10-Q 1 axr0305.txt THIRD QUARTER SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 2005 -------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------------ ---------------------- Commission File Number 1-4702 -------- AMREP Corporation -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Oklahoma 59-0936128 -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 641 Lexington Avenue, Sixth Floor, New York, New York 10022 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 705-4700 ------------------------------ 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 whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No x -------- -------- Number of Shares of Common Stock, par value $.10 per share, outstanding at January 31, 2005 - 6,618,612. AMREP CORPORATION AND SUBSIDIARIES INDEX ----- PART I. FINANCIAL INFORMATION PAGE NO. -------- Item 1. Financial Statements Consolidated Balance Sheets (Unaudited) January 31, 2005 and April 30, 2004 1 Consolidated Statements of Operations and Retained Earnings (Unaudited) Three Months Ended January 31, 2005 and 2004 2 Consolidated Statements of Operations and Retained Earnings (Unaudited) Nine Months Ended January 31, 2005 and 2004 3 Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended January 31, 2005 and 2004 4 Notes to Consolidated Financial Statements 5 - 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 - 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 Item 4. Controls and Procedures 11 PART II. OTHER INFORMATION Item 6. Exhibits 12 SIGNATURE 13 EXHIBIT INDEX 14 PART I. FINANCIAL INFORMATION Item 1. Financial Statements ------- -------------------- AMREP CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets ( Unaudited ) (Thousands, except par value and number of shares) January 31, April 30, 2005 2004 ------------------ ------------------- ASSETS: Cash and cash equivalents $ 30,227 $ 26,805 Receivables, net: Magazine operations 49,745 42,768 Real estate operations 6,629 6,297 ------------------ ------------------- 56,374 49,065 Real estate inventory 57,357 58,221 Property, plant and equipment, at cost, net of accumulated depreciation and amortization of $21,209 at January 31, 2005 and $21,009 at April 30, 2004 16,354 21,299 Other assets 12,725 10,584 Assets held for sale 5,760 - Goodwill 5,191 5,191 ------------------ ------------------- TOTAL ASSETS $ 183,988 $ 171,165 ================== =================== LIABILITIES AND SHAREHOLDERS' EQUITY: Accounts payable and accrued expenses $ 42,659 $ 41,931 Liabilities held for sale 188 - Notes payable: Amounts due within one year 13,370 1,830 Amounts subsequently due 2,964 10,813 ------------------ ------------------- 16,334 12,643 Taxes payable 655 1,867 Deferred income taxes 7,117 5,996 Accrued pension cost 3,206 3,206 ------------------ ------------------- TOTAL LIABILITIES 70,159 65,643 ------------------ ------------------- Shareholders' equity: Common stock, $.10 par value; shares authorized - 20,000,000; 7,414,704 shares issued at January 31, 2005 and 7,409,204 at April 30, 2004 741 741 Capital contributed in excess of par value 45,252 45,133 Retained earnings 77,952 69,815 Accumulated other comprehensive loss ( 4,614) ( 4,614) Treasury stock, at cost; 796,092 shares at January 31, 2005 and 803,592 at April 30, 2004 ( 5,502) ( 5,553) ------------------ ------------------- TOTAL SHAREHOLDERS' EQUITY 113,829 105,522 ------------------ ------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 183,988 $ 171,165 ================== =================== See notes to consolidated financial statements. 1 AMREP CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations and Retained Earnings (Unaudited) Three Months Ended January 31, 2005 and 2004 (Thousands, except per share amounts) 2005 2004 ----------------- ------------------- REVENUES: Magazine operations $ 24,126 $ 24,914 Real estate operations - land sales 6,996 7,738 Interest and other operations 364 317 ----------------- ------------------- 31,486 32,969 ----------------- ------------------- COSTS AND EXPENSES: Magazine operating expenses 20,430 21,908 Real estate cost of sales 3,650 3,847 Real estate commissions and selling 208 166 Other operations 286 281 General and administrative: Magazine operations 1,860 974 Real estate operations and corporate 848 297 Interest expense, net 220 193 ----------------- ------------------- 27,502 27,666 ----------------- ------------------- Income before income taxes 3,984 5,303 PROVISION FOR INCOME TAXES 1,473 1,962 ----------------- ------------------- NET INCOME - CONTINUING OPERATIONS 2,511 3,341 NET INCOME - DISCONTINUED OPERATION - NET OF TAX 50 42 ----------------- ------------------- NET INCOME 2,561 3,383 RETAINED EARNINGS, beginning of period 75,391 64,385 ----------------- ------------------- RETAINED EARNINGS, end of period $ 77,952 $ 67,768 ================= =================== NET INCOME PER SHARE - BASIC AND DILUTED CONTINUING OPERATIONS $ 0.38 $ 0.50 DISCONTINUED OPERATION 0.01 0.01 ----------------- ------------------- TOTAL NET INCOME PER SHARE - BASIC AND DILUTED $ 0.39 $ 0.51 ================= =================== COMPREHENSIVE INCOME $ 2,561 $ 2,321 ================= =================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 6,619 6,598 ================= =================== See notes to consolidated financial statements. 2 AMREP CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations and Retained Earnings (Unaudited) Nine Months Ended January 31, 2005 and 2004 (Thousands, except per share amounts) 2005 2004 ------------------- ------------------- REVENUES: Magazine operations $ 72,875 $ 76,107 Real estate operations - land sales 24,482 20,876 Interest and other operations 997 1,220 ------------------- ------------------- 98,354 98,203 ------------------- ------------------- COSTS AND EXPENSES: Magazine operating expenses 59,680 63,546 Real estate cost of sales 10,976 9,845 Real estate commissions and selling 1,246 645 Other operations 1,146 859 General and administrative: Magazine operations 5,774 5,738 Real estate operations and corporate 2,592 2,118 Interest expense, net 540 721 ------------------- ------------------- 81,954 83,472 ------------------- ------------------- Income before income taxes 16,400 14,731 PROVISION FOR INCOME TAXES 5,578 5,451 ------------------- ------------------- NET INCOME - CONTINUING OPERATIONS 10,822 9,280 NET INCOME (LOSS) - DISCONTINUED OPERATION - NET OF TAX ( 40) 350 ------------------- ------------------- NET INCOME 10,782 9,630 DIVIDEND ( 2,645) (1,648) RETAINED EARNINGS, beginning of period 69,815 59,786 ------------------- ------------------- RETAINED EARNINGS, end of period $ 77,952 $ 67,768 =================== =================== NET INCOME PER SHARE - BASIC AND DILUTED CONTINUING OPERATIONS $ 1.64 $ 1.41 DISCONTINUED OPERATION ( 0.01) 0.05 ------------------- ------------------- TOTAL NET INCOME PER SHARE - BASIC AND DILUTED $ 1.63 $ 1.46 =================== =================== COMPREHENSIVE INCOME $ 10,782 $ 8,568 =================== =================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 6,613 6,594 =================== =================== See notes to consolidated financial statements. 3 AMREP CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended January 31, 2005 and 2004 (Thousands) 2005 2004 ----------------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 10,782 $ 9,630 ----------------- ------------------ Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 3,763 4,213 Non-cash credits and charges: Pension expense accrual 90 (530) Bad debt reserve ( 207) 385 Stock based compensation - Directors' Plan 135 109 Changes in assets and liabilities - Receivables ( 7,150) ( 15,165) Real estate inventory 864 4,559 Other assets ( 1,510) ( 1,667) Accounts payable and accrued expenses 796 7,193 Taxes payable ( 1,212) 841 Deferred income taxes 1,121 3,079 ----------------- ------------------ Total adjustments ( 3,310) 3,017 ----------------- ------------------ Net cash provided by operating activities 7,472 12,647 ----------------- ------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 4,041) ( 3,472) Proceeds from sale of property, plant and equipment 180 - Acquisition of Distribution Contracts ( 100) - ----------------- ------------------ Net cash used by investing activities ( 3,961) ( 3,472) ----------------- ------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from debt financing 11,004 23,592 Principal debt payments ( 8,483) ( 27,059) Proceeds from exercise of stock options 35 17 Dividends paid ( 2,645) ( 1,648) ----------------- ------------------ Net cash used by financing activities ( 89) ( 5,098) ----------------- ------------------ Increase in cash and cash equivalents 3,422 4,077 CASH AND CASH EQUIVALENTS, beginning of period 26,805 16,443 ----------------- ------------------ CASH AND CASH EQUIVALENTS, end of period $ 30,227 $ 20,520 ================= ================== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid - net of amounts capitalized $ 465 $ 587 ================= ================== Income taxes paid - net of refunds $ 5,646 $ 1,736 ================= ================== Non-cash transactions: Note payable for acquisition of Distribution Contracts $ 1,170 $ - ================= ================== See notes to consolidated financial statements. 4 AMREP CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Three and Nine Months Ended January 31, 2005 and 2004 (1) Basis of Presentation --------------------- The accompanying unaudited consolidated financial statements included herein have been prepared by AMREP Corporation (the "Registrant" or the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial information, and do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the accompanying unaudited financial statements include all adjustments, which are of a normal recurring nature, necessary to reflect a fair presentation of the results for the interim periods presented. The results of operations for such interim periods are not necessarily a good indication of what may occur in future periods. The unaudited consolidated financial statements herein should be read in conjunction with the Company's annual report on Form 10-K for the year ended April 30, 2004 which was previously filed with the Securities and Exchange Commission. (2) Information About the Company's Operations in Different Industry ---------------------------------------------------------------- Segments -------- The following tables set forth summarized data relative to the industry segments for continuing operations in which the Company operated for the three and nine month periods ended January 31, 2005 and 2004. Certain amounts included in "Interest and other operations" on the Consolidated Statements of Operations are classified below within the Land Operations and Corporate and Other segments, depending upon the nature of the business activity. THREE MONTHS: Land Corporate Operations Distribution Fulfillment and Other Consolidated ---------- ------------ ----------- --------- ------------ January 2005 (Thousands): Revenues $ 7,149 $ 3,122 $ 21,004 $ 211 $ 31,486 Operating and SG&A expense 4,402 3,212 19,078 590 27,282 Management fee 225 29 196 ( 450) - Interest expense, net - 31 179 10 220 ---------- ---------- ---------- --------- ---------- Pretax income ( loss ) $ 2,522 $ ( 150) $ 1,551 $ 61 $ 3,984 ========== ========== ========== ========= ========== --------------------------------------------------------------------------------------------------------------- January 2004 (Thousands): Revenues $ 7,897 $ 2,979 $ 21,935 $ 158 $ 32,969 Operating and SG&A expenses 4,298 2,616 20,265 294 27,473 Management fee 192 23 160 (375) - Interest expense, net - 10 129 54 193 ---------- ---------- ---------- --------- ---------- Pretax income $ 3,407 $ 330 $ 1,381 $ 185 $ 5,303 ========== ========== ========== ========= ========== ---------------------------------------------------------------------------------------------------------------
5 NINE MONTHS: Land Corporate Operations Distribution Fulfillment and Other Consolidated ---------- ------------ ----------- --------- ------------ January 2005 (Thousands): Revenues $ 24,931 $ 9,435 $ 63,440 $ 548 $ 98,354 Operating and SG&A expenses 13,895 8,328 57,126 2,065 81,414 Management fee 675 87 588 ( 1,350) - Interest expense, net - 28 459 53 540 ---------- ---------- ---------- ---------- ---------- Pretax income ( loss ) $ 10,361 $ 992 $ 5,267 $ ( 220) $ 16,400 ========== ========== ========== ========== ========== Identifiable assets $ 77,569 $ 41,322 $ 41,269 $ 18,637 $ 178,797 Intangible assets $ - $ 3,893 $ 1,298 $ - $ 5,191 --------------------------------------------------------------------------------------------------------------- January 2004 (Thousands): Revenues $ 21,623 $ 9,196 $ 66,911 $ 473 $ 98,203 Operating and SG&A expenses 11,950 8,130 61,153 1,518 82,751 Management fee 577 118 432 ( 1,127) - Interest expense, net - 22 537 162 721 ---------- ---------- ---------- ---------- ---------- Pretax income ( loss ) $ 9,096 $ 926 $ 4,789 $ ( 80) $ 14,731 ========== ========== ========== ========== ========== Identifiable assets $ 72,870 $ 38,033 $ 40,203 $ 18,477 $ 169,583 Intangible assets $ - $ 3,893 $ 1,298 $ - $ 5,191 ---------------------------------------------------------------------------------------------------------------
(3) Pending Transaction - Condemnation of Utility Company Subsidiary ---------------------------------------------------------------- In September 2004, a jury verdict was reached in court proceedings in connection with the condemnation of the Company's El Dorado water utility subsidiary (the "Utility") in Santa Fe, New Mexico which valued the Utility at $11 million. The condemning authority, the Eldorado Water & Sanitation District (the "District"), had proposed a $6.2 million valuation, which the Company had contested. On November 9, 2004, the Court entered its Judgment confirming the jury verdict in the condemnation case, and required the District to deposit $7 million into the Court's account by December 1, 2004. The Court granted the District possession of the Utility fifteen days after the date of the deposit, and required that the remaining balance of the verdict be deposited with interest no later than June 1, 2005. The District made the initial required $7 million deposit on November 15, 2004 and took possession of the Utility's assets on December 1, 2004. The Utility applied to withdraw these monies from the account, but distribution was withheld by the Court pending its determination of whether certain third-party claims against the Utility in the Court could involve a claim against the proceeds under New Mexico condemnation law. On March 8, 2005, the Court ordered the funds released to the Utility. If the District does not deposit the remaining balance of $4 million before June 1, 2005, the condemnation is considered abandoned, the District must return the Utility's assets to the Utility and the Utility must return the funds which have now been released to it. The Company believes that the District is seeking the additional financing that it requires to complete the condemnation, but the Company is unable to predict whether the District will obtain this financing or whether it will complete the condemnation in accordance with the Court's order. The Company will not record the effect of this transaction, which is estimated to result in a net gain after taxes of approximately $3,400,000, or the equivalent of $0.51 per share, unless and until the remaining amount due from the District is received. If this payment is not received in accordance with the Court's Order, the Utility will regain ownership of its assets and must return the $7 million deposit to the District. As a result of the above, the Company has accounted for the operations of the Utility as a "Discontinued Operation" in the quarter ended January 31, 2005, and has reclassified prior periods to conform to this presentation. 6 Item 2. Management's Discussion and Analysis of Financial Condition ------- ----------------------------------------------------------- and Results of Operations ------------------------- INTRODUCTION ------------ The Company is primarily engaged in three business segments: the Real Estate business operated by AMREP Southwest Inc. and its various subsidiaries and the Fulfillment Services and Newsstand Distribution Services businesses operated by Kable News Company, Inc. and its various subsidiaries. The Company operates primarily in North America, and its foreign sales and activities are not significant. The following provides information that management believes is relevant to an assessment and understanding of the Company's consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and accompanying notes. The Company's fiscal year ends on April 30, and all references in this Item 2 to the third quarter or first nine months of 2005 and 2004 mean the three or nine month periods ended January 31, 2005 and January 31, 2004, respectively. CRITICAL ACCOUNTING POLICIES AND ESTIMATES ------------------------------------------ Management's discussion and analysis of financial condition and results of operations is based on the accounting policies used and disclosed in the 2004 consolidated financial statements and accompanying notes that were prepared in accordance with accounting principles generally accepted in the United States of America and included as part of the Company's annual report on Form 10-K for the year ended April 30, 2004 (the "2004 Form 10-K"). The preparation of those financial statements required management to make estimates and assumptions that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The significant accounting policies of the Company are described in Note 1 to the 2004 consolidated financial statements, and the critical accounting policies and estimates are described in Management's Discussion and Analysis included in the 2004 Form 10-K. Information concerning the implementation and the impact of new accounting standards issued by the Financial Accounting Standards Board (FASB) is included in the notes to the 2004 consolidated financial statements. The Company did not adopt an accounting policy in the first nine months of 2005 that had a material impact on its financial condition, liquidity or results of operations. RESULTS OF OPERATIONS --------------------- As discussed in more detail below, the Company has begun accounting for its water utility subsidiary as a "discontinued operation" in the quarter ended January 31, 2005. Accordingly, financial information from prior periods has been reclassified to conform to this presentation. For the third quarter of fiscal 2005, net income from continuing operations was $2,511,000, or $0.38 per share, compared to net income from continuing operations of $3,341,000, or $0.50 per share, in the same period of fiscal 2004. Revenues were $31,486,000 in the third quarter this year versus $32,969,000 in the same period last year. For the first nine months of fiscal 2005, the Company reported revenues of $98,354,000 and net income from continuing operations of $10,822,000, or $1.64 per share. For the comparable period last year, the Company had revenues of $98,203,000 and net income from continuing operations of $9,280,000, or $1.41 per share. Net income from discontinued operations was $50,000 in the third quarter of 2005 and $42,000 in the same period of 2004, or $0.01 per share in each period. For the nine month period, there was a net loss from discontinued operations of $40,000 in 2005, or $0.01 per share, compared to net income of $350,000, or $0.05 per share, in the first nine months of 2004. 7 Revenues from the Company's Kable News Company subsidiary were $24,126,000 in the third quarter of 2005 compared to $24,914,000 in the same quarter last year. This decrease of 3.2% was the result of a 4.2% revenue decline in Kable's Fulfillment Services segment offset in part by a 4.8% revenue increase in its Newsstand Distribution Services business. For the nine month period ended January 31, Kable's revenues decreased from $76,107,000 last year to $72,875,000 this year, primarily due to a 5.2% decline in revenues from the Fulfillment Services segment which was offset in part by a 2.6% increase in Newsstand Distribution Services revenues. The decline in Fulfillment Services revenues in both the three and nine month periods was principally the result of customer losses at Kable's Colorado fulfillment business which had been identified and known prior to Kable's acquisition of that business in 2003, while the increase in revenues of Newsstand Distribution Services in both periods resulted from additional business obtained in connection with the purchase of certain distribution contracts in the third quarter of 2005. Kable's total operating expenses decreased 6.7% and 6.1% in the third quarter and first nine months of 2005 compared to the same periods last year, with the operating expenses of Fulfillment Services decreasing 10.3% and 7.4% in the third quarter and first nine months of 2005 compared to the same periods of the prior year. This was due in part to decreases in payroll and other variable expenses resulting from the revenue decrease, reduced third-party charges for outsourced computer processing and the inclusion in the prior year of approximately $700,000 of costs of relocating and centralizing certain fulfillment operations. Fulfillment operating expenses amounted to 84.7% of related revenues in the third quarter and 84.1% for the first nine months of 2005 compared to 90.4% and 86.1% for these periods in 2004. Operating costs for Newsstand Distribution Services increased 27.4% and 6.5% in the third quarter and first nine months 2005 compared to the same periods last year, due to additional market study costs incurred in the third quarter of 2005. These higher market study costs are also expected to continue through the fourth quarter. Revenues from land sales at the Company's AMREP Southwest subsidiary decreased from $7,738,000 in the third quarter of 2004 to $6,996,000 in the same quarter this year, primarily because the prior year quarter included the sale of a relatively large tract of undeveloped residential lots to a homebuilder, whereas the current year's sales activity consisted of a higher proportion of recurring sales of developed residential lots to various homebuilders. Since these recurring sales of residential lots generally contribute lower gross profit percentages than large bulk sales, the gross profit on land sales decreased from 50% in last year's third quarter to 48% in the same quarter this year. For the nine month period, land sale revenues increased from $20,876,000 last year to $24,482,000 this year, primarily because this year's sales included more developed residential lots. The overall gross profit percentage improved from 53% in the first nine months last year to 55% for the same period this year due to better margins this year on both developed and undeveloped residential lots. As previously reported, revenues and related gross profits from land sales can vary significantly from period to period as a result of many factors, including the nature and timing of specific transactions, so that prior results are not necessarily a good indication of what may occur in future periods. Real estate commissions and selling expenses increased as a percentage of related revenues from 2.1% and 3.1% for the third quarter and first nine months of 2004 to 3.0% and 5.1% for the same periods of 2005 due to closing more land sales this year with the involvement of a broker. Such costs generally vary depending upon the terms of specific sale transactions. Real estate and corporate general and administrative expenses increased in the third quarter and first nine months of 2005 versus the same period of 2004 principally because the prior year included the net benefit of an actuarial gain associated with the curtailment of future benefits under the Company's pension plan. Kable's general and administrative costs increased during both the third quarter and first nine 8 months of 2005 compared to the same periods of 2004 mainly because of its allocable share of the benefit of the actuarial gain referred to above. Interest expense increased in the third quarter of 2005 compared to 2004 because of slightly higher average borrowings in magazine operations as well as an increase in the interest rate on these borrowings, but decreased for the first nine months of 2005 versus 2004 because of lower borrowing requirements in all segments of the Company's operations. Revenues associated with interest and other operations increased in the third quarter of 2005 as compared to the same period in 2004 as a result of increased interest on higher levels of cash equivalents and mortgage note receivables, but decreased for the first nine months of 2005 because the prior year included the recovery of past due interest on a large delinquent mortgage. During the quarter ended January 31, 2004, the Company recorded a pretax gain of approximately $1,700,000 from the accelerated recognition of a deferred actuarial gain due to the curtailment of future service benefits under the Company's pension plan as approved by the Board of Directors. In addition, the Company recorded a Comprehensive Loss of $1,700,000, net of $638,000 of deferred taxes, related to this amortization. DISCONTINUED OPERATION ---------------------- In September 2004, a jury verdict was reached in court proceedings in connection with the condemnation of the Company's El Dorado water utility subsidiary (the "Utility") in Santa Fe, New Mexico which valued the Utility at $11 million. The condemning authority, the Eldorado Water & Sanitation District (the "District"), had proposed a $6.2 million valuation, which the Company had contested. On November 9, 2004, the Court entered its Judgment confirming the jury verdict in the condemnation case, and required the District to deposit $7 million into the Court's account by December 1, 2004. The Court granted the District possession of the Utility fifteen days after the date of the deposit, and required that the remaining balance of the verdict be deposited with interest no later than June 1, 2005. The District made the initial required $7 million deposit on November 15, 2004 and took possession of the Utility's assets on December 1, 2004. The Utility applied to withdraw these monies from the account, but distribution was withheld by the Court pending its determination of whether certain third-party claims against the Utility in the Court could involve a claim against the proceeds under New Mexico condemnation law. On March 8, 2005, the Court ordered the funds released to the Utility. If the District does not deposit the remaining balance of $4 million before June 1, 2005, the condemnation is considered abandoned, the District must return the Utility's assets to the Utility and the Utility must return the funds which have now been released to it. The Company believes that the District is seeking the additional financing that it requires to complete the condemnation, but the Company is unable to predict whether the District will obtain this financing or whether it will complete the condemnation in accordance with the Court's order. The Company will not record the effect of this transaction, which is estimated to result in a net gain after taxes of approximately $3,400,000, or the equivalent of $0.51 per share, unless and until the remaining amount due from the District is received. If this payment is not received in accordance with the Court's Order, the Utility will regain ownership of its assets and must return the $7 million deposit to the District. As a result of the above, the Company began accounting for the operations of the Utility as a "Discontinued Operation" in the quarter ended January 31, 2005, and has reclassified prior periods to conform to this presentation. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- During the past several years, the Company has financed its operations from internally generated funds from real estate sales and magazine operations, and from borrowings under its various lines of credit and development loan agreements. Cash Flows From Financing Activities ------------------------------------ Kable has a line of credit with a bank which allows it to borrow up to $30,000,000 based upon a prescribed percentage of eligible accounts receivable, 9 as defined. At January 31, 2005, borrowing availability was approximately $21,510,000, against which $11,254,000 was outstanding. This line of credit bears interest at the bank's prime rate (5.25% at January 31, 2005) plus 0.25%, is collateralized by substantially all of Kable's assets and contains various performance and other covenants. Kable also has other borrowing arrangements with another lender to finance capital expenditures which allow borrowings totaling approximately $4,335,000 against which $3,910,000 was outstanding at January 31, 2005 at a weighted average interest rate of 5.3%. Both agreements mature on May 1, 2005, and Kable has been conducting discussions with the current lenders as well as with other potential lenders for financing beyond this date. AMREP Southwest has a loan agreement with a bank providing a maximum borrowing capacity of approximately $6,000,000 to support its operations in New Mexico. Loans under this facility bear interest at the prime rate (5.25% at January 31, 2005) less 0.50%, are collateralized by certain real estate assets and are subject to available collateral and various financial performance and other covenants. At January 31, 2005, the borrowing availability under this agreement was approximately $4,751,000, and no amounts were outstanding. On July 13, 2004, the Company's Board of Directors declared a special dividend of $0.40 per share payable on August 18, 2004 to shareholders of record on July 27, 2004. The Board indicated that it may consider special dividends from time-to-time in the future in light of conditions then existing, including earnings, financial condition, cash position, and capital requirements and other needs. Cash Flows From Operating Activities ------------------------------------ Real estate inventory was $57,357,000 at January 31, 2005 compared to $58,221,000 at April 30, 2004. Kables receivables increased from $42,768,000 at April 30, 2004 to $49,745,000 at January 31, 2005 as the result of the timing and seasonality of billings. Future Payments Under Contractual Obligations --------------------------------------------- The Company is obligated to make future payments under various contracts such as debt agreements and lease agreements, and it is subject to certain other commitments and contingencies. There have been no material changes to Future Payments Under Contractual Obligations as reflected in the Liquidity and Capital Resources section of Management's Discussion and Analysis in the Company's 2004 Form 10-K. Refer to Notes 7, 11 and 12 to the consolidated financial statements in the 2004 Form 10-K for additional information on long-term debt and commitments and contingencies. Statement of Forward-Looking Information ---------------------------------------- Certain information included herein and in other Company statements, reports and filings with the Securities and Exchange Commission is forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Refer to Item 7 of the Company's 2004 Form 10-K for a discussion of the assumptions and factors on which these statements are based. Any changes in the actual outcome of these assumptions and factors could produce significantly different results; accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk ------- ---------------------------------------------------------- The Company has several credit facilities or loans that require the Company to pay interest at a rate that may change periodically. These variable rate obligations expose the Company to the risk of increased interest expense in the event of increases in short-term interest rates. At January 31, 2005, approximately $11,254,000 of the Company's total debt of $15,164,000 was subject to variable interest rates. Refer to Item 7(A) of the Company's 2004 Form 10-K for additional information regarding quantitative and qualitative disclosures about market risk. Item 4. Controls and Procedures ------- ----------------------- Evaluation of Disclosure Controls and Procedures An evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report was carried out by the Company's management, with the participation of the Company's chief financial officer and the other executive officers whose certificates accompany this quarterly report. Based on that evaluation, the chief financial officer and the other executive officers concluded that our disclosure controls and procedures as of the end of the period covered by this report are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934(i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and (ii) accumulated and communicated to our management, including our chief financial officer and the other executive officers whose certificates accompanying this report, as appropriate, to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Subsequent to the date of the most recent evaluation of internal controls, there were no significant changes in internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. 11 PART II. OTHER INFORMATION Item 6. Exhibits ------- -------- Exhibits -------- 31.1 Certification required by Rule 13a - 14 (a) under the Securities Exchange Act of 1934. 31.2 Certification required by Rule 13a - 14 (a) under the Securities Exchange Act of 1934. 31.3 Certification required by Rule 13a - 14 (a) under the Securities Exchange Act of 1934. 32 Certification required pursuant to 18 U.S.C. Section 1350. 12 SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMREP CORPORATION (Registrant) Dated: March 15, 2005 By: /s/ Peter M. Pizza --------------------- Peter M. Pizza Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 13 EXHIBIT INDEX ------------- Exhibit No. Description ------- ----------- 31.1 Certification required by Rule 13a - 14 (a) under the Securities Exchange Act of 1934. 31.2 Certification required by Rule 13a - 14 (a) under the Securities Exchange Act of 1934. 31.3 Certification required by Rule 13a - 14 (a) under the Securities Exchange Act of 1934. 32 Certification required pursuant to 18 U.S.C. Section 1350. 14