AMREP Corporation Unaudited Pro Forma Consolidated Financial Statements
Exhibit 99.2
AMREP Corporation
Unaudited Pro Forma Consolidated Financial Statements
On April 26, 2019, Palm Coast Data Holdco, Inc. (“Seller”), a wholly owned indirect subsidiary of AMREP Corporation (“AMREP”), 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 (the “Sale Transaction”) occurred on April 26, 2019 (the “Closing Date”).
Pursuant to the Purchase Agreement, Buyer acquired AMREP’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 owns all of the membership interests of FulCircle Media, LLC) and Media Data Resources, LLC (PCDLLC, FulCircle Media, LLC and Media Data Resources, LLC are collectively referred to herein as the “Company Group”).
The purchase price for the Membership Interests was $1.0 million, which was paid by Buyer to Seller on the Closing Date. In addition, during the period from February 1, 2019 through the Closing Date, substantially all of the intercompany amounts of the Company Group due to or from AMREP and its direct and indirect subsidiaries (not including the Company 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.
The following unaudited pro forma consolidated financial statements give effect to the Sale Transaction, the receipt of net proceeds from Buyer to Seller, and the other assumptions and adjustments described in the accompanying notes to the unaudited pro forma consolidated financial statements. These adjustments are based upon information and assumptions available at the time of the filing of this financial information on Form 8-K.
The unaudited pro forma financial information is based on financial statements prepared in accordance with U.S. generally accepted accounting principles, which are subject to change and interpretation. The unaudited pro forma consolidated financial statements were based on and derived from the Company’s historical consolidated financial statements, adjusted for those amounts which were determined to be directly attributable to the Sale Transaction, factually supportable, and with respect to the Unaudited Pro Forma Consolidated Statements of Operations, expected to have a continuing impact on the consolidated results. In the opinion of management, all necessary adjustments to the unaudited pro forma consolidated financial information have been made. Actual adjustments, however, may differ materially from the information presented.
The unaudited pro forma financial information is based upon available information and assumptions that management considers to be reasonable, and such assumptions have been made solely for purposes of developing such unaudited pro forma financial information for illustrative purposes in compliance with the disclosure requirements of the Securities and Exchange Commission (“SEC”). The unaudited pro forma financial information is not necessarily indicative of the financial position or results of operations that would have occurred had the Sale Transaction occurred on the dates indicated. In addition, these unaudited pro forma consolidated financial statements should not be considered indicative of the future financial performance and results of operations of the Company.
The unaudited pro forma consolidated balance sheet as of January 31, 2019 gives effect to the Sale Transaction and adjustments as if it occurred on the date of the balance sheet.
The unaudited pro forma consolidated statements of operations for the fiscal year ended April 30, 2018 and the nine months ended January 31, 2019 give effect to the Sale Transaction and adjustments as if they had occurred on May 1, 2017 and carried forward through the latest period presented.
The unaudited pro forma consolidated financial statements should be read in conjunction with the Company’s historical audited consolidated financial statements and related notes thereto included in its Annual Report on Form 10-K for the year ended April 30, 2018, which was filed with the SEC on July 20, 2018, and its Quarterly Report on Form 10-Q for the nine months ended January 31, 2019, which was filed with the SEC on March 13, 2019.
The unaudited consolidated pro forma financial statements are prepared in accordance with Article 11 of Regulation S-X.
AMREP Corporation
Unaudited Pro Forma Consolidated Balance Sheet
As of January 31, 2019
(Amounts in thousands, except share amounts)
| As Reported | Sale of Company Group | Proceeds from Sale | Pro Forma Adjustments | Pro Forma | ||||||||||||||||
| ASSETS | ||||||||||||||||||||
| Cash and cash equivalents | $ | 14,233 | $ | 1,000 | [a] | $ | 800 | [b] | $ | - | $ | 14,033 | ||||||||
| Receivables, net | 5,661 | 5,456 | [a] | 5,816 | [c] | - | 6,021 | |||||||||||||
| Real estate inventory | 58,749 | - | - | - | 58,749 | |||||||||||||||
| Investment assets | 9,706 | - | - | - | 9,706 | |||||||||||||||
| Property, plant and equipment, net | 8,965 | 1,241 | [a] | - | - | 7,724 | ||||||||||||||
| Other assets, net | 2,347 | 1,819 | [a] | - | (18 | )[e] | 510 | |||||||||||||
| Taxes receivable, net | 3 | - | - | - | 3 | |||||||||||||||
| Deferred income taxes, net | 4,846 | 1,332 | [a] | - | - | 3,514 | ||||||||||||||
| TOTAL ASSETS | $ | 104,510 | $ | 10,848 | $ | 6,616 | $ | (18 | ) | $ | 100,260 | |||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
| LIABILITIES: | ||||||||||||||||||||
| Accounts payable and accrued expenses | $ | 7,019 | $ | 4,615 | [a] | $ | - | $ | - | $ | 2,404 | |||||||||
| Notes payable, net | 2,554 | - | - | - | 2,554 | |||||||||||||||
| Other liabilities | 37 | 37 | [a] | - | - | - | ||||||||||||||
| Accrued pension costs | 6,929 | - | - | - | 6,929 | |||||||||||||||
| TOTAL LIABILITIES | 16,539 | 4,652 | - | - | 11,887 | |||||||||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||||||||||||||
| Common stock | 835 | - | - | - | 835 | |||||||||||||||
| Capital contributed in excess of par value | 51,205 | - | - | - | 51,205 | |||||||||||||||
| Retained earnings | 47,609 | 6,196 | [a] | 6,616 | [d] | (18 | )[e] | 48,011 | ||||||||||||
| Accumulated other comprehensive loss, net | (7,463 | ) | - | - | - | (7,463 | ) | |||||||||||||
| Treasury stock, at cost | (4,215 | ) | - | - | - | (4,215 | ) | |||||||||||||
| TOTAL SHAREHOLDERS’ EQUITY | 87,971 | 6,196 | 6,616 | (18 | ) | 88,373 | ||||||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 104,510 | $ | 10,848 | $ | 6,616 | $ | (18 | ) | $ | 100,260 | |||||||||
See accompanying notes to these unaudited pro forma consolidated financial statements.
AMREP CORPORATION AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Statement of Operations
Nine Months Ended January 31, 2019
(Amounts in thousands, except per share amounts)
| As Reported | Sale of Company Group | Pro Forma Adjustments | Pro Forma | |||||||||||||
| REVENUES: | ||||||||||||||||
| Fulfillment services | $ | 21,302 | $ | 21,302 | [f] | $ | - | $ | - | |||||||
| Real estate land sales | 8,924 | - | - | 8,924 | ||||||||||||
| Other | 437 | - | 923 | [g] | 1,360 | |||||||||||
| 30,663 | 21,302 | 923 | 10,284 | |||||||||||||
| COSTS AND EXPENSES: | ||||||||||||||||
| Real estate land sales | 7,855 | - | - | 7,855 | ||||||||||||
| Operating and selling expenses: | ||||||||||||||||
| Fulfillment services | 18,480 | 18,166 | [f] | (314 | )[h] | - | ||||||||||
| Real estate | 779 | - | - | 779 | ||||||||||||
| General and administrative expenses: | ||||||||||||||||
| Fulfillment services | 1,026 | 1,026 | [f] | - | - | |||||||||||
| Real estate operations | 415 | - | - | 415 | ||||||||||||
| Corporate operations | 2,289 | - | 314 | [h] | 2,603 | |||||||||||
| Interest expense | 20 | 2 | [f] | - | 18 | |||||||||||
| 30,864 | 19,194 | - | 11,670 | |||||||||||||
| (Loss) income before income taxes | (201 | ) | 2,108 | [f] | 923 | (1,386 | ) | |||||||||
| (Benefit) provision for income taxes | (285 | ) | (640 | )[f] | 220 | [i] | 574 | |||||||||
| Net income (loss) | $ | 84 | $ | 2,747 | $ | 703 | $ | (1,961 | ) | |||||||
| Earnings (loss) per share – basic and diluted | $ | 0.01 | $ | (0.24 | ) | |||||||||||
| Weighted average number of common shares outstanding – basic | 8,095 | 4 | [j] | 8,099 | ||||||||||||
| Weighted average number of common shares outstanding – diluted | 8,140 | 8,140 | ||||||||||||||
See accompanying notes to these unaudited pro forma consolidated financial statements.
AMREP CORPORATION AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Statement of Operations
Year ended April 30, 2018
(Amounts in thousands, except per share amounts)
| As Reported | Sale of Company Group | Pro Forma Adjustments | Pro Forma | |||||||||||||
| REVENUES: | ||||||||||||||||
| Fulfillment services | $ | 29,441 | $ | 29,441 | [f] | $ | - | $ | - | |||||||
| Real estate land sales | 8,439 | - | - | 8,439 | ||||||||||||
| Other | 2,298 | 1,810 | [f] | 1,103 | [g] | 1,591 | ||||||||||
| 40,178 | 31,251 | 1,103 | 10,030 | |||||||||||||
| COSTS AND EXPENSES: | ||||||||||||||||
| Real estate land sales | 6,061 | - | - | 6,061 | ||||||||||||
| Operating and selling expenses: | ||||||||||||||||
| Fulfillment services | 24,016 | 23,595 | [f] | (421 | )[h] | - | ||||||||||
| Real estate | 1,652 | - | - | 1,652 | ||||||||||||
| General and administrative expenses: | ||||||||||||||||
| Fulfillment services | 1,306 | 1,306 | [f] | - | - | |||||||||||
| Real estate operations | 578 | - | - | 578 | ||||||||||||
| Corporate operations | 3,052 | - | 421 | [h] | 3,473 | |||||||||||
| Interest expense | 57 | 52 | [f] | - | 5 | |||||||||||
| 36,722 | 24,953 | - | 11,769 | |||||||||||||
| Income (loss) before income taxes | 3,456 | 6,298 | [f] | 1,103 | (1,739 | ) | ||||||||||
| Provision for income taxes | 3,218 | 3,179 | [f] | 356 | [i] | 395 | ||||||||||
| Net income (loss) | $ | 238 | $ | 3,119 | $ | 747 | $ | (2,134 | ) | |||||||
| Earnings (loss) per share – basic and diluted | $ | 0.03 | $ | (0.26 | ) | |||||||||||
| Weighted average number of common shares outstanding – basic | 8,073 | 2 | [j] | 8,075 | ||||||||||||
| Weighted average number of common shares outstanding – diluted | 8,104 | 8,104 | ||||||||||||||
See accompanying notes to these unaudited pro forma consolidated financial statements
AMREP CORPORATION AND SUBSIDIARIES
Notes to Unaudited Pro Forma Consolidated Financial Statements
| 1. | Basis of Presentation |
The unaudited pro forma consolidated statement of operations of AMREP Corporation (“AMREP” or the “Company”) for the year ended April 30, 2018 was derived from the historical audited consolidated financial statements for the year ended April 30, 2018 included in the Company’s Annual Report on Form 10-K for the year ended April 30, 2018, which was filed with the Securities and Exchange Commission (“SEC”) on July 20, 2018. The unaudited pro forma consolidated statement of operations for the nine months ended January 31, 2019 and the unaudited pro forma consolidated balance sheet as of January 31, 2019 were derived from the historical unaudited consolidated financial statements included in the Company’s Quarterly Report on Form 10-Q for the nine months ended January 31, 2019, which was filed with the SEC on March 13, 2019.
| 2. | Sale of the Fulfillment Services Business |
On April 26, 2019, Palm Coast Data Holdco, Inc. (“Seller”), a wholly owned indirect subsidiary of AMREP, 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 (the “Sale Transaction”) occurred on April 26, 2019 (the “Closing Date”).
Pursuant to the Purchase Agreement, Buyer acquired AMREP’s fulfillment services business through the purchase from Seller of all the membership interests (the “Membership Interests”) of Palm Coast Data LLC (“PCDLLC”) (which owns all of the membership interests of FulCircle Media, LLC) and Media Data Resources, LLC (PCDLLC, FulCircle Media, LLC and Media Data Resources, LLC are collectively referred to herein as the “Company Group”).
The purchase price for the Membership Interest was $1.0 million, which was paid by Buyer to Seller on the Closing Date. In addition, during the period from February 1, 2019 through the Closing Date, substantially all of the intercompany amounts of the Company Group due to or from AMREP and its direct and indirect subsidiaries (not including the Company 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.
Estimated external transaction costs directly attributable to the transaction consisting of legal, tax, accounting and other professional fees are approximately $200,000; and the net book value of assets being transferred in the Sale Transaction are estimated to be approximately $6.2 million as of January 31, 2019. The resulting pre-tax loss on its financial statements as a result of the Sale Transaction in the fourth quarter of fiscal year 2019 is estimated to be approximately $1.0 million. The final gain related to the Sale Transaction is expected to be included in the footnotes that accompany the audited financial statements of AMREP’s Form 10-K for the year ended April 30, 2019.
As a result of a change-in-control under the Company’s 2016 Equity Compensation Plan, acceleration of share-based compensation expense for 4,700 unvested restricted share awards is approximately $18,000.
| 3. | Pro Forma Adjustments |
The unaudited pro forma consolidated balance sheet as of January 31, 2019 reflects the following adjustments:
| (a) | Represents unaudited amounts of the Company Group assets and liabilities which were sold to Buyer as if the Sale Transaction had occurred on January 31, 2019. |
| (b) | Reflects the net proceeds expected to be received at closing from the Sale Transaction. The sale price of $1.0 million has been decreased by approximately $200,000 for estimated external transaction expenses assumed to be paid at closing. |
| (c) | In connection with the Sale Transaction, the Company Group entered into two triple net lease agreements, each dated as of the Closing Date (together, the “Lease Agreements”), pursuant to which the Company Group has agreed to lease (1) from Two Commerce LLC, a subsidiary of AMREP, a 61,000 square foot facility located in Palm Coast, Florida, and (2) from Commerce Blvd Holdings, LLC (“CBH”), a subsidiary of AMREP, an approximately 143,000 square foot facility in Palm Coast, Florida. The $5.8 million represents the deferred purchase price receivable for the value of future lease payments in excess of market related to the Lease Agreements that is expected to be received by Seller from the Company Group and deemed consideration for the Sale Transaction. |
| (d) | Represents (1) the net proceeds in (b) above and the (2) the deferred purchase price receivable in (c) above. |
| (e) | Represents $18,000 of share-based compensation expense for one employee triggered by a change in control for 4,700 unvested restricted share awards existing at January 31, 2019. |
The unaudited pro forma consolidated statements of operations for the year ended April 30, 2018 and the nine months ended January 31, 2019, reflect the following adjustments:
| (f) | The elimination of operating results of the Company Group in the unaudited consolidated statements of operations for AMREP for the year ended April 30, 2018 and the nine months ended January 31, 2019, as if the Sale Transaction had occurred on May 1, 2017. |
| (g) | Represents the income portion of the payments related to the Lease Agreements that are expected to be received by Seller from the Company Group for the periods indicated. |
| (h) | Represents the depreciation expense of CBH previously included in the Company Group for financial reporting purposes and to be included in the future general and administrative expenses of AMREP’s corporate operations. |
| (i) | Represents the provision for federal and state income taxes estimated using the applicable statutory rates of AMREP and its subsidiaries calculated on a jurisdictional basis as a result of (g) and (i) above. |
| (j) | Reflects the incremental weighted-average number of shares due to the assumed acceleration of unvested restricted share awards during the year ended April 30, 2018 and the nine months ended January 31, 2019, as if the Sale Transaction occurred on May 1, 2017. |
