| AMREP CORP Item 1A Risk Factors - -------- ------------ The risks described below are among those that could materially and adversely affect the Companyapstas business, financial condition or results of operations |
| These risks could cause actual results to differ materially from historical experience and from results predicted by any forward-looking statements related to conditions or events that may occur in the future |
| These risks are not the only risks the Company faces, and other risks include factors not presently known as well as those that are currently considered to be less significant |
| Real Estate Operations - ---------------------- The Companyapstas Real Estate business is highly concentrated in one market, and current results and future growth may be limited if the economy contracts in this market |
| Substantially all of the Companyapstas real estate assets are located in Rio Rancho, New Mexico |
| As a result of this geographic concentration, the Company could be affected by changes in economic conditions in this region from time to time, including economic contraction due to, among other things, the 5 failure of key industries and employers |
| The Companyapstas results of operations or future growth may be adversely impacted if the demand for residential or commercial real estate declines in Rio Rancho as a result of such changes in economic conditions |
| The Company owns a depleting asset, and long-term growth in the Real Estate business will require the acquisition of additional inventory or expansion into new markets |
| Substantially all of the Companyapstas real estate revenues are derived from sales of its core inventory in Rio Rancho, New Mexico |
| This property was acquired more than 40 years ago, and as of April 30, 2006, the Company still owned approximately 18cmam500 acres from this original purchase |
| From time to time during the Companyapstas history, it has operated in other markets and it still owns some land in Colorado, but currently its operations are conducted entirely in Rio Rancho |
| The continuity and future growth of the Company will require that it acquire new properties in Rio Rancho or expand to other markets to provide it with sufficient assets in order to maintain its current level of operations |
| The success of any such acquisitions may depend on the Companyapstas ability to identify and fairly value appropriate assets for acquisition and to successfully manage and integrate such assets and personnel acquired in these transactions |
| If the Company does not acquire new real estate assets, it will eventually liquidate its existing holdings and be out of the real estate business |
| The Company is subject to substantial legal, regulatory and other requirements regarding the development of land, which can cause delays in land sales and increase costs |
| Development activities performed in connection with real estate sales (including obtaining necessary governmental approvals, access to water supplies, installation of utilities and necessary storm drains, and building or improving roads) are regulated by numerous local, state and federal statutes, ordinances, rules and regulations, including those concerning zoning, resource protection and other environmental impacts |
| These regulations often provide broad discretion to governmental authorities that regulate these matters and from whom the Company must obtain approvals |
| The approval process can result in delays and increases in cost to the Company as well as its primary customers, commercial and residential builders |
| Government regulations and legal challenges may delay the start of planned communities, increase the Companyapstas expenses or limit its customers &apos development activities |
| Various local, state and federal statutes, ordinances, rules and regulations concerning access to water supplies, zoning, construction, sales and similar matters also apply to the industry |
| This governmental regulation affects the Companyapstas land sales activities and at times may limit the Companyapstas ability to develop or sell land |
| Delays and increased expenses may also be experienced as a result of legal challenges to proposed communities, whether brought by governmental authorities or private parties |
| Increases in taxes or governmental fees would increase the Companyapstas costs |
| Also, adverse changes in tax laws could reduce customer demand for land for commercial and residential development |
| Increases in real estate taxes and other local governmental fees, such as fees imposed on developers to fund schools, open space and road improvements or to provide low and moderate income housing, would increase the Companyapstas costs and have an adverse effect on the Companyapstas operations |
| In addition, increases in local real estate taxes or changes in income tax laws that would reduce or eliminate tax deductions or incentives could adversely affect homebuilders &apos potential customer demand and could adversely affect future sales |
| Changing market conditions may adversely affect companies in the real estate industry who rely upon adequate credit in order to finance their purchases of land from the Company |
| Residential and commercial developers to whom the Company sells land frequently rely upon third party financing to provide the capital necessary for their acquisition of land |
| Changes in economic and other external market conditions may result in their inability to obtain suitable financing, which could adversely impact the Companyapstas ability to sell land, or necessitate it to sell land at lower prices, thus reducing the margins that the Company has historically achieved |
| Adverse changes in general economic, real estate development or other business conditions could adversely affect the Companyapstas business and its financial results |
| A significant percentage of the Companyapstas real estate revenues are derived from customers in the residential homebuilding business, which is sensitive to changes in economic conditions and other factors, such as the level of employment, consumer confidence, consumer income, availability of mortgage financing and interest rate levels |
| Adverse changes in any of these conditions, in particular in the Rio Rancho market where the Company operates, could decrease demand and therefore affect the pricing of land sold to developers, resulting in a decrease in the Companyapstas revenues and earnings |
| 6 Real Estate is a cyclical industry |
| During periods of economic expansion, the Real Estate business generally benefits from the demand for developable land |
| During periods of economic contraction, the Company is generally adversely affected by declining demand for land |
| Also, there can be no assurance that an increase in demand or an economic expansion will be sustained in the Rio Rancho market, where the Companyapstas core real estate business is based and operates |
| The Real Estate business is dependent on subcontractors |
| The development of land on a timely basis is critical to the Companyapstas ability to close sales of property in accordance with its contractual obligations |
| The availability of subcontractors in the Rio Rancho market can be affected by numerous factors beyond the Companyapstas control, including the general demand for these subcontractors by other sellers of land |
| While alternate suppliers exist for many of the services required by the Company, there can be no assurance that the Company will not experience delays or be forced to seek alternative suppliers, which may increase costs or adversely affect its ability to sell land on a timely basis |
| Media Service Operations - ------------------------ The Company participates in highly competitive industries and competitive pressures may result in a decrease in its revenues and profitability |
| The Fulfillment and Newsstand Distribution Services businesses compete in highly competitive markets, and some competitors have financial resources that are substantially greater than those of the Company |
| Over the past several years, the Company has experienced significant price competition in its markets |
| Competitive pressures could cause the Companyapstas Media Services businesses to lose market share or result in significant price erosion that would have an adverse effect on their results of operations |
| The introduction and increased popularity of alternative technologies for the distribution of news, entertainment and other information and the resulting shift in consumer habits and advertising expenditures from print to other media could adversely affect the Newsstand Distribution and Fulfillment Services businesses |
| Revenues in the Media Services business segments are principally derived from services performed for publishers |
| The distribution of news, entertainment and other information via the Internet has become increasingly popular over the past several years, and viewing news, entertainment and other content on a personal computer, cellular phone or other device has become increasingly popular as well |
| Accordingly, the resulting shift of advertising dollars from traditional print to online media could adversely affect the publishing industry and, ultimately, have a "e trickle down "e negative impact on the Companyapstas Newsstand Distribution and Fulfillment Services businesses due to a shift in consumer demand away from the print media and toward digital downloading and other delivery methods |
| Media operations could face increased costs and business disruption resulting from instability in the newsstand distribution channel |
| The Company extends credit to various companies 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 risk primarily consist of trade accounts receivable from wholesalers in the magazine distribution industry |
| Due to industry consolidation, four wholesalers represent approximately 80prca of the wholesale magazine distribution business |
| There is a possibility of further consolidation among these wholesalers, and the insolvency of any of them could have a material, adverse impact on the Companyapstas financial condition and results of operations |
| Should there be a disruption in the wholesale channel, it could impede the ability to distribute magazines to the retail marketplace |
| The Companyapstas operating results depend in part on continued successful research, development and marketing of new or improved services and data processing capabilities |
| There can be no assurance that the Company will continue successfully to introduce new services and data processing capabilities on a timely and cost-effective basis |
| The success of new and improved services depends on their initial and continued acceptance by the various publishers and customers with whom the Company conducts its business |
| The Companyapstas several revenue streams are affected by varying degrees of technological change and shifts in customer demand, which may result in the transition of services provided and an increased importance of being "e first to market "e with new services and information processing innovations |
| Difficulties or delays in the development, production or marketing of new services and information processing capabilities may be experienced, and this may negatively impact the Companyapstas operating results and prevent it from realizing the return on investment required to bring new services and information processing capabilities to market on a timely and cost effective basis |
| 7 The Company operates in highly competitive markets that are subject to rapid change, and the Company must continue to invest in developing technologies and adapt various systems in order to remain competitive |
| There are substantial uncertainties associated with the Companyapstas efforts to develop new technologies and services for the media fulfillment and distribution markets it serves |
| The Company makes significant investments in new information processing technologies and services that may not be profitable and even if they are profitable, operating margins for new technologies and services may be lower than the margins that the Company has experienced historically |
| The Companyapstas operations could be disrupted if its information systems fail, causing increased expenses and loss of sales |
| The Companyapstas business depends on the efficient and uninterrupted operation of its computer and communications capabilities, including the maintenance of customer data bases for billing and label processing, as well as its magazine distribution order regulation system |
| If a key system were to fail or experience unscheduled down-time for any reason, even if only for a short period, the Companyapstas operations and financial results could be adversely affected |
| The Company has a formal disaster recovery plan in place, but this plan may not be entirely successful in preventing delays or other complications that could arise from information systems failure and, if it is not successful, the Companyapstas business interruption insurance may not adequately compensate it for losses that may occur |
| Virtually all of the Companyapstas revenues in the Newsstand Distribution Services business are derived from sales made on a fully returnable basis, and an error in estimating expected returns could cause a misstatement of revenues for the period affected |
| As is customary in the magazine distribution industry, virtually all of the Companyapstas revenues in this business segment are derived from sales made on a fully returnable basis |
| During the year ended April 30, 2006, approximately 75prca of the magazines initially distributed by the Company were ultimately returned for credit by customers |
| The Company recognizes revenues from the distribution of magazines at the time of delivery to the wholesalers, less a reserve for estimated returns that is based on historical experience and most recent sales data on an issue-by-issue basis |
| Although the Company has the contractual right to return these magazines for offsetting credits from the publishers from whom the magazines are purchased, an error in estimating the percentage of returns at the end of an accounting period would have the effect of understating or overstating revenues in the period affected as well as in the subsequent periods when the correct information became known |
| The Company depends on the Internet to deliver some of its services, which may expose the Company to increased risks |
| Many of the Companyapstas operations and services, including order taking on behalf of customers and communications with customers and suppliers, involve use of the Internet, and the Companyapstas business is subject to any factors that adversely affect Internet usage, including the reliability of Internet service providers, which, from time to time, have operational problems and experience service outages |
| Additionally, one of the requirements of the continued growth over the Internet is the secure transmission of confidential information over public networks |
| Failure to prevent security breaches of the Companyapstas networks or those of its customers or well-publicized security breaches affecting the Internet in general could significantly harm growth and revenues |
| Other Entity-Wide Risk Factors - ------------------------------ The Company requires access to credit facilities, and either the inability to obtain adequate financing or increases in interest rates could adversely affect its results of operations |
| The Companyapstas operations depend on its ability to obtain financing for development of land inventory in the Real Estate business and for working capital and capital expenditure requirements in the Media Services business |
| If the Company is not able to obtain suitable financing, its costs could increase and its revenues could decrease, or the Company could be precluded from continuing its operations at current levels |
| Increases in interest rates can make it more difficult and expensive to obtain the funds needed to operate the Companyapstas businesses |
| The applicable interest rates on the revolving bank credit facilities that both the Real Estate business and Media Service business have in place fluctuate based on changes in short-term interest rates generally and on the amount of outstanding borrowings under those facilities |
| Increases in interest rates would increase the Companyapstas interest expense |
| 8 The Company may engage in acquisitions and may encounter difficulties in integrating these businesses and, therefore, may not realize the anticipated benefits of the acquisitions |
| From time to time, the Company may seek to grow through strategic acquisitions intended to complement or expand one or more of its businesses or to enable it to enter a new business |
| The success of these transactions may depend on its ability to integrate systems and personnel acquired in these transactions without substantial costs, delays or other operational or financial problems |
| The Company may encounter difficulties in integrating acquisitions with its operations or in separately managing a new business |
| Furthermore, the Company may not realize the degree or timing of benefits that it anticipates when first entering into a transaction |
| Any of the foregoing could adversely affect the Companyapstas business and results of operations |
| The Companyapstas management and internal systems may not be adequate to handle its potential growth |
| To manage future growth, the Companyapstas management must continue to improve operational and financial systems and to expand, train, retain and manage its employee base |
| At the same time, the Company will likely be required to manage an increasing number of relationships with various customers and other parties |
| If the Companyapstas systems, procedures and controls are inadequate to support its operations, expansion could be halted and the opportunity to gain significant additional market share could be lost |
| Any inability to manage growth effectively may harm the Companyapstas business |
| If the Companyapstas accounting controls and procedures are circumvented or otherwise fail to achieve their intended purposes, its business could be seriously harmed |
| Although the Company evaluates its internal control over financial reporting and disclosure controls and procedures as of the end of each quarter, it may not be able to prevent all instances of accounting errors or fraud in the future |
| These control systems remain subject to the risk of human error and the risk that controls can be circumvented for wrongful purposes by individuals in management and non-management positions |
| The Companyapstas business could be seriously harmed by any material failure of these control systems |
| The Company has a principal shareholder whose interests may conflict with other investors |
| The Companyapstas principal shareholder owns approximately 55prca of its outstanding capital stock |
| As a result, the principal shareholder exercises significant influence over the Companyapstas major decisions, including through his ability to nominate and elect the members of the Board of Directors |
| The Companyapstas common stock price has been volatile, which could result in substantial losses for stockholders |
| The Companyapstas common stock is currently traded on the New York Stock Exchange |
| The closing sale prices of its common stock have ranged from a low of dlra21dtta58 per share to a high of dlra46dtta75 per share for the 52-week period ending April 30, 2006 |
| The trading price of the Companyapstas common stock can be affected by numerous factors, including, but not limited to, announcements of new services, additions or departures of key personnel, quarterly fluctuations in the Companyapstas operating results, changes in analysts &apos estimates of financial performance, general conditions in the industries in which the Company operates and in the financial markets and a variety of other risk factors, including the ones disclosed in this annual report on Form 10-K The Companyapstas quarterly operating results can fluctuate significantly |
| The Company has experienced, and may continue to experience, significant fluctuations in its quarterly operating results, which may adversely affect its stock price |
| Future quarterly operating results may not align with past trends as a result of numerous factors, including many that result from the unpredictability of the nature and timing of real estate land sales, the variability in gross profit margins and competitive pressures |
| Changes in tax laws or the interpretation of tax laws may negatively affect the Companyapstas business |
| The Company believes that its recorded tax balances are adequate |
| However, it is not possible to predict the effects of possible changes in tax laws or in their interpretation and whether such changes could have a material negative effect on the Companyapstas operating results |
| The Company may be subject to costly litigation and governmental proceedings that could adversely affect its results of operations |
| From time to time, the Company may be subject to various claims and lawsuits by the government, competitors, customers or other parties arising in or out of the ordinary course of business |
| Such matters can be time-consuming, divert managementapstas attention and resources, and cause the Company to incur significant expenses |
| Furthermore, there can be no assurance that the results of any of these actions will not have a material adverse effect on the Companyapstas future operating results or cash flows |
| 9 Terrorist attacks and threats may disrupt the Companyapstas operations and negatively impact its revenues, costs and stock price |
| The terrorist attacks in September 2001 in the US, the US response to those attacks and the resulting decline in consumer confidence had a substantial adverse impact on the US economy |
| Any similar future events may disrupt the Companyapstas operations or those of its customers |
| In addition, these events have had and may continue to have an adverse impact on the US economy in general and consumer confidence and spending in particular, which could harm the Companyapstas revenues |
| Any new terrorist events or threats could have a negative impact in the US and world financial markets, which could reduce the price of the Companyapstas common stock and limit the capital resources available to it and the homebuilders, publishers, customers and others with whom the Company conducts business |
| This could have a significant impact on revenues, costs and operating results and might result in increased volatility in the market price of the Companyapstas common stock |
| The Companyapstas pension plan is underfunded, and may require additional cash contributions |
| The Companyapstas pension plan is underfunded by approximately dlra3dtta2 million at April 30, 2006 |
| A key assumption underlying the actuarial calculations upon which the Companyapstas accounting and reporting obligations are based is an assumed investment rate of return of 8prca; if the pension plan assets do not realize this expected rate of return or if other assumptions are incorrect, the Company could be required to make substantial contributions to its pension plan until the plan is fully funded, which could limit the Companyapstas financial flexibility |
| The Company is dependent on its key personnel |
| The Company is dependent upon the continued services of certain key officers and employees, and the loss of key personnel could have an adverse effect on the Companyapstas business |
| The Company does not maintain "e key man "e insurance for any of its officers, and its continued success depends on the ability to attract and retain a skilled labor force |
| There can be no assurance that the Company will be successful in attracting and retaining the personnel required either to maintain its business or expand its operations |