Management is responsible for establishing
and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934, as amended. Internal control over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles in the United States of America.
Because of the inherent limitations of
internal control over financial reporting, including the possibility of human error and the circumvention or overriding of controls,
material misstatements may not be prevented or detected on a timely basis. Accordingly, even internal controls determined to be
effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Furthermore,
projections of any evaluation of the effectiveness of internal controls to future periods are subject to the risk that such controls
may become inadequate due to changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness
of internal control over financial reporting as of April 30, 2018 based upon the criteria set forth in a report entitled “Internal
Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based
on its assessment, management has concluded that, as of April 30, 2018, internal control over financial reporting was effective.
This annual report on Form 10-K does not
include an attestation report of the Company’s independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to such attestation pursuant to rules of the Securities and Exchange
Commission that permit the Company to provide only management’s report on internal control over financial reporting in this
annual report on Form 10-K.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(1)
|
SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES
:
|
Organization and principles of consolidation
The consolidated financial statements include
the accounts of AMREP Corporation, an Oklahoma corporation, and its subsidiaries (individually and collectively, as the context
requires, the “Company”). 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.
The consolidated balance sheets are presented
in an unclassified format since the Company has substantial operations in the real estate industry and its operating cycle is greater
than one year. Certain 2017 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.
Fiscal year
The Company’s fiscal year ends on
April 30. All references to 2018 and 2017 mean the fiscal years ended April 30, 2018 and 2017, unless the context otherwise indicates.
Revenue recognition
Fulfillment Services
– Revenues
from fulfillment services operations include revenues from subscription, contact center and other fulfillment services. These revenues
include fees from the maintenance of computer files for customers and other fulfillment activities, including customer telephone
support, and graphic arts and lettershop services, all of which are billed and earned monthly as the services are provided. In
accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
605-45, certain reimbursed postage costs are accounted for on a net basis.
Real Estate
– Land sales are
recognized when all elements of ASC 360-20 are met, including when the parties are bound by the terms of the contract, all consideration
(including adequate cash) has been exchanged, title and other attributes of ownership have been conveyed to the buyer by means
of a closing and the Company is not obligated to perform further significant development of the specific property sold. Profit
is recorded either in its entirety or on the installment method depending upon, among other things, the ability to estimate the
collectability of the unpaid sales price. In the event the buyer defaults on an obligation with respect to real estate inventory
which has been sold, the property may be repossessed (“take-back lots”). When repossessed, take-back lots are taken
into inventory at fair market value less estimated costs to sell. Fair market value may be supported by current third party appraisals.
Cost of land sales includes all direct
acquisition costs and other costs specifically identified with the property, including pre-acquisition costs and capitalized real
estate taxes and interest, and an allocation of certain common development costs (such as roads, sewers and amenities) associated
with the entire project. Common development costs include the installation of utilities and roads, and may be based upon estimates
of cost to complete. The allocation of costs is based on the relative sales value of the property. Estimates and cost allocations
are reviewed on a regular basis until a project is substantially completed, and are revised and reallocated as necessary on the
basis of current estimates.
The Company periodically develops commercial
buildings on property it owns and leases the building to tenants. Base rental payments from tenants are recognized as revenue monthly
over the term of the lease. Additional rent related to the reimbursement of real estate taxes, insurance, repairs and maintenance,
and other operating expenses is recognized as revenue in the period the expenses are incurred. The reimbursements are recognized
as earned and presented gross, as the Company is generally the primary obligor and, with respect to purchasing goods and services
from third-party suppliers, has discretion in selecting the supplier and bears the associated credit risk.
Cash and cash equivalents
Cash equivalents consist of highly liquid
investments that have an original maturity of ninety days or less when purchased and are readily convertible into cash.
Receivables
Receivables are carried at original invoice
or closing statement amounts less estimates made for doubtful accounts. Management determines the allowances for doubtful accounts
by reviewing and identifying troubled accounts and by using historical experience applied to an aging of accounts. A receivable
is considered to be past due if any portion of the receivable balance is outstanding for more than ninety days. Receivables are
written off when deemed uncollectible. Recoveries of receivables previously written off are recorded when received.
Real estate inventory
The Company accounts for its real estate
inventories in accordance with ASC 360-10. The cost basis of the land and improvements includes all direct acquisition costs including
development costs, certain amenities, capitalized interest, capitalized real estate taxes and other costs. Interest and real estate
taxes are not capitalized unless active development is underway. Real estate inventory held for future development or sale is stated
at accumulated cost and is evaluated and reviewed for impairment when events or changes in circumstances indicate the carrying
value of an asset may not be recoverable. Provisions for impairment are recorded when undiscounted cash flows estimated to be generated
by those assets are less than the carrying amount of the assets.
In the event a buyer defaults on an obligation
with respect to real estate inventory which has been sold, the property may be repossessed. Such lots are initially recorded at
fair market value less estimated costs to sell, establishing a new cost basis, and are subsequently measured at the lower of this
new cost basis or fair market value less estimated costs to sell. Fair market value may be supported by current third party appraisals.
For real estate projects under development,
an estimate of future cash flows on an undiscounted basis is determined using estimated future expenditures necessary to complete
such projects and using management’s best estimates about sales prices and holding periods. The estimation process involved
in determining if assets have been impaired and in the determination of estimated future cash flows is inherently uncertain because
it requires estimates of future revenues and costs, as well as future events and conditions. If the excess of undiscounted cash
flows over the carrying value of a project is small, there is a greater risk of future impairment and any resulting impairment
charges could be material. Due to the subjective nature of the estimates and assumptions used in determining future cash flows,
actual results could differ materially from current estimates and the Company may be required to recognize impairment charges in
the future.
Investment assets
Investment assets primarily consist of
investment land, which represents vacant, undeveloped land not held for development or sale in the normal course of business, and
is stated at the lower of cost or net realizable value.
Property, plant and equipment
Items capitalized as part of property,
plant and equipment are recorded at cost. Expenditures for maintenance and repair and minor renewals are charged to expense as
incurred, while those expenditures that improve or extend the useful life of existing assets are capitalized. Upon the sale or
other disposition of assets, their cost and the related accumulated depreciation or amortization are removed from the accounts
and the resulting gain or loss, if any, is reflected in operations.
Depreciation and amortization of property,
plant and equipment are provided principally by the straight-line method at various rates calculated to amortize the book values
of the respective assets over their estimated useful lives, which generally are 10 years or less for furniture and fixtures (including
equipment) and 25 to 40 years for buildings and improvements.
Impairment of long-lived assets
Long-lived assets, including certain real
estate, property, plant and equipment, and intangible and other assets, are accounted for in accordance with ASC 360-10. Long-lived
assets are evaluated and tested for impairment when events or changes in circumstances indicate the carrying value of an asset
may not be recoverable. Asset impairment tests are based upon the intended use of assets, expected future cash flows and estimates
of fair value of assets. The evaluation of operating asset groups includes an estimate of future cash flows on an undiscounted
basis using estimated revenue streams, operating margins and general and administrative expenses. Similar to real estate inventory,
the estimation process involved in determining if assets have been impaired and in the determination of estimated future cash flows
is inherently uncertain because it requires estimates of future revenues and costs, as well as future events and conditions.
Share-based compensation
The Company accounts for awards of restricted
stock and deferred stock units in accordance with ASC 718-10, which requires that compensation cost for all stock awards be calculated
and amortized over the service period (generally equal to the vesting period). Compensation expense for awards of restricted stock
and deferred stock units are based on the fair value of the awards at their grant dates.
Income taxes
Deferred income tax assets and liabilities
are determined based on differences between the financial reporting and tax bases of assets and liabilities, and are measured by
using currently enacted tax rates expected to apply to taxable income in the years in which those differences are expected to reverse.
The Company provides a valuation allowance against deferred tax assets unless, based upon the available evidence, it is more likely
than not that the deferred tax assets will be realized.
Earnings
(loss) per share
Basic earnings (loss) per share is based
on the weighted average number of common shares outstanding during each year. The unvested restricted shares of common stock (see
Note 11) are not included in the computation of basic earnings per share, as they are considered contingently returnable shares.
The unvested restricted shares of common stock are included in diluted earnings per share if they are dilutive. Deferred stock
units that are issued (see Note 11) are included in both basic and diluted earnings per share computations.
Pension plan
The Company recognizes the over-funded
or under-funded status of its defined benefit pension plan as an asset or liability as of the date of its year-end statement of
financial position and changes in that funded status in the year in which the changes occur through comprehensive income (loss).
Comprehensive income (loss)
Comprehensive income (loss) is defined
as the change in equity during a period from transactions and other events from non-owner sources. Total comprehensive income (loss)
is the total of net income (loss) and other comprehensive income (loss) that, for the Company, consists solely of the minimum pension
liability net of the related deferred income tax effect.
Management’s estimates and assumptions
The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates that
affect the financial statements include, but are not limited to, (i) allowances for doubtful accounts; (ii) real estate cost of
sales calculations, which are based on land development budgets and estimates of costs to complete; (iii) cash flows, asset groupings
and valuation assumptions in performing asset impairment tests of long-lived assets (including real estate inventories) and assets
held for sale; (iv) actuarially determined benefit obligation and other pension plan accounting and disclosures; (v) risk assessment
of uncertain tax positions; and (vi) the determination of the recoverability of net deferred tax assets. The Company bases its
significant estimates on historical experience and on various other assumptions that management believes are reasonable under the
circumstances. Actual results could differ from these estimates.
Recent
accounting pronouncements
In May 2014, the Financial Accounting Standards
Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with
Customers
. Since that date, the FASB has issued additional ASUs providing further revenue recognition guidance (collectively,
“Topic 606”). Topic 606 clarifies the principles for recognizing revenues and costs related to obtaining and fulfilling
customer contracts, with the objective of improving financial reporting. The core principle of Topic 606 is to recognize revenues
when promised goods or services are transferred to customers in an amount that reflects the consideration the Company expects to
receive in exchange for those goods or services. Topic 606 defines a five-step process to achieve this core principle, and more
judgment and estimates may be required under Topic 606 than are currently required under generally accepted accounting principles.
The two permitted transition methods under Topic 606 are (i) the full retrospective method, in which case the standard would be
applied to each prior reporting period presented, or (ii) the modified retrospective method, in which case the cumulative effect
of applying the standard would be recognized at the date of adoption. The Company intends to use the modified retrospective transition
method upon adoption.
Topic 606 is effective for the Company’s fiscal
year 2019 beginning May 1, 2018
. The Company had established an implementation team to evaluate the impact of Topic 606
on the Company’s accounting policies, processes and system requirements, as well as its consolidated financial statements.
The implementation team has reported the progress and status of its evaluation to the Audit Committee of the Company’s Board
of Directors. The adoption of Topic 606 will not have an impact on the Company’s 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 (the lease liability) 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. The amendments in the ASU will be effective for the Company for fiscal year 2020 beginning
on May 1, 2019. The Company has not yet concluded how the new standard will impact its consolidated financial statements.
In March 2016, the FASB issued 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
was effective for the Company’s fiscal year 2018 beginning May 1, 2017. The adoption of ASU 2016-09 by the Company did not
have a material effect on its consolidated financial statements.
In August 2016, the FASB issued ASU No.
2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
. ASU 2016-15 reduces
the diversity in practice regarding how certain cash receipts and cash payments are presented and classified in the statement of
cash flows. ASU 2016-15 is effective for the Company’s fiscal year 2019 beginning May 1, 2018. A retrospective transition
method is to be used in the application of this amendment. The adoption of ASU 2016-15 by the Company is not expected to have a
material effect on its consolidated financial statements.
In January 2018, the FASB issued ASU 2018-02,
Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated
Other Comprehensive Income
, which permits the reclassification to retained earnings of certain tax effects resulting from
the U.S. Tax Cuts and Jobs Act related to items in accumulated other comprehensive income. ASU 2018-02 may be applied retrospectively
to each period in which the effect of the U.S. Tax Cuts and Jobs Act is recognized or may be applied in the period of adoption.
ASU 2018-02 is effective for the Company’s fiscal year 2020 beginning May 1, 2019. The Company has not determined whether
it will elect to reclassify such tax effects. The adoption of ASU 2018-02 by the Company is not expected to have a material effect
on its consolidated financial statements.
In
March 2018, the FASB issued ASU No. 2018-05,
Income Taxes (Topic 740)
–
Amendments
to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118
, which reflects the income tax accounting implications
of the U.S. Tax Cuts and Jobs Act.
In
June 2018, the FASB issued ASU No. 2018-07,
Compensation
–
Stock
Compensation (Topic 718) – Improvements to Nonemployee Share-based Payment Accounting
. ASU 2018-07 addresses several
aspects of the accounting for nonemployee share-based payment transactions, including share-based payment transactions for acquiring
goods and services from nonemployees. ASU 2018-07 is effective for the Company’s fiscal year 2020 beginning May 1, 2019.
The adoption of ASU 2018-07 by the Company is not expected to have a material effect on its consolidated financial statements.
Receivables consist of:
|
|
April 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Fulfillment services
|
|
$
|
6,189
|
|
|
$
|
6,725
|
|
Real estate operations
|
|
|
10
|
|
|
|
-
|
|
Corporate operations
|
|
|
16
|
|
|
|
2
|
|
|
|
|
6,215
|
|
|
|
6,727
|
|
Less allowance for doubtful accounts
|
|
|
(314
|
)
|
|
|
(348
|
)
|
|
|
$
|
5,901
|
|
|
$
|
6,379
|
|
The Company extends credit to various companies
in its businesses that may be affected by changes in economic or other external conditions. Financial instruments that may potentially
subject the Company to a significant concentration of credit risk primarily consist of trade accounts receivable from publishers
in the magazine industry. As industry practices allow, the Company’s policy is to manage its exposure to credit risk through
credit approvals and limits and, on occasion (particularly in connection with real estate sales), the taking of collateral. The
Company also provides an allowance for doubtful accounts for potential losses based upon factors surrounding the credit risk of
specific customers, historical trends and other financial and non-financial information.
During 2018, revenues from one major customer
of the Company’s fulfillment services business totaled $4,408,000, or 10.8%, of total revenues for the Company. As of April
30, 2018, the Company’s fulfillment services business had $861,000 of outstanding accounts receivable from this customer,
which was paid in full by June 2018. This customer has given the Company’s fulfillment services business notice that a significant
portion of its business will be transferred from the Company’s fulfillment services business during fiscal year 2019.
|
(3)
|
REAL ESTATE INVENTORY
:
|
Real estate inventory consists of land
and improvements held for sale or development. Accumulated capitalized interest costs included in real estate inventory at April
30, 2018 and April 30, 2017 totaled $4,029,000 and $4,039,000. There was $13,000 of capitalized interest for 2018 and $83,000 for
2017. Accumulated capitalized real estate taxes included in real estate inventory at April 30, 2018 and 2017 was $1,736,000. Previously
capitalized interest costs and real estate taxes charged to real estate cost of sales were $10,000 and $5,000 during 2018 and 2017.
A substantial majority of the Company’s
real estate assets are located in or adjacent to Rio Rancho, New Mexico. As a result of this geographic concentration, the Company
has been and will be affected by changes in economic conditions in that region. As of April 30, 2018, the Company had approximately
157 developed lots available for sale in Rio Rancho. The development of additional lots for sale in Rio Rancho will require significant
financing or other sources of funding, which may not be available.
During fiscal year 2016, a subsidiary of
AMREP Southwest entered into an oil and gas lease with respect to all minerals and mineral rights owned by the subsidiary in and
under approximately 80 surface acres of land in Brighton, Colorado. As partial consideration for entering into the lease, the Company
received $128,000 in fiscal year 2016. The lease has an initial term ending in September 2020 and for as long thereafter as oil
or gas is produced and marketed in paying quantities from the property or for additional limited periods of time if the lessee
undertakes certain operations or makes certain de minimis shut-in royalty payments. The lease does not require the lessee
to drill any oil or gas wells. The lessee has agreed to pay the Company a royalty on oil and gas produced from the property
of 18.75% of the proceeds received by the lessee from the sale of such oil and gas and such royalty will be charged with 18.75%
of certain post-production costs associated with such oil and gas. No royalties under the lease were received during 2018
or 2017. The receipt of $128,000 was considered to be incremental revenue from incidental operations in fiscal year 2016, and as
such was recorded as a cost basis reduction of the associated real estate inventory in fiscal year 2016.
Investment assets consist of:
|
|
April 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Land held for long-term investment
|
|
$
|
9,714
|
|
|
$
|
9,715
|
|
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 April
30, 2018, the Company held approximately 12,000 acres of land in New Mexico classified as land held for long-term investment.
|
(5)
|
PROPERTY, PLANT AND EQUIPMENT
:
|
Property, plant and equipment consist of:
|
|
April 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Land, buildings and improvements
|
|
$
|
15,932
|
|
|
$
|
15,995
|
|
Furniture and equipment
|
|
|
18,239
|
|
|
|
18,350
|
|
|
|
|
34,171
|
|
|
|
34,345
|
|
Less accumulated depreciation
|
|
|
(24,426
|
)
|
|
|
(23,493
|
)
|
|
|
$
|
9,745
|
|
|
$
|
10,852
|
|
Depreciation of property, plant and equipment
charged to operations was $1,246,000 and $1,389,000 in 2018 and 2017.
Other assets consist of:
|
|
April 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Prepaid expenses
|
|
$
|
1,561
|
|
|
$
|
1,491
|
|
Deferred order entry costs
|
|
|
513
|
|
|
|
553
|
|
Other
|
|
|
247
|
|
|
|
266
|
|
|
|
$
|
2,321
|
|
|
$
|
2,310
|
|
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.
There was no amortization related to intangible
assets included in Other assets in 2018 and $7,000 of amortization in 2017.
|
(7)
|
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
:
|
Accounts payable and accrued expenses consist of:
|
|
April 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Fulfillment services
|
|
$
|
5,448
|
|
|
$
|
5,637
|
|
Real estate operations
|
|
|
2,425
|
|
|
|
1,138
|
|
Corporate operations
|
|
|
342
|
|
|
|
260
|
|
|
|
$
|
8,215
|
|
|
$
|
7,035
|
|
As of April 30, 2018, accounts payable
and accrued expenses for the Company’s fulfillment services business included customer postage deposits of $3,223,000, accrued
expenses of $515,000, trade payables of $388,000 and other of $1,322,000. As of April 30, 2017, accounts payable and accrued expenses
for the Company’s fulfillment services business included customer postage deposits of $3,178,000, accrued expenses of $488,000,
trade payables of $617,000 and other of $1,354,000.
As of April 30, 2018, accounts payable
and accrued expenses for the Company’s real estate business included accrued expenses of $746,000, trade payables of $773,000,
real estate customer deposits of $897,000 and other of $9,000. As of April 30, 2017, accounts payable and accrued expenses for
the Company’s real estate business included accrued expenses of $967,000, trade payables of $0, real estate customer deposits
of $155,000 and other of $16,000.
Notes payable consist of:
|
|
April 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Real estate notes payable
|
|
$
|
1,887
|
|
|
$
|
-
|
|
Unamortized debt issuance costs
|
|
|
(44
|
)
|
|
|
-
|
|
Notes payable, net
|
|
$
|
1,843
|
|
|
$
|
-
|
|
In December 2017, Lomas Encantadas Development
Company LLC (“LEDC”), a subsidiary of AMREP Southwest, entered into a Development Loan Agreement with BOKF, NA dba
Bank of Albuquerque (“Lender”). The Development Loan Agreement is evidenced by a Non-Revolving Line of Credit Promissory
Note and is secured by a Mortgage, Security Agreement and Financing Statement, between LEDC and Lender with respect to certain
planned residential lots within the Lomas Encantadas subdivision (the “Mortgaged Property”) located in Rio Rancho,
New Mexico. Pursuant to a Guaranty Agreement, entered into by AMREP Southwest in favor of Lender, AMREP Southwest has guaranteed
LEDC’s obligations under each of the above agreements. The Development Loan Agreement, Non-Revolving Line of Credit Promissory
Note, Mortgage, Security Agreement and Financing Statement, Guaranty Agreement and other related transaction documents are collectively
referred to as the “Loan Documentation.”
Pursuant to the Loan
Documentation, Lender agrees to lend up to $4,750,000 to LEDC on a non-revolving line of credit basis to partially fund the
development of the Mortgaged Property. Interest on the outstanding principal amount of the loan is payable monthly at the
annual rate equal to the London Interbank Offered Rate for a thirty-day interest period plus a spread of 3.0%, adjusted
monthly. Lender is required to release the lien of its mortgage on any lot included in the Mortgaged Property upon LEDC
making a principal payment of $43,000 or $53,000 depending on the location of the lot. The outstanding principal amount of
the loan as of April 30, 2018 was $1,887,000 and no principal repayments have been made by LEDC as of April 30, 2018. LEDC is
required to make periodic principal repayments of borrowed funds not previously repaid as follows: $1,370,000 on or before
August 18, 2019, $599,000 on or before November 18, 2019, $599,000 on or before February 18, 2020, $599,000 on or before May
18, 2020, $599,000 on or before August 18, 2020 and $599,000 on or before November 18, 2020. The outstanding principal amount
of the loan may be prepaid at any time without penalty. The loan is scheduled to mature in December 2021. The total book
value of the Mortgaged Property was $9,696,000 as of April 30, 2018. LEDC incurred certain customary costs and
expenses and paid certain fees to Lender in connection with the loan.
LEDC and AMREP Southwest have made certain
representations and warranties in the Loan Documentation and are required to comply with various covenants, reporting requirements
and other customary requirements for similar loans. The Loan Documentation contains customary events of default for similar financing
transactions, including: LEDC’s failure to make principal, interest or other payments when due; the failure of LEDC or AMREP
Southwest to observe or perform their respective covenants under the Loan Documentation; the representations and warranties of
LEDC or AMREP Southwest being false; the insolvency or bankruptcy of LEDC or AMREP Southwest; and the failure of AMREP Southwest
to maintain a tangible net worth of at least $35,000,000. Upon the occurrence and during the continuance of an event of default,
Lender may declare the outstanding principal amount and all other obligations under the Loan Documentation immediately due and
payable. At April 30, 2018, both LEDC and AMREP Southwest were in compliance with the covenants contained within the Loan Documentation.
Note Payable to Related Party
Prior to February 2017, AMREP Southwest
had a loan from a company owned by Nicholas G. Karabots, a significant shareholder of the Company and in which another major shareholder
and a director of the Company had a 20% participation. The loan was scheduled to mature in December 2017 and bore interest payable
monthly at 8.5% per annum. The balance of this loan was paid in full in February 2017.
Other revenues consist of:
|
|
April 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Settlement gain
|
|
$
|
1,810
|
|
|
$
|
-
|
|
Sale of commercial building
|
|
|
-
|
|
|
|
1,496
|
|
Deferred revenue and other
|
|
|
488
|
|
|
|
461
|
|
|
|
$
|
2,298
|
|
|
$
|
1,957
|
|
Resolution with State of Florida
.
In 2009, Palm Coast received $3,000,000 pursuant to an award agreement with the State of Florida as part of the incentives made
available in connection with the consolidation of the Company’s fulfillment services operations at its Palm Coast, Florida
location. The award agreement included certain performance requirements in terms of job retention, job creation and capital investment,
which, if not met by Palm Coast, entitled the State of Florida to obtain the return of a portion, or all, of the $3,000,000. Palm
Coast had not met certain of the performance requirements in the award agreement. In May 2017, Palm Coast entered into a Settlement
Agreement and Mutual General Release with the State of Florida. Pursuant to the settlement agreement, (1) the award agreement was
terminated, (2) each of the parties released all claims relating to the award agreement that the releasing party may have had against
the other party and (3) Palm Coast agreed to pay the State of Florida $1,763,000 as follows: (a) $163,000 during the first quarter
of 2018 and (b) 40 quarterly payments of $40,000 each, without interest, on the first business day of each calendar quarter starting
on October 1, 2017 and ending on July 1, 2027. Palm Coast timely paid the State of Florida $163,000 during the first quarter of
2018, $40,000 during the second quarter of 2018 and $40,000 during the third quarter of 2018. In February 2018, Palm Coast and
the Company entered into a Release Agreement with the State of Florida. Pursuant to the release agreement, (1) Palm Coast paid
the State of Florida $956,000, (2) each of the parties released all claims relating to the payment obligations under the settlement
agreement that the releasing party may have had against each of the other parties and (3) the payment obligations under the settlement
agreement were deemed terminated and none of the parties had any further liabilities or obligations with respect thereto. In the
Company’s consolidated financial statements and as a result of entering into the settlement agreement and the release agreement,
Palm Coast eliminated its previously recorded liability of $3,000,000 and a related $26,000 interest accrual and recognized a pre-tax
gain of $1,810,000, which was included in Other revenues during 2018.
Sale of commercial building
. 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 that was recognized in Other revenues during 2017.
Deferred revenue and other
. During
fiscal year 2015, AMREP Southwest and one of its subsidiaries entered into an oil and gas lease with respect to all minerals and
mineral rights owned by the Company or for which the Company has executive rights in and under approximately 55,000 surface acres
of land in Sandoval County, New Mexico. As partial consideration for entering into the lease, the Company received approximately
$1,010,000 in fiscal year 2015. The lease has an initial term ending in September 2018 and for as long thereafter as oil or gas
is produced and marketed in paying quantities from the property or for additional limited periods of time if the lessee undertakes
certain operations or makes certain de minimis shut-in royalty payments. The lessee may extend the initial term of the lease
for an additional four years by paying the Company another payment of approximately $1,010,000. The lease does not require lessee
to drill any oil or gas wells. The lessee has agreed to pay the Company a royalty on oil and gas produced from the property of
1/7th of the proceeds received by the lessee from the sale of such oil and gas and such royalty will be charged with 1/7th of certain
post-production costs associated with such oil and gas. No royalties under the lease were received during 2018 or 2017. Amounts
payable under the Lease will not be reduced by any payments made to other holders of mineral rights or other production royalty
payment interests in the property, other than payments pursuant to rights granted by the Company in deeds transferring portions
of the property to third parties, primarily in the 1960s and 1970s. Revenue from this transaction is being recorded over the lease
term and approximately $228,000 was recognized during both 2018 and 2017, which is included in Other revenues. At April 30, 2018,
there was approximately $76,000 of deferred revenue remaining to be recognized before the end of the lease term in September 2018.
Other revenue includes forfeited deposits
from customers earned by AMREP Southwest and its subsidiaries, together with miscellaneous other income items.
|
(10)
|
FAIR VALUE MEASUREMENTS
:
|
The FASB’s accounting guidance defines
fair value and establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level
3 measurements). The FASB’s guidance classifies the inputs to measure fair value into the following hierarchy:
|
Level 1
|
Unadjusted quoted prices for identical assets or liabilities
in active markets.
|
|
Level 2
|
Quoted prices for similar assets or liabilities in active
markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that
are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data
by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable
for substantially the full term of the asset or liability.
|
|
Level 3
|
Inputs for the asset or liability are unobservable and
reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset
or liability.
|
The fair value measurement level of an
asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value
measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
There were no transfers between Levels 1, 2 or 3 during 2018 or 2017.
Fair value on a non-recurring basis
Certain assets and liabilities are measured
at fair value on a non-recurring basis; that is, the asset or liability is not measured at fair value on an ongoing basis but is
subject to fair value adjustment in certain circumstances (for example, when there is evidence of impairment). There were no impairments
resulting in a non-recurring change in fair value during 2018. The following table, as of April 30, 2017, presents assets by balance
sheet caption and by the level within the fair value hierarchy (as described above) for which a non-recurring change in fair value
was recorded during 2017 (in thousands):
2017
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Impairment
Loss Recorded
|
|
Real estate inventory
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,196
|
|
|
$
|
150
|
|
During 2017, certain parcels of real estate
inventory were adjusted to their fair values, less estimated costs to sell, resulting in a pretax, non-cash impairment charge of
$150,000, which was included in the 2017 results of operations.
The Financial Instruments Topic of the
FASB 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. Fair value is determined under the hierarchy discussed above. 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; and other receivables or
debt that bear variable interest rates indexed to prime or LIBOR also approximate fair value as they re-price when market interest
rates change. These financial assets and liabilities are categorized as Level 1 within the fair value hierarchy described above.
The Company did not have any material long-term,
fixed-rate mortgage receivables or payables at April 30, 2018 and 2017.
Pension plan
The Company has
a defined benefit pension plan for which accumulated benefits were frozen and future service credits were curtailed as of March
1, 2004. Under generally accepted accounting principles, the Company’s defined benefit pension plan was underfunded at April
30, 2018 by $9,051,000, with $23,372,000 of assets and $32,423,000 of liabilities and was underfunded at April 30, 2017 by $10,967,000,
with $23,277,000 of assets and $34,244,000 of liabilities. The pension plan liabilities were determined using a weighted average
discount interest rate of 3.82% per year at April 30, 2018 and 3.52% per year at April 30, 2017, which are based on the Citigroup
yield curve as of such dates as it corresponds to the projected liability requirements of the pension plan.
Due to the closing of certain facilities
in fiscal year 2011 in connection with the consolidation of the Company’s fulfillment services business and the associated
work force reduction in fiscal year 2011, the Employee Retirement Income Security Act of 1974, as amended (“ERISA”),
and the regulations thereunder, gave the Pension Benefit Guaranty Corporation (the “PBGC”) the right to require the
Company to accelerate the funding of approximately $11,688,000 of accrued pension-related obligations to the Company’s defined
benefit pension plan. In fiscal year 2013, the Company and the PBGC reached an initial agreement with respect to this funding
obligation, and as a result, the Company made a $3,000,000 cash contribution to the pension plan in fiscal year 2013, thereby leaving
a remaining accelerated funding liability of $8,688,000.
In fiscal year 2014, the Company entered
into a settlement agreement with the PBGC. In the settlement agreement, the PBGC agreed to forbear from asserting certain rights
to obtain payment of the remaining $8,688,000 accelerated funding liability granted to it by ERISA, and the Company (a) paid $3,243,000
of the accelerated funding liability as a cash contribution to its pension plan and (b) provided first lien mortgages on certain
real property with an aggregate appraised value of $10,039,000 in favor of the PBGC to secure the remaining unpaid amount of the
accelerated funding liability. In addition, the PBGC agreed to credit $426,000 of contributions made by the Company to the pension
plan in excess of the 2012 minimum funding requirements towards the accelerated funding liability, so that, after this credit and
the $3,243,000 payment referred to above, the remaining accelerated funding liability was $5,019,500. In 2018, the Company sold
certain real property subject to the mortgage in favor of the PBGC resulting in a payment of $485,000 to the pension plan and a
remaining accelerated funding liability of $4,534,500. The total book value of the real property subject to the mortgages was approximately
$7,690,000
as of April 30, 2018.
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 accelerated funding liability then outstanding, 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. Upon the sale by the Company of any property mortgaged in favor
of the PBGC, the Company is required to deposit in its pension plan 50% of the lesser of (i) the amount equal to the total purchase
price of the mortgaged property minus certain transaction costs or (ii) the appraised value of the mortgaged property. The
mortgages in favor of the PBGC will be discharged following the termination date of the settlement agreement. In connection with
the settlement agreement, the Company made certain representations and warranties and is required to comply with various covenants,
reporting requirements and other requirements, including making all required minimum funding contributions to its pension plan.
Any failure by the Company to comply with its obligations under the settlement agreement may result in an event of default, which
would permit the PBGC to repossess, sell or foreclose on the properties that have been mortgaged in favor of the PBGC; however,
if the Company complies with the terms of the settlement agreement, including making all future required minimum funding contributions
to its pension plan and any payments required due to any shortfall in the appraised value of real property covered by the mortgages
described above, the Company will not be required to make any further cash payments to its pension plan with respect to the remaining
accelerated funding liability.
The settlement agreement is scheduled to
terminate on the earlier of the date the accelerated funding liability has been paid in full or on August 30, 2018. Effective on
the termination date of the settlement agreement, the PBGC will be deemed to have released and discharged the Company and all other
members of its controlled group from any claims in connection with such members’ liability or obligations with respect to
the accelerated funding liability. The settlement agreement does not address any future events that may accelerate any other accrued
pension plan obligations. The Company may become subject to additional acceleration of its remaining accrued obligations to the
pension plan if the Company closes other facilities and further reduces its work force of active pension plan participants. Any
such acceleration could have a material adverse effect on the Company’s financial condition.
Net periodic pension cost for 2018 and
2017 was comprised of the following components (in thousands):
|
|
Year Ended April 30,
|
|
|
|
2018
|
|
|
2017
|
|
Interest cost on projected benefit obligation
|
|
$
|
1,156
|
|
|
$
|
1,146
|
|
Expected return on assets
|
|
|
(1,796
|
)
|
|
|
(1,787
|
)
|
Plan expenses
|
|
|
345
|
|
|
|
297
|
|
Recognized net actuarial loss
|
|
|
1,294
|
|
|
|
1,603
|
|
Net periodic pension cost
|
|
$
|
999
|
|
|
$
|
1,259
|
|
The estimated net loss, transition obligation
and prior service cost for the pension plan that will be amortized from accumulated other comprehensive income into net periodic
pension cost over the next fiscal year are $905,000, $0 and $0. Assumptions used in determining net periodic pension cost and the
benefit obligation were:
|
|
Year Ended April 30,
|
|
|
|
2018
|
|
|
2017
|
|
Discount rate used to determine net periodic pension cost
|
|
|
3.52
|
%
|
|
|
3.27
|
%
|
Discount rate used to determine pension benefit obligation
|
|
|
3.82
|
%
|
|
|
3.52
|
%
|
Expected long-term rate of return on assets on assets
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
The following table sets forth changes
in the pension plan’s benefit obligation and assets, and summarizes components of amounts recognized in the Company’s
consolidated balance sheet (in thousands):
|
|
April 30,
|
|
|
|
2018
|
|
|
2017
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
34,244
|
|
|
$
|
36,418
|
|
Interest cost
|
|
|
1,156
|
|
|
|
1,146
|
|
Actuarial gain
|
|
|
(608
|
)
|
|
|
(956
|
)
|
Benefits paid
|
|
|
(2,369
|
)
|
|
|
(2,364
|
)
|
Benefit obligation at end of year
|
|
$
|
32,423
|
|
|
$
|
34,244
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
23,277
|
|
|
$
|
23,708
|
|
Actual return on plan assets
|
|
|
1,838
|
|
|
|
2,278
|
|
Company contributions
|
|
|
1,040
|
|
|
|
-
|
|
Benefits paid
|
|
|
(2,369
|
)
|
|
|
(2,364
|
)
|
Plan expenses
|
|
|
(414
|
)
|
|
|
(345
|
)
|
Fair value of plan assets at end of year
|
|
$
|
23,372
|
|
|
$
|
23,277
|
|
|
|
|
|
|
|
|
|
|
Underfunded status
|
|
$
|
(9,051
|
)
|
|
$
|
(10,967
|
)
|
|
|
|
|
|
|
|
|
|
Recognition of underfunded status:
|
|
|
|
|
|
|
|
|
Accrued pension cost
|
|
$
|
(9,051
|
)
|
|
$
|
(10,967
|
)
|
The funded status of the pension plan is
equal to the net liability recognized in the consolidated balance sheet. The following table summarizes the amounts recorded in
accumulated other comprehensive loss, which have not yet been recognized as a component of net periodic pension costs (in thousands):
|
|
Year Ended April 30,
|
|
|
|
2018
|
|
|
2017
|
|
Pretax accumulated comprehensive loss
|
|
$
|
13,184
|
|
|
$
|
15,059
|
|
The following table summarizes the changes
in accumulated other comprehensive loss related to the pension plan for the years ended April 30, 2018 and 2017 (in thousands):
|
|
Pension Benefits
|
|
|
|
Pretax
|
|
|
Net of Tax
|
|
Accumulated comprehensive loss, May 1, 2016
|
|
$
|
18,061
|
|
|
$
|
11,101
|
|
Net actuarial gain
|
|
|
(1,399
|
)
|
|
|
(867
|
)
|
Amortization of net loss
|
|
|
(1,603
|
)
|
|
|
(994
|
)
|
Accumulated comprehensive loss, April 30, 2017
|
|
|
15,059
|
|
|
|
9,240
|
|
Net actuarial gain
|
|
|
(581
|
)
|
|
|
(405
|
)
|
Amortization of net loss
|
|
|
(1,294
|
)
|
|
|
(901
|
)
|
Accumulated comprehensive loss, April 30, 2018
|
|
$
|
13,184
|
|
|
$
|
7,934
|
|
The Company recorded, net of tax, other
comprehensive income of $1,306,000 in 2018 and other comprehensive income of $1,861,000 in 2017 to account for the net effect of
changes to the unfunded portion of pension liability.
The asset allocation for the pension plan by asset category
was as follows:
|
|
April 30,
|
|
|
|
2018
|
|
|
2017
|
|
Equity securities
|
|
|
59
|
%
|
|
|
69
|
%
|
Fixed income securities
|
|
|
38
|
|
|
|
29
|
|
Other (principally cash and cash equivalents)
|
|
|
3
|
|
|
|
2
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
The investment mix between equity securities
and fixed income securities seeks to achieve a desired return by balancing more volatile equity securities and less volatile fixed
income securities. Pension plan assets are invested in portfolios of diversified public-market equity securities and fixed income
securities. The pension plan holds no securities of the Company. Investment allocations are made across a range of markets, industry
sectors, market capitalization sizes and, in the case of fixed income securities, maturities and credit quality. The Company has
established long-term target allocations of approximately 50-80% for equity securities, 20-50% for fixed income securities and
0-30% for other.
The expected return on assets for the pension
plan is based on management’s expectation of long-term average rates of return to be achieved by the underlying investment
portfolio. In establishing this assumption, management considers historical and expected returns for the asset classes in which
the pension plan is invested, as well as current economic and market conditions. The Company is currently using an 8.0% assumed
rate of return for purposes of the expected return rate on assets for the development of net periodic pension costs for the pension
plan.
The Company funds the pension plan in compliance
with IRS funding requirements. The Company contributed $1,040,000 to the pension plan during 2018 and made no contributions in
2017. The Company is required to make minimum contributions to the pension plan and expects to make contributions of $268,000 to
the pension plan during fiscal year 2019.
The amount of future annual benefit payments
is expected to be as follows: 2019 - $2,892,000, 2020 - $2,778,000, 2021 - $2,673,000, 2022 - $2,558,000 and 2023 - $2,477,000
and an aggregate of approximately $10,994,000 is expected to be paid in the fiscal five-year period 2024 through 2028.
The Company has adopted the disclosure
requirements in ASC 715, which requires additional fair value disclosures consistent with those required by ASC 820. The following
is a description of the valuation methodologies used for pension plan assets measured at fair value: common stock – valued
at the closing price reported on a listed stock exchange; corporate bonds, debentures and government agency securities –
valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flow; and U.S. Treasury
securities – valued at the closing price reported in the active market in which the security is traded.
The methods described above may produce
a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while
the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different
methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value
measurement at the reporting date. The following table sets forth by level within the fair value hierarchy the pension plan’s
assets at fair value as of April 30, 2018 and 2017 (in thousands):
2018:
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Cash and cash equivalents
|
|
$
|
687
|
|
|
$
|
687
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Investments at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
13,809
|
|
|
|
13,809
|
|
|
|
-
|
|
|
|
-
|
|
Corporate bonds and debentures
|
|
|
8,876
|
|
|
|
-
|
|
|
|
8,876
|
|
|
|
-
|
|
Total assets at fair value
|
|
$
|
23,372
|
|
|
$
|
14,496
|
|
|
$
|
8,876
|
|
|
$
|
-
|
|
2017:
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
568
|
|
|
$
|
568
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Investments at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
15,967
|
|
|
|
15,967
|
|
|
|
-
|
|
|
|
-
|
|
Corporate bonds and debentures
|
|
|
6,742
|
|
|
|
-
|
|
|
|
6,742
|
|
|
|
-
|
|
Total assets at fair value
|
|
$
|
23,277
|
|
|
$
|
16,535
|
|
|
$
|
6,742
|
|
|
$
|
-
|
|
Savings and salary deferral plans
The Company has a Savings and Salary Deferral
Plan, commonly referred to as a 401(k) plan, in which participating employees contribute salary deductions. The Company may make
discretionary matching contributions to the 401(k) plan, subject to the approval of the Company’s Board of Directors. The
Company did not provide matching contributions to the 401(k) plan in 2018 and 2017.
Equity compensation plan
The AMREP Corporation 2006 Equity Compensation
Plan (the “2006 Equity Plan”) provided for the issuance of shares of common stock of the Company to employees of the
Company and its subsidiaries and non-employee members of the Board of Directors of the Company pursuant to incentive stock options,
nonqualified stock options, stock appreciation rights, stock awards, stock units and other stock-based awards. The 2006 Equity
Plan expired by its terms during 2017 without affecting any existing awards under the 2006 Equity Plan, and no further awards may
be granted under the 2006 Equity Plan. During 2018, 10,500 shares of common stock previously issued under the 2006 Equity Plan
vested. In addition, 5,000 shares of restricted stock issued under the 2006 Equity Plan were returned to the Company and will not
vest due to the retirement of an employee, leaving 9,000 shares issued under the 2006 Equity Plan that were not vested as of April
30, 2018.
In 2017, the Board adopted, and the shareholders
approved, the AMREP Corporation 2016 Equity Compensation Plan (the “2016 Equity Plan”), which authorizes stock-based
awards of various kinds to directors and employees covering up to a total of 500,000 shares of common stock of the Company. The
2016 Equity Plan will expire by its terms on, and no award will be granted under the 2016 Equity Plan on or after, September 19,
2026. During 2018, the Company issued 25,750 shares of restricted common stock under the 2016 Equity Plan and none of these shares
vested during 2018.
The summary of the 2017 and 2018 restricted
share award activity presented below represents the maximum number of shares issued to employees that could be vested:
Restricted time-based share awards
|
|
Number of
Shares
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
Non-vested at April 30, 2016
|
|
|
19,000
|
|
|
$
|
6.66
|
|
Granted during 2017
|
|
|
19,500
|
|
|
|
5.04
|
|
Vested during 2017
|
|
|
(13,000
|
)
|
|
|
6.80
|
|
Forfeited during 2017
|
|
|
(1,000
|
)
|
|
|
6.90
|
|
Non-vested at April 30, 2017
|
|
|
24,500
|
|
|
|
5.28
|
|
|
|
|
|
|
|
|
|
|
Granted during 2018
|
|
|
25,750
|
|
|
|
6.92
|
|
Vested during 2018
|
|
|
(10,500
|
)
|
|
|
5.59
|
|
Forfeited during 2018
|
|
|
(5,000
|
)
|
|
|
5.67
|
|
Non-vested at April 30, 2018
|
|
|
34,750
|
|
|
$
|
6.35
|
|
Shares of restricted common stock that
are issued under the equity plans (“restricted shares”) are considered to be issued and outstanding as of the grant
date and have the same dividend and voting rights as other common stock. Compensation expense related to the restricted shares
is recognized over the vesting period of each grant based on the fair value of the shares as of the date of grant. The fair value
of each grant of restricted shares is determined based on the trading price of the Company’s common stock on the date of
such grant, and this amount will be charged to expense over the vesting term of the grant. Forfeitures are recognized as reversals
of compensation expense on the date of forfeiture.
For 2018 and 2017, the Company recognized
$107,000 and $66,000 of compensation expense related to all shares of restricted common stock issued to employees under the equity
plans. As of April 30, 2018, there was $106,000 of total unrecognized compensation expense related to shares of common stock issued
to employees under the equity plans, which is expected to be recognized over the remaining vesting term not to exceed three years.
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 calendar year
2017, 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 $20,000 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 $7.02 on December 29, 2017, the Company issued a total
of 11,396 deferred common share units to members of the Company’s Board of Directors.
Each deferred common share unit represents
the right to receive one share of Common Stock within 30 days after the first day of the month to follow such director’s
termination of service as a director of the Company. 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. For 2018 and 2017, the total non-cash
director fee compensation related to the issued deferred common share units was $80,000 and $51,000. At April 30, 2018 and 2017,
there was an additional $27,000 of accrued compensation expense related to the deferred stock units expected to be issued in December
of each year.
The U.S. Tax Cuts and Jobs Act (the “Act”)
was signed into law on December 22, 2017. The Act significantly revised the future ongoing U.S. corporate income tax by, among
other things, lowering U.S. corporate income tax rates. The Act reduced the federal corporate tax rate from 35.0% to 21.0% effective
January 1, 2018. Since the Company’s tax year ended on April 30, 2018, the lower corporate income tax rate is phased in,
resulting in a U.S. statutory federal corporate tax rate of approximately 29.7% for 2018. The 29.7% federal corporate tax rate
is a blended rate based on the number of days prior and subsequent to the January 1, 2018 effective date of the rate reduction.
In December 2017, the SEC staff issued
Staff Accounting Bulletin No. 118 (“SAB 118”), which addresses how a company recognizes provisional amounts when a
company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to
complete its accounting for the effect of the changes in the Act. SAB 118 provides for a measurement period that should not extend
beyond one year from the Act enactment date for companies to complete the accounting under Accounting Standards Codification Topic
740,
Income Taxes
(“ASC 740”). As of April 30, 2018, the Company had not completed its accounting for the tax
effects of the Act; however, as described below, the Company made a reasonable estimate of the Act’s effects on the Company’s
existing deferred tax balances.
Provisional amounts
The Company remeasured its deferred tax
assets and liabilities based on the rates at which the deferred tax assets and liabilities are expected to reverse in the future,
which is generally 21.0%. As a result, the Company recognized income tax expense of $2,710,000. However, the Company is still analyzing
certain aspects of the Act and refining the Company’s calculations, which could potentially affect the measurement of these
balances or potentially give rise to new deferred tax amounts.
The provision (benefit) for income taxes consists of the following:
|
|
Year Ended April 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(661
|
)
|
|
$
|
347
|
|
State and local
|
|
|
(17
|
)
|
|
|
26
|
|
|
|
|
(678
|
)
|
|
|
373
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
4,362
|
|
|
|
(32
|
)
|
State and local
|
|
|
(466
|
)
|
|
|
656
|
|
|
|
|
3,896
|
|
|
|
624
|
|
Total provision for income taxes
|
|
$
|
3,218
|
|
|
$
|
997
|
|
The following table reconciles taxes computed
at the U.S. federal statutory income tax rate from continuing operations to the Company’s actual tax provision:
|
|
Year Ended April 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Computed tax provision at statutory rate
|
|
$
|
1,027
|
|
|
$
|
333
|
|
Increase (reduction) in tax resulting from:
|
|
|
|
|
|
|
|
|
Deferred tax rate changes
|
|
|
2,846
|
|
|
|
-
|
|
Change in valuation allowances
|
|
|
(763
|
)
|
|
|
69
|
|
State income taxes, net of federal income tax effect
|
|
|
119
|
|
|
|
473
|
|
Meals and entertainment
|
|
|
4
|
|
|
|
4
|
|
Other
|
|
|
(15
|
)
|
|
|
118
|
|
Actual tax provision
|
|
$
|
3,218
|
|
|
$
|
997
|
|
The difference between the statutory rate
and the effective tax rate was primarily due to state taxes and the provisional amount recorded relating to the Act.
The components of the net deferred income taxes are as follows:
|
|
April 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
State tax loss carryforwards
|
|
$
|
3,457
|
|
|
$
|
4,199
|
|
Accrued pension costs
|
|
|
2,401
|
|
|
|
3,594
|
|
Federal AMT carryforward
|
|
|
180
|
|
|
|
-
|
|
Vacation accrual
|
|
|
102
|
|
|
|
154
|
|
Intangibles and deductible goodwill
|
|
|
2,336
|
|
|
|
4,561
|
|
Real estate basis differences
|
|
|
3,808
|
|
|
|
6,439
|
|
Other
|
|
|
199
|
|
|
|
-
|
|
Total deferred income tax assets
|
|
|
12,483
|
|
|
|
18,947
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciable assets
|
|
|
(974
|
)
|
|
|
(1,112
|
)
|
Deferred gains on investment assets
|
|
|
(2,165
|
)
|
|
|
(3,442
|
)
|
Capitalized costs for financial reporting purposes, expensed for tax
|
|
|
(139
|
)
|
|
|
(216
|
)
|
Other
|
|
|
(272
|
)
|
|
|
(22
|
)
|
Total deferred income tax liabilities
|
|
|
(3,550
|
)
|
|
|
(4,792
|
)
|
Valuation allowance for realization of certain deferred income tax assets
|
|
|
(3,873
|
)
|
|
|
(4,636
|
)
|
Net deferred income tax asset
|
|
$
|
5,060
|
|
|
$
|
9,519
|
|
A valuation allowance
is provided when it is considered more likely than not that certain deferred tax assets will not be realized. The valuation allowance
of $3,873,000 as of April 30, 2018 relates primarily to deferred tax assets, including net operating loss carryforwards in states
where the Company either has no current operations or its operations are not considered likely to realize the deferred tax assets
due to the amount of the applicable state net operating loss or its expected expiration date. The reduction in the valuation allowance
in 2018 is primarily related to state tax rates and the use of certain state operating loss carryforwards that were wholly reserved
in 2017.
The Company has
state net operating loss carryforwards of $84,763,000 that expire beginning in fiscal years ending April 30, 2020 through April
30, 2036.
The Company is subject to U.S. federal
income taxes and various state and local income taxes. Tax regulations within each jurisdiction are subject to interpretation and
require significant judgment to apply. The Company is not currently under examination by any tax authorities with respect to its
income tax returns. Other than the U.S. federal tax return, in nearly all jurisdictions, the tax years through the fiscal year
ended April 30, 2014 are no longer subject to examination due to the expiration of the applicable statutes of limitations.
ASC 740 clarifies the accounting for uncertain
tax positions, prescribing a minimum recognition threshold a tax position is required to meet before being recognized, and providing
guidance on the derecognition, measurement, classification and disclosure relating to income taxes. The following table summarizes
the beginning and ending gross amount of unrecognized tax benefits:
|
|
2018
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Gross unrecognized tax benefits at beginning of year
|
|
$
|
58
|
|
|
$
|
58
|
|
Gross increases:
|
|
|
|
|
|
|
|
|
Additions based on tax positions related to current year
|
|
|
-
|
|
|
|
-
|
|
Additions based on tax positions of prior years
|
|
|
-
|
|
|
|
-
|
|
Gross decreases:
|
|
|
|
|
|
|
|
|
Reductions based on tax positions of prior years
|
|
|
-
|
|
|
|
-
|
|
Reductions based on the lapse of the applicable statute of limitations
|
|
|
-
|
|
|
|
-
|
|
Gross unrecognized tax benefits at end of year
|
|
$
|
58
|
|
|
$
|
58
|
|
The total tax effect of gross unrecognized
tax benefits at April 30, 2018 and 2017 was $58,000 as of each date that, 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 fiscal
year 2019.
The Company has elected to include interest
and penalties in its income tax expense. The Company accrued no interest or penalties at April 30, 2018 and $50,000 at April 30,
2017.
|
(13)
|
SHAREHOLDERS’ EQUITY:
|
The Company recorded, net of tax, other
comprehensive income of $1,306,000 in 2018 and other comprehensive income of $1,861,000 in 2017 to account for the net effect of
changes to the unfunded portion of pension liability (refer to Note 11).
|
(14)
|
IMPAIRMENT OF ASSETS
:
|
Real Estate
– There was no
impairment of real estate assets in 2018. During 2017, there was an impairment charge for certain real estate inventory of $150,000.
Fulfillment Services
– There
was no impairment of long-lived assets in the fulfillment services business in either 2018 or 2017.
|
(15)
|
COMMITMENTS AND CONTINGENCIES
:
|
Non-cancelable leases
– The
Company is obligated under long-term, non-cancelable leases for equipment and various real estate properties. Certain real estate
leases provide that the Company will pay for taxes, maintenance and insurance costs and include renewal options. Lease costs for
2018 and 2017 were approximately $718,000 and $788,000. The total minimum lease commitments of $650,000 for fiscal years subsequent
to April 30, 2018 are due as follows: 2019 - $407,000; 2020 - $127,000; 2021 - $92,000; 2022 - $23,000, 2023 - $1,000 and none
thereafter.
AMREP Southwest
– At April
30, 2018, AMREP Southwest has posted bonds to support its future development commitments in Rio Rancho, New Mexico of approximately
$873,000.
The Company is
involved in various claims and legal actions arising in the normal course of business. While the ultimate results of these matters
cannot be predicted with certainty, management believes that they will not have a material adverse effect on the Company’s
consolidated financial position, liquidity or results of operations.
|
(17)
|
INFORMATION ABOUT THE COMPANY’S OPERATIONS
IN DIFFERENT INDUSTRY SEGMENTS
:
|
The Company has identified two reportable
segments in which it currently has business operations: (i) real estate and (ii) fulfillment services. The real estate segment
primarily includes land sales and lease activities, which involve the obtaining of approvals and the sale of both developed and
undeveloped lots to homebuilders, commercial users and others, as well as investments in commercial and investment properties.
The fulfillment services segment performs fulfillment and contact center services for consumer publications, trade (business) publications,
membership organizations, non-profit organizations, government agencies and other direct marketers. Certain common expenses as
well as identifiable assets are allocated among reportable segments based upon management’s estimate of each segment’s
absorption.
The accounting policies of the segments
are the same as those described in Note 1. See Note 12 for disclosure regarding differences between the U.S. federal statutory
income tax rate and the actual tax provision. The following tables set forth summarized data relative to the industry segments
in which the Company operated for the years indicated (in thousands):
|
|
Real Estate
Operations
|
|
|
Fulfillment
Services
|
|
|
Corporate
and
Other
|
|
|
Consolidated
|
|
Year ended April 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
(a)
|
|
$
|
8,802
|
|
|
$
|
31,251
|
|
|
$
|
125
|
|
|
$
|
40,178
|
|
Net income (loss)
|
|
$
|
(1,661
|
)
|
|
$
|
851
|
|
|
$
|
1,048
|
|
|
$
|
238
|
|
Provision (benefit) for income taxes
|
|
|
(246
|
)
|
|
|
2,970
|
|
|
|
494
|
|
|
|
3,218
|
|
Interest expense (income), net
(b)
|
|
|
2,177
|
|
|
|
1,161
|
|
|
|
(3,281
|
)
|
|
|
57
|
|
Depreciation and amortization
|
|
|
87
|
|
|
|
1,159
|
|
|
|
-
|
|
|
|
1,246
|
|
EBITDA
(c)
|
|
$
|
357
|
|
|
$
|
6,141
|
|
|
$
|
(1,739
|
)
|
|
$
|
4,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
52
|
|
|
$
|
87
|
|
|
$
|
-
|
|
|
$
|
139
|
|
Total assets, as of April 30, 2018
|
|
$
|
77,860
|
|
|
$
|
21,545
|
|
|
$
|
6,460
|
|
|
$
|
105,865
|
|
Year ended April 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
(a)
|
|
$
|
11,257
|
|
|
$
|
31,030
|
|
|
$
|
81
|
|
|
$
|
42,368
|
|
Net income (loss)
|
|
$
|
(1,094
|
)
|
|
$
|
(92
|
)
|
|
$
|
1,171
|
|
|
$
|
(15
|
)
|
Provision (benefit) for income taxes
|
|
|
(445
|
)
|
|
|
(154
|
)
|
|
|
1,596
|
|
|
|
997
|
|
Interest expense (income), net
(b)
|
|
|
2,256
|
|
|
|
1,085
|
|
|
|
(3,008
|
)
|
|
|
333
|
|
Depreciation and amortization
|
|
|
95
|
|
|
|
1,301
|
|
|
|
-
|
|
|
|
1,396
|
|
Impairment of assets
|
|
|
150
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150
|
|
EBITDA
(c)
|
|
$
|
962
|
|
|
$
|
2,140
|
|
|
$
|
(241
|
)
|
|
$
|
2,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
-
|
|
|
$
|
249
|
|
|
$
|
-
|
|
|
$
|
249
|
|
Total assets, as of April 30, 2017
|
|
$
|
70,400
|
|
|
$
|
25,900
|
|
|
$
|
10,376
|
|
|
$
|
106,676
|
|
|
(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.
|