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 September 30, 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
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(Address of principal executive offices)
(505)831-9600
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(Issuer's telephone number)
N/A
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(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 November 12, 2004:
No Par Value Common: 709,830
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, 2004
ASSETS
Cash and cash equivalents ........................ $ 8,240,238
Receivables ...................................... 217,310
Land and improvements held for
future development ............................ 19,292,176
Income producing properties, net of accumulated
depreciation of $2,114,234................. 12,537,625
Property and equipment, net of accumulated
depreciation of $672,972...................... 303,733
Other assets...................................... 254,938
------------
$ 40,846,020
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses
and other liabilities ......................... $ 750,861
Deferred income taxes ............................ 7,248,902
Notes and mortgages .............................. 17,738,452
Income taxes payable ............................. 30,591
------------
Total liabilities ............... 25,768,806
Stockholders' equity
Common stock - no par value;
authorized, 736,668 shares;
issued and outstanding,
709,830 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 .................... 491,061
Retained earnings ............................. 14,492,553 15,077,214
------------ ------------
$ 40,846,020
============
The accompanying notes are an integral part of this statement.
WESTLAND DEVELOPMENT CO., INC.
STATEMENTS OF OPERATIONS
(unaudited)
For the three months ended
September 30,
2004 2003
----------- -----------
Revenues
Land ...................................... $ 1,419,962 $ 2,513,078
Rentals ................................... 342,357 303,275
----------- -----------
1,762,319 2,816,353
Costs and expenses
Cost of land revenues ..................... 780,636 1,091,621
Cost of rentals ........................... 96,838 81,111
General and administrative ................ 776,384 723,997
----------- -----------
1,653,858 1,896,729
----------- -----------
Income from operations ................. 108,461 919,624
Other (income) expense
Interest income ........................... (17,032) (11,374)
Gain on sale of assets .................... - (250)
Other ..................................... 4,269 794
Interest expense .......................... 74,855 159,979
----------- -----------
62,092 149,149
----------- -----------
Earnings before income taxes ........... 46,369 770,475
Income tax expense ........................... 18,548 308,000
----------- -----------
NET EARNINGS ........................... $ 27,821 $ 462,475
=========== ===========
Weighted average common shares
outstanding ............................... 794,931 797,643
=========== ===========
Earnings per common share,
basic and diluted ......................... $ 0.03 $ 0.58
=========== ===========
The accompanying notes are an integral part of this statement.
WESTLAND DEVELOPMENT CO., INC.
STATEMENTS OF CASH FLOWS
(unaudited)
For the three months ended
September 30,
2004 2003
------------ ------------
Cash flows from operating activities
Cash received from land sales and collections
on real estate contracts receivable .......... $ 1,406,870 $ 2,516,586
Development and closing costs paid
on land sales ............................... (3,051,221) (1,825,208)
Cash received from rental operations .......... 342,357 292,567
Cash paid for rental operations ............... (11,789) (376)
Cash paid for property taxes .................. (10,239) (8,241)
Interest received ............................. 17,032 7,870
Interest paid ................................. (69,578) (154,674)
Income taxes paid ............................. (1,237,321) (91,000)
General and administrative costs paid ......... (761,872) (919,794)
Other ......................................... -- (794)
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Net cash used by
operating activities ........................ (3,375,761) (183,064)
------------ ------------
Cash flows from investing activities
Capital expenditures .......................... -- (2,053)
Proceeds from sale of equipment ............... -- 250
------------ ------------
Net cash used by
investing activities ........................ -- (1,803)
------------ ------------
Cash flows from financing activities
Borrowing on notes and mortgages .............. 4,969,085 1,330,685
Repayments of notes and mortgages ............. (1,485,735) (1,583,948)
Payment of dividends .......................... (797,159) (799,822)
Purchase of common stock ...................... -- (500)
------------ ------------
Net cash provided by (used in)
financing activities ........................ 2,686,191 (1,053,585)
------------ ------------
NET DECREASE IN CASH
AND CASH EQUIVALENTS ......................... (689,570) (1,238,452)
Cash and cash equivalents at
beginning of period .......................... 8,929,808 6,355,807
------------ ------------
Cash and cash equivalents at
end of period ................................ $ 8,240,238 $ 5,117,355
============ ============
The accompanying notes are an integral part of this statement.
Reconciliation of net earnings
to net cash used in operating activities
Net earnings ................................... $ 27,821 $ 462,475
Adjustments to reconcile net earnings to net cash
used in operating activities
Depreciation .............................. 100,663 85,637
Gain on sale of equipment ................. -- (250)
Change in
Receivables ............................... (139,063) (42,068)
Land and improvements held for
future development ...................... (1,151,178) (741,833)
Other assets .............................. (2,866) (3,267)
Accounts payable, accrued expenses
and other liabilities ................... (992,365) (160,758)
Income taxes payable ...................... (1,218,773) 217,000
------------ ------------
Net cash used in operating activities .......... $ (3,375,761) $ (183,064)
============ ============
The accompanying notes are an integral part of this statement.
WESTLAND DEVELOPMENT CO., INC.
NOTES TO THE FINANCIAL STATEMENTS
(unaudited)
September 30, 2004
1. The balance sheet at September 30, 2004, statements of cash flows and
statements of operations for the three months ended September 30, 2004 and
September 30, 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 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, 2004. The results of operations for the three months
ended September 30, 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
September 30, 2004 and September 30, 2003 were 794,931 and 797,643,
respectively.
3. Financial information for the two industry segments, land sales and
rental operations, are as follows:
General
Land Rentals 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 income -- -- 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
========== ======== =========== ==========
Three months ended
September 30, 2003:
Revenues $2,513,078 $303,275 $ -- $2,816,353
Costs and expenses 1,091,621 81,111 723,997 1,896,729
---------- -------- ----------- ----------
Income from
operations 1,421,457 222,164 (723,997) 919,624
Interest income -- -- (11,374) (11,374)
Other income -- -- 544 544
Interest expense 15,407 139,384 5,188 159,979
---------- -------- ----------- ----------
Earnings (loss)
before income taxes $1,406,050 $ 82,780 $ (718,355) $ 770,475
========== ======== =========== ==========
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. However, the
ultimate amount paid for these claims, if any, is subject to change and
management believes such claims will be settled by the conveyance of land or
other non-cash assets to the claimees.
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 $1,612,000.
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, 2004, the Company
must purchase replacement property of at least $496,000 by June 30, 2004
(extension to June 30, 2005 pending), $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 $200,000,
$200,000 and $2,110,000 for the tax years ended June 30, 2004, 2005 and 2006,
respectively.
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, 2004, the Company's cash and
cash equivalents decreased by $689,570. During this period, operations used
$3,375,361 and financing activities provided $2,686,191. The Company borrowed
$3,483,350, net and paid dividends of $797,159. Except for short-term borrowing,
the Company's primary source of cash is the sale of land. Although rental
operations generated $342,357 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
$8,477,000 on construction lines of credit. During the current year quarter the
Company capitalized $141,571 in accordance with FAS 34 against current
construction projects (predominantly the 'Petroglyphs' Master Plan) compared to
$30,740 during the same quarter in fiscal year 2004. This amount fluctuates, and
is paid from receipts from lot sales. 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 $1,762,319 compared to $2,816,353 during the same period in the
prior fiscal year. Land revenues decreased significantly due to a decrease in
the number of developed lot sales during the first quarter. Improved lot sales
decreased by approximately $1,117,000 to $1,259,000. The decrease was primarily
attributable to sales and marketing efforts being diverted to the Company's
'Petroglyphs' Master Plan Community which began selling heavily in October,
2004. The Company anticipates that its developed lot sales will remain strong
through the remainder of the year. Operating expenses during the three months
ended September 30, 2004, were $1,653,858 compared to $1,896,729 during the
comparable period in 2003. The decrease was due principally to the associated
decrease in cost of land revenues by approximately $311,000, due to decreased
lot sales. The Company has begun sales of lots in its sector develoment 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
$996,000 of replacement lands and property to acquire 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 infrastructure 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. Indirect 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. 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 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.
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: November 12, 2004 By: Barbara Page
---------------------------
Barbara Page, President,
Chief Executive Officer and
Chief Accounting Officer