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, 2002
[ ]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 11, 2003:
No Par Value Common: 714,231
Class B $1.00 Par Value Common: 86,100
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, 2002
ASSETS
Cash and cash equivalents ........................ $ 6,810,099
Receivables:
Real estate contracts ......................... $ 10,000
Other receivables ............................. 30,709 40,709
------------
Land and improvements held for
future development ............................ 9,069,969
Income producing properties, net ................. 11,402,285
Property and equipment, net of accumulated
depreciation of $614,344 ...................... 328,259
Investment in Partnerships and joint ventures .... 10,760
Income taxes receivable .......................... 300,483
Other ............................................ 181,130
------------
$ 28,143,694
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses
and other liabilities ......................... $ 917,804
Deferred income taxes ............................ 7,362,021
Notes, bonds, mortgages and assessments payable .. 8,651,041
------------
Total liabilities ............... 16,930,866
Stockholders' equity
Common stock - no par value;
authorized, 736,668 shares;
issued and outstanding,
714,231 shares ............................. 8,500
Class B common stock - $1.00 par
value; authorized, 491,112
shares; issued and outstanding,
86,100 shares .............................. 86,100
Additional paid-in capital .................... 591,811
Retained earnings ............................. 10,526,417 11,212,828
------------ ------------
$ 28,143,694
============
WESTLAND DEVELOPMENT CO., INC.
STATEMENTS OF OPERATIONS
(unaudited)
For the three months ended
December 31,
2002 2001
----------- -----------
Revenues
Land ...................................... $ 841,075 $ 4,337,035
Rentals ................................... 300,880 299,224
----------- -----------
1,141,955 4,636,259
Costs and expenses
Cost of land revenues ..................... 476,483 1,063,275
Cost of rentals ........................... 81,746 72,968
General and administrative ................ 649,553 730,627
----------- -----------
1,207,782 1,866,870
----------- -----------
(Loss) Income from operations .......... (65,827) 2,769,389
Other (income) expense
Interest income ........................... (24,127) (16,270)
Other income .............................. (6,610) (10,130)
Gain on sale of assets .................... (379,887) --
Interest expense .......................... 183,408 209,015
----------- -----------
(227,216) 182,615
----------- -----------
Earnings before income taxes ........... 161,389 2,586,774
Income tax expense ........................... 51,000 1,034,500
----------- -----------
NET EARNINGS ........................... $ 110,389 $ 1,552,274
=========== ===========
Weighted average common shares
outstanding ............................... 805,378 801,941
=========== ===========
Earnings per common share .................... $ .14 $ 1.94
=========== ===========
WESTLAND DEVELOPMENT CO., INC.
STATEMENTS OF OPERATIONS
(unaudited)
For the six months ended
December 31,
2002 2001
----------- -----------
Revenues
Land ...................................... $ 6,947,416 $ 5,269,425
Rentals ................................... 604,160 598,949
----------- -----------
7,551,576 5,868,374
Costs and expenses
Cost of land revenues ..................... 1,047,558 1,551,602
Cost of rentals ........................... 164,587 140,472
General and administrative ................ 1,280,514 1,147,011
----------- -----------
2,492,659 2,839,085
----------- -----------
Income from operations ................. 5,058,917 3,029,289
Other (income) expense
Interest income ........................... (32,477) (38,014)
Other income .............................. (21,048) (19,087)
Gain on sale of assets .................... (379,887) --
Interest expense .......................... 365,765 400,924
----------- -----------
(67,647) 343,823
----------- -----------
Earnings before income taxes ........... 5,126,564 2,685,466
Income tax expense ........................... 2,050,000 1,074,000
----------- -----------
NET EARNINGS ........................... $ 3,076,564 $ 1,611,466
=========== ===========
Weighted average common shares
outstanding ............................... 805,386 801,941
=========== ===========
Earnings per common share .................... $ 3.82 $ 2.01
=========== ===========
WESTLAND DEVELOPMENT CO., INC.
STATEMENTS OF CASH FLOWS
(unaudited)
For the six months ended
December 31,
2002 2001
------------ -------------
Cash flows from operating activities
Cash received from land sales
and collections on real
estate contracts receivable ................. $ 6,944,530 $ 3,448,635
Development and closing costs paid
on land sales ............................... (1,824,762) (1,297,559)
Cash received from rental operations .......... 614,570 598,949
Cash paid for rental operations ............... (3,117) 7,152
Cash paid for property taxes .................. (57,238) (49,664)
Interest received ............................. 32,768 13,651
Interest paid ................................. (356,223) (454,230)
Income taxes paid ............................. (446,931) (9,200)
General and administrative costs paid ......... (1,012,167) (1,037,181)
Other ......................................... 21,048 --
------------ ------------
Net cash provided by
operating activities ........................ 3,912,478 1,220,553
------------ ------------
Cash flows from investing activities
Capital expenditures for income
producing and other properties .............. (10,504) --
Investment in partnerships and joint ventures . 28,700 22,750
Change in short-term investments .............. -- 1,195,082
Proceeds from note receivable-related party ... 2,121 1,904
Proceeds from sale of assets .................. 628,812 --
------------ ------------
Net cash provided by
investing activities ........................ 649,129 1,219,736
------------ ------------
Cash flows from financing activities
Borrowing on notes, mortgages and
assessments payable ......................... 1,306,080 926,928
Repayments of bonds, mortgages,
notes and assessments payable ............... (1,441,320) (2,710,364)
Payment of dividends .......................... (852,735) --
------------ ------------
Net cash used in
financing activities ....................... (987,975) (1,783,436)
------------ ------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS ......................... 3,573,632 656,853
Cash and cash equivalents at
beginning of period .......................... 3,236,467 764,001
------------ ------------
Cash and cash equivalents at
end of period ................................ $ 6,810,099 $ 1,420,854
============ ============
Reconciliation of net earnings
to net cash provided by
operating activities
Net earnings ................................... $ 3,076,564 $ 1,611,466
Adjustments to reconcile net earnings
to net cash provided
by operating activities
Depreciation .............................. 171,106 167,655
Gain on sale of assets .................... (379,887) --
Change in
Rents receivable, accrued interest,
property tax and other assets ........... (30,417) 123,172
Real estate contracts ..................... 35,424 (2,007,530)
Land and improvements held for
future development and income
producing properties .................... (780,335) 250,296
Other assets .............................. 45,158 (91)
Accounts and retainages payable,
accrued interest and other
liabilities ............................. 171,796 10,785
Income taxes payable ...................... 1,603,069 1,064,800
------------ ------------
Net cash provided by
operating activities ......................... $ 3,912,478 $ 1,220,553
============ ============
WESTLAND DEVELOPMENT CO., INC.
NOTES TO THE FINANCIAL STATEMENTS
(unaudited)
December 31, 2002
1. The balance sheet at December 31, 2002, statements of operations for the
three and six months ended December 31, 2002 and December 31, 2001 and
statements of cash flows for the six month periods ended December 31, 2002 and
2001 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, 2002. The results of operations for the three months and
six months ended December 31, 2002 are not necessarily indicative of operating
results for the full year.
2. The computation of earnings (loss) 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 and six month
periods ended December 31, 2002 were 805,378 and 805,386, respectively and for
the three and six month periods ended December 31, 2001 was 800,941.
3. Financial information for the two industry segments, land sales and
rental operations, is summarized as follows:
General
Land Rentals corporate Total
---- ------- --------- -----
Three months ended
December 31, 2002:
Revenues $ 841,075 $300,880 $ -- $1,141,955
Costs and expenses 476,483 81,746 649,553 1,207,782
---------- -------- ----------- ----------
Income (loss) from
operations 364,592 219,134 (649,553) (65,827)
Interest income -- -- (24,127) (24,127)
Other income -- -- (6,610) (6,610)
Gain on sale of assets -- -- (379,887) (379,887)
Interest expense -- 175,974 7,434 183,408
---------- -------- ----------- ----------
Earnings (loss)
before income taxes $ 364,592 $ 43,160 $ (246,363) $ 161,389
========== ======== =========== ==========
Three months ended
December 31, 2001:
Revenues $4,337,035 $299,224 $ -- $4,636,259
Costs and expenses 1,063,275 72,968 730,627 1,866,870
---------- -------- ----------- ----------
Income (loss) from
operations 3,273,760 226,256 (730,627) 2,769,389
Interest income -- -- (16,270) (16,270)
Other income -- -- (10,130) (10,130)
Interest expense 17,282 190,664 1,069 209,015
---------- -------- ----------- ----------
Earnings (loss)
before income taxes $3,256,478 $ 35,592 $ (705,296) $2,586,774
========== ======== =========== ==========
Six months ended
December 31, 2002:
Revenues $6,947,416 $604,160 $ - $7,551,576
Costs and expenses 1,047,558 164,587 1,280,514 2,492,659
---------- -------- ----------- ----------
Income (loss) from
operations 5,899,858 439,573 (1,280,514) 5,058,917
Interest income -- -- (32,477) (32,477)
Other income -- -- (21,048) (21,048)
Gain on sale of assets -- -- (379,887) (379,887)
Interest expense -- 353,537 12,228 365,765
---------- -------- ----------- ----------
Earnings (loss)
before income taxes $5,899,858 $ 86,036 $ (859,330) $5,126,564
========== ======== =========== ==========
Six months ended
December 31, 2001:
Revenues $5,269,425 $598,949 $ -- $5,868,374
Costs and expenses 1,551,602 140,472 1,147,011 2,839,085
---------- -------- ----------- ----------
Income (loss) from
operations 3,717,823 458,477 (1,147,011) 3,029,289
Interest income -- -- (38,014) (38,014)
Other income -- -- (19,087) (19,087)
Interest expense 33,150 365,724 2,050 400,924
---------- -------- ----------- ----------
Earnings (loss)
before income taxes $3,684,673 $ 92,753 $(1,091,960) $2,685,466
========== ======== =========== ==========
4. In June 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issues No. 94-3 "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)". The Statement
is effective for exit or disposal activities initiated after December 31, 2002
with early application encouraged. The Company estimates that the new standard
will not have a material effect on its financial statements but is still in the
evaluation process.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS No.123 (SFAS 148).
This statement amends Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation and amends the disclosure requirements of SFAS
123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. The transition and annual
disclosure provisions of SFAS 148 will be effective for the Company in the first
quarter of 2003.
In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. For a guarantee subject to FASB
Interpretation 45, a guarantor is required to measure and recognize the fair
value of the guarantee liability at inception. For many guarantees, fair value
will likely be determined using the expected present value method described in
FASB Concepts Statement 7, Using Cash Flow Information and Present Value in
Accounting Measurements. In addition, the FIN 45 provides new disclosure
requirements. The disclosure requirements of FIN 45 will be effective for the
Company in the first quarter of 2003. The measurement and liability recognition
provisions are applied prospectively to guarantees issued or modified after
December 31, 2002.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46). Subject to certain criteria defined in the
Interpretation, FIN 46 will require consolidation by business enterprises of
variable interest entities if the enterprise has a variable interest that will
absorb the majority of the entity's expected losses if they occur, receive a
majority of the entity's expected residual returns if they occur, or both. The
Interpretation will be effective for the Company in the first quarter of fiscal
year 2004. Management has not yet determined the effect, if any, of FIN 46 on
the Company's financial position or results of operations. Certain disclosures
concerning variable interest entities are required in financial statements
initially issued after January 31, 2003.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
During the six months ended December 31, 2002, the Company's cash and cash
equivalents increased by $3,573,632. During this period, operations provided
$3,912,478 and investing activities provided $649,129, primarily from the sale
of income-producing assets. Also, the Company repaid debt, net, of $135,240 and
paid dividends of $852,735. Except for short-term borrowing, the Company's
primary source of cash is the sale of land. Although rental operations generated
approximately $600,000 in the first two quarters, most of those receipts were
used to service the mortgage debt for those properties. Other than trade
payables and accrued expenses, the other significant debt is $8,650,174 of
mortgage notes. The Company also utilizes its lines of credit to fund
development projects, which are then repaid from receipts from lot sales. The
Company will continue to improve its land projects to create saleable products,
and management believes that receipts from those sales will sustain the Company
for the balance of the year.
During the second quarter of the current fiscal year, the Company had
revenues of $1,141,955 compared to $4,636,259 during the same period in the
prior fiscal year. Land revenues decreased significantly primarily due to a
decrease in improved lot sales, $796,000 compared to $2,214,600 and a decrease
in large parcel sales of $2,725,000. Operating expenses during the three months
ended December 31, 2002, were $1,207,782 compared to $1,866,870 during the
comparable period in 2001. The decrease was due principally to lower cost of
land revenues by $586,792. As the Company sells the remaining lots in its Tierra
Oeste units this year, it continues sales of lots in the Painted Sky divisions,
which should continue into the next fiscal year. Additionally, the Company sold
its 50% interest in a self-storage rental joint venture which resulted in a gain
of approximately $380,000.
For the year to date, revenues in 2002 were $7,551,576 compared to
$5,868,374 in 2001. Operating costs were $2,492,659 compared to $2,839,085 as
cost of land sales decreased by $504,044. The cost of rental revenues and
general and administrative expenses remained relatively constant from 2001 to
2002. Most of the increase in revenue and income occurred in the first quarter,
due to the sale of land condemned by the City of Albuquerque of approximately
$5,300,000. Management expects increased sales of land to continue.
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
$7,362,021. Of the approximately $21,899,000 received, the Company has remaining
approximately $2,681,000 of replacement lands and property to acquire by June
30, 2003, $500,000 by June 30, 2004 and $5,279,000 by June 30, 2005. 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. "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 over most of the
last decade.
Contingencies:
Management continues to be diligent in recognizing possible liabilities as they
become known. In June, 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 this is 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-14(c) and 15d-14(c)) as of a date within 90 days of the
filing date (the "Evaluation Date") of this quarterly report, and has concluded
that as of the Evaluation Date, the Company's disclosure controls were adequate,
effective and ensure that material information relating to the Company would be
made known to her timely by others within the entity.
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect the Company's disclosure controls
and procedures subsequent to the Evaluation Date, nor were there any
significant deficiencies or material weaknesses in such disclosure controls and
procedures requiring corrective actions. As a result, no corrective actions
were taken.
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 99, 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 12, 2003 By: Barbara Page
---------------------------
Barbara Page, President,
Chief Executive Officer and
Chief Accounting Officer
CERTIFICATION
I, Barbara Page, the principal executive and financial officer, of
Westland Development Co., Inc., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Westland Development
Co., Inc., SEC file No 0-7775;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others within
this entity, particularly during the period in which this quarterly report
is being prepared.
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report my conclusions about the effectiveness
of the disclosure controls and procedures based on my evaluation as of the
Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: February 12, 2003
Barbara Page
----------------------------------
Barbara Page, principal executive
and financial officer
[Signature] [Title]
There are no other certifying officers.