<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000.
[ ] 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
NZ CORPORATION
(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.)
333 N. 44TH STREET, SUITE 420, PHOENIX, ARIZONA 85008
(Address of principal executive offices) (Zip Code)
602/952-8836
(Registrant's telephone number, including area code)
New Mexico and Arizona Land Company
3033 N. 44th Street, Suite 270
Phoenix, Arizona 85018
[Registrant's former name and address]
Indicate by check mark whether the registrant (1) has 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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
COMMON STOCK, NO PAR VALUE 6,842,736
Class Outstanding at November 4, 2000
</TABLE>
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NZ Corporation and Subsidiaries FORM 10-Q
<TABLE>
<CAPTION>
(UNAUDITED)
CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, December 31,
(in thousands, except share data) 2000 1999
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Properties, net $43,287 $46,324
Commercial real estate loans, net 33,792 26,773
Receivables 5,970 6,237
Investments in joint ventures 6,628 3,134
Cash and cash equivalents 2,646 3,661
Other 1,123 1,089
------- -------
Total assets $93,446 $87,218
------- -------
Liabilities and Shareholders' Equity
Notes payable and lines of credit $25,109 $20,983
Accounts payable and accrued liabilities 2,063 2,014
Deferred income taxes 3,679 4,834
Deferred revenue 7,530 6,951
------- -------
Total
liabilities 38,381 34,782
------- -------
Non-controlling interests 143 560
------- -------
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 shares
issued; 6,851,136 and 6,925,636 shares outstanding at September 30, 2000
and December 31, 1999, respectively 35,341 35,341
Treasury stock, at cost, 74,500 and no shares
at September 30, 2000 and December 31, 1999,
respectively (388) --
Retained earnings 19,969 16,535
------- -------
Total shareholders' equity 54,922 51,876
------- -------
Total liabilities and shareholders' equity $93,446 $87,218
======= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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NZ Corporation and Subsidiaries FORM 10-Q
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
(in thousands, except per share data) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Property sales $ 1,678 $ 6,713 $ 8,314 $ 19,339
Property rentals 836 640 2,549 1,589
Commercial real estate lending 1,452 1,321 4,328 3,275
Investment income 128 133 408 451
Other 112 107 609 287
-------- -------- -------- --------
4,206 8,914 16,208 24,941
-------- -------- -------- --------
Expenses:
Cost of property sales 439 4,588 4,286 12,979
Property rentals 474 510 1,483 1,048
General and administrative 597 903 2,021 3,191
Interest 700 414 1,858 1,089
Depreciation, depletion and amortization 214 137 640 450
-------- -------- -------- --------
2,424 6,552 10,288 18,757
-------- -------- -------- --------
Income Before Joint Ventures, Non-controlling
Interests and Income Taxes 1,782 2,362 5,920 6,184
Equity in losses from joint ventures (17) -- (17) --
Non-controlling interests (10) (13) (32) (543)
-------- -------- -------- --------
Income Before Income Taxes 1,755 2,349 5,871 5,641
Income taxes 839 931 2,437 2,234
-------- -------- -------- --------
Net Income $ 916 $ 1,418 $ 3,434 $ 3,407
-------- -------- -------- --------
Net income per Share of Common Stock
Basic $ 0.13 $ 0.20 $ 0.49 $ 0.49
Diluted $ 0.13 $ 0.20 $ 0.49 $ 0.49
-------- -------- -------- --------
Weighted Average Number of Common Shares
Basic 6,860 6,926 6,885 6,926
Diluted 6,860 6,926 6,899 6,926
======== ======== ======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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NZ Corporation and Subsidiaries FORM 10-Q
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30,
(in thousands) 2000 1999
----------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 3,434 $ 3,407
Non-cash items included above:
Depreciation, depletion and amortization 640 450
Deferred revenue 175 1,025
Deferred income taxes (1,155) 1,094
Allowance for bad debts 100 250
Equity in losses from joint ventures 17 --
Non-controlling interests 32 543
Net change in:
Receivables 267 (1,117)
Properties under development 911 1,961
Other properties 1,712 3,150
Other assets (34) (292)
Accounts payable and accrued liabilities 214 (628)
Increase (decrease) in interest and income taxes payable (164) 773
-------- --------
Net cash provided by operating activities 6,149 10,616
-------- --------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Additions to properties (226) (14,145)
Contributions to joint ventures (3,011) --
Collections of principal on commercial real estate loans 14,356 9,176
Additions to commercial real estate loans (21,572) (17,659)
-------- --------
Net cash (used in) investing activities (10,453) (22,628)
-------- --------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from debt 22,507 29,622
Payments of debt (18,381) (19,711)
Distribution to non-controlling interests (449) (999)
Purchase of treasury stock (388) --
-------- --------
Net cash provided by financing activities 3,289 8,912
-------- --------
Net increase (decrease) in cash and cash equivalents (1,015) (3,100)
-------- --------
Cash and cash equivalents at beginning of period 3,661 4,669
-------- --------
Cash and cash equivalents at end of period $ 2,646 $ 1,569
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID DURING THE YEAR FOR:
Interest (net of amount capitalized) $ 1,817 $ 1,391
Income taxes 3,486 2,106
-------- --------
Supplemental disclosure of non-cash investing activities.
Conversion of real estate loan to investment in joint venture $ 500
========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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NZ Corporation and Subsidiaries FORM 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all normal, recurring
adjustments necessary to present fairly the financial position, 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 1999 annual report on Form 10-K.
2. The results of operations for the nine months ended September 30, 2000
and 1999 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 majority owned
partnerships.
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 for the period. For the nine months ended
September 30, the weighted average number of shares outstanding were
6,885,000 (basic) and 6,899,000 (diluted) in 2000 and 6,926,000 basic
and diluted in 1999. For the three months ended September 30, the
weighted average number of shares outstanding were 6,860,000 basic and
diluted in 2000 and 6,926,000 basic and diluted in 1999.
5
<PAGE> 6
6. New Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded on the balance
sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting
criteria are met. SFAS No. 133, as amended by SFAS No. 138, cannot be
applied retroactively and will be adopted as required January 1, 2001.
The Company has completed an initial evaluation of the adoption of SFAS
No. 133. The Company does not use derivative investments for hedging or
other purposes. Certain contracts to which the Company is a party may
have embedded derivative instruments within the meaning of SFAS No. 133.
The Company believes the adoption of SFAS No. 133 will not have a
material effect on the Company's financial position or results of
operations.
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 BFC.
Reconciliation of Segment Information to Consolidated Amounts
Management evaluates the performance of each segment based on
income before income taxes and identifiable assets. Income before income
taxes includes allocations of corporate overhead expenses. Identifiable
assets include assets employed in the generation of income for each
segment.
The basis of measurement of segment income reported below
differs from the measurement used in prior years' reports. Management
previously evaluated segment performance based on income before joint
ventures, non-controlling interests and income taxes. Beginning with
reports for periods ending on or after March 31, 2000, management now
evaluates performance of segments based on income after joint ventures
and non-controlling interests, but before income taxes. Prior period
amounts have been reclassified for comparative purposes.
Information for the Company's reportable segments reconciles to the
Company's consolidated totals as follows:
REVENUES (UNAUDITED):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real Estate $ 2,293 $ 7,298 $10,418 $21,219
Short-term Commercial Real Estate Lending 1,827 1,576 5,439 3,624
Other 86 40 351 98
------- ------- ------- -------
Consolidated total $ 4,206 $ 8,914 $16,208 $24,941
======= ======= ======= =======
</TABLE>
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INCOME AFTER ALLOCATIONS (UNAUDITED):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real Estate $1,157 $1,676 $4,060 $3,946
Short-term Commercial Real Estate Lending 521 637 1,492 1,604
Other 77 36 319 91
------ ------ ------ ------
Income before income taxes $1,755 $2,349 $5,871 $5,641
====== ====== ====== ======
</TABLE>
IDENTIFIABLE ASSETS:
<TABLE>
<CAPTION>
UNAUDITED
SEPTEMBER 30, December 31,
(in thousands) 2000 1999
----------------------------------------------------------------------------
<S> <C> <C>
Real Estate $43,043 $46,914
Short-term Commercial Real Estate Lending 49,609 39,489
Other 794 815
------- -------
Consolidated total $93,446 $87,218
======= =======
</TABLE>
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On June 20, 2000, New Mexico & Arizona Land Company changed its name to
NZ Corporation. The name change was effected following approval of the Company's
shareholders at the Company's annual meeting held on June 9, 2000.
RESULTS OF OPERATIONS
Consolidated discussions represent data of the Company as presented in
the Condensed Consolidated Statements of Income. Segment discussions represent
data as reported by segment in Note 7 of the Notes to Condensed Consolidated
Financial Statements included elsewhere in this report.
Consolidated
Revenues decreased 35% from $24,941,000 to $16,208,000 for the
nine-month period ended September 30, 2000 as compared to the same period in
1999 and decreased 53% from $8,914,000 to $4,206,000 for the three-month period
ended September 30, 2000 as compared to the same period in 1999. The decrease
for the third quarter 2000 is primarily due to a lower volume and different mix
of property sales in 2000 than in 1999, partially offset by an increase in
revenue from property rentals due to a higher occupancy rate. The decrease for
the nine-month period is primarily due to a lower volume and different mix of
property sales in 2000 than in 1999. The decrease in property sales for the
nine-month period is partially offset by increased revenues from commercial real
estate lending due to a larger loan portfolio, increased revenues from property
rentals due to a higher occupancy rate in 2000 than in 1999, and increased other
income due to the sale of mineral rights in 2000 with no corresponding sale in
1999.
For the nine months ended September 30, 2000, net income was
$3,434,000 ($0.49 per share) compared to $3,407,000 ($0.49 per share) for the
same period in 1999. For the three months ended September 30, 2000, net income
was $916,000 ($0.13 per share) compared to $1,418,000 ($0.20 per share) for the
same period in 1999. Pre-tax earnings from property sales declined 37% from
$6,360,000 to $4,028,000 for the nine-month period ended September 30, 2000 as
compared to the same period in 1999. The decrease is primarily due to the sale
in the 1999 period of three apartment complexes the Company owned in New Mexico,
a bulk lot sale of 203 lots made by one of the Albuquerque joint ventures in
which the Company owns a 75% interest, and three bulk land sales. These sales
are compared to three bulk land sales in 2000 and a bulk lot sale of 38 lots by
the Albuquerque joint venture. The gross margin on pre-tax earnings from
property sales increased significantly in the three-month period ended September
30, 2000 as compared to the same period in 1999. The increase is due to an
$825,000 change in accounting estimate of total costs of the Seven Bar
project, which develops and sells residential lots in Albuquerque, New Mexico.
Pre-tax earnings from property sales declined 42% from $2,125,000 to $1,239,000
for the three-
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<PAGE> 9
month period ended September 30, 2000 as compared to the same period in 1999.
The decrease is primarily due to the recognition of deferred profit from the
prior sale of an apartment complex and one bulk land sale in 1999, with no
comparable revenues in 2000.
Operating income from property rentals increased 97% from $541,000 to
$1,066,000 for the nine-month period ended September 30, 2000 as compared to the
same period in 1999 and increased 178% from $130,000 to $362,000 for the
three-month period ended September 30, 2000 as compared to the same period in
1999. The nine-month period ended September 30, 2000 includes operating income
from five industrial buildings at a higher occupancy rate for the entire period
as compared to a lower occupancy rate with three buildings included for only
part of the period in 1999. Additionally, operating income from the industrial
buildings for the same period is partially offset by an operating loss of
approximately $410,000 and $240,000 in 2000 and 1999 respectively with respect
to real estate owned and operated due to a foreclosure. The operating loss
associated with this property is included in the Commercial real estate lending
segment. The third quarter of 2000 includes operating income from five
industrial buildings at a higher occupancy rate than in 1999. Also, one building
was included for only part of the quarter for the third quarter of 1999.
General and administrative expense declined by $1,170,000 or 37%, from
$3,191,000 to $2,021,000 for the nine-month period ended September 30, 2000 as
compared to the same period in 1999 and by $306,000 or 34%, from $903,000 to
$597,000 for the three-month period ended September 30, 2000 as compared to the
same period in 1999. Approximately 95% of the decline for the nine-month period
is due primarily to four items. Approximately $590,000 of the decrease is due to
decreased legal expense since the settlement of the Sedona litigation during the
fourth quarter of 1999. Approximately $160,000 of the decrease is due to
decreased accounting costs, approximately $215,000 of the decrease is due to a
reduction in staff costs primarily related to the sale of the Company's
apartment complexes in New Mexico, and approximately $150,000 of the decrease is
due to a greater increase in the allowance for bad debts in 1999 than in 2000.
The decline for the three-month period is due primarily to decreased legal
expense of approximately $140,000, a reduction in staff costs of approximately
$80,000, and an increase in the allowance for bad debts of $150,000 for 1999
with no similar increase in 2000.
The managed loan portfolio of Bridge Financial Corporation ("BFC"), a
wholly-owned subsidiary of the Company, stood at $49.1 million as of September
30, 2000, of which $11.4 million was participated with other lenders and $33.8
million (net of an allowance for bad debts of $.7 million and undisbursed loan
proceeds of $.9 million) was recorded in the Company's financial statements in
"Commercial real estate loans, net" and $2.3 million was recorded in
"Investments in joint ventures". This compares to a September 30, 1999 managed
portfolio of $62.7 million of which $28.1 million was participated with other
lenders and $33.9 million (net of an allowance for bad debts of $.5 million and
undisbursed loan proceeds of $.2 million) was recorded in the Company's
financial statements in "Commercial real estate loans, net". As of October 31,
2000 the managed portfolio was $48.8 million of which $12.0 million was
participated and $32.9
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<PAGE> 10
million (net of an allowance for bad debts of $.7 million and undisbursed loan
proceeds of $.9 million) was recorded in the Company's financial statements in
"Commercial real estate loans, net" and $2.3 million was recorded in
"Investments in joint ventures".
The decrease in the managed portfolio is primarily due to two items. In
the third quarter of 2000, the Company completed a foreclosure on a hotel
property located in Peoria, Arizona, which was collateral for one of the
Company's loans. The Company had a participant in the loan. The participant is
now a co-owner of the hotel with the Company, in the same proportion as in the
loan participation. The Company's portion of the asset is recorded in
investments in joint ventures but is not included in the managed portfolio.
Additionally, the Company acquired certain land located in Arizona from a
borrower. The acquisition was paid for by the extinguishment of indebtedness and
cash. The Company had a participant in the loan. The participant is now a
co-owner of the land with the Company, in the same proportion as in the loan
participation. The Company's portion of the asset continues to be recorded in
investments in joint ventures as it was prior to the acquisition, but is not
included in the managed portfolio.
Real Estate Segment
Segment performance is based on income before income taxes and
identifiable assets. Income before income taxes includes allocations of
corporate overhead expenses. Identifiable assets include assets employed in the
generation of income for each segment.
Revenues decreased 51% from $21,219,000 to $10,418,000 for the
nine-month period ended September 30, 2000 as compared to the same period in
1999 and decreased 69% from $7,298,000 to $2,293,000 for the three-month period
ended September 30, 2000 as compared to the same period in 1999. The decrease
for each period is primarily due to a lower volume and different mix of property
sales in 2000 than in 1999, partially offset by increased revenues from property
rentals in 2000 as compared to 1999.
Income before income taxes increased slightly from $3,946,000 to
$4,060,000 for the nine-month period ended September 30, 2000 as compared to the
same period in 1999 and decreased 31% from $1,676,000 to $1,157,000 for the
three-month period ended September 30, 2000 as compared to the same period in
1999. The decrease for the third quarter 2000 is primarily attributable to a
decrease in property sales, partially offset by an increase in operating income
from property rentals and a decrease in general and administrative expenses. The
increase for the nine-month period is primarily due to an increase in operating
income from property rentals and a decrease in general and administrative
expenses related to decreased legal expenses and a significant increase in
interest expense allocation to the lending segment, partially offset by a
decrease in property sales. The decrease in identifiable assets from $46,914,000
at December 31, 1999 to $43,043,000 at September 30, 2000 is primarily due to
the disposition of real estate during the period.
Short-term Commercial Real Estate Lending Segment
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<PAGE> 11
Revenues increased 50% from $3,624,000 for the nine-month period ended
September 30, 1999 to $5,439,000 in the same period for 2000. The increase is
primarily attributable to increased revenues as a result of a larger loan
portfolio, with a reduced principal amount of participated loans in 2000 than in
1999, increased revenues related to real estate owned and operated, and lot
sales. Income before income taxes decreased slightly from $1,604,000 in the
nine-month period ended September 30, 1999 to $1,492,000 in the same period in
2000. The decrease in income before income taxes is primarily attributable to
the increased revenues being offset by higher expenses for three items:
approximately 16% of the increased expenses are related to increased cost of
sales from lot sales; approximately 24% is due to increased operating expenses
for real estate owned and operated; and approximately 62% is due to increased
interest expense.
Revenues increased 16% from $1,576,000 for the three-month period ended
September 30, 1999 to $1,827,000 in the same period in 2000. The increase is
primarily attributable to increased revenues related to real estate owned lot
sales. Income before income taxes decreased 18% from $637,000 for the
three-month period ended September 30, 1999 to $521,000 in the same period for
2000. The decrease is primarily attributable to an increase in expenses incurred
from real estate owned and an increase in interest expense. The increase in
identifiable assets from $39,489,000 at December 31, 1999 to $49,609,000 at
September 30, 2000 is primarily attributable to the growth of the loan
portfolio.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects to continue to generate cash from the sale of real
estate this year. Cash will also be generated from principal repayments on
maturing loans in the Company's existing loan portfolio. In addition, the
Company uses and intends to continue to use participants or other joint funding
sources in connection with funding certain real estate loans. Further, the
Company has lines of credit with non-bank commercial lenders and a commercial
bank from which it can fund loans.
The Company intends to negotiate additional or modified lines of
credit, as business circumstances require. The Company's goal in these
negotiations will be to enhance the effectiveness and cost of available capital
and to provide lines of credit of a size appropriate for the Company's expected
needs. A principal outcome of the Company's discussions with potential lenders
will be to determine how rapidly the Company will be able to grow its commercial
real estate lending business. The terms of any new or changed financing
arrangement will likely have a material effect upon the Company's margins in its
lending business and on the size of the managed loan portfolio. If the Company
is not successful in negotiating such financing, the principal effect will be a
slower growth in the Company's lending business, with the pace of growth in the
near term being determined at least in significant part by the timing of the
Company's sales of existing real estate assets.
For the nine months ended September 30, 2000, the Company's operating
activities
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provided $6,132,000 of net cash flows, its investing activities used $10,436,000
of net cash flows and financing activities provided $3,289,000 of net cash
flows.
As of September 30, 2000, the Company has a $15 million partially
secured revolving line of credit from a commercial bank, which can be used for
general corporate purposes. The line bears interest at the prime rate and
expires December 14, 2000. At September 30, 2000 there was an outstanding
balance of $7,125,000. As of October 31, 2000 the line had an outstanding
balance of $5,175,000. This loan contains financial covenants which require the
Company to maintain a specified minimum ratio of net notes receivable (as
defined) to the outstanding loan balance; a specified minimum excess of current
assets over current liabilities (as defined); and a specified minimum tangible
net worth. At September 30, 2000 the Company was in compliance with these
financial covenants. The Company is processing a renewal of this line with the
lender.
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 November 30,
2000. As amounts are drawn, the line will be secured by certain loan assets of
the Company. At September 30, 2000 and October 31, 2000 the line had an
outstanding balance of $2,737,500. 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 September 30, 2000 BFC was in compliance with these
financial covenants. The line of credit is guaranteed by the Company. The
Company is processing a renewal of this line of credit with the lender.
Additionally, BFC has a revolving $20,000,000 warehouse line of credit
with a different large non-bank commercial lender to finance certain portions of
BFC's real estate lending activities. As amounts are drawn, the line will be
secured by certain loan assets of the Company. The line bears interest at 30-day
LIBOR plus 475 basis points and expires October 1, 2001. At September 30, 2000
and October 31, 2000 there was no outstanding balance. This loan contains
financial covenants that require BFC to maintain a minimum tangible net worth
and a minimum interest coverage ratio. At September 30, 2000 BFC was in
compliance with these financial covenants. The line of credit 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 or loans to the
extent that the Company actually engages in such projects or makes such loans in
the future. The use of joint venture partners provides a source of 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.
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<PAGE> 13
The Company's Board of Directors approved a stock buy-back program in
September 1999. The buy-back program authorized the repurchase of up to 500,000
shares of the Company's common stock in the open market over the 12-month period
ending September 30, 2000. In August 2000, the Company's Board of Directors
extended the buy-back program to September 30, 2001. The Company repurchased
15,900 shares for $75,787 for the three-month period ended September 30, 2000
and 74,500 shares for $388,157 for the nine-month period ended September 30,
2000. No shares were repurchased in 1999.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments embedded in
other contracts, be recorded on the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133, as amended by SFAS No. 138,
cannot be applied retroactively and will be adopted as required January 1, 2001.
The Company has completed an initial evaluation of the adoption of SFAS No. 133.
The Company does not use derivative investments for hedging or other purposes.
Certain contracts to which the Company is a party may have embedded derivative
instruments within the meaning of SFAS No. 133. The Company believes the
adoption of SFAS No. 133 will not have a material effect on the Company's
financial position or results of operations.
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PART II - OTHER INFORMATION
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 quarter ended September
30, 2000.
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.
NZ Corporation
/s/ Jerome L. Joseph
----------------------------------------
Controller and Treasurer
(Principal Financial Officer)
/s/ R. Randy Stolworthy
----------------------------------------
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 10, 2000
----------------------------
14
