine titles for which Kable performs fulfillment services are consumer publications, Kable also performs services for a number of trade (business) publications utilizing the broad capabilities of its extensive database system. In August 1996, Kable commenced the processing of "sweepstakes" entries for a major publisher, opening the envelopes mailed in by contestants, furnishing the pertinent data electronically to the client and performing certain incidental functions. Revenues from this activity represented over 18% of the division's total revenues for fiscal 1998. List services clients are primarily publishers. In this activity, Kable maintains clients' customer lists, selects names for clients who rent their lists, merges rented lists with the clients' lists to eliminate duplication for clients' promotional mailings, and sorts and sequences mailing labels to provide optimum postal discounts for clients. Product fulfillment services are provided primarily for Kable's publisher clients. In this activity, the division receives, warehouses, processes and ships merchandise. Kable now performs fulfillment services for approximately 450 different magazine titles for some 210 clients and maintains approximately 15.5 million active subscriber names for its client publishers. In a typical month, Kable produces almost 16 million mailing labels for its client publishers and also produces and mails approximately 4.7 million billing and renewal statements. There are a large number of companies which perform fulfillment services and with which Kable competes, two of which are much larger than Kable. Since publishers utilize only a single fulfillment service for a particular publication, there is intense competition to obtain fulfillment contracts with publishers. Kable has a staff whose primary duty is to solicit fulfillment business. DISTRIBUTION In its distribution operation, Kable annually distributes magazines for over 225 publishers. Among the titles are many special interest magazines, including automotive, crossword puzzles, men's sophisticates, comics, romance and sports. In a typical month, Kable distributes to wholesalers over 31.5 million copies of various titles. Kable purchases the publications from its publishers and sells them to approximately 190 independent wholesale distributors in the United States and Canada. The wholesale distributors in 7 turn sell the publications to individual retail outlets. All parties generally have full return rights for unsold copies. In both fiscal 1998 and 1997, distribution activities accounted for 32% of Kable's revenues. While the Kable Distribution division does not handle all publications of all of its publisher clients, it usually is the exclusive distributor for the publications it distributes. Kable generally does not physically handle any product. It determines, in consultation with the wholesalers and publishers, the number of copies of each issue to be distributed, and generates and delivers to each publisher's printer shipping instructions with the addresses of the wholesalers and the number of copies of product to be shipped to each. All magazines have an "off sale" date (generally the on-sale date of the next issue) following which the retailers return unsold copies to the wholesalers, who destroy them after accounting for returned merchandise in a manner satisfactory to Kable. A realignment of industry relationships in the distribution of magazines started during fiscal 1996 and rapidly grew to major proportions. It was triggered by the decision of certain major retailers with multiple outlets to sharply reduce the number of wholesalers with whom the retailers would deal. This has led to a substantial continuing reduction in the number of wholesalers through the merger of certain wholesalers, the formation by certain other wholesalers of cooperatives to bid for the business of such retailers, and the complete retirement from the business by a number of wholesalers. The consolidation has reduced the number of Kable's wholesale customers by approximately one-half since 1995, which has increased the concentration of its customer base, wholesaler revenue source and trade accounts receivable. These changes contributed to demands by most remaining wholesalers to purchase magazines at lower prices which many publishers, including Kable's, have accepted. Management believes that industry changes will continue with the potential for further adverse consequences for publishers and possibly their national distributors, including Kable. Kable has a distribution sales and marketing force which works with wholesalers and retailers to promote product sales and assist in determining the number of copies of product to be delivered to each retailer. Kable generally makes substantial advances to publishers against future sales, which publishers may use to help pay for printing, paper and production costs prior to the product going on sale, but it is usually not paid by wholesalers for product until some time after the product has gone on sale. Kable is therefore exposed to potential credit risks with both the publishers and the wholesalers. Its ability to make a profit is dependent in part on its skill in estimating the number of copies of an issue which should be printed and distributed and on limiting its advances to the publisher accordingly. There are five national distributors with whom Kable competes. Since publishers utilize only a single distributor to distribute a particular line, there is intense competition between distributors to obtain distribution rights from publishers. Each of these large competitors is owned by or affiliated with a magazine publishing company. Such companies publish a substantial portion of all magazines published in the United States, and the competition for the distribution rights to the remaining publications is intense. COMPANY OFFICES The Company's principal executive offices are in New York City in leased offices. Real estate operations are headquartered in Rio Rancho in a modern office building owned by the Company, while the Denver, Colorado and Sacramento, California divisions are operated from leased offices. Kable News has an executive and sales office in New York City, and its operations are centered in both owned and leased facilities in Mt. Morris, Illinois and Marion, Ohio. 8 EMPLOYEES The Company has approximately 1,450 employees (including Kable), none of whom is represented by a union. The Company provides retirement, health and other benefits to its employees and considers its employee relations to be good. Item 2. Properties - ------- ---------- The information contained in Item 1 of this report with respect to properties owned by the Company is hereby incorporated herein by reference. Item 3. Legal Proceedings - ------- ----------------- The Registrant and/or its subsidiaries are involved in various claims and legal actions incident to their operations, which in the opinion of management, based in part upon advice of counsel, will not materially affect the consolidated financial position or results of operations of the Registrant and its subsidiaries. Item 4. Submission of Matters to a Vote of Security Holders - ------- --------------------------------------------------- Not Applicable. Executive Officers of Registrant - -------------------------------- Set forth below is certain information concerning persons who are executive officers of Registrant. Name Office Held Age - ----- ----------- ----- Daniel Friedman Senior Vice President of Registrant 63 since prior to 1993; Chairman of the Board and President of Kable News Company, Inc., a wholly-owned subsidiary of the Registrant since prior to 1993. James Wall Senior Vice President of Registrant 61 since prior to 1993; Chairman of the Board and President of AMREP Southwest Inc., a wholly-owned subsidiary of Registrant, since February 1996; President of AMREP Southwest Inc. since prior to 1993. Mohan Vachani Senior Vice President - Chief Financial 56 Officer of Registrant since 1993. Valerie Asciutto Senior Vice President - General Counsel of 45 Registrant since April 1997; Vice President - General Counsel of Registrant since prior to 1993 to April 1997. Each executive officer holds office until the first meeting of directors following the annual meeting of stockholders, and until his or her successor is duly chosen and qualified. 9 PART II ------- Item 5. Market for Registrant's Common Equity and - ------- Related Stockholder Matters ----------------------------------------- The Registrant's common stock is traded on the New York Stock Exchange under the symbol AXR. On July 24, 1998, there were approximately 2,460 holders of record of the common stock. The Registrant has historically not paid cash dividends. The range of high and low closing prices for the last two years by fiscal quarter is presented below: FIRST SECOND THIRD FOURTH -------------- -------------- -------------- -------------- HIGH LOW HIGH LOW HIGH LOW HIGH LOW ---- ---- ---- ---- ---- ---- ---- ---- 1998 $ 4 5/8 $ 3 1/2 $ 7 1/4 $ 4 5/8 $ 6 7/8 $ 5 1/4 $ 10 1/2 $ 6 1/4 1997 $ 5 1/8 $ 4 $ 5 1/2 $ 4 1/8 $ 5 $ 3 7/8 $ 4 5/8 $ 3 1/2 Item 6. Selected Financial Data - ------- ----------------------- The following selected consolidated financial data of the Company are qualified by reference to and should be read in conjunction with the consolidated financial statements, related notes thereto and other financial data elsewhere herein. These historical results are not necessarily indicative of the results to be expected in the future. (In thousands of dollars except per share amounts) Year Ended April 30, ------------------------------------------------------ 1998 1997 (A) 1996 1995 1994 --------- --------- --------- --------- --------- Revenues $ 171,368 $ 146,389 $ 161,802 $ 152,525 $ 126,088 Net Income $ 8,206 $ 7,282 $ 2,785 $ 4,015 $ 2,372 Earnings Per Share $ 1.11 $ 0.99 $ 0.38 $ 0.55 $ 0.33 Total Assets $ 229,768 $ 205,311 $ 181,796 $ 186,142 $ 178,857 Notes Payable $ 84,248 $ 79,824 $ 54,391 $ 61,653 $ 61,349 Shareholders' Equity $ 84,040 $ 75,834 $ 68,552 $ 65,921 $ 61,429 Cash Dividends $ - $ - $ - $ - $ -
(A) Includes a tax benefit in the amount of $6,250,000 (the equivalent of $.85 per share) to reflect the settlement of 1984 through 1989 tax examinations. Item 7. Management's Discussion and Analysis of Financial - ------- Condition and Results of Operations ------------------------------------------------- FORWARD-LOOKING STATEMENTS - -------------------------- This Form 10-K, both in this Item 7 and elsewhere, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by terminology such as "believes", "anticipates", "expects", "plans" or similar words. Although the Company believes such statements are based on reasonable assumptions, they involve certain risks and uncertainties. These risks and uncertainties include, but are not limited to, the level of demand for residential homes in the markets in which the Company is selling or plans to sell homes, the level of demand for land in the markets in which the Company sells land, the possibility of further change in the 10 magazine distribution system for magazines which the Company distributes, and changes in interest rates and general economic conditions. RESULTS OF OPERATIONS - --------------------- Year Ended April 30, 1998 Compared to Year Ended April 30, 1997 - --------------------------------------------------------------- Total revenues for the year ended April 30, 1998 increased approximately 17% from 1997, reflecting increases in revenues from both real estate and magazine circulation operations. Revenues from real estate operations increased by 23% in 1998 resulting from increases in both housing and land sales. Revenues from housing sales increased 16% as a result of an increase in total housing deliveries from 599 to 677. This increase was due to increased home deliveries in Colorado resulting from additional projects from which homes were delivered, as well as from deliveries contributed by the Company's northern California operations, which were acquired in September 1997, and was offset in part by fewer home closings in Rio Rancho, which reflects an increase in competition throughout the surrounding market region. The average selling price of homes sold increased slightly, from $114,600 to $117,800. The gross margin on housing sales increased by approximately $.5 million principally due to the increase in the number of homes closed. The average gross margin percentage was 13% in 1997 and 12% in 1998. Revenues and related gross profit from land sales increased by approximately $8.2 million and $5.6 million, respectively, in 1998 from 1997, primarily due to an increase in the level of commercial and industrial lot sales. The average gross profit percentage on land sales increased from 42% in 1997 to 50% in 1998 because of the mix of land sales between Colorado, Florida and New Mexico. Land sale revenues and related gross profits can vary from year to year as a result of the nature and timing of specific transactions, and are not an indication of amounts that may be expected to occur in future periods. As a result of these factors, gross profit from real estate operations increased by approximately $6.1 million in fiscal 1998 compared to the prior year, predominately from the increased land sales. Revenues from magazine circulation operations increased by approximately 5% in 1998, due to increases in both Fulfillment Services and Newsstand Distribution Services. Revenues from Fulfillment Services increased approximately 5%, due primarily to increased volumes in product fulfillment and sweepstakes processing services. Revenues from Distribution Services increased approximately 6%, due to a modest increase in the volume of magazine sales. The major realignment and consolidation of relationships in the distribution chain for magazines which developed during 1996 continues to affect the industry, and the Company continues to address the situation. Magazine circulation operating expenses have decreased from approximately 81% of related revenues last year to approximately 77% of related revenues in the current year, reflecting the completed integration of the acquisition of Kable's Ohio operations and the favorable impact of cost reduction initiatives. As a result of these factors, operating income from magazine circulation operations increased by approximately $2.9 million in 1998, as compared to last year. During 1998, the Company sold the Rio Rancho Golf and Country Club and its 50% limited partnership interest in The Classic at West Palm Beach, a congregate care facility in Florida, and recognized an aggregate non-recurring gain of approximately $4.2 million, which amount is included in "Interest and other operations". Real estate commissions and selling expenses increased approximately 8%, primarily as a result of the increased volume, as well as from an increase in the number of projects open for sale. Real estate and corporate general and administrative expenses increased 10%, principally as a result of the Company's expansion into northern California commencing in September 1997. General and administrative costs of 11 the magazine circulation operations increased by approximately 4%, moderately lower than the revenue increase. Interest expense increased by approximately 9% in 1998, primarily due to higher average borrowings related to increased levels of receivables and inventories, partially offset by an increase in the amount of capitalized real estate interest. Year Ended April 30, 1997 Compared to Year Ended April 30, 1996 - --------------------------------------------------------------- Total revenues for the year ended April 30, 1997 decreased approximately 10% from 1996, reflecting a decrease in revenues from housing sales and magazine circulation operations which was partially offset by higher revenues from land sales. Revenues from housing sales decreased approximately 23% in 1997 from 1996, resulting from a corresponding decrease in housing unit deliveries from 775 to 599. This decrease resulted from several factors, including a lengthening of the regulatory approval process and delays in utility installations in Colorado and New Mexico with resultant delays in the opening of projects for sale during 1997, as well as a softer real estate market in New Mexico in 1997 compared to 1996. The average selling price of homes was comparable in both years ($114,600 in 1997 compared to $115,700 in 1996). The gross margin on housing sales decreased by approximately $6.4 million principally due to the decrease in both the number of homes closed and gross margin percentage. The average gross margin percentage declined from 17% to 13% due to a shift in the mix of projects from which homes were sold in 1997 compared to 1996. Revenues and related gross profit from land sales increased by approximately $8.0 million and $2.4 million, respectively, in 1997 from 1996, primarily due to an increase in the level of commercial and industrial lot sales. The average gross profit percentage on land sales decreased from 53% in 1996 to 42% in 1997 because of the mix of land sales between Colorado, Florida and New Mexico. Land sale revenues and related gross profits can vary from year to year as a result of the nature and timing of specific transactions, and are not an indication of amounts that may be expected to occur in future periods. As a result of these factors, gross profit from combined housing and land sales decreased by approximately $4.0 million in 1997 compared to the prior year. Revenue from magazine circulation operations declined approximately 5% from 1996 as a result of decreases in both Fulfillment Services and Distribution Services. Revenues in Fulfillment Services decreased about 5% due to lower activity levels resulting from client losses in prior periods which were only partially offset by additional revenues associated with new contracts. Revenues from Distribution Services decreased about 6% due to a lower volume of retail magazine sales in 1997, which resulted in part from a continuing trend of increasing magazine prices which began in 1996. In addition, a major realignment of industry relationships in the distribution of magazines developed during 1996 which led to a substantial reduction in the number of wholesalers which in some cases has allowed wholesalers to delay payments to Kable and which adversely impacted sales and profits. Operating expenses of magazine circulation operations decreased by approximately $1.8 million (4%) in 1997 from 1996, responding to and offsetting the revenue decrease discussed above. Operating expenses as a percentage of revenues amounted to 81% and 80% in 1997 and 1996, respectively. As a result of these factors, operating income of the magazine circulation operations decreased by approximately $1.2 million from 1996. Real estate commissions and selling expenses increased by approximately 7% over 1996 because of marketing costs associated with the start up of additional projects in Colorado. Real estate and corporate general and administrative expenses decreased by approximately 24% as a result of ongoing cost reduction measures adopted in response to the lower volume of activity in 1997. In addition, 1996 12 amounts included the accrual of amounts due under the terms of an employment contract with the Company's former Chief Executive Officer who left office during 1996 due to a disability. Interest expense increased by about 3% due to higher average borrowings for the magazine circulation operations and higher average interest rates. In addition, in 1997 the financial statements reflect a net benefit for income taxes in the amount of $5.6 million as a result of an adjustment of $6.25 million to the provision for Deferred Income Taxes following the conclusion of certain federal tax audits. See Note 9 to the consolidated financial statements. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- During the past several years, the Company has financed its operations from internally generated funds from home and land sales and magazine circulation operations, and from borrowings under its various lines-of-credit and construction loan agreements. Cash Flows From Financing Activities - ------------------------------------ At April 30, 1998, the Company had line-of-credit arrangements with several financial institutions collateralized by various assets which, subject to collateral availability, amounted to an aggregate borrowing availability of approximately $91.1 million. One of these lines (under which $37.0 million was available and against which approximately $35.5 million was outstanding as of April 30, 1998) is available for Kable News Company operations. Borrowings under this line-of-credit, which expires August 31, 2000, must be collateralized 125% or more by certain Kable accounts receivable. The line-of-credit agreement limits the payment of dividends by, and loans from, Kable to the Company. The other line-of-credit borrowings are used principally to support real estate construction in New Mexico, California and Colorado. These loans are collateralized by certain real estate assets and are subject to available collateral and various financial performance and other covenants. At April 30, 1998, the maximum available under real estate lines-of-credit totaled $54.1 million of which borrowings of $24.7 million were outstanding against collateral of an equal amount. Notes payable outstanding, including lines-of-credit discussed above, were $84.2 million at April 30, 1998, compared to $79.8 million at April 30, 1997, and $54.4 million at April 30, 1996. The increase at April 30, 1998 compared to prior years resulted from additional development and expansion activity in California and Colorado, as well as additional borrowings under Kable's line-of-credit due to increased accounts receivable balances. A subsidiary of the Company has also guaranteed approximately $9.8 million of mortgages and notes payable of certain joint ventures in which it is a participant. The Company anticipates timely renewing, extending or replacing those loan agreements under which loans become due in fiscal 1999. Cash Flows From Operating Activities - ------------------------------------ Inventories amounted to $99.9 million at April 30, 1998, compared to $92.5 million and $80 million at April 30, 1997 and 1996, respectively. The increase at April 30, 1998 is due to the acquisition and initial development of several real estate projects in connection with the Company's expansion into the California and Colorado markets as well as initial development on several new sites in New Mexico. This activity also contributed to the increase in accounts payable, deposits and accrued expenses at April 30, 1998 compared to prior periods. Receivables from magazine circulation operations increased by approximately $14.4 million compared to the prior year, resulting from the timing of monthly billings as well as from delays in payments 13 experienced by Kable from wholesalers, which Kable believes is partially a result of the industry consolidation issue referred to above. Cash Flows From Investing Activities - ------------------------------------ Capital expenditures decreased in 1998 from 1997, due to lower requirements of the Company's utility subsidiary. The Company believes that its available funds will be adequate to provide for anticipated capital expenditures. The Company believes that cash provided from operations together with existing cash balances, its lines-of-credit and development and construction loans will be sufficient to maintain liquidity at a satisfactory level. As discussed in Note 9 to the consolidated financial statements, the Company reached an agreement with the IRS during 1997 to resolve all issues resulting from the IRS's examination of tax years 1984 through 1989, and paid all amounts due. In addition, in 1997 the Company reclassified a portion of the previously established deferred tax liability, and established an equivalent liability for Taxes Payable (including anticipated interest thereon through the expected date of payment) in the amount of $13.9 million, which represents the estimated amounts due for tax years 1990 - 1995 based upon a tax treatment consistent with the matters resolved in 1997. Examinations of the Company's tax returns for the years 1990 - 1996 are presently in various stages of completion, and the exact amount of taxes and interest attributable to any given tax year will only be known and payable after the IRS completes its review and computes the amount of the adjustment for such year. The Company believes that with cash on hand, anticipated earnings and bank lines, it will be able to pay the amounts classified as Taxes Payable when they become due. For tax years beginning in 1996, the Company's taxes have been calculated in a manner consistent with the 1997 agreement with the IRS and tax regulations. Inflation - --------- Inflation has a long-term effect on the Company because increasing costs of land, materials and labor result in increasing sales prices of its homes. In general, these price increases have been commensurate with the general rate of inflation in the Company's housing markets and have not had a significant adverse effect on the sale of the Company's homes. A significant inflationary risk faced by the housing industry generally is that rising housing costs, including land and interest costs, will substantially outpace increases in the income of potential purchasers. In recent years, in the price ranges in which it sells homes, the Company has not found the risk to be a significant problem. Inflation has a lesser short-term effect on the Company because the Company generally negotiates fixed price contracts with its subcontractors and material suppliers for the construction of its homes. These prices usually are applicable for a specified number of residential buildings or for a time period of approximately six months. Year 2000 - --------- The Company utilizes a number of software systems in conjunction with its real estate and magazine circulation operations. The Company has and will continue to make certain investments in its software systems and applications to ensure the Company is Year 2000 compliant. The financial impact of becoming Year 2000 compliant has not been and is not expected to be material to the Company's financial position or results of operations in a given year. 14 Recent Accounting Pronouncements - -------------------------------- In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. The Company will adopt SFAS No. 130 in its fiscal year 1999. In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information", which changes the way public companies report information about operating segments. SFAS No. 131, which is based on the management approach to segment reporting, establishes requirements to report selected segment information quarterly, and to report entity-wide disclosures about products and services, major customers, and the material countries in which the entity holds assets and reports revenues. The Company will adopt SFAS No. 131 in its fiscal year 1999. Item 8. Financial Statements and Supplementary Data - ------- ------------------------------------------- Report of Independent Public Accountants ---------------------------------------- To the Shareholders and Board of Directors of AMREP Corporation: We have audited the accompanying consolidated balance sheets of AMREP Corporation and subsidiaries as of April 30, 1998 and 1997, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended April 30, 1998. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AMREP Corporation and subsidiaries as of April 30, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 1998 in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II accompanying the financial statements is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Albuquerque, New Mexico June 26, 1998 15 AMREP CORPORATION AND SUBSIDIARIES ---------------------------------- CONSOLIDATED BALANCE SHEETS (Page 1 of 2) ----------------------------------------- APRIL 30, 1998 AND 1997 ----------------------- (Dollar amounts in thousands) ASSETS 1998 1997 ------ ---------- ---------- CASH AND CASH EQUIVALENTS $ 20,517 $ 16,178 RECEIVABLES, net: Real estate operations 11,107 10,486 Magazine circulation operations 57,408 43,015 REAL ESTATE INVENTORY 99,904 92,515 OTHER REAL ESTATE INVESTMENTS 1,497 4,893 PROPERTY, PLANT AND EQUIPMENT, at cost, net of accumulated depreciation and amortization 17,658 18,974 OTHER ASSETS 15,473 14,059 EXCESS OF COST OF SUBSIDIARIES OVER NET ASSETS ACQUIRED, net 6,204 5,191 ---------- ---------- TOTAL ASSETS $ 229,768 $ 205,311 ========== ========== The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 16 AMREP CORPORATION AND SUBSIDIARIES ---------------------------------- CONSOLIDATED BALANCE SHEETS (Page 2 of 2) ----------------------------------------- APRIL 30, 1998 AND 1997 ----------------------- (Dollar amounts in thousands, except par value) LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997 ------------------------------------ ----------- ---------- ACCOUNTS PAYABLE, DEPOSITS AND ACCRUED EXPENSES $ 40,352 $ 30,081 NOTES PAYABLE: Amounts due within one year 28,511 24,833 Amounts subsequently due 55,737 54,991 TAXES PAYABLE: Amounts due within one year 4,616 512 Amounts subsequently due (including interest) 13,923 13,923 DEFERRED INCOME TAXES 2,589 5,137 TOTAL LIABILITIES 145,728 129,477 COMMITMENTS AND CONTINGENCIES (Notes 10 and 11) SHAREHOLDERS' EQUITY: Common stock, $.10 par value; shares authorized--20,000,000; shares issued --7,398,677 in 1998 and 1997 740 740 Capital contributed in excess of par value 44,928 44,928 Retained earnings 38,552 30,346 Treasury stock, at cost; 30,027 shares (180) (180) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 84,040 75,834 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 229,768 $ 205,311 ========== ========== The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 17 AMREP CORPORATION AND SUBSIDIARIES ---------------------------------- CONSOLIDATED STATEMENTS OF INCOME --------------------------------- (Amounts in thousands, except per share amounts) Year Ended April 30, ------------------------------------ 1998 1997 1996 --------- --------- --------- REVENUES: Real estate operations- Home and condominium sales $ 79,730 $ 68,647 $ 89,697 Land sales 25,102 16,891 8,901 --------- --------- --------- 104,832 85,538 98,598 Magazine circulation operations 56,939 54,152 57,149 Interest and other operations 9,597 6,699 6,055 --------- --------- -------- 171,368 146,389 161,802 --------- --------- -------- COSTS AND EXPENSES: Real estate cost of sales 82,660 69,418 78,401 Operating expenses- Magazine circulation operations 43,835 43,966 45,785 Real estate commissions and selling 7,424 6,850 6,373 Other operations 4,680 6,635 6,376 General and administrative- Real estate operations and corporate 8,031 7,322 9,573 Magazine circulation operations 6,657 6,428 6,728 Interest, net 4,404 4,050 3,925 --------- -------- -------- 157,691 144,669 157,161 --------- -------- -------- INCOME BEFORE INCOME TAXES 13,677 1,720 4,641 PROVISION (BENEFIT) FOR INCOME TAXES 5,471 (5,562) 1,856 --------- --------- --------- NET INCOME $ 8,206 $ 7,282 $ 2,785 ========= ========= ========= EARNINGS PER SHARE - BASIC AND DILUTED $ 1.11 $ 0.99 $ 0.38 ========= ========= ========= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 7,369 7,369 7,384 ========= ========= ========= The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 18 AMREP CORPORATION AND SUBSIDIARIES ---------------------------------- CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ----------------------------------------------- (Amounts in thousands) Capital Contributed Common Stock In Excess Treasury ---------------- of Retained Stock at Shares Amount Par Value Earnings Cost Total ------ ------ --------- --------- -------- -------- BALANCE, April 30, 1995 7,394 $ 739 $ 44,903 $ 20,279 $ - $ 65,921 Net income - - - 2,785 - 2,785 Exercise of stock options 5 1 25 - - 26 Treasury stock purchased - - - - (180) (180) ----- ------ --------- --------- ------- -------- BALANCE, April 30, 1996 7,399 740 44,928 23,064 (180) 68,552 Net income - - - 7,282 - 7,282 ----- ------ --------- --------- ------- -------- BALANCE, April 30, 1997 7,399 740 44,928 30,346 (180) 75,834 Net income - - - 8,206 - 8,206 ----- ------ --------- --------- ------- -------- BALANCE, April 30, 1998 7,399 $ 740 $ 44,928 $ 38,552 $ (180) $ 84,040 ===== ====== ========= ========= ======= ========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 19 AMREP CORPORATION AND SUBSIDIARIES ----------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (Amounts in thousands) Year Ended April 30, -------------------------------- 1998 1997 1996 --------- ---------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 8,206 $ 7,282 $ 2,785 Adjustments to reconcile net income to net cash (used) provided by operating activities- Depreciation and amortization 3,259 2,743 2,309 Gain from exchange of real estate inventory - (579) - for accounts payable Changes in assets and liabilities, excluding the effect of acquisition- Receivables - net (14,753) (3,896) 250 Real estate inventory (7,389) (12,673) 1,257 Other real estate investments 3,396 3,318 3,411 Other assets (1,777) (757) (223) Accounts payable, deposits and accrued expenses 10,224 168 (978) Taxes payable 4,104 12,135 1,943 Deferred income taxes (2,548) (20,703) (680) --------- -------- -------- Net cash (used) provided by operating activities 2,722 (12,962) 10,074 --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (1,998) (3,900) (5,358) Book value of property, plant and equipment sold 1,393 - 861 Amount paid for acquisition (2,202) - - --------- -------- -------- Net cash used by investing activities (2,807) (3,900) (4,497) --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from debt financing 55,212 66,225 28,226 Principal debt payments (50,788) (40,792) (35,488) Proceeds from the sale of stock and exercise of stock options - - 26 --------- -------- -------- Net cash provided (used) by financing activities 4,424 25,433 (7,236) --------- -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,339 8,571 (1,659) CASH AND CASH EQUIVALENTS, beginning of year 16,178 7,607 9,266 --------- -------- -------- CASH AND CASH EQUIVALENTS, end of year $ 20,517 $ 16,178 $ 7,607 ========= ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid - net of amounts capitalized $ 4,093 $ 3,903 $ 3,634 ========= ======== ======== Income taxes paid $ 3,952 $ 2,673 $ 553 ========= ======== ======== Acquisition of real estate assets: Identifiable assets acquired $ 1,168 $ - $ - Excess of cost over net assets acquired 1,081 - - Liabilities assumed (47) - - --------- -------- -------- Amount paid for acquisition $ 2,202 $ - $ - ========= ======== ======== The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 20 AMREP CORPORATION AND SUBSIDIARIES ---------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (1) SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES: ------------------------------------------------------------------- Principles of consolidation --------------------------- The consolidated financial statements include the accounts of AMREP Corporation ("Company"), an Oklahoma corporation, and its subsidiaries. The Company, through its principal subsidiaries, AMREP Southwest Inc. and Kable News Company, Inc. ("Kable") , is a regional builder of single-family homes and land developer with operations throughout the western United States, with principal operations in New Mexico, California and Colorado, and also distributes magazines to wholesalers and provides subscription fulfillment and other services to publishers. The Company's investments in partnerships (and similar entities), in which the Company's interest is 50% or less, or in which the Company does not effectively control the joint venture, are accounted for by the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated balance sheets are presented in an unclassified format, since the Company operates in the real estate industry and its operating cycle is greater than one year. Home and condominium sales -------------------------- Sales of homes and condominiums and related costs and expenses are recognized when title and other attributes of ownership have been conveyed to the buyer by means of a closing. Land sales ---------- Land sales are recognized when the parties are bound by the terms of the contract, all consideration (including adequate cash) has been exchanged and title and other attributes of ownership have been conveyed to the buyer by means of a closing. Profit is recorded either in its entirety or on the installment method depending upon, among other things, the ability to estimate the collectibility of the unpaid sales price. In the event the buyer defaults on his obligation, the property is taken back into inventory at its receivable balance, net of any deferred profit, but not in excess of fair market value less estimated costs to sell. Magazine circulation operations ------------------------------- Revenues from distribution of periodicals and subscription fulfillment activities represent commissions earned from the distribution of publications for client publishers and fees earned from subscription fulfillment activities. Magazine distribution revenues are recorded at the time the publications go on sale and subscription revenues are recorded when earned. The publications generally are sold on a fully returnable basis, which is in accordance with prevailing trade practice. All publications are billed after shipment, however, since they are fully returnable if not ultimately sold to consumers, the Company provides for estimated returns by charges to income which are based on sales experience. Cash and cash equivalents ------------------------- Cash equivalents consist of short term, highly liquid investments which have an original maturity of ninety days or less, and that are readily convertible into cash. 21 Real estate inventory --------------------- Homes and condominiums completed or under construction are stated at the lower of accumulated cost, including interest costs capitalized during construction, or fair value. Land and improvements are stated at the lower of accumulated cost (except in certain instances where property is repossessed as discussed above under "Land sales") which includes the development cost, certain amenities, capitalized interest and capitalized real estate taxes, or fair value. Property, plant and equipment ----------------------------- Items capitalized as part of property, plant and equipment are recorded at cost. Expenditures for maintenance and repair and minor renewals are charged to expense as incurred, while those expenditures which improve or extend the useful life of existing assets are capitalized. Upon sale or other disposition of assets, their cost and the related accumulated depreciation or amortization are removed from the accounts and the resulting gain or loss, if any, is reflected in operations. Depreciation and amortization of property, plant and equipment are provided principally by the straight-line method at various rates calculated to amortize the book values of the respective assets over their estimated useful lives which range from 5 to 50 years for utility plant and equipment and 3 to 40 years for all other property, plant and equipment. Excess of cost of subsidiaries over net assets acquired ------------------------------------------------------- The excess of amounts paid for business acquisitions over the net fair value of the assets acquired and liabilities assumed is carried as an asset. The portion of this amount that arose in connection with the acquisition of Kable ($5,191,000) , is not being amortized to operations since this acquisition was made prior to the effective date of APB Opinion No. 17, and management is of the opinion that there has been no diminution of value. The remaining $1,081,000 arose in connection with the acquisition of certain real estate assets during 1998, and is being amortized over ten years. Amortization expense was $68,000 in 1998. Income taxes ------------ Income taxes are accounted for in accordance with SFAS No. 109 "Accounting for Income Taxes". Under SFAS No. 109, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured by using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to reverse. Earnings per share ------------------ Basic earnings per share outstanding is based on the weighted average number of common shares outstanding during each year. Diluted earnings per share is computed assuming the issuance of common shares for all dilutive stock options outstanding (using the treasury stock method) during the reporting period. SFAS No. 128, "Earnings Per Share", requires restatement of all prior period earnings per share information. As there are no differences in the calculations of earnings per share for prior periods, no restatement is required. 22 Stock options ------------- The Company grants stock options to certain employees and directors for a fixed number of shares with an exercise price not less than the fair value of the shares at the date of grant. The Company accounts for the stock option grants in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees". In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123, "Accounting for Stock-Based Compensation". The Company has adopted the disclosure-only provisions of SFAS No. 123 (see Note 8). Impairment of long-lived assets ------------------------------- Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", established standards for the recognition and measurement of impairment losses on long-lived assets. The Company adopted SFAS No. 121 in the first quarter of fiscal 1997. The adoption did not result in the recognition of an impairment loss. Management's estimates and assumptions -------------------------------------- The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Recent accounting pronouncements -------------------------------- In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. The Company will adopt SFAS No. 130 in its fiscal year 1999. In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information", which changes the way public companies report information about operating segments. SFAS No. 131, which is based on the management approach to segment reporting, establishes requirements to report selected segment information quarterly, and to report entity-wide disclosures about products and services, major customers, and the material countries in which the entity holds assets and reports revenues. The Company will adopt SFAS No. 131 in its fiscal year 1999. Financial statement presentation -------------------------------- Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the 1998 presentation. 23 (2) RECEIVABLES: ------------ Receivables consist of: April 30, ----------------------- 1998 1997 --------- --------- (Thousands) Real estate operations- Mortgage and other receivables $ 11,011 $ 10,658 Allowance for doubtful accounts (291) (690) --------- --------- 10,720 9,968 Mortgages securing collateralized mortgage obligations (see Note 7) 387 518 --------- --------- $ 11,107 $ 10,486 ========= ========= Magazine circulation operations- Accounts receivable (maturing within one year) $ 113,649 $ 96,337 Allowances for- Estimated returns (54,738) (52,059) Doubtful accounts (1,503) (1,263) --------- --------- $ 57,408 $ 43,015 ========= ========= Mortgage and other receivables bear interest at rates ranging from 8.0% to 12.0% and result primarily from land sales. Magazine circulation operations receivables collateralize a general purpose line-of-credit utilized for the magazine circulation operations (see Note 7). The Company extends credit to various companies in the real estate and magazine circulation industries which may be affected by changes in economic or other external conditions. Financial instruments that may potentially subject the Company to a significant concentration of risk primarily consist of trade accounts receivable from wholesalers in the magazine distribution industry. The Company's policy is to manage its exposure to credit risk through credit approvals and limits and, where appropriate, to be secured by collateral, and to provide an allowance for doubtful accounts for potential losses based upon factors surrounding the credit risk of specific customers, historical trends and other financial information. Maturities of principal on real estate receivables, exclusive of mortgages securing collateralized mortgage obligations, at April 30, 1998 are as follows (in thousands): 1999 - $8,422; 2000 - $1,053; 2001 - - $226; 2002 - $24; 2003 - $166; 2004 and thereafter - $1,120. (3) REAL ESTATE INVENTORY: ---------------------- Real estate inventory consists of: April 30, ---------------------- 1998 1997 --------- --------- (Thousands) Land and improvements held for sale or development, net of valuation allowance of $1,880 at April 30, 1998 and $2,459 at April 30, 1997 $ 63,839 $ 69,438 Homes and condominiums- Land and improvements 15,037 7,930 Construction costs 21,028 15,147 --------- --------- $ 99,904 $ 92,515 ========= ========= 24 Accumulated capitalized interest costs included in real estate inventory at April 30, 1998 and 1997 were $5,716,000 and $4,962,000, respectively. Interest costs capitalized during 1998, 1997 and 1996 were $3,226,000, $2,543,000 and $1,980,000, respectively. Accumulated capitalized real estate taxes included in the inventory of land and improvements at April 30, 1998 and 1997 were $5,635,000 and $5,724,000, respectively. Real estate taxes capitalized during 1998, 1997 and 1996 were $165,000, $157,000 and $166,000, respectively. Previously capitalized interest costs and real estate taxes charged to real estate cost of sales were $2,726,000, $1,741,000 and $1,272,000 in 1998, 1997 and 1996, respectively. (4) OTHER REAL ESTATE INVESTMENTS: ------------------------------ Investments in other real estate projects principally consist of the following: April 30, -------------------- 1998 1997 --------- -------- (Thousands) Unconsolidated joint ventures $ 766 $ - Consolidated joint venture 731 2,540 The Classic limited partnership interest - 2,353 --------- -------- $ 1,497 $ 4,893 ========= ======== Unconsolidated Joint Ventures ----------------------------- The Company participates in a number of joint ventures in which it does not have management control. These joint ventures are primarily engaged in the development, construction and sale of single-family or multi-family residential properties. Combined condensed financial information concerning the Company's unconsolidated joint venture activities follows (in thousands): April 30, -------------------- 1998 1997 --------- -------- (Thousands) Cash $ 83 $ 200 Receivables 1,090 - Inventories 8,506 - --------- -------- Total Assets $ 9,679 $ 200 ========= ======== Mortgages and notes payable $ 8,100 $ - Other liabilities 755 - Equity of: The Company 766 100 Others 58 100 --------- -------- Total Liabilities and Equity $ 9,679 $ 200 ========= ======== 25 The joint ventures finance land and inventory investments primarily through a variety of borrowing arrangements. A subsidiary of the Company has guaranteed these mortgages payable, as well as an additional $1,743,000 of mortgage debt on a project which the Company is a non-equity participant. Year Ended April 30, ---------------------- 1998 1997 --------- --------- (Thousands) Revenues $ 5,729 $ 16,273 Cost of sales 5,680 15,277 Other expenses - net 472 - --------- --------- Total pretax income (loss) $ (423) $ 996 ========= ========= The Company's share of pretax income (loss)$ (100) $ 498 ========= ========= The Company's share of 1998 pretax loss includes management fees earned from unconsolidated joint ventures. Consolidated Joint Venture -------------------------- A wholly-owned subsidiary of the Company has a 50% general partnership interest in a real estate project which was formed to develop and market a 380 unit condominium housing project in Freehold, New Jersey. This subsidiary also has a 75% ownership interest in a related construction company. As a result, the financial statements of these entities are included in the Company's consolidated financial statements. The investment in this asset at April 30, 1998 and 1997, principally represents net inventories; all project financing has been repaid. As of April 30, 1998, this project is substantially complete. Accumulated capitalized interest costs included in this project at April 30, 1998 and 1997 were $241,000 and $509,000, respectively. Interest costs capitalized during 1998, 1997 and 1996 were $454,000, $463,000 and $442,000, respectively. Previously capitalized interest costs charged to real estate cost of sales were $722,000, $918,000 and $1,211,000 in 1998, 1997 and 1996, respectively. The Classic ----------- A subsidiary of the Company has been a 50% limited partner in a 300 unit congregate living facility in West Palm Beach, Florida, which was completed in 1991. During 1998, this facility was sold to an unrelated party, and the Company recognized a gain of approximately $3.0 million upon the sale of this asset and distribution of cash to the Company. This gain is included in "Interest and other operations" in the accompanying consolidated statements of income. 26 (5) PROPERTY, PLANT AND EQUIPMENT: ------------------------------ Property, plant and equipment consists of: April 30, ---------------------- 1998 1997 --------- --------- (Thousands) Land, buildings and improvements $ 9,705 $ 11,461 Furniture and fixtures 11,594 11,914 Utility plant and equipment 8,645 7,506 Other 974 1,625 --------- --------- 30,918 32,506 Accumulated depreciation and amortization (13,260) (13,532) --------- --------- $ 17,658 $ 18,974 ========= ========= Depreciation charged to operations amounted to $1,940,000, $1,816,000 and $1,630,000 in 1998, 1997 and 1996, respectively. (6) OTHER ASSETS: ------------- Other assets are comprised of: April 30, ------------------------ 1998 1997 ----------- ----------- (Thousands) Prepaid expenses and other deferred charges, net $ 7,053 $ 6,325 Purchased magazine distribution contracts, net of accumulated amortization of $2,033 and $1,605 in 1998 and 1997, respectively 2,246 2,674 Security deposits 2,962 2,480 Escrow monies and collateral deposits 833 930 Real estate advances and deposits 754 - Other 1,625 1,650 --------- --------- $ 15,473 $ 14,059 ========= ========= Amortization related to deferred charges and distribution contracts was $1,251,000, $913,000 and $679,000 for the years ended April 30, 1998, 1997 and 1996, respectively. 27 (7) DEBT FINANCING: Debt financing consists of: April 30, ---------------------- 1998 1997 --------- --------- (Thousands) Notes payable - Line-of-credit borrowings - Real estate operations and other $ 24,659 $ 27,146 Magazine circulation operations 35,552 34,377 Mortgages and other notes payable 22,923 16,258 Fixed rate note - 564 Utility note payable 773 950 Collateralized mortgage obligations (see Note 2) 341 529 --------- --------- $ 84,248 $ 79,824 ========= ========= Maturities of principal on notes payable at April 30, 1998 are as follows (in thousands): 1999 - $28,511; 2000 - $9,735; 2001 - $40,431; 2002 - $3,090; 2003 - $133; 2004 and thereafter - $2,348. Line-of-credit borrowings ------------------------- The Company has several loan arrangements with various financial institutions to support real estate operations. These loans have a total maximum amount available of approximately $54.1 million of which borrowings of $24.7 million were outstanding against collateral of an equal amount as of April 30, 1998. These borrowings, which have maturities ranging from fiscal 1999 through fiscal 2002, bear interest ranging from the prime rate (8.5% at April 30, 1998) plus .75% to 1.75% (with a weighted average effective rate of interest of approximately 9.6% at April 30, 1998), are collateralized by certain real estate assets and are subject to certain financial performance and other covenants. The Company was not in compliance with a performance covenant on one loan at April 30, 1998, for which it has obtained a waiver. The president of one of the Company's subsidiaries, who is also a member of the Board of Directors of the Company, serves as a member of the board of directors of the financial institution from which $22.6 million of these lines-of-credit were obtained. At April 30, 1998, the Company had drawn $35.5 million against an additional $37.0 million line-of-credit arrangement which is generally restricted to magazine circulation operations. Borrowings under this line-of-credit agreement bear interest at the prime rate plus .5% or, at the Company's option, at LIBOR plus 2.75%, and are collateralized by accounts receivable arising from magazine circulation operations. This agreement also contains various financial performance and other restrictive covenants which, among other things, limit the payment of dividends, annual capital expenditures and loans from the magazine circulation subsidiary to the Company. Borrowings pursuant to this line-of-credit agreement are due August 31, 2000. The Company anticipates renewing, extending or replacing certain of these loan agreements as they become due in fiscal 1999. Mortgages and other notes payable --------------------------------- Mortgages and other notes payable had interest rates ranging from 6.4% to 11.5% at April 30, 1998, and are primarily collateralized by property, plant and equipment and certain land inventory. These borrowings have maturities ranging from fiscal 1999 through fiscal 2013. 28 Utility note payable -------------------- The Company has a note in the amount of $773,000 at April 30, 1998, maturing November 1, 2001 with monthly installments of principal and interest at 1.5% above the prime rate. This note is collateralized by certain utility plant and equipment and other utility assets. Collateralized mortgage obligations ----------------------------------- Collateralized mortgage obligations (CMO's), with original principal balances aggregating $13,750,000, were issued in fiscal year 1986 through 1988, through an unrelated financial intermediary. Interest rates range from 8.0% to 13.9% per annum, with stated maturities, assuming no prepayments, from January, 2015 to October, 2017. Actual maturities vary to the extent of principal prepayments on the mortgage loans collateralizing the CMO's. These CMO's are collateralized only by the principal and the accrued interest receivable (see Note 2) of the related mortgage loans. (8) BENEFIT PLANS: -------------- Stock option plans ------------------ Under the Company's 1992 Stock Option Plan, 311,750 shares are reserved for issuance to officers and other key employees. Options may be granted in such amounts, at such times, and with such exercise prices as the stock option committee may determine. The Non-Employee Directors Option Plan has 42,000 shares reserved for issuance and provides for an automatic issuance of options to purchase 500 shares of common stock to each non-employee director annually at the fair market value at the date of grant. The options are exercisable in one year and expire five years after the date of grant. The 1982 Incentive Option Plan expired during fiscal year 1996. A summary of activity in the Company's stock option plans is as follows: Year Ended April 30, ------------------------------------- 1998 1997 1996 ----------- ----------- ----------- Common stock options outstanding at beginning of year 85,500 121,000 225,600 Granted at $5.19 to $6.59 per 42,500 3,500 3,000 share Options exercised at $4.75 to $5.88 per share - - (5,000) Expired or cancelled (77,500) (39,000) (102,600) ----------- ----------- ----------- Common stock options outstanding at end of year 50,500 85,500 121,000 =========== =========== =========== Available for future grant at year end 303,250 272,250 201,750 =========== =========== =========== At April 30, 1998, options to purchase 40,000 shares under the 1992 Stock Option Plan and 10,500 shares under the Non-Employee Directors Option Plan were outstanding at exercise prices ranging from $5.19 to $8.88 per share, and 271,750 and 31,500 shares were available for future grant, respectively. Outstanding options heretofore granted are exercisable over a three to four year period beginning one year from date of grant. As of April 30, 1998, 8,000 options were exercisable under the Company's stock option plans. Stock options granted have been issued at the fair market value of the Company's stock at the date of grant. Accordingly, no compensation expense has been recognized with respect to the stock option 29 plans. Further, the amount of additional compensation disclosable under the disclosure-only provisions of SFAS No. 123 is immaterial for all periods presented. Savings plans ------------- The Company has two savings plans to which the Company makes contributions. The plans were amended during 1998 to provide for standard contributions of 33.3% of eligible employees' defined contributions up to a maximum of 2% of such employees' compensation. Additional amounts may be contributed with the approval of the Company's Board of Directors. The Company's contributions to the plans amounted to approximately $268,000, $129,000 and $142,000, in 1998, 1997 and 1996, respectively. Retirement plans ---------------- The Company has two retirement plans which cover substantially all full-time employees. During fiscal 1998, the Company's pension plans were amended to revise the form of benefit payment determination from that of a defined benefit plan formula based upon length of service and a percentage of qualifying compensation to one based upon a percentage of the employee's annual salary. In 1998, 1997 and 1996, the Company contributed $231,000, $1,190,000 and $1,077,000, respectively, to the plans. Assets are invested primarily in United States Treasury obligations, equity and debt securities and money market funds. Net periodic pension cost for 1998, 1997 and 1996 was comprised of the following components: Year Ended April 30, ------------------------------------ 1998 1997 1996 --------- --------- --------- (Thousands) Service cost - benefits earned during the period $ 994 $ 1,156 $ 1,045 Interest cost on projected benefit obligation 1,716 1,720 1,593 Actual return on assets (4,820) (1,817) (2,792) Net amortization and deferral 2,694 (187) 1,134 --------- --------- --------- Net periodic pension cost $ 584 $ 872 $ 980 ========= ========= ========= Assumptions used in the accounting were: Year Ended April 30, ------------------------------------------ 1998 1997 1996 ------------- ------------ ------------- Discount rates 7.25% 8.00% 8.00% Rates of increase in compensation levels N/A 4.50-5.00% 4.50-5.00% Expected long-term rate of return on assets 8.00-9.00% 8.00-9.00% 8.00-9.00% 30 The following table sets forth the plans' funded status and amounts recognized in the Company's consolidated balance sheets: April 30, -------------------- 1998 1997 -------- -------- (Thousands) Actuarial present value of benefit obligations: Vested benefit obligation $ 21,688 $ 18,312 ======== ======== Accumulated benefit obligation $ 22,471 $ 19,504 ======== ======== Projected benefit obligation $ 22,471 $ 23,729 Assets at fair value 27,133 23,283 -------- -------- Excess of projected benefit obligation over assets 4,662 (446) Unrecognized net loss 14 1,744 Unrecognized prior service cost benefit (3,779) (48) Unrecognized net transition liability 52 52 -------- -------- Prepaid pension cost $ 949 $ 1,302 ======== ======== (9) INCOME TAXES: ------------- The provision (benefit) for income taxes consists of the following: Year Ended April 30, ----------------------------------- 1998 1997 1996 --------- --------- --------- (Thousands) Current: Federal $ 6,925 $ 13,187 $ 2,414 State and local 1,094 1,954 123 --------- --------- --------- 8,019 15,141 2,537 --------- --------- --------- Deferred: Federal (2,177) (18,753) (582) State and local (371) (1,950) (99) --------- --------- --------- (2,548) (20,703) (681) --------- --------- --------- Total provision (benefit) for income taxes $ 5,471 $ (5,562) $ 1,856 ========= ========= ========= 31 The components of the net deferred income tax liability are as follows: April 30, ------------------------ 1998 1997 --------- --------- (Thousands) Deferred income tax assets- State tax loss carryforwards $ 4,716 $ 4,061 Real estate inventory valuation 1,127 1,426 Interest payable on tax settlements 2,229 2,233 Real estate basis differences 508 531 Reserve for periodicals and paperbacks 596 (228) Differences related to timing of partnership income 871 (1,819) --------- --------- Total deferred income tax assets 10,047 6,204 --------- --------- Deferred income tax liabilities- Gain on partnership restructuring (473) (473) Depreciable assets (2,563) (1,513) Expenses capitalized for financial reporting purposes, expensed for tax (2,518) (2,234) Other (2,976) (3,998) --------- --------- Total deferred income tax liability (8,530) (8,218) --------- --------- Valuation allowance for realization of state tax loss carryforwards (4,106) (3,123) --------- --------- Net deferred income tax liability $ (2,589) $ (5,137) ========= ========= The following table reconciles taxes computed at the U.S. federal statutory income tax rate to the Company's actual tax provision (benefit): Year Ended April 30, ------------------------------------ 1998 1997 1996 --------- --------- --------- (Thousands) Computed tax provision at statutory rate $ 4,787 $ 585 $ 1,578 Increase (reduction) in tax resulting from: State income taxes, net of federal income tax effect 809 117 269 Net reduction in deferred tax liability as a result of IRS settlement - (6,250) - Other (125) (14) 9 --------- --------- --------- Actual tax provision (benefit) $ 5,471 $ (5,562) $ 1,856 ========= ========= ========= During 1997, the Company reached an agreement with the Internal Revenue Service ("IRS") which resolved all outstanding issues resulting from the IRS's audit of the years 1984 through 1989. As a result, the Company paid an assessment of approximately $200,000 for federal taxes, and anticipates no significant further payments for either state or federal taxes (including interest) for those years. Furthermore, the Company adjusted Deferred Income Taxes, pursuant to SFAS No. 109, to reflect a reduction in taxes ultimately expected to be payable and a reduction in federal income tax rates for deferred taxes established at rates in effect prior to 1987. In addition, the Company determined the 32 amount of additional taxes that would be due pursuant to IRS examinations for the years 1990 through 1995 in order to achieve a tax treatment consistent with the 1997 agreement with the IRS with respect to the years 1984 through 1989. Accordingly, in 1997 the Company reclassified a portion of the deferred tax liability which had been established in prior years with regard to the reserve for periodicals and paperbacks in the amount of $13.9 million, by establishing an equivalent liability for income taxes (including anticipated interest thereon through the expected date of payment) which are expected to be paid at varying times over the next several years. (10) COMMITMENTS AND CONTINGENCIES: ------------------------------ Revenue agent review -------------------- The IRS is in the process of reviewing the Company's tax returns for the years 1990 through 1996. While the Company cannot be totally certain of the results of these audits, it has made certain reclassifications in 1997 between Deferred Income Taxes and Taxes Payable, as discussed in Note 9, to reflect adjustments similar to those agreed upon with the IRS in reaching agreement on the 1984 through 1989 tax returns with regard to the reserve for periodicals and paperbacks. Noncancellable leases --------------------- The Company is obligated under long-term noncancellable leases for equipment and various real estate properties. Certain real estate leases provide that the Company will pay for taxes, maintenance and insurance costs and include renewal options. Rental expense for 1998, 1997 and 1996 was approximately $5,195,000, $5,215,000 and $5,195,000, respectively. The approximate minimum rental commitments for years subsequent to April 30, 1998, are as follows (in thousands): 1999 - $4,147; 2000 - $2,338; 2001 - $1,600; 2002 - $1,143; 2003 - $901; thereafter - $1,143; and the total future minimum rental payments - $11,272. Rio Rancho lot exchanges ------------------------ In connection with homesite sales at Rio Rancho, New Mexico, made prior to 1977, if water, electric and telephone utilities have not reached the lot site when a purchaser is ready to build a home, the Company is obligated to exchange a lot in an area then serviced by such utilities for a lot of the purchaser, without cost to the purchaser. The Company does not incur significant costs related to the exchange of lots. (11) LITIGATION: ----------- The Company and/or its subsidiaries are involved in various claims and legal actions incident to their operations, which in the opinion of management, based upon advice of counsel, will not materially affect the consolidated financial position or results of operations of the Company and its subsidiaries. (12) FAIR VALUE OF FINANCIAL INSTRUMENTS: ------------------------------------ The estimated fair value of financial instruments is determined by reference to various market data and other valuation techniques as appropriate. The carrying amounts of cash and cash equivalents and trade payables approximate fair value because of the short maturity of these financial instruments. Debt that bears variable interest rates indexed to prime or LIBOR also approximates fair value as it reprices when market interest rates changes. The estimated fair value of the Company's long-term, fixed-rate mortgage receivables is $7.4 million, versus a carrying amount of $7.5 million, and $5.7 million versus $6.3 million, respectively, at April 30, 1998 and April 30, 1997. The estimated fair value of the Company's long-term, fixed-rate notes payable is $15.8 million, which equals the carrying amount as of April 30, 1998, and $8.0 million versus a carrying amount of $8.1 million as of April 30, 1997. 33 (13) PROPOSED SPIN-OFF: ------------------ In May 1998, the Company filed a request for a ruling from the IRS in order to enable it to spin-off its real estate operations to its shareholders on a tax free basis. A favorable response from the IRS is by no means certain, and there are a number of other conditions to the implementation of the spin-off. If these prerequisites are met, the Company anticipates requesting shareholder approval for a pro rata distribution of the stock of AMREP Southwest Inc. to its shareholders in the second half of fiscal 1999. There is no effect on the Company's financial statements at this time. If and when (i) a favorable response is received from the IRS; (ii) the Company's Board of Directors approves submitting the matter to a vote for shareholder approval; and (iii) it appears probable that shareholders will approve the matter, the Company's financial statements would be restated to present real estate operations as a discontinued operations for all periods presented. There would be no effect on reported net income. (14) INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT INDUSTRY SEGMENTS: ------------------------------------------------------- The Company reports information with respect to industry segments in accordance with SFAS No. 14. The Company operates principally in two industries, real estate and magazine circulation operations. Real estate operations involve the construction and sale of single-family homes, condominiums and other projects, as well as the subdivision of large tracts of land for sale to individuals, builders and others. Magazine circulation operations involve national and international distribution of periodicals and paperback books, and subscription fulfillment and related activities on behalf of various publishers and other clients. Total revenue by industry includes revenues from unaffiliated customers as reported in the accompanying consolidated statements of income. Operating income represents total revenue less operating expenses. In computing operating income, general corporate expenses, interest expense and income taxes are excluded. Selling expense is allocated between industry segments based on the Company's evaluation of the work performed for each segment. Identifiable assets by industry are those assets that are used in the Company's operations in each industry segment. 34 The following schedules set forth summarized data relative to the industry segments: Real Magazine Estate Circulation Other Operations Operations Operations Corporate Eliminations Consolidated ---------- ---------- ---------- --------- ------------ ------------ 1998 (Thousands): Net revenues from unaffiliated customers $ 113,472 $ 56,939 $ 957 $ - $ - $ 171,368 Intersegment revenues - - 18 - (18) - --------- --------- --------- -------- --------- --------- Total revenue $ 113,472 $ 56,939 $ 975 $ - $ (18) $ 171,368 ========= ========= ========= ======== ========= ========= Operating income $ 14,189 $ 6,447 $ 160 $ - $ (18) $ 20,778 ========= ========= ========= ======== ========= Corporate expenses (2,697) Interest (4,404) --------- Income before provision for income taxes $ 13,677 ========= Identifiable assets at April 30, 1998 $ 140,873 $ 82,321 $ 177 $ 6,397 $ - $ 229,768 ========= ========= ========= ======== ========= ========= Identifiable depreciation $ 597 $ 1,316 $ 3 $ 24 $ - $ 1,940 ========= ========= ========= ======== ========= ========= Identifiable capital expenditures $ 1,254 $ 744 $ - $ - $ - $ 1,998 ========= ========= ========= ======== ========= ========= 1997 (Thousands): Net revenues from unaffiliated customers $ 91,250 $ 54,152 $ 987 $ - $ - $ 146,389 Intersegment revenues - - 72 - (72) - --------- --------- --------- --------- --------- --------- Total revenue $ 91,250 $ 54,152 $ 1,059 $ - $ (72) $ 146,389 ========= ========= ========= ========= ========= ========= Operating income $ 4,548 $ 3,758 $ 133 $ - $ (72) $ 8,367 ========= ========= ========= ========= ========= Corporate expenses (2,597) Interest (4,050) --------- Income before provision for income taxes $ 1,720 ========= Identifiable assets at April 30, 1997 $ 132,544 $ 71,384 $ 172 $ 1,211 $ - $ 205,311 ========= ========= ========= ========= ========= ========= Identifiable depreciation $ 741 $ 1,045 $ 3 $ 27 $ - $ 1,816 ========= ========= ========= ========= ========= ========= Identifiable capital expenditures $ 1,730 $ 2,170 $ - $ - $ - $ 3,900 ========= ========= ========= ========= ========= ========= 35 Real Magazine Estate Circulation Other Operations Operations Operations Corporate Eliminations Consolidated ---------- ---------- ---------- --------- ------------ ------------ 1996 (Thousands): Net revenues from unaffiliated customers $ 103,747 $ 57,149 $ 906 $ - $ - $ 161,802 Intersegment revenues - - 72 - (72) - --------- --------- --------- -------- --------- --------- Total revenue $ 103,747 $ 57,149 $ 978 $ - $ (72) $ 161,802 ========= ========= ========= ======== ========= ========= Operating income $ 8,313 $ 4,635 $ 119 $ - $ (72) $ 12,995 ========= ========= ========= ======== ========= Corporate expenses (4,429) Interest (3,925) --------- Income before provision for income taxes $ 4,641 ========= Identifiable assets at April 30, 1996 $ 121,646 $ 57,937 $ 342 $ 1,871 $ - $ 181,796 ========= ========= ========= ======== ========= ========= Identifiable depreciation $ 694 $ 890 $ 3 $ 43 $ - $ 1,630 ========= ========= ========= ======== ========= ========= Identifiable capital expenditures $ 2,713 $ 2,624 $ - $ 21 $ - $ 5,358 ========= ========= ========= ======== ========= =========
36 Selected Quarterly Financial Data (Unaudited) (In thousands of dollars, except per share amounts) Quarter Ended --------------------------------------------------- July 31, October 31, January 31, April 30, 1997 1997 1998 1998 --------- ----------- ----------- --------- Revenues $ 37,795 $ 43,540 $ 46,849 $ 43,184 Gross Profit 7,086 10,845 13,591 8,671 Net Income $ 505 $ 2,539 $ 4,142 $ 1,020 ========= ========= ========= ========= Earnings Per Share - Basic and Diluted $ 0.07 $ 0.34 $ 0.56 $ 0.14 ========= ========= ========= ========= Quarter Ended --------------------------------------------------- July 31, October 31, January 31, April 30, 1996 1996 1997 1997 --------- ----------- ----------- --------- Revenues $ 34,408 $ 33,230 $ 36,761 $ 41,990 Gross Profit (A) 6,388 6,468 6,880 6,634 Net Income (B) $ 403 $ 262 $ 267 $ 6,350 ========= ========= ========= ========= Earnings Per Share - Basic and Diluted $ 0.05 $ 0.04 $ 0.04 $ 0.86 ========= ========= ========= ========= (A) As discussed in Note 1 of Notes to Consolidated Financial Statements, certain amounts have been reclassified to conform with the 1998 presentation. (B) The quarter ended April 30, 1997 reflects an adjustment to Deferred Income Taxes for settlement of 1984 through 1989 tax examinations (see Note 9). 37 Item 9. Changes in and Disagreements with Accountants on ------ Accounting and Financial Disclosure. ------------------------------------------------ Not Applicable. PART III -------- The information called for by Part III is hereby incorporated by reference from the information set forth and under the headings "Common Stock Ownership of Certain Beneficial Owners and Management", "Election of Directors", and "Executive Compensation" in Registrant's definitive proxy statement for the 1998 Annual Meeting of Shareholders, which meeting involves the election of directors, such definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. In addition, information on Registrant's executive officers has been included in Part I above under the caption "Executive Officers of the Registrant". PART IV ------- Item 14. Exhibits, Financial Statement Schedules, and - -------- Reports on Form 8-K -------------------------------------------- (a) 1. The following financial statements and supplementary financial information are filed as part of this report: AMREP Corporation and Subsidiaries: Report of Independent Public Accountants - Arthur Andersen LLP Consolidated Balance Sheets - April 30, 1998 and 1997 Consolidated Statements of Operations for the Three Years Ended April 30, 1998 Consolidated Statements of Shareholders' Equity for the Three Years Ended April 30, 1998 Consolidated Statements of Cash Flows for the Three Years Ended April 30, 1998 Notes to Consolidated Financial Statements Selected Quarterly Financial Data 2. The following financial statement schedules are filed as part of this report: AMREP Corporation and Subsidiaries: Schedule II - Valuation and Qualifying Accounts 38 Financial statement schedules not included in this Annual Report on Form 10-K have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 3. Exhibits: The exhibits filed in this report are listed in the Exhibit Index. The Registrant agrees, upon request of the Securities and Exchange Commission, to file as an exhibit each instrument defining the rights of holders of long-term debt of the Registrant and its consolidated subsidiaries which has not been filed for the reason that the total amount of securities authorized thereunder does not exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. (b) During the quarter ended April 30, 1998, Registrant filed no Current Report on Form 8-K. 39 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMREP CORPORATION (Registrant) Dated: July 27, 1998 By /s/Mohan Vachani ---------------- Mohan Vachani Senior Vice President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant and in the capacities and on the dates indicated. /s/Mohan Vachani /s/Nicholas G. Karabots - --------------------------------- ------------------------------ Mohan Vachani Nicholas G. Karabots Director, Senior Vice President, Director Principal Financial Officer and Dated: July 27, 1998 Principal Accounting Officer * Dated: July 27, 1998 /s/Jerome Belson /s/Albert V. Russo - ---------------------------------- ------------------------------- Jerome Belson Albert V. Russo Director Director Dated: July 27, 1998 Dated: July 27, 1998 /s/Edward B. Cloues, II /s/Samuel N. Seidman - ---------------------------------- ------------------------------- Edward B. Cloues, II Samuel N. Seidman Director Director Dated: July 27, 1998 Dated: July 27, 1998 /s/Daniel Friedman /s/James Wall - ---------------------------------- ------------------------------- Daniel Friedman James Wall Director Director Dated: July 27, 1998 Dated: July 27, 1998 *Also acting as Principal Executive Officer in the absence of a Chief Executive Officer, solely for the purpose of signing this Annual Report. 40 AMREP CORPORATION AND SUBSIDIARIES ---------------------------------- SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (Page 1 of 2) ------------------------------------------------------------- (Thousands) Additions ----------------------- Charges (Credits) Charged Balance at to Costs (Credited) Balance Beginning and to Other at End of Period Expenses Accounts Deductions of Period --------- -------- -------- ---------- --------- FOR THE YEAR ENDED APRIL 30, 1998: Allowance for doubtful accounts (included in receivables - real estate operations on the consolidated balance sheet) $ 690 $ 143 $ - $ 542(A) $ 291 -------- --------- ------ ----------- -------- Allowance for estimated returns and doubtful accounts (included in receivables - magazine circulation operations on the consolidated balance sheet) $ 53,322 $ 3,044 $ - $ 125(A) $ 56,241 -------- --------- ------ ----------- -------- Real estate valuation allowance $ 2,459 $ - $ - $ 579(B) $ 1,880 -------- --------- ------ ----------- -------- FOR THE YEAR ENDED APRIL 30, 1997: Allowance for doubtful accounts (included in receivables - real estate operations on the consolidated balance sheet) $ 598 $ 135 $ - $ 43(A) $ 690 -------- --------- ------ ----------- -------- Allowance for estimated returns and doubtful accounts (included in receivables - magazine circulation operations on the consolidated balance sheet) $ 53,740 $ 706 $ - $ 1,124(A) $ 53,322 -------- --------- ------ ----------- -------- Real estate valuation allowance $ 2,580 $ - $ - $ 121(B) $ 2,459 -------- --------- ------ ----------- -------- 41 AMREP CORPORATION AND SUBSIDIARIES ---------------------------------- SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (Page 2 of 2) ------------------------------------------------------------- (Thousands) Additions ----------------------- Charges (Credits) Charged Balance at to Costs (Credited) Balance Beginning and to Other at End of Period Expenses Accounts Deductions of Period --------- -------- -------- ---------- --------- FOR THE YEAR ENDED APRIL 30, 1996: Allowance for doubtful accounts (included in receivables - real estate operations on the consolidated balance sheet) $ 608 $ 24 $ - $ 34(A) $ 598 -------- --------- ------ ----------- -------- Allowance for estimated returns and doubtful accounts (included in receivables - magazine circulation operations on the consolidated balance sheet) $ 53,947 $ 189 $ - $ 396(A) $ 53,740 -------- --------- ------ ----------- -------- Real estate valuation allowance $ 2,580 $ - $ - $ - $ 2,580 -------- --------- ------ ----------- -------- NOTE: (A) Uncollectible accounts written off. (B) Allowances utilized to reduce inventory valuation. 42 EXHIBIT INDEX (3)(a)(i) Articles of Incorporation, as amended, filed herewith. (3)(a)(ii) Certificate of Merger, filed herewith. (3) (b) By-Laws as restated September 24, 1997 - Incorporated by reference to Exhibit 3 (c) to Registrant's Quarterly Report on Form 10-Q for the quarter ended October 31, 1997. (4) (a) Amended and Restated Loan Agreement between American National Bank and Trust Company of Chicago and Kable News Company, Inc. dated as of October 6, 1995 - Incorporated by reference to Exhibit 4 to Registrant's Quarterly Report on Form 10-Q for the quarter ended October 31, 1995. (4) (b) Amendment No. 1, dated September 26, 1996, to the Amended and Restated Loan Agreement, between American National Bank and Trust Company of Chicago, and Kable News Company, Inc. - Incorporated by reference to Exhibit 4 to Registrant's Quarterly Report on Form 10-Q for the quarter ended October 31, 1996. (4) (c) Amendment No. 2, dated December 13, 1996, to Amended and Restated Loan Agreement between American National Bank and Trust Company of Chicago and Kable News Company, Inc. - Incorporated by reference to Exhibit 4 (a) to Registrant's Quarterly Report on Form 10-Q for the quarter ended October 31, 1997. 43 (4) (d) Amendment No. 3, dated September 18, 1997, to Amended and Restated Loan Agreement between American National Bank and Trust Company of Chicago and Kable News Company, Inc. - Incorporated by reference to Exhibit 4 (b) to Registrant's Quarterly Report on Form 10-Q for the quarter ended October 31, 1997. (10) (a) 1992 Stock Option Plan - Incorporated by reference to Exhibit 10 (h) to Registrant's Annual Report on Form 10-K for the year ended April 30, 1997.* (10) (b) Non-Employee Directors Option Plan, as amended - Incorporated by reference to Exhibit 10 (i) to Registrant's Annual Report on Form 10-K for the year ended April 30, 1997.* (21) Subsidiaries of Registrant, filed herewith. (23) Consent of Arthur Andersen LLP, filed herewith. (27) Financial Data Schedule ___________________________ * Management contract or compensatory plan or arrangement in which directors or officers participate. 44 EX-3.(I) 2 CERTIFICATE OF INCORPORATION OF AMREP CORPORATION Exhibit (3)(a)(i) CERTIFICATE OF INCORPORATION OF AMREP CORPORATION (as amended) FIRST: The name of the Corporation is: AMREP CORPORATION. SECOND: The address of its registered office in the State of Oklahoma is 735 First National Building, 120 North Robinson, in the City of Oklahoma City, County of Oklahoma. The name of its registered agent at such address is: THE CORPORATION COMPANY. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the general corporation law of Oklahoma (being the Oklahoma General Corporation Act). FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is twenty million (20,000,000) all of which are of one class, and the par value of each of such shares is ten cents ($.10). FIFTH: The name and mailing address of the incorporator is as follow: Name Mailing Address ----------------- ------------------------- Edward B. Winslow 70 Pine Street New York, New York 10270 SIXTH: Meetings of shareholders may be held within or without the State of Oklahoma, as the By-Laws of the Corporation may provide or as the Board of Directors may determine. The Board of Directors shall have the power to hold meetings, to have an office or offices, and to keep the books of the Corporation (subject to any provisions contained in statutes) outside the State of Oklahoma at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation. Election of directors need not be by written ballot unless the By-Laws of the Corporation so provide. SEVENTH: (a) The number of the directors of the Corporation shall be fixed from time to time by the By-Laws of the Corporation but shall not be more than twelve. The directors shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, as shall be determined pursuant to the By-Laws of the Corporation, one class to be initially elected for a term expiring at the annual meeting of shareholders to be held in 1988, another class to be initially elected for a term expiring at the annual meeting of shareholders to be held in 1989, and another class to be initially elected for a term expiring at the annual meeting of shareholders to be held in 1990, with the members of each class to hold office until their successors are elected and qualified. At each annual meeting of shareholders of the Corporation, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of shareholders held in the third year following the year of their election and, in each case, until their respective successors are elected and qualified. (b) Newly created directorships resulting from any increase in the number of directors shall be filled by the shareholders. If a vacancy or vacancies occurs on the Board of Directors otherwise than by removal or an increase in the number of directors in one or more classes, such vacancy or vacancies shall be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director. A vacancy caused by removal of a director shall be filled by the shareholders. Any director elected in accordance with the provisions of this Paragraph (b) shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. If the number of directors is changed, any increase or decrease shall be apportioned among the classes by the Board of Directors so as to maintain the number of directors in each class as nearly equal as possible. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. (c) Notwithstanding any other provision of this Certificate of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that a lesser percentage may be specified by law, this Certificate of Incorporation or the By-Laws of the Corporation), the affirmative vote of the holders of at least two-thirds (2/3) of the then outstanding shares of Common Stock of the Corporation shall be required to alter, amend or repeal this Article SEVENTH or to adopt any provision inconsistent herewith. EIGHTH: In order for the Board of Directors of the Corporation to call Special Meetings of Shareholders, the action of a majority of the entire Board shall be required. NINTH: (a) In addition to any affirmative vote required by law and except as otherwise expressly provided in Paragraph (c) of this Article NINTH: (1) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (A) any Interested Shareholder (as hereinafter defined) or (B) any other corporation (whether or not itself an Interested Shareholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Shareholder; or (2) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Shareholder or any Affiliate of any Interested Shareholder of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value (as hereinafter defined) of Five Million Dollars ($5,000,000) or more; or (3) the issuance or sale or other disposition by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Shareholder or any Affiliate of any Interested Shareholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of Five Million Dollars ($5,000,000) or more; or (4) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Shareholder or any Affiliate of any Interested Shareholder; or (5) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Shareholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Shareholder of any Affiliate of any Interested Shareholder; shall require the affirmative vote of the holders of at least two-thirds (2/3) of the then outstanding shares of Common Stock of the Corporation. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. (b) The term "Business Combination" as used in this Article NINTH shall mean any transaction which is referred to in any one or more of Clauses (1) through (5) of Paragraph (a) of this Article NINTH. (c) The provisions of Paragraph (a) of this Article NINTH shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law, if in the case of a Business Combination that does not involve any cash or other consideration being received by the shareholders of the Corporation, solely in their capacities as shareholders, the condition specified in Clause (1) below is met, or if in the case of any other Business Combination, the conditions specified in either Clauses (1) or (2) below are met: (1) Prior to the consummation of a Business Combination, the Board of Directors of the Corporation adopts a resolution approving such Business Combination by the affirmative vote of not less than seventy-five percent (75%) of the Entire Board (as hereinafter defined) or by unanimous written consent. (2) All of the conditions set forth in the following Subclauses (A) through (E) of this Clause (2) shall have been met: (A) The aggregate amount of cash and Fair Market Value as of the date of the consummation of the Business Combination (the "Consummation Date") of consideration other than cash to be received per share by holders of shares of Common Stock in such Business Combination shall be at least equal to the highest amount determined under (i) or (ii) below: (i) (if applicable) the sum of (x) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Shareholder for any shares of Common Stock acquired by it (I) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the "Announcement Date") or (II) in the transaction in which it became an Interested Shareholder, whichever is higher, plus (y) interest on such per share price compounded annually from the date on which the Interested Shareholder became an Interested Shareholder through the Consummation Date at the prime rate of interest of Chemical Bank of New York City (or other major bank headquartered in New York City selected by at least seventy-five percent (75%) of the Entire Board), from time to time in effect in New York City, less (z) the aggregate amount of any cash dividends paid and the Fair Market Value of any dividends paid in other than cash, per share of Common Stock from the date on which the Interested Shareholder became an Interested Shareholder through the Consummation Date in an amount up to but not exceeding the amount of such interest payable per share of Common Stock; or (ii) The Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Shareholder became an Interested Shareholder, whichever is higher. (B) The consideration to be received by holders of shares of Common Stock shall be in cash or in the same form as the Interested Shareholder has previously paid for shares of Common Stock. If the Interested Shareholder has paid for shares of Common Stock with varying forms of consideration, the form of consideration shall be either in cash or the form used to acquire the largest number of shares of such Common Stock previously acquired by the Interested Shareholder. (C) After such Interested Shareholder has become an Interested Shareholder and prior to the consummation of such Business Combination: (i) except as approved by at least seventy-five percent (75%) of the Entire Board, there shall have been (I) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock) and (II) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of Common Stock, unless the failure so to increase such annual rate is approved by at least seventy-five percent (75%) of the Entire Board, and (ii) such Interested Shareholder shall have not become the beneficial owner of additional shares of Common Stock except as part of the transaction which results in such Interested Shareholder becoming an Interested Shareholder or as a result of a stock dividend or a stock split. (D) After such Interested Shareholder has become an Interested Shareholder, such Interested Shareholder shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), or any loans, advances, guarantees, pledges or other financial assistance an any tax credits or other tax advantages provided by the Corporation. (E) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to public shareholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). (d) For the purpose of this Article NINTH: (1) A "person" shall mean any individual, partnership, association, firm, corporation or other entity. (2) "Interested Shareholder" shall mean any person (other than the Corporation or any Subsidiary and other than any profit sharing, employee stock ownership or other employee benefit plan of the Corporation or any Subsidiary or any trustee of or fiduciary with respect to any such plan while acting in such capacity) who or which: (A) is the beneficial owner, directly or indirectly, of 10% or more of the outstanding Common Stock; or (B) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date of determination of Interested Shareholder status was the beneficial owner, directly or indirectly, of 10% or more of the then outstanding Common Stock; or (C) is an assignee of or has otherwise succeeded to any shares of Common Stock which were at any time within the two-year period immediately prior to the date of determination of Interested Shareholder status beneficially owned by an Interest Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (3) A person shall be a "beneficial owner" of any Common Stock: (A) which such person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly; or (B) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding; or (C) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Common Stock. (4) For the purposes of determining whether a person is an Interested Shareholder pursuant to Clause (2) of this Paragraph (d), the number of shares of Common Stock deemed to be outstanding shall include shares deemed owned by the Interested Shareholder through application of Clause (3) of this Paragraph (d) but shall not include any other shares of Common Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (5) "Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on June 21, 1984. (6) "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Shareholder set forth in Clause (2) of this Paragraph (d), the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (7) "Fair Market Value" means: (A) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined in good faith by at least seventy-five percent (75%) of the Entire Board and (B) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined in good faith by at least seventy-five percent (75%) of the Entire Board. (8) In the event of any Business Combination in which the Corporation survives, the phrase "consideration other than cash to be received" as used in Clause (2)(A) of Paragraph (c) of this Article NINTH shall include the shares of Common Stock retained by the holders of such shares. (9) "Entire Board" shall mean the number of directors at the time designated by the By-Laws of the Corporation to be the number of directors constituting the Board of Directors. (10) "Common Stock" shall mean the common stock of the Corporation. (e) The Board of Directors shall have the power, but only when acting with the affirmative vote of at least seventy-five percent (75%) of the Entire Board, to determine, on the basis of information known to the Board after reasonable inquiry, all facts necessary to determine compliance with this Article NINTH, including without limitation (1) whether a person is an Interested Shareholder, (2) the number of shares of Common Stock beneficially owned by any person, (3) whether the requirements of Clause (2) of Paragraph (c) have been met with respect to any Business Combination, and (4) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of Five Million Dollars ($5,000,000) or more; and the good faith determination on such matters by seventy-five percent (75%) vote of the Entire Board shall be conclusive and binding for all the purposes of this Article NINTH. (f) Nothing contained in the Article NINTH shall be construed to relieve any Interested Shareholder from any fiduciary obligation imposed by law. (g) Nothwithstanding any other provisions of this Certificate of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that a lesser percentage may be specified by law, this Certificate of Incorporation or the By-Laws of the Corporation), the affirmative vote of the holders of two-thirds (2/3) or more of the shares of the then outstanding Common Stock, shall be required to amend or repeal, or adopt any provisions inconsistent with, this Article NINTH. TENTH: (a) The Corporation shall indemnify, to the fullest extent contemplated or permitted from time to time by applicable law, each person who (1) was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, or (2) who for any reason incurs costs, expenses or damages, by reason of the fact that such person is or was a director of senior officer of the Corporation, or is or was serving at the request of the Corporation as a director of another corporation, partnership, joint venture, trust or other enterprise. As used in this Paragraph (a), the term "senior officer" means the Chairman of the Board, President, any Vice President, Treasurer and Secretary of the Corporation. (b) The Corporation may indemnify, to the fullest extent contemplated or permitted from time to time by applicable law, each person who (1) was or is a party or is threatened to be a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, or (2) who for any other reason incurs costs, expenses or damages, by reason of the fact that such person is or was an officer (other than a senior officer), employee or agent of the Corporation, or is or was serving at the request of the Corporation as an officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise. (c) The Board of Directors may from time to time take such actions and cause the Corporation to enter into such agreements as in their judgment are necessary or desirable to implement the provisions of this Article TENTH, including without limitation the adoption of By-Law provisions. (d) Nothwithstanding any other provision of this Certificate of Incorporation or the By-Law of the Corporation (and notwithstanding the fact that a lesser percentage may be specified by law, this Certificate of Incorporation or the By-Laws of the Corporation), the affirmative vote of the holders of at least two-thirds (2/3) of the then outstanding shares of Common Stock of the Corporation shall be required to alter, amend or repeal this Article TENTH or to adopt any provision inconsistent herewith. ELEVENTH: In furtherance and not in the limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal the By-Laws of the Corporation by such vote as shall be provided from time to time by the By-Laws of the Corporation. TWELFTH: No shareholder of the Corporation shall have any preemptive right to subscribe to an additional issue of stock of the Corporation or to any security convertible into such stock. THIRTEENTH: The Corporation is to have perpetual existence. FOURTEENTH: Subject to the limitations set forth in this Certificate of Incorporation, the Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon shareholders herein are granted subject to this reservation. FIFTEENTH: No director of the Corporation shall be personally liable to the Corporation or its shareholders for monetary damages for any breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its shareholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) under Section 1053 of the General Corporation Act of the State of Oklahoma, or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Article FIFTEENTH shall apply or to have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. EX-3.(I) 3 CERTIFICATE OF MERGER Exhibit (3) (a) (ii) CERTIFICATE OF MERGER OF AMREP CORPORATION INTO AMREP NEW LAW SUB, INC. TO: The Secretary of State of the State of Oklahoma 101 State Capitol Building Oklahoma City, Oklahoma 73105 A. This merger is being filed pursuant to Section 1081 of the Oklahoma General Corporation Act. B. In lieu of filing an executed Plan and Agreement of Merger, the undersigned surviving corporation hereby certifies as follows: 1. The name and state of incorporation of each of the constituent corporations of the merger are: Name of Corporation State of Incorporation ---------------------- ---------------------- AMREP Corporation Oklahoma AMREP New Law Sub, Inc. Oklahoma 2. A Plan and Agreement of Merger between AMREP Corporation and AMREP New Law Sub, Inc. has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with the provisions of Section 1081 of the Oklahoma General Corporation Act. 3. The name of the surviving corporation is AMREP New Law Sub, Inc., which shall herewith be changed to AMREP Corporation. 4. The Certificate of Incorporation of AMREP New Law Sub, Inc., the surviving corporation, is hereby amended by the terms of the Plan and Agreement of Merger as follows: (a) Article "FIRST" shall be amended in its entirety to read as follows: "FIRST: The name of the Corporation is: AMREP Corporation." (b) Article "FOURTH" shall be amended in its entirety to read as follows: "FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is twenty million (20,000,000) all of which are of one class, and the par value of each of such shares is ten cents ($.10)." 5. The executed Plan and Agreement of Merger is on file at the principal place of business of the surviving corporation. The address of said principal place of business is 10 Columbus Circle, New York, New York 10019. 6. A copy of the Plan and Agreement will be furnished on request and without cost to any shareholder of any constituent corporation. IN WITNESS WHEREOF, AMREP New Lab Sub, Inc., the surviving corporation, has caused this Certificate to be executed by Lawrence T. Perlmutter, its President, and Mitchell Roberts, its Secretary, and its corporate seal hereunto affixed this 7th day of December, 1987. AMREP NEW LAW SUB, INC. By: /s/ Lawrence T. Perlmutter -------------------------- Lawrence T. Perlmutter President Corporate Seal ATTEST: By: /s/ Mitchell Roberts -------------------- Mitchell Roberts Secretary EX-21 4 AMREP CORPORATION SUBSIDIARIES EXHIBIT 21 Subsidiary State of Incorporation ---------- ---------------------- AMREP Metro Services, Inc. New York AMREP Saratoga Construction, Inc. New York AMREP Solutions, Inc. New York AMREP Southwest Inc. New Mexico Advance Financial Corp. New Mexico AMREP Construction Corporation New Mexico AMREP Financial Corp. New Mexico AMREP Insurance Agency, Inc. New Mexico AMREP Metro Works, Inc. New York PERMA Corp. New York Strickland Construction Corp. New Jersey AMREP Southeast, Inc. Florida AMREP Saratoga Square Homes, Inc. Florida AMREPCO Inc. Colorado Carity-Hoffman Associates, Inc. New York Double R Realty, Inc. New Mexico Eldorado at Sante Fe, Inc. New Mexico M.F.G. Realty Corp. New York New Mexico Foreign Trade Zone Corp. New Mexico Panorama Inn of Florida, Inc. Florida Rancho Homes, Inc. New Mexico Rio Rancho Golf & Country Club, Inc. New Mexico S.G.R. Realty Corp. New Jersey Shasta Real Estate Company California Sun Oaks Realty Corp. Florida Rio Venture Corp. New Mexico Rio Venture XV, Inc. New Mexico El Dorado Utilities, Inc. New Mexico Florida Ridge Utilities Corp. Florida Kable News Company, Inc. Illinois Kable Fulfillment Services of Ohio, Inc. Delaware Kable News Company of Canada, Ltd. Ontario, Canada Kable News Export, Ltd. Delaware Kable News International, Inc. Delaware EX-23 5 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors AMREP Corporation: As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into AMREP Corporation's previously filed Registration Statements on Form S-8 Nos. 33-67114, 33-67116 and 333-17695. It should be noted that we have not audited any financial statements of AMREP Corporation subsequent to April 30, 1998 or performed any audit procedures subsequent to the date of our report. /s/ ARTHUR ANDERSEN LLP Albuquerque, New Mexico July 27, 1998 EX-27 6 FDS -- FOR THE FOURTH QUARTER ENDED 04/30/98
5 FDS - 4TH QUARTER 0000006207 AMREP CORPORATION 1,000 U.S.DOLLARS 12-MOS APR-30-1998 MAY-01-1997 APR-30-1998 1 20,517 0 68,515 0 101,401 0 30,918 13,260 229,768 0 55,737 0 0 740 83,300 229,768 104,832 171,368 82,660 131,175 0 0 4,404 13,677 5,471 8,206 0 0 0 8,206 1.11 1.11
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