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, 2003
[ ] 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 12, 2003:
No Par Value Common: 712,604
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, 2003
ASSETS
Cash and cash equivalents ........................ $ 7,550,275
Receivables:
Real estate contracts ......................... $ 10,000
Other receivables ............................. 163,799 173,799
------------
Land and improvements held for
future development ............................ 9,630,810
Income producing properties, net ................. 11,328,563
Property and equipment, net of accumulated
depreciation of $614,344 ...................... 314,037
Investment in Partnerships and joint ventures .... 10,760
Other ............................................ 174,215
------------
$ 29,182,459
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses
and other liabilities ......................... $ 927,616
Deferred income taxes ............................ 7,362,021
Notes, bonds, mortgages and assessments payable .. 8,810,097
Income taxes payable ............................. 103,896
------------
Total liabilities ............... 17,203,630
Stockholders' equity
Common stock - no par value;
authorized, 736,668 shares;
issued and outstanding,
712,604 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 .................... 552,956
Retained earnings ............................. 11,332,273 11,978,829
------------ ------------
$ 29,182,459
============
WESTLAND DEVELOPMENT CO., INC.
STATEMENTS OF OPERATIONS
(unaudited)
For the three months ended
March 31,
2003 2002
----------- -----------
Revenues
Land ...................................... $ 2,852,164 $ 1,717,221
Rentals ................................... 303,280 318,123
----------- -----------
3,155,444 2,035,344
Costs and expenses
Cost of land revenues ..................... 1,014,424 783,999
Cost of rentals ........................... 83,437 75,330
General and administrative ................ 529,884 386,185
----------- -----------
1,627,745 1,245,514
----------- -----------
Income from operations ................. 1,527,699 789,830
Other (income) expense
Interest income ........................... (3,104) (52,599)
Other (income) expense .................... (75) 2,707
Gain on sale of assets .................... 1,538 --
Interest expense .......................... 183,485 195,051
----------- -----------
181,844 145,159
----------- -----------
Earnings before income taxes ........... 1,345,855 644,671
Income tax expense ........................... 540,000 258,000
----------- -----------
NET EARNINGS ........................... $ 805,855 $ 386,671
=========== ===========
Weighted average common shares
outstanding ............................... 799,044 800,892
=========== ===========
Earnings per common share .................... $ 1.01 $ .48
=========== ===========
WESTLAND DEVELOPMENT CO., INC.
STATEMENTS OF OPERATIONS
(unaudited)
For the nine months ended
March 31,
2003 2002
----------- -----------
Revenues
Land ...................................... $ 9,799,580 $ 6,986,645
Rentals ................................... 907,440 917,072
----------- -----------
10,707,020 7,903,717
Costs and expenses
Cost of land revenues ..................... 2,061,982 2,335,601
Cost of rentals ........................... 248,024 215,802
General and administrative ................ 1,810,397 1,533,195
----------- -----------
4,120,403 4,084,598
----------- -----------
Income from operations ................. 6,586,617 3,819,119
Other (income) expense
Interest income ........................... (35,581) (90,613)
Other income .............................. (21,123) (16,381)
Gain on sale of assets .................... (378,349) --
Interest expense .......................... 549,250 595,975
----------- -----------
114,197 488,981
----------- -----------
Earnings before income taxes ........... 6,472,420 3,330,138
Income tax expense ........................... 2,590,000 1,332,000
----------- -----------
NET EARNINGS ........................... $ 3,882,420 $ 1,998,138
=========== ===========
Weighted average common shares
outstanding ............................... 799,945 800,925
=========== ===========
Earnings per common share .................... $ 4.85 $ 2.49
=========== ===========
WESTLAND DEVELOPMENT CO., INC.
STATEMENTS OF CASH FLOWS
(unaudited)
For the nine months ended
March 31,
2003 2002
------------ ------------
Cash flows from operating activities
Cash received from land sales
and collections on real
estate contracts receivable ................. $ 9,625,415 $ 7,114,605
Development and closing costs paid
on land sales ............................... (3,400,027) (2,258,809)
Cash received from rental operations .......... 907,440 921,961
Cash paid for rental operations ............... (14,029) --
Cash paid for property taxes .................. (25,024) (52,547)
Interest received ............................. 35,872 54,055
Interest paid ................................. (533,366) (732,620)
Income taxes paid ............................. (582,552) (1,183,513)
General and administrative costs paid ......... (1,605,415) (1,449,238)
Other ......................................... 21,123 14,150
------------ ------------
Net cash provided by
operating activities ........................ 4,429,437 2,428,044
------------ ------------
Cash flows from investing activities
Capital expenditures for income
producing and other properties .............. (10,039) (29,033)
Distribution from partnerships
and joint ventures ........................... 25,450 37,250
Change in short-term investments .............. -- 735,815
Proceeds from note receivable-related party ... 95,590 2,631
Proceeds from sale of joint venture asset ..... 538,248 --
------------ ------------
Net cash provided by
investing activities ........................ 649,249 746,663
------------ ------------
Cash flows from financing activities
Borrowing on notes, mortgages and
assessments payable ......................... 2,767,843 1,713,053
Repayments of bonds, mortgages,
notes and assessments payable ............... (2,640,131) (3,937,423)
Payment of dividends .......................... (852,735) --
Purchase/retirement of stock, net ............. (39,855) --
------------ ------------
Net cash used in
financing activities ....................... (764,878) (2,224,370)
------------ ------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS ......................... 4,313,808 950,337
Cash and cash equivalents at
beginning of period .......................... 3,236,467 764,001
------------ ------------
Cash and cash equivalents at
end of period ................................ $ 7,550,275 $ 1,714,338
============ ============
Reconciliation of net earnings
to net cash provided by
operating activities
Net earnings ................................... $ 3,882,420 $ 1,998,137
Adjustments to reconcile net earnings
to net cash provided
by operating activities
Depreciation .............................. 257,392 251,185
Gain on sale of assets .................... (378,349) --
Change in
Rents receivable, accrued interest,
property tax and other assets ........... (163,507) 114,134
Real estate contracts ..................... 35,424 (22,022)
Land and improvements held for
future development and income
producing properties .................... (1,341,176) 69,477
Other assets .............................. 52,073 (15,114)
Accounts and retainages payable,
accrued interest and other
liabilities ............................. 77,712 (116,240)
Income taxes payable ...................... 2,007,448 148,487
------------ ------------
Net cash provided by
operating activities ......................... $ 4,429,437 $ 2,428,044
============ ============
WESTLAND DEVELOPMENT CO., INC.
NOTES TO THE FINANCIAL STATEMENTS
(unaudited)
March 31, 2003
1. The balance sheet at March 31, 2003, statements of operations for the
three and nine months ended March 31, 2003 and March 31, 2002 and statements of
cash flows for the nine month periods ended March 31, 2003 and 2002 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 nine months ended
March 31, 2003 are not necessarily indicative of operating results for the full
year.
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 and nine month
periods ended March 31, 2003 were 799,044 and 799,945, respectively and for the
three and nine month periods ended March 31, 2002 were 800,892 and 800,925,
respectively.
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
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)
Other income -- -- (75) (75)
Gain on sale of assets -- -- 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
========== ======== =========== ==========
Three months ended
March 31, 2002:
Revenues $1,717,221 $318,123 $ -- $2,035,344
Costs and expenses 783,999 75,330 386,185 1,245,514
---------- -------- ----------- ----------
Income (loss) from
operations 933,222 242,793 (386,185) 789,830
Interest income -- -- (52,599) (52,599)
Other income -- -- 2,707 2,707
Interest expense 11,825 180,641 2,585 195,051
---------- -------- ----------- ----------
Earnings (loss)
before income taxes $ 921,397 $ 62,152 $ (338,878) $ 644,671
========== ======== =========== ==========
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
========== ======== =========== ==========
Nine months ended
March 31, 2002:
Revenues $6,986,645 $917,072 $ -- $7,903,717
Costs and expenses 2,335,601 215,802 1,533,195 4,084,598
---------- -------- ----------- ----------
Income (loss) from
operations 4,651,044 701,270 (1,533,195) 3,819,119
Interest income -- -- (90,613) (90,613)
Other income -- -- (16,381) (16,381)
Interest expense 44,975 546,364 4,636 595,975
---------- -------- ----------- ----------
Earnings (loss)
before income taxes $4,606,069 $154,906 $(1,430,837) $3,330,138
========== ======== =========== ==========
4. 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 were effective for the
Company in its quarter ended December 31, 2002. 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. Certain disclosures concerning variable interest entities are
required in financial statements initially issued after January 31, 2003. The
Company believes it has no interests in variable interest entities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
During the nine months ended March 31, 2003, the Company's cash and cash
equivalents increased by $3,236,467. During this period, operations provided
$4,429,437 and investing activities provided $649,249, Also, the Company
borrowed, net, $127,712 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 $900,000 in the first three 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 $8,569,596 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 third quarter of the current fiscal year, the Company had
revenues of $3,155,444 compared to $2,035,344 during the same period in the
prior fiscal year. Land revenues increased significantly primarily due to a
single large parcel sale of $868,804 in 2003. Operating expenses during the
three months ended March 31, 2003, were $1,627,745 compared to $1,245,514 during
the comparable period in 2002. The increase was due principally to higher cost
of land revenues by $230,425. 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. General and
administrative expense increased by approximately $140,000 due to higher
consulting and lobbying costs.
For the year to date, revenues in 2003 were $10,707,020 compared to
$7,903,717 in 2002. Operating costs were $4,120,403 compared to $4,084,598 in
2002. The cost of land revenues decreased by $273,619, but general and
administrative expenses increased by $277,202 to $1,810,397, primarily from
increased personnel costs, while cost of rental revenue remained relatively
constant. 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 $3,181,000 of replacement lands and property to acquire 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.
Commitments and 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. The
Company has entered into certain long-term contracts totaling approximately
$6.2 million for extending waterlines and facilities into a portion of the
Company's land under development. The Company is negotiating with financial
institutions to provide lines of credit totaling approximately $3.8 million for
this project.
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: May 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: May 12, 2003
Barbara Page
----------------------------------
Barbara Page, principal executive
and financial officer
[Signature] [Title]
There are no other certifying officers.