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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, for the Fiscal Year Ended December 31, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, for the transition period from ___ to ___
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 North 44th Street, Suite 270, Phoenix, Arizona 85018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 602/952-8836
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class: Common stock, no par value
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 twelve 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing:
aggregate market value $20,448,000. Closing price on the American Stock Exchange
on February 25, 1997: $14.375 per share.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date. Class: Common Stock, no par
value. Outstanding at February 25, 1997: 3,012,886 shares.
Documents Incorporated by Reference: Part III of the Form 10-K incorporates by
reference certain portions of the registrant's definitive proxy statement for
the 1997 Annual Meeting of Shareholders to be filed with the Commission on or
before April 15, 1997.
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INDEX
PART I
ITEM 1: Business............................................................ 3
ITEM 2: Properties.......................................................... 6
ITEM 3: Legal Proceedings................................................... 9
ITEM 4: Submission of Matters to a Vote of Security Holders................. 9
PART II
ITEM 5: Market for Registrant's Common Equity and Related Stockholder
Matters............................................................. 9
ITEM 6: Selected Financial Data............................................. 10
ITEM 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 11
ITEM 8: Financial Statements and Supplementary Data......................... 14
ITEM 9: Changes in and disagreements with Accountants on Accounting and
Financial Disclosure................................................ 32
PART III
ITEM 10: Directors and Executive Officers of the Registrant.................. 33
ITEM 11: Executive Compensation.............................................. 33
ITEM 12: Security Ownership of Certain Beneficial Owners and Management ..... 33
ITEM 13: Certain Relationships and Related Transactions...................... 33
PART IV
ITEM 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K.... 33
General Information............................................................ 35
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PART I
ITEM 1: BUSINESS
BUSINESS OVERVIEW
New Mexico and Arizona Land Company (the "Company" or "NZ") was organized
in 1908 as an Arizona corporation. The Company has 24 full-time employees and
conducts business in Arizona, Colorado, New Mexico, Texas, and Oklahoma. The
Company has four wholly-owned subsidiaries: NZ Development Corporation, NZ
Properties, Inc., NZU Inc., and Great Vacations International, Inc. The Company
owns various urban and rural real estate properties as well as extensive mineral
rights including three large uranium deposits.
This document may contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act
of 1934. Such forward-looking statements involve risks and uncertainties which
could cause actual results or outcomes to differ materially from those expressed
in such forward-looking statements. See "Significant Activities" in this Item I.
"Business", and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page 11 for a discussion of important
factors that could cause actual results to differ from the forward-looking
statements.
SIGNIFICANT ACTIVITIES
REAL ESTATE
ARIZONA. In 1995, the Company through, a wholly-owned limited liability
company, entered into a partnership (the "Partnership") to purchase 132
undeveloped acres located near Sedona, Arizona (the "Sedona Project"). The
Company has a 90% ownership interest in the Partnership. Development plans
include an 18-hole golf course and 300 two-bedroom timeshare units.
Architectural design and engineering work is virtually complete with final
construction plans underway. The revised master plan of the Sedona Project has
been approved by planning and zoning authorities of Yavapai County . See "Sedona
Project" on page 13 for information regarding the Company's management control
of this project and a dispute that has arisen between the Company and its
partner. In conjunction with the Sedona Project, the Company has formed a
wholly-owned subsidiary, Great Vacations International, Inc., to market the
timeshare units.
In 1996, NZ purchased a parcel of land, totaling 635 acres, located near
Cottonwood, Arizona, which is zoned for the development of residential lots. The
Company has completed a full market analysis and is determining development
strategies.
The Company has recreational land sales programs in which land is sold
primarily in 40-acre parcels. The southern Arizona program first sold 688 acres
in 1993 and began again in 1995 to sell the remaining 1,377 acres.
All of this land was sold by December 31, 1996.
The northeastern Arizona program was initiated in 1980 and over the last
16 years has sold some 77,000 acres of NZ's rural land. This program has
approximately 2,500 acres remaining in inventory to be sold.
All the parcels in both programs are or were typically sold on installment
contracts, with 10 to 20% down payments with the balance of the contract carried
over 15 years.
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The Company still owns over 150,000 acres of rural land located in
northeastern Arizona and New Mexico, which were derived from 19th Century
railroad land grants.
COLORADO. In 1996, NZ purchased a 10,000 acre ranch located in Fremont
County, Colorado. This property contains a sizeable uranium deposit, which is
discussed further on page 5, under "Minerals". This property is suitable for
subdivision into recreational lots.
NEW MEXICO. The Company owns a 75% interest in three joint ventures
located in Albuquerque, New Mexico. Two of the joint ventures, Brown/NZD
(Development) Joint Venture ("7-Bar") and Manzano Mesa Limited Partnership
("MMLP") develop and sell residential lots to home builders. In 1996, 212 lots
were sold. The two joint ventures have 165 finished lots in inventory. The
majority of these lots are under contract to local builders. 7-Bar has about 100
acres remaining to be developed and MMLP has an option to purchase an additional
112 acres for residential lot development.
The third joint venture, Brown/NZ (Investment) Joint Venture holds
approximately 51 acres that may be sold in bulk or developed into lots.
Also in New Mexico, NZ owns and operates four apartment complexes,
totaling 342 units, located in four New Mexico communities. These units have
federally-subsidized rent contracts designed for the elderly or handicapped.
They maintain essentially full occupancy.
TEXAS. In 1995, the Company purchased a majority interest in a limited
liability company, Texas Elm Fork Land Co., L.C. ("Elm Fork"), that has a 20
year lease with the University of Dallas (the "University") on 160 acres located
in Irving, Texas. Although the University had represented ownership of the
entire parcel, the local flood control district owns a key 3 acre parcel
bisecting the property that has resulted in a delay in development of the
property. To protect its interests, Elm Fork has commenced litigation against
the University. Full construction plans have been completed for the development
of a family entertainment center on this leased property. However, further
development of this property has been delayed until the University can perform
under the lease and Elm Fork is compensated for its damages. See page 13 "Elm
Fork Project" for additional information.
MINERALS
NZ owns over one million acres of mineral rights in Arizona and New Mexico
which originated, like the rural lands, from 19th Century railroad land grants.
The Company also owns mineral rights in Colorado and Oklahoma. In Oklahoma, the
Company has a royalty interest in a dozen producing oil & gas wells.
In New Mexico, NZU, Inc., a wholly-owned subsidiary, owns the mineral
rights to two delineated deposits of uranium, the Crownpoint and Crown Mesa
deposits. Given adequate uranium market prices, these deposits could become
commercially viable in the future. The Crownpoint deposit is leased to a uranium
company specializing in solution mining and currently the largest domestic
producer of uranium. This lessee has just received the Final Environmental
Impact Statement from the Nuclear Regulatory Agency. The lease provides for NZU
to receive a production royalty payment of 10% of gross revenues, or product
in-kind, at NZU's discretion. Production from this deposit is not expected for
several years regardless of market conditions.
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NZU is also working on access, design, and permitting issues associated
with development of a solution mine on the Crown Mesa deposit (formerly referred
to as the Hosta Butte deposit). The permitting process could take two or more
years once baseline data is complete.
In 1996, the Company acquired a 10,000 acre ranch located in Fremont
County, Colorado that contains a sizeable and well defined uranium deposit known
as the Hansen Orebody. NZU is researching various mining strategies to mine the
Hansen deposit.
In addition, the Company formerly identified a large deposit of industrial
grade limestone on its fee lands in New Mexico that is presently leased. NZ
receives annual rental payments and the lease provides for royalty payments
should this limestone be mined.
Revenue received from the Company's mineral activities does not,
presently, constitute a significant portion of the Company's consolidated
revenue.
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ITEM 2: PROPERTIES
The following are schedules of properties owned by the Company at December
31, 1996:
Year
acquired/ Encumbrance
Location Description developed (in thousands)
- -----------------------------------------------------------------------------------------------------
RENTAL PROPERTIES
ARIZONA
Scottsdale I.C.E. Buildings
13,020-square feet of buildings
on 1.6 acres 1983 $ 791
Tempe 12th Place Building
37,908-square foot building
on 2.7 acres 1983 816
Tucson 8 acres leased to
Parking Company of America;
a park and fly facility 1984-1988
NEW MEXICO
Albuquerque Brentwood Gardens Apartments
122-unit complex on 7.5 acres 1985 3,003
Airpark Building(1)
40,000-square foot office
building on 2.5 acres 1985-1986
Farmington Apple Ridge Apartments
80-unit complex on 5.7 acres 1985 1,986
Las Cruces Montana Meadows Apartments
80-unit complex on 6.1 acres 1985 1,885
Roswell Wildewood Apartments
60-unit complex on 4.3 acres 1985 1,359
PROPERTIES UNDER
DEVELOPMENT
ARIZONA
Sedona Rancho del Oro Development Joint Venture(2)(6)
Timeshare/golf course development
(Seven Canyons of Sedona)planned for
300 timeshare units and an 18-hole
golf course. A majority of the
design and engineering work has
been completed. Construction
drawings, additional golf course
design and governmental approvals
are in process. 1995-2008
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Year
acquired/ Encumbrance
Location Description developed (in thousands)
- -----------------------------------------------------------------------------------------------------
NEW MEXICO
Albuquerque Manzano Mesa Ltd Partnership(3)
Residential lot development (WillowWood)
Phases I through III are sold out. Phases
IV and V have 86 lots in inventory, all
of which are under contract. The joint
venture has an option to purchase an
additional 112 acres. 1992-1996
Brown/NZD Development joint Venture(4)
Residential lot development
(Seven Bar North) 902 lots
planned, 374 lots remain to be
developed, of these, 203 are under
contract. At year end there were
79 finished lots in inventory. 1995-1999 $2,200
TEXAS
Irving Texas Elm Fork Land Co., LC.(5)(6) (Elm Fork
Ranch) 160 acres under lease with
the University of Dallas. Development
plans, engineering and building plans
have been completed for the construction
of a family entertainment center. However
due to the failure of the University to
acquire a key 3-acre parcel,development
of the property is on hold. 1995-1996
(1) The property is owned by a general partnership of which the Company owns
50%.
(2) The property is owned by a general partnership of which the Company owns
90%.
(3) The property is owned by a limited partnership of which the Company owns
75%.
(4) The property is owned by a general partnership of which the Company owns
75%.
(5) The project is owned by a limited liability company of which the Company
owns 85%.
(6) See Sedona Project and Elm Fork Project on page 13 for additional
information.
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Year Encumbrance
Location Description acquired Acres (in thousands)
- --------------------------------------------------------------------------------------------
UNDEVELOPED URBAN
PROPERTIES
ARIZONA
Gilbert Cooper and Warner Roads 1986 11.95 $ 332
Mesa Greenfield Road and Dorsey Lane 1989 56.74
Chandler Ray and McClintock Roads 1986 14.66 97
Scottsdale Carefree Highway and 104th Street 1995 107.91 536
Green Valley Continental and Frontage Roads 1986 9.53
Cottonwood Near Cottonwood Airport 1996 635.00 2,858
Flagstaff Zuni and Walapai Streets 1981 10.00
NEW MEXICO
Albuquerque Menaul and Broadway Roads 1986 17.70
Albuquerque Spain Road and Juan Tabo Blvd. 1985 5.89
Albuquerque Seven Bar Loop and Ellison Roads(1) 1993 51.21 93
Las Cruces Mesilla Hills 1990 305.00
(1) Owned by a general partnership of which the Company owns 75%.
RURAL AND MINERAL PROPERTIES
Acres Encumbrance
County State Surface Mineral(in thousands)
- ------------------------------------------------------------------------------------------
Apache Arizona 76,460 146,640
Coconino Arizona 21,191
Mohave Arizona 46,602
Navajo Arizona 80,150 474,932
Catron New Mexico 11,346
Cibola New Mexico 4,788 225,185
McKinley New Mexico 160 117,238 $80
San Juan New Mexico 5,040
Socorro New Mexico 2,399
Valencia New Mexico 43,925
Fremont Colorado 9,889 4,565
Various Oklahoma 337
- -----------------------------------------------------------------------------------------
171,447 1,099,400 $80
=========================================================================================
The Company is lessor on grazing and mineral leases covering approximately
158,000 and 6,060 acres, respectively, and owns working interests in various oil
and gas joint ventures located in New Mexico, acquired from 1986 through 1988.
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ITEM 3: LEGAL PROCEEDINGS
The Company is a party to various legal proceedings arising in the
ordinary course of business. While it is not feasible to predict the ultimate
disposition of these matters, it is the opinion of management that their outcome
will not have a material adverse effect on the financial condition of the
Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of 1996.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There are 3,012,886 shares of no par value common stock issued and
outstanding, at December 31, 1996. Sun NZ, L.L.C. owns 1,507,871 shares,
approximately 50.05% of the outstanding shares of the Company. The stock is
admitted to unlisted trading privileges on the American Stock Exchange under the
symbol "NZ". Shareholders of record at February 25, 1997, totaled 847. The Board
of Directors declared a 10% stock dividend on May 20, 1996 and on March 4, 1995,
with payments made on July 18, 1996 and May 1, 1995, respectively.
The Company has authority to issue up to 10,000,000 shares of serial
preferred stock. At December 31, 1996, no preferred shares were issued.
During 1996, the Company did not sell any equity securities that were not
registered under the Securities act of 1933, as amended.
THE MARKET PRICE RANGE BY QUARTER:
- ------------------------------------------------------------------------------------
1996 1995
HIGH LOW High Low
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1st quarter 18 11 5/8 11 1/4 7 5/8
2nd quarter 16 1/2 12 1/2 11 7/8 9 1/2
3rd quarter 14 11 1/2 13 5/8 10 5/8
4th quarter 13 3/4 11 12 5/8 11 3/8
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ITEM 6: SELECTED FINANCIAL DATA
Years ended December 31,
(in thousands, except per share data) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS:
Gross revenue from
operations $23,660 $22,062 $21,440 $10,337 $ 10,494
Income (loss) before
cumulative effect of
an accounting change 4,846 5,500 3,936 1,282 (1,472)
Net income (loss) 4,846 5,500 3,936 1,282 (892)
Earnings (loss) per share
before cumulative effect
of an accounting change(1) 1.61 1.83 1.31 0.43 (0.49)
Net earnings (loss) per share(1) 1.61 1.83 1.31 0.43 (0.30)
SUMMARY OF FINANCIAL POSITION:
Total assets $66,328 $57,682 $52,307 $46,622 $ 45,772
Notes payable and lines
of credit 16,036 14,080 14,546 15,268 17,392
Shareholders' equity 35,628 30,721 25,127 21,153 19,871
OTHER SUPPLEMENTAL INFORMATION:
Weighted average number of
common shares outstanding(1) 3,008 3,001 3,001 3,001 3,005
Number of shareholders
of record 847 887 925 970 1,035
Number of full time employees 24 21 19 19 19
(1) Prior years restated to reflect a 10% stock dividend paid July 18, 1996.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table summarizes the Company's revenues and earnings for the
indicated periods:
Fiscal Years Ended December 31:
(in thousands, except per share data) 1996 1995 1994
- --------------------------------------------------------------------------------------
Revenue $23,660 $22,062 $21,440
Earnings per share of common stock(1) $ 1.61 $ 1.83 $ 1.31
(1) Prior years restated to reflect a 10% stock dividend paid July 18, 1996.
YEAR ENDED DECEMBER 31, 1996 VERSUS YEAR ENDED DECEMBER 31, 1995
Although property sales generated about $1,600,000 more in gross profit in
1996 than in 1995, earnings decreased in 1996 by about 12%, from $5,500,000 in
1995 to $4,846,000 in 1996. The major reason for the decrease in income was the
sale of a note receivable and the sale of a joint venture property that produced
over $2,700,000 in before tax income in 1995.
Rental properties continue to produce steady gross profits and cash flows
of about $2,000,000 per year. The majority of the cash flow is from the four
federally-subsidized apartment complexes that NZ owns. The subsidy contracts are
scheduled to expire, one at the end of 1998 and the other three in 1999. It is
not possible to determine at this time whether HUD will renew these contracts.
If HUD does not renew the contracts when they expire, the Company may have to
adjust its rental rates. The Company does not believe that this would have an
adverse effect on the Company with respect to its apartment complex located in
Albuquerque; however, the lack of federal subsidies in the rural areas of New
Mexico could have an adverse effect on the Company.
Investment income decreased by about $400,000. A note receivable was paid
off in 1995, thereby reducing interest income in 1996. Also average cash
available for investment in 1996 was down from 1995, due to the purchase of
properties. The increase in general and administrative expense was due primarily
to an increase in officers' and directors' bonuses of about $145,000 and
increased legal fees.
Cash flow from operating activities increased by over $7,000,000 and cash
flow from investing activities decreased by essentially the same amount. The
Company sold two commercial corners for about $6,300,000 in cash and the Company
purchased two properties, a 10,000 acre ranch in Colorado and a 635 acre parcel
in Arizona. Cash on hand at December 31, 1996 was $7,100,000.
YEAR ENDED DECEMBER 31, 1995 VERSUS YEAR ENDED DECEMBER 31, 1994 Earnings in
1995 were $5,500,000 compared with $3,936,000 in 1994.
Earnings increased primarily due to increased interest income; increased revenue
from the sale in 1995 of a mortgage note and a joint venture asset; and
decreased general and administrative expenses.
Interest income increased to $373,000 in 1995 from $32,000 in 1994. This
increase resulted primarily from the fact that cash on hand during the majority
of 1995 was considerably greater than in 1994. Also in 1995, the Company
generated revenue from the sale of a note receivable for a gain of almost
$1,100,000, which is reflected in other income on the income statement. Again in
1995, one of the joint ventures in which the Company owned a 50% interest sold
its only asset, an office complex. The Company's investment in this joint
venture had been written off in prior years.
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Revenue of $1,610,000 was recognized in 1995 and is reflected as gain from joint
ventures on the income statement. General and administrative expenses decreased
$128,000 in 1995 as compared to 1994. In 1994, there was a one-time charge of
$398,000 that resulted from a liability in connection with the resignation of a
corporate officer.
Partially offsetting these positive factors was a decrease in 1995 of
revenues generated from property sales of about $1,000,000. While revenue from
the sale of single-family lots increased by about $2,000,000 over 1994, the sale
of the Company's other properties decreased $3,000,000 from 1994.
Rental properties have continued to produce a steady cash flow and income
from year to year. In both 1995 and 1994, gross income was over $1,900,000.
Cash flow from operating activities decreased by $6,000,000 from the prior
year, due primarily to the purchase of property in the Sedona, Arizona area that
the Company is in the process of developing into a timeshare and golf course
facility.
LIQUIDITY AND CAPITAL RESOURCES
Existing cash, cash flow from sales of land, single-family, and
recreational lots, and distributions from its joint ventures and other on-going
operations, along with unused borrowing capacity, should be adequate for
continuing operations and investments during the 1997 fiscal year. When
construction and marketing begins on the Sedona and/or Elm Fork projects,
financing from outside sources will be required to fund these projects.
Cash distributions from the two Albuquerque joint ventures in 1996 were
$2,000,000. As development of these properties continues, additional cash
distributions are expected. One of the joint ventures has a loan facility, which
has required guarantees by the Company and its partner. The Company may be
required to continue to guarantee loans made to this joint venture, as
development of single-family lots continues. The Company and its partner have
guaranteed a $3,850,500 line of credit, to be utilized for lot development. As
of February 12, 1997, there was $2,020,000 borrowed against this line of credit.
In addition to regular principal payments on mortgage notes, the Company
paid the balance of $1,500,000 on a note that matured in 1996. Also two of its
commercial properties were refinanced for a total of $1,600,000, which was the
balance of the loans that matured. The Company is negotiating with two major
banks for a line of credit in the amount of $1,000,000 with each bank. These
lines will be secured by certain real estate properties.
INFLATION, DEFLATION, AND CHANGING PRICES
The results of operations and capital expenditures will continue to be
affected by inflation, deflation, and changing prices. Price changes and market
trends in real estate, rental rates, oil, gas, and uranium could have
significant effects on the Company's operations.
CURRENT ISSUES
The Company's ability to maintain and improve its current level of
earnings will depend on the current developments discussed below and several
factors, such as the development of projects (including those listed below and
in "Significant Activities" beginning on page 3 of this report); the length of
the development cycle of each project; the ability to acquire additional lands;
the actual costs associated with such developments and acquisitions; suitable
future development sites; weather; the strength of the local economies in the
sub-markets in which the Company operates; and the resolution of the disputes
discussed below. Higher than expected costs, delays in development of
communities, a downturn in the local economies,
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and/or the lack of growth of such economies could reduce the Company's revenues
and increase its expenses, resulting in a greater burden on the Company's
liquidity than that which the Company has described above.
DEVELOPMENTS
SEDONA PROJECT. The Company, through a wholly-owned limited liability
company, has a 90% ownership interest in a partnership that is developing a golf
course and timeshare facility in Sedona, Arizona. See Page 3 "Arizona" for more
information about the Sedona Project. The Company's partner in the Sedona
Project has a 10% ownership interest in the partnership and, pursuant to the
terms of the governing agreements, had the ability to earn up to a 45% ownership
interest in the partnership. The Company's partner was initially the manager of
the Sedona Project, but the Company assumed management control in 1996. A
dispute has arisen among the Company and its partner regarding certain aspects
of the partnership and the Sedona Project. The Company does not believe,
however, that the dispute, or any potential resolution of the dispute, will have
a material adverse effect on the Sedona Project.
ELM FORK PROJECT. In 1995, the Company through its majority interest in a
limited liability company, Texas Elm Fork Land Co., L.C. ("Elm Fork"), leased
land in Irving, Texas from the University of Dallas for the purpose of
developing a family entertainment center. During the development process, it was
discovered that the University did not own a key 3 acre parcel of the land that
was a part of the property leased to Elm Fork and was subsequently unable to
acquire title to it. As a result, Elm Fork initiated litigation in 1996 against
the University of Dallas to protect its position. A standstill agreement has
been signed and progress is being made in the resolution of the situation.
Further development of this project has been delayed until the University is
able to acquire title to the 3 acre parcel and Elm Fork is adequately
compensated for its damages. Given the Company's investment in Elm Fork, the
delay will not have a material adverse effect on the Company's operations.
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ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
New Mexico and Arizona Land Company:
We have audited the accompanying consolidated balance sheets of New Mexico
and Arizona Land Company and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996. In
connection with our audits of the consolidated financial statements, we also
have audited financial statement schedules III and IV for each of the years in
the three-year period ended December 31, 1996. These consolidated financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of New Mexico
and Arizona Land Company and subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
Phoenix, Arizona
February 17, 1997 KPMG Peat Marwick LLP
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New Mexico and Arizona Land Company and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
(in thousands, except per share data) 1996 1995 1994
- ------------------------------------------------------------------------------------------
Revenue:
Property sales $ 18,964 $ 15,910 $ 16,868
Property rentals 3,044 2,989 3,094
Investment income 1,236 1,678 1,221
Other 416 1,485 257
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23,660 22,062 21,440
- ------------------------------------------------------------------------------------------
Expenses:
Cost of property sales 10,569 9,159 8,949
Rental property 1,007 1,089 1,173
General and administrative 1,773 1,518 1,647
Interest 963 946 1,053
Depreciation, depletion and amortization 450 487 528
- ------------------------------------------------------------------------------------------
14,762 13,199 13,350
Income Before Joint Ventures, Minority
Interests and Income Taxes 8,898 8,863 8,090
Gain (loss) from joint ventures 20 1,582 (234)
Minority interests (872) (1,316) (1,309)
- ------------------------------------------------------------------------------------------
Income Before Income Taxes 8,046 9,129 6,547
Income taxes 3,200 3,629 2,611
- ------------------------------------------------------------------------------------------
Net Income $ 4,846 $ 5,500 $ 3,936
==========================================================================================
Earnings per Share of Common Stock(1) $ 1.61 $ 1.83 $ 1.31
==========================================================================================
Weighted Average Number of Common Shares(1) 3,008 3,001 3,001
==========================================================================================
See accompanying Notes to Consolidated Financial Statements.
(1) Prior years restated to reflect a 10% stock dividend paid July 18, 1996.
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New Mexico and Arizona Land Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
(in thousands) 1996 1995
- --------------------------------------------------------------------------------
Assets
Properties, net $47,478 $ 41,327
Receivables, net 9,848 9,690
Investments in joint ventures 416 409
Cash and cash equivalents 7,142 5,301
Other 1,444 955
- --------------------------------------------------------------------------------
Total assets $66,328 $ 57,682
================================================================================
Liabilities and Shareholders' Equity
Notes payable and lines of credit $16,036 $ 14,080
Accounts payable and accrued liabilities 1,542 999
Deferred revenue 5,002 5,330
Deferred income taxes 5,685 4,188
- --------------------------------------------------------------------------------
Total liabilities 28,265 24,597
- --------------------------------------------------------------------------------
Minority interests 2,435 2,364
- --------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares
authorized, none issued
Common stock, no par value; 30,000,000 shares
authorized; 3,012,886 and 3,007,636(1) shares
issued and outstanding at December 31, 1996
and 1995, respectively 13,738 10,051
Additional paid-in capital 967 966
Retained earnings 20,923 19,736
Treasury stock, none at December 31, 1996,
and 4,908 shares at December 31, 1995 -- (32)
- --------------------------------------------------------------------------------
Total shareholders' equity 35,628 30,721
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $66,328 $ 57,682
================================================================================
See accompanying Notes to Consolidated Financial Statements.
(1) Restated to reflect a 10% stock dividend paid July 18, 1996
-16-
17
New Mexico and Arizona Land Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
(in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 4,846 $ 5,500 $ 3,936
Deduct: Gain from investment property sales (3,963) (891) (3,049)
Non-cash items included above:
Depreciation, depletion and amortization 450 487 528
Deferred revenue (853) (1,234) (1,091)
Deferred income taxes 1,497 465 653
Gain from investment property sales
(Gain) loss from joint ventures (20) (1,582) 234
Minority interests 872 1,316 1,309
Employee restricted stock plan 1 13 38
Director stock awards 65 84 --
Net change in:
Receivables 367 1,604 (364)
Properties under development (969) (6,789) (1,095)
Other assets (489) 131 (155)
Accounts payable and accrued liabilities 538 (1,169) 859
- --------------------------------------------------------------------------------------------------------
Net cash flow from operating activities 2,342 (2,065) 1,803
- --------------------------------------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to properties (7,709) (3,635) (814)
Proceeds from sale of properties 6,040 4,933 4,898
Distribution (contribution), joint ventures 13 1,627 (22)
- --------------------------------------------------------------------------------------------------------
Net cash flow from investing activities (1,656) 2,925 4,062
- --------------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from debt 8,615 3,664 3,808
Payment of debt (6,659) (4,130) (4,780)
Distribution to minority interest partners (841) (1,443) (316)
Capital contribution, minority interest partners 40 1,239 --
- --------------------------------------------------------------------------------------------------------
Net cash flow from financing activities 1,155 (670) (1,288)
- --------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,841 190 4,577
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 5,301 5,111 534
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 7,142 $ 5,301 $ 5,111
========================================================================================================
See accompanying Notes to Consolidated Financial Statements
-17-
18
New Mexico and Arizona Land Company and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Addi- Total
tional Share-
Common stock Treasury stock paid-in Retained holders'
(in thousands) Shares(1) Amount Shares Amount capital earnings Equity
- -----------------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 1993 3,008 $ 7,812 12 $(92) $891 $ 12,542 $ 21,153
=======================================================================================================================
Net income -- -- -- -- -- 3,936 3,936
Employee restricted
stock plan -- -- -- -- 38 -- 38
- -----------------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 1994 3,008 $ 7,812 12 $(92) $929 $ 16,478 $ 25,127
=======================================================================================================================
Net income -- -- -- -- -- 5,500 5,500
10% stock dividend -- 2,239 -- -- -- (2,242) (3)
Employee restricted
stock plan -- -- -- -- 13 -- 13
Director stock awards -- -- (7) 60 24 -- 84
- ------------------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 1995 3,008 $10,051 5 $(32) $966 $ 19,736 $ 30,721
=======================================================================================================================
Net income -- -- -- -- -- 4,846 4,846
10% stock dividend -- 3,622 (5) 32 -- (3,659) (5)
Employee restricted
stock plan -- -- -- -- 1 -- 1
Director stock awards 5 65 -- -- -- -- 65
- ------------------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 1996 3,013 $13,738 0 0 $967 $ 20,923 $ 35,628
=======================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
(1) Prior years restated to reflect a 10% stock dividend paid July 18, 1996.
-18-
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
Nature of Business
New Mexico and Arizona Land company was organized in 1908 as an Arizona
Corporation and is conducting business in Arizona, New Mexico, Colorado, Texas
and Oklahoma. The Company owns and develops urban real estate. It also owns
extensive rural real estate and mineral rights.
Principles of consolidation
The consolidated financial statements include the accounts of New Mexico
and Arizona Land Company, its wholly-owned subsidiaries, and majority-owned
partnerships ("the Company"). All material intercompany transactions have been
eliminated in consolidation. Certain financial statement items from prior years
have been reclassified to be consistent with the current year financial
statement presentation.
Properties
Properties are recorded at cost net of valuation allowances. Depreciation
on rental properties is provided over the estimated useful lives of the assets,
ranging from 5 to 35 years, using the straight-line method. Maintenance and
repairs are charged to income as incurred and renewals or betterments are
capitalized.
Investments in joint ventures
The Company's investments in joint ventures are accounted for using the
equity method.
Property sales and deferred revenue
Profits on property sales are recognized, subject to the assessment of
collectibility of the related receivables, when the buyer's investment amounts
to at least 20% of the sales price and when development is to commence within a
two year period or 25% of the sales price on all other sales. In all instances
the buyer remains obligated to increase this investment by a minimum amount
annually. Profits on sales that do not meet these requirements are recognized on
the installment basis provided minimum down payments are received.
Deferred revenue consists of land sales being accounted for on the
installment basis and rents collected in advance. Rents collected in advance
represent annual rental payments made in advance of the lease year and are
considered earned ratably over the lease year for financial statement purposes.
Income taxes
The Company follows Statement of Financial Accounting Standards No.109,
Accounting for Income Taxes("Statement 109"). Under the asset and liability
method of Statement 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
-19-
20
Earnings per share
Earnings per share computations are based on the weighted average number
of common shares outstanding during the year of 3,008,211 in 1996, 3,000,943 in
1995, and 3,000,636 in 1994. The weighted average shares for 1995 and 1994 have
been restated to reflect a stock dividend paid July 18, 1996.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, cash held in trust, money
market accounts, and temporary investments, with an original maturity of three
months or less.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments, requires that a company disclose estimated
fair values for its financial instruments. The carrying amounts of the Company's
notes receivable and notes payable approximate the estimated fair value because
they are at interest rates comparable to market rates, given the terms and
maturities. The carrying amounts of the Company's cash equivalents, receivables,
accounts payable and accrued liabilities approximate the fair value of these
instruments due to their short term maturities. Considerable judgement is
required in interpreting market data to develop the estimates of fair value.
Accordingly, these fair value estimates are not necessarily indicative of the
amounts the Company might pay or receive in actual market transactions.
Impairment of Assets
The Company adopted the provisions of SFAS No 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of, on
January 1, 1996. All properties were reviewed for recoverability. Because the
sum of the expected future net cash flows (undiscounted and without interest
charges) exceeds the carrying value for assets held and used and the market
value exceeds the carrying value for assets held for sales, no impairment loss
was recognized in 1996.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities, and the amounts of revenue and
expenses at the date of the financial statements. Actual results could differ
from those estimates.
-20-
21
NOTE 2: - PROPERTIES
Properties are comprised of the following at December 31,
(in thousands) 1996 1995
- ----------------------------------------------------------------------------------
Rural lands and unimproved
urban properties $23,429 $18,542
Properties under development 14,555 12,475
Rental properties 16,852 17,953
Other 1,639 1,507
Accumulated depreciation,
depletion and amortization (5,292) (4,845)
Valuation Allowance (3,705) (4,305)
- ----------------------------------------------------------------------------------
$ 47,478 $41,327
==================================================================================
The future rentals on non-cancelable operating leases related to the
Company's rental properties, but excluding its four apartment complexes, are as
follows: $560,000 in 1997; $467,000 in 1998; $467,000 in 1999; $467,000 in 2000;
$469,000 in 2001; and $1,681,000 in later years. The four apartment complexes,
which are federally subsidized under the U.S. Department of Housing and Urban
Development Section 8 Housing-Assistance-Payments Program, have contributed
revenue of $2,437,000 in 1996, $2,412,000 in 1995 and $2,377,000 in 1994.
During 1996 and 1995 the Company acquired residential real estate at a
cost of $4,600,000 and $2,980,000, of which $2,900,000 and $600,000 were
financed, respectively.
-21-
22
NOTE 3 - RECEIVABLES
Receivables consist of the following at December 31,
(in thousands) 1996 1995
- ----------------------------------------------------------------------------------
Mortgage notes receivable $9,758 $9,590
Other notes receivable -- 7
Accounts receivable 165 168
Reserve for bad debts (75) (75)
- ----------------------------------------------------------------------------------
$9,848 $9,690
==================================================================================
The Company sells recreational land, principally in 40-acre parcels. Since
1980, over 75,000 acres have been sold in Arizona. The mortgage notes receivable
from these land sales, due over ten to fifteen years, bear interest at rates
ranging from 10% to 12%, and are secured by the properties sold. At December 31,
1996 and 1995 mortgage notes receivable relating to these sales totalled
$7,557,000 and $7,318,000, respectively. The Company sold land for mortgage
notes receivable in the amount of $1,910,000 and $2,045,000 during the years
ended December 31, 1996 and 1995 respectively. In 1996 and 1995 the Company
collected $1,429,000 and $903,000 in principal payments on these land sale
contracts.
The Company has a mortgage note receivable with a remaining principal
balance of $2,201,000, from a 1983 sale of an apartment complex located in
Flagstaff, Arizona. This note, which matured in September 1992, was restructured
under a bankruptcy reorganization plan. Under the reorganization plan the
maturity of the note was extended to January 13, 2000, the interest rate was
reduced from 10% to 8.75% and the payments were changed from quarterly
interest-only payments to monthly payments of principal and interest. Also in
connection with that sale, the Company remained contingently liable under a
mortgage note that was assumed by the purchaser. The estimated fair value of the
property securing the Company's mortgage note receivable exceeds the basis of
the mortgage note receivable and the mortgage assumed by the buyer.
Consequently, should the buyer default under the note, the Company would not
recognize a loss on foreclosure.
-22-
23
NOTE 4 - NOTES PAYABLE AND LINES OF CREDIT
Notes payable consist of the following at December 31,
(in thousands) Maturity Interest
date rate (%) Payment 1996 1995
- -----------------------------------------------------------------------------------------
Mortgage loans:
Apartment complexes 2009 8.375 monthly P&I $ 8,233 $ 8,584
Commercial buildings 2006 9.125 monthly P&I 1,607 1,666
Undeveloped land 2000-2001 9.25-10.25 annual P&I 3,394 2,143
Development loan 1997 prime(1) monthly int. 2,200 989
Other loans 1998-2004 7.125-7.6 semi-annl.P&I 602 698
- -----------------------------------------------------------------------------------------
$16,036 $14,080
=========================================================================================
(1) Prime rate at December 31, 1996 was 8.25%
The Company and its partner guarantee a development line of credit for one
of its majority-owned partnerships. This line, which is secured by the real
property, expires in August 1997 and has a commitment amount of $3,850,500. At
December 31, 1996, the outstanding balance was $2,200,000. The interest rate is
at the bank's prime rate, 8.25% at December 31, 1996.
Principal payments due on all notes payable and lines of credit are as
follows: $3,547,000 in 1997; $1,299,000 in 1998; $1,304,000 in 1999; $1,323,000
in 2000; $1,224,000 in 2001; and $7,339,000 in later years. Interest paid in
1996, 1995 and 1994, amounted to $1,360,000, $1,316,000 and $1,449,000,
respectively. Interest cost incurred in 1996, 1995 and 1994, was $1,470,000,
$1,286,000 and $1,434,000, respectively, of which $507,000, $340,000 and
$381,000 was capitalized.
-23-
24
NOTE 5 - INCOME TAXES
Income tax expense is comprised of the following:
(in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------
Current:
Federal $1,362 $2,531 $1,566
State 341 633 392
Deferred
Federal 1,198 368 522
State 299 97 131
- -----------------------------------------------------------------------------------------
$3,200 $3,629 $2,611
=========================================================================================
The reconciliation of the computed statutory income tax expense to the
effective income tax expense follows:
(in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------
Statutory Federal income
tax expense $2,736 $3,104 $2,226
Reconciling items:
State income taxes,
net of Federal benefit 422 474 345
Other 42 51 40
- ----------------------------------------------------------------------------------------
$3,200 $3,629 $2,611
========================================================================================
-24-
25
The effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31,
(in thousands) 1996 1995
- ----------------------------------------------------------------------------------------
Deferred tax assets:
Properties, principally due to
valuation allowances, depreciation
and amortization of costs $1,040 $ 2,764
Investments in joint ventures,
principally due to valuation allowances 167 174
Other 103 142
- ----------------------------------------------------------------------------------------
Total gross deferred tax assets $1,310 $ 3,080
- ----------------------------------------------------------------------------------------
Deferred tax liabilities:
Properties, principally due to basis
differences upon acquisition $(5,317) $(5,665)
Receivables/deferred revenue,
principally due to installment sales (1,606) (1,537)
Other (72) (66)
- ----------------------------------------------------------------------------------------
Total gross deferred tax liabilities (6,995) (7,268)
- ----------------------------------------------------------------------------------------
Net deferred tax liability $(5,685) $(4,188)
========================================================================================
Income taxes paid in 1996, 1995 and 1994 amounted to $1,418,000,
$3,596,000 and $2,164,000, respectively.
-25-
26
NOTE 6 - INVESTMENTS IN JOINT VENTURES:
The Company participates in a joint venture that developed an office
building. Revenues, costs and profits or losses are shared equally. In prior
years the Company reduced the carring value of its investment in this joint
venture to the estimated realizable value of its share of the building, which is
the only asset of this joint venture.
The following is a summary of the condensed balance sheet and results of
operations of this joint venture at December 31,
(in thousands) 1996 1995
- ----------------------------------------------------------------------------------------
Assets, primarily real estate $1,862 $1,865
========================================================================================
Liabilities $ 66 $ 18
Capital 1,796 1,847
- ----------------------------------------------------------------------------------------
$1,862 $1,865
========================================================================================
Results of operations for years ended December 31,
(in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------
Revenue $380 $249 $223
Operating expenses (223) (173) (177)
Depreciation and amortization (101) (83) (70)
- ----------------------------------------------------------------------------------------
Net income (loss) $ 56 $ (7) $(24)
========================================================================================
In addition to the above real estate joint venture, the Company has
invested in various working-interest petroleum properties principally located
in the San Juan Basin of New Mexico. The Company's interests range from 5%
to 50%. The net assets and results of operations applicable to the Company
are as follows for years ended December 31,
(in thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------
Net assets $ 11 $ 17 $37
=======================================================================================
Revenue $ 47 $ 51 $ 54
Expenses (55) (71) (276)
- ---------------------------------------------------------------------------------------
Net loss $ (8) $(20) $(222)
=======================================================================================
-26-
27
NOTE 7 - RETIREMENT PLANS
Pension Plan:
The Company's defined benefit retirement plan covers substantially all
full-time employees. The benefits are based on employment commencement date,
years of service and compensation. Plan restatement to conform with TRA86 and
subsequent changes was completed in December 1994. In accordance with Statement
of Financial Accounting Standards No. 87 Employers' Accounting for Pensions
(FAS87), the effect of the restatement was recognized in 1995. No additional
post-employment benefits are provided and plan assets are invested in various
mutual funds. The Plan was "frozen" on December 31, 1996. No gain or loss was
recognized by the Company. The "freeze" puts a stop on future benefit accruals.
The net periodic pension benefit is computed as follows for years ended
December 31,
(in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------
Service cost $ 43 $ 39 $ 41
Interest cost 47 41 41
Return on assets
Actual (175) (333) 32
Deferred gain (loss) 106 251 (115)
Amortization of unrecognized net transition asset (26) (26) (25)
- ----------------------------------------------------------------------------------------
Net periodic pension benefit $ (5) $ (28) $ (26)
========================================================================================
Through December 31, 1996, the Company accrued retirement benefits based
on an independent actuarial valuation for the plan. The discount rate and the
rate of increase in future compensation levels used in determining the actuarial
present value of the projected benefit obligations were 7% and 0%, respectively,
at December 31, 1996, 1995 and 1994. The expected long-term rate of return on
plan assets was 7% for 1996, 1995 and 1994.
The following is the funded status of the Plan at December 31,
(in thousands) 1996 1995
- ----------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefits $ 675 $ 672
Nonvested benefits 0 4
- ----------------------------------------------------------------------------------------
Accumulated and projected benefit obligation 675 676
Fair value of plan assets (1,464) (1,414)
- ----------------------------------------------------------------------------------------
Excess of assets over projected benefit obligation (789) (738)
Unrecognized net gain 146 104
Unrecognized net transition asset 358 383
- ----------------------------------------------------------------------------------------
Prepaid pension asset $ (285) $ (251)
========================================================================================
401(k) Savings Plan:
The Company has a 401(k) Savings Plan for all of its employees. The
Company matches up to 3% of the employee's salary contributed. Total expense for
the Company under this plan was $19,700, $19,800 and $23,600 for 1996, 1995 and
1994, respectively.
-27-
28
NOTE 8 - RESTRICTED STOCK PLAN
In 1988 the Company adopted a Restricted Stock Plan ("the Plan") to
distribute shares of stock to senior executives at no cost. 100,000 shares of
common stock are authorized for awards during the Plan's ten year term. No
shares were awarded in 1996, 1995 and 1994. A total of 31,400 shares have been
awarded since inception of the plan. Forfeiture restrictions lapse on the third,
fourth and fifth anniversary after award. In 1994 a special dispensation was
given due to the change of control of the Company and restrictions were lifted
on 15,334 shares. In 1995 special dispensation was given, due to internal
restructuring, and restrictions were lifted on 4,507 shares. Restrictions will
be lifted on the remaining 733 shares in 1997.
Compensation expense is recorded for the awards of stock in each period in
which services are performed. The Company recognized compensation expense of
$1,000, $13,000 and $38,000 related to these awards for the years ended December
31, 1996, 1995 and 1994, respectively.
NOTE 9 - DIRECTOR STOCK AWARDs
On November 22, 1996, at a meeting of the Board of Directors, the Board
awarded 750 shares of common stock of the Company to each director. The shares
were valued at the fair market value on the grant date. A total of 5,250 shares
was issued on December 30, 1996. The shares contain a restrictive legend as
required under Rule 144 of the Securities Act of 1933. In addition a cash award
of $3,750 was paid to each director.
On December 15, 1995, at a meeting of the Board of Directors, the Board
awarded 1,000 shares of the Company's common stock to each director. It was
determined that the stock used for these awards would be treasury stock. Of the
Company's 11,908 shares of treasury stock, 7,000 shares were reissued at 1,000
shares to each director, on December 28, 1995. The shares were valued at the
fair market value on the grant date. The reissued shares contain a restrictive
legend as required under Rule 144 of the Securities Act of 1933. In addition a
cash award of $4,750 was paid to each director.
Compensation expense of $92,000 in 1996 and $116,000 in 1995 was recorded
as a result of the above awards.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal proceedings arising in the
ordinary course of business. While it is not feasible to predict the ultimate
disposition of these matters, it is the opinion of management that their outcome
will not have a material adverse effect on the financial condition of the
Company.
-28-
29
NOTE 11 - UNAUDITED QUARTERLY FINANCIAL INFORMATION
Certain unaudited quarterly financial information for the years ended
December 31, 1996, and 1995 is presented below:
First Second Third Fourth
(in thousands, except per share data) Quarter Quarter Quarter Quarter Total
- -----------------------------------------------------------------------------------------
1996
Revenue $4,608 $3,121 $4,690 $11,241 $23,660
=========================================================================================
Net income $ 837 $ 551 $ 762 $2,696 $ 4,846
=========================================================================================
Earnings per share $ 0.28 $ 0.18 $ 0.25 $0.90 $ 1.61
=========================================================================================
1995
Revenue $4,095 $6,007 $7,665 $4,295 $22,062
=========================================================================================
Net income $1,446 $1,803 $1,404 $ 847 $ 5,500
=========================================================================================
Earnings per share(1) $ 0.48 $ 0.60 $ 0.47 $ 0.28 $ 1.83
=========================================================================================
(1) Restated to reflect a 10% stock dividend paid July 18, 1996.
NOTE 12 - INDUSTRY SEGMENTS
The following information summarizes information about the Company's
industry segments for the years ended December 31,
(in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------
Total revenue
Real estate $23,473 $21,881 $21,216
Minerals 187 181 224
Income before income taxes
Real estate $ 7,939 $ 9,054 $ 6,420
Minerals 107 75 127
Identifiable assets
Real estate $65,524 $56,969 $51,558
Minerals 804 713 749
-29-
30
New Mexico and Arizona Land Company and Subsidiaries
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996 Cost
(in thousands) capi-
Initial talized Gross amount at which
cost to subse- carried at close
Company quent to of period(1)
-------------- acqui- ------------------------ Accum-
Bldgs sition Buildings ulated
and im- -------- and depre-
Encum- prove- Improve- improve- Total ciation Date
brances Land ments ments Land ments (a) (2) (b)(6) acquired
- -------------------------------------------------------------------------------------------------------------------------
Unimproved Properties
Arizona and New Mexico(3) $961 $11,496 $ $ 890 $11,862 $ 524 $12,386 $ 77 1908-1995
Colorado 2,751 8 2,759 2,759 1996
Cottonwood, Arizona 2,858 4,584 48 4,632 4,632 1996
Chandler, Arizona 97 3,245 407 3,245 407 3,652 117 1986
Properties Under Development
40-acre lots, Arizona 6 6 6 1908
Albuquerque, New Mexico(3) 2,200 1,230 3,529 1,230 3,529 4,759 1992
Sedona, Arizona(4) 7,500 671 8,171 8,171 1995
Irving, Texas(5) 1,619 1,619 1,619 1995
Rental Properties
Commercial Buildings
Phoenix, Arizona 1,607 947 1,354 156 947 1,510 2,457 664 1986
Land Leases
Tucson, Arizona 2,130 2,130 2,130 1984
Apartments
New Mexico 8,233 1,187 10,665 413 1,187 11,078 12,265 3,728 1985
- -------------------------------------------------------------------------------------------------------------------------
$15,956 $35,076 $13,638 $6,122 $36,169 $18,667 $54,836 $4,586
=========================================================================================================================
(1) Tax basis: $39,000,000
(2) A valuation allowance in the amount of $3,705,000 was established in prior
years to reflect the Company's estimated realizable value upon ultimate
disposition of certain of its properties, principally unimproved urban
real estate.
(3) Certain properties are owned by partnerships of which the Company has a
75% ownership.
(4) Owned by a partnership in which the Company has a 90% ownership.
(5) Owned by a limited liability company of which the Company has an 85%
ownership
(6) Life on which depreciation in the latest income statements is computed: 5
to 35 years.
-30-
31
(a) NOTE TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
Years ended December 31,
(in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------
Balance at beginning of year $48,970 $39,861 $40,453
Additions during year:
Acquisitions 7,459 10,580 1,438
Improvements 5,613 5,539 7,123
Deductions during year:
Cost of real estate sold (7,206) (7,010) (9,153)
- -----------------------------------------------------------------------------------------
Balance at close of year $54,836 $48,970 $39,861
=========================================================================================
(b) NOTE TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
Years ended December 31,
(in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------
Balance of accumulated depreciation
at beginning of year $4,188 $3,764 $3,526
Additions during year:
Current year's depreciation 398 447 476
Deductions during year:
Real estate sold -- (23) (238)
- -----------------------------------------------------------------------------------------
Balance at close of year $4,586 $4,188 $3,764
=========================================================================================
-31-
32
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31,1996 Principal
amount of
Face Carrying loans
amount amount subject to
Final Period of of mort- delinquent
Interest maturity payment mort- gages principal
(in thousands) rate date terms gages (3) (a) & interest
- -----------------------------------------------------------------------------------------
Conventional first
mortgages on
unimproved land
sales in Arizona
and New Mexico:
(predominately 40-
acre parcel sales) 6%-12% 1997-2012 Monthly(1) $13,238 $7,482(2) $375
Mortgages on the
sale of commercial
properties:
Apartment complex 8.75% 2000 Monthly(1) 2,852 2,201
- ---------------------------------------------------------------------------------------
$16,090 $9,683 $375
=======================================================================================
(1) Level payments of principal and interest
(2) Net of reserve for bad debt of $75,000.
(3) Tax basis is $7,932,000
(a) NOTE TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
Years ended December 31,
(in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------
Balance at beginning of year $9,515 $8,757 $8,804
Additions during period:
New mortgage loans 1,910 2,045 1,285
Deduction during period:
Collections of principal (1,469) (964) (1,061)
Forfeitures on installment
contracts (273) (323) (271)
- ----------------------------------------------------------------------------------------
Balance at close of year $9,683 $9,515 $8,757
========================================================================================
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
-32-
33
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required under this item is contained in New Mexico and
Arizona Land Company's 1997 Proxy Statement, pursuant to Regulation 14A, and is
incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
Information required under this item is contained in New Mexico and
Arizona Land Company's 1997 Proxy Statement, pursuant to Regulation 14A, and
is incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this item is contained in New Mexico and
Arizona Land Company's 1997 Proxy Statement, pursuant to Regulation 14A, and is
incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this item is contained in New Mexico and
Arizona Land Company's 1997 Proxy Statement, pursuant to Regulation 14A, and is
incorporated herein by reference.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K The
consolidated financial statements and schedules are included in Part
III, Item 8:
Independent Auditors' Report
Balance Sheets
Statements of Income
Statements of Cash Flows
Statements of Shareholders Equity
Notes to Consolidated Financial Statements
Schedule III - Real Estate and Accumulated Depreciation
Schedule IV - Mortgage Loans on Real Estate
Exhibit 3.(i) Articles of Incorporation of Registrant amended May 20, 1996.
Exhibit 3.(ii)By-laws of Registrant revised March 8, 1996.
Exhibit 10.3 New Mexico and Arizona Land Company 401(k) Plan dated
January 1, 1992.
Exhibit 27. Financial Data Schedule
All other exhibits are omitted because they are inapplicable, contained
elsewhere in the report or have been previously filed with the Securities and
Exchange Commission.
No Form 8-K was filed in 1996.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
(Registrant)
/s/William A Pope /s/Elizabeth M. Bedewi
- -------------------------- ----------------------------
William A. Pope Elizabeth M. Bedewi
President and Principal Senior Vice President and
Executive Officer Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
/s/Stephen E. Renneckar /s/John C. Lucking
- -------------------------- ----------------------------
Stephen E. Renneckar John C. Lucking
Chairman Director
/s/William A. Pope /s/Arnold L. Putterman
- -------------------------- ----------------------------
William A. Pope Arnold L. Putterman
Director Director
/s/Ronald E. Strasburger /s/Robert Wertheim
- -------------------------- ----------------------------
Ronald E. Strasburger Robert Wertheim
Director Director
/s/Richard A. Wessman
- --------------------------
Richard A. Wessman
Director
Dated: March 14, 1997
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GENERAL INFORMATION
DIRECTORS
Term expiring in 1998:
Arnold L. Putterman(1): New York, New York, Counselor at Law
Stephen E. Renneckar(2,3) Phoenix, Arizona, Vice President, General Counsel,
SunChase Holdings, Inc.
Robert Wertheim(1) Albuquerque, New Mexico, Chairman, Charter
Companies
Richard A. Wessman(1,3) Roseville, California, President, Sterling Pacific
Assets, Inc.
Term expiring in 1997:
John C. Lucking(2,3) Phoenix, Arizona, Consulting Economist, Econ-Linc
William A. Pope Phoenix, Arizona, President and CEO of the Company
and SunChase Holdings Inc.
Ronald E. Strasburger(2) Phoenix, Arizona, Loans and Acquisitions Manager,
Sterling Pacific Management Services, Inc.
(1) Audit Committee
(2) Compensation and Nominating Committee
(3) Executive Committee
OFFICERS
William A. Pope President and Chief Executive Officer
R. Randy Stolworthy(1) Executive Vice President, Chief Operating Officer
Elizabeth M. Bedewi Senior Vice President, Treasurer and Secretary
Joe D. Sphar Vice President--Minerals and Assistant Secretary
(1) effective February 18, 1997
SHAREHOLDER INFORMATION
ANNUAL MEETING
The annual meeting of the shareholders of the Company will be held in
Phoenix, Arizona, Friday May 16, 1997. Notice of meeting and proxy will be
mailed to shareholders of record as of March 21, 1997. Please notify E. M.
Bedewi, Secretary, of any change of address.
TRANSFER AGENT AND REGISTRAR OF STOCK
American Stock Transfer & Trust Company, 40 Wall Street, New York, NY 10005,
(718) 921-8209, (800)937-5449, fax (718)921-8331
CORPORATE OFFICE
3033 N 44th Street, Suite 270, Phoenix, AZ 85018.
(602)952-8836, fax (602)952-8769, email lbedewi@aol.com
web site nz-newmexariz.com
ALBUQUERQUE OFFICE
6100 Indian School Road N.E., Suite 100, Albuquerque, NM 87110.
(505)881-6644, fax (505)889-3682
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