<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 June 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 July 24, 1998
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New Mexico and Arizona Land Company and Subsidiaries FORM 10-Q
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30, December 31,
(in thousands) 1998 1997
<S> <C> <C>
Assets
Properties, net $44,528 $46,853
Commercial real estate loans, net 23,364 15,287
Notes receivable, net 4,165 93
Investments in joint ventures 11 411
Cash and cash equivalents 2,611 6,016
Other 1,224 851
------- -------
Total assets $75,903 $69,511
======= =======
Liabilities and Shareholders' Equity
Notes payable and lines of credit $16,632 $12,503
Accounts payable and accrued liabilities 2,714 1,646
Deferred revenue 4,233 4,742
Deferred income taxes 4,608 5,361
------- -------
Total liabilities 28,187 24,252
------- -------
Non-controlling interests 1,849 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 June 30, 1998
and December 31, 1997, respectively 35,341 24,572
Retained earnings 10,526 18,894
------- -------
Total shareholders' equity 45,867 43,466
------- -------
Total liabilities and shareholders' equity $75,903 $69,511
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
(1) Includes the effect of a 20% stock dividend paid July 10, 1998 to
shareholders of record June 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 June 30, Six months ended June 30,
(in thousands, except per share data) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Property sales $ 3,884 $ 2,277 $ 9,171 $ 4,250
Property rentals 745 784 1,485 1,562
Commercial real estate lending 991 234 1,618 487
Investment income 79 76 158 116
Other 94 57 168 137
- ----------------------------------------------------------------------------------------------------------------
5,793 3,428 12,600 6,552
- ----------------------------------------------------------------------------------------------------------------
Expenses:
Cost of property sales 2,570 1,318 5,948 2,428
Property rentals 251 310 489 614
Commercial real estate lending 145 - 261 -
General and administrative 673 460 1,228 860
Interest 311 262 579 516
Depreciation, depletion and amortization 152 122 316 241
- ----------------------------------------------------------------------------------------------------------------
4,102 2,472 8,821 4,659
- ----------------------------------------------------------------------------------------------------------------
Income Before Joint Ventures, Non-controlling
Interests and Income Taxes 1,691 956 3,779 1,893
Gain from joint ventures 447 15 452 31
Non-controlling interests (146) (177) (256) (320)
- ----------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 1,992 794 3,975 1,604
Income taxes 781 318 1,574 644
- ----------------------------------------------------------------------------------------------------------------
Net Income $ 1,211 $ 476 $ 2,401 $ 960
================================================================================================================
Net income per Share of Common Stock(1)(2)
Basic $ 0.26 $ 0.12 $ 0.52 $ 0.24
Diluted $ 0.26 $ 0.12 $ 0.52 $ 0.24
================================================================================================================
Weighted Average Number of Common Shares(1)(2)
Basic 4,617 3,976 4,617 3,976
Diluted 4,617 3,976 4,617 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 to
shareholders of record June 10, 1998.
(2) Current year includes the effect of a 20% stock dividend paid July 10,
1998 to shareholders of record June 10, 1998.
3
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New Mexico and Arizona Land Company and Subsidiaries FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
(in thousands) 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS PROVIDED BY/(USED IN) OPERATING ACTIVITIES:
Net income $ 2,401 $ 960
Gain from sales of investment properties (670) (1,102)
Non-cash items included above:
Depreciation, depletion and amortization 316 241
Deferred revenue (1,504) (666)
Deferred income taxes (753) (142)
Gain from joint ventures (452) (31)
Non-controlling interests 256 320
Net change in:
Receivables (148) (85)
Properties under development 589 (15)
Other assets (373) (172)
Accounts payable and accrued liabilities 1,068 266
- --------------------------------------------------------------------------------------------------------
Net cash flows provided by/(used in) operating activities 730 (426)
- --------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY/(USED IN) INVESTING ACTIVITIES:
Additions to properties (2,095) (4,003)
Proceeds from sale of properties 1,541 1,101
Distributions from joint ventures 852 22
Proceeds from commercial real estate loans 3,476 862
Additions to commercial real estate loans (11,838) -
- --------------------------------------------------------------------------------------------------------
Net cash flows provided by/(used in) investing activities (8,064) (2,018)
- --------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY/(USED IN) FINANCING ACTIVITIES:
Proceeds from debt 6,083 637
Payments of debt (1,954) (1,801)
Distributions to non-controlling partners (200) (50)
- --------------------------------------------------------------------------------------------------------
Net cash flows provided by/(used in) financing activities 3,929 (1,214)
- --------------------------------------------------------------------------------------------------------
Net (decrease) in cash and cash equivalents (3,405) (3,658)
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 6,016 7,142
- --------------------------------------------------------------------------------------------------------
cash equivalents at end of period $2,611 $3,484
========================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
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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 six months ended June
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 receivable, 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 for comparative purposes.
5. Net income per share computations are based on the weighted average
number of shares outstanding of 4,617,211 and 3,976,214 in 1998 and 1997
respectively.
6. 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.
7. During the six months ended June 30, 1998 the Company sold land in
exchange for cash and $3,924,000 in notes receivable. Approximately
$1,280,000 of the profit on these sales has been deferred.
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8. 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.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the six months ended June 30, 1998, net income was $ 2,401,000
($0.52 per share) compared to $960,000 ($0.24 per share) for the same period in
1997. Pre-tax earnings from property sales were up approximately $1,401,000 for
the six month period ended June 30, 1998 as compared to the same period in 1997.
For the same periods, pre-tax earnings from commercial real estate lending were
up approximately $870,000. 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. 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 during the year
and during 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 and accounting costs.
The managed portfolio of Bridge Financial Corporation stood at $ 65.5
million as of June 30, 1998, of which $41.5 million was participated with other
lenders and $23.4 million (net of an allowance for bad debts of $.3 million and
undisbursed loan proceeds of $.3 million) was recorded in the Company's books.
As of July 27, 1998 the managed portfolio is $53.4 million, of which $32.2
million is participated and $20.6 million (net of an allowance for bad debts of
$.3 million and undisbursed loan proceeds of $.3 million) is recorded in the
Company's books. The decrease from June 30 to July 27 is due to temporary timing
differences between the pay-off of certain loans and the finalization of
documents and conditions prior to funding new loans which are approved and
pending. 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 expected to close during the third and fourth quarters of 1998. In addition,
the Company has recently opened escrows to sell its properties at Menaul and
Broadway, Spain and Juan Tabo, Ray and McClintock, and Continental and Frontage.
Approximately 3,500 acres of land in Fremont County, Colorado are also in escrow
to be sold. The sales are scheduled to close at various times through the first
quarter of 1999. The buyers of certain 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.
On June 30, 1998 the Company closed escrow on the sale of two separate
parcels totaling approximately 4,200 acres in Fremont County, Colorado. On June
30, 1998
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Airpark Associates, a joint venture in which the Company has a 50%
interest, closed escrow on the sale of the office building it owns. The property
in Flagstaff, Arizona located at Zuni and Walapai Streets, closed escrow on
April 27, 1998. On May 11, 1998 the buyer on the Cottonwood property, which was
previously reported to have been in escrow, exercised its rights under the sales
contract to cancel the agreement.
The borrower under one of the Company's commercial real estate loans has
defaulted on various of its obligations, including the obligation to make
certain monthly payments and the obligation to pay the principal amount at
maturity. The Company has had a receiver appointed by the court to operate the
property, and has filed a notice of trustee's sale in order to foreclose on the
property in accordance with the loan documents. The fair market value of the
property is in excess of the loan amount, and the Company does not expect to
incur any losses with respect to this loan.
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
estimates that during the 1998 fiscal year, approximately $80 million of capital
will be required to fund anticipated volume 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 12 months. (See "Results of Operations"
above.) This cash will be re-deployed into the lending or development business.
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 June 30, 1998, the Company had a $3 million unsecured revolving
line of credit from a commercial bank, to be used for general corporate
purposes. On July 2, 1998, the Company signed a new loan agreement with the bank
which increased the $3 million line to a new maximum availability of $10
million. The line bears interest at the prime rate and expires in July, 1999. At
June 30, 1998 and July 27, 1998, the line had an outstanding balance of $3
million. 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 June 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 June 30, 1998 the loan had an outstanding balance of $1,108,000. As
of July 27, 1998 the loan had an
8
<PAGE> 9
outstanding balance of $1,114,000. From a different commercial bank, one of the
Albuquerque joint ventures has loan facilities to be utilized for lot
development. At June 30, 1998 the aggregate outstanding balance under these loan
facilities was $93,000. As of July 27, 1998, there was $74,000 borrowed against
these lines of credit.
In addition to the bank lines, the Company has negotiated with a large
non-bank commercial lender to provide a warehouse line of credit to finance the
Company's real estate lending activities. This secured revolving facility has
been approved by the lender and is currently being documented. The line of
credit permits outstanding borrowings of up to $25 million at one time. The line
bears interest at rates ranging from LIBOR plus 250 basis points to LIBOR plus
300 basis points, will expire one year from the date the loan documents are
signed, and will be secured by certain loan assets of the Company.
The Company expects to negotiate other credit facilities during the
1998 fiscal year. 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 large real estate development projects. 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.
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.
9
<PAGE> 10
PART II - OTHER INFORMATION
There were no proceedings, changes, occurrences or other matters occurring
during the three month period ended June 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: August 11, 1998
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,611
<SECURITIES> 0
<RECEIVABLES> 27,804
<ALLOWANCES> 275
<INVENTORY> 0
<CURRENT-ASSETS> 20,151
<PP&E> 50,253
<DEPRECIATION> 5,714
<TOTAL-ASSETS> 75,903
<CURRENT-LIABILITIES> 6,913
<BONDS> 16,632
0
0
<COMMON> 35,341
<OTHER-SE> 10,526
<TOTAL-LIABILITY-AND-EQUITY> 75,903
<SALES> 9,171
<TOTAL-REVENUES> 12,600
<CGS> 5,948
<TOTAL-COSTS> 8,821
<OTHER-EXPENSES> 256
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 579
<INCOME-PRETAX> 3,975
<INCOME-TAX> 1,574
<INCOME-CONTINUING> 2,401
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,401
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,484
<SECURITIES> 0
<RECEIVABLES> 9,412
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 56,645
<DEPRECIATION> 5,389
<TOTAL-ASSETS> 66,193
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 18,102
<OTHER-SE> 18,481
<TOTAL-LIABILITY-AND-EQUITY> 66,193
<SALES> 4,250
<TOTAL-REVENUES> 6,552
<CGS> 2,428
<TOTAL-COSTS> 3,042
<OTHER-EXPENSES> 1,101
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 516
<INCOME-PRETAX> 1,604
<INCOME-TAX> 644
<INCOME-CONTINUING> 960
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 960
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
