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 December 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 February 22, 2005:
No Par Value Common: 709,828
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)
December 31, 2004
ASSETS
Cash and cash equivalents ........................ $ 8,333,464
Receivables and prepaid expenses.................. 1,342,426
Land and improvements held for
future development ............................ 17,615,789
Income producing properties, net ................. 12,452,577
Property and equipment, net of accumulated
depreciation of $631,425 ...................... 336,378
Other assets...................................... 253,208
------------
$ 40,333,842
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses
and other liabilities ......................... $ 940,508
Deferred income .................................. 3,077,873
Deferred income taxes ............................ 7,305,989
Notes and mortgages .............................. 12,872,047
------------
Total liabilities ............................. 24,196,417
Stockholders' equity
Common stock - no par value;
authorized, 736,668 shares;
issued and outstanding,
709,828 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 ............................. 15,552,764 16,137,425
------------ ------------
$ 40,333,842
============
The accompanying notes are an integral part of this statement.
WESTLAND DEVELOPMENT CO., INC.
STATEMENTS OF EARNINGS
(unaudited)
For the three months ended
December 31,
2004 2003
----------- -----------
Revenues
Land ...................................... $ 6,550,644 $ 3,516,292
Rentals ................................... 335,156 303,276
----------- -----------
6,885,800 3,819,568
Costs and expenses
Cost of land revenues ..................... 4,393,644 778,841
Cost of rentals ........................... 107,341 90,016
General and administrative ................ 515,233 649,069
----------- -----------
5,016,218 1,517,926
----------- -----------
Operating income .... .................. 1,869,582 2,301,642
Other (income) expense
Interest income ........................... (21,048) (11,765)
Other ..................................... (80) --
Interest expense .......................... 118,855 170,937
----------- -----------
97,727 159,172
----------- -----------
Earnings before income taxes ........... 1,771,855 2,142,470
Income tax expense ........................... 711,644 857,000
----------- -----------
NET EARNINGS ........................... $ 1,060,211 $ 1,285,470
=========== ===========
Weighted average common shares
outstanding ............................... 794,929 797,640
=========== ===========
Earnings per common share,
basic and diluted ......................... $ 1.33 $ 1.61
=========== ===========
The accompanying notes are an integral part of these statements.
WESTLAND DEVELOPMENT CO., INC.
STATEMENTS OF EARNINGS
(unaudited)
For the six months ended
December 31,
2004 2003
----------- -----------
Revenues
Land ...................................... $ 7,970,606 $ 6,029,370
Rentals ................................... 677,513 606,551
----------- -----------
8,648,119 6,635,921
Costs and expenses
Cost of land revenues ..................... 5,174,280 1,870,463
Cost of rentals ........................... 204,179 171,127
General and administrative ................ 1,291,617 1,373,065
----------- -----------
6,670,076 3,414,655
----------- -----------
Operating income ....................... 1,978,043 3,221,266
Other (income) expense
Interest income ........................... (38,080) (23,139)
Gain on sale of assets .................... 4,269 (250)
Other ..................................... (80) 794
Interest expense .......................... 193,710 330,917
----------- -----------
159,819 308,322
----------- -----------
Earnings before income taxes ........... 1,818,224 2,912,944
Income tax expense ........................... 730,192 1,165,000
----------- -----------
NET EARNINGS ........................... $ 1,088,032 $ 1,747,944
=========== ===========
Weighted average common shares
outstanding ............................... 794,930 797,640
=========== ===========
Earnings per common share,
basic and diluted ......................... $ 1.37 $ 2.19
=========== ===========
The accompanying notes are an integral part of these statements.
WESTLAND DEVELOPMENT CO., INC.
STATEMENTS OF CASH FLOWS
(unaudited)
For the six months ended
December 31,
2004 2003
------------ -------------
Cash flows from operating activities
Cash received from land sales
and collections on real
estate contracts receivable ................. $ 10,289,710 $ 6,181,348
Development and closing costs paid on
land sales................................. (5,768,478) (5,149,889)
Cash received from rental operations .......... 677,513 606,551
Cash paid for rental operations ............... (34,082) (17,869)
Cash paid for property taxes .................. (10,239) (48,615)
Interest received ............................. 38,080 16,397
Interest paid ................................. (197,611) (322,919)
Income taxes paid ............................. (2,354,000) (745,000)
General and administrative costs paid ......... (1,009,077) (1,540,602)
Other ......................................... 80 (794)
------------ ------------
Net cash provided by (used in)
operating activities ........................ 1,631,896 (1,021,392)
------------ ------------
Cash flows from investing activities
Capital expenditures .......................... (48,027) (17,112)
Proceeds from sale of assets .................. -- 250
------------ ------------
Net cash used in investing activities ........ (48,027) (16,862)
------------ ------------
Cash flows from financing activities
Borrowing on notes and mortgages .............. 9,790,745 5,500,323
Repayments of notes and mortgages ............. (11,173,800) (3,785,357)
Payment of dividends .......................... (797,159) (799,822)
Purchase of common stock ...................... -- (500)
------------ ------------
Net cash provided by (used in)
financing activities ....................... (2,180,214) 914,644
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS ...... (596,345) (123,610)
Cash and cash equivalents at
beginning of period .......................... 8,929,809 6,355,807
------------ ------------
Cash and cash equivalents at
end of period ................................ $ 8,333,464 $ 6,232,197
============ ============
Reconciliation of net earnings
to net cash (used in) provided by
operating activities
Net earnings ................................... $ 1,088,032 $ 1,747,944
Adjustments to reconcile net
earnings to net cash (used in)
provided by operating activities
Depreciation .............................. 201,094 171,624
Gain on sale of assets .................... -- (250)
Change in
Receivables ............................... (1,250,197) (54,714)
Real estate contracts ..................... (13,982) --
Land and improvements held for
future development ...................... 525,209 (3,287,672)
Other assets .............................. (1,136) 4,862
Accounts payable, accrued expenses
and other liabilities ................... (745,632) (23,186)
Income taxes payable ...................... (1,249,365) 420,000
Deferred profit............................ 3,077,873 --
------------ ------------
Net cash provided by (used in)
operating activities ......................... $ 1,631,896 $ (1,021,392)
============ ============
The accompanying notes are an integral part of these statements.
WESTLAND DEVELOPMENT CO., INC.
NOTES TO THE FINANCIAL STATEMENTS
(unaudited)
December 31, 2004
1. The balance sheet at December 31, 2004, statements of cash flows for the
six month periods ended December 31, 2004 and December 31, 2003 and statements
of operations for the three and six month periods ended December 31, 2004 and
December 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 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 or six month periods ended December 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 without further
consideration, which for the three month periods ended December 31, 2004 and
2003 were 794,929 and 797,640, respectively and for the six month periods then
ended were 794,930 and 797,640, 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
December 31, 2004:
Revenues $6,550,644 $335,156 $ -- $6,885,800
Costs and expenses 4,393,644 107,341 515,233 5,016,218
---------- -------- ----------- ----------
Operating income (loss) 2,157,000 227,815 (515,233) 1,869,582
Interest income -- -- (21,048) (21,048)
Other income -- -- (80) (80)
Interest expense -- 118,855 -- 118,855
---------- -------- ----------- ----------
Earnings (loss)
before income taxes $2,157,000 $108,960 $ (494,105) $1,771,855
========== ======== =========== ==========
Three months ended
December 31, 2003:
Revenues $3,516,292 $303,276 $ -- $3,819,568
Costs and expenses 778,841 90,016 649,069 1,517,926
---------- -------- ----------- ----------
Operating income (loss) 2,737,451 213,260 (649,069) 2,301,642
Interest income -- -- (11,765) (11,765)
Other income -- -- -- --
Interest expense 26,500 117,807 26,630 170,937
---------- -------- ----------- ----------
Earnings (loss)
before income taxes $2,710,951 $ 95,453 $ (663,934) $2,142,470
========== ======== =========== ==========
Six months ended
December 31, 2004:
Revenues $7,970,606 $677,513 $ -- $8,648,119
Costs and expenses 5,174,280 204,179 1,291,617 6,670,076
---------- -------- ----------- ----------
Operating income (loss) 2,796,326 473,334 (1,291,617) 1,978,043
Interest income -- -- (38,080) (38,080)
Other income -- -- (80) (80)
Loss on sale of assets -- -- 4,269 4,269
Interest expense 34,863 158,847 -- 193,710
---------- -------- ----------- ----------
Earnings (loss)
before income taxes $2,761,463 $314,487 $(1,257,726) $1,818,224
========== ======== =========== ==========
Six months ended
December 31, 2003:
Revenues $6,029,370 $606,551 $ -- $6,635,921
Costs and expenses 1,870,463 171,127 1,373,065 3,414,655
---------- -------- ----------- ----------
Operating income (loss) 4,158,907 435,424 (1,373,065) 3,221,266
Interest income -- -- (23,139) (23,139)
Other income -- -- 794 794
Gain on sale of assets -- -- (250) (250)
Interest expense 36,061 263,039 31,817 330,917
---------- -------- ----------- ----------
Earnings (loss)
before income taxes $4,122,846 $172,385 $(1,382,287) $2,912,944
========== ======== =========== ==========
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 $300,000 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 claimants.
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 $1,572,200.
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 $996,000 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.
Note 5.
Sales of developed lots to home builders are recognized on a case by case basis
dependent upon the transactions satisfaction of the full accrual method
requirements. Under New Mexico law, conveyance may begin once a final plat is
filed for a given development. Obtaining a plat requires that the developer
either complete in its entirety the infrastructure related to the project or
provide financial guarantees in the form of bonds to ensure that the project
will be completed. Generally, a homebuilder will contract to purchase a fixed
number of lots in a given development. Westland's contracts generally require
the homebuilder to conclude the purchase of a small number of contracted lots
(typically 5-10) at the time the final plat is recorded. Remaining lots are
then scheduled in increments x # of days from 'substantial completion'. In this
event, the Company utilizes the City of Albuquerque Engineer's Acceptance Letter
as the event that triggers 'substantial completion'. The vast majority of the
Company's sales to homebuilders occur under non recourse cash transactions,
subsequent to the 'substantial completion' of the development and as such are
recorded utilizing the full accrual method. At the period ended December 31,
2004, the Company was obligated under additional construction commitments
related to Sundoro Units 2 and 4. These sales have been recorded under the
percentage of completion method treatment pursuant to paragraphs 41 and 42 of
SFAS 66).
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 six months ended December 31, 2004, the Company's cash and cash
equivalents decreased by $596,345 predominantly attributable to a federal income
tax deposit of $800,000 made on December 15, 2004. During this period,
operations provided $1,631,896, predominantly arising from increased land
revenue, and investing activities used $48,027 as a result of equipment
purchases. Also, the Company reduced its mortgage and note obligations by
$1,383,055, 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 $677,513 through the second 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
$3,719,664 on construction lines of credit. This amount fluctuates, and is paid
from receipts from lot sales. During the current quarter the Company capitalized
interest in the amount of $107,402 in accordance with FAS 34 in relation to
current construction projects (predominantly the 'Petroglyph's' development)
compared to $66,868 during the same quarter in fiscal year 2003. The Company
plans to continue to improve its land projects to create saleable product.
Results of operations:
During the second quarter of the current fiscal year, the Company had
revenues of $6,885,800 compared to $3,819,568 during the same period in the
prior fiscal year. Improved lot sales increased by $2,821,875 to $6,550,644 in
comparison to the three months ended December 31, 2003. Land segment revenues
increased significantly primarily due to commencement of sales in the Sundoro
subdivision. A single large sale of Sundoro Units 2 and 4 in the amount of
$5,314,000 occurred in October, 2004. Of this amount the realization of
$2,860,537 was deferred and will be recognized under the percentage of
completion method, in accordance with SFAS 66, as development obligations
related to those units are completed. Costs and expenses during the three months
ended December 31, 2004, were $5,016,218 compared to $1,517,926 during the
comparable period in 2003. The increase was due principally to increases in
cost of land revenues by $3,614,803, due to increased lot sales. Rental revenue
and cost of revenues increased by approximately $13,000 and $3,700 per month,
respectively attributable to the operations of the Presidential Plaza office
complex which the company acquired in June 2004. General and Administrative
costs decreased by $133,816 to $515,233 compared to $649,069 during the same
period in the prior fiscal year. This change was primarily attributable to a
decrease in legal and consulting expenses related to the Company's law suit with
El Paso Electric and Bosque land suits which were incurred in the prior year.
For the six month periods ended December 31, 2004, revenues increased by
$2,012,198 to $8,648,119 as a result of developed lot sales increasing by
approximately $4,100,000 while raw land sales decreased by approximately
$2,100,000. Costs and expenses were $6,670,000 compared to $3,415,000 as cost
of land sold increased by $3,304,000. This was due to the higher cost per parcel
for improved lots. During the current period, the Company began sales of lots in
its sector development plan, the 'Petroglyphs', which management expects to
continue into the next few fiscal years. General and Administrative costs
decreased by $81,448 to $1,291,617 compared to $1,373,065 during the same period
in the prior fiscal year. This change was primarily attributable to a decrease
in legal and consulting expenses related to the Company's law suit with El Paso
Electric and Bosque land suits which were incurred in the prior year.
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'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. In fiscal 2002, the Company accrued $346,000 for 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. Property is improved for sale as individual lots only
after such land is under contract for sale.
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 each of 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
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: February 22, 2005 By:
---------------------------
Barbara Page, President,
Chief Executive Officer and
Chief Accounting Officer