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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
COMMISSION FILE NO. 1-7228
THE WASHINGTON CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
MARYLAND 52-1157845
(State of Incorporation) (I.R.S. Employer Identification Number)
4550 MONTGOMERY AVENUE, BETHESDA, MARYLAND
20814
(Address of principal executive office)
(301) 657-3640
(Issuer's telephone number)
Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each of the registrant's classes of common
stock as of September 30, 2000: (1) 1,640,327 shares of Class A Common Stock
(2) 21,476 shares of Class B Common Stock
(3) 45,119 shares of Class C Common Stock
EXHIBITS INDEX IS ON PAGE 11 .
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THE WASHINGTON CORPORATION
INDEX
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PART I FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations -
Three Months Ended September 30, 2000 and 1999 and
Nine Months Ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flow -
Nine Months Ended September 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 10
PART II OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K 11
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PART I. FINANCIAL STATEMENTS
ITEM I: FINANCIAL STATEMENTS
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THE WASHINGTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
September 30, 2000 December 31,
(unaudited) 1999
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ASSETS
<S> <C> <C>
Real estate and development properties $408,000 $408,000
Operating property and equipment, net 16,578,427 17,193,631
Cash and short-term investments 512,215 740,401
Escrow deposits 420,822 247,964
Land purchase leaseback 400,000 400,000
Other assets 393,666 463,927
Equity in and advances to unconsolidated partnerships - -
------------------- --------------------
Total Assets $18,713,130 $19,453,923
=================== ====================
LIABILITIES
Note payable - Arlington Square Project $22,537,983 $22,898,870
Interest payable 128,596 130,758
Accounts payable and other liabilities 145,072 217,707
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Total Liabilities 22,811,651 23,247,335
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STOCKHOLDERS' EQUITY
Common stock, $.01 par value; shares issued
Class A - 1,640,327 shares 16,403 16,403
Class B - 21,476 shares 215 215
Class C - 45,119 shares 451 451
Additional paid-in capital 2,804,821 2,804,821
Retained earnings (deficit) (6,920,411) (6,615,301)
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Total Stockholders' Equity (4,098,521) (3,793,411)
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Total Liabilities and Stockholders' Equity $18,713,130 $19,453,924
=================== ====================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
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THE WASHINGTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
SEPTEMBER 30, 2000 AND 1999
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<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------------- ---------------- --------------- ---------------
REVENUES
<S> <C> <C> <C> <C>
Operating property rental income $801,982 $809,365 $2,406,277 $2,410,990
Rent from land purchase leaseback 29,570 28,445 85,855 84,828
Other income 114,468 85,004 469,508 161,716
Interest income 3,498 6,081 12,843 19,459
--------------- ---------------- --------------- ---------------
949,518 928,895 2,974,483 2,676,993
--------------- ---------------- --------------- ---------------
EXPENSES
Interest expense 386,842 394,001 1,165,119 1,184,880
Operating property expenses 293,250 272,496 814,264 788,297
General and administrative expenses 94,630 117,580 348,365 257,665
Other expenses 34,826 14,305 404,048 34,610
--------------- ---------------- --------------- ---------------
809,548 798,382 2,731,796 2,265,452
--------------- ---------------- --------------- ---------------
Net income before depreciation and amortization 139,970 130,513 242,687 411,541
Depreciation and amortization 177,821 157,346 547,797 557,675
--------------- ---------------- --------------- ---------------
Net loss ($37,851) ($26,833) ($305,110) ($146,134)
=============== ================ =============== ===============
Earnings (loss) per share:
Net Income (loss) before depreciation and amortization $0.09 $0.08 $0.15 $0.24
Depreciation and Amortization $0.11 $0.09 $0.33 $0.33
--------------- ---------------- --------------- ---------------
Net Loss ($0.02) ($0.01) ($0.18) ($0.09)
=============== ================ =============== ===============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
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THE WASHINGTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (unaudited)
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<CAPTION>
Nine Months Ended September 30
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($305,110) ($146,134)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 566,003 557,675
Amortization of deferred rental concessions 49,200 49,200
Increase (Decrease) in interest payable (2,162) (2,426)
Decrease (increase) in other assets 69,927 (42,046)
Decrease in accounts payable and other liabilities (72,300) 32,899
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NET CASH PROVIDED BY OPERATING ACTIVITIES 305,558 449,168
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets 0 (23,042)
(Increase) decrease in esrow deposits (172,857) (92,345)
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NET CASH USED IN INVESTING ACTIVITIES: (172,857) (115,387)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable (360,887) (348,905)
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NET CASH USED IN FINANCING ACTIVITIES: (360,887) (348,905)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (228,186) (15,124)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 740,401 828,893
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CASH AND CASH EQUIVALENTS, END OF PERIOD $512,215 $813,769
================== =================
CASH PAID DURING THE PERIOD FOR INTEREST $1,165,119 $1,184,880
================== =================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
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THE WASHINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The accompanying condensed consolidated financial statements have been
prepared by The Washington Corporation ("TWC" and collectively with its
affiliates that are over 50% owned by TWC and consolidated for financial
reporting purposes, the "Company") without audit. Certain information and
footnote disclosures normally included in financial statements presented in
accordance with generally accepted accounting principles have been condensed or
omitted from the accompanying statements. The Company believes the disclosures
made are adequate to make the information presented not misleading when read in
conjunction with the financial statements and notes thereto included in the
Company's Report on Form 10-KSB for the year ended December 31, 1999.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments necessary to present
fairly the financial position of the Company and subsidiaries as of September
30, 2000, and the results of operations for the nine months ended September 30,
2000 and 1999 and statements of cash flow for the nine months ended September
30, 2000 and 1999.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MATERIAL CHANGES IN FINANCIAL POSITION
Total assets decreased by $741,000 from $19,454,000 at December 31,
1999 to $18,713,000 at September 30, 2000. Such decrease was primarily the
result of decreases in operating property and equipment and cash and short-term
investments, offset, in part, by an increase in escrow deposits.
Operating property and equipment decreased by $615,000 from $17,193,000
at December 31, 1999 to $16,578,000 at September 30, 2000. Such decrease was the
result of depreciation and amortization relating to the Arlington Square Project
(as defined below).
Cash and short-term investments decreased by $228,000 from $740,000 at
December 31, 1999 to $512,000 at September 30, 2000. Such decrease was primarily
the result of cash flow used in operating activities and used to fund an
increase in escrow deposits.
Escrow deposits increased by $173,000 from $248,000 at December 31,
1999 to $421,000 at September 30, 2000. Such increase was the result of periodic
payments made to the lender for tenant improvement and leasing reserves
associated with the Arlington Square Project.
Other assets decreased by $70,000 from $464,000 at December 31, 1999 to
$394,000 at September 30, 2000. Such decrease was the result of a decrease in
receivables related to tenant
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work in the Arlington Square Project.
Total liabilities decreased by $435,000 from $23,247,000 at December
31, 1999 to $22,812,000 at September 30, 2000. Such decrease was primarily the
result of a decrease in notes payable, and accounts payable and other
liabilities.
Note payable-Arlington Square Project decreased by $361,000 form
$22,899,000 at December 31, 1999 to $22,538,000 at September 30, 2000. This
reduction was the result of payments made to the lender, and the resulting
principal reduction.
Accounts payable and other liabilities decreased by $73,000 from
$218,000 at December 31, 1999 to $145,000 at September 30, 2000. Such decrease
was the result of a decrease in accounts payable and accrued expenses on the
Arlington Square project and payment of accrued expenses in The Washington
Corporation, both due to fluctuations on timing of payments in the ordinary
course of business.
The Company's stockholders equity decreased by $305,000 from
$(3,793,000) at December 31, 1999 to $(4,098,000) at September 30, 2000. Such
decrease was the result of recorded net loss of $305,000 for the nine months
ended September 30, 2000.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
Revenues increased to $2,974,000 for the nine months ended September
30, 2000 ("First Nine Months 2000") from $2,677,000 for the nine months ended
September 30, 1999 ("First Nine Months 1999"), an increase of $297,000. Such
increase was primarily the result of an increase in other income, as discussed
below.
Other income increased to $469,000 for First Nine Months 2000 compared
to $162,000 for First Nine Months 1999, an increase of $307,000. Such increase
is the result of special construction work related to the Arlington Square
Project. Associated costs related to this construction work is shown in other
expenses.
Interest income decreased to $13,000 for First Nine Months 2000
compared to $20,000 for First Nine Months 1999; a decrease of $7,000. This
decrease was due to lower cash and short-term investment balances.
Total expenses increased to $2,732,000 for First Nine Months 2000
compared to $2,265,000 for First Nine Months 1999, an increase of $467,000. This
increase was due to an increase in operating property expenses, general and
administrative expenses and other expenses, offset in part by a decrease in
interest expense.
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Operating property expenses increased to $814,000 for the First Nine
Months 2000 compared to $788,000 for the Nine Months Ended 1999, an increase of
$26,000. This increase is the result of repairs and maintenance in the Arlington
Square project.
General and administrative expenses increased to $348,000 for the Nine
Months Ended 2000 compared to $258,000 for the Nine Months Ended 1999, an
increase of $90,000. Such increase was primarily the result of a
reclassification of professional fees from other expenses to general and
administrative expenses in the Arlington Square Project.
Other expenses increased to $404,000 for the Nine Months Ended 2000
compared to $35,000 for the Nine Months Ended 1999, an increase of $369,000.
This increase is the result of special construction work related to the
Arlington Square Project. Associated income relating to the construction work is
shown in other income.
Net income before depreciation and amortization decreased to $243,000
for the First Nine Months 2000 from $411,000 for the First Nine Months 1999, an
decrease of $168,000. Such decrease was the result of the changes in total
income and expenses as outlined above.
The Company recorded a net loss of $305,000 for the First Nine Months
2000 as compared to a net loss of $146,000 for the First Nine Months 1999, a net
loss increase of $159,000. This decrease was the result of the $168,000 decrease
in net income before depreciation outlined above, partially offset by a decrease
in depreciation and amortization of $10,000.
THREE MONTHS ENDED SEPTEMBER 30, 2000
Revenues increased to $949,000 for the three months ended September 30,
2000 ("Third Quarter 2000") from $929,000 for the three months ended September
30, 1999 ("Third Quarter 1999"), an increase of $20,000. Such increase was
primarily the result of an increase in other income.
Other income increased to $115,000 for Third Quarter 2000 compared to
$85,000 for Third Quarter 1999, an increase of $30,000. Such increase was the
result of special construction work relating to the Arlington Square Project.
Interest income decreased to $3,000 for Third Quarter 2000 compared to
$6,000 for Third Quarter 1999, a decrease of $3,000. This decrease was due to
lower cash and short-term investment balances.
Operating property expenses increased by $21,000 from $272,000 in Third
Quarter 1999 to $293,000 in Third Quarter 2000. This increase is primarily the
result of expenses incurred by the Arlington Square Project.
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General and Administrative expenses decreased by $22,000 from $117,000
in Third Quarter 1999 to $95,000 in Third Quarter 2000. This decrease is the
result of a decrease in office expenses and a reclassification of real estate
taxes in The Washington Corporation to operating property expenses.
Other expenses increased by $21,000 to $35,000 in Third Quarter 2000 as
compared to $14,000 in Third Quarter 1999. This increase is directly related to
the increase in other income described previously.
Net income before depreciation and amortization increased to $140,000
for the Third Quarter 2000 from $130,000 for the Third Quarter 1999, an increase
of $10,000. Such increase was the result of the changes in total expenses
outlined above.
The Company recorded a net loss of $38,000 for the Third Quarter 2000
as compared to a net loss of $27,000 for the Third Quarter 1999, an increased
loss of $11,000. This increase was the result of the increase in net income
before depreciation and an increase in depreciation and amortization of $21,000.
ARLINGTON SQUARE LIMITED PARTNERSHIP
TWC, directly and through an affiliate, Arlington Square, Inc., a
wholly-owned subsidiary of TWC ("ASI"), owns a 74% interest in Arlington Square
Limited Partnership ("ASLP"). ASLP owns 1.07 acres of land and an office
building constructed thereon (the "Arlington Square Project") located in
Arlington, Virginia. During the First Nine Months 2000, approximately 96% of the
Company's revenues were derived from rental income and construction income on
the Arlington Square Project.
In November 1997, ASLP obtained a loan, secured by the Arlington Square
Project, from Allied Capital Commercial Corporation ("Allied") in the original
principal amount of $24,300.000 (the "Allied Loan"). The interest rate on the
Allied Loan was 10% and the Allied Loan also included a 30% participation for
Allied in the net cash flow and net sales proceeds of ASLP.
From November 1997 to November 25, 1998, ASLP's property was encumbered
by mortgage notes to Allied. The outstanding principal balance on the mortgage
loans accrued interest at a blended rate of 10%, based on the LIBOR rates. The
notes were cash-flow mortgages with all excess cash flow, as defined, being
applied to reduce the principal balance and to fund the required escrows. One of
the mortgage agreements provided for the lender to receive a participation
interest of 30% in the net cash flow and a 30% equity value in the property if
and when it is sold, with such provision to survive any payoff of the mortgage.
On November 25, 1998, the Allied Loan was repaid with proceeds of a
loan obtained by ASLP and secured by the Arlington Square Project from
Metropolitan Life Insurance Company
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("MetLife") in the original principal amount of $21,500,000 (the "MetLife Loan")
pursuant to a promissory note or notes executed by the Company (the "ASLP
Note"). At the closing of the MetLife Loan, $21,500,000 was disbursed to (i)
repay the Allied Loan in the amount of $20,600,000; and (ii) to pay for costs
associated with the MetLife Loan in the amount of $373,477. The MetLife Loan has
a fixed interest rate of 6.8% and matures on December 1, 2010.
Upon refinancing of the Allied Loan, Allied gave notice of demand for
full payment of its participation interest in the equity value and net cash flow
of the Arlington Square Project. ASLP entered into a forbearance agreement with
Allied which (i) established the value for Allied's participation interest at
$1,850,000; and (ii) established a payment term of 9 1/2 years with interest at
7.5% and monthly payments at $22,739.
On December 31, 1999, the parties to the forbearance agreement entered
into a termination of the forbearance agreement, since all further payment
obligations of the parties are contained in the Amended and Restated Promissory
Note dated as of December 1, 1998, and the related security and guarantee
agreements and amendments thereto.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of funds for the period ended September
30, 2000 came from rental income and property management fees from the Arlington
Square Project. As of September 30, 2000, the Company had cash and short term
investments, and escrow deposits totaling approximately $933,000, of which
$421,000 was escrow deposits. Therefore, the Company has sufficient liquidity to
meet its current obligations.
During the First Nine Months 2000, cash and short-term investments
decreased by $228,000. This decrease in the First Nine Months 2000 is primarily
due to the result of cash flow used in operating activities and an increase in
escrow deposits. Future sources of funds are anticipated to come primarily from
the rents and a property management fee from the Arlington Square Project. The
Company's primary use of operating funds is anticipated to be for operating
expenses and required payments on the ASLP Note. The Company has tried without
success to sell its remaining assets. It is not anticipated that the Company
will be able to augment its cash flow from any outside sources, such as the
issuance of additional equity or additional borrowings.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Computation of per share earnings for the nine months ended
September 30, 2000 (included in Part I, Item 1).
(b) REPORTS ON FORM 8-K. The Company filed no reports on Form 8-K during
the third quarter of 2000.
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In accordance with the requirements of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
THE WASHINGTON CORPORATION
/s/WILLIAM N. DEMAS
------------------------------
William N. Demas
President and Treasurer
(Duly authorized officer)
DATE: November 16, 2000
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