-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, izCzevnHNInUizt609WLdUwun4ZGPUk/taKnzt2MVF8zBI9idqkB6zfaiWT3lsQQ YcjB0vKJz4EnyiWSK9Zagg== 0000006207-95-000007.txt : 199507120000006207-95-000007.hdr.sgml : 19950712 ACCESSION NUMBER: 0000006207-95-000007 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950710 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19950711 SROS: CSX SROS: NYSE SROS: PSE 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: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-04702 FILM NUMBER: 95553127 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 8-K/A 1 Securities and Exchange Commission Washington, D.C. FORM 8-K/A-2 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): January 12, 1995 AMREP CORPORATION ----------------------------------------------------------------------- (Exact name of registrant as specified in charter) Oklahoma 1-4702 59-0936128 ---------------- ----------------- -------------- (State or other (Commission File (IRS Employer jurisdiction of Number) Identification incorporation) Number) 641 Lexington Avenue, Sixth Floor, New York, NY 10022 ------------------------------------------------ ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 705-4700 -------------- Item 7. Financial Statements ------- --------------------- (a) Financial Statements of Fulfillment Corporation of America. 1. Audited Financial Statements for the Twelve Months ended December 31, 1993 and 1992. 2. Unaudited Statements of Operations and Statements of Cash Flows for the Nine Months ended September 30, 1994 and 1993, Balance Sheet as of September 30, 1994, and Notes to Financial Statements. (b) Pro forma financial information for AMREP Corporation and Fulfillment Corporation of America. 1. Pro forma Condensed Consolidated Statement of Operations (unaudited) for the year ended April 30, 1994. 2. Pro forma Condensed Consolidated Statement of Operations (unaudited) for the Nine Months ended January 31, 1995. 3. Notes to pro forma Condensed Consolidated Statements of Operations. (c) Exhibits 1. Assets Purchase and Sale Agreement dated as of December 22, 1994, by and among Kable Fulfillment Services of Ohio, Inc., and Fulfillment Corporation of America. (previously filed) 23. Consent of KPMG Peat Marwick LLP, filed herewith. -2- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized. AMREP Corporation Date: July 10, 1995 By: /s/ Harvey W. Schultz --------------------- Senior Vice President -3- FINANCIAL STATEMENTS OF FULFILLMENT CORPORATION OF AMERICA (a) 1. Audited Financial Statements for the Twelve Months ended December 31, 1993 and 1992 FULFILLMENT CORPORATION OF AMERICA (a wholly owned subsidiary of Engelhard Hanovia, Inc.) Financial Statements December 31, 1993 and 1992 (With Independent Auditors' Report Thereon) KPMG Peat Marwick LLP Independent Auditors' Report The Board of Directors Fulfillment Corporation of America: We have audited the accompanying balance sheets of Fulfillment Corporation of America, a wholly owned subsidiary of Engelhard Hanovia, Inc. (the Company), as of December 31, 1993 and 1992, and the related statements of operations, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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 previous review report dated March 3, 1994, on the 1992 financial statements, we referred to a departure from generally accepted accounting principles because the Company failed to provide income taxes. However, as disclosed in notes 2 and 9, the Company has restated its 1992 financial statements to conform with generally accepted accounting principles. Since that date we have conducted an audit of the 1992 financial statements, as discussed above. Accordingly, our present opinion on the 1992 financial statements, as presented herein, is different from that expressed in our previous report. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Fulfillment Corporation of America as of December 31, 1993 and 1992, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. As discussed in note 9 to the financial statements, the Company changed its method of accounting for income taxes in 1993 to adopt the provisions of the Financial Accounting Standards Board's SFAS No. 109, Accounting for Income Taxes. As more fully discussed in notes 10 and 12 to the financial statements, following an environmental survey, it was reported that certain environmental conditions exist at Company facilities, some of which may require remediation. The ultimate cost of the remediation can not presently be determined. Accordingly, no provision for any liability that may result has been recognized in the accompanying financial statements. KPMG Peat Marwick LLP Columbus, Ohio October 14, 1994, except for the second paragraph of note 5, as to which the date is November 22, 1994 and note 12, as to which the date is December 1, 1994 FULFILLMENT CORPORATION OF AMERICA (a wholly owned subsidiary of Engelhard Hanovia, Inc.) Balance Sheets (Restated See Note 11) December 31, 1993 and 1992 Assets 1993 1992 ------ ----------- ---------- Current assets: Cash $ 517,927 346,453 Accounts receivable for services and reimbursable expenses, less allowance for doubtful accounts of $139,817 2,430,704 3,832,859 Unbilled services and reimbursable expenses: Postage 430,532 528,342 Services 294,420 463,148 Other expenses 54,177 94,477 ----------- ---------- 779,129 1,085,967 Less customer deposits (667,659) (1,068,822) ----------- ---------- Net unbilled services and reimbursable expenses 111,470 17,145 Inventories 150,523 113,265 Prepaid expenses 265,700 127,974 Deferred income taxes (note 9) 65,000 66,000 ----------- ---------- Total current assets 3,541,324 4,503,696 ----------- ---------- Property, plant, and equipment, net (notes 3 and 6) 2,274,500 2,743,781 Other assets: Due from parent company-income taxes 488,000 133,000 Deferred costs, net (note 4) 878,411 1,137,671 Prepaid pension expense (note 8) 121,312 80,052 Outsourced computer data processing (note 5): Advance payments 130,007 170,003 Deferred conversion costs 211,000 275,614 Goodwill, less accumulated amortization of $183,647 and $173,444 in 1993 and 1992, respectively 20,406 30,609 Cash surrender value of life insurance (note 8) 18,316 5,214 ----------- ---------- Total assets $ 7,683,276 9,079,640 =========== ========== FULFILLMENT CORPORATION OF AMERICA (a wholly owned subsidiary of Engelhard Hanovia, Inc.) Balance Sheets, continued (Restated See Note 11) Liabilities and Stockholder's Equity 1993 1992 ------------------------------------ ----------- ---------- Current liabilities: Current installments of long-term debt (note 7) $ 41,100 41,100 Current installments of obligations under capital leases (note 6) 194,143 176,819 Accounts payable 155,908 137,699 Due to parent company 10,838 65,184 Accrued expenses: Outsourced computer conversion costs (note 5) 211,000 275,614 Payroll 63,037 66,216 Workers' compensation 60,227 39,486 Supplemental retirement (note 8) 72,565 16,430 Other 163,663 269,360 ----------- ---------- Total current liabilities 972,481 1,087,908 Long-term debt, excluding current installments (note 7) 653,379 694,479 Obligations under capital leases, excluding current installments (note 6) 287,646 484,325 Deferred income taxes (note 9) 410,000 526,000 ----------- ---------- Total liabilities 2,323,506 2,792,712 ----------- ---------- Stockholder's equity: Common stock, $1 par value. Authorized 1,000 shares; 100 issued and outstanding shares 100 100 Additional paid-in capital 126,900 126,900 Retained earnings 5,232,770 6,159,928 ----------- ---------- Total stockholder's equity 5,359,770 6,286,928 Commitments and contingencies (notes 6, 10 and 12) ----------- ---------- Total liabilities and stockholder's equity $ 7,683,276 9,079,640 =========== ========== See accompanying notes to financial statements. FULFILLMENT CORPORATION OF AMERICA (a wholly owned subsidiary of Engelhard Hanovia, Inc.) Statements of Operations (Restated See Note 11) Years ended December 31, 1993 and 1992 1993 1992 ----------- ---------- Net sales $14,737,502 17,055,227 Direct costs: Labor 6,279,441 7,340,335 Outsourced computer data processing services (note 5) 2,165,577 1,981,541 Materials and supplies 639,252 582,152 Operating overhead 2,942,463 3,138,830 Amortization of deferred costs 681,335 719,041 ----------- ---------- Total direct costs 12,708,068 13,761,899 ----------- ---------- Gross profit 2,029,434 3,293,328 General and administrative expenses 3,429,540 3,703,012 ----------- ---------- Other income (expense): Interest expense (76,820) (97,811) Interest income 52,595 59,780 Other, net 27,173 36,035 ----------- ---------- Total other income (expense) 2,948 (1,996) ----------- ---------- Loss before income taxes and cumulative effect of change in accounting principle (1,397,158) (411,680) Income tax benefit (note 9) 470,000 133,000 ----------- ---------- Loss before cumulative effect of change in accounting principle (927,158) (278,680) Cumulative effect of change in accounting for income taxes (note 9) - 60,000 ----------- ---------- Net loss $ (927,158) (338,680) =========== ========== See accompanying notes to financial statements. FULFILLMENT CORPORATION OF AMERICA (a wholly owned subsidiary of Engelhard Hanovia, Inc.) Statements of Stockholders' Equity (Restated See Note 11) Years ended December 31, 1993 and 1992 Common Additional Retained stock paid-in earnings capital ------ ---------- --------- Balance at December 31, 1991, as previously reported $ 100 126,900 6,876,608 Correction of an error (note 11) - - (378,000) --- ------- --------- Balance at December 31, 1991, as adjusted 100 126,900 6,498,608 Net loss - - (338,680) --- ------- --------- Balance at December 31, 1992 100 126,900 6,159,928 Net loss - - (927,158) --- ------- --------- Balance at December 31, 1993 $ 100 126,900 5,232,770 === ======= ========= See accompanying notes to financial statements. FULFILLMENT CORPORATION OF AMERICA (a wholly owned subsidiary of Engelhard Hanovia, Inc.) Statements of Cash Flows (Restated See Note 11) Years ended December 31, 1993 and 1992 1993 1992 ----------- --------- Net loss $ (927,158) (338,680) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation of property, plant and equipment 603,710 588,177 Amortization of deferred costs 681,335 719,041 Amortization of goodwill 10,203 10,203 Increase (decrease) in deferred income taxes (115,000) 60,000 Decrease in accounts receivable, net 1,402,155 582,391 Increase in amount due from parent company-income taxes (355,000) (133,000) Decrease (increase) in net unbilled services and reimbursable expenses (94,325) 348,632 Decrease (increase) in inventories (37,258) 9,873 Decrease (increase) in prepaid expenses (137,726) 113,683 Increase in prepaid pension expense (41,260) (80,052) Decrease in outsourced data processing advance payments 39,996 29,997 Decrease in outsourced data processing deferred conversion costs 64,614 34,386 Increase in cash surrender value of life insurance (13,102) (5,214) Increase (decrease) in accounts payable 18,209 (101,647) Decrease in amount due to parent company (54,346) (357,998) Decrease in accrued outsourced computer conversion costs (64,614) (34,386) Increase (decrease) in accrued payroll (3,179) 38,542 Increase in accrued workers' compensation 20,741 2,465 Increase in accrued supplemental retirement 56,135 16,430 Decrease in other accrued expenses (105,697) (2,262) ----------- --------- Net cash provided by operating activities 948,433 1,500,581 ----------- --------- Cash flows from investing activities: Additions to deferred costs (422,075) (473,039) Capital expenditures (134,429) (230,178) ----------- --------- Net cash used in investing activities (556,504) (703,217) ----------- --------- Cash flows from financing activities: Principal payments on short-term bank loans - (300,000) Principal payments on long-term debt (41,100) (37,914) Principal payments under capital lease obligations (179,355) (160,398) ----------- --------- Net cash used in financing activities (220,455) (498,312) ----------- --------- Net increase in cash 171,474 299,052 Cash and cash equivalents at beginning of 346,453 47,401 ----------- --------- Cash and cash equivalents at end of year $ 517,927 346,453 =========== ========= Supplemental disclosures: The Company paid $77,198 and $94,940 for interest in 1993 and 1992, respectively. In 1992, the Company acquired equipment of $634,440 through capital leases. See accompanying notes to financial statements. FULFILLMENT CORPORATION OF AMERICA (a wholly owned subsidiary of Engelhard Hanovia, Inc.) Notes to Financial Statements (Restated See Note 11) December 31, 1993 and 1992 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Organization Fulfillment Corporation of America (the Company) is a national computer service company specializing in subscription fulfillment, principally for the magazine publishing industry. The Company, a wholly owned subsidiary of Engelhard Hanovia, Inc.(Parent), was founded in 1948 and is located in Marion, Ohio. One customer accounted for 35% and 36% of the Company's sales in 1993 and 1992, respectively. (b) Unbilled Services, Reimbursable Expenses, and Customer Deposits Unbilled services represents services provided to customers, which are not yet billed. Reimbursable expenses include such items as postage, shipping, and handling, which the Company has incurred on behalf of its customers, but which have not yet been billed. The Company maintains deposits on behalf of customers to pay for postage and other recurring expenses related to fulfillment services. (c) Inventories Inventories are stated at the lower of cost or market. Cost is determined using the average cost of all purchases. (d) Property, Plant, and Equipment Property, plant, and equipment are stated at cost. Plant and equipment under capital leases are stated at the present value of minimum lease payments. Depreciation on plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized on the straight-line method over the lease term. (e) Deferred Costs All deferred costs are amortized over their expected lives. Deferred costs incurred beginning January 1, 1993 are amortized using the straight-line method, as described below, over three years. Deferred costs capitalized prior to 1993 are amortized using the straight-line method over five years. However, during 1993, the Company assessed the net realizability of all remaining unamortized costs. The direct costs to convert customers to the Company's systems and to program new applications for such customers are amortized on the straight-line method over the period of the customer's contract, generally three years. The direct costs of programming computer systems used in the delivery of services to a group of customers is amortized on the straight-line method over the lesser of the expected period to be benefited or three to five years. The costs of training employees includes wages and other employee expenses during the training period. Such costs directly relate to the production of new revenues or increased profitability of existing services and are amortized on the straight-line method over the lesser of the expected period to be benefited or three years. For all deferred costs, the Company regularly assesses the net realizability of the remaining unamortized amount through future profits and records a write-down, as needed. (f) Goodwill Goodwill, which represents the excess of the Parent's purchase price of the Company over fair value of net assets acquired, is amortized on the straight-line method over the expected periods to be benefited, which is 20 years. (g) Income Taxes The Company's results of operations are included in the consolidated income tax return of its Parent. The Company has a tax sharing arrangement with its Parent whereby income taxes are calculated on a stand alone basis. Accordingly, the Company records income tax expense (benefit) based on its taxable income (loss). The due from parent company-income taxes reflected on the balance sheet represents the receivable from the Parent relating to the income tax benefit associated with the Company's 1993 and 1992 net losses. In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (Statement 109). Statement 109 requires a change from the deferred method of accounting for income taxes of APB Opinion 11 to the asset and liability method of accounting for income taxes. Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company adopted Statement 109 in 1993 and has applied the provisions of Statement 109 retroactively to January 1, 1992. The cumulative effect of the change in the method of accounting for income taxes as of January 1, 1992 is reported separately in the 1992 statement of operations. (h) Statements of Cash Flows For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments with maturities of three months or less at time of purchase to be cash equivalents. (i) Reclassifications Certain 1992 balances have been reclassified to conform with 1993 financial statement presentation. (j) Revenue Recognition Fulfillment revenues are recorded when earned, which is generally when services are performed and completed. (2) RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS The previously issued 1992 financial statements did not provide for income taxes as required by generally accepted accounting principles. The 1992 and 1993 financial statements have been restated to reflect implementation of Statement 109 (note 9). In conjunction with applying the provisions of Statement 109 retroactively to January 1, 1992, a tax benefit of $133,000 has been recorded and the cumulative effect of the change in the method of accounting for income taxes of $60,000 has been reflected in the 1992 statement of operations. The table below reflects the implementation of Statement 109 and the correction of an error discussed in note 11. 1993 1992 ----------- ---------- Previously reported net loss $ (987,158) (411,680) Cumulative effect of adjusting Statement 109 retroactive to January 1, 1992 (note 9) 60,000 (60,000) 1992 Statement 109 tax benefit (note 9) - 133,000 ----------- ---------- Income statement adjustments 60,000 73,000 ----------- ---------- Net loss, as restated $ (927,158) (338,680) =========== ========== 1993 1992 ----------- ----------- Previously reported retained earnings $ 5,477,770 6,464,928 Income statement adjustments, 1992 73,000 73,000 Income statement adjustments, 1993 60,000 - Correction of error (note 11) (378,000) (378,000) ----------- ----------- Retained earnings, restated $ 5,232,770 6,159,928 =========== =========== (3) PROPERTY, PLANT AND EQUIPMENT The following is a summary of property, plant and equipment: 1993 1992 ----------- ----------- Land $ 199,030 199,030 Buildings and leasehold improvements 1,940,989 1,901,293 Furniture and equipment 4,301,818 4,431,430 ----------- ----------- 6,441,837 6,531,753 Less accumulated depreciation and and amortization 4,167,337 3,787,972 ----------- ----------- $ 2,274,500 2,743,781 =========== =========== (4) DEFERRED COSTS The following is a summary of deferred costs: 1993 1992 ----------- ----------- Computer system, software and program application costs $ 1,088,062 1,149,079 Customer conversion 732,108 1,131,549 Training costs 98,166 97,286 ----------- ----------- 1,918,336 2,377,914 Less accumulated amortization 1,039,925 1,240,243 ----------- ----------- $ 878,411 1,137,671 =========== =========== In 1993, the Company wrote-off cost and accumulated amortization of $881,653 relating to lost customers. (5) OUTSOURCED COMPUTER DATA PROCESSING SERVICES In October 1991, the Company entered into an agreement to outsource its computer data processing services to Acxiom Corporation (Acxiom). At the commencement of the agreement, the Company made advance payments to Acxiom for certain conversion costs, which are being amortized over the five year term of the agreement. Other conversion costs which were incurred by Acxiom are being billed to the Company over five years. These costs are due in full if the agreement is terminated for any reason and are therefore reflected as an accrued expense in the balance sheets, with an offsetting asset which is being amortized over five years. The term of the agreement is through October 1996. However, under an amendment made on November 22, 1994, both parties have the unconditional right to terminate the agreement before January 6, 1995. If terminated, the termination shall become effective not less than 180 days from the termination date. (6) LEASES The Company is obligated under various capital leases for certain machinery and equipment that expire at various dates during the next three years. At December 31, 1993 and 1992, the gross amount of plant and equipment and related accumulated amortization recorded under capital leases were as follows: 1993 1992 ----------- ----------- Equipment $ 1,029,805 1,029,805 Less accumulated amortization 473,888 295,254 ----------- ----------- $ 555,917 734,551 =========== =========== Amortization of assets held under capital leases is included with depreciation expense. The Company has several noncancelable operating leases, primarily for buildings and equipment. Rent expense associated with these leases for the years ended December 31, 1993 and 1992 was approximately $270,000 and $210,000, respectively. Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of December 31, 1993 are: Capital Operating leases leases ----------- ---------- Year ending December 31: 1994 $ 225,283 154,503 1995 275,646 14,028 1996 27,006 - ----------- ---------- Total minimum lease payments 527,935 168,531 ========== Less amount representing interest (at rates ranging from 7.0% to 10.5%) 46,146 ----------- Present value of net minimum capital lease payments 481,789 Less current installments of obligations under capital leases 194,143 ----------- Obligations under capital leases, excluding current installments $ 287,646 =========== (7) LONG-TERM DEBT Long-term debt at December 31, 1993 and 1992 consists of the following: 1993 1992 ----------- ---------- Mortgage note payable in quarterly installments of $4,500, plus interest at LIBOR + 3/4% , with final payment of $66,379 due August 1, 1997 $ 129,379 147,379 Industrial Development First Mortgage Revenue bonds payable in monthly installments of $1,925 plus interest at 60% of the prime rate, with final payment of $388,000 due September 1, 2001. The Company's parent has pledged investment securities to secure these bonds. 565,100 588,200 ----------- ---------- Total long-term debt 694,479 735,579 Less current installments 41,100 41,100 ----------- ---------- Long-term debt, excluding current installments $ 653,379 694,479 =========== ========== The aggregate maturities of long-term debt for each of the five years subsequent to December 31, 1993 are as follows: 1994, $41,100; 1995, $41,100; 1996, $41,100; 1997, $98,479; 1998, $23,100; and $449,600 thereafter. The Company also had a $1,000,000 unsecured line of credit agreement with no outstanding balance at December 31, 1992. The line expired in April 1993. (8) PENSION BENEFITS The Company has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee's compensation. The Company makes annual contributions to the plan equal to the minimum amount that can be contributed for the purpose of complying with the Employee Retirement Income Security Act of 1974. The following table sets forth the plan's funded status and amounts recognized in the Company's balance sheets at December 31, 1993 and 1992. 1993 1992 ----------- ----------- Actuarial present value of benefit obligations: Vested benefit obligation $ 3,680,039 3,383,759 =========== =========== Accumulated benefit obligation $ 3,717,774 3,474,279 =========== =========== Projected benefit obligation 3,717,774 3,576,833 Plan assets at fair value 4,048,552 3,790,851 ----------- ----------- Projected benefit obligation less than plan assets 330,778 214,018 Unrecognized net gain 434,618 553,962 Prior service cost not yet recognized in net periodic pension cost (810,835) (873,207) Unrecognized net obligation 166,751 185,279 ----------- ----------- Prepaid pension expense $ 121,312 80,052 =========== =========== Plan assets are comprised of commingled pension trust funds maintained by the plan's trustee. Net pension cost for 1993 and 1992 included the following components: 1993 1992 ---------- ---------- Service cost-benefits earned during the period $ 125,019 117,392 Interest cost on projected benefit obligation 252,288 238,375 Actual return on plan assets (408,234) (290,423) Net amortization and deferral 75,500 (39,788) ----------- ---------- Net pension cost $ 44,573 25,556 =========== ========== Assumptions used in accounting for the pension plan as of December 31, 1993 and 1992 were: 1993 1992 ----- ----- Weighted average discount rates 7.25% 7.25% Weighted average rates of increase in compensation levels 4.50% 4.50% Weighted average expected long-term rate of return on assets 8.00% 8.00% The Company has entered into supplemental nonqualified retirement agreements with certain employees. The benefits under the agreements are based on years of service and the employee's compensation. The Company has purchased life insurance policies on these employees to fund these retirement payments, the cash surrender value of which is reflected as an asset on the balance sheets. (9) INCOME TAXES As discussed in note 1(g), the Company adopted Statement 109 in 1993 and has applied the provisions of Statement 109 retroactively to January 1, 1992. The cumulative effect of this change in accounting for income taxes of $60,000 is determined as of January 1, 1992 and is reported separately in the statement of operations for the year ended December 31, 1992. The financial statements for the year ended December 31, 1992 have been restated to comply with the provisions of Statement 109 (note 2). Income tax benefit attributable to loss before cumulative effect of change in accounting principle consists of: Current Deferred Total ---------- ---------- --------- Year ended December 31, 1993: Federal $ (355,000) (110,000) (465,000) State and local - (5,000) (5,000) ---------- ---------- ---------- $ (355,000) (115,000) (470,000) ========== ========== ========== Current Deferred Total ---------- ---------- ---------- Year ended December 31, 1992: Federal $ (133,000) - (133,000) State and local - - - ---------- ---------- --------- $ (133,000) - (133,000) ========== ========== ========== The actual tax benefit (effective tax rate of 33.6% and 32.3% for 1993 and 1992, respectively) differs from the "expected" tax expense (computed by applying the U.S. Federal corporate income tax rate of 35% to pretax loss before cumulative effect of change in accounting principle) primarily because of the amortization of goodwill, meals and entertainment expense and officers' life insurance expense. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31 are presented below: 1993 1992 ----------- ---------- Deferred tax assets: Bad debt reserves $ 47,000 48,000 Accrued state taxes 18,000 18,000 ----------- ---------- Total gross deferred tax assets 65,000 66,000 ----------- ---------- Deferred tax liabilities: Computer systems and programming 330,000 415,000 Property, plant, and equipment, primarily due to differences in depreciation 80,000 111,000 ----------- ---------- Total gross deferred tax liabilities 410,000 526,000 ----------- ---------- Net deferred tax liability $ 345,000 460,000 =========== ========== A valuation allowance has not been established relating to the Company's deferred tax assets because management of the Parent has determined it is more likely than not that the results of the Parent's future operations will generate sufficient taxable income to realize the deferred tax assets. (10) COMMITMENTS AND CONTINGENCIES The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position, or results of operations. As a result of an environmental survey conducted during the course of negotiations between the Company and the intended purchaser, it was reported that certain environmental conditions exist at the Company facilities some of which the Company has determined require remediation, and others which may or may not require remediation pending the results of further analysis. The terms of the pending sale of the Company exclude the asset for which the need for remediation is uncertain. Regarding the environmental condition for which remediation is certain, the Parent has committed to pay the costs incurred in connection with such remediation. Because the extent of the costs associated with the remediation cannot presently be determined, no provision for any liability that may result is included in the financial statements. (11) CORRECTION OF ERROR The Company's unbilled services and reimbursable expenses had been overstated in previous years. The amount of the error of $378,000 was based on management's best estimate after reconstructing the amounts due in prior years. Management determined the error originated prior to January 1, 1992 and therefore is included as a correction of an error in the statements of stockholders' equity. (12) SUBSEQUENT EVENT As of December 1, 1994, the Parent continues to have discussions with a subsidiary of Kable News Corp. whereby it intends to sell principally all assets and transfer certain liabilities of the Company in exchange for approximately $2,060,000 in cash. The asset for which the need to remediate the environmental condition is uncertain (note 10) and amounts due from and due to the Parent will be excluded from the transaction. FINANCIAL STATEMENTS OF FULFILLMENT CORPORATION OF AMERICA (a) 2. Unaudited Statements of Operations and Statements of Cash Flows for the Nine Months ended September 30, 1994 and 1993, Balance Sheet as of September 30, 1994 and Notes to Financial Statements FULFILLMENT CORPORATION OF AMERICA (a wholly owned subsidiary of Engelhard Hanovia, Inc.) Balance Sheet (Unaudited) September 30, 1994 Assets ------ Current assets: Cash $ 412,039 Accounts receivable for services and reimbursable expenses, less allowance for doubtful accounts of $139,817 2,242,689 Due from parent company--income taxes 666,504 Unbilled services and reimbursable expenses: Postage 299,195 Services 300,288 Other expenses 42,172 ----------- 641,655 Less customer deposits (576,585) ----------- Net unbilled services and reimbursable expenses 65,070 Inventories 148,568 Prepaid expenses 139,260 ----------- Total current assets 3,674,130 ----------- Property, plant, and equipment, net 1,908,582 Other assets: Deferred costs, net 820,256 Prepaid pension expense 223,879 Outsourced computer data processing: Advance payments 100,010 Deferred conversion costs 162,364 Goodwill, less accumulated amortization of $191,299 12,754 Other 29,191 ----------- Total assets $ 6,931,166 =========== FULFILLMENT CORPORATION OF AMERICA (a wholly owned subsidiary of Engelhard Hanovia, Inc.) Balance Sheet (Unaudited) continued September 30, 1994 Liabilities and Stockholder's Equity ------------------------------------ Current liabilities: Current installments of long-term debt $ 41,100 Current installments of obligations under capital leases 194,143 Accounts payable 35,177 Due to parent company 10,838 Accrued expenses 490,171 ----------- Total current liabilities 771,429 Long-term debt, excluding current installments 622,554 Obligations under capital leases, excluding current installments 142,043 Deferred income taxes 345,000 ----------- Total liabilities 1,881,026 ----------- Stockholder's equity: Common stock, $1 par value. Authorized 1,000 shares 100 issued and outstanding shares 100 Additional paid-in capital 126,900 Retained earnings 4,923,140 ----------- Total stockholder's equity 5,050,140 ----------- Total liabilities and stockholder's equity $ 6,931,166 =========== FULFILLMENT CORPORATION OF AMERICA (a wholly owned subsidiary of Engelhard Hanovia, Inc.) Statements of Operations (Unaudited) For the Nine Months ended September 30, 1994 and 1993 1994 1993 ----------- ----------- Net sales $ 8,797,425 $11,614,416 Direct costs: Labor 4,183,022 5,232,309 Outsourced computer data processing services 1,315,202 1,706,033 Materials and supplies 287,391 467,213 Operating overhead 1,462,384 1,879,080 Amortization of deferred costs 278,489 359,273 ----------- ----------- Total direct costs 7,526,488 9,643,908 ----------- ----------- Gross profit 1,270,937 1,970,508 General and administrative expenses 1,666,753 2,564,968 ----------- ----------- Other income (expense): Interest expense (46,309) (58,936) Interest income 14,274 39,743 Other, net (34,283) 34,096 ----------- ----------- Total other income (expense) (66,318) 14,903 ----------- ----------- Loss before income taxes (462,134) (579,557) Income tax benefit 152,504 194,731 ----------- ----------- Net loss $ (309,630) $ (384,826) =========== =========== FULFILLMENT CORPORATION OF AMERICA (a wholly owned subsidiary of Engelhard Hanovia, Inc.) Statements of Cash Flows (Unaudited) For the Nine Months ended September 30, 1994 and 1993 1994 1993 ----------- ---------- Net loss $ (309,630) $ (384,826) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation of property, plant and equipment 436,011 451,227 Amortization of deferred costs 278,290 359,273 Amortization of goodwill 7,652 7,653 Increase (decrease) in deferred income taxes - (54,270) Decrease in accounts receivable, net 188,015 1,029,739 Increase in amount due from parent company-- income taxes (178,504) (194,731) Decrease (increase) in net unbilled services and reimbursable expenses (220,605) (263,460) Decrease (increase) in inventories 1,955 2,458 Decrease (increase) in prepaid expenses 393,445 29,693 Increase in prepaid pension expense (89,250) (10,932) Decrease in outsourced data processing advance payments and deferred conversion costs 78,633 78,399 Increase in cash surrender value of life insurance (10,875) (8,523) Decrease in accounts payable (26,575) (14,865) Decrease in amount due to parent company - (76) Increase (decrease) in accrued expenses (187,794) 165,542 ----------- ---------- Net cash provided by operating activities 360,768 1,192,301 ----------- ---------- Cash flows from investing activities: Additions to deferred costs (220,135) (299,292) Capital expenditures (70,093) (129,596) ----------- ---------- Net cash used in investing activities (290,228) (428,888) ----------- ---------- Cash flows from financing activities: Principal payments on short-term bank loans - - Principal payments on long-term debt (30,825) (30,825) Principal payments under capital lease obligations (145,603) (134,516) ----------- ---------- Net cash used in financing activities (176,428) (165,341) ----------- ---------- Net increase (decrease) in cash (105,888) 598,072 Cash and cash equivalents at beginning of year 517,927 346,453 ----------- ---------- Cash and cash equivalents at end of year $ 412,039 $ 944,525 =========== ========== FULFILLMENT CORPORATION OF AMERICA (a wholly owned subsidiary of Engelhard Hanovia, Inc.) Notes to Financial Statements (Unaudited) Nine Months Ended September 30, 1994 and 1993 Note 1: ------- These financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements reflect all adjustments which are, in the opinion of management, necessary to reflect a fair presentation of the results for the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. It is suggested that these financial statements be read in conjunction with the audited financial statements and notes thereto included in Item 7. (a) 1. of this filing. (b) Pro Forma Financial Information ------------------------------------ A Pro Forma Condensed Consolidated Balance Sheet is not presented at this filing, as this transaction is already reflected in the Registrant's Balance Sheet of the January 31, 1995, Form 10-Q filed on March 17, 1995. The unaudited Pro Forma Condensed Consolidated Statements of Operations for the year ended April 30, 1994, and the nine months ended January 31, 1995 are presented by combining with the adjustments described in the accompanying notes, (1) the results of operations of the Company for such year and nine month period adjusted for the results of operations of Fulfillment Corporation of America (FCA) which was acquired January 13, 1995, and, (2) the results of operations of FCA for such year and nine month period, using the assumption that this acquisition had occurred May 1, 1993. The unaudited Pro Forma Condensed Consolidated Statements of Operations may not necessarily reflect the results of operations of the Company which would have actually resulted had the Fulfillment Corporation of America acquisition occurred as of the dates and for the periods indicated or of the future results of operations of the Company. The unaudited Pro Forma Condensed Consolidated Statements of Operations should be read in conjunction with the accompanying notes and the accompanying audited financial statements of Fulfillment Corporation of America. PRO FORMA FINANCIAL INFORMATION FOR AMREP CORPORATION AND FULFILLMENT CORPORATION OF AMERICA (b) 1. Pro Forma Condensed Consolidated Statement of Operations (unaudited) for the year ended April 30, 1994 PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except per share amounts) (Unaudited) Twelve Months Ended April 30, 1994 --------------------------------------------- FCA Pro Forma Pro AMREP FCA Adjustments Forma -------- -------- ----------- -------- REVENUES -------- Real estate operations $ 85,613 $ - $ - $ 85,613 Magazine circulation 35,029 13,294 - 48,323 Other 5,446 69 - 5,515 -------- -------- -------- -------- Total Revenue 126,088 13,363 - 139,451 -------- -------- -------- -------- COST AND EXPENSES ----------------- Real estate operations 80,343 - - 80,343 Magazine circulation 24,859 11,769 (617)(a) 35,534 (477)(c) General & administrative 13,325 2,903 (21)(a) 16,207 Interest 2,635 71 188 (d) 2,894 Real estate valuation provision 1,100 - - 1,100 -------- -------- ------- -------- Total Cost and Expense 122,262 14,743 (927) 136,078 -------- -------- ------- -------- Income (loss) before income taxes 3,826 (1,380) 927 3,373 Provision (benefit) for income taxes 1,454 (410) 238 (e) 1,282 -------- -------- ------- -------- Net income (loss) $ 2,372 $ (970) $ 689 $ 2,091 ======== ======== ======= ======== Net income per share $ 0.33 $ 0.29 ======== ======== PRO FORMA FINANCIAL INFORMATION FOR AMREP CORPORATION AND FULFILLMENT CORPORATION OF AMERICA (b) 2. Pro Forma Condensed Consolidated Statement of Operations (unaudited) for the Nine Months ended January 31, 1995 PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except per share amounts) (Unaudited) Nine Months Ended January 31, 1995 ------------------------------------------------- Less FCA Included FCA in Pro Forma Pro AMREP AMREP(f) FCA Adjustments Forma -------- -------- -------- ----------- -------- REVENUES -------- Real estate operations $ 72,784 $ - $ - $ - $ 72,784 Magazine circulation 31,945 (466) 8,678 - 40,157 Other 4,897 - 17 - 4,914 -------- -------- -------- -------- -------- Total Revenue 109,626 (466) 8,695 - 117,855 -------- -------- -------- -------- -------- COST AND EXPENSES ----------------- Real estate operations 69,255 - - - 69,255 Magazine circulation 23,731 (406) 7,887 (596)(a) 30,110 (506)(b) General & administrative 9,385 (54) 1,494 (15)(a) 10,810 Interest 2,437 - 60 152 (d) 2,649 -------- -------- -------- ------- -------- Total Cost and Expense 104,808 (460) 9,441 (965) 112,824 -------- -------- -------- ------- -------- Income (loss) before income taxes 4,818 (6) (746) 965 5,031 Provision (benefit) for income taxes 1,918 (2) (26) 112 (e) 2,002 -------- -------- -------- ------- -------- Net income (loss) $ 2,900 $ (4) $ (720) $ 853 $ 3,029 ======== ======== ======== ======= ======== Net income per share $ 0.40 $ 0.41 ======== ======== PRO FORMA FINANCIAL INFORMATION FOR AMREP CORPORATION AND FULFILLMENT CORPORATION OF AMERICA (b) 3. Notes to Pro Forma Condensed Consolidated Statements of Operations NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------------------------------------ (a) The acquisition of FCA was recorded based on the purchase method of accounting. The net book value of the assets acquired and liabilities assumed exceeded the purchase price by approximately $2,370,000. The excess book value over purchase price was allocated to reduce the value assigned to non-current assets subject to amortization and depreciation. Accordingly, historical depreciation of property, plant and equipment and net amortization of deferred costs were reduced as follows: Nine Months Year Ended Ended April 30, 1994 January 31, 1995 -------------- ---------------- Reduction of depreciation and amortization expense included in: ----------------- Magazine circulation $ 617,000 $ 596,000 General and administrative 21,000 15,000 -------------- -------------- $ 638,000 $ 611,000 ============== ============== (b) The Company has cancelled its contract with an outside computer data processing service and is converting to the use of its own in- house facilities during the cancellation period. The Company expects to realize a significant cost reduction in fixed contract charges. As a result, the cost savings would have been effective approximately May 1, 1994 (the earliest that the contract could have been cancelled had the Company purchased the assets May 1, 1993, and exercised the cancellation clause), resulting in savings net of incremental in-house costs of approximately $506,000 in the nine months ended January 31, 1995. -1- (c) The Company defers certain fulfillment operating labor costs whereas FCA recorded these costs as period costs. Accordingly the Company will phase in this change in method of capitalization over one year. As a result, magazine circulation expense for the fiscal year ending April 30, 1994, would have been reduced by approximately $477,000. (d) Historical interest expense was increased to reflect additional borrowings of $2,070,000 to finance the acquisition of FCA by $188,000 and $152,000 for the periods ended April 30, 1994 and January 31, 1995, respectively. (e) The Company's effective tax rate for the combined federal and state income taxes are used to adjust the provision for income taxes in the Pro Forma Condensed Consolidated Statements of Operations. The rate used for the periods ended April 30, 1994 and January 31, 1995, were 38% and 39.8%, respectively. (f) The column headed, "Less FCA Included in AMREP", represents the operations of FCA included in the "AMREP" column from the date of acquisition January 13, 1995 to January 31, 1995. -2- EX-23 2 The Board of Directors AMREP Corporation We consent to the incorporation by reference in the registration statements (Nos. 33-09852, 33-19430, 33-40281, 33-67114 and 33-67116) on Form S-8 of AMREP Corporation of our report dated October 14, 1994, with respect to the balance sheets of Fulfillment Corporation of America as of December 31, 1993 and 1992, and the related statements of operations, stockholders' equity, and cash flows for each of the years in the two year period ended December 31, 1993, which report appears in the Form 8-K/A of AMREP Corporation dated July 10, 1995. Our report refers to a change in the method of accounting for income taxes in 1993 to adopt the provisions of the Financial Accounting Standards Board's SFAS No. 109, Accounting for Income Taxes. Our report also contains an explanatory paragraph that states the Company has certain environmental conditions existing at Company facilities, some of which may require remediation. The ultimate cost of the remediation could not be determined, accordingly, no provision for liability was recorded in the financial statements. KPMG Peat Marwick LLP Columbus, Ohio July 10, 1995 -----END PRIVACY-ENHANCED MESSAGE-----