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