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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 JUNE 30, 2000
COMMISSION FILE NO. 1-7228
THE WASHINGTON CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
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<S> <C>
MARYLAND 52-1157845
(State of Incorporation) (I.R.S. Employer Identification Number)
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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
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each of the registrant's classes of common
stock as of June 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 12.
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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 -
June 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations -
Three Months Ended June 30, 2000 and 1999 and
Six Months Ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flow -
Six Months Ended June 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 - 11
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
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PART I. FINANCIAL STATEMENTS
ITEM I: FINANCIAL STATEMENTS
THE WASHINGTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
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June 30,
2,000 December 31,
(unaudited) 1999
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ASSETS
Real estate and development properties $408,000 $408,000
Operating property and equipment, net 16,778,802 17,193,631
Cash and short-term investments 325,880 740,401
Escrow deposits 355,512 247,964
Land purchase leaseback 400,000 400,000
Other assets 383,576 463,927
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Total Assets $18,651,770 $19,453,923
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LIABILITIES
Note payable - Arlington Square Project $22,619,330 $22,898,870
Accrued Interest payable 0 130,758
Accounts payable and other liabilities 93,110 217,707
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Total Liabilities 22,712,440 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
Accumulated deficit (6,882,560) (6,615,301)
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Total Stockholders' Equity (4,060,670) (3,793,411)
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Total Liabilities and Stockholders' Equity $18,651,770 $19,453,924
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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 OPERATIONS
FOR THE QUARTERS ENDED JUNE 30, 2000 AND 1999
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2000 1999 2000 1999
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REVENUES
Operating property rental income $799,107 $780,428 $1,604,295 $1,601,625
Rent from land purchase leaseback 28,796 28,873 56,285 56,383
Other income 144,013 97,563 355,040 329,271
Interest income 3,933 5,721 9,345 13,378
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975,849 912,585 2,024,965 2,000,657
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EXPENSES
Interest expense 387,953 395,999 778,277 790,879
Operating property expenses 245,288 264,994 521,014 515,801
Other Expenses 240,609 56,299 369,222 252,559
General and administrative expenses 122,178 75,498 253,735 160,380
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996,028 792,790 1,922,248 1,719,619
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Net income before depreciation and amortization (20,179) 119,795 102,717 281,038
Depreciation and amortization 184,989 197,621 369,976 400,329
--------- -------- --------- ---------
Net loss ($205,168) ($77,826) ($267,259) ($119,291)
========= ======== ========= =========
Earnings (loss) per share:
Net income before depreciation and amortization ($0.01) $0.07 $0.06 $0.16
Depreciation and amortization $0.11 $0.11 $0.23 $0.23
--------- -------- --------- ---------
Net Loss ($0.13) ($0.05) ($0.16) ($0.07)
========= ======== ========= =========
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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 FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
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Six Months Ended June 30,
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($267,259) ($119,291)
Adjustments to reconcile net loss to net
cash provided
by operating activities:
Depreciation and amortization 414,830 400,329
Decrease in interest payable (130,758) (1,829)
Decrease (increase) in other assets 80,351 (12,611)
Decrease in accounts payable and other liabilities (124,599) (6,007)
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NET CASH (USED) PROVIDED BY OPERATING ACTIIVITIES (27,435) 260,591
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CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in escrow deposits (107,547) (80,758)
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NET CASH USED IN INVESTING ACTIVITES: (107,547) (80,758)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable (279,540) (234,112)
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NET CASH USED IN FINANCING ACTIVITIES: (279,540) (234,112)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (414,522) (54,279)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 740,401 828,893
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CASH AND CASH EQUIVALENTS, END OF PERIOD $325,879 $774,614
========= =========
CASH PAID DURING THE PERIOD FOR INTEREST $778,277 $790,879
========= =========
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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 Washington Corporation and subsidiaries as
of June 30, 2000, and the results of operations for the six months ended June
30, 2000 and 1999 and statements of cash flow for the six months ended June 30,
2000 and 1999.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and notes thereto included in this Form 10-QSB. This
discussion contains forward-looking statements, including statements regarding
the Company's strategy, financial performance and revenue sources which involve
risks and uncertainties. The Company's actual results may differ materially from
those anticipated in these forward-looking statements.
MATERIAL CHANGES IN FINANCIAL POSITION
Total assets decreased by $802,000 from $19,454,000 at December 31,
1999 to $18,652,000 at June 30, 2000. Such decrease was primarily the result of
decreases in cash and short-term investments, a decrease in other assets and
depreciation on operating property offset in part by an increase in escrow
deposits.
Operating property and equipment decreased by $415,000 from $17,193,000
at December 31, 1999 to $16,779,000 at June 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 $414,000 from $740,000 at
December 31, 1999 to $326,000 at June 30, 2000. Such decrease was primarily the
result of cash flow used in operating activities, an increase in escrow deposits
and a subsequent month's loan payment being made at the end of the current month
on the ASLP Note (as defined below).
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Escrow deposits increased by $108,000 from $248,000 at December 31,
1999 to $355,000 at June 30, 2000. Such increase was the result of periodic
payments made to the reserve on the Arlington Square Project.
Other assets decreased by $80,000 from $464,000 at December 31, 1999 to
$384,000 at June 30, 2000. Such decrease was the result of a decrease in
receivables related to tenant work in the Arlington Square Project.
Total liabilities decreased by $535,000 from $23,247,000 at December
31, 1999 to $22,712,000 at June 30, 2000. Such decrease was primarily the result
of decreases in notes payable, interest payable and accounts payable and other
liabilities.
Note payable-Arlington Square decreased by $280,000 from $22,899,000 as
of December 31, 1999 to $22,619,000 as of June 30, 2000. This reduction was the
result of payments made and the resulting principal amortization on the
Arlington Square note payable.
Interest payable decreased by $131,000 from $131,000 at December 31,
1999 to $0 at June 30, 2000. Such decrease resulted from a subsequent month's
loan payment relating to the Arlington Square Project being made at the end of
the current month.
Accounts payable and other liabilities decreased by $125,000 from
$218,000 at December 31, 1999 to $93,000 at June 30, 2000. Such decrease was
primarily 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.
The Company's stockholders equity decreased by $268,000 from
($3,793,000) at December 31, 1999 to ($4,060,000) at June 30, 2000. Such
decrease was the result of recorded net loss of $267,000 for the six months
ended June 30, 2000.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
Revenues increased to $2,025,000 for the six months ended June 30, 2000
("First Half 2000") from $2,001,000 for the six months ended June 30, 1999
("First Half 1999"), an increase of $24,000. Such increase was primarily the
result of an increase in other income.
Operating property rental income increased to $1,604,000 for the First
Half 2000 compared to $1,602,000 for the First Half 1999, an increase of $2,000.
This increase was due to increased income relating to the Arlington Square
Project.
Other income increased to $355,000 for First Half 2000 compared to
$329,000 for First Half 1999, an increase of $26,000. Such increase was
primarily the result of special construction work relating to the Arlington
Square Project. Associated costs related to this construction work is shown in
other expenses.
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Interest income decreased to $9,000 for First Half 2000 compared to
$13,000 for First Half 1999, a decrease of $4,000. This decrease was due to
lower cash and investment balances.
Total operating expenses increased to $1,922,000 for First Half 2000
compared to $1,720,000 for First Half 1999, an increase of $202,000. This
increase was due to an increase in operating property expenses, other expenses
and general and administrative expenses offset by a decrease in interest
expense.
Interest expense decreased by $13,000 to $778,000 in First Half 2000
from $791,000 in First Half 1999. This decrease was primarily due to a reduction
in interest expense relating to the Arlington Square Project.
Operating property expenses increased by $5,000 from $516,000 in First
Half 1999 to $521,000 in First Half 2000. This increase was related to repairs
and maintenance in the Arlington Square Project.
Other expenses increased by $116,000 from $253,000 in the first half of
1999 to $369,000 in the first half of 2000. This increase was the result of
special construction work related to the Arlington Square Project. Associated
income relating to construction work is shown in other income.
General and Administrative expenses increased by $94,000 from $160,000
in First Half 1999 to $254,000 in First Half 2000. 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.
Net income before depreciation and amortization decreased to $103,000
for the First Half 2000 from $281,000 for the First Half 1999, a decrease of
$178,000. Such decrease was primarily the result of an increase in total income
and an increase in total expenses as outlined above.
The Company recorded a net loss of $267,000 for the First Half 2000 as
compared to a net loss of $119,000 for the First Half 1999, an increased loss of
$148,000. This increase was the result of a $178,000 decrease in net income
before depreciation, offset in part by a decrease in depreciation and
amortization of $30,000.
THREE MONTHS ENDED JUNE 30, 2000
Revenues increased to $976,000 for the three months ended June 30, 2000
("Second Quarter 2000") from $913,000 for the three months ended June 30, 1999
("Second Quarter 1999"), an increase of $63,000. Such increase was primarily the
result of an increase in other income and operating property rental income.
Operating property rental income increased to $799,000 for Second
Quarter 2000 compared to $780,000 for Second Quarter 1999, an increase of
$19,000 due to income relating to
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the Arlington Square Project.
Other income increased to $144,000 for Second Quarter 2000 compared to
$98,000 for Second Quarter 1999, an increase of $46,000. Such increase was
primarily the result of special construction work relating to the Arlington
Square Project.
Interest income decreased to $4,000 for Second Quarter 2000 compared to
$6,000 for Second Quarter 1999, a decrease of $2,000. This decrease was due to
lower cash and investment balances on hand during Second Quarter 2000.
Total operating expenses increased to $996,000 for Second Quarter 2000
compared to $793,000 for Second Quarter 1999, an increase of $203,000. This
increase was due to a decrease in interest expense and operating property
expenses, offset by an increase in other expenses and general and administrative
expenses.
Operating property expenses decreased by $20,000 to $245,000 in Second
Quarter 2000 from $265,000 in Second Quarter 1999, related to the Arlington
Square Project
Other expenses increased by $185,000 to $241,000 in Second Quarter 2000
from $56,000 in Second Quarter 1999. This increase was primarily the result of
special construction work relating to the Arlington Square Project.
General and Administrative expenses increased by $47,000 from $75,000
in Second Quarter 1999 to $122,000 in Second Quarter 2000. 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.
Net income before depreciation and amortization decreased to ($20,000)
for the Second Quarter 2000 from $120,000 for the Second Quarter 1999, a
decrease of $140,000. Such decrease was primarily the result of an increase in
total expenses as outlined above.
The Company recorded a net loss of $205,000 for the Second Quarter 2000
as compared to a net loss of $78,000 for the Second Quarter 1999, an increased
loss of $127,000. This increase was the result of a $140,000 decrease in net
income before depreciation, offset in part by a decrease in depreciation of
$13,000.
ARLINGTON SQUARE PROJECT
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 Half 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
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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 ("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 June 30,
2000 came from rental income and property management fees from Arlington Square
Project. As of June 30, 2000, the Company had cash and short term investments,
and escrow deposits totaling approximately $682,000, of which $356,000 was
escrow deposits. Therefore, the Company has sufficient liquidity to meet its
current obligations.
During the First Half 2000, cash and short-term investments decreased
by $306,000. This decrease is primarily due to the result of cash flow used in
operating activities, an increase in escrow deposits and a subsequent month's
loan payment being made at the end of the current month on the ASLP Note. 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
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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 three months ended June 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
second 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
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William N. Demas
President and Treasurer
(Duly authorized officer)
DATE: August 18th, 2000
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