|
Item 1.
|
Financial
Statements
|
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands, except par value and
share amounts)
|
|
January 31,
2017
|
|
|
April 30,
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
10,753
|
|
|
$
|
14,562
|
|
Receivables, net
|
|
|
7,190
|
|
|
|
7,271
|
|
Real estate inventory
|
|
|
57,165
|
|
|
|
61,663
|
|
Investment assets, net
|
|
|
9,715
|
|
|
|
10,326
|
|
Property, plant and equipment, net
|
|
|
11,010
|
|
|
|
11,997
|
|
Other assets
|
|
|
2,813
|
|
|
|
3,478
|
|
Taxes receivable
|
|
|
172
|
|
|
|
48
|
|
Deferred income taxes, net
|
|
|
10,721
|
|
|
|
11,283
|
|
TOTAL ASSETS
|
|
$
|
109,539
|
|
|
$
|
120,628
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
6,963
|
|
|
$
|
8,453
|
|
Notes payable:
|
|
|
|
|
|
|
|
|
Amounts due within one year
|
|
|
-
|
|
|
|
555
|
|
Amounts due within one year to related party
|
|
|
1,586
|
|
|
|
12,384
|
|
|
|
|
1,586
|
|
|
|
12,939
|
|
|
|
|
|
|
|
|
|
|
Other liabilities and deferred revenue
|
|
|
3,434
|
|
|
|
3,682
|
|
Accrued pension cost
|
|
|
13,654
|
|
|
|
12,710
|
|
TOTAL LIABILITIES
|
|
|
25,637
|
|
|
|
37,784
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
Common stock, $.10 par value; shares authorized – 20,000,000; shares issued – 8,303,204 at January 31, 2017 and 8,284,704 at April 30, 2016
|
|
|
830
|
|
|
|
828
|
|
Capital contributed in excess of par value
|
|
|
50,693
|
|
|
|
50,553
|
|
Retained earnings
|
|
|
47,695
|
|
|
|
46,779
|
|
Accumulated other comprehensive loss, net
|
|
|
(11,101
|
)
|
|
|
(11,101
|
)
|
Treasury stock, at cost; 225,250 shares at January 31, 2017 and April 30, 2016
|
|
|
(4,215
|
)
|
|
|
(4,215
|
)
|
TOTAL SHAREHOLDERS’ EQUITY
|
|
|
83,902
|
|
|
|
82,844
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
$
|
109,539
|
|
|
$
|
120,628
|
|
The accompanying notes
to consolidated financial statements are an
integral part of these
consolidated financial statements.
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Retained
Earnings (Unaudited)
Three Months Ended January 31, 2017 and 2016
(Amounts in thousands, except per share amounts)
|
|
2017
|
|
|
2016
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
Fulfillment services
|
|
$
|
8,222
|
|
|
$
|
8,759
|
|
Real estate land sales
|
|
|
1,461
|
|
|
|
3,197
|
|
Other revenues
|
|
|
94
|
|
|
|
242
|
|
|
|
|
9,777
|
|
|
|
12,198
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
Real estate land sales
|
|
|
848
|
|
|
|
2,781
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Fulfillment services
|
|
|
6,855
|
|
|
|
7,888
|
|
Real estate selling expenses
|
|
|
11
|
|
|
|
54
|
|
Other
|
|
|
359
|
|
|
|
360
|
|
General and administrative expenses:
|
|
|
|
|
|
|
|
|
Fulfillment services
|
|
|
345
|
|
|
|
707
|
|
Real estate operations
|
|
|
130
|
|
|
|
135
|
|
Corporate operations
|
|
|
787
|
|
|
|
737
|
|
Impairment of real estate assets
|
|
|
150
|
|
|
|
-
|
|
Interest expense
|
|
|
22
|
|
|
|
342
|
|
|
|
|
9,507
|
|
|
|
13,004
|
|
Income (loss) from operations before income taxes
|
|
|
270
|
|
|
|
(806
|
)
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
|
96
|
|
|
|
(237
|
)
|
Net income (loss)
|
|
|
174
|
|
|
|
(569
|
)
|
|
|
|
|
|
|
|
|
|
Retained earnings, beginning of period
|
|
|
47,521
|
|
|
|
55,148
|
|
Retained earnings, end of period
|
|
$
|
47,695
|
|
|
$
|
54,579
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share, net - basic and diluted
|
|
$
|
0.02
|
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
|
|
8,053
|
|
|
|
8,038
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - diluted
|
|
|
8,080
|
|
|
|
8,059
|
|
The accompanying notes
to consolidated financial statements are an
integral part of these
consolidated financial statements.
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Retained
Earnings (Unaudited)
Nine Months Ended January 31, 2017 and 2016
(Amounts in thousands, except per share amounts)
|
|
2017
|
|
|
2016
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
Fulfillment services
|
|
$
|
23,908
|
|
|
$
|
26,666
|
|
Real estate land sales
|
|
|
7,710
|
|
|
|
5,487
|
|
Other revenues (Note 8)
|
|
|
1,832
|
|
|
|
841
|
|
|
|
|
33,450
|
|
|
|
32,994
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
Real estate land sales
|
|
|
6,370
|
|
|
|
4,699
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Fulfillment services
|
|
|
20,235
|
|
|
|
24,535
|
|
Real estate selling expenses
|
|
|
69
|
|
|
|
162
|
|
Other
|
|
|
1,119
|
|
|
|
1,040
|
|
General and administrative expenses:
|
|
|
|
|
|
|
|
|
Fulfillment services
|
|
|
1,025
|
|
|
|
2,452
|
|
Real estate operations
|
|
|
433
|
|
|
|
445
|
|
Corporate operations
|
|
|
2,364
|
|
|
|
2,392
|
|
Impairment of real estate assets
|
|
|
150
|
|
|
|
-
|
|
Interest expense
|
|
|
328
|
|
|
|
1,085
|
|
|
|
|
32,093
|
|
|
|
36,810
|
|
Income (loss) from operations before income taxes
|
|
|
1,357
|
|
|
|
(3,816
|
)
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
|
441
|
|
|
|
(1,392
|
)
|
Net income (loss)
|
|
|
916
|
|
|
|
(2,424
|
)
|
|
|
|
|
|
|
|
|
|
Retained earnings, beginning of period
|
|
|
46,779
|
|
|
|
57,003
|
|
Retained earnings, end of period
|
|
$
|
47,695
|
|
|
$
|
54,579
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share, net - basic and diluted
|
|
$
|
0.11
|
|
|
$
|
(0.30
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
|
|
8,048
|
|
|
|
8,035
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - diluted
|
|
|
8,074
|
|
|
|
8,059
|
|
The accompanying notes
to consolidated financial statements are an
integral part of these consolidated financial
statements
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows from Operations
(Unaudited)
Nine Months Ended January 31, 2017 and 2016
(Amounts in thousands)
|
|
2017
|
|
|
2016
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income (loss) from operations
|
|
$
|
916
|
|
|
$
|
(2,424
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,058
|
|
|
|
2,168
|
|
Impairment of real estate assets
|
|
|
150
|
|
|
|
-
|
|
Non-cash credits and charges:
|
|
|
|
|
|
|
|
|
Allowance for (recovery of) doubtful accounts
|
|
|
(5
|
)
|
|
|
57
|
|
Stock-based compensation
|
|
|
99
|
|
|
|
52
|
|
Loss on disposal of fixed assets
|
|
|
-
|
|
|
|
5
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
86
|
|
|
|
(445
|
)
|
Real estate inventory and investment assets
|
|
|
4,958
|
|
|
|
2,536
|
|
Other assets
|
|
|
701
|
|
|
|
958
|
|
Accounts payable and accrued expenses
|
|
|
(1,490
|
)
|
|
|
(1,576
|
)
|
Taxes receivable and payable
|
|
|
(124
|
)
|
|
|
(2,373
|
)
|
Deferred income taxes and other liabilities
|
|
|
314
|
|
|
|
(967
|
)
|
Accrued pension costs
|
|
|
944
|
|
|
|
763
|
|
Total adjustments
|
|
|
6,691
|
|
|
|
1,178
|
|
Net cash provided by (used in) operating activities
|
|
|
7,607
|
|
|
|
(1,246
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Capital expenditures - property, plant and equipment
|
|
|
(63
|
)
|
|
|
(655
|
)
|
Proceeds from line of credit receivable
|
|
|
-
|
|
|
|
2,000
|
|
Proceeds from note receivable
|
|
|
-
|
|
|
|
1,600
|
|
Net cash provided by (used in) investing activities
|
|
|
(63
|
)
|
|
|
2,945
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from debt financing
|
|
|
340
|
|
|
|
320
|
|
Principal debt payments
|
|
|
(895
|
)
|
|
|
(94
|
)
|
Principal debt payments – related party
|
|
|
(10,798
|
)
|
|
|
(1,512
|
)
|
Net transfers from discontinued operations
|
|
|
-
|
|
|
|
1,394
|
|
Net cash provided by (used in) financing activities
|
|
|
(11,353
|
)
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(3,809
|
)
|
|
|
1,807
|
|
Cash and cash equivalents,
beginning of period
|
|
|
14,562
|
|
|
|
12,050
|
|
Cash and cash equivalents,
end of period
|
|
$
|
10,753
|
|
|
$
|
13,857
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Interest paid, net of amounts capitalized
|
|
$
|
314
|
|
|
$
|
1,061
|
|
Income taxes paid, net
|
|
$
|
4
|
|
|
$
|
1,862
|
|
The accompanying notes
to consolidated financial statements are an
integral part of these
consolidated financial statements.
AMREP CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Nine Months Ended January 31, 2017 and 2016
|
(1)
|
BASIS OF PRESENTATION
|
The accompanying unaudited consolidated financial
statements have been prepared by AMREP Corporation (the “Company”) pursuant to the rules and regulations of the Securities
and Exchange Commission (the “SEC”) 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. The Company,
through its subsidiaries, is primarily engaged in two business segments: the real estate business operated by AMREP Southwest Inc.
(“AMREP Southwest”) and its subsidiaries and the Fulfillment Services business operated by Palm Coast Data LLC (“Palm
Coast”) and its affiliates. The Company’s foreign sales are insignificant. All significant intercompany accounts and
transactions have been eliminated in consolidation.
In the opinion of management, these unaudited
consolidated financial statements include all adjustments, which are of a normal recurring nature, considered 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 indicative of what may occur in future periods. Unless otherwise qualified, all references to 2017 and 2016 are to
the fiscal years ending April 30, 2017 and 2016 and all references to the third quarter and first nine months of 2017 and 2016
mean the fiscal three and nine month periods ended January 31, 2017 and 2016.
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, 2016, which
was filed with the SEC on July 29, 2016 (the “2016 Form 10-K”). Certain 2016 balances in these financial statements
have been reclassified to conform to the current year presentation with no effect on the net income or loss or shareholders’
equity.
Recently Issued Accounting Pronouncements
In March 2016, the Financial Accounting Standards
Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09,
Compensation - Stock Compensation:
Improvements to Employee Share-Based Payment Accounting
. ASU 2016-09 simplifies several aspects of accounting for employee
share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements,
as well as classification in the statement of cash flows. ASU 2016-09 is effective for annual reporting periods beginning after
December 15, 2016, including interim periods within those annual reporting periods. The adoption of ASU 2016-09 by the Company
is not expected to have a material effect on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02,
Leases
. ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee
should recognize in its balance sheet a liability to make lease payments and a right-of-use asset representing its right to use
the underlying asset for the lease term. For leases with a term of twelve months or less, a lessee is permitted to make an accounting
policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors
are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach.
ASU 2016-02 will be effective for the Company for fiscal year 2020 beginning on May 1, 2019. The Company has not determined the
transition approach that will be utilized or estimated the impact of adopting ASU 2016-02.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
. ASU 2014-09 defines how companies report revenues from contracts with customers and
also requires enhanced disclosures. The Company will adopt ASU 2014-09 as of May 1, 2018. The Company has not determined when it
will adopt ASU 2014-09 and the transition approach that will be utilized or estimated the impact of adopting ASU 2014-09.
Receivables, net consist of the following (in thousands):
|
|
January 31,
2017
|
|
|
April 30,
2016
|
|
|
|
|
|
|
|
|
Fulfillment services
|
|
$
|
7,558
|
|
|
$
|
7,357
|
|
Real estate operations
|
|
|
-
|
|
|
|
300
|
|
Corporate operations
|
|
|
18
|
|
|
|
48
|
|
|
|
|
7,576
|
|
|
|
7,705
|
|
Less allowance for doubtful accounts
|
|
|
(386
|
)
|
|
|
(434
|
)
|
|
|
$
|
7,190
|
|
|
$
|
7,271
|
|
During the first nine months of 2017 and 2016,
revenues from one major customer of the Company’s Fulfillment Services business totaled $3,590,000, or 10.7%, and $4,084,000,
or 12.4%, of total revenues for the Company. As of January 31, 2017, the Company’s Fulfillment Services business had $745,000
of outstanding accounts receivable from this customer. This major customer has given the Company’s Fulfillment Services business
notice that a significant portion of its business will be transferred to another provider during fiscal 2018.
Investment assets, net consist of the following
(in thousands):
|
|
January 31,
2017
|
|
|
April 30,
2016
|
|
|
|
|
|
|
|
|
Land held for long-term investment
|
|
$
|
9,715
|
|
|
$
|
9,717
|
|
Other
|
|
|
-
|
|
|
|
609
|
|
|
|
$
|
9,715
|
|
|
$
|
10,326
|
|
Land held for long-term investment represents
property located in areas that are not planned to be developed in the near term and thus has not been offered for sale. As of January
31, 2017, the Company held approximately 12,000 acres of land in New Mexico classified as land held for long-term investment.
At April 30, 2016, Other included an approximately
2,200 square foot, single tenant retail commercial building on property owned by a subsidiary of AMREP Southwest in Rio Rancho,
New Mexico. In the first quarter of 2017, this property was sold (see Note 8).
|
(4)
|
PROPERTY, PLANT AND EQUIPMENT
|
Property, plant and equipment, net consist
of the following (in thousands):
|
|
January 31,
|
|
|
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Land, buildings and improvements
|
|
$
|
15,890
|
|
|
$
|
15,864
|
|
Furniture and equipment
|
|
|
19,218
|
|
|
|
19,140
|
|
|
|
|
35,108
|
|
|
|
35,004
|
|
Less accumulated depreciation
|
|
|
(24,098
|
)
|
|
|
(23,007
|
)
|
|
|
$
|
11,010
|
|
|
$
|
11,997
|
|
Other assets consist of the following (in thousands):
|
|
January 31,
|
|
|
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
$
|
1,953
|
|
|
$
|
2,358
|
|
Deferred order entry costs
|
|
|
603
|
|
|
|
845
|
|
Other
|
|
|
257
|
|
|
|
275
|
|
|
|
$
|
2,813
|
|
|
$
|
3,478
|
|
Deferred order entry costs represent costs incurred in connection
with the data entry of customer subscription information to database files and are charged directly to operations generally over
a twelve month period.
|
(6)
|
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
Accounts payable and accrued expenses consist of the following (in
thousands):
|
|
January 31,
|
|
|
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Fulfillment services
|
|
$
|
5,807
|
|
|
$
|
6,712
|
|
Real estate operations
|
|
|
891
|
|
|
|
1,535
|
|
Corporate operations
|
|
|
265
|
|
|
|
206
|
|
|
|
$
|
6,963
|
|
|
$
|
8,453
|
|
The January 31, 2017 accounts payable and accrued
expenses total included customer postage deposits of $3,797,000, accrued expenses of $1,448,000, trade payables of $530,000 and
other of $1,188,000. The April 30, 2016 accounts payable and accrued expenses total included customer postage deposits of $3,947,000,
accrued expenses of $1,998,000, trade payables of $837,000 and other of $1,671,000.
Notes payable consist of the following (in
thousands):
|
|
January 31,
2017
|
|
|
April 30,
2016
|
|
Credit facilities:
|
|
|
|
|
|
|
|
|
Real estate operations - due to related party
|
|
$
|
1,586
|
|
|
$
|
12,384
|
|
Real estate operations - other
|
|
|
-
|
|
|
|
555
|
|
|
|
$
|
1,586
|
|
|
$
|
12,939
|
|
Note Payable to Related Party
At January 31, 2017, AMREP Southwest had a
loan from a company owned by Nicholas G. Karabots, a significant shareholder of the Company and in which a director of the Company
had a 20% participation. The loan was scheduled to mature on December 1, 2017 and bore interest payable monthly at 8.5% per annum.
The outstanding balance of this loan at January 31, 2017 was paid in full in February 2017.
Other Note Payable
A subsidiary of AMREP Southwest had a loan
agreement with U.S. Bank National Association for the construction of a 2,200 square foot, single tenant retail building in Rio
Rancho, New Mexico. The loan bore interest payable monthly on the outstanding principal amount at 0.5% plus the prime rate. In
the first quarter of 2017, this property was sold and the outstanding loan balance was satisfied with proceeds from the sale.
During the first quarter of 2017, a subsidiary
of AMREP Southwest sold a single tenant retail commercial building in Rio Rancho, New Mexico, which resulted in a pre-tax gain
of $1,496,000.
In addition, refer to Note 11 to the consolidated
financial statements contained in the 2016 Form 10-K for detail about the Oil and Gas Lease and the Addendum thereto with Thrust
Energy, Inc. and Cebolla Roja, LLC. No royalties under the Lease were received during the first nine months of 2017. Revenue from
this transaction is being recorded over the lease term and approximately $57,000 and $171,000 were recognized during the third
quarter and first nine months of each of 2017 and 2016. At January 31, 2017, there was $360,000 of deferred revenue remaining to
be recognized in future periods.
|
(9)
|
FAIR VALUE MEASUREMENTS
|
The Financial Instruments Topic of the Financial
Accounting Standards Board Accounting Standards Codification requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to estimate that value. The Topic excludes all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying
value of the Company. The following methods and assumptions are used in estimating fair value disclosure for financial instruments:
the carrying amounts of cash and cash equivalents, trade receivables and trade payables approximate fair value because of the short
maturity of these financial instruments.
The Company did not have any long-term, fixed-rate
notes receivable at January 31, 2017 or April 30, 2016. The estimated fair value of the Company’s long-term, fixed-rate note
payable was $1,408,000 and $11,102,000 compared with carrying amounts of $1,586,000 and $12,384,000 at January 31, 2017 and April
30, 2016. The outstanding balance of this fixed-rate note payable was paid in full in February 2017.
Retirement plan
The Company has a defined benefit retirement
plan for which accumulated benefits were frozen and future service credits were curtailed as of March 1, 2004. The Company has
secured $5,019,000 of accrued pension-related obligations with first lien mortgages on certain real property in favor of the Pension
Benefit Guaranty Corporation (the “PBGC”). On an annual basis, the Company is required to provide updated appraisals
on each mortgaged property and, if the appraised value of the mortgaged properties is less than two times the amount of the accrued
pension-related obligations secured by the mortgages, the Company is required to make a payment to its pension plan in an amount
equal to one-half of the amount of the shortfall. During the first nine months of 2017, there was no change in the appraised value
of the mortgaged property that required the Company to make any additional payments to its pension plan.
Equity compensation plan
The Company issued 19,500 shares of restricted
common stock under the AMREP Corporation 2006 Equity Compensation Plan (the “2006 Equity Plan”)
during
the first nine months of 2017. During the first nine months of 2017, 11,000 share
s of common stock previously issued under
the 2006 Equity Plan
vested. In addition, 1,000 shares of restricted stock issued under the
2006 Equity Plan prior to 2017 were returned to the Company and will not vest due to the retirement of an employee, leaving 26,500
shares issued under the 2006 Equity Plan that were not vested as of January 31, 2017.
For the third quarter and first nine
months of 2017, the Company recognized $19,000 and $48,000 of compensation expense related to the restricted
share
s
of common stock issued, and $16,000 and $53,000 for the same periods of 2016.
As of January
31, 2017
, there was $72
,000
of total unrecognized
compensation expense related to share
s of common stock issued under the 2006 Equity Plan which had not vested as of that
date
, and is expected to be recognized over the remaining vesting term not to exceed three
years. The 2006 Equity Plan terminated on September 19, 2016 without affecting any existing awards under the plan made prior to
that date, and no further awards may be granted under the 2006 Equity Plan.
During
the second quarter of 2017, the shareholders of the Company, at the Company’s 2016 Annual Meeting of Shareholders, approved
the AMREP Corporation 2016 Equity Compensation Plan (the “2016 Equity Plan”). The 2016 Equity Plan became effective
on September 20, 2016 and authorizes the issuance of up to 500,000 shares of the Company’s common stock. The 2016 Equity
Plan terminates on, and no award will be granted under the 2016 Equity Plan on or after, September 19, 2026; provided, however,
that the Company’s Board of Directors may, at any time prior to that date, terminate the 2016 Equity Plan. Other than as
described in the next paragraph, no awards were issued under the 2016 Equity Plan during the third quarter of 2017.
As previously
disclosed, on the last trading day of calendar year 2016, and based upon days of service, each non-employee member of the Company’s
Board of Directors was issued the number of deferred common share units of the Company under the 2016 Equity Plan equal to $15,000
divided by the closing price per share of common stock reported on the New York Stock Exchange on such date. Based on the closing
price per share $7.42 on December 30, 2016, the Company issued a total of 6,873 deferred common share units to members of the Company’s
Board of Directors. One former member of the Board of Directors who served as a director during part of calendar year 2016 received
a cash payment in lieu of pro rata deferred common share units that would have been earned for services on the Company’s
Board of Directors. On the last trading day of each calendar year after calendar year 2016, each non-employee member of the Company’s
Board of Directors will be issued the number of deferred common share units of the Company under the 2016 Equity Plan equal to
$20,000 divided by the closing price per share of Common Stock reported on the New York Stock Exchange on such date. Director compensation
expense is recognized for the annual grant of deferred common share units ratably over the director’s service in office during
the calendar year. Through January 31, 2017, the total non-cash director fee compensation related to the deferred common share
units was $51,000.
In June 2009, Palm Coast received $3,000,000
pursuant to an agreement with the State of Florida (the “Award Agreement”) as part of the incentives made available
in connection with the Company’s project, completed in the second quarter of fiscal year 2011, to consolidate its Fulfillment
Services operations at its Palm Coast, Florida location. The Award Agreement includes certain performance requirements in terms
of job retention, job creation and capital investment which, if not met by Palm Coast, entitle the State of Florida to obtain the
return of a portion, or all, of the $3,000,000. Accordingly, the $3,000,000 has been recorded as a liability in the accompanying
balance sheet. The award monies, if any, to which Palm Coast becomes irrevocably entitled will be amortized into income through
a reduction of depreciation over the life of the assets acquired with those funds. Palm Coast has not met certain of the performance
requirements in the Award Agreement, in large part due to the adverse economic conditions experienced by the magazine publishing
industry since the Award Agreement was executed. On December 30, 2016, the State of Florida filed a complaint in the Circuit Court
of the Second Judicial Circuit in and for Leon County, Florida against Palm Coast seeking repayment of amounts under the Award
Agreement. Palm Coast is continuing to have discussions with the State of Florida regarding the amount and timing of such repayment,
but the amount and timing of any such repayment have not been resolved.
|
(12)
|
INFORMATION ABOUT THE COMPANY’S OPERATIONS IN DIFFERENT
INDUSTRY SEGMENTS
|
The following tables set forth summarized data
relative to the industry segments in which the Company operated for the three and nine month periods ended January 31, 2017 and
2016 (in thousands):
|
|
Real Estate
Operations
|
|
|
Fulfillment
Services
|
|
|
Corporate
and
Other
|
|
|
Consolidated
|
|
Three months ended January 31, 2017 (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,518
|
|
|
$
|
8,222
|
|
|
$
|
37
|
|
|
$
|
9,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from operations
|
|
|
(425
|
)
|
|
|
95
|
|
|
|
504
|
|
|
|
174
|
|
Provision (benefit) for income taxes
|
|
|
(249
|
)
|
|
|
54
|
|
|
|
291
|
|
|
|
96
|
|
Interest expense (income), net (b)
|
|
|
521
|
|
|
|
274
|
|
|
|
(773
|
)
|
|
|
22
|
|
Depreciation and amortization
|
|
|
20
|
|
|
|
321
|
|
|
|
-
|
|
|
|
341
|
|
Impairment of real estate assets
|
|
|
150
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150
|
|
EBITDA (c)
|
|
$
|
17
|
|
|
$
|
744
|
|
|
$
|
22
|
|
|
$
|
783
|
|
Capital expenditures
|
|
$
|
-
|
|
|
$
|
14
|
|
|
$
|
-
|
|
|
$
|
14
|
|
|
|
Real Estate
Operations
|
|
|
Fulfillment
Services
|
|
|
Corporate
and
Other
|
|
|
Consolidated
|
|
Three months ended January 31, 2016 (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,254
|
|
|
$
|
8,759
|
|
|
$
|
185
|
|
|
$
|
12,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from operations
|
|
$
|
(468
|
)
|
|
$
|
(440
|
)
|
|
$
|
339
|
|
|
$
|
(569
|
)
|
Provision (benefit) for income taxes
|
|
|
(287
|
)
|
|
|
(258
|
)
|
|
|
308
|
|
|
|
(237
|
)
|
Interest expense (income), net (b)
|
|
|
577
|
|
|
|
263
|
|
|
|
(498
|
)
|
|
|
342
|
|
Depreciation and amortization
|
|
|
23
|
|
|
|
599
|
|
|
|
93
|
|
|
|
715
|
|
EBITDA (c)
|
|
$
|
(155
|
)
|
|
$
|
164
|
|
|
$
|
242
|
|
|
$
|
251
|
|
Capital expenditures
|
|
$
|
-
|
|
|
$
|
384
|
|
|
$
|
-
|
|
|
$
|
384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended January 31, 2017 (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
9,485
|
|
|
$
|
23,908
|
|
|
$
|
57
|
|
|
$
|
33,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from operations
|
|
|
(580
|
)
|
|
|
21
|
|
|
|
1,475
|
|
|
|
916
|
|
Provision (benefit) for income taxes
|
|
|
(340
|
)
|
|
|
16
|
|
|
|
765
|
|
|
|
441
|
|
Interest expense (income), net (b)
|
|
|
1,742
|
|
|
|
811
|
|
|
|
(2,225
|
)
|
|
|
328
|
|
Depreciation and amortization
|
|
|
64
|
|
|
|
994
|
|
|
|
-
|
|
|
|
1,058
|
|
Impairment of real estate assets
|
|
|
150
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150
|
|
EBITDA (c)
|
|
$
|
1,036
|
|
|
$
|
1,842
|
|
|
$
|
15
|
|
|
$
|
2,893
|
|
Capital expenditures
|
|
$
|
-
|
|
|
$
|
63
|
|
|
$
|
-
|
|
|
$
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended January 31, 2016 (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
5,678
|
|
|
$
|
26,666
|
|
|
$
|
650
|
|
|
$
|
32,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from operations
|
|
$
|
(1,825
|
)
|
|
$
|
(1,722
|
)
|
|
$
|
1,123
|
|
|
$
|
(2,424
|
)
|
Provision (benefit) for income taxes
|
|
|
(1,088
|
)
|
|
|
(1,011
|
)
|
|
|
707
|
|
|
|
(1,392
|
)
|
Interest expense (income), net (b)
|
|
|
1,844
|
|
|
|
612
|
|
|
|
(1,371
|
)
|
|
|
1,085
|
|
Depreciation and amortization
|
|
|
68
|
|
|
|
1,992
|
|
|
|
108
|
|
|
|
2,168
|
|
EBITDA (c)
|
|
$
|
(1,001
|
)
|
|
$
|
(129
|
)
|
|
$
|
567
|
|
|
$
|
(563
|
)
|
Capital expenditures
|
|
$
|
-
|
|
|
$
|
655
|
|
|
$
|
-
|
|
|
$
|
655
|
|
|
(a)
|
Revenue information provided for each segment includes amounts grouped as Other in the accompanying
consolidated statements of operations. Corporate and Other is net of intercompany eliminations.
|
|
(b)
|
Interest expense (income), net includes significant inter-segment interest expense (income) that
is eliminated in consolidation.
|
|
(c)
|
The Company uses EBITDA (which the Company defines as income before net interest expense, income
taxes, depreciation and amortization, and non-cash impairment charges) in addition to net income (loss) as a key measure of profit
or loss for segment performance and evaluation purposes.
|
|
Item 2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
|
INTRODUCTION
AMREP Corporation (the “Company”),
through its subsidiaries, is primarily engaged in two business segments: the real estate business operated by AMREP Southwest
Inc. (“AMREP Southwest”) and its subsidiaries and the Fulfillment Services business operated by Palm Coast Data LLC
(“Palm Coast”) and its affiliates. Information concerning industry segments is set forth in Note 12 to the consolidated
financial statements included in this report on Form 10-Q. All significant intercompany accounts and transactions have been eliminated
in consolidation. The Company’s 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 information contained in this section should be read in conjunction with the unaudited consolidated financial statements
and related notes thereto appearing elsewhere in this quarterly report on Form 10-Q and with the 2016 Form 10-K. Many of the amounts
and percentages presented in this section have been rounded for convenience of presentation. Unless otherwise qualified, all references
to 2017 and 2016 are to the fiscal years ending April 30, 2017 and 2016 and all references to the third quarter and first nine
months of 2017 and 2016 mean the fiscal three and nine month periods ended January 31, 2017 and 2016.
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 2016 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 2016 Form 10-K. The preparation of those consolidated 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 consolidated financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual amounts or results could differ from those estimates.
The critical accounting policies, assumptions
and estimates are described in Item 7 of Part II of the 2016 Form 10-K. There have been no changes in these accounting policies.
The significant accounting policies of the
Company are described in Note 1 to the consolidated financial statements contained in the 2016 Form 10-K. Information concerning
the Company’s implementation and the impact of recent accounting standards issued by the Financial Accounting Standards Board
is included in the notes to the consolidated financial statements contained in the 2016 Form 10-K and the unaudited consolidated
financial statements and related notes thereto appearing elsewhere in this quarterly report on Form 10-Q. The Company did not adopt
any accounting policy in the first nine months of 2017 that had a material impact on its consolidated financial statements.
RESULTS OF OPERATIONS
For the third quarter of 2017, the Company
recorded net income of $174,000, or $0.02 per share, compared to a net loss of $569,000, or $0.07 per share, for the third quarter
of 2016. For the first nine months of 2017, the Company recorded net income of $916,000, or $0.11 per share, compared to a net
loss of $2,424,000, or $0.30 per share, for the same period of 2016. Revenues were
$9,777,000
and $33,450,000 for the third quarter and first nine months of 2017 compared to $12,198,000 and $32,994,000 for the same periods
of the prior year.
Revenues from the Company’s real estate
land sales were $1,461,000 and $7,710,000 for the third quarter and first nine months of 2017 compared to $3,197,000 and $5,487,000
for the same periods of 2016. For the third quarter and first nine months of 2017 and 2016, the Company’s land sales in New
Mexico were as follows:
|
|
Ended January 31, 2017
|
|
|
Ended January 31, 2016
|
|
|
|
Acres
Sold
|
|
|
Revenue
(in 000s)
|
|
|
Revenue
Per Acre
(in 000s)
|
|
|
Acres
Sold
|
|
|
Revenue
(in 000s)
|
|
|
Revenue
Per Acre
(in 000s)
|
|
Three months:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
2.8
|
|
|
$
|
984
|
|
|
$
|
351
|
|
|
|
7.8
|
|
|
$
|
3,045
|
|
|
$
|
390
|
|
Commercial
|
|
|
0.4
|
|
|
|
467
|
|
|
|
1,168
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Developed
|
|
|
3.2
|
|
|
|
1,451
|
|
|
|
453
|
|
|
|
7.8
|
|
|
|
3,045
|
|
|
|
390
|
|
Undeveloped
|
|
|
2.0
|
|
|
|
10
|
|
|
|
5
|
|
|
|
14.4
|
|
|
|
152
|
|
|
|
11
|
|
Total
|
|
|
5.2
|
|
|
$
|
1,461
|
|
|
$
|
281
|
|
|
|
22.2
|
|
|
$
|
3,197
|
|
|
$
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
20.9
|
|
|
$
|
7,124
|
|
|
$
|
341
|
|
|
|
13.4
|
|
|
$
|
5,010
|
|
|
$
|
374
|
|
Commercial
|
|
|
0.4
|
|
|
|
467
|
|
|
|
1,168
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Developed
|
|
|
21.3
|
|
|
|
7,591
|
|
|
|
356
|
|
|
|
13.4
|
|
|
|
5,010
|
|
|
|
374
|
|
Undeveloped
|
|
|
11.1
|
|
|
|
119
|
|
|
|
11
|
|
|
|
45.3
|
|
|
|
477
|
|
|
|
11
|
|
Total
|
|
|
32.4
|
|
|
$
|
7,710
|
|
|
$
|
238
|
|
|
|
58.7
|
|
|
$
|
5,487
|
|
|
$
|
94
|
|
The average gross profit percentage on land
sales was 42.0% and 17.4% for the third quarter and first nine months of 2017 compared to 13.0% and 14.4% for the same periods
of 2016. As a result of many factors, including the nature and timing of specific transactions and the type and location of land
being sold, revenues, average selling prices and related average gross profits from land sales can vary significantly from period
to period and prior results are not necessarily a good indication of what may occur in future periods.
Revenues from the Company’s Fulfillment
Services operations decreased from $8,759,000 and $26,666,000 for the third quarter and first nine months of 2016 to $8,222,000
and $23,908,000 for the same periods in 2017. The lower revenues were attributable to reduced business volumes from existing customers,
certain price concessions on renewed contracts and lost business. Magazine publishers are one of the principal customers of the
Company’s Fulfillment Services operations, and these customers have continued to be negatively impacted by increased competition
from new media sources, alternative technologies for the distribution, storage and consumption of media content, weakness in advertising
revenues and increases in paper costs, printing costs and postal rates. The result has been reduced subscription sales, which
has caused publishers to close some magazine titles, change subscription fulfillment providers and seek more favorable terms from
Palm Coast and its competitors when contracts are up for bid or renewal. One customer of the Fulfillment Services business whose
revenues were 10.7% of the total Company revenues for the first nine months of 2017 has given notice that a significant portion
of its business will be transferred to another provider during fiscal 2018. Operating expenses for Fulfillment Services decreased
from $7,888,000 and $24,535,000 for the third quarter and first nine months of 2016 to $6,855,000 and $20,235,000 for the same
periods in 2017. The declines in both periods were primarily due to lower payroll, benefits and supplies expense resulting from
reduced business volumes, as well as reduced bad debt and consulting costs.
Other revenues were $94,000 and $1,832,000
for the third quarter and first nine months of 2017 compared to $242,000 and $841,000 for the same periods of 2016. The decrease
in other revenues for the third quarter was attributable to the sale of a warehouse in February 2016 that was leased to a third
party and therefore there was no rental income in 2017. The increase in other revenues for the first nine months was primarily
due to the sale of a retail commercial property previously held for investment by a subsidiary of AMREP Southwest during 2017,
which resulted in a pre-tax gain of $1,496,000.
Other operating expenses were $359,000 and
$1,119,000 for the third quarter and first nine months of 2017 compared to $360,000 and $1,040,000 for the same periods of 2016.
The increase for the first nine months was primarily due to increased land maintenance costs and professional fees offset in part
by lower engineering costs at AMREP Southwest and its subsidiaries.
General and administrative expenses of Fulfillment
Services operations declined to $345,000 and $1,025,000 for the third quarter and first nine months of 2017 from $707,000 and
$2,452,000 for the same periods of 2016, primarily due to lower amortization, facilities costs and consulting fees. The lower
amortization was a result of certain intangible assets being determined to be impaired at April 30, 2016 and their carrying value
being written down at April 30, 2016, significantly reducing the amortization of these assets in 2017 compared to 2016.
Real estate operations general and administrative
expenses were $130,000 and $433,000 for the third quarter and first nine months of 2017 compared to $135,000 and $445,000 for
the same periods of 2016.
Corporate general and administrative expenses
were $787,000 and $2,364,000 for the third quarter and first nine months of 2017 compared to $737,000 and $2,392,000 for the same
periods of 2016. The increase for the third quarter was primarily due to higher consulting costs offset in part by lower payroll
and benefits. The decrease in the first nine months was primarily due to lower payroll and benefit costs and board of director
fees, partially offset by increased pension costs.
Interest expense was $22,000 and $328,000
for the third quarter and first nine months of 2017 compared to $342,000 and $1,085,000 for the same periods of 2016, primarily
due to a reduction of the principal loan balance at AMREP Southwest. Capitalized interest related to various land development
activities for the third quarter and first nine months of 2017 was $45,000 and $83,000 compared to none for the same periods of
the prior year.
The Company’s effective tax rate was
35.5% and 32.5% for the third quarter and first nine months of 2017 compared to 29.4% and 36.5% for the same periods of 2016. The
difference between the federal statutory tax rate and the effective rate of the tax provision in 2017 was primarily due to state
income taxes. The total tax effect of gross unrecognized tax benefits in the accompanying financial statements at both January
31, 2017 and April 30, 2016 was $58,000, which, if recognized, would have an impact on the effective tax rate. The Company believes
it is reasonably possible that the liability for unrecognized tax benefits will not change in the next twelve months.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s primary sources of funding
for working capital requirements are cash flow from operations and existing cash balances. The Company’s liquidity is affected
by many factors, including some that are based on normal operations and some that are related to the industries in which the Company
operates and the economy generally. Except as described below, there have been no material changes to the Company’s liquidity
and capital resources as reflected in the Liquidity and Capital Resources section of Management’s Discussion and Analysis
of Financial Condition and Results of Operations in the 2016 Form 10-K.
Operating Activities
Receivables, net decreased from $7,271,000
at April 30, 2016 to $7,190,000 at January 31, 2017, primarily due to accounts receivable collections in the Company’s real
estate business. Accounts payable and accrued expenses decreased from $8,453,000 at April 30, 2016 to $6,963,000 at January 31,
2017, primarily due to lower business volumes and the timing of payments to vendors.
Real estate inventory decreased from $61,663,000
at April 30, 2016 to $57,165,000 at January 31, 2017, due to real estate land sales. Investment assets decreased from $10,326,000
at April 30, 2016 to $9,715,000 at January 31, 2017, primarily due to the sale of a commercial retail property by a subsidiary
of AMREP Southwest. Property, plant and equipment decreased from $11,997,000 at April 30, 2016 to $11,010,000 at January 31, 2017,
primarily due to normal depreciation of fixed assets. Other assets decreased from $3,478,000 at April 30, 2016 to $2,813,000 at
January 31, 2017, primarily due to the timing of payments related to certain software maintenance contracts recognized in prepaid
assets.
Investing Activities
Capital expenditures totaled $63,000 for the
first nine months of 2017 and $655,000 for the same period of 2016, all for the Fulfillment Services business.
Financing Activities
At January 31, 2017, AMREP Southwest had a
loan from a company owned by Nicholas G. Karabots, a significant shareholder of the Company and in which a director of the Company
had a 20% participation. The loan was scheduled to mature on December 1, 2017 and bore interest payable monthly at 8.5% per annum.
AMREP Southwest was in compliance with the covenants of the loan at January 31, 2017. The outstanding balance of this loan at January
31, 2017 was paid in full in February 2017.
A subsidiary of AMREP Southwest had a loan
agreement with U.S. Bank National Association for the construction of a 2,200 square foot, single tenant retail building in Rio
Rancho, New Mexico. The loan bore interest payable monthly on the outstanding principal amount at 0.5% plus the prime rate. In
the first quarter of 2017, this property was sold and the outstanding loan balance was satisfied with proceeds from the sale.
Fulfillment Services
Refer to Note 11 to the consolidated financial
statements included in this report on Form 10-Q for detail about possible repayment to the State of Florida by Palm Coast of amounts
under the Award Agreement.
Statement of Forward-Looking Information
The Private Securities Litigation Reform Act
of 1995 (the “Act”) provides a safe harbor for forward-looking statements made by or on behalf of the Company. The
Company and its representatives may from time to time make written or oral statements that are “forward-looking”, including
statements contained in this report and other filings with the Securities and Exchange Commission, reports to the Company’s
shareholders and news releases. All statements that express expectations, estimates, forecasts or projections are forward-looking
statements within the meaning of the Act. In addition, other written or oral statements, which constitute forward-looking statements,
may be made by or on behalf of the Company. Words such as “expects”, “anticipates”, “intends”,
“plans”, “believes”, “seeks”, “estimates”, “projects”, “forecasts”,
“may”, “should”, variations of such words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and contingencies
that are difficult to predict. All forward-looking statements speak only as of the date of this report or, in the case of any document
incorporated by reference, the date of that document. All subsequent written and oral forward-looking statements attributable to
the Company or any person acting on behalf of the Company are qualified by the cautionary statements in this section. Many of the
factors that will determine the Company’s future results are beyond the ability of management to control or predict. Therefore,
actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking
statements.
The forward-looking statements contained in
this report include, but are not limited to, the loss of any material customer contract and the effect of any such loss, the effect
of recent accounting pronouncements on the Company, the timing of recognizing unrecognized compensation expense related to shares
of common stock issued under the 2006 Equity Plan or the 2016 Equity Plan, the timing of development of the Company’s land
held for long-term investment, the liability for unrecognized tax benefits not changing in the next twelve months and the future
business conditions that may be experienced by the Company. The Company undertakes no obligation to update or publicly release
any revisions to any forward-looking statement to reflect events, circumstances or changes in expectations after the date of such
forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events
or otherwise.