<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 March 31, 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
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 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.
COMMON STOCK, NO PAR VALUE 6,885,436
Class Outstanding at May 5, 2000
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New Mexico and Arizona Land Company and Subsidiaries FORM 10-Q
<TABLE>
<CAPTION>
UNAUDITED
CONSOLIDATED BALANCE SHEETS MARCH 31, December 31,
(in thousands, except share data) 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Properties, net $ 44,942 $ 46,324
Commercial real estate loans, net 30,620 26,773
Receivables 6,164 6,237
Investments in joint ventures 3,634 3,134
Cash and cash equivalents 5,229 3,661
Other 1,054 1,089
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Total assets $ 91,643 $ 87,218
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Liabilities and Shareholders' Equity
Notes payable and lines of credit $ 23,069 $ 20,983
Accounts payable and accrued liabilities 3,521 2,014
Deferred income taxes 4,204 4,834
Deferred revenue 7,221 6,951
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Total liabilities 38,015 34,782
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Non-controlling interests 578 560
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Commitments and contingencies
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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; 6,899,336 and 6,925,636 shares outstanding at March 31, 2000
and December 31, 1999, respectively 35,341 35,341
Treasury stock, at cost, 26,300 and no shares
at March 31, 2000 and December 31, 1999, respectively (144) --
Retained earnings 17,853 16,535
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Total shareholders' equity 53,050 51,876
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Total liabilities and shareholders' equity $ 91,643 $ 87,218
===================================================================================================================================
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
2
<PAGE> 3
New Mexico and Arizona Land Company and Subsidiaries FORM 10-Q
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31,
(in thousands, except per share data) 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue:
Property sales $ 3,368 $ 9,027
Property rentals 876 498
Commercial real estate lending 1,469 959
Investment income 129 130
Other 208 100
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6,050 10,714
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Expenses:
Cost of property sales 1,850 6,291
Rental property 530 209
General and administrative 659 1,238
Interest 623 341
Depreciation, depletion and amortization 212 128
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3,874 8,207
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Income Before Joint Ventures, Non-controlling
Interests and Income Taxes 2,176 2,507
Non-controlling interests (18) (486)
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Income Before Income Taxes 2,158 2,021
Income taxes 840 795
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1,318 $ 1,226
====================================================================================================================================
Net income per Share of Common Stock
Basic $ 0.19 $ 0.18
Diluted $ 0.19 $ 0.18
====================================================================================================================================
Weighted Average Number of Common Shares
Basic 6,912 6,926
Diluted 6,915 6,934
====================================================================================================================================
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
New Mexico and Arizona Land Company and Subsidiaries FORM 10-Q
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31,
(in thousands) 2000 1999
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<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 1,318 $ 1,226
Non-cash items included above:
Depreciation, depletion and amortization 212 128
Deferred revenue 193 1,526
Deferred income taxes (630) 909
Allowance for bad debts -- 100
Non-controlling interests 18 486
Net change in:
Receivables 73 (1,875)
Properties under development (307) 2,038
Other properties 1,483 1,985
Other assets 35 1
Accounts payable and accrued liabilities 1,507 (645)
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Net cash provided by operating activities 3,902 5,879
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CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Additions to properties (6) (254)
Contributions to joint ventures (500) --
Collections of principal on commercial real estate loans 9,081 1,961
Additions to commercial real estate loans (12,851) (2,256)
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Net cash (used in) investing activities (4,276) (549)
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CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from debt 10,990 192
Payments of debt (8,904) (5,379)
Distribution to non-controlling partners -- (842)
Purchase of treasury stock (144) --
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Net cash provided by (used in) financing activities 1,942 (6,029)
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Net increase (decrease) in cash and cash equivalents 1,568 (699)
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Cash and cash equivalents at beginning of period 3,661 4,669
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Cash and cash equivalents at end of period $ 5,229 $ 3,970
===================================================================================================================================
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
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New Mexico and Arizona Land Company 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 three months ended March 31, 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 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 for the period. For the three months ended
March 31, the weighted average number of shares outstanding were
6,912,000 (basic) and 6,915,000 (diluted) in 2000 and 6,926,000 (basic)
and 6,934,000 (diluted) in 1999.
6. On January 7, 2000, the Company made a commercial real estate loan to a
partnership controlled by a director of the Company. At a meeting of the
Board of Directors of the Company, the disinterested Directors evaluated
and approved the loan. The amount of this loan was $5,175,000 at an
interest rate of 13%. The loan was repaid in full with interest on
January 28, 2000.
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.
5
<PAGE> 6
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 previous 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
March 31,
(in thousands) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Real Estate $ 3,969 $ 9,718
Short-term Commercial Real Estate Lending 1,893 965
Other 188 31
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Consolidated total $ 6,050 $10,714
================================================================================
</TABLE>
INCOME BEFORE INCOME TAXES (UNAUDITED):
<TABLE>
<CAPTION>
Three months ended
March 31,
(in thousands) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Real Estate $1,391 $1,512
Short-term Commercial Real Estate Lending 593 479
Other 174 30
- --------------------------------------------------------------------------------
Income before income taxes $2,158 $2,021
================================================================================
</TABLE>
IDENTIFIABLE ASSETS:
<TABLE>
<CAPTION>
UNAUDITED
MARCH 31, December 31,
(in thousands) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Real Estate $47,670 $46,914
Short-term Commercial Real Estate Lending 43,148 39,489
Other 825 815
- --------------------------------------------------------------------------------
Consolidated total $91,643 $87,218
================================================================================
</TABLE>
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated discussions represent data of the Company as presented in
the 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
For the three months ended March 31, 2000, net income was
$1,318,000 ($0.19 per share) compared to $1,226,000 ($0.18 per share) for the
same period in 1999. Pre-tax earnings from property sales declined 45% from
$2,736,000 in 1999 to $1,518,000 in 2000. The decrease is primarily due to the
sale in the 1999 period of two apartment complexes the Company owned in New
Mexico and a bulk lot sale of 203 lots made by one of the Albuquerque joint
ventures in which the Company owns a 75% interest, as compared to one bulk sale
in the first quarter of 2000. Operating income from property rentals increased
20% from $289,000 in 1999 to $346,000 in 2000. The first quarter of 2000 is the
first quarter that includes an entire quarter of operating income from all five
industrial buildings which the Company owns. The increase in operating income
from property rentals is partially offset by an operating loss of approximately
$143,000 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.
General and administrative expense declined 47% from $1,238,000 in 1999
to $659,000 in 2000. Approximately 94% of the decline is due primarily to four
items. Approximately $307,000 of the decrease is due to decreased legal expense
since the settlement of the Sedona litigation during the last quarter of 1999.
Approximately $65,000 of the decrease is due to decreased accounting costs,
approximately $75,000 of the decrease is due to a reduction in office space and
staff related to the sale of the Company's apartment complexes in New Mexico,
and $100,000 of the decrease is due to not recording any additions to the
allowance for bad debts in 2000.
The managed loan portfolio of Bridge Financial Corporation ("BFC"), a
wholly-owned subsidiary of the Company, stood at $64.5 million as of March 31,
2000, of which $28.5 million was participated with other lenders and $30.6
million (net of an allowance for bad debts of $.6 million and undisbursed loan
proceeds of $1.2 million) was recorded in the Company's books in "Commercial
real estate loans, net" and $3.6 million was recorded in "Investments in joint
ventures". This compares to a March 31, 1999 managed portfolio of $62.6 million
of which $40.7 million was participated 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 in "Commercial real estate loans, net". As of
April 30, 2000 the managed portfolio was $66.6 million of which $28.5 million
was participated and
7
<PAGE> 8
$32.7 million (net of an allowance for bad debts of $.6 million and undisbursed
loan proceeds of $1.2 million) was recorded in the Company's books in
"Commercial real estate loans, net" and $3.6 million was recorded in
"Investments in joint ventures".
Real Estate Segment
Income before income taxes decreased 8% from $1,512,000 in the first
quarter of 1999 to $1,391,000 in the first quarter of 2000. The decrease is
primarily attributable to a decline in property sales, partially offset by an
increase in operating income from property rentals and a decrease in general and
administrative expenses. The increase in identifiable assets from $46,914,000 at
December 31, 1999 to $47,660,000 at March 31, 2000 is due to an increase in
cash, offset by a decrease in assets from the disposition of real estate.
Short-term Commercial Real Estate Lending Segment
Revenues increased 96% from $965,000 in the first quarter of 1999 to
$1,893,000 in the first quarter of 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. Income after
allocations increased 24% from $479,000 in the first quarter of 1999 to $593,000
in the first quarter of 2000. The increase is due to increased revenues of
$928,000, which are offset by an increase of $814,000 in expenses. The increase
in expenses is primarily attributable to an increase in expenses incurred from
real estate owned and an increase in interest expense. The increase in
identifiable assets is primarily attributable to the growth of the loan
portfolio.
LIQUIDITY AND CAPITAL RESOURCES
The real estate lending business requires large amounts of capital to
be an effective competitor in the market. In addition, the Company requires cash
for working capital.
The Company expects to generate a substantial amount of 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 now uses and intends to continue to use participants or
other joint funding sources on 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 expanded lines of
credit, as business circumstances require. 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 financing arrangement will likely have a material effect upon the
Company's margins in its lending business. 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.
8
<PAGE> 9
For the three months ended March 31, 2000, the Company's operating
activities provided $3,902,000 of net cash flows, its investing activities used
$4,276,000 of net cash flows and financing activities provided $1,942,000 of net
cash flows.
As of March 31, 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 July
3, 2000. At March 31, 2000 there was an outstanding balance of $5,925,000. As of
April 30, 2000 the line had an outstanding balance of $4,525,000. 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 March 31, 2000 the
Company was in compliance with these financial covenants.
From a different commercial bank, one of the Albuquerque joint
ventures, in which the Company owns a 75% interest, has a $925,000 loan facility
to be utilized for lot development. The loan bears interest at the prime rate
plus 1/4%. At March 31, 2000 the loan had an outstanding balance of $586,469.
This loan was repaid in full on April 20, 2000. The loan was replaced with two
loans, one in the amount of $54,034.53, maturing on July 16, 2001, and another
in the amount of $635,872, maturing on July 16, 2000. Each of these loans bears
interest at the prime rate plus 1/4%. The loans are in place to fulfill certain
regulatory requirements with respect to the development of the property. The
Company does not expect the joint venture to draw against these lines. These
loans are guaranteed by the Company.
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 August 31, 2000.
As amounts are drawn, the line will be secured by certain loan assets of the
Company. At March 31, 2000 and April 30, 2000 the line had an outstanding
balance of $1,020,000. 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, 2000 BFC was in compliance with these financial
covenants. The line of credit is guaranteed by the Company.
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 March 31, 2000 and
April 30, 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 March 31, 2000 BFC was in compliance with
these financial covenants. The line of credit is guaranteed by the Company.
9
<PAGE> 10
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.
10
<PAGE> 11
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 March 31,
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.
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 9, 2000
-----------
11
<PAGE> 12
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------- ---------------------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 5,229
<SECURITIES> 0
<RECEIVABLES> 37,339
<ALLOWANCES> 555
<INVENTORY> 0
<CURRENT-ASSETS> 24,499
<PP&E> 47,157
<DEPRECIATION> 2,222
<TOTAL-ASSETS> 91,643
<CURRENT-LIABILITIES> 11,356
<BONDS> 23,069
0
0
<COMMON> 35,341
<OTHER-SE> 17,853
<TOTAL-LIABILITY-AND-EQUITY> 91,643
<SALES> 3,368
<TOTAL-REVENUES> 6,050
<CGS> 1,850
<TOTAL-COSTS> 3,874
<OTHER-EXPENSES> 18
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 623
<INCOME-PRETAX> 2,158
<INCOME-TAX> 840
<INCOME-CONTINUING> 1,318
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,318
<EPS-BASIC> .19
<EPS-DILUTED> .19
</TABLE>
