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, 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
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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, 2003:
No Par Value Common: 712,540
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, 2003
ASSETS
Cash and cash equivalents ........................ $ 5,117,355
Restricted cash .................................. 2,003,504
Receivables ...................................... 136,833
Land and improvements held for
future development ............................ 11,078,802
Income producing properties, net ................. 11,181,120
Property and equipment, net of accumulated
depreciation of $619,159 ...................... 292,482
Other assets...................................... 188,521
------------
$ 29,998,617
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses
and other liabilities ......................... $ 817,765
Deferred income taxes ............................ 7,328,247
Notes and mortgages .............................. 9,541,605
Income taxes payable ............................. 252,833
------------
Total liabilities ............... 17,940,450
Stockholders' equity
Common stock - no par value;
authorized, 736,668 shares;
issued and outstanding,
712,540 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 .................... 550,956
Retained earnings ............................. 11,413,611 12,058,167
------------ ------------
$ 29,998,617
============
WESTLAND DEVELOPMENT CO., INC.
STATEMENTS OF OPERATIONS
(unaudited)
For the three months ended
September 30,
2003 2002
----------- -----------
Revenues
Land ...................................... $ 2,513,078 $ 6,106,340
Rentals ................................... 303,275 303,280
----------- -----------
2,816,353 6,409,620
Costs and expenses
Cost of land revenues ..................... 1,091,621 571,075
Cost of rentals ........................... 81,111 82,841
General and administrative ................ 723,997 630,961
----------- -----------
1,896,729 1,284,877
----------- -----------
Income from operations ................. 919,624 5,124,743
Other (income) expense
Interest income ........................... (11,374) (8,350)
Gain on sale of assets .................... (250) --
Other ..................................... 794 (14,438)
Interest expense .......................... 159,979 182,356
----------- -----------
149,149 159,568
----------- -----------
Earnings before income taxes ........... 770,475 4,965,175
Income tax expense ........................... 308,000 1,999,000
----------- -----------
NET EARNINGS ........................... $ 462,475 $ 2,966,175
=========== ===========
Weighted average common shares
outstanding ............................... 797,643 805,393
=========== ===========
Earnings per common share,
basic and diluted ......................... $ 0.58 $ 3.68
=========== ===========
WESTLAND DEVELOPMENT CO., INC.
STATEMENTS OF CASH FLOWS
(unaudited)
For the three months ended
September 30,
2003 2002
------------ -------------
Cash flows from operating activities
Cash received from land sales
and collections on real
estate contracts receivable ................. $ 2,516,586 $ 6,103,163
Development and closing costs paid
on land sales ............................... (1,825,208) (810,188)
Cash received from rental operations .......... 292,567 303,280
Cash paid for rental operations ............... (376) (9,120)
Cash paid for property taxes .................. (8,241) (56,656)
Interest received ............................. 7,870 8,473
Interest paid ................................. (154,674) (167,979)
Income taxes paid ............................. (91,000) (106,931)
General and administrative costs paid ......... (919,794) (496,034)
Other ......................................... (794) --
------------ ------------
Net cash (used in) provided by
operating activities ........................ (183,064) 4,768,008
------------ ------------
Cash flows from investing activities
Distributions from partnerships
and joint ventures .......................... -- 15,142
Capital expenditures .......................... (2,053) --
Proceeds from note receivable-related party ... -- 1,343
Proceeds from sale of equipment ............... 250 --
------------ ------------
Net cash (used) provided by
investing activities ........................ (1,803) 16,485
------------ ------------
Cash flows from financing activities
Borrowing on notes and mortgages .............. 1,330,685 763,853
Repayments of notes and mortgages ............. (1,583,948) (837,235)
Payment of dividends .......................... (799,822) (602,479)
Purchase of common stock ...................... (500) --
------------ ------------
Net cash used in financing activities ....... (1,053,585) (675,861)
------------ ------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS ......................... (1,238,452) 4,108,632
Cash and cash equivalents at
beginning of period .......................... 6,355,807 3,236,467
------------ ------------
Cash and cash equivalents at
end of period ................................ $ 5,117,355 $ 7,345,099
============ ============
Reconciliation of net earnings
to net cash (used in) provided by
operating activities
Net earnings ................................... $ 462,475 $ 2,966,175
Adjustments to reconcile net
earnings to net cash (used in)
provided by operating activities
Depreciation .............................. 85,637 85,420
Gain on sale of equipment ................. (250) --
Change in
Receivables ............................... (42,068) 197
Real estate contracts ..................... -- 26,553
Land and improvements held for
future development and income
producing properties .................... (741,833) (257,352)
Other assets .............................. (3,267) (16,225)
Accounts payable, accrued expenses
and other liabilities ................... (160,758) 71,170
Income taxes payable ...................... 217,000 1,892,070
------------ ------------
Net cash (used in) provided by
operating activities ......................... $ (183,064) $ 4,768,008
============ ============
Noncash investing and financing activities:
Dividends declared but not paid .............. $ -- $ 250,256
WESTLAND DEVELOPMENT CO., INC.
NOTES TO THE FINANCIAL STATEMENTS
(unaudited)
September 30, 2003
1. The balance sheet at September 30, 2003, statements of cash flows and
statements of operations for the three months ended September 30, 2003 and
September 30, 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, 2003. The results of operations for the
three months ended September 30, 2003 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, 2003 and September 30, 2002 were 797,643 and 805,393,
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, 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
========== ======== =========== ==========
Three months ended
September 30, 2002:
Revenues $6,106,340 $303,280 $ -- $6,409,620
Costs and expenses 571,075 82,841 630,961 1,284,877
---------- -------- ----------- ----------
Income (loss) from
operations 5,535,265 220,439 (630,961) 5,124,743
Interest income -- -- (8,350) (8,350)
Other income -- -- (14,438) (14,438)
Interest expense 94 177,563 4,699 182,356
---------- -------- ----------- ----------
Earnings (loss)
before income taxes $5,535,171 $ 42,876 $ (612,872) $4,965,175
========== ======== =========== ==========
4. In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
Consolidation of Variable Interest Entities. FIN 46 requires an investor with a
majority of the variable interests in a variable interest entity to consolidate
the entity and also requires majority and significant variable interest
investors to provide certain disclosures. A variable interest entity is an
entity in which the equity investors do not have a controlling interest or the
equity investment at risk is insufficient to finance the entity's activities
without receiving additional subordinated financial support from the other
parties. FIN 46 is effective immediately for variable interest entities created
after January 31, 2003 and to variable interests the Company acquires after that
date. Variable interests acquired before February 1, 2003 are subject to FIN 46
at the end of the first interim or annual period ending after December 15, 2003
(for the Company December 31, 2003). The Company does not expect to identify any
variable interest entities that must be consolidated and believes the adoption
of FIN 46 will not have a material impact on its financial position or results
of operations.
In May 2003, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity. SFAS No. 150 improves the
accounting for certain financial instruments that, under previous guidance,
issuers could account for as equity and requires that those instruments be
classified as liabilities (or assets in certain circumstances) in statements of
financial position. SFAS No. 150 also requires disclosures about alternative
ways of settling the instruments and the capital structure of entities. SFAS No.
150 is generally effective for all financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. The adoption of SFAS No. 150
did not have a material impact on the Comapny's financial position or results of
operations.
5. 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. The Company
has also accrued a liability of approximately $200,000 for one-half of the
estimated unpaid costs of development by a buyer of a commercial tract of land
for which the Company is responsible. The Company believes the buyer has not
complied with the contract terms and the Company will not pay any remaining
amounts until a full accounting and settlement is provided by the buyer.
However, the ultimate amount paid for these claims, if any, is subject to change
and management believes such claims may be settled by the conveyance of land to
the 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 $1,442,000.
The Company has deferred gains for tax reporting for the involuntary conversion
of land by governmental authorities resulting in deferred tax liabilities of
approximately $7,672,000 at June 30, 2003. The deferral requires that the
Company replace the land with the proceeds of conversion within specified time
limits. At June 30, 2003, the Company must purchase replacement property of at
least $2,181,000 by June 30, 2004, $500,000 by June 30, 2005 and $5,279,000 by
June 30, 2006 in order to comply with the requirements of its election for
income tax deferral. If replacement property is not purchased, the Company may
be required to pay income taxes on the conversions of approximately $870,000,
$200,000 and $2,110,000 for the years ended June 30, 2004, 2005 and 2006,
respectively.
In March 2003, the Company signed water infrastructure construction contracts
for the development of new residential and commercial properties totaling
approximately $6,160,000 to be completed by June 30, 2004. The Company is
negotiating for bank credit lines to partially fund the construction project.
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, 2003, the Company's cash and
cash equivalents decreased by $1,238,452. During this period, operations used
$183,064 and investing activities used $1,803. Also, the Company repaid debt of
$253,263, net and paid dividends of $799,822. Except for short-term borrowing,
the Company's primary source of cash is the sale of land. Although rental
operations generated $303,275 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
$1,144,885 on construction lines of credit. This amount fluctuates, and is paid
from receipts from lot sales. The Company will continue to improve its land
projects to create saleable product.
Results of operations:
During the first quarter of the current fiscal year, the Company had
revenues of $2,816,353 compared to $6,409,620 during the same period in the
prior fiscal year. Land revenues decreased significantly primarily due to the
sale of a single large parcel for approximately $5,279,000 in fiscal 2003.
Improved lot sales increased by approximately $1,565,800 to $2,376,000.
Operating expenses during the three months ended September 30, 2003, were
$1,896,729 compared to $1,284,877 during the comparable period in 2002. The
increase was due principally to increases in cost of land revenues by
approximately $521,000, due to increased lot sales, and $93,000 in general and
administrative expenses. As the Company sells the remaining lots in its Cielo
Oeste, Crossings and Painted Sky units this year, management expects to begin
sales of lots in its sector 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
$2,181,000 of replacemant lands and property to acquire by June 30, 2004,
$500,000 by June 30, 2005 and $5,279,000 by June 30, 2006. In the event the
Company does not replace the property sold pursuant to condemnation, it may need
to utilize a substantial portion of its liquid investments for the payment of
these taxes.
Critical Accounting Policies:
Income recognition and cost allocation:
In recent years, the Company has had very few installment sales, so income is
recognized when a property is sold with financing provided by the buyer. Some of
the sales are basically raw land which has little more than its original cost of
$2.60 per acre. Other parcels benefit from certain 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.
Contingencies:
Management continues to be diligent in recognizing possible liabilities as they
become known. In fiscal 2002, the Company accrued $346,000 against possible loss
due to a claim made by Bernalillo County for costs allegedly incurred in
researching creation of a new municipality for Westland's sector development
plan. Westland has also accrued $200,000 against possible claim on completion of
an earlier project. Management believes these amounts are sufficient to
liquidate alleged damages, if any.
Asset Impairment:
Management periodically assesses the possibility that the carrying value of its
assets is greater than its realizable value. For the most part, this question is
obviated because the carrying cost of land is very low compared to any
reasonable sale price. When property is improved for sale as individual lots, a
commitment exists by contract obligating the purchaser prior to undertaking the
development. However, the Company owns several properties held for the
production of income, designed for a specific use, which could become impaired
if the lessee vacated or rescinded its lease under bankruptcy. Management
periodically determines by inspection that the properties are suitably
maintained and insured and that the lessees are conducting proper operations.
ITEM 3. CONTROLS AND PROCEDURES
The Company's principal executive and financial officer has evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined in
Exchange Act Rules 13a-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 and procedures
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 Evsaluation 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 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: November 12, 2003 By: Barbara Page
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Barbara Page, President,
Chief Executive Officer and
Chief Accounting Officer