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
EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2004
[ ]TRANSITION 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)
NEW MEXICO 85-0165021
------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 Coors Blvd., N.W.,
Albuquerque, New Mexico 87121
- -------------------------------------------------------------------------------
(Address of principal executive offices)
(505)831-9600
- -------------------------------------------------------------------------------
(Issuer's telephone number)
N/A
- -------------------------------------------------------------------------------
(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 [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity as of May 14, 2004:
No Par Value Common: 709,846
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)
March 31, 2004
ASSETS
Cash and cash equivalents ........................ $ 7,876,475
Restricted cash .................................. 1,555,456
Receivables ...................................... 78,463
Land and improvements held for
future development ............................ 14,606,265
Income producing properties, net ................. 11,033,678
Property and equipment, net of accumulated
depreciation of $631,425 ...................... 283,166
Other assets...................................... 273,678
------------
$ 35,707,181
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses
and other liabilities ......................... $ 1,115,526
Deferred income taxes ............................ 7,328,247
Notes and mortgages .............................. 13,006,840
Income taxes payable ............................. 643,589
------------
Total liabilities ............... 22,094,202
Stockholders' equity
Common stock - no par value;
authorized, 736,668 shares;
issued and outstanding,
709,855 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 .................... 491,361
Retained earnings ............................. 13,028,018 13,612,979
------------ ------------
$ 35,707,181
============
The accompanying notes are an integral part of this statement.
WESTLAND DEVELOPMENT CO., INC.
STATEMENTS OF EARNINGS
(unaudited)
For the three months ended
March 31,
2004 2003
----------- -----------
Revenues
Land ...................................... $ 1,965,419 $ 2,852,164
Rentals ................................... 303,205 303,280
----------- -----------
2,268,624 3,155,444
Costs and expenses
Cost of land revenues ..................... 927,863 1,014,424
Cost of rentals ........................... 86,579 83,437
General and administrative ................ 576,024 529,884
----------- -----------
1,590,466 1,627,745
----------- -----------
Operating income ....................... 678,158 1,527,699
Other (income) expense
Interest income ........................... (13,527) (3,104)
Gain on sale of assets .................... -- 1,538
Other ..................................... -- (75)
Interest expense .......................... 127,748 183,485
----------- -----------
114,221 181,844
----------- -----------
Earnings before income taxes ........... 563,937 1,345,855
Income tax expense ........................... 235,000 540,000
----------- -----------
NET EARNINGS ........................... $ 328,937 $ 805,855
=========== ===========
Weighted average common shares
outstanding ............................... 797,283 799,044
=========== ===========
Earnings per common share,
basic and diluted ......................... $ .41 $ 1.01
=========== ===========
The accompanying notes are an integral part of these statements.
WESTLAND DEVELOPMENT CO., INC.
STATEMENTS OF EARNINGS
(unaudited)
For the nine months ended
March 31,
2004 2003
----------- -----------
Revenues
Land ...................................... $ 7,994,788 $ 9,799,580
Rentals ................................... 909,756 907,440
----------- -----------
8,904,544 10,707,020
Costs and expenses
Cost of land revenues ..................... 2,798,326 2,061,982
Cost of rentals ........................... 257,706 248,024
General and administrative ................ 1,949,089 1,810,397
----------- -----------
5,005,121 4,120,403
----------- -----------
Operating income ....................... 3,899,423 6,586,617
Other (income) expense
Interest income ........................... (36,666) (35,581)
Gain on sale of assets .................... (250) (378,349)
Other ..................................... 794 (21,123)
Interest expense .......................... 458,664 549,250
----------- -----------
422,542 114,197
----------- -----------
Earnings before income taxes ........... 3,476,881 6,472,420
Income tax expense ........................... 1,400,000 2,590,000
----------- -----------
NET EARNINGS ........................... $ 2,076,881 $ 3,882,420
=========== ===========
Weighted average common shares
outstanding ............................... 797,523 799,945
=========== ===========
Earnings per common share,
basic and diluted ......................... $ 2.60 $ 4.85
=========== ===========
The accompanying notes are an integral part of these statements.
WESTLAND DEVELOPMENT CO., INC.
STATEMENTS OF CASH FLOWS
(unaudited)
For the nine months ended
March 31,
2004 2003
------------ -------------
Cash flows from operating activities
Cash received from land sales
and collections on real
estate contracts receivable ................. $ 8,251,666 $ 9,625,415
Development and closing costs paid ............ (6,606,937) (3,400,027)
Cash received from rental operations .......... 909,756 907,440
Cash paid for rental operations ............... (30,726) (14,029)
Cash paid for property taxes .................. (16,730) (25,024)
Interest received ............................. 28,771 35,872
Interest paid ................................. (437,855) (533,366)
Income taxes paid ............................. (792,244) (582,552)
General and administrative costs paid ......... (2,119,432) (1,605,415)
Other ......................................... (794) 21,123
------------ ------------
Net cash (used in) provided by
operating activities ........................ (814,525) 4,429,437
------------ ------------
Cash flows from investing activities
Distributions from partnerships
and joint ventures .......................... -- 25,450
Capital expenditures .......................... (17,112) (10,039)
Proceeds from note receivable-related party ... -- 95,590
Proceeds from sale of assets .................. 250 538,248
------------ ------------
Net cash (used in) provided by
investing activities ........................ (16,862) 649,249
------------ ------------
Cash flows from financing activities
Borrowing on notes and mortgages .............. 7,889,487 2,767,843
Repayments of notes and mortgages ............. (4,677,515) (2,640,131)
Payment of dividends .......................... (799,822) (852,735)
Purchase of common stock ...................... (60,095) (39,855)
------------ ------------
Net cash provided by (used in)
financing activities ....................... 2,352,055 (764,878)
------------ ------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS ......................... 1,520,668 4,313,808
Cash and cash equivalents at
beginning of period .......................... 6,355,807 3,236,467
------------ ------------
Cash and cash equivalents at
end of period ................................ $ 7,876,475 $ 7,550,275
============ ============
Reconciliation of net earnings
to net cash (used in) provided by
operating activities
Net earnings ................................... $ 2,076,881 $ 3,882,420
Adjustments to reconcile net
earnings to net cash (used in)
provided by operating activities
Depreciation .............................. 257,456 257,392
Gain on sale of assets .................... (250) (378,349)
Change in
Receivables ............................... 19,806 (163,507)
Real estate contracts ..................... -- 35,424
Land and improvements held for
future development and income
producing properties .................... (3,824,752) (1,341,176)
Other assets .............................. (88,425) 52,073
Accounts payable, accrued expenses
and other liabilities ................... 137,003 77,712
Income taxes payable ...................... 607,756 2,007,448
------------ ------------
Net cash (used in) provided by
operating activities ......................... $ (814,525) $ 4,429,437
============ ============
The accompanying notes are an integral part of these statements.
WESTLAND DEVELOPMENT CO., INC.
NOTES TO THE FINANCIAL STATEMENTS
(unaudited)
March 31, 2004
1. The balance sheet at March 31, 2004, statements of cash flows for the
nine month periods ended March 31, 2004 and March 31, 2003 and statements of
earnings for the three and nine month periods ended March 31, 2004 and March 31,
2003 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 generally accepted
accounting principles 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, 2003. The results of
operations for the three or nine month periods ended March 31, 2004 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
March 31, 2004 and 2003 were 797,283 and 799,044, respectively and for the nine
month periods then ended were 797,423 and 799,945.
3. Financial information for the two industry segments, land sales and
rental operations, are as follows:
General
Land Rentals corporate Total
---- ------- --------- -----
Three months ended
March 31, 2004:
Revenues $1,965,419 $303,205 $ -- $2,268,624
Costs and expenses 927,863 86,579 576,024 1,590,466
---------- -------- ----------- ----------
Operating income (loss) 1,037,556 216,626 (576,024) 678,158
Interest income -- -- (13,527) (13,527)
Other income -- -- -- --
Interest expense 7,556 118,420 1,772 127,748
---------- -------- ----------- ----------
Earnings (loss)
before income taxes $1,030,000 $ 98,206 $ (564,269) $ 563,937
========== ======== =========== ==========
Three months ended
March 31, 2003:
Revenues $2,852,164 $303,280 $ -- $3,155,444
Costs and expenses 1,014,424 83,437 529,884 1,627,745
---------- -------- ----------- ----------
Income from
operations 1,837,740 219,843 (529,884) 1,527,699
Interest income -- -- (3,104) (3,104)
Gain on sale of assets -- -- (75) (75)
Other Income -- -- 1,538 1,538
Interest expense 9,134 174,351 -- 183,485
---------- -------- ----------- ----------
Earnings
before income taxes $1,828,606 $ 45,492 $ (528,243) $1,345,855
========== ======== =========== ==========
Nine months ended
March 31, 2004:
Revenues $7,994,788 $909,756 $ -- $8,904,544
Costs and expenses 2,798,326 257,706 1,949,089 5,005,121
---------- -------- ----------- ----------
Operating income (loss) 5,196,462 652,050 (1,949,089) 3,899,423
Interest income -- -- (36,666) (36,666)
Other income -- -- 794 794
Gain on sale of assets -- -- (250) (250)
Interest expense 43,617 381,457 33,590 458,664
---------- -------- ----------- ----------
Earnings (loss)
before income taxes $5,152,845 $270,593 $(1,946,557) $3,476,881
========== ======== =========== ==========
General
Land Rentals corporate Total
---- ------- --------- -----
Nine months ended
March 31, 2003:
Revenues $9,799,580 $907,440 $ - $10,707,020
Costs and expenses 2,061,982 248,024 1,810,397 4,120,403
---------- -------- ----------- -----------
Income (loss) from
operations 7,737,598 659,416 (1,810,397) 6,586,617
Interest income -- -- (35,581) (35,581)
Other income -- -- (21,123) (21,123)
Gain on sale of assets -- -- (378,349) (378,349)
Interest expense 21,361 527,889 -- 549,250
---------- -------- ----------- -----------
Earnings (loss)
before income taxes $7,716,237 $131,527 $(1,375,344) $6,472,420
========== ======== =========== ==========
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 also has certain
claims asserted by other parties in conjunction with land development agreements
totaling approximately $1.3 million with which the Company does not agree. The
Company has paid approximately $130,000 and is disputing other charges. The
Company accrued approximately $346,000 during the year ended June 30, 2002 for
what it believes are the only valid other charges to the Company. The Company
has also accrued a liability of approximately $200,000 for one-half of the
estimated unpaid costs of development by a buyer of a commercial tract of land
for which the Company is responsible. The Company believes the buyer has not
complied with the contract terms and the Company will not pay any remaining
amounts until a full accounting and settlement is provided by the buyer.
However, the ultimate amount paid for these claims, if any, is subject to change
and management believes such claims may be settled by the conveyance of land to
the claimants.
The Company has entered into employment contracts with five of its key officers
and employees for periods from one to six years which are automatically renewed
upon expiration for one to six additional years. 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 twelve
years and the maximum salaries to be paid under the remaining contract periods
are approximately $1,612,296.
The Company has deferred gains for tax reporting for the involuntary conversion
of land by governmental authorities resulting in deferred tax liabilities of
approximately $7,672,000 at March 31, 2004. The deferral requires that the
Company replace the land with the proceeds of conversion within specified time
limits. The Company must purchase replacement property of at least $2,181,000 by
June 30, 2004, $500,000 by June 30, 2005 and $5,279,000 by June 30, 2006 in
order to comply with the requirements of its election for income tax deferral.
If replacement property is not purchased, the Company may be required to pay
income taxes on the conversions of approximately $870,000, $200,000 and
$2,110,000 for the years ended June 30, 2004, 2005 and 2006, respectively.
In March 2003, the Company signed water infra structure construction contracts
for the development of new residential and commercial properties totaling
approximately $6,160,000 to be completed by June 30, 2004. The Company has
negotiated bank credit lines to partially fund the construction project. At
March 31, 2004, $3,164,767 had been advanced on these lines.
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 nine months ended March 31, 2004, the Company's cash and cash
equivalents increased by $1,520,668. During this period, operations used
$814,525 and investing activities used $16,862. Also, the Company borrowed
$3,211,972 net, paid dividends of $799,822, and repurchased stock for $60,095.
Except for short-term borrowing, the Company's primary source of cash is the
sale of land. Although rental operations generated $909,756 through the third
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 $4,783,929 on construction lines of credit. This amount
fluctuates, and is paid from receipts from lot sales. The Company will continue
to improve its land projects to create saleable product.
Results of operations:
During the third quarter of the current fiscal year, the Company had
revenues of $1,965,419 compared to $2,852,164 during the same period in the
prior fiscal year. Land revenues were higher in 2003 as a result of a sale of a
single large parcel for approximately $869,000 in February, 2003.
Costs and expenses during the three months ended March 31, 2004, were $1,590,466
compared to $1,627,745 during the comparable period in 2003. The decrease was
attributable principally to decreases in cost of land revenues by approximately
$87,000, due to decreased lot sales.
For the year to date revenues decreased by $1,805,000 to $7,995,000 because
large parcel sales decreased by $4,054,000 although improved lot sales increased
by $2,295,000. Costs and expenses were $5,005,000 compared to $4,120,000 as cost
of land sold increased by $736,000. This was due to the higher cost per parcel
for improved lots. As the Company sells the remaining lots in its Cielo Oeste,
Crossings and Painted Sky units this year, management expects to begin sales of
lots in its sector development plan, now called The Petroglyphs, which should
continue into the next few fiscal years.
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
$2,181,000 of replacement lands and property to acquire by June 30, 2004,
$500,000 by June 30, 2005 and $5,279,000 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 has had very few installment sales, so income is
recognized when a property is sold with financing provided by the buyer. Some of
the sales are basically raw land which has little more than its original cost of
$2.60 per acre. Other parcels benefit from certain infra structure improvements
such as roads financed by Special Assessment District obligations, which are
generally allocated to the subject property based on site location and acreage.
Improved lots bear costs such as roads, sewer, sidewalk, etc. as they are
incurred by subdivision. "Soft" costs such as engineering fees and improvements
which benefit an entire project are generally allocated to units based on number
of lots or acreage. This policy has been consistently applied.
Contingencies:
Management continues to be diligent in recognizing possible liabilities as they
become known. In fiscal 2002, the Company accrued $346,000 against possible loss
due to a claim made by Bernalillo County for costs allegedly incurred in
researching creation of a new municipality for Westland's sector development
plan. Westland has also accrued $200,000 against possible claim on completion of
an earlier project. Management believes these amounts are sufficient to
liquidate alleged damages, if any.
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's principal executive and financial officer has evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered
by this report (the "Evaluation Date"), and has concluded that as of the
Evaluation Date, the Company's disclosure controls and procedures were adequate
and effective in timely alerting them to material information relating to the
Company would be made known to them.
There were no significant changes in the Company's internal controls over
Financial reporting during the fiscal quarter to which this report relates that
have material affect, 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
Exhibit 32, Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, attached.
(b) 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.
NONE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTLAND DEVELOPMENT CO., INC.
DATE: May 14, 2004 By:
---------------------------
Barbara Page, President,
Chief Executive Officer and
Chief Accounting Officer