Form 10-QSB
U.S. Securities and Exchange Commission
Washington, D.C. 20549
(Mark One)
[XX]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
For Quarter Ended September 30, 2005 |
oTRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from | to |
Commission File Number: 0-7775 |
| WESTLAND DEVELOPMENT CO., INC. | |
| ------------------------------ | |
(Exact name of small business issuer as |
| specified in its charter) | |
| | | | |
(State or other jurisdiction of incorporation or organization) | | 85-0165021 ______ (I.R.S. Employer Identification No.) |
|
401 Coors Blvd., N.W. Albuquerque, New Mexico 87121 (Address of principal executive offices) |
|
(Issuer's telephone number) |
|
(Former name, former address and former fiscal year, if changed since last report) |
|
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] No o
State the number of shares outstanding of each of the issuer's classes of common equity as of November 14, 2005:
No Par Value Common: | 709,827 |
Class B $1.00 Par Value Common: | 85,100 |
Transitional Small Business Format (check one) Yes [ ] No [ X ]
PART I. FINANCIAL INFORMATION |
ITEM 1. FINANCIAL STATEMENTS
WESTLAND DEVELOPMENT CO., INC. BALANCE SHEET (unaudited) September 30, 2005 |
|
ASSETS | | | | |
Cash and cash equivalents: | | | |
| Unrestricted | | | $ 6,302,287 |
| Restricted | | | 4,196,456 |
| | | | $10,498,743 |
Receivables: | | | |
| Real estate contract | | | 64,576 |
| Utility expansion charges – current | | | 246,186 |
| Other receivables | | | 89,486 |
| | | | |
Prepaid expenses and other assets. | | | 355,660 |
| | | | |
Land and improvements held for future development | | | 11,068,731 |
| | | | |
Income producing properties, net of accumulated depreciation of $2,499,234 | | | 13,705,522 |
| | | | |
Property and equipment, net of accumulated depreciation of $636,886 | | | 385,778 |
| | | | |
Utility Expansion Charges – Long-term | | | 6,984,576 |
| | | | |
| | | | $ 43,399,258 |
| | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
Accounts payable, accrued expenses and other liabilities | | | $ 1,144,633 |
| | | | |
Deferred income taxes | | | 7,217,426 |
| | | | |
Notes and mortgages | | | 12,703,315 |
| | | |
Income taxes payable | | | 1,086,388 |
| | | |
Total liabilities | | | 22,151,762 |
| | | |
Stockholders' equity | | | |
Common stock - no par value; authorized, 736,668 shares; issued and outstanding, 709,827 shares | 8,500 | | |
| | | |
Class B common stock - $1.00 par value; authorized, 491,112 shares; issued and outstanding, 85,100 shares | 85,100 | | |
| | | |
Additional paid-in capital | 490,661 | | |
Retained earnings | 20,663,235 | | 21,247,496 |
| | | |
| | | $ 43,399,258 |
| | | |
| | | | | | |
WESTLAND DEVELOPMENT CO., INC. STATEMENTS OF OPERATIONS (unaudited) |
| | | |
| | | For the three months ended September 30, |
| | | 2005 | | 2004 |
| | | | |
Revenues | | | | |
| Land | | $ 5,441,151 | | $ 1,419,962 |
| Rentals | | 344,067 | | 342,357 |
| | | 5,785,218 | | 1,762,319 |
Costs and expenses | | | | |
| Cost of land revenues | | 1,738,008 | | 780,636 |
| Cost of rentals | | 114,266 | | 96,838 |
| General and administrative | | 959,149 | | 776,384 |
| | | 2,811,423 | | 1,653,858 |
| | | | | |
| Income from operations | | 2,973,795 | | 108,461 |
| | | | | |
Other (income) expense | | | | |
| Interest income | | (41,057) | | (17,032) |
| Other | | (279) | | 4,269 |
| Interest expense | | 192,574 | | 74,855 |
| | | 151,238 | | 62,092 |
| | | | | |
| Earnings before income taxes | | 2,822,557 | | 46,369 |
| | | | | |
| Income tax expense | | 1,129,023 | | 18,548 |
| | | | | |
| NET EARNINGS | | $ 1,693,534 | | $ 27,821 |
| | | | | |
| Weighted average common shares outstanding | | 794,927 | | 794,931 |
| | | | | |
| Earnings per common share, basic and diluted | | $ 2.13 | | $ 0.03 |
| | | | | |
| | | | | | |
WESTLAND DEVELOPMENT CO., INC. STATEMENTS OF CASH FLOWS (unaudited) |
| | | For the three months ended September 30, |
| | | 2005 | | 2004 |
| | | | | |
Cash flows from operating activities | | | | |
| Cash received from land sales and collections on real estate contracts receivable | | $ 6,227,299 | | $ 1,406,870 |
| Development and closing costs paid on land sales | | (2,893,647) | | (3,051,221) |
| Cash received from rental operations | | 333,359 | | 342,357 |
| Cash paid for rental operations | | (19,071) | | (11,879) |
| Cash paid for property taxes | | (42,111) | | (10,239) |
| Interest received | | 41,057 | | 17,032 |
| Interest paid | | (183,217) | | (69,578) |
| Income taxes paid | | (1,821,144) | | (1,237,321) |
| General and administrative costs paid | | (1,366,787) | | (761,872) |
| Other | | 279 | | -- |
| | | | | |
| Net cash provided (used) by operating activities | | 276,017 | | (3,375,761) |
| | | | | |
Cash flows from financing activities | | | | |
| Borrowing on notes and mortgages | | 1,920,000 | | 4,969,085 |
| Repayments of notes and mortgages | | (417,026) | | (1,485,735) |
| Payment of dividends | | (797,177) | | (797,159) |
| Purchase of common stock | | (400) | | -- |
| | | | | |
| Net cash provided by financing activities | | 705,397 | | 2,686,191 |
| | | | | |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | 981,414 | | (689,570) |
| | | | | |
| Cash and cash equivalents at beginning of period | | 9,517,329 | | 8,929,808 |
| | | | | |
| Cash and cash equivalents at end of period | | $ 10,498,743 | | $ 8,240,238 |
| | | | | |
| | | | | | |
Reconciliation of net earnings to net cash used in operating activities | | | | |
| | | | | |
| Net earnings | | $ 1,693,534 | | $ 27,821 |
| | | | | |
| Adjustments to reconcile net earnings to net cash used in operating activities | | | | |
| Depreciation | | 111,522 | | 100,663 |
| Change in: | | | | |
| | Receivables | | 728,937 | | (139,063) |
| | Land and improvements held for future development | | (1,155,639) | | (1,151,178) |
| | Other assets | | (143,069) | | (2,866) |
| | Accounts payable, accrued expenses and other liabilities | | (267,147) | | (992,365) |
| | Income taxes payable | | (692,121) | | (1,218,773) |
| | | | | |
| Net cash provided by (used in) operating activities | | $ 276,017 | | $(3,375,761) |
| | | | | |
| WESTLAND DEVELOPMENT CO., INC. | |
NOTES TO THE FINANCIAL STATEMENTS |
| (unaudited) | |
| September 30, 2005 | |
| | | | | | |
1. | The balance sheet at September 30, 2005, statements of cash flows and statements of operations for the three months ended September 30, 2005 and September 30, 2004 have been prepared by the Company without audit. In the opinion of management, all adjustments, including normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows, have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the Company's audited financial statements at June 30, 2005. The results of operations for the three months ended September 30, 2005 are not necessarily indicative of operating results for the full year. |
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect certain reported amounts and disclosures; accordingly, actual results could differ from those estimates.
2. | The computation of earnings per common share has been based upon the weighted average number of shares of outstanding common stock and common stock issuable without further consideration, which for the three month periods ended September 30, 2005 and September 30, 2004 were 794,927 and 794,931, respectively. |
3. | Financial information for the two industry segments, land sales and rental operations, are as follows: |
| | | | | |
| | Land | Rentals | General corporate | Total |
Three months ended September 30, 2005: | | | | |
| | | | | |
Revenues | $5,441,151 | $ 344,067 | $ -- | $5,785,218 |
Costs and expenses | 1,738,008 | 114,266 | 959,149 | 2,811,423 |
| | | | |
Income from operations | 3,703,143 | 229,801 | (959,149) | 2,973,795 |
| | | | |
Interest income | -- | -- | (41,057) | (41,057) |
Other income | -- | -- | (279) | (279) |
Interest expense | 190,399 | 2,175 | -- | 192,574 |
| | | | |
Earnings (loss) before income taxes | $3,512,744 | $227,626 | $ (917,813) | $2,822,557 |
| | | | |
| | | | | |
| | Land | Rentals | General corporate | Total |
Three months ended September 30, 2004: | | | | |
| | | | | |
Revenues | $1,419,962 | $ 342,357 | $ -- | $1,762,319 |
Costs and expenses | 780,636 | 96,838 | 776,384 | 1,653,858 |
| | | | |
Income from operations | 639,326 | 245,519 | (776,384) | 108,461 |
| | | | |
Interest income | -- | -- | (17,032) | (17,032) |
Other expense | -- | -- | 4,269 | 4,269 |
Interest expense | 34,863 | 39,992 | -- | 74,855 |
| | | | |
Earnings (loss) before income taxes | $ 604,463 | $205,527 | $ (763,621) | $ 46,369 |
| | | | |
4. | The Company is engaged in various lawsuits either as plaintiff or defendant which have arisen in the conduct of its business which, in the opinion of management, based upon advice of counsel, would not have a material effect on the Company's financial position or operations. |
The Company has entered into employment contracts with eight of its key officers and employees for periods from one to five years which are automatically renewed each year for one additional period. In the event of involuntary employee termination, these employees may receive from one to six times annual compensation. The remaining terms under the agreements range from one to six years and the maximum salaries to be paid under the remaining contract periods are approximately $3,200,000.
The Company has deferred gains for tax reporting for the involuntary conversion of land by governmental authorities resulting in deferred tax liabilities. The deferral requires that the Company replace the land with the proceeds of conversion within specified time limits. As of September 30, 2005, the Company must purchase replacement property of at least $4,724,208 by June 30, 2006 (the company may request an extension to June 30, 2007, if necessary) in order to comply with the requirements of its election for income tax deferral. If replacement property is not purchased and the Company has not received approval for an extension, the Company may be required to pay income taxes on the conversions of approximately $1,890,000 for the tax year ended June 30, 2006.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This document contains statements that are not historical but are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These include statements regarding the expectations, beliefs, intentions or strategies for the future. The Company intends that all forward-looking statements be subject to the safe-harbor provisions of the Private Securities Litigation Reform Act 1995. These forward-looking statements reflect the Company's views as of the date they are made with respect to future events and financial performance but are subject to many uncertainties and risks which could cause the actual results of the Company to differ materially from any future results expressed or implied by such forward-looking statements. Examples of such uncertainties and risks include, but are not limited to: fluctuations in occupancy levels and labor costs; the availability and cost of financing to redeem common shares and to expand the Company's business; and public resistance to privatization. additional risk factors include those discussed in reports filed by the Company from time to time on forms 10-KSB, 10-QSB and 8-K. The Company does not undertake any obligation to update any forward-looking statements.
Management's Discussion and Analysis should be read in conjunction with our Financial Statements and the notes to our Financial Statements.
Financial condition:
During the three months ended September 30, 2005, the Company's cash and cash equivalents increased by $981,414. During this period, operations provided $276,017 and financing activities provided $705,397. The Company borrowed $1,502,974, net and paid dividends of $797,177. Except for short-term borrowing, the Company's primary source of cash is the sale of land. Although rental operations generated $333,359 in the first fiscal quarter, most of those receipts normally are used to service the mortgage debt for those properties. Other than trade payables and mortgages, the other significant debt is $2,910,000 on construction lines of credit. During the current quarter the Company capitalized $28,834 of interest expense in accordance with FAS 34 against current construction projects (predominantly the ‘Petroglyph’s’ Master Plan) compared to $141,571 during the same quarter in fiscal year 2004. This amount was lower than the corresponding period in fiscal year 2005 due to the completion of the Petroglyph water system during fiscal year 2005. This amount fluctuates based upon the level of construction activities and related indebtednes during the period. General and Administrative expenses increased by $182,765 in comparison with the first quarter of fiscal year 2005 primarily attributable to payroll and related expenditure increases during the current fiscal year. The Company plans to continue to improve its land projects to create saleable product.
Results of operations:
During the first quarter of the current fiscal year, the Company had revenues of $5,785,218 compared to $1,762,319 during the same period in the prior fiscal year. Land revenues increased significantly due to both an increase in the number of developed lot sales during the first quarter of fiscal year ended 2006 and large bulk land sales. Improved lot sales increased by approximately $2,084,851 to $3,847,170. The increase was primarily attributable to continued sales and marketing efforts within the Company’s ‘Petroglyphs’ Master Plan Community. The Company anticipates that its developed lot sales will remain strong through the remainder of the year. The Company also had a single bulk land sale of $1,938,048 to an independent developer during the current quarter. Cost of land sales increased by approximately $957,372 to $1,738,008. The increase was attributable to the corresponding increase in sales for the quarter. Operating expenses during the three months ended September 30, 2005, were $2,811,423 compared to $1,653,858 during the comparable period in 2004. The increase was due principally to the associated increase in cost of land revenues.
For the past ten years, governmental entities have been buying land from Westland pursuant to condemnation. The Company is allowed to defer federal and state income tax on the gain from these sales if it reinvests the proceeds within a specified time. The result has been a deferred tax liability. Of the approximately $21,399,000 received, the Company has remaining approximately $4,724,208 of replacement lands and property to acquire by June 30, 2006. In the event the Company does not replace the property sold pursuant to condemnation, it may need to utilize a substantial portion of its liquid investments for the payment of these taxes.
Critical Accounting Policies:
Income recognition and cost allocation:
In recent years, the Company’s sales have predominantly been made on a cash basis and have been recognized under the full accrual method pursuant to paragraph 5 of SFAS 66. Some of the sales are basically raw land which has little more than its original cost of $2.60 per acre. Preconstruction costs such as land cost, initial engineering and other preliminary costs occurring prior to platting are allocated based upon the area method as calculation of the relative fair value is impracticable. Development costs which may include engineering, roads, sewer, sidewalk, etc. and can not be reasonably identified to a specific lot, or project, are allocated based upon relative sales value (where
relative sales value can be determined) or, in the event that the relative sales value can not be readily determined at the time of capitalization, are allocated using the area method, in accordance with paragraph 11 of SFAS 67. This policy has been consistently applied.
Contingencies:
Management continues to be diligent in recognizing possible liabilities as they become known. As of September 30, 2005, management is not aware of any contingent liability that may exist.
Asset Impairment:
Management periodically assesses the possibility that the carrying value of its assets is greater than its realizable value. For the most part, this question is obviated because the carrying cost of land is very low compared to any reasonable sale price. When property is improved for sale as individual lots, a commitment exists by contract obligating the purchaser prior to undertaking the development. However, the Company owns several properties held for the production of income, designed for a specific use, which could become impaired if the lessee vacated or rescinded its lease under bankruptcy. Management periodically determines by inspection that the properties are suitably maintained and insured and that the lessees are conducting proper operations.
ITEM 3. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures designed to ensure that the information the Company must disclose in its filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis. The Company’s principal executive officer who is also the chief financial and accounting officer has reviewed and evaluated the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report (the “Evaluation Date”). Based on such evaluation, such officer has concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective in bringing to their attention on a timely basis material information relating to the Company required to be included in the Company’s periodic filings under the Exchange Act.
There have not been any changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other than the ordinary routine litigation incidental to the Company's business, neither the Company nor any member of management is the subject of any pending or threatened legal proceeding.
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS IN SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) | Exhibit 31, Certification pursuant to Section 302 of the Sarbanes-Oxley Act |
b) | Exhibit 31.2, Principal executive and financial officer certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
c) | Reports on Form 8-K. State whether any reports on Form 8-K have been filed during the quarter for which this report is filed, listing the items reported, any financial statements filed, and the dates of any such reports. |
The following reports on Form 8-K were filed during the quarter: |
A. | On August 19, 2005, the registrant filed a report on Form 8-K announcing that it had entered into a preliminary agreement related to a proposed merger through which all of its outstanding shares would be acquired from the registrant’s shareholders for $200 per share. |
B. | On October 4, 2005, the registrant filed a report announcing that it had entered into a definitive merger agreement related to a proposed merger through wich all of its outstanding shares would be acquired from the registrant’s shareholders for $200 per share. |
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
WESTLAND DEVELOPMENT CO., INC. |
DATE: November 14, 2005 | By: | Barbara Page | |
| --------------------------- |
| Barbara Page, President, | |
| Chief Executive Officer and |
| Chief Accounting Officer | |
| | | | |
