10QSB 1 form10q3q03.txt 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.