Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

INTRODUCTION

For a description of the Company's business, refer to Item 1 of Part I of this annual report on Form 10-K.

As indicated in Item 1, the Company is primarily engaged in three business segments: the Real Estate business operated by AMREP Southwest and the Fulfillment Services and Newsstand Distribution Services businesses operated by Kable. Data concerning industry segments is set forth in Note 19 of the notes to the consolidated financial statements. The Company's foreign sales and activities are not significant.

The following provides information that management believes is relevant to an assessment and understanding of the Company's consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and accompanying notes. All references in this Item 7 to 2008, 2007 and 2006 mean the fiscal years ended April 30, 2008, 2007 and 2006.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of America. The Company discloses its significant accounting policies in the notes to its audited consolidated financial statements.

The preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of those financial statements as well as the reported amounts of revenues and expenses during the reporting periods. Areas that require significant judgments and estimates to be made include: (i) the determination of revenue recognition for the Newsstand Distribution Services business, which is based on estimates of allowances for magazine returns to the Company from wholesalers and the offsetting return of magazines by the Company to publishers for credit; (ii) allowances for doubtful accounts; (iii) real estate cost of sales calculations, which are based on land development budgets and estimates of costs to complete;
(iv) the determination of revenue recognition under the percentage-of-completion method for certain development contracts, which is determined based on the percentage of total costs incurred to date in proportion to total estimated costs to complete the project; (v) cash flow and valuation assumptions in performing asset impairment tests of long-lived assets, goodwill impairment and assets held for sale; (vi) actuarially determined benefit obligations for pension plan accounting; and (vii) legal contingencies. Actual results could differ from those estimates.

There are numerous critical assumptions that may influence accounting estimates in these and other areas. Management bases its critical assumptions on historical experience, third-party data and various other estimates that it believes to be reasonable under the circumstances. The most critical assumptions made in arriving at these accounting estimates include the following: (i) Newsstand Distribution Services revenues represent commissions earned from the distribution of publications for client publishers, which are recorded by the Company at the time the publications go on sale in accordance with Statement of Financial Accounting Standards ("SFAS") No. 48, "Revenue Recognition When Right of Return Exists". The publications generally are sold on a fully returnable basis, which is in accordance with prevailing trade practice. Accordingly, the Company provides for estimated returns by charges to income that are determined on an issue-by-issue basis utilizing historical experience and current sales information. The financial impact to the Company of a change in the sales estimate for magazine returns to it from its wholesalers is substantially offset by the simultaneous change in the Company's estimate of its cost of purchases since it passes on the returns to publishers for credit. As a result, the effect of a difference between the actual and estimated return rates on the Company's commission revenues is the amount of the commission attributable to the difference. The effect of an increase or decrease in the Company's estimated rate of returns of 1% during any period would be dependent upon the mix of magazines involved and the related selling prices and commission rates, but would generally result in a change in that period's net commission revenues of approximately $125,000; (ii) management determines the allowance for doubtful accounts by attempting to identify troubled accounts by analyzing the credit risk of specific customers and by using historical experience applied to the aging of accounts and, where appropriate within the real estate business, by reviewing any collateral which may secure a receivable; (iii) real estate development costs are incurred throughout the life of a project, and the costs of initial sales from a project frequently must include a portion of costs that have been budgeted based on engineering estimates or other studies, but not yet incurred; (iv) percentage-of-completion revenue recognition for certain development contracts is based on the percentage of total costs incurred to date in proportion to total estimated costs to complete the contract. Total estimated costs, and thus contract income, are impacted by several factors including, but not limited to, changes in the costs of subcontractors, materials and equipment, productivity and scheduling; (v) asset impairment determinations (including that of goodwill, which is based on the fair value of reporting units) are based upon the intended use of assets and expected future cash flows; (vi) benefit obligations and other pension plan accounting and disclosure is based upon numerous assumptions and estimates, including the expected rate of investment return on retirement plan assets, the discount rate used to determine the present value of liabilities, and certain employee-related factors such as turnover, retirement age and mortality. As of April 30, 2008, the effect of every 0.25% change in the investment rate of return on retirement plan assets would increase or decrease the pension expense by approximately $65,000 per year, and the effect of every 0.25% change in the discount rate would increase or decrease the subsequent year's pension cost of approximately $38,000; and
(vii) the Company is currently involved in legal proceedings which are described in Item 3 of this annual report on Form 10-K. It is possible that the consolidated financial position or results of operations for any particular quarterly or annual period could be materially affected by an outcome of litigation that is significantly different from the Company's assumptions.

Year Ended April 30, 2008 Compared to Year Ended April 30, 2007

Results of Operations

Net income in 2008 was $13,705,000, or $2.19 per share, compared to 2007 net income of $45,106,000, or $6.78 per share. Results for 2008 consisted of net income from continuing operations of $13,762,000, or $2.20 per share, and a net loss from discontinued operations of $57,000, or $0.01 per share, compared to the 2007 results which consisted of net income from continuing operations of $46,697,000, or $7.02 per share, and a net loss from discontinued operations of $1,591,000, or $0.24 per share. 2008 consolidated revenues were $172,061,000, a decrease of $32,778,000 from 2007 consolidated revenues of $204,839,000. The decrease in consolidated revenues was attributable to reduced land sales revenues from the Company's Real Estate operations, offset in part by the increased Fulfillment Services revenues from the inclusion of Palm Coast's revenues for all of 2008 as compared with three and a half months in 2007. The decrease in net income from continuing operations was principally due to the reduced land sales.

The net loss from discontinued operations in 2008 was attributable to $57,000 of costs incurred in connection with the settlement of all litigation related to the Company's El Dorado, New Mexico water utility subsidiary that were in addition to costs estimated and accrued for this matter in the fourth quarter of 2007 when in June 2007, the Company settled all existing litigation involving this subsidiary. The 2007 amount accrued for the settlements, including legal fees, was $1,591,000, net of tax, and was also accounted for as a discontinued operation.

Revenues from real estate land sales at AMREP Southwest decreased $67,923,000 from $95,825,000 in 2007 to $27,902,000 in 2008. This substantial revenue decrease was due to substantially lower land sales in the Company's principal market of Rio Rancho, New Mexico, reflecting the severe decline that occurred in this market in 2008 compared to 2007 and earlier years. As previously reported, the number of permits for new home construction was down significantly for calendar 2007 compared to 2006, with Rio Rancho showing a decrease of nearly 50%. The Company believes that this decline was generally consistent with the well-publicized problems of the national home building industry, including fewer sales of both new and existing homes, the increasing number of mortgage delinquencies and foreclosures and a tightening of mortgage availability. Faced with these adverse conditions, builders slowed the pace of building on land previously purchased from the Company in Rio Rancho and, in some cases, delayed or cancelled the purchase of additional land. These factors are also believed to have contributed to a sharp decline in sales of undeveloped land to both builders and investors. Revenues from sales of developed lots to homebuilders decreased from $39,407,000 in 2007 to $9,542,000 in 2008, principally due to a reduction in the number of lots sold. Revenues from sales of undeveloped builder lots decreased from $40,690,000 in 2007 to $9,709,000 in 2008, principally due to a reduction in the number of lots sold and, to a lesser extent, a lower average price per lot due to a greater number of lots sold from locations in Rio Rancho that are further removed from developed areas. Revenues from sales of commercial and industrial properties decreased in 2008 to $8,651,000 from $15,728,000 in 2007 as a result of fewer and smaller transactions. The average gross profit percentage on land sales decreased from 68% in 2007 to 65% for 2008, and is principally attributable to lower selling prices for commercial and undeveloped lots in the latter period.

The average selling price of land sold by the Company in Rio Rancho in recent years has fluctuated, from $63,200 per acre in 2006 to $91,200 per acre in 2007 and $68,700 per acre in 2008, reflecting differences in the mix of the types of properties sold in each period and the effects of a strong regional market in 2006 and 2007 in Rio Rancho and a much softer market in 2008. As a result of these and other factors, including the nature and timing of specific transactions, revenues and related gross profits from real estate land sales can vary significantly from period to period and prior results are not necessarily a good indication of what may occur in future periods.

Revenues from Kable's Fulfillment Services and Newsstand Distribution Services businesses (collectively, "Media Services") increased $38,191,000 from $100,505,000 in 2007 to $138,696,000 in 2008, principally attributable to the January 16, 2007 acquisition of Palm Coast. Fulfillment Services revenues increased by $39,659,000 from $86,121,000 in 2007 to $125,780,000 in 2008 due to the contribution from Palm Coast. The increase in revenues from the Palm Coast acquisition was partially offset by decreases in other parts of Kable's Fulfillment Services business that resulted from continued competitive market pressures and customer losses. Pricing pressure from customers also had a negative effect on Fulfillment Services revenues. Newsstand Distribution

Services revenues decreased by $1,468,000 from $14,384,000 in 2007 to $12,916,000 in 2008. The decrease in Newsstand Distribution Services revenues was due to reduced billings and lower commission rates, as well as the inclusion of certain revenues in the prior year that did not recur in 2008. Media Services operating expenses increased by $34,759,000 in 2008 compared to 2007, primarily attributable to the addition of operating expenses of Palm Coast, which were offset in part by decreased payroll and benefit expenses resulting from lower revenue in other parts of Kable's Fulfillment Services business.

Although there are multiple revenue streams in the Fulfillment Services business, including revenues from the maintenance of customer computer files and the performance of other fulfillment-related activities, including telephone call center support and graphic arts and lettershop services, a customer generally contracts for and utilizes all available services as a total package, and the Company would not provide its ancillary services to a customer unless it was also providing the core service of maintaining a database of subscriber names. Thus, variations in Fulfillment Services revenues are the result of fluctuations in the number and sizes of customers rather than in the demand for a particular service. This is also true in the Newsstand Distribution Services business where there is only one primary service provided, which results in one revenue source, the commissions earned on the distribution of magazines. The Company competes with other companies, including three much larger companies in the Newsstand Distribution Services business and one larger company in the Fulfillment Services business, and the competition for new customers is intense in both segments, which results in a price sensitive industry that may restrict the Company's ability to increase its prices.

During fiscal 2003, Kable acquired the Colorado-based fulfillment services business of Electronic Data Systems Corporation ("EDS"). Since that time Kable has outsourced to EDS a substantial portion of the data processing required to service that business but during fiscal 2008 has migrated much of that activity to its own systems. However, under the outsourcing contract, the full outsourcing charge remains payable so long as any outsourcing services are provided. The Company anticipates completing this migration process by September 2008. The migration process is technically complex, however, and the Company continues to address issues that have delayed the complete migration. Should the Company encounter unanticipated problems that will further delay the complete migration, it may continue to be burdened with the outsourcing of this business.

The Company has announced a project to integrate certain other aspects of the Kable and Palm Coast fulfillment operations in order to improve operating efficiencies and customer service and also to reduce costs. To date, this project has resulted in (i) one significant workforce reduction that occurred in the first quarter of 2008, (ii) an announced plan in the second quarter of 2008 to redistribute the fulfillment services work performed at the Marion, Ohio facility of its Fulfillment Services business and the scheduled closing of that facility and (iii) the consolidation of the fulfillment operations customer call center. Approximately $650,000 in severance-related costs is projected to be paid in connection with the Ohio facility closure, which is being recorded as positions are eliminated during the transitional period scheduled to end in September 2008. As of April 30, 2008, severance-related costs charged to operations totaled $486,000. Following the closure of the Ohio facility, the Company anticipates realizing annual cost savings of approximately $5,300,000 from the three actions noted above. The Company incurred costs directly related to the integration project of $1,159,000 in 2008, principally for severance and other consulting costs related to the integration, and these costs are included in the Restructuring and fire recovery costs in the Company's consolidated statement of income.

On December 5, 2007 a warehouse of approximately 38,000 square feet leased by the Company in Oregon, Illinois was totally destroyed by an accidental fire. The warehouse was used principally to store back issues of magazines published by certain customers for whom the Company fills back-issue orders as part of its services. The Company has submitted preliminary claims to its insurance provider for its property loss and for a business interruption claim consisting of its lost revenues offset by reduced expenses through April 30, 2008. While the Company has been advanced $500,000 for replacement of lost property, no insurance proceeds have been received on the business interruption claim as of April 30, 2008. In addition, the Company was required to provide insurance for certain of those customers whose property was destroyed in the warehouse fire. The Company does not believe that the net effect of the outcome of claims related to materials of certain publishers for whom it was required to provide insurance, together with any proceeds received from its property and business interruption claims, will have any material effect on its financial position, results of operations and cash flows. Due to the fire, gross assets were written down by $470,000, along with related accumulated depreciation on those assets of

about $440,000, resulting in a charge to operations of approximately $30,000. In addition, the Company has recorded other charges to operations of $324,000 related to fire recovery costs for the year ended April 30, 2008, principally due to legal and other costs that are not covered by insurance and these costs are included in the Restructuring and fire recovery costs in the Company's consolidated statement of income.

Real estate commissions and selling expenses decreased $673,000 (48%) in 2008 compared to 2007 principally attributable to the reduced volume of land sales. Other operating expenses decreased $536,000 (39%) in 2008 compared to 2007 principally due to a favorable adjustment of approximately $550,000 in the third quarter of 2008 for real estate tax expense resulting from the finalization of a property tax valuation appeal by AMREP Southwest. Media Services general and administrative expenses increased $2,818,000 (31%) in 2008 compared to 2007 as the addition of the Palm Coast expenses was only partially offset by lower costs in other Fulfillment Services operations. Real estate operations and corporate general and administrative expenses decreased $488,000 (10%) in 2008 compared to 2007 principally as a result of lower professional and consulting services costs.

Interest and other revenues decreased by $3,046,000 in 2008 compared to 2007. The decrease was partly attributable to lower cash balances to invest in 2008. In addition, during 2008, the Company sold a commercial rental property at AMREP Southwest that resulted in a pre-tax gain of $1,873,000, and it also recognized pre-tax income of $927,000 from the forfeiture of deposits for the purchase of land by homebuilders who did not exercise purchase options. During the first quarter of 2007, the Company sold certain of AMREP Southwest's investment assets, including the Company's office building in Rio Rancho, which in the aggregate contributed a pre-tax gain of $4,107,000.

The Company's effective tax rate from continuing operations was 36.2% in 2008 compared to 33.9% in 2007. The decrease from the statutory rate in both years was primarily due to tax benefits associated with charitable contributions of land and tax exempt interest income.

Year Ended April 30, 2007 Compared to Year Ended April 30, 2006
Results of Operations

Net income in 2007 was $45,106,000, or $6.78 per share, compared to 2006 net income of $26,050,000, or $3.93 per share. Results for 2007 consisted of net income from continuing operations of $46,697,000, or $7.02 per share, and a net loss from discontinued operations of $1,591,000, or $0.24 per share, compared to the 2006 results which consisted of net income from continuing operations of $22,494,000, or $3.39 per share, and net income from discontinued operations of $3,556,000, or $0.54 per share. 2007 consolidated revenues were $204,839,000, an increase of $56,543,000 over 2006 consolidated revenues of $148,296,000. The increase in consolidated revenues was attributable to continued revenue growth achieved by the Company's real estate operations, and, to a lesser extent, the acquisition of Palm Coast by the Company's Kable Media Services, Inc. subsidiary. The increase in net income from continuing operations was attributable to higher gross profits associated with the increased real estate land sales.

Net income from discontinued operations in 2006 reflected the gain from the disposition of the primary assets of the Company's El Dorado, New Mexico water utility subsidiary, which were taken through condemnation proceedings during 2006. In June 2007, the Company settled all existing litigation involving this subsidiary and accrued for the estimated amount of the settlements, including legal fees, of approximately $1,591,000, net of tax, which was accounted for as a loss from discontinued operations in 2007.

Revenues from real estate land sales at AMREP Southwest increased $38,015,000 (66%) from $57,810,000 for 2006 to $95,825,000 in 2007. This substantial revenue increase was due to higher average selling prices and increased sales of both developed and undeveloped lots as well as commercial and industrial properties in the Company's principal market of Rio Rancho, New Mexico. An increase in revenues from additional sales in all categories of residential and commercial lots in 2007 compared to 2006 resulted from the strength of the Rio Rancho market, particularly in the first six months of the year. Revenues from sales of developed lots to homebuilders increased from $31,920,000 in 2006 to $39,407,000 in 2007. Revenues from sales of undeveloped builder lots increased from $19,514,000 in 2006 to $40,690,000, principally due to higher prices for scattered builder lots, and revenues from sales of commercial and industrial properties increased in 2007 to $15,728,000 from $6,376,000 in 2006 as a result of an increased number of and size of transactions. The average gross profit percentage on land sales increased from 54% in 2006 to 68% for 2007, reflecting higher average selling prices in 2007 and the mix of developed and undeveloped residential lots sold in each of the periods.

The average selling price of land sold by the Company in Rio Rancho increased from $63,200 per acre in 2006 to $91,200 per acre in 2007. This increase was due to a number of factors, including differences in the mix of the types of properties sold in each period and the effects of a strong regional market which resulted in three consecutive years of a record number of single-family residential housing starts in Rio Rancho, reaching a total in excess of 3,000 starts during the twelve months ending April 30, 2006. The real estate market in Rio Rancho softened during 2007, however, and there was a 55% decline in the number of housing starts in fiscal 2007 compared to fiscal 2006. In addition, in May 2007 Rio Rancho's largest employer, Intel Corporation, announced a workforce reduction starting in August 2007 of at least 1,000 jobs in Rio Rancho, which could reduce the demand for the Company's land inventory. As a result of these and other factors, including the nature and timing of specific transactions, revenues and related gross profits from real estate land sales can vary significantly from period to period and prior results are not necessarily a good indication of what may occur in future periods.

Revenues from Kable's Fulfillment Services and Newsstand Distribution Services businesses (collectively, "Media Services") increased $12,042,000 from $88,463,000 in 2006 to $100,505,000 in 2007. This increase in revenues was primarily attributable to the January 16, 2007 acquisition of Palm Coast. Newsstand Distribution Services revenues increased by $1,253,000 from $13,131,000 in 2006 to $14,384,000 in 2007, principally due to a 6% increase in revenues from new business. Fulfillment Services revenues increased by $10,789,000 from $75,332,000 in 2006 to $86,121,000 in 2007 due to the addition of Palm Coast. The increase in revenues from the Palm Coast acquisition was partially offset by decreases in core and ancillary services of customer telephone, lettershop and list services of other parts of Kable's Fulfillment Services business. The revenue decreases in core and ancillary services resulted from continued competitive market pressures and customer losses. Pricing pressure from customers due to the competitive environment for Fulfillment Services business also had a negative effect on Fulfillment Services revenues and profitability in the fourth quarter of 2007. Media Services operating expenses increased by $11,306,000 in 2007 compared to 2006, primarily attributable to (i) the addition of operating expenses of Palm Coast and (ii) an increase in Newsstand Distribution Services operating expenses, principally payroll, associated with the revenue growth of that business, offset in part by decreased payroll and benefit expenses in other parts of Kable's Fulfillment Services businesses. Media Services general and administrative expenses increased $1,549,000 in 2007 compared to 2006 as the addition of Palm Coast was only partially offset by lower costs in other Fulfillment Services businesses.

Real estate commissions and selling expenses remained generally unchanged in 2007 compared to 2006 despite the increase in land sales, primarily due to decreases in variable commissions and selling expenses. Such costs generally vary depending upon the terms of specific land sale transactions. Real estate and corporate general and administrative expenses increased $728,000 (17%) in 2007 compared to the prior year due to increased legal, real estate consulting and other consulting fees associated with Sarbanes-Oxley Act requirements.

Interest and other revenues increased by $6,486,000 in 2007 compared to the prior year, primarily as a result of increased interest income on invested cash balances as well as from the first quarter sale of certain real estate investment assets, including the Company's office building in Rio Rancho, New Mexico, which in the aggregate contributed a pre-tax gain of $4,107,000.

The Company's effective tax rate from continuing operations was 33.9% in 2007 compared to 31.3% in 2006. The decrease from the statutory rate in both years was primarily due to tax benefits associated with charitable contributions of land.

LIQUIDITY AND CAPITAL RESOURCES

The Company finances its operations from internally generated funds from real estate sales and magazine operations and from borrowings under its various loan agreements.

Cash Flows From Financing Activities

In January 2007, AMREP Southwest entered into a loan agreement that replaced a prior loan agreement entered into in September 2006. The new loan agreement added a $14,180,000 term loan facility to the unsecured $25,000,000 revolving credit facility provided in the September 2006 agreement and was originally scheduled to mature in September 2008. During September 2007, the maturity date of the revolving credit facility was extended to September 2009, with all other terms remaining unchanged.

The revolving credit facility is used to support real estate development in New . . .