<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 March 31, 1999.
[ ] 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.
<TABLE>
<CAPTION>
COMMON STOCK, NO PAR VALUE 6,925,636
<S> <C>
Class Outstanding at April 30, 1999
</TABLE>
<PAGE> 2
New Mexico and Arizona Land Company and Subsidiaries FORM 10-Q
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED
MARCH 31, December 31,
(Dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Properties, net $39,443 $43,340
Commercial real estate loans, net 21,168 20,695
Receivables 6,773 4,898
Investments in joint ventures 11 11
Cash and cash equivalents 3,970 4,669
Other 771 772
- --------------------------------------------------------------------------------------------
Total assets $72,136 $74,385
============================================================================================
Liabilities and Shareholders' Equity
Notes payable and lines of credit $ 9,077 $14,264
Accounts payable and accrued liabilities 762 1,407
Deferred revenue 7,324 5,520
Deferred income taxes 5,069 4,160
- --------------------------------------------------------------------------------------------
Total liabilities 22,232 25,351
- --------------------------------------------------------------------------------------------
Non-controlling interests 1,533 1,889
- --------------------------------------------------------------------------------------------
Commitments and contingencies
- --------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares
authorized; none issued
Common stock, no par value; 30,000,000 shares
authorized; 6,925,636 issued and outstanding 35,341 35,341
Retained earnings 13,030 11,804
- --------------------------------------------------------------------------------------------
Total shareholders' equity 48,371 47,145
- --------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $72,136 $74,385
============================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE> 3
New Mexico and Arizona Land Company and Subsidiaries FORM 10-Q
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended March 31,
<TABLE>
<CAPTION>
<S> <C> <C>
(in thousands, except per share data) 1999 1998
- ---------------------------------------------------------------------------------------
Revenue:
Property sales $ 9,027 $ 4,167
Property rentals 498 740
Commercial real estate lending 959 627
Investment income 130 79
Other 100 74
- ---------------------------------------------------------------------------------------
10,714 5,687
- ---------------------------------------------------------------------------------------
Expenses:
Cost of property sales 6,291 3,378
Property rentals 209 238
General and administrative 1,238 671
Interest 341 268
Depreciation, depletion and amortization 128 164
- ---------------------------------------------------------------------------------------
8,207 4,719
- ---------------------------------------------------------------------------------------
Income Before Joint Ventures, Non-controlling
Interests and Income Taxes 2,507 968
Gain from joint ventures -- 5
Non-controlling interests (486) (110)
- ---------------------------------------------------------------------------------------
Income Before Income Taxes 2,021 863
Income taxes 795 346
- ---------------------------------------------------------------------------------------
Net Income $ 1,226 $ 517
=======================================================================================
Earnings per Share of Common Stock
BASIC $ 0.18 $ 0.07
DILUTED $ 0.18 $ 0.07
=======================================================================================
Weighted Average Number of Common Shares
BASIC 6,926 6,926
DILUTED 6,934 6,930
=======================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 4
New Mexico and Arizona Land Company and Subsidiaries FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31,
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS PROVIDED BY/(USED IN) OPERATING ACTIVITIES:
Net income $ 1,226 $ 517
Gain from sales of properties (857) (117)
Non-cash items included above:
Depreciation, depletion and amortization 128 164
Deferred revenue (351) 1,051
Deferred income taxes 909 (1,373)
Allowance for bad debts 100 --
Equity in earnings of joint ventures -- (5)
Non-controlling interests 486 110
Net change in:
Receivables 180 (2,717)
Properties under development 2,038 1,993
Other assets 1 (33)
Accounts payable and accrued liabilities (645) 1,792
- ----------------------------------------------------------------------------------------------------
Net cash flows provided by/(used in) operating activities 3,215 1,382
- ----------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY/(USED IN) INVESTING ACTIVITIES:
Additions to properties (1,477) (1,538)
Proceeds from sale of properties 3,887 439
Distributions from joint ventures -- 15
Collections of principal on commercial real estate loans 1,961 1,419
Additions to commercial real estate loans (2,256) (6,378)
- ----------------------------------------------------------------------------------------------------
Net cash flows provided by/(used in) investing activities 2,115 (6,043)
- ----------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY/(USED IN) FINANCING ACTIVITIES:
Proceeds from debt 192 4,255
Payments of debt (5,379) (1,079)
Distributions to non-controlling partners (842) (46)
- ----------------------------------------------------------------------------------------------------
Net cash flows provided by/(used in) financing activities (6,029) 3,130
- ----------------------------------------------------------------------------------------------------
Net (decrease) in cash and cash equivalents (699) (1,531)
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 4,669 6,016
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 3,970 $ 4,485
====================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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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 1998
annual report on Form 10-K.
2. The results of operations for the three months ended March 31, 1999 and
1998, 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 ("BFC"), NZ
Properties, Inc., NZ Development Corporation, NZU, Inc. and Great
Vacations International, Inc., together with joint ventures which the
Company controls or in which the Company holds a majority ownership.
4. Certain prior period amounts have been reclassified for comparative
purposes.
5. Net income per share computations are based on the weighted average
number of shares outstanding of 6,926,000 (basic) and 6,934,000
(diluted) in 1999 and 6,926,000 (basic) and 6,930,000 (diluted) in 1998.
6. During the three months ended March 31, 1999 the Company sold properties
in exchange for cash and approximately $2,055,000 in notes receivable.
Approximately $1,877,000 of the profit on these sales has been deferred.
7. The Company is engaged in three operating segments; Real Estate,
Short-term Commercial Real Estate Lending and Other Business. The
Short-term Commercial Real Estate Lending segment is primarily conducted
through the Company's wholly owned subsidiary BFC.
Reconciliation of Segment Information to Consolidated Amounts
Management evaluates the performance of each segment based on
income after allocations and identifiable assets. Income after
allocations is income before joint ventures, non-controlling interests
and income taxes, including allocations of corporate overhead expenses.
Identifiable assets include assets employed in the generation of income
for each segment.
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Information for the Company's reportable segments reconciles to the
Company's consolidated totals as follows:
<TABLE>
<CAPTION>
REVENUES (UNAUDITED):
Three Months Ended March 31,
(in thousands) 1999 1998
------------------------------------------------------------------------------------------
<S> <C> <C>
Real Estate $9,718 $5,027
Short-term Commercial Real Estate Lending 965 629
Other 31 31
------------------------------------------------------------------------------------------
Consolidated total $10,714 $5,687
==========================================================================================
</TABLE>
<TABLE>
<CAPTION>
INCOME AFTER ALLOCATIONS (UNAUDITED):
Three Months Ended March 31,
(in thousands) 1999 1998
------------------------------------------------------------------------------------------
<S> <C> <C>
Real Estate $1,998 $558
Short-term Commercial Real Estate Lending 479 380
Other 30 30
------------------------------------------------------------------------------------------
Income before joint ventures, non-controlling interests
and income taxes $2,507 $968
==========================================================================================
</TABLE>
<TABLE>
<CAPTION>
IDENTIFIABLE ASSETS:
UNAUDITED
MARCH 31, December 31,
(in thousands) 1999 1998
------------------------------------------------------------------------------------------
<S> <C> <C>
Real Estate $45,727 $48,134
Short-term Commercial Real Estate Lending 25,573 25,428
Other 836 823
------------------------------------------------------------------------------------------
Consolidated total $72,136 $74,385
==========================================================================================
</TABLE>
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the three months ended March 31, 1999, net income was $1,226,000
($0.18 per share) compared to $517,000 ($0.07 per share) for the same period in
1998. Pre-tax earnings from property sales were up, by approximately $1,947,000,
for the three month period ended March 31, 1999 as compared to the same period
in 1998. The increase is principally due to the sale of two apartment complexes
the Company owned in New Mexico and a bulk lot sale of 203 lots by one of the
Albuquerque joint ventures in which the Company owns a 75% interest, as compared
to one bulk land sale in 1998. The Company experienced a 43% decline in pre-tax
earnings from property rentals for the three month period ended March 31, 1999
as compared to the same period in 1998. The decline is primarily due to the sale
of three of the four federally-subsidized apartment complexes in New Mexico (one
was sold in late 1998 and two were sold in the first quarter of 1999). The
Company expects to replace the apartments with industrial or office buildings in
Arizona in connection with tax-deferred exchanges under Section 1031 of the
Internal Revenue Code. On May 5, 1999 the Company acquired the first such
replacement property, by closing escrow on the purchase of a 113,100 square foot
industrial building located in Gilbert, Arizona. As the Company acquires
replacement properties for the apartments, earnings from property rentals are
expected to increase.
The increase in general and administrative expense of $567,000 in the
first quarter of 1999 compared to the first quarter of 1998 is due primarily to
increases in four items. Approximately 40% of the increase is due to increased
legal expense, primarily attributable to the Sedona litigation. Approximately
15% of the increase is due to the use of two consultants in first quarter 1999
that were not used in first quarter 1998. One consultant was retained for
investor relations and a different consultant for identifying sources of capital
and evaluating alternative business strategies for the Company's mineral
resources. The Company's expense for the latter firm is expected to diminish
beginning in the mid-second quarter of 1999. Approximately 15% of the increase
is due to increased accounting costs, primarily attributable to professional
fees related to the Company's restatement of its 1998 quarterly financial
statements and additional audit and tax consulting surrounding the Company's
sale of several real estate assets. A portion of the increased accounting costs
is also due to tax consulting related to improving the Company's tax analysis
models and systems. Approximately 18% of the increase is due to the Company's
decision to increase the allowance for bad debts, in anticipation of growth in
the Company's managed loan portfolio.
The managed loan portfolio of Bridge Financial Corporation stood at
$62.6 million as of March 31, 1999, of which $40.7 million was participated with
other lenders and $21.0 million (net of an allowance for bad debts of $.4
million and undisbursed loan proceeds of $.5 million) was recorded in the
Company's books. As of April 30, 1999 the managed portfolio was $63.2 million,
of which $41.1 million was participated and $21.2 million (net
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<PAGE> 8
of an allowance for bad debts of $.4 million and undisbursed loan proceeds of
$.5 million) was recorded in the Company's books. This compares to a December
31, 1998 managed portfolio of $53.8 million, of which $32.4 million was
participated and $20.7 million (net of an allowance for bad debts of $.3 million
and undisbursed loan proceeds of $.4 million) was recorded in the Company's
books, and compares to a March 31, 1998 managed portfolio of $55.4 million, of
which $34.6 million was participated and $20.0 million (net of an allowance for
bad debts of $.3 million and undisbursed loan proceeds of $.5 million) was
recorded in the Company's books.
The Company previously reported that it was negotiating with a
potential buyer for the purchase of the property located at Ray and McClintock.
That property is now in escrow to be sold. The Company also previously reported
that it was negotiating with potential buyers for the purchase of the property
located at Cooper and Warner. A portion of that property is now in escrow to be
sold, and the remainder continues to be under negotiation. In addition, the
Company previously reported that the Sedona project was for sale. That project
is now in escrow to be sold. As is customary in the real estate business, the
buyers of these properties (and of the other properties the Company has
previously reported to be in escrow) have certain time periods within which to
perform feasibility and due diligence investigations and may exercise certain
contractual rights to cancel the purchase contracts. Any such cancellation,
depending on the reason for and timing of such cancellation, may or may not
cause the buyer to incur a penalty for such cancellation. No assurance can be
given that any particular escrow will actually close.
LIQUIDITY AND CAPITAL RESOURCES
The real estate lending business will require larger amounts of capital
than currently possessed by the Company in order for the Company to be an
effective competitor in the market. Management estimates that during 1999,
approximately $75 million of principal will be required to fund anticipated loan
volume. 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 "Continuation of New
Business Activity and Change of Principal Business Emphasis" in Item 7 of the
Company's 1998 Annual Report on Form 10-K.)
The Company expects to generate a substantial amount of cash
(approximately one-third of the amount required) from the sale of real estate
over the next 12 months. This cash will be re-deployed into the lending
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. Further, the Company is engaged in negotiations
with a large non-bank commercial lender to provide an additional warehouse line
of credit which would be available to finance the Company's real estate lending
activities. Discussions have not proceeded far enough to characterize any likely
loan agreement, other than to say that it will probably be a secured revolving
facility in the approximate amount of $30,000,000.
8
<PAGE> 9
The Company currently has a $10,000,000 partially secured revolving
line of credit from a commercial bank that may be used for general corporate
purposes. The line bears interest at the prime rate and expires July 31, 1999.
At March 31, 1999 there was an outstanding balance of $2,050,000. As of April
30, 1999 the line had an outstanding balance of $3,650,000. This loan contains
financial covenants which require the Company to maintain a specified minimum
ratio of current assets to current liabilities (as defined); a specified minimum
excess of current assets over current liabilities (as defined); and a specified
maximum ratio of total liabilities to tangible net worth. At March 31, 1999 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 loan is secured by the
property. The loan bears interest at the prime rate and expires December 31,
1999. As of March 31, 1999 the loan had an outstanding balance of $1,446,000. As
of April 30, 1999 the loan had an outstanding balance of $1,452,000.
Additionally, BFC has a $25,000,000 warehouse line of credit with a
large non-bank commercial lender to finance certain portions of BFC's real
estate lending activities. The line bears interest at rates ranging from 30-day
LIBOR plus 250 basis points to 30-day LIBOR plus 300 basis points and expires
September 17, 1999. As amounts are drawn, the line will be secured by certain
loan assets of the Company. At March 31, 1999 and April 30, 1999 there were no
outstanding balances. This loan contains financial covenants which require BFC
to maintain a 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 March 31, 1999 BFC was in compliance with these financial
covenants. The line is guaranteed by the Company.
In addition to bank lines, the Company may seek qualified joint venture
partners to finance large real estate development projects to the extent that
the Company actually engages in such projects in the future. 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.
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 100% of Phase I. Phase II is the development of a detailed
plan to determine the category of readiness for each identified
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<PAGE> 10
inventory item in Phase I, and the action necessary to bring the identified
items in compliance. The Company has completed approximately 95% of Phase II and
expects to complete Phase II by July 1999. Phase III plans the time line to
execute Phase II including critical data recovery and data transfer procedures.
The Company has completed approximately 90% of Phase III and expects to compete
Phase III by the end of the third quarter 1999. Phase IV integrates and tests
compliance of the inventory items. The Company has completed approximately 38%
of Phase IV and expects to complete Phase IV by the end of the third quarter
1999.
Costs incurred to bring the Company's internal systems into year 2000
compliance are not expected to have a material impact on the Company's financial
position or results of operations. The Company estimates it will incur
approximately $50,000 in costs related to year 2000 compliance. All such costs
are expected to be incurred in 1999. As of March 31, 1999, the Company has
incurred costs of approximately $24,000 related to Year 2000 compliance.
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 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 the end of the third quarter 1999.
10
<PAGE> 11
PART II - OTHER INFORMATION
There were no proceedings, changes, occurrences or other matters occurring
during the three month period ended March 31, 1999, 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
(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: May 6, 1999
---------------------
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,970
<SECURITIES> 0
<RECEIVABLES> 28,316
<ALLOWANCES> 375
<INVENTORY> 0
<CURRENT-ASSETS> 22,054
<PP&E> 42,267
<DEPRECIATION> 2,813
<TOTAL-ASSETS> 72,136
<CURRENT-LIABILITIES> 5,004
<BONDS> 9,077
0
0
<COMMON> 35,341
<OTHER-SE> 13,030
<TOTAL-LIABILITY-AND-EQUITY> 72,136
<SALES> 9,027
<TOTAL-REVENUES> 10,714
<CGS> 6,291
<TOTAL-COSTS> 8,207
<OTHER-EXPENSES> 486
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 341
<INCOME-PRETAX> 2,021
<INCOME-TAX> 795
<INCOME-CONTINUING> 1,226
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,226
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
