<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended September 30, 1998.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from N/A to N/A .
--- ---
Commission File Number: 0-497
NEW MEXICO AND ARIZONA LAND COMPANY (Exact name of registrant as
specified in its charter)
ARIZONA 43-0433090
(State or other jurisdiction of ( I.R.S. Employer
incorporation or organization) Identification No.)
3033 N. 44TH STREET, SUITE 270, PHOENIX, ARIZONA 85018-7228
(Address of principal executive offices) (Zip Code)
602/952-8836
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports 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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK, NO PAR VALUE 4,617,211
Class Outstanding at November 2, 1998
<PAGE> 2
New Mexico and Arizona Land Company and Subsidiaries FORM 10-Q
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED
SEPTEMBER 30, December 31,
(in thousands) 1998 1997
- - --------------------------------------------------------------------------------
Assets
<S> <C> <C>
Properties, net $44,843 $46,853
Commercial real estate loans, net 22,631 15,287
Notes and other receivables, net 4,060 93
Investments in joint ventures 11 411
Cash and cash equivalents 2,417 6,016
Other 966 851
- - --------------------------------------------------------------------------------
Total assets $74,928 $69,511
================================================================================
Liabilities and Shareholders' Equity
Notes payable and lines of credit $16,946 $12,503
Accounts payable and accrued liabilities 1,117 1,646
Deferred revenue 3,994 4,742
Deferred income taxes 4,608 5,361
- - --------------------------------------------------------------------------------
Total liabilities 26,665 24,252
- - --------------------------------------------------------------------------------
Non-controlling interests 1,880 1,793
- - --------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares
authorized; none issued -- --
Common stock, no par value; 30,000,000 shares
authorized; 4,617,211(1) and 3,847,982 shares
issued and outstanding at September 30, 1998
and December 31, 1997, respectively 35,341 24,572
Retained earnings 11,042 18,894
- - --------------------------------------------------------------------------------
Total shareholders' equity 46,553 43,466
- - --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $74,928 $69,511
================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
(1) Includes the effect of a 20% stock dividend paid July 10, 1998.
2
<PAGE> 3
New Mexico and Arizona Land Company and Subsidiaries FORM 10-Q
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
(in thousands, except per share data) 1998 1997 1998 1997
- - ------------------------------------------------------------------------------------------------------------
Revenue:
<S> <C> <C> <C> <C>
Property sales $ 426 $ 4,711 $ 9,598 $ 8,961
Property rentals 745 761 2,230 2,323
Commercial real estate lending 1,047 237 2,665 724
Investment income 137 55 294 171
Other 405 59 568 196
- - ------------------------------------------------------------------------------------------------------------
2,760 5,823 15,355 12,375
- - ------------------------------------------------------------------------------------------------------------
Expenses:
Cost of property sales 167 3,138 6,115 5,566
Property rentals 245 287 734 901
Commercial real estate lending 139 -- 399 --
General and administrative 881 461 2,110 1,321
Interest 350 253 929 769
Depreciation, depletion and amortization 173 123 490 364
- - ------------------------------------------------------------------------------------------------------------
1,955 4,262 10,777 8,921
- - ------------------------------------------------------------------------------------------------------------
Income Before Joint Ventures, Non-controlling
Interests and Income Taxes 805 1,561 4,578 3,454
Gain from joint ventures 63 9 520 40
Non-controlling interests (31) (281) (287) (601)
- - ------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 837 1,289 4,811 2,893
Income taxes 320 508 1,894 1,152
- - ------------------------------------------------------------------------------------------------------------
Net Income $ 517 $ 781 $ 2,917 $ 1,741
============================================================================================================
Net income per Share of Common Stock(1)(2)
Basic $ ,11 $ 0.20 $ .63 $ 0.44
Diluted $ .11 $ 0.20 $ .63 $ 0.44
============================================================================================================
Weighted Average Number of Common Shares(1)(2)
Basic 4,617 3,976 4,617 3,976
Diluted 4,624 3,976 4,622 3,976
============================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
(1) Prior year restated to include the effect of a 10% stock dividend paid
July 18, 1997 and a 20% stock dividend paid July 10, 1998.
(2) Current year includes the effect of a 20% stock dividend paid July 10,
1998.
3
<PAGE> 4
New Mexico and Arizona Land Company and Subsidiaries FORM 10-Q
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended September 30,
(in thousands) 1998 1997
- - ---------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY/(USED IN) OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 2,917 $ 1,741
Gain from sales of investment properties (700) (659)
Non-cash items included above:
Depreciation, depletion and amortization 490 364
Deferred revenue (1,999) (769)
Deferred income taxes (753) (232)
Gain from joint ventures (520) (40)
Non-controlling interests 287 601
Net change in:
Receivables (43) (68)
Properties under development 401 760
Other assets (115) (1,122)
Accounts payable and accrued liabilities (529) 366
- - ---------------------------------------------------------------------------------------
Net cash flows provided by/(used in) operating activities (564) 942
- - ---------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY/(USED IN) INVESTING ACTIVITIES:
Additions to properties (2,538) (5,114)
Proceeds from sale of properties 1,684 2,843
Distributions from joint ventures 920 33
Proceeds from commercial real estate loans 7,759 1,199
Additions to commercial real estate loans (15,103) --
- - ---------------------------------------------------------------------------------------
Net cash flows provided by/(used in) investing activities (7,278) (1,039)
- - ---------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY/(USED IN) FINANCING ACTIVITIES:
Proceeds from debt 7,146 944
Payments of debt (2,703) (3,467)
Distributions to non-controlling partners (200) (396)
- - ---------------------------------------------------------------------------------------
Net cash flows provided by/(used in) financing activities 4,243 (2,919)
- - ---------------------------------------------------------------------------------------
Net (decrease) in cash and cash equivalents (3,599) (3,016)
- - ---------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 6,016 7,142
- - ---------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,417 $ 4,126
=======================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 5
New Mexico and Arizona Land Company and Subsidiaries FORM 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly
the financial position, the results of operations and cash flows for the
periods presented. The accompanying statements do not include all
disclosures considered necessary for a fair presentation in conformity
with generally accepted accounting principles. Therefore, it is
recommended that the accompanying statements be read in conjunction with
the consolidated financial statements appearing in the Company's 1997
annual report on Form 10-K.
2. The results of operations for the three months and nine months ended
September 30, 1998 and 1997 are not necessarily comparable and may not
be indicative of the results which may be expected for future quarters
or future years.
3. The Company's consolidated financial statements include those of its
wholly-owned subsidiaries, Bridge Financial Corporation, NZ Properties,
Inc., NZ Development Corporation, NZU Inc. and Great Vacations
International, Inc., along with joint ventures in which the Company
holds a majority ownership.
The receivables of Bridge Financial Corporation are shown on the
consolidated balance sheets as commercial real estate loans, net. The
category Notes and other receivables, net on the consolidated balance
sheets consists primarily of receivables created in connection with the
sale of land. Such notes receivable bear interest at various rates and
are secured by the property sold.
4. Certain amounts have been reclassified from prior year balances to
conform with current year presentation for comparative purposes.
5. On May 8, 1998 the Company declared a 20% stock dividend which was paid
July 10, 1998 to shareholders of record as of June 10, 1998. The net
income per share and weighted average shares outstanding reported in the
financial statements include the effect of this dividend for all periods
presented.
6. During the nine months ended September 30, 1998, the Company sold land
in exchange for cash and $3,924,000 in notes receivable. As of September
30, 1998, approximately $1,251,000 of the profit on these sales is
deferred.
7. In connection with a January 1, 1998 modification to the historical
contractual relationship the Company has had with the real estate broker
retained to sell 40-acre parcels, the Company re-evaluated the portion
of the sales price of those parcels which was carried in deferred
revenue and recognized approximately $1,120,000 of such deferred revenue
in the three-month period ended March 31, 1998.
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<PAGE> 6
8. The Company's net income per share for prior periods have been restated
to conform with the provisions of SFAS NO. 128. Net income per share is
determined by dividing net income by the weighted average number of
common shares outstanding during the year. Net income per share,
assuming dilution, is determined by dividing net income by the weighted
average number of common and common equivalent shares (which reflect the
effect of stock options) outstanding during the year.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the nine months ended September 30, 1998, net income was $ 2,917,000
($0.63 per share) compared to $1,741,000 ($0.44 per share) for the same period
in 1997. Pre-tax earnings from property sales were up approximately $88,000 for
the nine-month period ended September 30, 1998 as compared to the same period in
1997. For 1998, pre-tax earnings from commercial real estate lending were up
approximately $1,542,000 compared to 1997. For 1997, pre-tax earnings from
commercial real estate lending were generated primarily from the Company's
portfolio of receivables created in connection with the 40-acre parcel sales
program.
For the three months ended September 30, 1998, pre-tax earnings from
property sales were down approximately $1,314,000 as compared to the same period
in 1997. The decrease is due to the sale of an improved property in the third
quarter of 1997 with no such sale in the third quarter of 1998, and a decrease
in residential lot sales in Albuquerque, New Mexico. The decline in lot sales is
due to a temporary finished lot inventory shortage. Additional inventory is
currently under development. During the three months ended September 30, 1998,
liquidating distributions were made from the Company's Defined Benefit
Retirement Plan which had been previously terminated. Due to an overfunding of
the plan, the Company received a distribution, of which approximately $322,000
was recognized as other income during the period. A 20% excise tax on the
distribution to the Company is recorded in the Company's books in accounts
payable and accrued liabilities.
In connection with the closing of a sale of a 108-acre parcel in
Scottsdale, Arizona in March, 1998 an additional $870,000 of pre-tax earnings
from property sales was deferred and is expected to be recognized in earnings
next year. In connection with a January 1, 1998 modification to the historical
contractual relationship the Company has had with the real estate broker
retained to sell 40-acre parcels, the Company re-evaluated the portion of the
sales price of those parcels which was carried in deferred revenue, and
recognized approximately $1,120,000 of such deferred revenue during the three
months ended March 31, 1998. General and administrative expenses are higher
primarily due to increased legal, accounting and consulting costs.
The managed portfolio of Bridge Financial Corporation stood at $59.9
million as of September 30, 1998 of which $36.4 million was participated with
other lenders and $22.6 million (net of an allowance for bad debts of $.3
million and undisbursed loan proceeds of $.6 million) was recorded in the
Company's books. As of November 2, 1998, the managed portfolio is $58.8 million
of which $35.4 million is participated and $22.5 million (net of an allowance
for bad debts of $.3 million and undisbursed loan proceeds of $.6 million) is
recorded in the Company's books. This compares to a December 31, 1997 managed
portfolio of $ 34.0 million of which $17.8 million was participated and $15.3
million (net of an allowance for bad debts of $.3 million and undisbursed loan
proceeds of $.6 million) was recorded in the Company's books.
The Company's four apartment complexes in New Mexico are in escrow and
are
7
<PAGE> 8
expected to close during the fourth quarter of 1998. In addition, the
Company's properties at Menaul and Broadway in Albuquerque, New Mexico and
Continental and Frontage in Green Valley, Arizona are in escrow and expected to
close in the first quarter of 1999. The buyers of these properties may still
have exercisable rights under the sales contracts to cancel without penalty.
Those cancellation rights expire at various times prior to the close of escrow.
At various times during the third quarter, the buyers on the Spain and Juan Tabo
and Ray and McClintock properties, which were previously reported to have been
in escrows, exercised their rights under the sales contracts to cancel the
agreements. On October 15, 1998, the Company closed escrow on the sale of
approximately 3,500 acres of land in Fremont County, Colorado.
The Company previously reported a commercial real estate loan to be in
default. On October 1, 1998, the Company took possession of the property through
a trustee sale. As of September 30, 1998, this loan represented $2,900,000 of
the Company's managed portfolio of which $2,080,000 was participated with
another lender and $820,000 was recorded in the Company's books under commercial
real estate loans. The property is a 170 room hotel located in Phoenix, Arizona.
The hotel has been taken out of service and is being refurbished by the Company.
The cost of the renovations is estimated to be approximately $900,000.
Renovations are expected to be completed by mid-December 1998. The Company has
obtained a national chain franchise for the property. The property is being
actively marketed for sale, but should the property not be sold by the
completion of the renovations the Company will operate the property until it is
sold. The fair market value of the property is in excess of the carrying amount
in the Company's books, and the Company does not expect to incur any losses with
respect to the operation or disposal of the property.
LIQUIDITY AND CAPITAL RESOURCES
The real estate lending business will require large amounts of capital
in order for the Company to be an effective competitor in the market. Management
believes that adequate sources of capital are available to fund anticipated
growth in the Company's managed portfolio. The sources of this capital include
internally generated cash flow, borrowing on lines of credit and warehouse
lines, and participants or other joint funding sources. In addition, the Company
will require cash for working capital for continuing development work on
existing real estate projects and for projects that may be acquired through
tax-deferred exchanges. (See "New Business Activity and Change of Principal
Business Emphasis" in Item 7 of the Company's 1997 Annual Report on Form 10-K.)
The Company expects to generate a substantial amount of cash from the
sale of real estate over the next nine months. (See "Results of Operations"
above.) This cash will be re-deployed into the lending or development business.
(See "New Business Activity and Change of Principal Business Emphasis" in Item 7
of the Company's 1997 Annual Report on 10-K.) Cash will also be generated from
principal repayments on maturing loans in the Company's existing loan portfolio.
In addition, the Company now uses and intends to continue to use participants or
other joint funding sources on certain real estate loans.
As of September 30, 1998, the Company had a revolving line of credit
from a commercial bank with a maximum availability of $10 million to be used
for general corporate purposes. The line bears interest at the prime rate and
expires in July, 1999. At
8
<PAGE> 9
September 30, 1998 and November 2, 1998, the line had an outstanding balance of
$3,800,000. The line is secured by certain real estate and loan assets of the
Company. The line is guaranteed by the Company's three major subsidiaries. This
loan contains financial covenants which require the Company to maintain a
specified minimum ratio of current assets to current liabilities; a specified
minimum excess of current assets over current liabilities; and a specified
maximum ratio of total liabilities to tangible net worth. At September 30, 1998,
the Company was in compliance with these financial covenants.
The same commercial bank has made a construction loan to the Company
to finance development of the Grove Commons project. The construction loan is
for a one year term expiring December 31, 1998, and bears interest at the prime
rate. As of September 30, 1998, the loan had an outstanding balance of
$1,389,000. As of November 2, 1998, the loan had an outstanding balance of
$1,399,000. This loan is expected to be renewed upon its maturity. From a
different commercial bank, one of the Albuquerque joint ventures has loan
facilities to be utilized for lot development. At September 30, 1998, the
aggregate outstanding balance under these loan facilities was $15,000. These
lines of credit were paid off and closed during the fourth quarter. On October
8, 1998 the Albuquerque joint venture entered into a new loan facility with a
different commercial bank to be utilized for lot development. The loan provides
for maximum funding of $925,000 and bears interest at the prime rate plus -1/4%.
This loan matures on July 1, 1999. As of November 2, 1998, the line had no
outstanding balance.
In addition to the bank lines, Bridge Financial Corporation signed loan
documents on September 17, 1998 for a $25 million warehouse line of credit with
a large non-bank commercial lender to finance certain portions of Bridge
Financial Corporation's real estate lending activities. The line bears interest
at rates ranging from LIBOR plus 250 basis points to LIBOR plus 300 basis points
and expires September 17, 1999. At September 30, 1998 and November 2, 1998, the
line had no outstanding balance. The line is secured by certain loan assets of
the Company. This loan contains financial covenants which require Bridge
Financial Corporation to maintain a specified minimum tangible net worth; a
specified maximum ratio of debt to tangible net worth; and a specified minimum
ratio of liquid assets to tangible net worth. At September 30, 1998 Bridge
Financial Corporation was in compliance with these financial covenants. This
line of credit is guaranteed by the Company.
The Company may negotiate other credit facilities as needed during 1998
and 1999. The proceeds of any such facilities would be used to fund the
Company's real estate lending business and for general corporate purposes.
The Company also intends to seek qualified joint venture partners to
finance any large real estate development projects the Company may undertake.
The use of joint venture partners provides a source of development capital,
mitigates the Company's risk by sharing it with another party, and gives the
Company access to expertise that it might not otherwise have for particular
projects.
9
<PAGE> 10
Year 2000
The Year 2000 problem is the result of computer programs being written
in code which uses two digits rather than four digits to identify a year. These
computer programs do not properly recognize a year that begins with "20" instead
of the familiar "19" which could cause the computer applications to fail or
create erroneous results.
The Company has implemented a four phase internal plan to address the
Year 2000 issue through assessment, development, execution and integration. The
plan includes the assessment of information technology ("IT") systems and non-IT
systems. Phase I includes learning about Year 2000, identifying and taking
inventory of the business environment and assessing the extent to which the
Company's business environment will be impacted by the Year 2000 problem. The
Company has completed approximately 57% of Phase I and expects to complete Phase
I by the end of the fourth quarter. Phase II is the development of a detailed
plan to determine the category of readiness for each identified inventory item
in Phase I, and the action necessary to bring the identified items in
compliance. The Company has completed approximately 39% of Phase II and expects
to complete Phase II by the end of the fourth quarter. Phase III plans the time
line to execute Phase II including critical data recovery and data transfer
procedures. The Company has completed 33% of Phase III and expects to complete
Phase III by the end of the second quarter 1999. Phase IV integrates and tests
compliance of the inventory items. The Company has completed 25% of Phase IV and
expects to complete Phase IV by the end of the third quarter 1999. At this time,
the Company estimates costs of remediation will not have a material impact on
the Company's financial position or results of operations.
The Company will be exposed to the risk that third parties the Company
deals with may not be Year 2000 compliant, which could cause disruptions in the
Company's activities with those third parties and with the Company's
relationships with customers, creditors and others. The Company's Year 2000 plan
includes an evaluation of these third parties' compliance.
Based on currently available information, management believes that the
most reasonably likely worst-case scenario could result in minor short term
business interruptions. The Company's Year 2000 Plan includes an assessment of
material third parties' Year 2000 readiness, but the Company cannot be certain
as to the actual Year 2000 readiness of the parties or the impact that any
non-compliance on their part may have on the Company's business, results of
operations or financial condition. A contingency plan is expected to be
completed by July 1999.
STOCK DIVIDEND
On May 8, 1998 the Company declared a 20% stock dividend payable July
10, 1998 to shareholders of record on June 10, 1998. The net income per share
and weighted average shares outstanding reported in the financial statements
include the effect of this dividend for all periods presented.
10
<PAGE> 11
PART II - OTHER INFORMATION
There were no proceedings, changes, occurrences or other matters occurring
during the three month period ended September 30, 1998, requiring a response to
Items 1 through 5.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27.1, Financial Data Schedule
Exhibit 27.2, Restated Financial Data Schedule for 1997
(b) No reports on Form 8-K were filed during the reporting quarter.
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.
New Mexico and Arizona Land Company
/s/ Jerome L. Joseph
- - --------------------
Controller and Treasurer
(Principal Financial Officer)
/s/ R. Randy Stolworthy
- - -----------------------
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 6, 1998
-----------------
11
<PAGE> 12
Exhibit Index
-------------
Exhibit 27.1 Financial Data Schedule
Exhibit 27.2 Restated Financial Data Schedule for 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,417
<SECURITIES> 0
<RECEIVABLES> 26,966
<ALLOWANCES> 275
<INVENTORY> 0
<CURRENT-ASSETS> 18,761
<PP&E> 50,727
<DEPRECIATION> 5,884
<TOTAL-ASSETS> 74,928
<CURRENT-LIABILITIES> 8,608
<BONDS> 16,946
0
0
<COMMON> 35,341
<OTHER-SE> 11,042
<TOTAL-LIABILITY-AND-EQUITY> 74,928
<SALES> 9,598
<TOTAL-REVENUES> 15,355
<CGS> 6,115
<TOTAL-COSTS> 10,777
<OTHER-EXPENSES> 287
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 929
<INCOME-PRETAX> 4,811
<INCOME-TAX> 1,894
<INCOME-CONTINUING> 2,917
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,917
<EPS-PRIMARY> .63
<EPS-DILUTED> .63
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,129
<SECURITIES> 0
<RECEIVABLES> 9,231
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 54,791
<DEPRECIATION> 5,507
<TOTAL-ASSETS> 65,630
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 18,102
<OTHER-SE> 19,262
<TOTAL-LIABILITY-AND-EQUITY> 65,630
<SALES> 8,961
<TOTAL-REVENUES> 12,375
<CGS> 5,566
<TOTAL-COSTS> 6,467
<OTHER-EXPENSES> 1,685
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 769
<INCOME-PRETAX> 2,893
<INCOME-TAX> 1,152
<INCOME-CONTINUING> 1,741
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,741
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
