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, 2019 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, 2019, 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 (collectively, the “Company”). The
Company, through its subsidiaries, is primarily engaged in one business segment: the real estate business. The Company has no foreign
sales. All significant intercompany accounts and transactions have been eliminated in consolidation.
Prior to April 26, 2019, the Company had
been engaged in the fulfillment services business. The fulfillment services business performed fulfillment and contact center services
for publications, membership organizations, government agencies and other direct marketers. On April 26, 2019, the Company’s
fulfillment services business was sold. Results of the Company’s fulfillment services business are retrospectively reported
as discontinued operations in the accompanying consolidated financial statements for all periods presented. Prior year information
has been adjusted to conform to the current year presentation. Unless otherwise stated, the information disclosed in the footnotes
accompanying the consolidated financial statements refers to continuing operations. See Note 2 – Discontinued Operations
for more information regarding results from discontinued operations.
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 2018 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 2019 and 2018 mean the fiscal years ended April 30, 2019 and 2018, unless the context otherwise indicates.
Revenue recognition
Real estate sales are recognized when the
parties are bound by the terms of a contract, consideration 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.
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 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 may enter into leases with
tenants with respect to property or buildings it owns. 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.
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. Restricted
cash consists of cash deposits with a bank that are restricted due to two Subdivision Improvement Agreements with the City of Rio
Rancho, New Mexico.
Reclassifications
In connection with the sale of the Company’s
fulfillment services business, certain real property previously classified as property, plant and equipment but currently rented
to the fulfillment services business has been reclassified on the consolidated balance sheets as investment assets in the periods
presented. These reclassifications have no effect on previously reported net income or retained earnings.
Real estate inventory
Real estate inventory includes land and
improvements on land held for future development or sale. The Company accounts for its real estate inventory 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. 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 consist of (i) investment
land, which represents vacant, undeveloped land not held for development or sale in the normal course of business, and (ii) real
estate assets that are leased to third parties. Investment assets are stated at the lower of cost or net realizable value.
Depreciation of investment assets is 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 to 40 years for buildings and improvements.
Impairment of long-lived assets
Long-lived assets consist of real estate
being leased to third parties and 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. 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. Unvested restricted shares of common stock (see Note
10) are not included in the computation of basic earnings per share, as they are considered contingently returnable shares. Unvested
restricted shares of common stock are included in diluted earnings per share if they are dilutive. Deferred stock units (see Note
10) 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 the plan’s year-end
statement of financial position and recognizes changes in that funded status in the year in which the changes occur through comprehensive
income (loss).
Comprehensive income
Comprehensive income is defined as the
change in equity during a period from transactions and other events from non-owner sources. Total comprehensive income is the total
of net income or loss and other comprehensive income 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) real estate cost of sales calculations, which are based on
land development budgets and estimates of costs to complete; (ii) cash flows, asset groupings and valuation assumptions in performing
asset impairment tests of long-lived assets and assets held for sale; (iii) actuarially determined benefit obligation and other
pension plan accounting and disclosures; (iv) risk assessment of uncertain tax positions; and (v) 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.
Discontinued operations
The Company records discontinued operations
when the disposal of a separately identified business unit constitutes a strategic shift in the Company’s operations, as
defined in Accounting Standards Codification (“ASC”) Topic 205-20, Discontinued Operations (“ASC Topic
205-20”).
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
guidance (collectively, “Topic 606”). Topic 606 clarified the principles for recognizing revenues and costs related
to obtaining and fulfilling customer contracts. 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
are required under Topic 606 than were required under the prior generally accepted accounting principles. Topic 606 was effective
for the Company's fiscal year beginning May 1, 2018. The Company adopted Topic 606 using the modified retrospective method. Results
for reporting periods beginning after May 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted
and continue to be reported in accordance with ASC 360-20. The adoption of Topic 606 had no impact on the Company's results
of operations.
In February 2016, the FASB issued ASU No. 2016-02,
Leases
. Since
that date, the FASB has issued additional ASUs providing further guidance for lease transactions (collectively “ASU 2016-02”).
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. Upon adoption of ASU
2016-02, the Company will be required to recognize and measure leases at the beginning of the earliest period presented using a
modified retrospective approach. ASU 2016-02 will be effective for the Company for fiscal year 2020 beginning May 1, 2019. The
adoption of ASU 2016-02 by the Company is not expected to 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, including classifying proceeds from company-owned life insurance proceeds as an investing activity. ASU 2016-15 was
effective for the Company’s fiscal year beginning May 1, 2018. The Company received life insurance proceeds of $85,000 during
2018, which is reflected in the accompanying Consolidated Statement of Cash Flows as an investing activity. The income associated
with the life insurance proceeds was recognized in various years prior to 2019.
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 will be effective for the Company’s fiscal year 2020 beginning May 1, 2019. The Company has determined it will
not elect to reclassify such tax effects, and as such, the adoption of ASU 2018-02 will not have an effect on its consolidated
financial statements.
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 will be 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.
In August 2018, the FASB issued ASU No.
2018-13,
Fair Value Measurement: Disclosure Framework
–
Changes to
the Disclosure Requirements for Fair Value Measurement
(ASU 2018-13), which adds and modifies certain disclosure requirements
for fair value measurements. Under the new guidance, entities will no longer be required to disclose the amount and reasons for
transfers between Level 1 and Level 2 of the fair value hierarchy, or valuation processes for Level 3 fair value measurements.
However, public business entities will be required to disclose the range and weighted average of significant unobservable inputs
used to develop Level 3 fair value measurements, and related changes in unrealized gains and losses included in other comprehensive
income. ASU 2018-13 will be effective for the Company’s fiscal year 2021 beginning May 1, 2020. The Company is currently
evaluating the impact that this guidance will have on the Company’s consolidated financial statements.
There are no other new accounting standards
or updates to be adopted that the Company currently believes might have a significant impact on its consolidated financial statements.
|
(2)
|
DISCONTINUED OPERATIONS
:
|
On April 26, 2019, Palm Coast Data Holdco,
Inc. (“Seller”), a wholly owned subsidiary of the Company, entered into a membership interest purchase agreement (the
“Purchase Agreement”) with Studio Membership Services, LLC (“Buyer”). The closing of the transactions contemplated
by the Purchase Agreement occurred on April 26, 2019 (the “Closing Date”).
Pursuant to the Purchase Agreement, Buyer
acquired the Company’s fulfillment services business through the purchase from Seller of all of the membership interests
(the “Membership Interests”) of Palm Coast Data LLC (“PCDLLC”) (which included PCDLLC’s wholly owned
subsidiary FulCircle Media, LLC) and Media Data Resources, LLC (PCDLLC, FulCircle Media, LLC and Media Data Resources, LLC are
collectively referred to herein as the “Target Group”). Pursuant to ASC 205-20, “Presentation of Financial Statements
- Discontinued Operations”, the membership interests sold are reported as discontinued operations in the accompanying financial
statements.
The purchase price for the Membership Interests
was $1,000,000, which was paid by Buyer to Seller on the Closing Date. In addition, substantially all of the intercompany amounts
of the Target Group due to or from the Company and its direct and indirect subsidiaries (not including the Target Group) were eliminated
through offsets, releases and capital contributions. Buyer and Seller provided customary indemnifications under the Purchase Agreement
and provided each other with customary representations, warranties and covenants.
In connection with the Purchase Agreement,
PCDLLC entered into two triple net lease agreements, each dated as of the Closing Date (each, a “Lease Agreement” and,
together, the “Lease Agreements”), pursuant to which PCDLLC has agreed to lease (1) from Two Commerce LLC (“TC”),
a subsidiary of the Company, a 61,000 square foot facility located in Palm Coast, Florida, and (2) from Commerce Blvd Holdings,
LLC (“CBH”), a subsidiary of the Company, a 143,000 square foot facility in Palm Coast, Florida.
Pursuant to each Lease Agreement, all structural,
mechanical, maintenance and other costs associated with the applicable facility being leased are the responsibility of PCDLLC.
The term of each Lease Agreement is 10 years. At the option of PCDLLC, the expiration date of each Lease Agreement may be accelerated
(1) to the date PCDLLC pays the applicable landlord an amount equal to the present value of all future rent calculated as of the
proposed expiration date or (2) to a date within 30 days after the sixth anniversary of the Closing Date if PCDLLC pays the applicable
landlord an amount equal to 90% of the present value of all future rent calculated as of the proposed expiration date. Pursuant
to the Lease Agreements, PCDLLC will pay to TC and CBH the aggregate annual rent set forth below, which is payable in equal monthly
installments in each of the applicable years, subject to a waiver of the payment of rent attributable to the month of May 2019.
Year
|
|
|
Aggregate Annual Rent under
Both
Lease Agreements
|
|
|
1
|
|
|
$
|
1,900,000
|
|
|
2
|
|
|
$
|
1,941,500
|
|
|
3
|
|
|
$
|
1,985,328
|
|
|
4
|
|
|
$
|
2,041,564
|
|
|
5
|
|
|
$
|
2,105,294
|
|
|
6
|
|
|
$
|
2,181,604
|
|
|
7
|
|
|
$
|
2,260,585
|
|
|
8
|
|
|
$
|
2,342,331
|
|
|
9
|
|
|
$
|
2,426,937
|
|
|
10
|
|
|
$
|
2,514,505
|
|
The gain before income taxes recorded on
the sale of the Company’s fulfillment services business was $2,506,000 and consisted of the following:
|
·
|
closing consideration of $1,000,000 in
cash;
|
|
·
|
deferred purchase price of $5,636,000
based on the present value of the portion of the lease rates in the lease agreements that exceeded estimated current market rates.
The deferred purchase price is included in Other assets in the accompanying consolidated balance sheet as of April 30, 2019 (see
Note 5) and will be amortized as payments from the tenant are received over the term of the lease agreements;
|
|
·
|
the net book value of the Membership Interests
was $3,939,000; and
|
|
·
|
transaction costs of $191,000.
|
The following table provides a reconciliation
of the carrying amounts of major classes of assets and liabilities of the discontinued operations noted above to the assets and
liabilities classified as discontinued operations in the accompanying balance sheets (in thousands, intercompany accounts have
been eliminated):
|
|
April 30,
|
|
|
|
2018
|
|
Carrying amounts of major classes of assets included as part of
discontinued operations:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,190
|
|
Receivables, net
|
|
|
5,875
|
|
Deferred income taxes
|
|
|
1,900
|
|
Property and equipment, net
|
|
|
1,645
|
|
Other assets
|
|
|
1,842
|
|
Assets of discontinued operations
|
|
$
|
14,452
|
|
Carrying amounts of major classes of liabilities included as part of discontinued operations:
|
|
|
|
Accounts payable, accrued expenses and other liabilities
|
|
$
|
4,745
|
|
Taxes payable
|
|
|
555
|
|
Liabilities of discontinued operations
|
|
$
|
5,300
|
|
The following table provides a reconciliation
of the carrying amounts of components of pretax income of the discontinued operations to the amounts reported in the accompanying
consolidated statements of operations (in thousands):
|
|
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
Components of pretax income from discontinued operations:
|
|
|
|
|
|
|
Revenues
|
|
$
|
26,847
|
|
|
$
|
31,251
|
|
Operating expenses
|
|
|
23,813
|
|
|
|
23,594
|
|
General and administrative expenses
|
|
|
1,281
|
|
|
|
1,306
|
|
Interest expense
|
|
|
2
|
|
|
|
52
|
|
Gain on sale of the fulfillment services business
|
|
|
2,506
|
|
|
|
-
|
|
Income from discontinued operations before income taxes
|
|
|
4,257
|
|
|
|
6,299
|
|
Provision for income taxes
|
|
|
265
|
|
|
|
3,497
|
|
Income from discontinued operations
|
|
$
|
3,992
|
|
|
$
|
2,802
|
|
The following is a reconciliation of the Company’s cash
and cash equivalents from the consolidated balance sheet as of April 30, 2018 to the consolidated statements of cash flows:
|
|
April 30, 2018
|
|
Cash and cash equivalents per balance sheet
|
|
$
|
10,851
|
|
Cash and cash equivalents classified within discontinued operations
|
|
|
3,190
|
|
Beginning cash and cash equivalents balance per statement of cash flows
|
|
$
|
14,041
|
|
Prior period adjustment
Retained earnings of the Company at May
1, 2017 has been revised to reflect the reduction of the carrying value of certain liabilities of the Company’s discontinued
operations. Management has determined that the revisions as shown below are not material to the Company’s consolidated financial
statements (in thousands).
|
|
|
|
|
|
|
|
Revised
|
|
|
|
Balance
|
|
|
Adjustment
|
|
|
Balance
|
|
|
|
April 30, 2017
|
|
|
Increase
|
|
|
May 1, 2017
|
|
Revisions to the consolidated financial statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
$
|
46,764
|
|
|
$
|
523
|
|
|
$
|
47,287
|
|
|
|
|
|
|
|
|
|
Revised
|
|
|
|
Balance
|
|
|
Adjustment
|
|
|
Balance
|
|
|
|
April 30, 2018
|
|
|
Increase
|
|
|
April 30, 2018
|
|
Revisions to the consolidated financial statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
$
|
47,002
|
|
|
$
|
523
|
|
|
$
|
47,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revisions to discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes, net
|
|
$
|
2,095
|
|
|
$
|
(195
|
)
|
|
$
|
1,900
|
|
Accounts payable and accrued expenses
|
|
$
|
5,463
|
|
|
$
|
(718
|
)
|
|
$
|
4,745
|
|
|
(3)
|
REAL ESTATE INVENTORY
:
|
Real estate inventory consists of land
and improvements held for sale or development. 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. In addition, approximately 92% of 2019 land sales were made to four customers.
There were no outstanding receivables from these four customers at April 30, 2019.
Accumulated capitalized interest costs
included in real estate inventory at April 30, 2019 and April 30, 2018 totaled $4,143,000 and $4,029,000. There was $115,000 of
capitalized interest for 2019 and $13,000 for 2018. Previously capitalized interest costs charged to real estate cost of sales
were $1,000 and $5,000 during 2019 and 2018. Accumulated capitalized real estate taxes included in real estate inventory at April
30, 2019 and April 30, 2018 totaled $1,756,000 and $1,736,000. There was $31,000 of capitalized real estate taxes for 2019 and
none for 2018. Previously capitalized real estate taxes charged to real estate cost of sales were $11,000 and $5,000 during 2019
and 2018.
Investment assets consist of:
|
|
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Land held for long-term investment
|
|
$
|
9,706
|
|
|
$
|
9,714
|
|
|
|
|
|
|
|
|
|
|
Leased warehouse and office facilities
|
|
|
13,527
|
|
|
|
13,501
|
|
Less accumulated depreciation
|
|
|
(6,006
|
)
|
|
|
(5,490
|
)
|
|
|
|
7,521
|
|
|
|
8,011
|
|
|
|
$
|
17,227
|
|
|
$
|
17,725
|
|
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, 2019, the Company held approximately 12,000 acres of land in New Mexico classified as land held for long-term investment.
The warehouse and office facilities are
located in Palm Coast, Florida, aggregate 204,000 square feet and are leased to a third party with a lease term that expires in
2029 (See Note 2 – Discontinued Operations for more information). Depreciation associated with the warehouse and office facilities
of $516,000 and $491,000 was charged to operations in 2019 and 2018.
Other assets consist of:
|
|
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Deferred purchase price (see Note 2)
|
|
$
|
5,636
|
|
|
$
|
-
|
|
Prepaid expenses and other, net
|
|
|
839
|
|
|
|
594
|
|
|
|
$
|
6,475
|
|
|
$
|
594
|
|
Prepaid expenses and other, net includes
property and equipment for which there was $17,000 charged to depreciation expense in both 2019 and 2018.
|
(6)
|
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
:
|
Accounts payable and accrued expenses consist of:
|
|
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Real estate operations
|
|
$
|
2,359
|
|
|
$
|
2,425
|
|
Corporate operations
|
|
|
605
|
|
|
|
342
|
|
|
|
$
|
2,964
|
|
|
$
|
2,767
|
|
As of April 30, 2019, accounts payable and accrued expenses
for the Company’s real estate business included accrued expenses of $491,000, trade payables of $652,000, real estate customer
deposits of $1,198,000 and other of $18,000. 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.
Notes payable, net consist of:
|
|
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Real estate notes payable
|
|
$
|
1,384
|
|
|
$
|
1,887
|
|
Unamortized debt issuance costs
|
|
|
(65
|
)
|
|
|
(44
|
)
|
|
|
$
|
1,319
|
|
|
$
|
1,843
|
|
Lomas Encantadas Subdivision
|
·
|
In 2018, Lomas Encantadas Development
Company LLC (“LEDC”), a subsidiary of the Company, 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 located in Rio Rancho, New Mexico. Pursuant to a Guaranty Agreement
entered into by AMREP Southwest Inc. (“ASW”), a subsidiary of the Company, in favor of Lender, ASW guaranteed LEDC’s
obligations under each of the above agreements.
|
|
o
|
Initial Available Principal
: Lender
agreed to lend up to $4,750,000 to LEDC on a non-revolving line of credit basis to partially fund the development of certain planned
residential lots within the Lomas Encantadas subdivision.
|
|
o
|
Outstanding Principal Amount and Repayments
:
The outstanding principal amount of the loan was $181,000 as of April 30, 2019 and $1,887,000 as of April 30, 2018. LEDC made principal
repayments of $3,234,000 during 2019 and no repayments during 2018. In June 2019, the outstanding principal amount of the loan
was fully repaid and the loan was terminated.
|
|
o
|
Maturity Date
: The loan was scheduled
to mature in December 2021.
|
|
o
|
Interest Rate
: Interest on the
outstanding principal amount of the loan was 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. The interest rate on the loan was 5.49% as of April 30, 2019.
|
|
o
|
Lot Release Price
: Lender was required
to release the lien of its mortgage on any lot upon LEDC making a principal payment of $43,000 or $53,000 depending on the location
of the lot.
|
|
o
|
Book Value
: The total book value
of the property within the Lomas Encantadas subdivision mortgaged to Lender under this loan was $10,840,000 as of April 30, 2019.
|
|
o
|
Capitalized Interest
: The Company
capitalized interest related to this loan of $82,000 in 2019 and $13,000 in 2018.
|
LEDC and ASW have made certain
representations and warranties in connection with this loan and are required to comply with various covenants, reporting requirements
and other customary requirements for similar loans. The loan documentation contained 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 ASW
to observe or perform their respective covenants under the loan documentation; the representations and warranties of LEDC or ASW
being false; the insolvency or bankruptcy of LEDC or ASW; and the failure of ASW to maintain a tangible net worth of
at least $35 million. 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 immediately due and payable. LEDC incurred customary costs and expenses and paid certain fees
to Lender in connection with the loan. As noted above, in June 2019, the outstanding principal amount of the loan was fully repaid
and the loan was terminated.
Hawk Site Subdivision
|
·
|
In
2019, Hawksite 27 Development Company, LLC (“HDC”), a subsidiary of the Company, entered into a Business Loan Agreement
with Main Bank. The loan under the Business Loan Agreement is evidenced by a Promissory Note and is secured by a Mortgage, between
HDC and Main Bank with respect to certain planned residential lots within the Hawk Site subdivision located in Rio Rancho, New
Mexico. Pursuant to a Commercial Guaranty entered into by ASW in favor of Main Bank, ASW has guaranteed HDC’s obligations
under each of the above agreements.
|
|
o
|
Initial Available Principal
: Main
Bank agrees to lend up to $1,800,000 to HDC on a non-revolving line of credit basis to partially fund the development of certain
planned residential lots within the Hawk Site subdivision.
|
|
o
|
Outstanding Principal Amount and Repayments
:
The outstanding principal amount of the loan as of April 30, 2019 was $1,203,000 and HDC made principal repayments of $390,000
during 2019. HDC is required to reduce the principal balance of the loan to a maximum of $1,700,000 in July 2020. The outstanding
principal amount of the loan may be prepaid at any time without penalty.
|
|
o
|
Maturity Date
: The loan is scheduled
to mature in July 2021.
|
|
o
|
Interest Rate
: Interest on the
outstanding principal amount of the loan is payable monthly at the annual rate equal to the Wall Street Journal Prime Rate plus
a spread of 2.38%, adjusted annually. The interest rate on the loan was 7.38% as of April 30, 2019.
|
|
o
|
Lot Release Price
: Main Bank is
required to release the lien of its mortgage on any lot upon HDC making a principal payment equal to the greater of $30,000 or
55% of the sales price of the lot.
|
|
o
|
Book Value
: The total book value
of the property within the Hawk Site subdivision mortgaged to Main Bank was $4,874,000 as of April 30, 2019.
|
|
o
|
Capitalized Interest
: The Company
capitalized interest related to this borrowing of $33,000 in 2019.
|
HDC and ASW have made certain
representations and warranties in connection with this loan 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: HDC’s failure to make principal, interest or other payments when due; the failure of HDC or ASW
to observe or perform their respective covenants under the loan documentation; the representations and warranties of HDC or ASW
being false; and the insolvency or bankruptcy of HDC or ASW. Upon the occurrence and during the continuance of an event of default,
Main Bank may declare the outstanding principal amount and all other obligations under the loan immediately due and payable. At
April 30, 2019, both HDC and ASW were in compliance with the financial covenants contained in the loan. HDC incurred customary
costs and expenses and paid fees to Main Bank in connection with the loan.
Other revenues consist of:
|
|
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Amortization of deferred revenue and other
|
|
$
|
518
|
|
|
$
|
488
|
|
|
|
$
|
518
|
|
|
$
|
488
|
|
Amortization of deferred revenue and other
includes the recognition of deferred revenue related to an oil and gas lease, fees and forfeited deposits from customers earned
by the Company and miscellaneous other income items.
During fiscal year 2015, the Company 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. Revenue from this transaction was recorded over the
initial lease term ending in 2019, which totaled $76,000 in 2019 and $228,000 in 2018. In 2019, the oil and gas lease was amended
pursuant to a lease extension agreement. The lease extension agreement extends the expiration date of the initial term of the lease
from September 2018 to September 2020. No fee was paid by the lessee to the Company with respect to such extension. If the lessee
or any of its affiliates provides any consideration to obtain, enter into, option, extend or renew an interest in any minerals
or mineral rights within Sandoval County, Bernalillo County, Santa Fe County or Valencia County in New Mexico at any time from
September 2017 through September 2020, lessee shall pay the Company an amount equal to the amount of such consideration paid per
acre multiplied by 54,793.24. The lease extension agreement further provides that the lessee shall assign, or shall cause their
affiliate to assign, to the Company an overriding royalty interest of 1% with respect to the proceeds derived from any minerals
or minerals rights presently or hereinafter owned by, leased by, optioned by or otherwise subject to the control of lessee or any
of its affiliates in any part of Sandoval County, Bernalillo County, Santa Fe County or Valencia County in New Mexico. The Company
did not record any revenue in 2019 related to the lease extension agreement.
(9)
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 2019 or 2018.
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 and trade payables
approximate fair value because of the short maturity of these financial instruments; and debt that bears variable interest rates
indexed to prime or LIBOR also approximates 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, 2019 and 2018.
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, 2019 by $6,401,000, with $23,903,000 of assets and $30,304,000 of liabilities and was underfunded at April 30, 2018 by $9,051,000,
with $23,372,000 of assets and $32,423,000 of liabilities. The pension plan liabilities were determined using a weighted average
discount interest rate of 3.54% per year at April 30, 2019 and 3.82% per year at April 30, 2018, which are based on the FTSE Pension
Discount Curve (formerly known as the Citigroup yield curve) as of such dates as it corresponds to the projected liability requirements
of the pension plan. The fair value of the pension plan assets was measured in accordance with the guidance described in Note 9.
As described in Note 2, the Company retained
its obligations under the Company’s defined benefit pension plan following the sale of the Company’s fulfillment services
business. The work force reduction with respect to the Company in connection with the sale of the fulfillment services business
resulted in the acceleration of the funding of approximately $5,194,000 of accrued pension-related obligations to the Company’s
defined benefit pension plan pursuant to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”),
and the regulations thereunder. The Company notified the Pension Benefit Guaranty Corporation (the “PBGC”) of
the sale of the fulfillment services business and, as permitted by ERISA, made an election to satisfy this accelerated funding
obligation over a period of seven years beginning in fiscal year 2021.
The closing of certain facilities in fiscal
year 2011 and the associated work force reduction resulted in the PBGC requiring the Company to accelerate the funding of approximately
$11,688,000 of accrued pension-related obligations to the Company’s defined benefit pension plan. The Company entered
into a settlement agreement with the PBGC in fiscal 2014 with respect to such liability. The settlement agreement with the PBGC
terminated by its terms in 2019 with the PBGC being deemed to have released and discharged the Company and all other members of
its controlled group from any claims thereunder.
Pension assets and liabilities are measured
at fair value, and are subject to fair value adjustment in certain circumstances (for example, when there is evidence of impairment).
There were no impairments resulting in a change in fair value during 2019 and 2018.
Net periodic pension cost for 2019 and
2018 was comprised of the following components (in thousands):
|
|
Year Ended April 30,
|
|
|
|
2019
|
|
|
2018
|
|
Interest cost on projected benefit obligation
|
|
$
|
1,183
|
|
|
$
|
1,156
|
|
Expected return on assets
|
|
|
(1,854
|
)
|
|
|
(1,796
|
)
|
Plan expenses
|
|
|
415
|
|
|
|
345
|
|
Recognized net actuarial loss
|
|
|
905
|
|
|
|
1,294
|
|
Net periodic pension cost
|
|
$
|
649
|
|
|
$
|
999
|
|
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 $887,000, $0 and $0. Assumptions used in determining net periodic pension cost and the benefit obligation
were:
|
|
Year Ended April 30,
|
|
|
|
2019
|
|
|
2018
|
|
Discount rate used to determine net periodic pension cost
|
|
|
3.82
|
%
|
|
|
3.52
|
%
|
Discount rate used to determine pension benefit obligation
|
|
|
3.54
|
%
|
|
|
3.82
|
%
|
Expected long-term rate of return on assets used for pension cost 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,
|
|
|
|
2019
|
|
|
2018
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
32,423
|
|
|
$
|
34,244
|
|
Interest cost
|
|
|
1,183
|
|
|
|
1,156
|
|
Actuarial gain
|
|
|
(966
|
)
|
|
|
(608
|
)
|
Benefits paid
|
|
|
(2,336
|
)
|
|
|
(2,369
|
)
|
Benefit obligation at end of year
|
|
$
|
30,304
|
|
|
$
|
32,423
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
23,372
|
|
|
$
|
23,277
|
|
Actual return on plan assets
|
|
|
1,277
|
|
|
|
1,838
|
|
Company contributions
|
|
|
2,000
|
|
|
|
1,040
|
|
Benefits paid
|
|
|
(2,336
|
)
|
|
|
(2,369
|
)
|
Plan expenses
|
|
|
(410
|
)
|
|
|
(414
|
)
|
Fair value of plan assets at end of year
|
|
$
|
23,903
|
|
|
$
|
23,372
|
|
Underfunded status
|
|
$
|
(6,401
|
)
|
|
$
|
(9,051
|
)
|
Recognition of underfunded status:
|
|
|
|
|
|
|
|
|
Accrued pension cost
|
|
$
|
(6,401
|
)
|
|
$
|
(9,051
|
)
|
The funded status of the pension plan is
equal to the net liability recognized in the consolidated balance sheets. 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,
|
|
|
|
2019
|
|
|
2018
|
|
Pretax accumulated comprehensive loss
|
|
$
|
11,896
|
|
|
$
|
13,184
|
|
The following table summarizes the changes in accumulated other
comprehensive loss related to the pension plan for the years ended April 30, 2019 and 2018 (in thousands):
|
|
Pension Benefits
|
|
|
|
Pretax
|
|
|
Net of Tax
|
|
Accumulated comprehensive loss, May 1, 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
|
|
Net actuarial gain
|
|
|
(383
|
)
|
|
|
(274
|
)
|
Amortization of net loss
|
|
|
(905
|
)
|
|
|
(629
|
)
|
Accumulated comprehensive loss, April 30, 2019
|
|
$
|
11,896
|
|
|
$
|
7,031
|
|
The Company recorded, net of tax, other comprehensive income
of $903,000 in 2019 and other comprehensive income of $1,306,000 in 2018 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,
|
|
|
|
2019
|
|
|
2018
|
|
Equity securities
|
|
|
52
|
%
|
|
|
59
|
%
|
Fixed income securities
|
|
|
45
|
|
|
|
38
|
|
Other (principally cash and cash equivalents)
|
|
|
3
|
|
|
|
3
|
|
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. For 2019, the Company used 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. For years following 2019, the assumed rate of return for purposes of the expected return rate on assets is anticipated to
be 7.75%.
The Company funds the pension plan in compliance
with IRS funding requirements. The Company contributed $2,000,000 to the pension plan during 2019 and $1,040,000 during 2018. The
Company is required to make minimum contributions to the pension plan, however, no required minimum contributions are expected
during fiscal year 2020.
The amount of future annual benefit payments
to pension plan participants payable from plan assets is expected to be as follows: 2020 - $3,202,000, 2021 - $2,424,000, 2022
- $2,329,000, 2023 - $2,273,000 and 2024 - $2,184,000 and an aggregate of approximately $9,955,000 is expected to be paid in the
fiscal five-year period 2025 through 2029.
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, 2019 and 2018 (in thousands):
2019
:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Cash and cash equivalents
|
|
$
|
631
|
|
|
$
|
631
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Investments at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
12,473
|
|
|
|
12,473
|
|
|
|
-
|
|
|
|
-
|
|
Corporate bonds and debentures
|
|
|
10,799
|
|
|
|
-
|
|
|
|
10,799
|
|
|
|
-
|
|
Total assets at fair value
|
|
$
|
23,903
|
|
|
$
|
13,104
|
|
|
$
|
10,799
|
|
|
$
|
-
|
|
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
|
|
|
$
|
-
|
|
Equity compensation plans
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 fiscal year 2017 without affecting any existing awards under the 2006 Equity Plan, and no further
awards may be granted under the 2006 Equity Plan. During 2019, 6,500 shares of common stock previously issued under the 2006 Equity
Plan vested, leaving 2,500 shares issued under the 2006 Equity Plan that were not vested as of April 30, 2019.
In fiscal year 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 non-employee 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 2019, the Company issued 29,200 shares of restricted common stock under the 2016 Equity
Plan and 14,783 shares issued under the 2016 Equity Plan vested, leaving 40,167 shares issued under the 2016 Equity Plan that were
not vested as of April 30, 2019. The 14,783 shares vested under the 2016 Equity Plan included 4,700 shares issued to an employee
of PCDLLC that vested as a result of the sale of the fulfillment services business described in Note 2.
The summary of the 2018 and 2019 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, 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
|
|
|
|
|
|
|
|
|
|
|
Granted during 2019
|
|
|
29,200
|
|
|
|
7.05
|
|
Vested during 2019
|
|
|
(21,283
|
)
|
|
|
6.25
|
|
Non-vested at April 30, 2019
|
|
|
42,667
|
|
|
$
|
6.87
|
|
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 2019 and 2018, the Company recognized
$151,000 and $96,000 of compensation expense related to shares of restricted common stock issued to employees under the equity
plans. As of April 30, 2019, there was $122,000 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 years
2018 and 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 of $5.95 on December 31, 2018, the Company issued
a total of 13,444 deferred common share units to members of the Company’s Board of Directors. Based on the closing price
per share of $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 2019 and 2018, the total non-cash
director fee compensation related to the issued deferred common share units was $80,000 for each year. At April 30, 2019 and 2018,
there was $27,000 of accrued compensation expense related to the deferred stock units expected to be issued in December of the
following fiscal year.
The provision (benefit) for income taxes consists of the following
(in thousands):
|
|
Year Ended April 30,
|
|
|
|
2019
|
|
|
2018
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
(414
|
)
|
|
$
|
(898
|
)
|
State and local
|
|
|
5
|
|
|
|
(17
|
)
|
|
|
|
(409
|
)
|
|
|
(915
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(193
|
)
|
|
|
872
|
|
State and local
|
|
|
(106
|
)
|
|
|
(236
|
)
|
|
|
|
(299
|
)
|
|
|
636
|
|
Total benefit for income taxes
|
|
$
|
(708
|
)
|
|
$
|
(279
|
)
|
The U.S. Tax Cuts and Jobs Act (the “Act”)
was signed into law in December 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 to 21.0% effective January 1,
2018. As the Company has an April 30 fiscal year-end, the lower corporate income tax rate was phased in, resulting in a U.S. statutory
federal corporate tax rate of approximately 29.7% for the Company’s fiscal year ending April 30, 2018, and a 21% rate for
subsequent fiscal years. The 29.7% federal corporate tax rate is a blended rate for the April 30, 2018 fiscal year-end based on
a prorated percentage of the number of days prior and subsequent to the January 1, 2018 effective date.
The components of the net deferred income taxes are as follows (in thousands):
|
|
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
State tax loss carryforwards
|
|
$
|
4,287
|
|
|
$
|
3,457
|
|
U.S. Federal NOL carryforward
|
|
|
2,079
|
|
|
|
-
|
|
Accrued pension costs
|
|
|
1,608
|
|
|
|
2,401
|
|
Federal AMT carryforward
|
|
|
-
|
|
|
|
180
|
|
Vacation accrual
|
|
|
12
|
|
|
|
9
|
|
Real estate basis differences
|
|
|
3,725
|
|
|
|
3,781
|
|
Other
|
|
|
117
|
|
|
|
106
|
|
Total deferred income tax assets
|
|
|
11,828
|
|
|
|
9,934
|
|
|
|
April 30,
|
|
|
|
2019
|
|
|
2018
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciable assets
|
|
|
(1,138
|
)
|
|
|
(1,533
|
)
|
Deferred gains on investment assets
|
|
|
(2,110
|
)
|
|
|
(2,165
|
)
|
Other
|
|
|
(36
|
)
|
|
|
(36
|
)
|
Total deferred income tax liabilities
|
|
|
(3,284
|
)
|
|
|
(3,734
|
)
|
Valuation allowance for realization of certain deferred income tax assets
|
|
|
(4,008
|
)
|
|
|
(3,235
|
)
|
Net deferred income tax asset
|
|
$
|
4,536
|
|
|
$
|
2,965
|
|
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 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 $773,000
increase in the valuation allowance in 2019 is related to the increase in state net operating losses that are not expected
to be realizable.
The Company has federal net operating loss
carryforwards of approximately $9,900,000, of which $147,000 will expire beginning in 2038 and the remaining amount does not have
an expiration. In addition, the Company has state net operating loss carryforwards of approximately $115,400,000 that expire beginning
in fiscal year ending April 30, 2020.
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 (in thousands):
|
|
Year Ended April 30,
|
|
|
|
2019
|
|
|
2018
|
|
Computed tax benefit at statutory rate
|
|
$
|
(666
|
)
|
|
$
|
(845
|
)
|
Increase (reduction) in tax resulting from:
|
|
|
|
|
|
|
|
|
Deferred tax rate changes
|
|
|
(137
|
)
|
|
|
231
|
|
Change in valuation allowances
|
|
|
773
|
|
|
|
144
|
|
State income taxes, net of federal income tax effect
|
|
|
(869
|
)
|
|
|
(163
|
)
|
Meals and entertainment
|
|
|
13
|
|
|
|
2
|
|
Other
|
|
|
178
|
|
|
|
352
|
|
Actual tax provision
|
|
$
|
(708
|
)
|
|
$
|
(279
|
)
|
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, 2015 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:
|
|
2019
|
|
|
2018
|
|
|
|
(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
|
|
|
(58
|
)
|
|
|
-
|
|
Gross unrecognized tax benefits at end of year
|
|
$
|
-
|
|
|
$
|
58
|
|
As a result of the lapse of the statute
of limitations, the Company’s total tax effect of gross unrecognized tax benefits in the accompanying financial statements
of $58,000 at April 30, 2018 was recognized during 2019. The Company believes it is reasonably possible that the liability for
unrecognized tax benefits will not change in fiscal year 2020.
The Company has elected to include interest
and penalties in its income tax expense. The Company had no accrued interest or penalties at April 30, 2019 and 2018.
|
(12)
|
COMMITMENTS AND CONTINGENCIES
:
|
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 2019 and 2018 were approximately $107,000
and $110,000. The total minimum lease commitments of $238,000 for fiscal years subsequent to April 30, 2019 are due as follows:
2020 - $115,000; 2021 - $98,000; 2022 - $23,000; 2023 - $2,000 and none thereafter.
The Company is
involved in various pending or threatened claims and legal actions arising in the ordinary 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.
The Company has entered into two Subdivision
Improvement Agreements with the City of Rio Rancho, New Mexico. In connection with these agreements, the Company has signed a promissory
note for each subdivision and deposited restricted funds with a reserve bank account for each subdivision. Following successful
completion and acceptance of the Company’s performance in a subdivision, the applicable promissory note will be cancelled
and the related restricted funds will be returned to the Company’s general cash. The total amount of restricted funds at
April 30, 2019 was $969,000.
The following provides a reconciliation
of the Company’s cash, cash equivalents and restricted cash at April 30, 2019 as reported in the consolidated balance sheets
to the amount reported in the statement of cash flows (in thousands):
Cash and cash equivalents
|
|
$
|
13,267
|
|
Restricted cash
|
|
|
969
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
14,236
|
|
In June 2019, LEDC entered into a Development
Loan Agreement with 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 located in Rio Rancho, New Mexico. Pursuant to a Guaranty Agreement entered into by
ASW in favor of Lender, ASW has guaranteed LEDC’s obligations under each of the above agreements.
|
·
|
Initial Available Principal
: Lender
agrees to lend up to $2,475,000 to LEDC on a non-revolving line of credit basis to partially fund the development of certain planned
residential lots within the Lomas Encantadas subdivision.
|
|
·
|
Repayments
: LEDC is required to
make periodic principal repayments of borrowed funds not previously repaid as follows: $900,000 on or before March 17, 2021, $300,000
on or before June 17, 2021, $300,000 on or before September 17, 2021, $262,500 on or before December 17, 2021, $525,000 on or before
March 17, 2022 and $187,500 on or before June 17, 2022. The outstanding principal amount of the loan may be prepaid at any time
without penalty.
|
|
·
|
Maturity Date
: The loan is scheduled
to mature in June 2022.
|
|
·
|
Interest Rate
: 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.
|
|
·
|
Lot Release Price
: Lender is required
to release the lien of its mortgage on any lot upon LEDC making a principal payment of $37,500.
|
|
·
|
Book Value
: The total book value
of the property within the Lomas Encantadas subdivision mortgaged to Lender under this loan was $3,395,000 as of April 30, 2019.
|
LEDC and ASW have made certain representations
and warranties in connection with this loan 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 ASW to observe or
perform their respective covenants under the loan documentation; the representations and warranties of LEDC or ASW being false; the
insolvency or bankruptcy of LEDC or ASW; and the failure of ASW to maintain a tangible net worth of at least $32 million.
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 immediately due and payable. LEDC incurred customary costs and expenses and paid certain fees
to Lender in connection with the loan.