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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
Or
[ ] 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 1-4673
WILSHIRE ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-0513668
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
921 BERGEN AVENUE
JERSEY CITY, NEW JERSEY 07306-4204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 420-2796
Securities registered pursuant to section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, $1 par value American Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
None
---------------------
(Title of each class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) 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. ___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes No x
----- -----
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common
equity, as of the last business day of the registrant's most recently completed
second fiscal quarter (June 30, 2004), was $22,039,000.
The number of shares outstanding of each of the registrant's $1 par value common
stock, as of March 21, 2005 was 7,780,230.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Proxy Statement for its 2005 Annual Meeting of Stockholders (Part
III).
2
WILSHIRE ENTERPRISES, INC.
INDEX
Page No.
--------
Part I
Item 1. Business 4
Item 2. Properties 8
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 4A. Executive Officers of the Registrant 11
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 30
Item 8. Financial Statements and Supplementary Data 32
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 58
Item 9A. Controls and Procedures 59
Item 9B. Other Information 59
Part III
Item 10. Directors and Executive Officers of the Registrant 60
Item 11. Executive Compensation 60
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 60
Item 13. Certain Relationships and Related Transactions 60
Item 14. Principal Accountant Fees and Services 60
Part IV
Item 15. Exhibits and Financial Statement Schedules 61
Signatures 66
3
PART I
ITEM 1. BUSINESS
This report contains "forward-looking statements" within the meaning of the
federal securities laws. These statements relate to future economic performance,
plans and objectives of management for future operations and projections of
revenues and other financial items that are based on the beliefs of our
management, as well as assumptions made by, and information currently available
to, our management. The words "expect," "estimate," "anticipate," "believe" and
similar expressions are intended to identify forward-looking statements. Those
statements involve risks, uncertainties and assumptions, including industry and
economic conditions, competition and other factors discussed in this and our
other filings with the SEC. If one or more of these risks or uncertainties
materialize or underlying assumptions prove incorrect, actual outcomes could
vary materially from those indicated. We have made forward-looking statements in
Items 1, 2, 5, 7 and 7A of this report. See "Disclosure Regarding
Forward-Looking Statements" at the end of Item 7 for a description of some of
the important factors that may affect actual outcomes.
Background
Wilshire Enterprises, Inc. ("Wilshire" or the "Company") is a Delaware
corporation founded on December 7, 1951. The Company changed its name from
Wilshire Oil Company of Texas to its current name on June 30, 2003. As of the
date of filing this report, the Company's principal executive offices are
located at 921 Bergen Avenue, Jersey City, New Jersey 07306, (201) 420-2796. The
Company has signed a lease and expects to relocate its corporate offices in May
2005 to One Gateway Center, Newark, New Jersey 07102. Wilshire maintains a
website at www.wilshireenterprisesinc.com.
Wilshire is principally engaged in acquiring, owning and managing real estate
properties. As further described below, the Company currently owns multi-family
properties, office space, retail space, and land located in the states of
Arizona, Texas, Florida, Georgia and New Jersey.
In July 2003 the Company committed to the sale of its oil and gas operations and
to either reinvest the net proceeds in its ongoing real estate business or
otherwise utilize the proceeds to maximize shareholder value. As of June 2004,
the Company had completed its divestiture of its oil and gas operations
receiving gross proceeds of $28.1 million. See Note 2 to the Consolidated
Financial Statements in Item 8 of this Annual Report on Form 10-K.
As part of its efforts to maximize shareholder value, effective July 2004 the
Company employed a new senior management team with Daniel C. Pryor as President
& Chief Operating Officer and Seth H. Ugelow as Chief Financial Officer. The new
senior management team reports to Sherry Wilzig Izak, Chairman & Chief Executive
Officer.
The Company remains committed to maximizing shareholder value and is continually
exploring all possible alternatives to accomplish this goal. The Company remains
receptive to negotiating acceptable bids to sell the entire Company, while at
the same time is prepared to pursue the expansion of its real estate portfolio
by completing corporate mergers or acquisitions regardless if Wilshire is the
acquirer or acquiree and by investing in real estate properties or securities.
In the interim, the Company's goal is to increase the value of its real estate
portfolio by implementing improvements to its existing properties and completing
the opportunistic divestiture of select real estate assets. The Company cannot
assure investors of any actions or of the timing of potential actions.
4
REAL ESTATE OPERATIONS
Wilshire is engaged principally in acquiring, owning and managing real estate
properties. As of December 31, 2004, Wilshire owned the properties described
below:
CORE OPERATING ASSETS. Wilshire has identified certain of its properties that it
believes to be well situated in their respective markets and have attractive
cash flow or valuation characteristics. These include:
Name City State Asset Class Size
- ---- ---- ----- ----------- ----
Alpine Village Sussex NJ Apartments 132 units
Biltmore Club (a) Phoenix AZ Apartments 378 units
Summercreek San Antonio TX Apartments 180 units
Sunrise Ridge Tucson AZ Apartments 340 units
Van Buren Tucson AZ Apartments 70 units
Wellington San Antonio TX Apartments 228 units
Galsworthy Arms (b) Long Branch NJ Condominiums 45 units
Jefferson Gardens Jefferson NJ Condominiums 20 units
Royal Mall Plaza Mesa AZ Office & retail 66,552 SF
Tamarac Office Plaza Tamarac FL Office 26,990 SF
Tempe Corporate Tempe AZ Office 50,700 SF
(a) The Company entered into an agreement to sell Biltmore Club for $21.0
million on February 2, 2005. This action has caused the Company to classify this
asset as discontinued. See Note 11 to the Consolidated Financial Statements in
Item 8 of this Annual Report on Form 10-K.
(b) The Company sold one 2-bedroom unit on January 26, 2005.
OTHER ASSETS. The Company has other assets that currently do not generate the
cash flow typically expected by the Company. These include:
Name City State Asset Class Size
- ---- ---- ----- ----------- ----
Amboy Tower (a) Perth Amboy NJ Office & Retail 75,000 SF
Twelve Oaks (a)(d) Atlanta GA Apartments 72
Wilshire Grand Hotel & 89 rooms;
Banquet Facility West Orange NJ Triple Net Lease (b) 50,000 SF
Rutherford Bank Rutherford NJ Triple Net Lease (b) 0.1727 acres
Alpine Village (c) Sussex NJ Land 0.51 acres
Alpine Village (c) Wantage NJ Land 17.32 acres
Lake Hopatcong (a) Lake Hopatcong NJ Land 1.8 acres
West Orange (a) West Orange NJ Land 0.6 acre
(a) Classified by the Company as Discontinued Operations. See Note 2 to the
Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
(b) Wilshire leases the land and improvements to others on a triple net lease
basis.
(c) Alpine Village land parcels are adjacent to the Alpine Village Apartments
listed as a Core Operating Asset.
(d) The Company entered into an agreement on March 23, 2005 to sell Twelve Oaks
for $1.7 million, net of expenses. See Note 11 to the Consolidated Financial
Statements in Item 8 of this Annual Report on Form 10-K.
5
In addition, the Company held a mortgage receivable with a gross carrying value
of $1,165,000 and unearned income of $727,000 as of December 31, 2004. Security
for the mortgage was a first lien on in excess of 100 condominium units in two
contiguous buildings located in Jersey City, New Jersey. On February 22, 2005,
the Company entered into an agreement with the mortgagee to settle and satisfy
the mortgage for $1,100,000, which was paid to the Company during the first
quarter of 2005. (See Note 11 to the Notes to the Consolidated Financial
Statements in Item 8 of this Annual Report on Form 10-K.)
BUSINESS STRATEGY
Wilshire's principal investment objective is to increase the net asset value of
its investment portfolio through effective management, growth, financing and
investment strategies. Wilshire is currently focused on optimizing the valuation
potential and cash flow from its Core Operating Assets and repositioning or
selling its Other Assets. The Company is also focused on increasing long-term
growth in cash and cash equivalents generated from operations and cash and cash
equivalents available for distribution per share. The Company does not currently
pay a dividend.
Wilshire believes that it is part of its ongoing business strategy to initiate
or entertain corporate transaction discussions, such as acquiring other
companies for cash and/or stock or selling/merging the Company for cash and/or
stock.
The Company also intends to selectively acquire assets that offer attractive
financial returns. In general, it seeks multifamily properties with 200 units or
more in geographic regions in which the Company or its contracted property
management company (see below) has operations. However, the Company is actively
evaluating other asset classes such as office buildings, retail centers and real
estate securities and other geographic regions and may invest in one or more of
these asset classes in lieu of a multifamily property.
ACQUISITION OF ASSETS
Wilshire did not acquire any real estate properties in 2004.
DIVESTITURE OF ASSETS
The Company divested of the following real estate properties in 2004.
Taxes
Name (State) Net Book Mortgage Payable on
(asset class) Date Sold Selling Price Value Value Sale Net Proceeds (a)
- ------------- --------- ------------- -------- -------- ---------- ----------------
Jersey City (NJ) (13
residential properties) Various $14,750,000 $8,925,000 $3,870,000 $2,332,000 $8,427,000
Montville (NJ) (land) 8/26/04 $1,000,000 $629,000 $-0- $142,000 $833,000
Jefferson Gardens (NJ)
(1-bedroom condominium) 9/27/04 $140,000 $36,000 $75,000 $38,000 $17,000 (b)
Jefferson Gardens (NJ)
(1-bedroom condominium) 10/18/04 $136,000 $39,000 $126,000 $35,000 $(25,000) (b)
Schalk Station (NJ)
(land) 12/22/04 $3,950,000 $3,072,000 $-0- $335,000 $3,557,000
(a) Net proceeds = selling price less mortgage value and transaction costs such
as commissions, legal fees, taxes and other expenses.
(b) At the time of sale, the Company elected to repay a larger portion of the
underlying mortgage for Jefferson Gardens than required. If a pro-rata amount of
the mortgage had been repaid, the Company would have realized net proceeds of
approximately $65,000 on the September 27, 2004 sale and approximately $64,000
on the October 18, 2004 sale.
6
The Company divested or entered into an agreement to sell the following real
estate properties and securities in 2005.
Taxes
Name (State) Net Book Mortgage Payable on
(asset class) Date Sold Selling Price Value Value Sale Net Proceeds (a)
- ------------- --------- ------------- -------- -------- ---------- ----------------
Biltmore Club (b) 12/23/05 $20,956,000 $4,152,000 $9,103,000 $5,900,000 $10,000,000
Galsworthy Arms (NJ)
(2-bedroom condominium) 1/26/05 $269,500 $57,000 $251,000 $79,000 $(79,000) (c)
Mortgage Receivable (d) 3/23/05 $1,100,000 $438,000 $-0- $276,000 $824,000
Twelve Oaks (e) 3/23/05 $1,725,000 $939,000 $1,609,000 $240,000 $(230,000)
(a) Net proceeds = selling price less mortgage value and transaction costs such
as commissions, legal fees, taxes and other expenses.
(b) The Company has entered into a definitive agreement to sell the asset with
the closing date scheduled for no later than December 23, 2005.
(c) At the time of sale, the Company elected to repay a larger portion of the
underlying mortgage for Galsworthy Arms than required. If a pro-rata amount of
the mortgage had been repaid, the Company would have realized net proceeds of
approximately $136,000 on the sale.
(d) The Company has entered into a definitive agreement to sell the asset and
the selling price was received during the first quarter of 2005.
(e) The Company has entered into a definitive agreement to sell the asset with
the closing date scheduled as soon as practicable from the March 23, 2005
signing of the contract.
EMPLOYEES
As of December 31, 2004, the Company had a total of six full-time employees in
its corporate office. Wilshire also employed two employees to manage its real
estate assets in New Jersey and two part-time consultants who were previously
employees of the Company to assist as needed in financial reporting.
PROPERTY MANAGEMENT
Wilshire contracts with a property management company (the "PMC") located in
Phoenix, Arizona to assist in the management of the Company's properties
including providing onsite personnel, regional supervision, and bookkeeping
functions. The PMC has managed nearly all of Wilshire's properties located
outside of New Jersey since 1998. In January of 2005 Wilshire contracted with
the PMC to assist in the management of the Company's New Jersey properties
obligating the PMC to provide onsite personnel and bookkeeping functions but not
regional supervision for the New Jersey properties. Wilshire believes that the
PMC can provide cost-efficient bookkeeping functions in part because it is
located in Arizona, a state that generally has lower wage expense than that
experienced in New Jersey. As of December 31, 2004 the PMC employed 259 full
time and 32 part time people and managed property on behalf of Wilshire and
others in the states of Arizona, New Mexico, Colorado, Texas, Florida and
Georgia. The PMC does not currently own real estate assets for its own
investment purposes. In 2004, Wilshire accounted for approximately 18% of PMC's
total revenues and was its largest customer.
INSURANCE
The Company carries comprehensive property, general liability, fire, extended
coverage and rental loss insurance on all of its existing properties, with
policy specifications, insured limits and deductibles customarily carried for
similar properties. The Terrorism Risk Insurance Act of 2002 was signed into law
on November 26, 2002. The law provides that losses resulting from certified acts
of terrorism will be partially reimbursed by the United States after the
insurance company providing coverage pays a statutory deductible amount. The law
also requires that the insurance company offer coverage for terrorist acts for
an additional premium. We accepted the offer to include this coverage in our
property and casualty policies.
7
We believe that our properties are adequately covered by insurance. There are,
however, some types of losses (such as losses arising from acts of war) that are
not generally insured because they are either uninsurable or not economically
insurable. If an uninsured loss or a loss in excess of insured limits occurs, we
could lose our capital invested in a property, as well as the anticipated future
revenues from the property, and we would continue to be obligated on any
mortgage indebtedness or other obligations related to the property. Any loss of
that kind could materially adversely affect us.
COMPETITION
All of the properties owned by the Company are in areas where there is
substantial competition with other multifamily properties, with single-family
housing that is either owned or leased by potential tenants and with other
commercial properties. The principal method of competition is to offer
competitive rental rates. In order to maintain occupancy rates and attract
quality tenants, the Company may also offer rental concessions, such as free
rent to new tenants for a stated period. The Company also competes by offering
properties in attractive locations and providing residential and commercial
tenants with amenities such as covered parking, recreational facilities, garages
and pleasant landscaping. The Company intends to continue upgrading and
improving the physical condition of its existing properties and will consider
selling existing properties, which the Company believes have realized their
potential, and re-investing in properties that may require renovation but that
offer greater appreciation potential.
ENVIRONMENTAL MATTERS
The Company believes that each of its properties is in compliance, in all
material respects, with federal, state and local regulations regarding hazardous
waste and other environmental matters and is not aware of any environmental
contamination at any of its properties that would require any material capital
expenditure by the Company for the remediation thereof. No assurance can be
given that environmental regulations will not, in the future, have a materially
adverse effect on the Company's operations.
INVESTMENT IN MARKETABLE SECURITIES
The Company holds investments in certain marketable securities. From time to
time, the Company buys and sells securities in the open market. The Company's
investments in marketable securities are accounted for as securities available
for sale.
ITEM 2. PROPERTIES
The executive and administrative office of the Company consists of approximately
2,000 square feet, located at 921 Bergen Avenue, Jersey City, New Jersey.
Wilshire leased this office on a month-to-month basis at a monthly rental of
$2,683. In December 2004, the 921 Bergen Avenue building was sold by a major
bank and the new owner increased the monthly rental to $5,350 in January 2005.
The Company expects to relocate its corporate offices to newly leased space in
April 2005.
The Company maintained its principal office for its now discontinued United
States oil and gas operations in Oklahoma City, Oklahoma, leasing 3,618 square
feet on a month-to-month basis, at a monthly cost of $2,345. With the sale in
April 2004 of the United States oil and gas assets, this lease was terminated in
June 2004.
The Company's Canadian subsidiary maintained an exploration office in Calgary,
Alberta, Canada. The Company leased 1,583 square feet on a month-to-month basis
at a monthly rental of $3,408 Canadian. With the sale of the Canadian oil and
gas assets in April 2004, this lease was terminated in April 2004.
The following table provides summary information regarding the Company's
apartment properties and condominium properties.
8
Apartment Unit Type
---------------------------------------------
Date No. of Studio / Rentable
Name (State) Acquired Units Efficiencies 1 BR 2 BR 3 BR Acreage Sq. Ft.
- ------------ -------- ----- ------------ ---- ---- ---- ------- -------
APARTMENTS:
Alpine Village (NJ) 10/29/95 132 - 48 84 - 13.73 101,724
Biltmore Club (AZ) (a)(b) 10/23/97 378 192 186 - - 8.08 193,716
Summercreek (TX) 3/29/01 180 - 84 96 - 8.17 142,452
Sunrise Ridge (AZ) 10/24/97 340 - 144 196 - 17.73 291,674
Twelve Oaks (GA) (b) 4/10/96 72 - - 42 30 10.04 91,404
Van Buren (AZ) 6/11/98 70 - 42 28 - 1.41 81,404
Wellington (TX) 7/30/98 228 24 60 116 28 8.69 214,744
CONDOMINIUMS:
Galsworthy Arms (c) 3/31/94 45 - 31 14 - - 38,026
Jefferson Gardens (d) 3/31/94 20 - 16 4 - - 15,843
(a) The Company has entered into a definitive agreement to sell the property in
February 2005 for $21.0 million.
(b) Classified by the Company as Discontinued Operations. See Note 2 to the
Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
(c) Galsworthy Arms has a total of 64 units, 44 one bedroom and 20 two bedroom.
(d) Jefferson Gardens has a total of 50 units, 34 one bedroom and 16 two
bedroom.
The following table provides summary information regarding the Company's
commercial properties.
Name (State) Date Acquired Rentable Sq. Ft. Acreage
- ------------ ------------- ---------------- -------
OFFICE & RETAIL:
Amboy Tower (NJ) (a) 3/31/98 75,000
Royal Mall Plaza (AZ) 3/31/94 66,552
Tamarac Office Plaza (FL) 12/31/92 26,990
Tempe Corporate (AZ) 12/31/92 50,700
TRIPLE NET LEASE:
Rutherford Bank (NJ) 3/31/94 - 0.17
Wilshire Grand Hotel & Banquet Facility (NJ) 12/31/97 89 hotel rooms; 50,000 12.29
SF banquet facility
LAND:
Alpine Village , Sussex (NJ) 10/28/98 - 0.51
Alpine Village , Wantage (NJ) 2/16/01 - 17.32
Lake Hopatcong (NJ) (a) 3/31/94 - 1.81
West Orange (NJ) (a) 3/31/94 - 0.60
(a) Classified by the Company as Discontinued Operations. See Note 2 to the
Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
The following table provides summary financial information for the Company's
properties that are not carried as discontinued operations. Discontinued
operations contain properties that either are under contracts for sale or the
Company has identified as properties potentially for sale depending on market
conditions including Biltmore Club (AZ), Twelve Oaks (GA), Amboy Tower (NJ) and
the West Orange and Lake Hopatcong New Jersey land parcels.
9
As of 12/31/04 For the Year 2004
---------------------------- --------------------------------------------
Net
Net Book Mortgage Operating Interest Capital
Name (State) Value Principal Income Expense Expenditures
- ------------ ----------- ----------- ---------- -------- ------------
APARTMENTS:
Alpine Village (NJ) $ 3,465,000 $ 4,889,000 $536,000 $297,000 $ 85,000
Summercreek (TX) 5,328,000 4,117,000 443,000 310,000 207,000
Sunrise Ridge (AZ) 5,651,000 10,463,000 1,139,000 627,000 258,000
Van Buren (AZ) 1,792,000 2,054,000 229,000 130,000 126,000
Wellington (TX) 3,974,000 4,303,000 543,000 265,000 257,000
CONDOMINIUMS:
Galsworthy Arms 2,130,000 1,544,000 169,000 98,000 424,000
Jefferson Gardens 750,000 403,000 60,000 36,000 13,000
OFFICE & RETAIL:
Royal Mall Plaza (AZ) 1,408,000 - 442,000 - 50,000
Tamarac Office Plaza (FL) 775,000 608,000 136,000 39,000 4,000
Tempe Corporate (AZ) 2,548,000 3,887,000 337,000 261,000 278,000
TRIPLE NET LEASE:
Wilshire Grand Hotel (NJ) 4,868,000 3,421,000 63,000 224,000 -
Rutherford Bank (NJ) 604,000 463,000 110,000 33,000 -
----------- ----------- ---------- -------- ------------
Total: $33,293,000 $36,152,000 $4,207,000 $2,320,000 $1,702,000
=========== =========== ========== ========== ==========
ITEM 3. LEGAL PROCEEDINGS
At December 31, 2004, the Company was not a party to any actions or proceedings
which management believes are reasonable likely to have a material adverse
effect upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 2004.
10
ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name and age of each executive officer of the
Company. Each officer is appointed by the Company's Board of Directors. Unless
otherwise indicated, the persons named below have held the position indicated
for more than the past five years.
Officer of
The Company Position with the Company
Name and Age Since and Business Experience
S. Wilzig Izak, Age 46 1987 Chairman of the Board of the Company since
September 20, 1990; Chief Executive Officer since
May 1991; Executive Vice President (1987-1990);
prior thereto, Senior Vice President
Daniel C. Pryor, Age 44 June, 2004 President and Chief Operating Officer of the
Company since June 2004; Investment Banker from
1993 - 2004 including at D&T Corporate Finance
(2001 - 2004), Lehman Brothers (1999 - 2001), and
Salomon Smith Barney (Citigroup) (1993 - 1999);
developer, property manager and investor in the
real estate industry (1985 - 1991)
Seth H. Ugelow, Age 52 June, 2004 Chief Financial Officer of the Company since June
2004; Senior Vice President and Controller of The
Trust Company of New Jersey (January 2003 - June
2004); Consultant (June 2002 - January 2003); Vice
President and Head of Accounting at The Bank of
Tokyo-Mitsubishi (New York Office) (June 2001 -
June 2002); Vice President and Controller of
Credit Agricole Indosuez (New York Office ) (April
1995 - June 2001)
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company's common stock is traded on the American Stock Exchange. The
following table indicates the high and low sales prices of the Company's common
stock for the quarters indicated during the years ended December 31, 2004 and
2003:
Quarter 1 Quarter 2 Quarter 3 Quarter 4
--------------------- -------------------- ------------------- ---------------------
High - Low High - Low High - Low High - Low
------- -------- -------- ------- -------- ------- -------- --------
2004 $ 6.80 - 5.25 $ 5.86 - 4.61 $ 5.30 - 4.90 $ 7.60 - 5.00
2003 4.00 - 3.51 5.00 - 3.37 5.95 - 4.50 7.09 - 5.31
As of March 21, 2005, there were 4,480 common shareholders of record.
The Company has not paid any dividends to shareholders during the past two
years. Based on a primary objective of increasing shareholder value, the Board
of Directors will consider the payment of dividends from time to time in the
future based on the Company's capital requirements and results of operations.
In June 2004, the Company's Board of Directors authorized management to conduct
a buyback of up to 1,000,000 common shares. Under this authorization, the
Company conducted an odd-lot share repurchase program, which offered
shareholders who owned a small number of common shares the opportunity to sell
their shares without paying a broker's commission. The Company also benefited
under the odd-lot share repurchase program by lowering its administrative costs
through the closing of approximately 1,900 shareholder accounts. Under the Board
authorization, the Company also allowed other shareholders the opportunity to
sell their shares to the Company.
The following table presents the total share repurchase activity under the
Board's authorization. No repurchase activity took place from the date of the
announcement of the Board's authorization through June 30, 2004. The
authorization to repurchase common shares has no expiration date and the Company
has not determined when, or if, the program will be discontinued.
(c) Total number of
shares (or units) (d) Maximum number (or approximate
(a) Total number of (b) Average purchased as part of dollar value) of shares (or units)
of shares (or units) price paid per publicly announced that may yet be purchased
Period purchased share (or unit) plans or programs under the plans or programs
- ------ --------- --------------- ----------------- ----------------------------------
July 1 - 31, 2004 2,080 $5.03 2,080 997,920 common shares
August 1 - 31, 2004 18,029 $5.08 18,029 979,891 common shares
September 1 - 30, 2004 10,322 $5.08 10,322 969,569 common shares
October 1 - 31, 2004 6,600 $5.14 6,600 962,969 common shares
November 1 - 30, 2004 400 $6.09 400 962,569 common shares
December 1 - 31, 2004 1,047 $6.84 1,047 961,522 common shares
12
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2004 with respect to
shares of the Company's common stock that may be issued under the Company's
existing equity compensation plans, which consist of the (i) 1995 Stock Option
and Incentive Plan, (ii) 1995 Non-Employee Director Stock Option Plan, (iii)
2004 Stock Option and Incentive Plan, and (iv) 2004 Non-Employee Director Stock
Option Plan, each of which has been approved by the Company's shareholders.
(c)
Number of
(a) (b) Securities
Number of Weighted Remaining Available
Securities To Be Average Exercise For Future Issuance
Issued Upon Price Of Under Equity
Exercise Of Outstanding Compensation Plans
Outstanding Options, (Excluding)
Options, Warrants Warrants and Securities Reflected
Plan Category and Rights Rights In Column (a))
- -------------------- --------------------- ---------------------- ---------------------------
Equity compensation plans approved by
security holders 457,460 $3.81 695,471
Equity compensation plans not approved by
security holders - - -
------- ----- -------
Total 457,460 $3.81 695,471
======= ===== =======
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data for the Company for each of the five
(5) fiscal years in the period ended December 31, 2004 are derived from the
consolidated financial statements that have been audited. J.H. Cohn LLP
Independent Registered Public Accounting Firm for Wilshire has reported upon the
consolidated financial statements as of and for the year ended December 31,
2004. The consolidated financial statements as of and for the years ended
December 31, 2003 and 2002 have been reported upon by Ernst & Young LLP,
Independent Registered Public Accounting Firm. Ernst & Young LLP, Independent
Registered Public Accounting Firm has also reported upon the consolidated
statements of income, cash flows and changes in stockholders' equity for the
year ended December 31, 2001. The consolidated balance sheet as of December 31,
2001 and the consolidated financial statements as of and for the year ended
December 31, 2000 have been reported upon by Arthur Andersen LLP.
The following table sets forth the Company's selected financial data and should
be read in conjunction with the Consolidated Financial Statements and notes
thereto included in Item 8, "Financial Statements and Supplementary Data" and
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in this Annual Report on Form 10-K.
13
As of December 31
---------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
(In thousands of dollars except per share amounts)
BALANCE SHEET DATA AT YEAR-END:
Total assets $87,553 $98,997 $107,920 $107,903 $98,541
Long-term debt 46,855 58,494 65,706 67,948 61,543
Stockholders' equity 29,111 24,527 24,239 23,693 21,428
Weighted average shares outstanding:
Basic 7,796 7,810 7,832 7,914 8,161
Diluted 7,955 7,930 7,832 7,914 8,161
For the Year Ended December 31,
---------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
(In thousands of dollars except per share amounts)
INCOME STATEMENT DATA:
Revenues $ 9,706 $ 9,257 $ 9,143 $ 8,413 $ 7,434
--------- --------- ---------- ---------- ----------
Costs and expenses:
Operating expenses 5,499 5,453 5,260 4,559 3,878
Depreciation 1,673 1,647 1,541 1,320 1,271
General and administrative 2,143 2,349 2,131 1,690 1,689
--------- --------- ---------- ---------- ----------
Total costs and expenses 9,315 9,449 8,932 7,569 6,838
--------- --------- ---------- ---------- ----------
Dividend and interest income 685 743 877 867 -
Sale of marketable securities - 2,621 711 (1,684) -
Life insurance proceeds - 1,000 - - -
Other income 629 232 540 87 192
Interest expense including amortization
of deferred financing costs (2,343) (3,408) (2,226) (2,995) (1,729)
--------- --------- ---------- ---------- ----------
Income (loss) before provision for taxes (638) 996 113 (2,881) (941)
Income taxes (221) (107) (47) (1,129) (350)
--------- --------- ---------- ---------- ----------
Income (loss) from continuing operations (417) 1,103 160 (1,752) (591)
Discontinued operations - real estate 3,766 702 (92) 363 (579)
Discontinued operations - oil & gas (711) (3,178) 1,008 1,841 2,394
--------- --------- ---------- ---------- ----------
Net income (loss) $ 2,638 $(1,373) $ 1,076 $ 452 $ 1,224
========= ========= ========== ========== ==========
Basic earnings (loss) per share:
Continuing operations $(0.05) $0.14 $0.02 $(0.22) $(0.07)
Discontinued operations 0.39 (0.32) 0.12 0.28 0.22
--------- --------- ---------- ---------- ----------
Net income (loss) per share $0.34 $(0.18) $0.14 $0.06 $0.15
========= ========= ========== ========== ==========
Diluted earnings (loss) per share:
Continuing operations $(0.05) $0.14 $0.02 $(0.22) $(0.07)
Discontinued operations 0.38 (0.32) 0.12 0.28 0.22
--------- --------- ---------- ---------- ----------
Net income (loss) per share $ 0.33 $(0.18) $0.14 $ 0.06 $ 0.15
========= ========= ========== ========== ==========
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Wilshire's business has been comprised of three sets of activities - the real
estate business, the oil and gas business (which was sold in April 2004) and
corporate.
The real estate business consists of residential and commercial properties in
Arizona, Florida, Georgia, New Jersey and Texas. Within this portfolio of
properties, certain properties have been designated as being held for sale and
have been classified as discontinued operations. The following discussion takes
an income statement approach and discusses the results of operations first for
the properties comprising "continuing operations" and then discusses the
discontinued operations.
The assets comprising Wilshire's oil and gas business were sold in April 2004,
effective March 1, 2004. Oil and gas operations for all periods presented in
this report have been classified as discontinued operations.
Corporate activities include investments in marketable securities, management of
Wilshire's short-term cash positions and administrative functions.
All three activities are reviewed and analyzed in the following discussion,
which should be read in conjunction with the financial statements and notes
contained in Item 8 of this Form 10-K. Certain statements in this discussion may
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements reflect
Wilshire's current expectations regarding future results of operations, economic
performance, financial condition and achievements of Wilshire, and do not relate
strictly to historical or current facts. Wilshire has tried, wherever possible,
to identify these forward looking statements by using words such as "believe,"
"expect," "anticipate," "intend," "plan," "estimate," or words of similar
meaning. Although Wilshire believes that the expectations reflected in such
forward-looking statements are based on reasonable assumptions, such statements
are subject to risks and uncertainties, which may cause the actual results to
differ materially from those projected. Such factors include, but are not
limited to, the following: general economic and business conditions, which will,
among other things, affect demand for rental space, the availability of
prospective tenants, lease rents and the availability of financing; adverse
changes in Wilshire's real estate markets, including among other things,
competition with other real estate owners, risks of real estate development and
acquisitions; governmental actions and initiatives; and environmental / safety
requirements.
CRITICAL ACCOUNTING POLICIES
Pursuant to the Securities and Exchange Commission ("SEC") disclosure guidance
for "Critical Accounting Policies," the SEC defines Critical Accounting Policies
as those that require the application of Management's most difficult,
subjective, or complex judgments, often because of the need to make estimates
about the effects of matters that are inherently uncertain and may change in
subsequent periods.
Wilshire's discussion and analysis of its financial condition and results of
operations are based upon Wilshire's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires
Wilshire to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses. Wilshire bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
15
IMPAIRMENT OF PROPERTY AND EQUIPMENT
On a periodic basis, management assesses whether there are any indicators that
the value of its real estate properties may be impaired. A property's value is
considered impaired if management's estimate of the aggregate future cash flows
(undiscounted and without interest charges) to be generated by the property is
less than the carrying value of the property. To the extent impairment has
occurred, the loss shall be measured as the excess of the carrying amount of the
property over the fair value of the property. Management does not believe at
December 31, 2004 and 2003 that the value of any of its properties is impaired.
REVENUE RECOGNITION
Revenue from real estate properties is recognized during the period in which the
premises are occupied and rent is due from tenants. For commercial properties,
rental revenue is recognized on a straight-line basis over the term of the
lease. The excess of rents recognized over amounts contractually due pursuant to
the underlying leases are included in accounts receivable. For residential
properties where lease agreements are almost exclusively for one- year terms,
rental revenue is recognized in accordance with the contractual terms of the
underlying leases. The Company follows a policy of aggressively pursuing its
rental tenants to ensure timely payment of amounts due. When a tenant becomes 30
days in arrears on paying rent, the amount is written-off and turned over to a
collection agency for action. Accordingly, no allowance for uncollectible
accounts is maintained for the Company's real estate tenants.
An allowance for uncollectible accounts was maintained based on the Company's
estimate of the inability of its joint interest partners in the oil and gas
division to make required payments. With the sale of the oil and gas division,
the Company no longer maintains an allowance for uncollectible accounts.
FOREIGN OPERATIONS
The assets and liabilities of Wilshire's Canadian subsidiary have been
translated at year-end exchange rates. The related revenues and expenses have
been translated at average annual exchange rates. The aggregate effect of
translation losses is included as a component of accumulated other comprehensive
income (loss) until the sale or liquidation of the underlying foreign
investment.
As a result of the sale of the Canadian oil and gas assets in 2004 and the
anticipated distribution of net proceeds to the United States parent company in
2005, Wilshire has provided $2.1 million of United States taxes and $900,000 of
Canadian taxes that are expected to be incurred upon such remittance. See Note 1
of the Notes to the Consolidated Financial Statements in Item 8 of this Annual
Report on Form 10-K.
STOCK-BASED COMPENSATION
Wilshire follows the disclosure-only provisions of SFAS 123 and SFAS 148. The
provisions of SFAS 123R will be adopted commencing January 1, 2006.
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 153, " Exchanges of
Nonmonetary Assets an amendment of APB Opinion No. 29." SFAS 153 amends Opinion
29 to eliminate the exception for non monetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of nonmonetary
assets that do not have commercial substance. The provisions of SFAS 153 are
effective for nonmonetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005. Adoption of the provisions of SFAS 153 is not expected to
have a material impact on the Company's consolidated financial condition.
16
In December 2004, the FASB issued SFAS No. 123R, "Accounting for Stock-Based
Compensation." SFAS 123R establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. This Statement focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions.
SFAS 123R requires that the fair value of such equity instruments be recognized
as an expense in the historical financial statements as services are performed.
Prior to SFAS 123R, only certain pro forma disclosures of fair value were
required. SFAS 123R shall be effective for Wilshire as of the beginning of the
first interim or annual reporting period that begins after December 15, 2005.
The adoption of this new accounting pronouncement is not expected to have a
material impact on Wilshire's consolidated financial statements.
In December 2003, the FASB issued revised Financial Accounting Interpretation
("FIN") 46R, "Consolidation of Variable Interest Entities, an Interpretation of
Accounting Research Bulletin No. 51." FIN 46R requires the consolidation of an
entity in which an enterprise absorbs a majority of the entity's expected
losses, receives a majority of the entity's expected residual returns, or both,
as a result of ownership, contractual or other financial interests in the entity
(variable interest entities, or "VIEs"). Currently, entities are generally
consolidated by an enterprise when it has a controlling financial interest
through ownership or a majority voting interest in the entity. Application of
FIN 46R is required in financial statements of public entities that have
interests in VIEs or potential VIEs commonly referred to as special-purpose
entities for periods ending after December 31, 2003. Application by public
entities (other than small business issuers) for all other types of entities is
required in financial statements for periods ending after March 15, 2004.
Application by small business issuers to entities other than special-purpose
entities and by nonpublic entities to all types of entities is required at
various dates in 2004 and 2005. In some instances, enterprises have the option
of applying or continuing to apply Interpretation 46 for a short period of time
before applying Interpretation 46(R). As of December 31, 2004, the Company does
not have any variable interest entities that fall within the provisions of FIN
46(R).
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This Statement
requires that an issuer classify financial instruments that are within its scope
as a liability. Many of those instruments were classified as equity under
previous guidance. Most of the guidance in SFAS 150 was effective for all
financial instruments entered into or modified after May 31, 2003, and otherwise
was effective at the beginning of the first interim period beginning after June
15, 2003. As of December 31, 2004, the Company did not have any financial
instruments outstanding that were within the scope of Statement No. 150.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." The adoption of the provisions
of SFAS 149 did not have any impact on Wilshire's consolidated financial
statements.
17
RESULTS OF OPERATIONS
The following table presents the increases (decreases) in each major statement
of income category for the year ended December 31, 2004 ("2004") compared with
the year ended December 31, 2003 ("2003") and 2003 compared with the year ended
December 31, 2002 ("2002").
INCREASE (DECREASE) IN CONSOLIDATED STATEMENTS OF INCOME CATEGORIES FOR THE
PERIODS:
2004 v. 2003 2003 v. 2002
------------------------------------ ----------------------------------------
Amount ($) % Amount ($) %
---------- - ---------- -
REVENUES $ 449,000 4.9 % $ 114,000 1.2 %
---------- ----------
COSTS AND EXPENSES
Operating expenses 46,000 0.8 193,000 3.7
Depreciation expense 26,000 1.6 106,000 6.9
General and administrative (206,000) (8.8) 218,000 10.2
--------- ---------------
Total costs and expenses (134,000) (1.4) 517,000 5.8
--------- ---------------
INCOME (LOSS) FROM OPERATIONS 583,000 303.6 (403,000) (191.0)
OTHER INCOME
Dividend and interest income (58,000) (7.8) (134,000) (15.3)
Gain on sale of marketable securities (2,621,000) (100.0) 1,910,000 268.6
Insurance proceeds (1,000,000) (100.0) 1,000,000 100.0
Other income 397,000 171.1 (308,000) (57.0)
INTEREST EXPENSE (1,065,000) (31.3) 1,182,000 53.1
----------- ---------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES (1,634,000) (164.1) 883,000 781.4
INCOME TAX EXPENSE (BENEFIT) 114,000 106.5 60,000 (127.7)
----------- ---------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (1,520,000) (137.8) 943,000 589.4
----------- ---------------
DISCONTINUED OPERATIONS - REAL ESTATE, NET OF
TAXES
LOSS FROM OPERATIONS (89,000) (23.5) (137,000) (56.6)
GAIN FROM SALES 2,975,000 275.2 931,000 620.7
DISCONTINUED OPERATIONS - OIL & GAS, NET OF
TAXES
INCOME (LOSS) FROM OPERATIONS 1,900,000 59.8 (4,186,000) (415.3.)
GAIN FROM SALES 567,000 100.0 - (A)
---------- ---------------
NET INCOME (LOSS) $4,011,000 292.1 $(2,449,000) (227.6)
========== ===============
BASIC EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations $(0.19) (135.7) $ 0.12 600.0
Income (loss) from discontinued operations 0.71 229.0 (0.44) (366.7)
------ ------
Net income (loss) applicable to common
stockholders $ 0.52 288.9 $(0.32) 228.6
======= =======
DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations $(0.19) (135.7) $ 0.12 600.0
Income from discontinued operations 0.70 218.8 (0.44) (366.7)
------- -------
Net income (loss) applicable to common
stockholders $ 0.51 283.3 $(0.32) (228.6)
======= =======
(A) There was no gain from the sale of the oil and gas business in either 2003
or 2002.
18
RESULTS OF OPERATIONS - 2004 V. 2003
OVERVIEW
Net income for 2004 amounted to $2,638,000 or $0.33 per diluted share, an
improvement of $4,011,000 from the net loss of $1,373,000 or $0.18 per diluted
share reported for 2003. Results of operations are shown as continuing and
discontinued, with discontinued operations comprised of the results of
operations from the Company's oil and gas businesses, the results of the sale of
the oil and gas properties, the operating results from real estate properties
held for sale and the gain from real estate properties held for sale that were
sold during the period.
CONTINUING OPERATIONS:
Loss from continuing operations was $417,000 in 2004 compared with income of
$1,103,000 in 2003. Results per diluted share from continuing operations
amounted to $(0.05) in 2004 and $0.14 in 2003. The 2003 period included
$1,550,000 of after tax ($2,621,000 before taxes) gains on the sale of
marketable securities and $1,000,000 after tax income from death benefits
received from an insurance policy on the life of the Company's former Senior
Consultant. Without these two special transactions, the Company would have
incurred a loss from continuing operations of $1,447,000 in 2003.
Reported income from continuing operations in 2004 compared with 2003 reflects a
higher level of income from operations (defined as revenues reduced by operating
expenses, depreciation and general and administrative expenses), a lower level
of interest expense and an increased income tax benefit, that was offset by
lower other income. These factors are discussed below.
SEGMENT INFORMATION
Wilshire presently conducts business in the residential (including condominiums
that it owns and rents) and commercial real estate segments. The following table
sets forth comparative data for Wilshire's real estate segments in continuing
operations.
Residential Real Estate Commercial Real Estate Total
---------------------------------- ------------------------------- -------------------------------
Year ended Increase Year ended Increase Year ended Increase
December 31 (Decrease) December 31 (Decrease) December 31 (Decrease)
----------- ---------- ----------- ---------- ----------- ----------
2004 2003 $ % 2004 2003 $ % 2004 2003 $ %
---- ---- - - ---- ---- - - ---- ---- - -
(In 000s of $) (In 000s of $) (In 000s of $)
Rental income $6,920 $6,839 $81 1.2 $2,179 $1,908 $271 14.2 $9,099 $8,747 $352 4.0
Tenant fees 5 1 4 - 6 3 3 100.0 11 4 7 -
Vending
income 75 62 13 21.0 - - - - 75 62 13 21.0
Other 456 411 45 10.9 65 33 32 97.0 521 444 77 17.3
------ ------ ----- ------ ------ ---- ------ ------- ----
Total
revenues 7,456 7,313 143 2.0 2,250 1,944 306 15.7 9,706 9,257 449 4.9
Operating
expenses 4,337 4,405 (68) (1.5) 1,162 1,048 114 10.9 5,499 5,453 46 0.8
------ ------ ----- ------ ------ ---- ------ ------- ----
Net
operating
income $3,119 $2,908 $211 7.3 $1,088 $ 896 $192 21.4 $4,207 $3,804 $403 10.6
====== ====== ==== ===== ====== ====== ==== ==== ====== ====== ==== ====
Average
occupancy % 91.2 91.6 60.5 55.7 84.1 84.1
Reconciliation to consolidated income (loss) from continuing operations:
Net operating income $4,207 $3,804
Depreciation expense (1,673) (1,647)
General and administrative expenses (2,143) (2,349)
Other income 1,314 4,596
Interest expense (2,343) (3,408)
Income tax benefit 221 107
------ ------
Income (loss) from continuing operations $ (417) $1,103
====== ======
19
The above table details the comparative net operating income ("NOI") for
Wilshire's residential and commercial real estate segments, and reconciles the
combined NOI to consolidated income (loss) from continuing operations. NOI is
based on operating revenue and expenses directly associated with the operations
of the real estate properties, but excludes depreciation and interest expense.
Wilshire assesses and measures segment operating results based on NOI, which is
a direct measure of each property's contribution to the results of the Company
before considering revenues from treasury activities, overhead expenses and
other costs that are not directly related to the performance of a property. The
Company believes NOI is a more descriptive measure of the Company's performance
than income (loss) from continuing operations. NOI is not a measure of operating
results or cash flow as measured by accounting principles generally accepted in
the United States of America and is not necessarily indicative of cash available
to fund cash needs and should not be considered an alternative to cash flows as
a measure of liquidity.
RESIDENTIAL SEGMENT
During 2004 revenues increased $143,000 or 2.0% to $7,456,000 and NOI increased
$211,000 or 7.3% to $3,119,000. Wilshire's properties in Texas (Summercreek and
Wellington) contributed NOI increases of $212,000, while the Arizona properties
(Sunrise Ridge and Van Buren) contributed NOI increases of $59,000. The New
Jersey properties (Alpine Village, Galsworthy Arms and Jefferson Gardens) had a
NOI decrease of $60,000. These results are partially reflective of the relative
strengths of the rental markets in these areas. In addition, the condominiums
owned by Wilshire at Galsworthy Arms were intentionally left vacant for portions
of 2004 so that upgrades, repairs and maintenance work could be performed.
Similarly, condominium units at Jefferson Gardens were intentionally left vacant
while the Company evaluated the sale of these units.
In addition to the work Wilshire is undertaking in the units that it owns at
Galsworthy Arms, the condominium association, in which Wilshire is the majority
owner, has commenced work to upgrade the common areas of the Galsworthy Arms
complex, including the parking lot, awnings, doorways, lighting and landscaping.
During 2004, Wilshire has paid to the association a special assessment of
$315,000 for its share of these improvements. The Company believes these
expenditures will strengthen the competitive position of the property and
potentially enhance the value of the condominiums.
COMMERCIAL SEGMENT
During 2004 revenues increased $306,000 or 15.7% to $2,250,000 and NOI increased
$192,000 or 21.4% to $1,088,000. The primary factor in the increased NOI was the
Wilshire Grand Hotel where increased rental income in 2004 resulted in a
$175,000 improvement in NOI. This improvement was partly offset by a decline in
NOI at Tempe Corporate Center which experienced lower rental income in 2004 due
to tenants moving out not being replaced and higher operating costs.
During the second half of 2004, and continuing into 2005, the Company has
undertaken a program to upgrade the common areas of the Tempe Corporate Center.
Through February 2005, in excess of $300,000 has been spent on this program.
Partially as a result of this upgrade program and increased marketing efforts,
the Company has entered into several leases with new tenants and the building
has an improved occupancy percentage in February 2005 as compared to September
2004, when the increased marketing efforts commenced.
20
REVENUES
Years Ended December 31,
------------------------------
2004 2003 Increase (Decrease)
---- ---- -------------------
Alpine Village, New Jersey $1,120,000 $1,141,000 $(21,000)
Galsworthy Arms, New Jersey 481,000 485,000 (4,000)
Jefferson Gardens, New Jersey 200,000 229,000 (29,000)
Summercreek, Texas 1,091,000 1,031,000 60,000
Sunrise Ridge, Arizona 2,388,000 2,341,000 47,000
Van Buren Apartments, Arizona 588,000 561,000 27,000
Wellington, Texas 1,588,000 1,525,000 63,000
--------- --------- ------
Sub-total - Condominium & Residential Properties 7,456,000 7,313,000 143,000
--------- --------- -------
Royal Plaza, Arizona 655,000 619,000 36,000
Rutherford, New Jersey 110,000 110,000 -
Tamarac, Florida 313,000 281,000 32,000
Tempe Corporate Center, Arizona 684,000 692,000 (8,000)
Wilshire Grand Hotel, New Jersey 488,000 242,000 246,000
--------- --------- -------
Sub-total - Commercial Properties 2,250,000 1,944,000 306,000
--------- --------- -------
Total Revenues $9,706,000 $9,257,000 $449,000
========== ========== ========
Revenues from rental properties amounted to $9,706,000 in 2004, an increase of
$449,000 or 4.9%, from $9,257,000 in 2003. The majority of the increase for the
2004 period is attributable to higher rent and reimbursement of real estate tax
expenses applicable to the Wilshire Grand Hotel, the Company's triple net leased
hotel and conference facility located in New Jersey. The remainder of the
increase is related to improved occupancy and market conditions at the Company's
properties located outside of New Jersey. Excluding the Wilshire Grand Hotel,
revenues were lower at the Company's New Jersey properties mainly due to
building improvements and enhanced maintenance that required a number of the
rental units to remain vacant.
OPERATING EXPENSES
Years Ended December 31,
-------------------------------
2004 2003 Increase (Decrease)
---- ---- -------------------
Alpine Village, New Jersey $ 584,000 $587,000 $(3,000)
Galsworthy Arms, New Jersey 312,000 324,000 (12,000)
Jefferson Gardens, New Jersey 140,000 119,000 21,000
Summercreek, Texas 648,000 671,000 (23,000)
Sunrise Ridge, Arizona 1,249,000 1,244,000 5,000
Van Buren Apartments, Arizona 359,000 349,000 10,000
Wellington, Texas 1,045,000 1,111,000 (66,000)
--------- --------- --------
Sub-total - Condominium and Residential Properties 4,337,000 4,405,000 (68,000)
--------- --------- --------
Royal Plaza, Arizona 213,000 228,000 (15,000)
Rutherford, New Jersey - (1,000) 1,000
Tamarac, Florida 177,000 137,000 40,000
Tempe Corporate Center, Arizona 347,000 330,000 17,000
Wilshire Grand Hotel, New Jersey 425,000 354,000 71,000
--------- --------- ------
Sub-total - Commercial Properties 1,162,000 1,048,000 114,000
--------- --------- -------
Total Operating Expenses $5,499,000 $5,453,000 $ 46,000
========== ========== ========
Operating expenses were $5,499,000 in 2004, $46,000, or 0.8% higher than
$5,453,000 in 2003. The majority of the increase for the 2004 period is
primarily attributable to higher real estate tax expenses applicable to the
Wilshire Grand Hotel.
21
Depreciation expense amounted to $1,673,000 in 2004, an increase of 1.6% from
the $1,647,000 in 2003, reflecting increased capital expenditures throughout the
Company's network of residential and commercial properties. These expenditures
were undertaken as part of a program to reposition and strengthen the Company's
properties within their targeted markets. Depreciation expense is not included
in the operating expenses included in the preceding table and discussion.
General and administrative expense decreased $206,000, or 8.8%, to $2,143,000 in
2004 from $2,349,000 in 2003. The decrease was related largely to an increased
allocation of expenses to discontinued operations - real estate, reflecting the
increased management time and expense associated with managing and selling these
properties. This decrease was partly offset by a non-cash charge of $114,000
related to stock options for the former president of the Company who retired
June 30, 2004 and whose services has been retained under a three-year consulting
agreement. The stock option expense will be amortized over the three-year term
of the consulting agreement. At December 31, 2004, $431,000 remained to be
amortized into expense.
Other income decreased $3,282,000 to $1,314,000 in 2004 from $4,596,000 in 2003,
principally related to $2,621,000 of gains in 2003 from the sale of marketable
securities and the receipt of $1,000,000 by the Company in 2003 as a beneficiary
of life insurance policies on the life of the Company's former Chairman and
President Siggi B. Wilzig, who had been serving as its Senior Consultant up to
his death on January 7, 2003. The receipt of the life insurance proceeds was not
taxable to the Company. No securities were sold in the 2004 period. These 2003
events were partly offset by a $181,000 gain in 2004 on the sale of two
condominium units at the Company's Jefferson Gardens, New Jersey, property. The
Company intends to continue to operate the remaining units.
Interest expense decreased to $2,343,000 from $3,408,000 in 2003, mainly related
to the payoff of approximately $6.4 million of mortgage debt related to real
estate properties sold and the impact of the Company's refinancing of certain
real estate properties in 2003. Due to the refinancing that was generally
effective March 1 2003, 2003 interest expense includes a one-time prepayment
penalty of $469,000 and $383,000 of amortization expense applicable to a
write-off of unamortized mortgage costs associated with approximately $31.5
million of debt that was refinanced. This refinancing of the mortgage notes
payable reduced the effective rate paid by the Company from 7.36% to 6.22% and
extended its maturity and terms. The impact of the refinancing was reflected in
a reduction of interest expense for ten months of 2003 and the full year 2004.
The provision for income taxes amounted to a tax benefit of $221,000 in 2004
compared to a tax benefit of $107,000 in 2003. The change in the provision for
income taxes is related to the level of income from continuing operations in
2004 compared to 2003 and the change in the mix between taxable and tax-exempt
income. In 2004, the Company earned approximately $194,000 of tax-exempt
interest income compared to none earned in 2003, while in 2003, the $1,000,000
of insurance proceeds received was exempt from taxation.
DISCONTINUED OPERATIONS, NET OF TAXES:
REAL ESTATE
Income from discontinued operations amounted to after tax income of $3,766,000
in 2004 and $702,000 in 2003. The increased income reflects the high level of
sales of properties in 2004 compared to 2003.
During 2004, the Company sold land in Montville, New Jersey, and South
Brunswick, New Jersey for gross proceeds of $1,000,000 and $3,950,000,
respectively, that resulted in after-tax gains of $205,000 and $485,000,
respectively. The Company also sold thirteen residential properties located in
Jersey City, New Jersey for gross proceeds of $14,750,000 that resulted in an
after-tax gain of $3,366,000.
In 2003, three properties in Florida were sold for gross proceeds of $3,190,000
that resulted in an after-tax gain of $1,081,000.
22
The loss on operating discontinued real estate properties declined in 2004 to
$290,000 in 2004 from $379,000 in 2003, reflecting the sale of thirteen
residential properties in Jersey City, New Jersey, during the first quarter of
2004.
OIL AND GAS
The Company announced in July 2003 its intention to sell its oil and gas
businesses. The Canadian oil and gas business was sold in April 2004 to Addison
Energy Inc., a wholly owned subsidiary of Exco Resources, Inc., for $15 million
in gross proceeds. The United States oil and gas business was sold in April 2004
to Crow Creek Energy LLC, a Tulsa, Oklahoma based privately held portfolio
company of Natural Gas Partners of Dallas, Texas, for $13.3 million in gross
proceeds. During 2004 and 2003, respectively, the Company recorded losses, net
of taxes, from its oil and gas businesses of $1,278,000 and $3,178,000,
respectively. The net loss from operating the oil and gas business in 2004
includes the operating results of the oil and gas business for January and
February and the continuing reconciliation process between the Company and its
partners for periods prior to the effective dates of the sales. The Company
received gross proceeds from the sale of its oil and gas assets in the United
States and Canada of $28.3 million and recorded a net after-tax gain of $567,000
on the sale.
RESULTS OF OPERATIONS - 2003 V. 2002
OVERVIEW
Net income for 2003 amounted to a loss of $1,373,000 or $0.18 per diluted share,
compared to net income of $1,076,000 or $0.14 per diluted share reported for
2002.
CONTINUING OPERATIONS:
Income from continuing operations was $1,103,000 in 2003 compared with $160,000
in 2002. Results per diluted share from continuing operations amounted to $0.14
in 2003 and $0.02 in 2002. The 2003 period included $1,550,000 of after tax
($2,621,000 before taxes) gains from the sale of marketable securities and
$1,000,000 after tax income from death benefits received from an insurance
policy on the life of the Company's former senior consultant. The 2002 period
included $421,000 of after tax ($711,000 before taxes) gains from the sale of
marketable securities. Without these special transactions, the Company would
have incurred losses from continuing operations of $1,447,000 in 2003 and
$308,000 in 2002.
Reported income from continuing operations in 2003 compared with 2002 reflects a
higher level of other income that included the previously mentioned gains from
the sale of marketable securities and the proceeds from an insurance policy on
the life of the Company's former Senior Consultant and a higher income tax
benefit. This positive factor was offset by reduced income from operations and
higher interest expense.
23
SEGMENT INFORMATION
The following table sets forth comparative data for Wilshire's real estate
segments in continuing operations.
Residential Real Estate Commercial Real Estate Total
--------------------------------- ----------------------------------- --------------------------------------
Year ended Increase Year ended Increase Year ended Increase
December 31 (Decrease) December 31 (Decrease) December 31 (Decrease)
----------- ---------- ----------- ---------- ----------- ----------
2003 2002 $ % 2003 2002 $ % 2003 2002 $ %
---- ---- - - ---- ---- - - ---- ---- - -
(In 000s of $) (In 000s of $) (In 000s of $)
Rental income $6,839 $6,817 $22 0.3 $1,908 $1,842 $ 66 3.6 $8,747 $8,659 $88 1.0
Tenant fees 1 3 (2) - 3 2 1 50.0 4 5 (1) (20.0)
Vending
income 62 57 5 8.8 - - - - 62 57 5 8.8
Other 411 395 16 4.1 33 27 6 22.2 444 422 22 5.2
------ ------ ------ ------ ------ ----- ------ ------ -----
Total
revenues 7,313 7,272 41 0.6 1,944 1,871 73 3.9 9,257 9,143 114 1.2
Operating
expenses 4,405 4,096 309 7.5 1,048 1,164 (116) (10.0) 5,453 5,260 193 3.7
----- ----- ------ ----- ----- ----- ----- ----- ---
Net
operating
income $2,908 $3,176 $(268) (8.4) $ 896 $ 707 $ 189 26.7 $3,804 $3,883 $(79) (2.0)
====== ====== ====== ===== ====== ====== ===== ===== ====== ====== ===== ======
Average
occupancy % 91.6 91.5 55.7 53.6 84.1 83.8
Reconciliation to consolidated income (loss) from continuing operations:
Net operating income $3,804 $3,883
Depreciation expense (1,647) (1,541)
General and administrative expenses (2,349) (2,131)
Other income 4,596 2,128
Interest expense (3,408) (2,226)
Income tax benefit 107 47
------ -------
Income (loss) from continuing operations $1,103 $ 160
====== =======
The above table details the comparative net operating income ("NOI") for
Wilshire's residential and commercial real estate segments, and reconciles the
combined NOI to consolidated income (loss) from continuing operations. NOI is
based on operating revenue and expenses directly associated with the operations
of the real estate properties, but excludes depreciation and interest expense.
Wilshire assesses and measures segment operating results based on NOI, which is
a direct measure of each property's contribution to the results of the Company
before considering revenues from treasury activities, overhead expenses and
other costs that are not directly related to the performance of a property. The
Company believes NOI is a more descriptive measure of the Company's performance
than income (loss) from continuing operations. NOI is not a measure of operating
results or cash flow as measured by generally accepted accounting principles,
and is not necessarily indicative of cash available to fund cash needs and
should not be considered an alternative to cash flows as a measure of liquidity.
RESIDENTIAL SEGMENT
During 2003 revenues increased $41,000 or 0.6% to $7,313,000 and NOI decreased
$268,000 or 8.4% to $2,908,000. Excluding Sunrise Ridge which had a NOI increase
of $16,000, all properties had a decline in NOI. The decline was attributable to
generally weak rental markets across all of the communities served by Wilshire.
In addition, operating expenses increased primarily due to higher utility,
maintenance and insurance costs. In particular, energy costs have increased
substantially in the Southwest.
COMMERCIAL SEGMENT
During 2003 revenues increased $73,000 or 3.9% to $1,944,000 and NOI increased
$189,000 or 26.7% to $896,000. NOI improved at all properties except for Tempe
Corporate Center which had a NOI decline of $89,000 due to reduced rental
income. NOI in 2003 was improved by the first time inclusion of revenue from the
Company's triple net lease with a major bank at Rutherford, New Jersey.
24
REVENUES
Years Ended December 31,
----------------------------------
2003 2002 Increase (Decrease)
---- ---- -------------------
Alpine Village, New Jersey $1,141,000 $1,061,000 $ 80,000
Galsworthy Arms, New Jersey 485,000 472,000 13,000
Jefferson Gardens, New Jersey 229,000 217,000 12,000
Summercreek, Texas 1,031,000 1,055,000 (24,000)
Sunrise Ridge, Arizona 2,341,000 2,356,000 (15,000)
Van Buren Apartments, Arizona 561,000 583,000 (22,000)
Wellington, Texas 1,525,000 1,528,000 (3,000)
---------- ---------- ----------
Sub-total - Residential Properties 7,313,000 7,272,000 41,000
---------- ---------- ----------
Royal Plaza, Arizona 619,000 571,000 48,000
Rutherford, New Jersey 110,000 - 110,000
Tamarac, Florida 281,000 270,000 11,000
Tempe Corporate Center, Arizona 692,000 850,000 (158,000)
Wilshire Grand Hotel, New Jersey 242,000 180,000 62,000
---------- ---------- ----------
Sub-total - Commercial Properties 1,944,000 1,871,000 73,000
---------- ---------- ----------
Total Rental Revenues $9,257,000 $9,143,000 $ 114,000
========== ========== ==========
Revenues amounted to $9,257,000 in 2003, an increase of $114,000 or 1.2%, from
$9,143,000 in 2002. The majority of the increase is related to the triple net
leases the Company holds with the Wilshire Grand Hotel and the Company's newly
leased bank branch in Rutherford, New Jersey and Alpine Village, New Jersey.
These increases were partly offset by a decline in revenue at Tempe Corporate
Center, Arizona, which experienced a lag in leasing up vacant office space.
OPERATING EXPENSES
Years Ended December 31,
---------------------------------
2003 2002 Increase (Decrease)
---- ---- -------------------
Alpine Village, New Jersey $587,000 $ 481,000 $ 106,000
Galsworthy Arms, New Jersey 324,000 241,000 83,000
Jefferson Gardens, New Jersey 119,000 99,000 20,000
Summercreek, Texas 671,000 629,000 42,000
Sunrise Ridge, Arizona 1,244,000 1,275,000 (31,000)
Van Buren Apartments, Arizona 349,000 350,000 (1,000)
Wellington, Texas 1,111,000 1,021,000 90,000
---------- ---------- ----------
Sub-total - Residential Properties 4,405,000 4,096,000 309,000
---------- ---------- ----------
Royal Plaza, Arizona 228,000 261,000 (33,000)
Rutherford, New Jersey (1,000) 8,000 (9,000)
Tamarac, Florida 137,000 148,000 (11,000)
Tempe Corporate Center, Arizona 330,000 399,000 (69,000)
Wilshire Grand Hotel, New Jersey 354,000 348,000 6,000
---------- ---------- ----------
Sub-total - Commercial Properties 1,048,000 1,164,000 (116,000)
---------- ---------- ----------
Total Operating Expenses $5,453,000 $5,260,000 $ 193,000
========== ========== ==========
25
Operating expenses were $5,453,000 in 2003, $193,000, or 3.7% higher than
$5,260,000 in 2002. The operating expense increase was centered in the Company's
New Jersey properties that experienced higher property taxes, insurance and
maintenance charges in 2003.
Depreciation expense amounted to $1,647,000 in 2003, an increase of 6.9% from
$1,541,000 in 2002, reflecting the capital improvements incurred during 2002 and
2003.
General and administrative expense increased $218,000, or 10.2%, to $2,349,000
in 2003 from $2,131,000 in 2002. The 2003 expense level included a full year of
compensation expense for a senior executive officer hired in mid-2002. The
remainder of the increase was attributable to higher corporate insurance
expenses and legal and accounting fees.
Other income increased $2,450,000 to $4,596,000 in 2003 from $2,128,000 in 2002.
This increase included $1,000,000 received by the Company in 2003 as a
beneficiary of life insurance policies on the life of the Company's Senior
Consultant. The receipt of the life insurance proceeds was not taxable to the
Company. Also included in other income for 2003 were gains from the sale of
securities of $2,621,000, which exceeded the gains reported in 2002 by
$1,910,000.
Interest expense in 2003 increased to $3,408,000 from $2,226,000 in 2002.
Interest expense in 2003 includes a one time prepayment penalty of $469,000 and
$383,000 of amortization expense applicable to a write-off of unamortized
mortgage costs associated with approximately $31.5 million of debt that was
refinanced. This refinancing of the mortgage notes payable reduced the effective
rate paid by the Company from 7.36% to 6.22% and extended its maturity and
terms.
The provision for income taxes amounted to a tax benefit of $107,000 in 2003
compared to a tax benefit of $47,000 2002. The change in the provision for
income taxes is related to the level of income from continuing operations in
2003 compared to 2002 and the change in the mix between taxable and tax-exempt
income. In 2003, $1,000,000 of insurance proceeds received was exempt from
taxation.
DISCONTINUED OPERATIONS, NET OF TAXES:
REAL ESTATE
Income from discontinued operations amounted to after tax income of $702,000 in
2003 and a loss of $92,000 in 2002. The increased income reflects the higher
level of sales of properties in 2003 compared to 2002.
During 2003, the Company sold three properties in Florida for gross proceeds of
$3,190,000 that resulted in an after-tax gain of $1,081,000. In 2002, the
Company sold several smaller residential properties in New Jersey for an
after-tax gain of $150,000.
The loss on operating discontinued real estate properties increased to $379,000
in 2003 from $242,000 in 2002 mainly due to additional properties being
classified as discontinued in 2004 with the resulting reclassification of their
operating results out of continuing operations into discontinued operations for
the 2003 and 2002 periods.
OIL AND GAS
During 2003 the Company recorded a loss, net of taxes, from its oil and gas
businesses of $3,178,000, which included a $4.4 million after tax charge
resulting from the difference between the carrying value and estimated market
value of the Company's Canadian oil and gas properties. Excluding this non-cash
charge, the Company would have reported after-tax earnings in 2003 of
$1,222,000.
In 2002, the Company reported after-tax earnings from operating its oil and gas
properties of $1,008,000.
26
EFFECTS OF INFLATION
The effects of inflation on the Company's financial condition are not considered
to be material by management.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2004, the Company had working capital of $34.6 million, compared
to a working capital deficiency of $7.2 million at December 31, 2003. The change
reflects the receipt of approximately $28.1 million from the sale of the oil and
gas business and approximately $20.0 million from the sale of real estate
properties, partly offset by the payment of a portion of the income taxes
related to those sales and the repayment of $5.3 million of debt related to the
real estate properties sold.
The Company has $35.0 million of cash and cash equivalents at December 31, 2004.
This balance is comprised of working capital accounts for its real estate
properties and corporate needs and short-term investments in government and
corporate securities and money market funds. The Company estimates that it has
approximately $5.6 million of taxes remaining to be paid relating to the sale of
the oil and gas business, including U.S. and Canadian taxes on the repatriation
of earnings from its Canadian subsidiary, and the sales of real estate
properties. These obligations will be satisfied in the first half of 2005,
partly through the application of an approximate $2.9 million estimated
overpayment of 2004 U.S. Federal taxes. After considering the tax payments
previously described, Wilshire will have $32.3 million of cash and cash
equivalents for working capital and other purposes.
The Company continues to explore corporate and real estate property acquisitions
as they arise. The timing of such acquisitions, if any, will depend upon, among
other criteria, economic conditions and the favorable evaluation of specific
opportunities presented to the Company. In the short-term, the Company will
continue to invest these funds in high quality investments that are consistent
with its investment policy. Management considers its liquidity position adequate
to fulfill the Company's current business plans.
Net cash used in operating activities amounted to $10.2 million in 2004, while
in 2003 and 2002 operating activities provided net cash of $7.4 million and $4.9
million, respectively. The 2004 use of cash resulted from net income of $2.6
million, the sale of the oil and gas business and the sale of real estate
properties with their related changes in receivables, payables and current and
deferred tax accounts. The 2003 provision of cash was mainly related to a net
loss of $1.4 million and non-cash charges for depreciation and amortization
expense ($6.2 million) and an impairment loss related to Wilshire's Canadian oil
and gas operations ($7.0 million), partly offset by changes in other current
asset and liability and income tax accounts related to normal business activity.
The 2002 provision of cash was mainly related to a net income of $1.1 million
and non-cash charges for depreciation and amortization expense ($3.9 million).
Net cash provided by investing activities amounted to $43.6 million in 2004 and
$2.1 million in 2003. In 2002, investing activities used net cash of $3.3
million. The cash provided by investing activities in 2004 is due mainly to the
sale of real estate assets and oil and gas assets in 2004, partly offset by an
increase in restricted cash related to the IRS Section 1031 exchange that the
Company has entered into with the proceeds from the sale of land at Schalk
Station, New Jersey. The 2003 provision of cash from investing activities is
related to proceeds from the sale of real estate properties and marketable
securities, partly offset by capital expenditures on real estate properties and
oil and gas activities. The 2002 use of cash from investing activities relates
to the purchase of marketable securities and capital expenditures on real estate
properties and oil and gas activities, partly offset by proceeds from the sale
of marketable securities.
Net cash used in financing activities amounted to $11.8 million in 2004, $7.7
million in 2003 and $2.6 million in 2002. The 2004 use of cash reflects the
repayment of long term debt due to the sales of real estate properties and the
oil and gas assets and normal annual amortization of long term debt from monthly
debt service payments. The 2003 use of cash reflects the net of repayments of
long term debt due to the refinancing of various mortgage loans, the sale of
real estate properties and normal annual amortization of long term debt from
monthly debt service payements, partly offset by the issuance of new mortgage
loans from the previously mentioned refinancing. The 2002 use of funds is
related to the repayment of long term debt partly offset by the issuance of new
debt.
27
In addition to the generation of funds from its operations, the Company had a
$2.0 million line of credit with a major financial institution that expired in
January 2005 and was not renewed. The Company believes it has adequate capital
resources to fund its operations for the foreseeable future and is investigating
the renewal of this line of credit, but is not committed to doing so.
The Company is committed to investing in its properties to maintain their
competitiveness within their markets and for the purposes of upgrading and
repositioning in more upscale markets. The following table sets forth the
amounts of capital expenditures made in each property within the past three
years, exclusive of those properties which were sold.
Years Ended December 31,
-----------------------------------
Name of property 2004 2003 2002
- ---------------- ---- ---- ----
Residential continuing operations:
Alpine Village $ 85,000 $ 177,000 $ 49,000
Summercreek 207,000 88,000 84,000
Sunrise Ridge 258,000 204,000 234,000
Van Buren 126,000 107,000 91,000
Wellington 257,000 575,000 161,000
Galsworthy Arms 424,000 87,000 44,000
Jefferson Gardens 13,000 18,000 14,000
Commercial continuing operations:
Royal Mall Plaza 50,000 22,000 299,000
Tamarac Office Plaza 4,000 4,000 82,000
Tempe Corporate 278,000 97,000 115,000
Wilshire Grand Hotel & Banquet Facility - 316,000 722,000
Rutherford Bank - - -
Discontinued operations - residential:
Biltmore Club 195,000 55,000 299,000
Twelve Oaks 56,000 90,000 37,000
Discontinued operations - commercial:
Amboy Towers 298,000 55,000 54,000
---------- ---------- ----------
Total capital expenditures $2,251,000 $1,895,000 $2,285,000
========== ========== ==========
On June 3, 2004, the Company's Board of Directors approved the repurchase of up
to 1,000,000 shares of its common stock on the open market, in privately
negotiated transactions or otherwise. This purchasing activity may occur from
time to time, in one or more transactions. At December 31, 2004, the Company had
purchased 38,478 shares at an aggregate cost of $198,000 under this program. The
majority of the shares acquired were from stockholders who at the time owned
less than 100 shares of the Company's common stock.
During March 2005, Wilshire negotiated a long-term lease for new offices in
Newark, New Jersey. The lease is for a 65 month term with two renewal options
each for a five-year term and covers 4,502 rentable square feet at a base rate
of $29.00 per square foot. The Company has an option to early terminate the
lease after two years, subject to a termination fee described in note 5 to the
Notes to the Consolidated Financial Statements in Item 8 of this Form 10-K.
The Company has concluded negotiations with the city of Perth Amboy, New Jersey
concerning the redevelopment zone status of its office building (Amboy Towers).
The City has agreed to exclude Amboy Towers from the redevelopment zone and the
Company has agreed to invest $750,000 in capital improvements in the building
over the next 18 months.
28
In January 2005, the Company sold one 2-bedroom condominium at Galsworthy Arms,
New Jersey, for gross proceeds of $269,500. After payment of closing costs and
taxes, the Company will realize net income in the first quarter 2005 of
approximately $115,000.
In February 2005, the Company signed an agreement to sell its Biltmore Club
apartment complex (Phoenix, Arizona) to GDG Partners L.L.C. an independent third
party, for $20,956,000. The agreement is expected to close no later than
December 23, 2005. GDG Partners L.L.C. has paid Wilshire a nonrefundable deposit
of $100,000 and additional nonrefundable deposits of $150,000 and $250,000 are
required by April 3, 2005 and July 2, 2005, respectively. We expect to report a
gain on the sale after taxes of approximately $8.5 million and have net proceeds
after transaction costs and paying off the mortgage of approximately $10.0
million.
Also in February 2005, the Company entered into an agreement to accept
$1,100,000 in settlement of its mortgage receivable, which was paid during the
first quarter of 2005. Security for the mortgage was a first lien on in excess
of 100 condominium units in two contiguous buildings located in Jersey City, New
Jersey. At December 31, 2004, the mortgage receivable had a gross carrying value
of $1,165,000 and $727,000 of unearned income. As a result of this transaction,
the Company recognized a gain of approximately $400,000 in the first quarter of
2005.
In March 2005, the Company signed an agreement to sell its Twelve Oaks apartment
complex (Atlanta, Georgia) to Interstate East Management, Inc., an independent
third party, for $1,725,000. The agreement contains a "time is of the essence
clause" and is expected to close as soon as practicable. We expect to report a
gain on the sale after taxes of approximately $440,000. The property had been
highly leveraged and the transaction will generate net proceeds after
transaction costs and taxes of approximately $1,379,000, which will be used to
repay the outstanding mortgage balance of approximately $1,609,000. The
shortfall in the net proceeds will be made up from general corporate sources of
funds.
Also in March 2005 the Company was evaluating alternatives for optimizing its
investment in the Wilshire Grand Hotel and Banquet Facility (the "Wilshire
Hotel"). The Company leases the Wilshire Hotel under two 25-year operating
leases, one for the hotel and one for the banquet facility, to an experienced
hotel operator (the "Hotel Operator"). The Hotel Operator has encountered
financial adversity and in 2004 ceased payment on its mortgage obligations,
which are held by a third party (the "Mortgagor"). As of March 2005, the Hotel
Operator was also delinquent on lease payments to Wilshire for the months of
January, February and March 2005. The Mortgagor is required to cure any defaults
of the Hotel Operator (i.e., pay any amounts due Wilshire under the lease) in
order to protect its mortgage and cannot impair Wilshire's ownership interest in
the property. As a result of the Hotel Operator's delinquency, Wilshire is
evaluating alternatives for its investment including: a) declaring the Hotel
Operator in default and pursuing tenant eviction proceedings and b) assisting in
the consummation of a settlement agreement by which Wilshire would assume
operational control of the Wilshire Hotel and in the event of a subsequent sale
of the hotel, would receive an agreed upon value prior to any proceeds being
distributed to the Mortgagor or Hotel Operator. At this time, Wilshire does not
expect to incur a loss on this property.
FORWARD-LOOKING STATEMENTS
This Report on Form 10-K for the year ended December 31, 2004 contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements included herein other than
statements of historical fact are forward-looking statements. Although the
Company believes that the underlying assumptions and expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to be correct. The Company's business and prospects
are subject to a number of risks which could cause actual results to differ
materially from those reflected in such forward-looking statements, including
uncertainties inherent in any attempt to sell a portion or all of the business
or to acquire or merge into other companies at an acceptable price,
environmental risks relating to the Company's real estate properties,
competition, the substantial capital expenditures required to fund the Company's
real estate operations, market and economic changes in areas where the Company
holds real estate properties, interest rate fluctuations, government regulation,
and the ability of the Company to implement its business strategy.
29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has an investment in the common stock of one publicly traded real
estate company in the United States in which the Company has exposure to the
risk of market value fluctuation. The Company accounts for this investment as
securities that are available for sale and marks them to market at each
period-end. The change in value in the investment, net of tax impact, is
reported in Accumulated Other Comprehensive Income, a separate component of
stockholders' equity. The Company also evaluates its investment to determine if
it has suffered a decline in market value that is permanent, which would require
a charge to the Statement of Income. At December 31, 2004, in the opinion of
management, there has been no permanent decline in value in the Company's
holdings of equity securities.
After the sale of its Canadian oil and gas assets, the Company has cash and cash
equivalents at its Canadian subsidiary whose value is exposed to fluctuations in
the value of the Canadian dollar / U.S. dollar exchange rate. The change in
value in the Canadian dollar denominated accounts is reported in Accumulated
Other Comprehensive Income, a separate component of stockholders' equity. The
Company will be repatriating all assets, net of liabilities, of its Canadian
subsidiary during 2005. At that time, the foreign exchange component previously
reported in Accumulated Other Comprehensive Income will be recognized as a
component of net income. At December 31, 2004, the unrealized foreign exchange
component of Accumulated Other Comprehensive Income was a gain of $26,000.
Long-term debt as of December 31, 2004 and December 31, 2003 consists of the
following -
2004 2003
----------- -----------
Mortgage notes payable $46,855,000 $53,824,000
Note payable - 2,700,000
Revolving demand loan - 1,970,000
----------- -----------
Total 46,855,000 58,494,000
Less-current portion (1) 729,000 7,148,000
----------- -----------
Long term portion (2) $46,126,000 $51,346,000
=========== ===========
(1) Includes mortgage debt associated with discontinued operations of $156,000
in 2004 and $3,654,000 in 2003.
(2) Includes mortgage debt associated with discontinued operations of
$10,547,000 in 2004 and $14,514,000 in 2003.
The aggregate maturities of the long-term debt in each of the five years
subsequent to December 31, 2004 and thereafter are -
Year Amount
- ---- ------
2005 $ 729,000
2006 785,000
2007 845,000
2008 906,000
2009 4,797,000
Thereafter 38,793,000
-----------
$46,855,000
===========
30
The Company is not exposed to changes in interest rates. At December 31, 2004,
the Company had no floating rate debt outstanding under its $2.0 million U.S.
credit line. At December 31, 2004, the Company had $46,855,000 of mortgage debt
outstanding which all bears interest at an average fixed rate of 6.098% and an
average remaining life of approximately 7.9 years. The fixed rate mortgages are
subject to repayment (amortization) schedules that are longer than the term of
the mortgages. As such, the approximate amount of balloon payments for all
mortgage debt that will be required is as follows:
Year Amount
- ---- ------
2009 $3,853,000
2013 35,421,000
------------
$39,274,000
===========
Wilshire expects to re-finance the individual mortgages with new mortgages when
their terms expire. To this extent, we have exposure to interest rate risk on
our fixed rate mortgage debt obligations. If interest rates, at the time any
individual mortgage note is due, are higher than the current fixed interest
rate, higher debt service may be required, and/or re-financing proceeds may be
less than the amount of mortgage debt being retired.
We believe that the values of our properties will be adequate to command
re-financing proceeds equal to, or higher than the mortgage debt to be
re-financed.
31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Wilshire Enterprises, Inc.
We have audited the accompanying consolidated balance sheet of Wilshire
Enterprises, Inc. and Subsidiaries as of December 31, 2004, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows and financial statement schedule for the year then ended. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides 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 Wilshire
Enterprises, Inc. and Subsidiaries as of December 31, 2004, and their results of
operations and cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ J.H. Cohn LLP
Roseland, New Jersey
March 26, 2005
32
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Wilshire Enterprises, Inc.
We have audited the accompanying consolidated balance sheet of Wilshire
Enterprises, Inc. and subsidiaries as of December 31, 2003 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the two year period ended December 31, 2003. These
financial statements are the responsibility of Wilshire's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 Wilshire
Enterprises, Inc. and Subsidiaries as of December 31, 2003, and their results of
operations and cash flows for each of the two years in the period ended December
31, 2003, in conformity with accounting principles generally accepted in the
United States of America.
New York, New York
March 26, 2004
/s/ Ernst & Young LLP
33
WILSHIRE ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2004 AND 2003
ASSETS 2004 2003
------------- -------------
Current assets:
Cash and cash equivalents $ 31,110,000 $ 7,763,000
Restricted cash 4,082,000 327,000
Marketable securities, available for sale, at fair value 2,754,000 1,996,000
Accounts receivable, net of allowance for doubtful accounts of $65,000
in 2003 189,000 1,802,000
Income taxes receivable 4,389,000 544,000
Prepaid expenses and other current assets 1,827,000 1,326,000
------------- -------------
Total current assets 44,351,000 13,758,000
------------- -------------
Noncurrent assets:
Mortgage notes receivable 957,000 2,504,000
------------- -------------
Other assets 208,000 860,000
------------- -------------
Property and equipment:
Oil and gas properties, using the full cost method of accounting -
Held for sale - 143,601,000
Real estate properties 46,769,000 45,119,000
Real estate properties - Held for sale 12,168,000 26,950,000
------------- -------------
58,937,000 215,670,000
Less:
Accumulated depreciation and amortization 13,292,000 11,619,000
Accumulated depreciation, depletion and amortization -
Property held for sale 3,608,000 122,176,000
------------- -------------
42,037,000 81,875,000
------------- -------------
Total Assets $ 87,553,000 $ 98,997,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 573,000 $ 3,494,000
Accounts payable 1,624,000 1,628,000
Income taxes payable 3,623,000 154,000
Deferred income taxes 2,465,000 10,489,000
Accrued liabilities 606,000 800,000
Deferred income 373,000 382,000
Current liabilities associated with discontinued operations 521,000 3,974,000
------------- -------------
Total current liabilities 9,785,000 20,921,000
Noncurrent liabilities:
Long-term debt, less current portion 35,579,000 37,023,000
Deferred income taxes 1,855,000 1,058,000
Deferred income 621,000 868,000
Noncurrent liabilities associated with discontinued operations 10,602,000 14,600,000
------------- -------------
Total liabilities 58,442,000 74,470,000
------------- -------------
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $1 par value, 1,000,000 shares authorized; none issued
and outstanding in 2004 and 2003 - -
Common stock, $1 par value, 15,000,000 shares authorized; issued
10,013,544 shares in 2004 and 2003 10,014,000 10,014,000
Capital in excess of par value 9,524,000 9,029,000
Retained earnings 19,905,000 17,267,000
Unearned compensation (431,000) -
Treasury stock, 2,234,732 and 2,210,713 shares at 2004 and 2003,
respectively, at cost (10,491,000) (10,355,000)
Accumulated other comprehensive income (loss) 590,000 (1,428,000)
------------- -------------
Total stockholders' equity 29,111,000 24,527,000
------------- -------------
Total Liabilities and Stockholders' Equity $ 87,553,000 $ 98,997,000
============= =============
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
34
WILSHIRE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
2004 2003 2002
----------- ----------- -----------
REVENUES $ 9,706,000 $ 9,257,000 $ 9,143,000
----------- ----------- -----------
COSTS AND EXPENSES
Operating expenses 5,499,000 5,453,000 5,260,000
Depreciation expense 1,673,000 1,647,000 1,541,000
General and administrative 2,143,000 2,349,000 2,131,000
----------- ----------- -----------
Total costs and expenses 9,315,000 9,449,000 8,932,000
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 391,000 (192,000) 211,000
OTHER INCOME
Dividend and interest income 685,000 743,000 877,000
Gain on sale of marketable securities - 2,621,000 711,000
Insurance proceeds - 1,000,000 -
Other income 629,000 232,000 540,000
INTEREST EXPENSE (2,343,000) (3,408,000) (2,226,000)
----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (638,000) 996,000 113,000
INCOME TAX EXPENSE (BENEFIT) (221,000) (107,000) (47,000)
----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (417,000) 1,103,000 160,000
----------- ----------- -----------
DISCONTINUED OPERATIONS - REAL ESTATE, NET OF TAXES
LOSS FROM OPERATIONS (290,000) (379,000) (242,000)
GAIN FROM SALES 4,056,000 1,081,000 150,000
DISCONTINUED OPERATIONS - OIL & GAS, NET OF TAXES
INCOME (LOSS) FROM OPERATIONS (1,278,000) (3,178,000) 1,008,000
GAIN FROM SALES 567,000 - -
----------- ----------- -----------
NET INCOME (LOSS) $ 2,638,000 $(1,373,000) $ 1,076,000
=========== =========== ===========
BASIC EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations $(0.05) $0.14 $0.02
Income (loss) from discontinued operations -
Real estate - loss from operations (0.04) (0.05) (0.03)
Real estate - gain on sales 0.52 0.14 0.02
Oil and gas - income (loss) from operations (0.16) (0.41) 0.13
Oil and gas - gain on sale 0.07 - -
----- ----- ------
Net income (loss) applicable to common stockholders $0.34 $(0.18) $0.14
===== ====== ======
DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations $(0.05) $0.14 $0.02
Income (loss) from discontinued operations -
Real estate - loss from operations (0.04) (0.05) (0.03)
Real estate - gain on sales 0.51 0.14 0.02
Oil and gas - income (loss) from operations (0.16) (0.41) 0.13
Oil and gas - gain on sale 0.07 - -
----- ----- ------
Net income (loss) applicable to common stockholders $0.33 $(0.18) $ 0.14
===== ====== ======
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
35
WILSHIRE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
DECEMBER 31, 2004, 2003 AND 2002
PREFERRED STOCK COMMON STOCK CAPITAL IN
--------------- ------------ EXCESS OF UNEARNED RETAINED TREASURY
SHARES AMOUNT SHARES AMOUNT PAR VALUE COMPENSATION EARNINGS STOCK
------ ------ ------ ------ --------- ------------ -------- -----
BALANCE, December 31,
2001 - $ - 10,013,544 $10,014,000 $9,029,000 $ - $17,564,000 $(10,179,000)
Net income 1,076,000
Foreign currency
translation adjustment
Change in unrealized
loss on marketable
securities, net of
income tax benefit of
$361,000
Comprehensive income
Purchase of treasury
stock (176,000)
--- ---- ---------- ----------- ---------- ---- ----------- ------------
BALANCE, December 31,
2002 - - 10,013,544 10,014,000 9,029,000 - 18,640,000 (10,355,000)
Net income (1,373,000)
Foreign currency
translation adjustment
Change in unrealized
loss on marketable
securities, net of
income tax benefit of
$89,000
Comprehensive income
--- ---- ---------- ----------- ---------- ---- ----------- ------------
BALANCE, December 31,
2003 - - 10,013,544 10,014,000 9,029,000 - 17,267,000 (10,355,000)
Net income 2,638,000
Foreign currency
translation adjustment
Change in unrealized
loss on marketable
securities, net of
income tax benefit of
$301,000
Comprehensive income
Issuance of shares of
common stock for
services (24,000) 28,000
Compensation
associated with stock
options 495,000 (495,000)
Amortization of
compensation
associated with stock
and stock option
awards 88,000
Exercise of stock
options 34,000
Purchase of treasury
stock (198,000)
--- ---- ---------- ----------- ---------- ---- ----------- -------------
BALANCE, December 31,
2004 - $ - 10,013,544 $10,014,000 $9,524,000 $(431,000) $19,905,000 $ (10,491,000)
==== ==== ========== =========== ========== ========= =========== =============
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE COMPREHENSIVE STOCKHOLDERS'
INCOME (LOSS) INCOME (LOSS) EQUITY
------------- ------------- ------
BALANCE, December 31,
2001 $(2,735,000) $23,693,000
Net income $1,076,000 $1,076,000
Foreign currency
translation adjustment 88,000 88,000 88,000
Change in unrealized
loss on marketable
securities, net of
income tax benefit of
$361,000 (442,000) (442,000) (442,000)
----------
Comprehensive income
$722,000
==========
Purchase of treasury
stock (176,000)
----------- -----------
BALANCE, December 31,
2002 (3,089,000) 24,239,000
Net income $(1,373,000) (1,373,000)
Foreign currency
translation adjustment 2,206,000 2,206,000 2,206,000
Change in unrealized
loss on marketable
securities, net of
income tax benefit of
$89,000 (545,000) (545,000) (545,000)
----------
Comprehensive income $288,000
----------- ========== -----------
BALANCE, December 31,
2003 (1,428,000) 24,527,000
Net income 2,638,000 2,638,000
Foreign currency
translation adjustment 1,562,000 1,562,000 1,562,000
Change in unrealized
loss on marketable
securities, net of
income tax benefit of
$301,000 456,000 456,000 456,000
----------
Comprehensive income $4,656,000
==========
Issuance of shares of
common stock for
services 4,000
Compensation
associated with stock
options -
Amortization of
compensation
associated with stock
and stock option
awards 88,000
Exercise of stock
options 34,000
Purchase of treasury
stock (198,000)
----------- -----------
BALANCE, December 31,
2004 $ 590,000 $29,111,000
========= ===========
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
36
WILSHIRE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 2004, 2003 AND 2002
2004 2003 2002
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,638,000 $ (1,373,000) $1,076,000
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities -
Depreciation, depletion and amortization 1,687,000 6,244,000 3,884,000
Amortization of compensation expense 88,000 - -
Impairment loss on oil and gas assets - 7,000,000 -
Deferred income tax (benefit) provision (7,329,000) (594,000) 762,000
Increase (decrease) in deferred income 146,000 (445,000) 1,627,000
Gain on sales of real estate assets (7,039,000) (1,693,000) (263,000)
Gain on sale of oil and gas properties (768,000) - -
Gain on sale of marketable securities - (2,621,000) (711,000)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 1,613,000 (897,000) (262,000)
Decrease (increase) in income taxes (3,845,000) 83,000 (626,000)
receivable
Decrease (increase) in prepaid expenses and
other current assets 154,000 539,000 (462,000)
Increase (decrease) in accounts payable,
accrued liabilities and other liabilities (403,000) 1,058,000 (77,000)
Increase (decrease) in taxes payable 2,939,000 119,000 (15,000)
------------ ------------ ------------
Net cash provided by (used in) operating activities (10,119,000) 7,420,000 4,933,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - real estate (2,295,000) (2,415,000) (2,500,000)
Capital expenditures - oil & gas - (8,705,000) (5,028,000)
Proceeds from sale of oil and gas properties 28,131,000 - -
Proceeds from sale of real estate properties 19,874,000 3,107,000 737,000
Proceeds on mortgage notes receivable 1,673,000 531,000 3,162,000
Proceeds from sales and redemptions of
marketable securities - 9,494,000 2,336,000
Purchases of marketable securities - - (1,930,000)
(Increase) decrease in restricted cash (3,755,000) 78,000 (45,000)
------------ ------------ ------------
Net cash provided by (used in) investing activities 43,628,000 2,090,000 (3,268,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt (11,639,000) (47,868,000) (11,400,000)
Loan payable to stockholder - (500,000) (200,000)
Proceeds from issuance of debt - 40,656,000 9,158,000
Purchase of treasury stock (185,000) - (176,000)
Proceeds from exercise of stock options
21,000 - -
------------ ------------ ------------
Net cash used in financing activities (11,803,000) (7,712,000) (2,618,000)
------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,641,000 2,206,000 88,000
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 23,347,000 4,004,000 (865,000)
CASH AND CASH EQUIVALENTS, beginning of year 7,763,000 3,759,000 4,624,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 31,110,000 $ 7,763,000 $ 3,759,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES TO THE STATEMENTS OF
CASH FLOWS:
Cash paid during the year for -
Interest $ 3,025,000 $ 4,716,000 $ 4,683,000
============ ============ ============
Income taxes $ 7,567,000 $ 543,000 $ 352,000
============ ============ ============
The accompanying notes to condensed consolidated financial statements are an
integral part of these financial statements.
37
WILSHIRE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Wilshire Enterprises, Inc. ("Wilshire" or "the Company") is engaged in
acquiring, owning and managing real estate properties and real estate
related securities. The Company's real estate holdings are located in
the states of Arizona, Florida, Georgia, New Jersey and Texas. The
Company's real estate holdings are owned both in its own name and
through holding companies and limited liability companies. The Company
also maintains investments in marketable securities, which are
classified as available for sale.
The Company had also been engaged in oil and gas exploration and
production in the United States and Canada. In April 2004, the Company
sold its oil and gas operations and received net proceeds of
$28,131,000. An escrow holdback of $600,000 was established to allow
for any potential post closing adjustments relating to its United
States operations. This escrow was paid in full to the Company on June
22, 2004 and the consolidated statements of operations include a gain
of $567,000 (after taxes) on the transaction. Since the sale was
effective as of March 1, 2004, the financial statements as presented
reflect in discontinued operations oil and gas operations for the first
two months of 2004, compared to full years being included in
discontinued operations in the statements of operations for 2003 and
2002.
PRINCIPLES OF CONSOLIDATIONS:
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany account
balances and transactions have been eliminated in consolidation. At
December 31, 2004, the Company does not have any affiliates that
require consolidation under the provisions of FIN 46R, "Consolidation
of Variable Interest Entities, an Interpretation of Accounting Research
Bulletin No. 51."
USE OF ESTIMATES:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results could
differ from those estimates.
CASH AND CASH EQUIVALENTS:
Financial instruments that potentially subject Wilshire to
concentrations of credit risk consist primarily of cash and cash
equivalents. Wilshire considers all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents.
Wilshire maintains its cash in the United States in bank accounts
($6,207,000) and brokerage accounts ($12,444,000). The balances
maintained in bank accounts may, at times, exceed Federally insured
limits. At December 31, 2004, cash balances in banks that exceeded
Federally insured limits amounted to $5,384,000, of which $3,905,000
represents cash deposited with a qualified exchange agent for a Section
1031 exchange the Company is investigating with the proceeds from the
sale of the land at Schalk Station. The funds must remain with the
qualified exchange agent and are not available for use by the Company
until the time period for executing a Section 1031 exchange expires
(180 days from the closing date of the initiating transaction). Under
the contemplated transaction, the funds will be released to the Company
in June 2005. Investments in accounts maintained at brokerage houses
consist of short-term, mainly tax-exempt or tax advantaged, investments
that are subject to the Company's investment policy guidelines
concerning credit rating, concentrations and size of transaction. The
Company also has $16,541,000 in cash with its Canadian subsidiary that
is being invested in short-term deposits at a major Canadian bank. The
funds at the Canadian subsidiary will be repatriated to the United
States during 2005, and represent principally the only assets currently
held outside of the United States.
38
Restricted cash represents the $3,905,000 of funds on deposit with the
qualified exchange agent and $177,000 of residential tenant deposits
for Company properties located in New Jersey and Georgia.
MARKETABLE SECURITIES:
As of December 31, 2004 and 2003, the marketable securities held by the
Company consist of equity securities in one real estate company in the
United States, which is classified as available for sale. These
securities are carried at fair value based upon quoted market prices of
$2,754,000 at December 31, 2004 and $1,996,000 at December 31, 2003,
which exceeded their cost of $1,799,000 by $955,000 at December 31,
2004 and $197,000 at December 31, 2003. Unrealized gains and losses,
representing the difference between an investment's cost and its fair
value, are charged (credited) directly to shareholders' equity, net of
related income taxes, as a component of accumulated comprehensive
income (loss). The cost of securities sold is determined on a specific
identification basis.
The Company periodically reviews available for sale securities for
impairment that is other than temporary. At December 31, 2004 and 2003,
no write down was required to record other than temporary impairment of
securities.
DEFERRED LOAN COSTS:
Prepaid expenses and other current assets include deferred loan costs
of $540,000 at December 31, 2004 and $631,000 at December 31, 2003.
Deferred loan costs are amortized on the straight-line method by annual
charges to operations over the terms of the loans. Amortization of such
costs is included in interest expense and amounted to approximately
$86,000 in 2004, $394,000 in 2003 and $57,000 is 2002. The 2003 expense
amount includes the write-off of unamortized deferred loan costs
related to loans that were refinanced in 2003.
REAL ESTATE AND OTHER PROPERTIES:
Real estate properties and other property and equipment are stated at
cost. Costs incurred to maintain and repair the property are expensed
as incurred. Depreciation is provided on the straight-line method using
an estimated useful life of 30 to 35 years for real estate buildings
and seven years for furniture, fixtures and equipment at the
properties, which approximates their estimated useful life.
The Company has designated certain real estate properties as held for
sale and reports results of operating the properties, including
interest expense, and the gain or loss on the sale of such real estate
properties as "Discontinued Operations". The Company ceases
depreciating a property when it is designated as held for sale.
39
The composition of the Company's real estate and other properties
follows:
December 31,
------------------------------------
2004 2003
------------- -------------
Real estate and other properties:
Land $ 8,092,000 $ 8,061,000
Building 30,889,000 29,797,000
Furniture, fixtures and equipment 7,788,000 7,261,000
Accumulated depreciation (13,292,000) (11,619,000)
------------- -------------
Net real estate and other properties 33,477,000 33,500,000
------------- -------------
Real estate held for sale:
Land 1,751,000 7,622,000
Building 8,086,000 15,923,000
Furniture, fixtures and equipment 2,331,000 3,405,000
Accumulated depreciation (3,608,000) (6,112,000)
------------- -------------
Net real estate held for sale 8,560,000 20,838,000
------------- -------------
Oil and gas properties held for sale:
Gross oil and gas properties - 143,601,000
Accumulated depreciation, depletion and amortization - (116,064,000)
------------- -------------
Net oil and gas properties held for sale - 27,537,000
------------- -------------
Net property, furniture, fixtures and equipment $ 42,037,000 $ 81,875,000
============= =============
On a periodic basis, management assesses whether there are any
indicators that the value of the real estate properties may be
impaired. A property's value is considered impaired if management's
estimate of the aggregate future cash flows (undiscounted and without
interest charges) to be generated by the property are less than the
carrying value of the property. To the extent impairment has occurred,
the loss shall be measured as the excess of the carrying amount of the
property over the fair value of the property.
Management does not believe at December 31, 2004 and 2003 that the
value of any of its properties is impaired.
REVENUE RECOGNITION:
Revenue from real estate properties is recognized during the period in
which the premises are occupied and rent is due from tenants. For
commercial properties, rental revenue is recognized on a straight-line
basis over the term of the lease. The excess of rents recognized over
amounts contractually due pursuant to the underlying leases are
included in accounts receivable. For residential properties where lease
agreements are almost exclusively for one-year terms, rental revenue is
recognized in accordance with the contractual terms of the underlying
leases. The Company follows a policy of aggressively pursuing its
rental tenants to ensure timely payment of amounts due. When a tenant
becomes 30 days in arrears on paying rent, the amount is generally
written-off and turned over to a collection agency for action.
Accordingly, no allowance for uncollectible accounts is maintained for
the Company's real estate tenants.
An allowance for uncollectible accounts was maintained based on the
Company's estimate of the inability of its joint interest partners in
the oil and gas division to make required payments. With the sale of
the oil and gas division, the Company no longer maintains an allowance
for uncollectible accounts.
40
INCOME TAXES:
Deferred taxes are provided for the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. The primary temporary differences are those related to tax
over book depreciation and unrealized gains and losses on marketable
securities. In addition, the Company has provided $2.1 million of
deferred U.S. taxes for the repatriation of earnings from its Canadian
subsidiary and $0.9 million of Canadian withholding taxes.
Deferred tax benefits are evaluated for realizability and a
determination is made, taking into account tax planning strategies, on
whether the deferred tax benefit is more likely than not to be
realized. Based upon this evaluation, a valuation allowance is
established to reduce the deferred tax benefit to the level where it is
more likely than not to be ultimately realized. At December 31, 2004
and 2003 the Company had a zero valuation allowance.
FOREIGN OPERATIONS:
The assets and liabilities of the Company's Canadian subsidiary have
been translated at year-end exchange rates. The related revenues and
expenses have been translated at average annual exchange rates. The
aggregate effect of translation losses are reflected as a component of
accumulated other comprehensive income (loss) until the sale or
liquidation of the underlying foreign investment.
Realized foreign exchange gain (loss) of $(528,000), $(179,000) and
$29,000, net of taxes, are included in the statements of operations for
the years ended December 31, 2004, 2003, and 2002, respectively. The
2004 transaction relates to the settlement of an intercompany loan from
the Canadian subsidiary to Wilshire. The 2003 and 2002 foreign exchange
gain (loss) related to the conversion of the proceeds of maturing U.S.
dollar denominated Certificate of Deposit accounts to Canadian dollars.
These amounts are included in Discontinued Operations - Oil and Gas.
See Note 2 for additional information on the sale of the Canadian oil
and gas assets in 2004.
EARNINGS (LOSS) PER SHARE:
Basic earnings (loss) per share are calculated by dividing net income
(loss) by the weighted average number of shares outstanding during each
period. The calculation of diluted earnings (loss) per share is similar
to that of basic earnings (loss) per share, except that the denominator
is increased to include the number of additional shares that would have
been outstanding if all potentially dilutive shares, such as those
issuable upon the exercise of stock options and warrants, were issued
during the period.
In computing diluted earnings (loss) per share for the years ended
December 31, 2004 and 2002, the assumed exercise of all of Wilshire's
outstanding stock options, adjusted for application of the treasury
stock method, would have increased the weighted average number of
shares outstanding as shown in the earnings (loss) per share
calculation table below. Diluted earnings (loss) per share for the year
ended December 31, 2003 has not been presented, since the Company
incurred a loss and the assumed exercise of the 438,740 stock options
outstanding would have been anti-dilutive.
41
2004 2002
---- ----
Numerator-
Net income (loss) - Basic and Diluted $2,638,000 $1,076,000
========== ==========
Denominator-
Weighted average common
shares outstanding - Basic 7,795,843 7,831,817
Incremental shares from assumed
conversions of stock options 159,242 234
---------- ----------
Weighted average common shares
outstanding - Diluted 7,955,085 7,832,051
========== ==========
Basic earnings (loss) per share: $ 0.34 $ 0.14
========== ==========
Diluted earnings (loss) per share: $ 0.33 $ 0.14
========== ==========
STOCK-BASED COMPENSATION:
In accordance with the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," Wilshire
will recognize compensation cost as a result of the issuance of stock
options to employees, including directors, based on the excess, if any,
of the fair value of the underlying shares at the date of grant or
award (or at an appropriate subsequent measurement date) over the
amount the employees must pay to acquire the shares (the "intrinsic
value method"). However, Wilshire will not be required to recognize
compensation expense as a result of any grants to employees at an
exercise price that is equal to or greater than fair value. The Company
will also make pro forma disclosures, as required by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), and Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosures" ("SFAS 148"), of net income or loss as if a
fair value based method of accounting for stock options had been
applied if such amounts differ materially from the historical amounts.
In accordance with the provisions of SFAS 123, all other issuances of
shares, options or other equity instruments to employees and
non-employees as the consideration for goods or services received by
Wilshire are accounted for based on the fair value of the equity
instruments issued (unless the fair value of the consideration received
can be more reliably measured). The fair value of any options or
similar equity instruments issued will be estimated based on the
Black-Scholes option-pricing model, which meets the criteria set forth
in SFAS 123, and the assumption that all of the options or other equity
instruments will ultimately vest. Such fair value is measured as of an
appropriate date pursuant to EITF Issue No. 96-18 (generally, the
earlier of the date the other party becomes committed to provide goods
or services or the date performance by the other party is complete) and
capitalized or expensed as if Wilshire had paid cash for the goods or
services.
All outstanding stock options were granted at exercise prices that
equaled the fair value of the underlying stock at the date of grant.
Accordingly, no compensation expense has been recognized for stock
option plans.
The pro forma impact of expensing stock options for the years ended
December 31, 2004, 2003 and 2002 would have reduced reported net income
for the year ended December 31, 2004 and 2002 by approximately $21,000
and $11,000, respectively. The net loss reported in the year ended
December 31, 2003 would have increased by approximately $61,000. The
per share impact, basic and diluted, would have been less than $0.01
per share for the years ended December 31, 2004 and 2002 and $0.01 per
share for the year ended December 31, 2003.
42
The fair value of stock options was estimated using the Black-Scholes
option-pricing model based on the variables presented in the following
table.
2004 2003 2002
---- ---- ----
Weighted average market price $5.18 $3.60 $3.32
Risk free interest rate 3.97% 3.00% 3.87%
Volatility 37.4% 33.1% 33.1%
Dividend yield -% -% -%
Expected option life 5 years 5 years 5 years
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Comprehensive income (loss) includes net income (loss), unrealized gain
(loss) on available for sale securities and foreign currency
translation adjustments.
Changes in the components of Accumulated other Comprehensive Income
(Loss) for the years 2004, 2003 and 2002 are as follows -
Unrealized Gains Cumulative Accumulated
(Losses) on Foreign Currency Other
Available-for-Sale Translation Comprehensive
Securities Adjustment Income (Loss)
---------- ---------- -------------
BALANCE, December 31, 2001 $ 1,095,000 $(3,830,000) $(2,735,000)
Change for the year 2002 (442,000) 88,000 (354,000)
----------- ----------- -----------
BALANCE, December 31, 2002 653,000 (3,742,000) (3,089,000)
Change for the year 2003 (545,000) 2,206,000 1,661,000
----------- ----------- -----------
BALANCE, December 31, 2003 108,000 (1,536,000) (1,428,000)
Change for the year 2004 456,000 1,562,000 2,018,000
----------- ----------- -----------
BALANCE, December 31, 2004 $ 564,000 $ 26,000 $ 590,000
=========== =========== ===========
The change in unrealized gains (losses) on available for sale
securities in 2003 includes a transfer to realized gain of $822,000.
ADVERTISING EXPENSE:
The Company advertises for tenants for its properties through various
media, including print and internet. Advertising costs are expensed as
incurred and amounted to $252,000 in 2004, $269,000 in 2003 and
$273,000 in 2002.
RECLASSIFICATIONS:
Certain amounts in the 2003 and 2002 consolidated financial statements
have been reclassified to conform to the 2004 presentation.
43
2. DISCONTINUED OPERATIONS:
During 2004, the Company sold 13 residential properties located in
Jersey City, New Jersey and parcels of land in South Brunswick, New
Jersey, and Montville, New Jersey, for gross proceeds of $19,700,000
and an after-tax gain of $4,056,000. In 2003, three residential
properties in Florida were sold for gross proceeds of $3,190,000,
yielding an after-tax gain of $1,081,000. In 2002, two condominium
units and one parcel of unimproved land in New Jersey were sold for
gross proceeds of $745,000, $150,000 after-tax gain.
The Company has designated certain of its properties as held for sale,
which under accounting principles generally accepted in the United
States requires that the Company report the results of operating these
properties as discontinued operations. At December 31, 2004, the
Company's residential apartment complexes known as Biltmore Club
(Phoenix, Arizona) and Twelve Oaks (Atlanta, Georgia) and its office
building Amboy Towers (Perth Amboy, New Jersey) and several parcels of
undeveloped land in New Jersey have been classified as discontinued
operations.
The Company has entered into an agreement to sell Biltmore Club. See
Note 11 to Notes to Consolidated Financial Statements for additional
information.
The Company announced in July 2003 its intention to sell its oil and
gas businesses. The Canadian oil and gas business was sold in April
2004 to Addison Energy Inc., a wholly owned subsidiary of Exco
Resources, Inc., for $15 million in gross proceeds. The United States
oil and gas business was sold in April 2004 to Crow Creek Energy LLC, a
Tulsa, Oklahoma based privately held portfolio company of Natural Gas
Partners of Dallas, Texas, for $13.3 million in gross proceeds. After
closing adjustments, the proceeds were reduced to $28,131,000. The
Company recorded a net gain on the sale of its oil and gas assets of
$567,000.
During 2004 and 2003, respectively, the Company recorded losses, net of
taxes from operating its oil and gas businesses of $1,278,000 and
$3,178,000, respectively. The net loss from operating the oil and gas
business in 2004 includes the operating results of the oil and gas
business for January and February and the continuing reconciliation
process between the Company and its partners for periods prior to the
effective date of the sale. The Company reported net income from
operating its oil and gas business in 2002 of $1,008,000.
44
3. LONG-TERM DEBT:
Long-term debt as of December 31 consists of the following:
2004 2003
---- ----
Mortgage notes payable (a) $11,935,000 $18,467,000
Mortgage notes payable (b) 30,802,000 31,195,000
Mortgage notes payable (c) 4,118,000 4,162,000
Note payable (d) - 2,700,000
Revolving demand loan (e) - 1,970,000
----------- -----------
Total 46,855,000 58,494,000
Less current portion 729,000 7,148,000
----------- -----------
Long term portion $46,126,000 $51,346,000
=========== ===========
Long-term debt applicable to discontinued operations: (a)(b)
Included in current liabilities $ 156,000 $ 3,654,000
Included in noncurrent liabilities 10,547,000 14,514,000
----------- -----------
Total $10,703,000 $18,168,000
=========== ===========
(a) Mortgage notes payable to North Fork Bank (formerly The Trust Company
of New Jersey) payable in monthly installments, bearing interest at a
weighted average effective rate of 7.53%. These mortgage notes were
secured by a first mortgage interest in various residential and
commercial real estate properties in Arizona, Florida, Georgia, and New
Jersey and matured at various dates through 2010. On March 1, 2003, the
notes were modified to reflect an effective interest rate of 6.375% for
the next five years and a revised maturity of February 2013. At
December 31, 2004, the properties securing the notes had an approximate
net book value of $12,766,000.
(b) Mortgage notes payable to five real estate mortgage conduits arranged
by Merrill Lynch that are payable in monthly installments of principal
and interest, bearing interest at a weighted average effective rate of
5.75%, a 30-year amortization and a ten year term, maturing in March
2013. The residential properties securing the mortgage conduit loans
are located in Arizona, New Jersey and Texas and at December 31, 2004
had an approximate net book value of $19,727,000.
(c) Mortgage note payable to Orix Real Estate Capital Markets that is
payable in monthly installments of principal and interest, bears
interest at 7.9% and matures in June 2009. The note is secured by
residential property located in Texas that at December 31, 2004 had an
approximate net book value of $5,329,000.
(d) During December 2003, the Company obtained a note payable of $2,700,000
to The Trust Company of New Jersey. This loan bore interest at the
prime lending rate and matured in March 2004 and was paid in full. The
note was secured by a certificate of deposit in the same amount.
(e) In August 2002, the Company's Canadian subsidiary entered into a
maximum $5,088,000 ($8,000,000 Canadian) revolving operating demand
loan with the National Bank of Canada (the "Bank"). The loan bears
interest at the Bank's prime lending rate (4.5% at December 31, 2003)
plus 0.25% and is paid monthly. The loan was obtained to fund the
Company's capital requirements with respect to the drilling of 211
development wells in Canada. The loan provisions requires the Company
to repay the outstanding debt solely from available cash generated from
its Canadian operations until the debt is paid in full. At December 31,
2003, the Company owed the Bank $1,970,000 ($2,550,000 Canadian) under
the loan. The loan was paid in full in April 2004 from the proceeds
from the sale of the Canadian oil and gas operations.
45
The aggregate maturities of the long-term debt in each of the five
years subsequent to December 31, 2004 and thereafter are -
Year Amount
---- ------
2005 $ 729,000
2006 785,000
2007 845,000
2008 906,000
2009 4,797,000
Thereafter 38,793,000
-----------
$46,855,000
===========
4. MORTGAGE NOTES RECEIVABLE:
During June 2000, the Company acquired mortgage notes receivable
collateralized by underlying property from The Trust Company of New
Jersey for $3,500,000. The Company subsequently advanced the borrower
an additional $2,790,000. The mortgage notes receivable and subsequent
advances are due 2007 and bear interest at 9.75%. In connection with
the mortgage note receivable the Company will earn a $2,500,000
financing fee. The fee is being recognized in income by the effective
interest method over the term of the mortgage receivable. Under this
agreement, the Company has the right to receive a portion of the
proceeds from the sale of the underlying property. During the years
2004 and 2003, the Company received amortization and financing fees in
the amount of $471,000 and $650,000, respectively.
In February 2005, the Company and the borrower negotiated a settlement
of the outstanding mortgage notes receivable for $1.1 million, which
was paid during the first quarter of 2005. The Company recognized a
gain in the first quarter 2005 of approximately $400,000 after taxes on
this transaction.
5. COMMITMENTS AND CONTINGENCIES:
COMMERCIAL LEASES:
Wilshire leases commercial space to tenants for periods of up to five
years. Most of the leases contain clauses for reimbursement of real
estate taxes, maintenance, insurance and certain other operating
expenses of the properties. Minimum rental income to be received from
non-cancelable operating leases in years subsequent to December 31,
2004 are as follows:
Year ending December 31, Amount (1)
2005 $1,303,000
2006 820,000
2007 580,000
2008 305,000
2009 143,000
Thereafter 890,000
----------
$4,041,000
==========
(1) Excludes rental income from the Wilshire Grand Hotel, which has a
triple net lease.
The above amounts assume that all leases which expire are not renewed
and, accordingly, neither minimal rentals nor rentals from replacement
tenants are included.
Minimum future rentals do not include contingent rentals, which may be
received under certain leases on the basis of percentage of reported
tenants' sales volume or other factors. Rental income that is
contingent on future events is not included in income until the
contingency is resolved. Contingent rentals included in income for each
of the three years in the period ended December 31, 2004 were not
material.
46
RESIDENTIAL LEASES:
Lease terms for residential tenants are usually one year or less.
CITY OF PERTH AMBOY, NEW JERSEY:
Wilshire achieved a settlement agreement with the City of Perth Amboy,
New Jersey, regarding the redevelopment zone status of its office
building Amboy Towers. In an agreement signed in February 2005, the
City has agreed to exclude Amboy Towers from the redevelopment zone and
Wilshire has agreed to invest $750,000 in capital improvements in the
building over the 18-month period commencing with the signing of the
agreement.
HEADQUARTERS LEASE:
Wilshire has entered into an agreement to lease office space for its
headquarters at One Gateway Center in Newark, New Jersey. The effective
date of the lease is April 1, 2005 and it is for a 65 month period with
two renewal options each for a five-year period. Wilshire has the right
to cancel the lease after 24 months subject to reimbursing the landlord
for certain unamortized costs associated with tenant improvements and
real estate commissions. The base rent in the lease is $29.00 per
square foot, with Wilshire receiving in the third year of the lease
agreement five months of free rent. Base rental expense will be
recognized on a straight-line basis and will amount to $121,000 per
year.
The Company is currently leasing space on a month-to-month basis in
Jersey City, New Jersey, and does not anticipate any penalty from the
termination of this lease. The Company also leased space on month to
month leases in Calgary, Canada and Oklahoma City, Oklahoma for its oil
and gas business. The lease in Calgary, Canada was terminated in April
2004 with the sale of the Canadian oil and gas assets. The lease in
Oklahoma City, Oklahoma was terminated in June 2004 after the final
settlement of the sale of the United States oil and gas assets. Rental
expense for all of the Company's offices amounted to approximately
$60,000 in 2004 and $101,000 in 2003 and 2002.
RIGHTS PLAN:
In June 1996, the Company's Board of Directors adopted the Stockholder
Protection Rights Plan (the "Rights Plan"). The Rights Plan provides
for issuance of one Right for each share of common stock outstanding as
of July 6, 1996. The Rights are separable from and exercisable upon the
occurrence of certain triggering events involving the acquisition of at
least 15% (or, in the case of certain existing stockholders, 25%) of
the Company's common stock by an individual or group, as defined in the
Rights Plan (an "Acquiring" Person) and may be redeemed by the Board of
Directors at a redemption price of $0.01 per Right at any time prior to
the announcement by the Company that a person or group has become an
Acquiring Person.
On and after the tenth day following such triggering events, each Right
would entitle the holder (other than the Acquiring Person) to purchase
$50 in market value of the Company's Common Stock for $25. In addition,
if there is a business combination between the Company and an Acquiring
Person, or in certain other circumstances, each Right (if not
previously exercised) would entitle the holder (other than the
Acquiring Person) to purchase $50 in market value of the common stock
of the Acquiring Person for $25.
As of December 31, 2004 and 2003, 7,778,812 and 7,802,831,
respectively, of Rights were outstanding. Each Right entitles the
holder to purchase, for an exercise price of $25, one one-hundredth of
a share of Series A Participating Preferred Stock. Each one
one-hundredth share of Series A Participating Preferred Stock is
designed to have economic terms similar to those of one share of common
stock but will have one one-hundredth of a vote. Because the Rights are
only exercisable under certain conditions, none of which were in effect
as of December 31, 2004 and 2003, the outstanding Rights are not
considered in the computation of basic and diluted earnings per share.
47
SHARE REPURCHASE AUTHORIZATION:
On June 3, 2004, the Company announced that the Board of Directors had
authorized the purchase of up to 1,000,000 shares of its common stock
on the open market, in privately negotiated transactions or otherwise.
This purchasing activity may occur from time to time, in one or more
transactions. Through December 31, 2004, the Company had purchased
38,478 shares under this program at an approximate cost of $198,000 or
$5.15 per share.
6. STOCK OPTION PLANS:
In June 2004, the Company's stockholders approved the 2004 Stock Option
and Incentive Plan (the "2004 Incentive Plan"). The purpose of the 2004
Incentive Plan is to encourage stock ownership by key employees and
consultants of the Company, to provide additional incentive for them to
promote the successful business operations of the Company, to encourage
them to continue providing services to the Company, and to attract new
employees and consultants to the Company. Awards under the 2004
Incentive Plan may be granted in any one or all of the following forms,
as those terms are defined under the 2004 Incentive Plan: (i) incentive
stock options; (ii) non-qualified stock options; (iii) stock
appreciation rights; (iv) restricted shares of common stock; (v)
performance shares; (vi) performance units; and (vii) unrestricted
shares of common stock. The maximum aggregate number of shares of
common stock available for award under the 2004 Incentive Plan is
600,000, subject to adjustment under the terms of the 2004 Incentive
Plan.
In June 2004, the Company's stockholders approved the 2004 Non-Employee
Director Stock Option Plan (the "2004 Director Plan"). The purpose of
the 2004 Director Plan is to attract qualified personnel to accept
positions of responsibility as directors of the Company, to provide
incentives for persons to remain on the Board and to induce such
persons to maximize the Company's performance during the terms of their
options. Only non-qualified stock options may be granted under the 2004
Director Plan. The maximum aggregate number of shares of common stock
available for grant under the 2004 Director Plan is 150,000, subject to
adjustment under the terms of the 2004 Director Plan. Upon adoption of
the 2004 Director Plan, each non-employee director was granted 10,000
options to purchase common shares of the Company and on each
anniversary date of the 2004 Director Plan's adoption will receive an
additional 5,000 options to purchase common shares of the Company.
In June 1995, the Company adopted two stock-based compensation plans
(1995 Stock Option and Incentive Plan "Incentive Plan"; and 1995
Non-employee Director Stock Option Plan "Director Plan") under which,
up to 450,000 and 150,000 shares, respectively are available for grant.
In 2002, 339,750 options were granted under the Incentive Plan. No
options were granted under the Director Plan in 2002.
In 2003, 50,000 options were granted under the Incentive Plan and 5,000
options were granted under the Director Plan.
In 2004, 5,000 options were granted under the Director Plan and 50,000
options were granted under the 2004 Director Plan. No options were
granted under the 2004 Incentive Plan.
The number and terms of the options granted under these plans are
determined by the Company's Stock Option Committee (the Committee)
based on the fair market value of the Company's common stock on the
date of grant. The period during which an option may be exercised
varies, but no option may be exercised after ten years from the date of
grant.
48
The following table summarized stock option activity for 2004, 2003 and
2002:
2004 2003 2002
-------------------- --------------------- -----------------------
Price Price Price
Shares Low-High Shares Low-High Shares Low-High
------ -------- ------ -------- ------ --------
Options outstanding at
beginning of year 438,740 $3.32-6.12 383,740 $3.32-6.12 111,954 $3.94-6.51
Options granted 55,000 5.15-5.48 55,000 3.51-4.55 339,750 3.32
Options exercised (9,330) 3.32-5.95 - - - -
Options terminated and expired (26,950) 3.32 - - (67,964) 5.53-6.51
------- ------- -------
Options outstanding at end
of year 457,460 $3.32-6.12 438,740 $3.32-6.12 383,740 $3.32-6.12
======= =========== ======== ========== ======== ==========
Options exercisable at end
of year 364,760 $3.94-6.12 185,940 $3.94-6.12 40,990 $3.94-6.12
======= =========== ======== ========== ======== ==========
The fair value of the options granted during 2004 was $112,000. The
remaining weighted average contractual life of the options outstanding
at December 31, 2004 was 7.4 years.
During 2004, 4,529 shares of common stock were granted to employees
under the 2004 Incentive Plan. The employee's right to receive these
restricted shares vest serially over a three-year period. Compensation
expense for the year ended December 31, 2004 includes an insignificant
amount related to the issuance of these shares.
During 2004, 600 shares of common stock were granted under the 2004
Incentive Plan to non-employees who are involved with managing the
Company's real estate properties. The shares were valued at their fair
value on the date of grant and had an insignificant impact on the
Company's financial condition.
At the time of his retirement on June 30, 2004, the former President of
the Company had 300,000 stock options outstanding with a weighted
average exercise price of $3.35 per share. As part of the three year
consulting arrangement between the former President and the Company,
the life of his stock options were extended for the length of his
consulting arrangement. This arrangement has resulted in the Company
valuing his stock options at $495,000, which is the difference between
the intrinsic value of the stock options at their date of grant and the
market value of the Company's common stock at June 30, 2004. This value
has been recorded as an increase to capital in excess of par value and
an increase to unearned compensation, both separate components of
stockholders' equity. The unearned compensation amount is being
amortized into general and administrative expense over the term of the
three year consulting arrangement. At December 31, 2004, $431,000 was
remaining to be amortized into general and administrative expense over
the next 2 1/2 years and $82,000 had been recognized in expense in
2004.
7. INCOME TAXES
The components of income before income taxes is as follows:
2004 2003 2002
---- ---- ----
United States operations $ 2,662,000 $ 2,440,000 $ 1,366,000
Operations outside the United States 1,866,000 (2,770,000) 40,000
----------- ----------- -----------
Total $ 4,528,000 $ (330,000) $ 1,406,000)
=========== =========== ===========
49
Provision (benefit) for income taxes consist of the following:
2004 2003 2002
---- ---- ----
Continuing Operations
Federal
Current $ (594,000) $ (788,000) $ (351,000)
Deferred 189,000 681,000 304,000
----------- ----------- -----------
(405,000) (107,000) (47,000)
----------- ----------- -----------
State
Current 670,000 - -
Deferred (486,000) - -
----------- ----------- -----------
184,000 - -
----------- ----------- -----------
Total Continuing $ (221,000) $ (107,000) $ (47,000)
=========== =========== ===========
Discontinued Operations
Real Estate
Federal
Current $ 2,275,000 $ 402,000 $ 221,000
Deferred (247,000) (41,000) (368,000)
----------- ----------- -----------
2,028,000 361,000 (147,000)
----------- ----------- -----------
State
Current 222,000 - -
Deferred (176,000) - -
----------- ----------- -----------
46,000 - -
----------- ----------- -----------
Total Real Estate $ 2,074,000 $ 361,000 $ (147,000)
=========== =========== ===========
Oil and Gas
Federal
Current $ 2,598,000 $ 68,000 $ 161,000
Deferred (3,488,000) (569,000) 326,000
----------- ----------- -----------
(890,000) (501,000) 487,000
----------- ----------- -----------
State
Current 3,000 42,000 38,000
Deferred - - -
----------- ----------- -----------
3,000 42,000 38,000
----------- ----------- -----------
Foreign
Current 4,044,000 635,000 (501,000)
Deferred (3,120,000) (1,987,000) 500,000
----------- ----------- -----------
924,000 (1,352,000) (1,000)
----------- ----------- -----------
Total Oil & Gas 37,000 $(1,811,000) $ 524,000
=========== =========== ===========
Total $ 1,890,000 $(1,557,000) $ 330,000
=========== =========== ===========
50
A reconciliation of the differences between the effective tax rate and the
statutory U.S. income tax rate is as follows:
Amount % Amount % Amount %
Federal income tax provision
(benefit) at statutory rate $ 1,585,000 35.0% $(1,376,000) (35.0)% $ 478,000 34.0%
State income tax net of Federal impact 152,000 3.3 27,000 0.7 25,000 1.8
Impact of foreign operations 271,000 6.0 408,000 10.4 (87,000) (6.2)
Dividend exclusion (50,000) (1.1) (91,000) (2.3) (86,000) (6.1)
Tax-exempt interest (68,000) (1.5) - - - -
Liquidating dividend from foreign
operations - - 2,075,000 52.8 - -
Impairment tax benefit - - (2,600,000) (66.2) - -
----------- ---- ----------- ---- ----------- ----
Total tax expense (benefit) /
Effective tax rate (benefit) $ 1,890,000 41.7% $(1,557,000) (39.6)% $ 330,000 23.5%
=========== ==== =========== ==== =========== ====
Significant components of deferred tax liabilities as of December 31,
2004 and 2003 were as follows -
2004 2003
---- ----
Tax over book depreciation, depletion and amortization -
Oil and gas and real estate properties - U.S. $ 1,485,000 $ 5,837,000
Oil and gas properties - Canada 0 5,734,000
Deferred gains on sales of real estate properties - U.S. 370,000 412,000
U.S. tax on liquidating dividend from Canada 2,075,000 2,075,000
Reserve for impairment - oil and gas - (2,600,000)
Unrealized gain on marketable securities 390,000 89,000
------------ ------------
Net deferred tax liability 4,320,000 11,547,000
Deferred tax liability included in current (2,465,000) (10,489,000)
------------ ------------
Noncurrent deferred tax liability $ 1,855,000 $ 1,058,000
============ ============
8. SEGMENT INFORMATION:
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," established standards for reporting financial information
about operating segments in interim and annual financial reports and
provides for a "management approach" in identifying the reportable
segments.
Wilshire has determined that it has two reportable segments within its
continuing operations: residential properties and commercial
properties. These reportable segments have different types of customers
and are managed separately because each requires different operating
strategies and management expertise. The residential property segment
has seven separate properties and the commercial segment has five
properties. The accounting policies of the segments are the same as
those described in Note 1.
51
The chief operating decision-making group of Wilshire's residential and
commercial real estate segments and corporate/other activities is
comprised of Wilshire's Chairman & Chief Executive Officer, President &
Chief Operating Officer and Chief Financial Officer.
Wilshire assesses and measures segment operating results based on NOI,
which is a direct measure of each property's contribution to the
results of the Company before considering revenues from treasury
activities, overhead expenses and other costs that are not directly
related to the performance of a property. The Company believes NOI is a
more descriptive measure of the Company's performance than income
(loss) from continuing operations. NOI is not a measure of operating
results or cash flow as measured by generally accepted accounting
principles, and is not necessarily indicative of cash available to fund
cash needs and should not be considered an alternative to cash flows as
a measure of liquidity.
Continuing real estate revenue, operating expenses, NOI and recurring
capital improvements for the reportable segments are summarized below
and reconciled to consolidated net income (loss) from continuing
operations for each of the three years in the period ended December 31,
2004. Asset information is not reported since Wilshire does not use
this measure to assess performance.
2004 2003 2002
---- ---- ----
Real estate revenue:
Residential $ 7,456,000 $ 7,313,000 $ 7,272,000
Commercial 2,250,000 1,944,000 1,871,000
----------- ----------- -----------
Total $ 9,706,000 $ 9,257,000 $ 9,143,000
----------- ----------- -----------
Real estate operating expenses:
Residential $ 4,337,000 $ 4,405,000 $ 4,096,000
Commercial 1,162,000 1,048,000 1,164,000
----------- ----------- -----------
Total $ 5,499,000 $ 5,453,000 $ 5,260,000
----------- ----------- -----------
Net operating income:
Residential $ 3,119,000 $ 2,908,000 $ 3,176,000
Commercial 1,088,000 896,000 707,000
----------- ----------- -----------
Total $ 4,207,000 $ 3,804,000 $ 3,883,000
----------- ----------- -----------
Capital improvements:
Residential $ 1,369,000 $ 1,255,000 $ 678,000
Commercial 333,000 460,000 1,218,000
----------- ----------- -----------
Total $ 1,702,000 $ 1,715,000 $ 1,896,000
----------- ----------- -----------
Reconciliation of NOI to consolidated income (loss) from continuing
operations:
Segment NOI $ 4,207,000 $ 3,804,000 $ 3,883,000
Total other income, including net investment income 1,314,000 4,596,000 2,128,000
Depreciation expense (1,673,000) (1,647,000) (1,541,000)
General and administrative expense (2,143,000) (2,349,000) (2,131,000)
Interest expense (2,343,000) (3,408,000) (2,226,000)
Income tax benefit 221,000 107,000 47,000
----------- ----------- -----------
Income from continuing operations $ (417,000) $ 1,103,000 $ 160,000
=========== =========== ===========
9. PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of preferred
stock, par value $1.00 per share. At December 31, 2004 and 2003, there
were no shares of preferred stock outstanding. The preferred stock may
be issued in one or more series, from time to time, with each such
series to have such designation, powers, preferences and relative
participating, optional or other special rights, and qualifications,
limitations or restriction thereof, as shall be stated and expressed in
the resolution or resolutions providing for the issue of such series
adopted by the Board of Directors of the Company, subject to the
limitations prescribed by law and in accordance with the provisions set
forth in the Certificate of Incorporation of the Company.
52
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management, using available market information and appropriate
valuation methodologies. Considerable judgment is necessary to
interpret market data and develop estimated fair values. Accordingly,
the estimates presented herein are not necessarily indicative of the
amounts the Company could realize on disposition of the financial
instruments. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts.
Cash equivalents, accounts receivable, accounts payable, and revolving
credit facilities balances reasonably approximate their fair values due
to the short maturities of these items. The mortgage receivable is
valued at $1.1 million, which equals the settlement price agreed to
with the borrower in February 2005 and exceeds its carrying value by
$662,000.
Mortgage notes payable have an estimated fair value based on discounted
cash flow models of approximately $46.0 million, which is lower than
the carrying value by $0.9 million.
Disclosure about fair value of financial instruments is based on
pertinent information available to management as of December 31, 2004.
Although management is not aware of any factors that would
significantly affect the reasonable fair value amounts, such amounts
have not been comprehensively revalued for purposes of these financial
statements since that date and current estimates of fair value may
differ significantly from the amounts presented herein.
11. SUBSEQUENT EVENTS
In January 2005, the Company sold one 2-bedroom condominium at
Galsworthy Arms, New Jersey, for gross proceeds of $269,500. After
payment of closing costs and taxes, the Company will realize net income
in the first quarter 2005 of approximately $115,000.
In February 2005, the Company signed an agreement to sell its Biltmore
Club apartment complex (Phoenix, Arizona) to GDG Partners L.L.C. for
$20,956,000. The agreement is expected to close no later than December
23, 2005. GDG Partners L.L.C. has paid Wilshire a nonrefundable deposit
of $100,000 and additional nonrefundable deposits of $150,000 and
$250,000 are required by April 3, 2005 and July 2, 2005, respectively.
We expect to report a gain on the sale after taxes of approximately
$8.5 million and have net proceeds after transaction costs and paying
off the mortgage of approximately $10.0 million.
The Company held a mortgage receivable with a gross carrying value of
$1,165,000 and $727,000 of unearned income as of December 31, 2004.
Security for the mortgage was a first lien on in excess of 100
condominium units in two contiguous buildings located in Jersey City,
New Jersey. On February 22, 2005, the Company entered into an agreement
with the mortgagee to settle and satisfy the mortgage for $1,100,000,
which was paid in the first quarter of 2005. At the conclusion of this
transaction, the Company will recognize a gain of approximately
$400,000 in the first quarter of 2005.
In March 2005, the Company signed an agreement to sell its Twelve Oaks
apartment complex (Atlanta, Georgia) to Interstate East Management,
Inc. for $1,725,000. The agreement contains a "time is of the essence
clause" and is expected to close as soon as practicable. We expect to
report a gain on the sale after taxes of approximately $440,000. The
property had been highly leveraged and the transaction will generate
net proceeds after transaction costs and taxes of approximately
$1,379,000, which will be used to repay the outstanding mortgage
balance of approximately $1,609,000. The shortfall in the net proceeds
will be made up from general corporate sources of funds.
53
Also in March 2005 the Company was evaluating alternatives for
optimizing its investment in the Wilshire Grand Hotel and Banquet
Facility (the "Wilshire Hotel"). The Company leases the Wilshire Hotel
under two 25-year operating leases, one for the hotel and one for the
banquet facility, to an experienced hotel operator (the "Hotel
Operator"). The Hotel Operator has encountered financial adversity and
in 2004 ceased payment on its mortgage obligations, which are held by a
third party (the "Mortgagor"). As of March 2005, the Hotel Operator was
also delinquent on lease payments to Wilshire for the months of
January, February and March 2005. The Mortgagor is required to cure any
defaults of the Hotel Operator (i.e., pay any amounts due Wilshire
under the lease) in order to protect its mortgage and cannot impair
Wilshire's ownership interest in the property. As a result of the Hotel
Operator's delinquency, Wilshire is evaluating alternatives for its
investment including: a) declaring the Hotel Operator in default and
pursuing tenant eviction proceedings and b) assisting in the
consummation of a settlement agreement by which Wilshire would assume
operational control of the Wilshire Hotel and in the event of a
subsequent sale of the hotel, would receive an agreed upon value prior
to any proceeds being distributed to the Mortgagor or Hotel Operator.
At this time, Wilshire does not expect to incur a loss on this
property.
54
12. QUARTERLY DATA (UNAUDITED)
The following represents the Company's results of operations for each
quarter for the years ended December 31, 2004 and 2003. The amounts
presents are different from amounts presented in the Company's
quarterly reports on Form 10-Q due to the reclassification of certain
amounts of revenue and expense to discontinued operations - real estate
to reflect the designation of additional properties as discontinued.
Quarter ended
-----------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
2004:
Revenues $ 2,429,000 $ 2,479,000 $ 2,445,000 $ 2,353,000
----------- ----------- ----------- -----------
Costs and expenses:
Operating expenses 1,388,000 1,332,000 1,416,000 1,363,000
Depreciation 427,000 398,000 398,000 450,000
General and administrative 329,000 543,000 752,000 519,000
----------- ----------- ----------- -----------
Total costs and expenses 2,144,000 2,273,000 2,566,000 2,332,000
----------- ----------- ----------- -----------
Income (loss) from operations 285,000 206,000 (121,000) 21,000
Dividend and interest income 194,000 46,000 192,000 253,000
Other income 53,000 185,000 206,000 185,000
Interest expense including amortization
of deferred financing costs (616,000) (583,000) (579,000) (565,000)
----------- ----------- ----------- -----------
Income (loss) before provision for taxes (84,000) (146,000) (302,000) (106,000)
Income taxes (53,000) (79,000) (115,000) 26,000
----------- ----------- ----------- -----------
Income (loss) from continuing operations (31,000) (67,000) (187,000) (132,000)
Discontinued operations - real estate 2,887,000 248,000 (1,000) 632,000
Discontinued operations - oil & gas (257,000) 842,000 (390,000) (906,000)
----------- ----------- ----------- -----------
Net income (loss) $ 2,599,000 $ 1,023,000 $ (578,000) $ (406,000)
=========== =========== =========== ===========
Basic earnings (loss) per share:
Continuing operations $ - $(0.01) $(0.02) $(0.02)
Discontinued operations 0.34 0.14 - (0.04)
----- ----- ------ ------
Net income (loss) $0.34 $0.13 $(0.02) $(0.06)
===== ===== ====== ======
Diluted earnings (loss) per share:
Continuing operations $ - $(0.01) $(0.02) $(0.02)
Discontinued operations 0.34 0.14 - (0.04)
----- ----- ------ ------
Net income (loss) $0.34 $0.13 $(0.02) $(0.06)
===== ===== ====== ======
55
Quarter Ending
-----------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
2003:
Revenues $ 2,268,000 $ 2,286,000 $ 2,336,000 $ 2,367,000
----------- ----------- ----------- -----------
Costs and expenses:
Operating expenses 1,313,000 1,327,000 1,419,000 1,394,000
Depreciation 418,000 415,000 415,000 399,000
General and administrative 444,000 537,000 427,000 941,000
----------- ----------- ----------- -----------
Total costs and expenses 2,175,000 2,279,000 2,261,000 2,734,000
----------- ----------- ----------- -----------
Income (loss) from operations 93,000 7,000 75,000 (367,000)
Dividend and interest income 224,000 145,000 176,000 198,000
Sale of marketable securities 261,000 - 2,360,000 -
Life insurance proceeds 1,000,000 - - -
Other income 126,000 127,000 (6,000) (15,000)
Interest expense including amortization
of deferred financing costs (1,270,000) (694,000) (769,000) (675,000)
----------- ----------- ----------- -----------
Income (loss) before provision for taxes 434,000 (415,000) 1,836,000 (859,000)
Income taxes (185,000) (181,000) 580,000 (321,000)
----------- ----------- ----------- -----------
Income (loss) from continuing operations 619,000 (234,000) 1,256,000 (538,000)
Discontinued operations - real estate (252,000) 43,000 452,000 459,000
Discontinued operations - oil & gas 646,000 457,000 39,000 (4,320,000)
----------- ----------- ----------- -----------
Net income (loss) $ 1,013,000 $ 266,000 $ 1,747,000 $(4,399,000)
=========== =========== =========== ===========
Basic earnings (loss) per share:
Continuing operations $0.08 $(0.03) $0.16 $(0.07)
Discontinued operations 0.05 0.06 0.06 (0.49)
----- ------ ----- ------
Net income (loss) $0.13 $0.03 $0.22 $(0.56)
===== ===== ===== ======
Diluted earnings (loss) per share:
Continuing operations $0.08 $(0.03) $0.16 $(0.07)
Discontinued operations 0.05 0.06 0.06 (0.49)
----- ------ ----- ------
Net income (loss) $0.13 $0.03 $0.22 $(0.56)
===== ===== ===== ======
56
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2004
($ IN 000S)
Column E
Column D Gross Amount
Costs Capitalized At Which
Column C Subsequent To Carried as of
Column A Column B Initial Cost Acquisition December 31, 2004
- -------- -------- ------------ ----------- -----------------
Building & Building & Building &
Description Encumbrances Land Improvements Land Improvements Land Improvements Total
- ----------- ------------ ---- ------------ ---- ------------ ---- ------------ -----
Arizona
378 unit $9,103 $600 $4,050 $-0- $3,125 $600 $7,175 $7,775
garden
apartment
complex
340 unit $10,473 $800 $5,600 $-0- $2,888 $800 $8,488 $9,288
garden
apartment
complex
53,000 square $3,887 $313 $2,384 $-0- $1,702 $313 $4,086 $4,399
foot office
building
Texas
228 unit $4,307 $620 $3,015 $-0- $2,721 $620 $5,736 $6,356
apartment
complex
180 unit $4,121 $805 $4,450 $-0- $658 $805 $5,108 $5,913
apartment
complex
New Jersey
45 unit $1,544 $517 $1,533 $-0- $622 $517 $2,155 $2,672
condominium
complex
132 unit $4,894 $480 $3,541 $-0- $566 $480 $4,107 $4,587
apartment
complex
Hotel &
banquet
facility $3,421 $3,057 $1,031 $-0- $1,298 $3,057 $2,329 $5,386
Other
residential $4,065 $470 $3,365 $-0- $1,545 $470 $4,910 $5,380
Other
office/retail $1,040 $654 $2,610 $-0- $2,372 $654 $5,001 $5,655
Land held for
development $-0- $1,526 $-0- $-0- $-0- $1,526 $-0- $1,526
$46,855 $9,842 $31,579 $-0- $17,497 $9,842 $49,095 $58,937
======= ====== ======= ==== ======= ====== ======= =======
Column A Column F Column H Column I
- -------- -------- -------- --------
Life on
Which
Accumulated Date Depreciation
Description Depreciation Acquired is Computed
- ----------- ------------ -------- -----------
Arizona
378 unit $2,931 1992 Various
garden
apartment
complex
340 unit $3,636 1992 Various
garden
apartment
complex
53,000 square $1,851 1992 Various
foot office
building
Texas
228 unit $2,382 1992 Various
apartment
complex
180 unit $585 2001 Various
apartment
complex
New Jersey
45 unit $565 1993 Various
condominium
complex
132 unit $1,122 1997 Various
apartment
complex
Hotel & $497 1997 Various
banquet
facility
Other $1,514 Various Various
residential
Other $1,817 Various Various
office/retail
Land held for $-0- Various Various
development
$16,900
=======
57
The changes in real estate for the three years ended December 31, 2004,
are as follows:
2004 2003 2002
---- ---- ----
($ in 000s)
Balance at beginning of year $72,069 $71,355 $69,161
Property acquisitions - - -
Improvements 2,251 2,415 2,679
Retirements/disposals (15,383) (1,701) (485)
------- ------ ----
Balance at end of year $58,937 $72,069 $71,355
======= ======= =======
The aggregate cost of land, buildings and improvements, before depreciation, for
Federal income tax purposes at December 31, 2004 was approximately $58,012.
The changes in accumulated depreciation, exclusive of amounts relating to
equipment, autos, and furniture and fixtures, for the three years ended December
31, 2004, are as follows:
2004 2003 2002
---- ---- ----
($ in 000s)
Balance at beginning of year $17,731 $15,504 $13,108
Depreciation for year 1,928 2,547 2,410
Retirements/disposals (2,759) (320) (14)
------- ------- -------
Balance at end of year $16,900 $17,731 $15,504
======= ======= =======
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Ernst & Young LLP ("E&Y") informed the Company and its Audit Committee that it
would decline to stand for re-election as the Company's Independent Registered
Public Accounting Firm for the fiscal year ending December 31, 2004 due to the
economics of the engagement.
E&Y's reports on the Company's consolidated financial statements for each of the
years ended December 31, 2003 and 2002 did not contain an adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles.
During the years ended December 31, 2003 and 2002 and through July 5, 2004, the
date that J.H. Cohn LLP was appointed as the Company's new Independent
Registered Public Accounting Firm for the fiscal year ended December 31, 2004,
there were no disagreements with E&Y on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure which
if not resolved to E&Y's satisfaction, would have caused them to make reference
to the subject matter in connection with their report on the Company's
consolidated financial statements for such years. There were no reportable
events as defined in Item 304(a)(1)(v) of Regulation S-K, except that a material
weakness in internal controls was identified in connection with the Company's
2003 audit relating to its oil and gas business, which was addressed prior to
finalizing the year end audit and had no effect on any previously filed
financial statements. The oil and gas business has now been sold.
The Company has provided E&Y with a copy of the foregoing statements. Attached
as Exhibits 16.1 and 16.2 is a copy of E&Y's letters dated June 25, 2004 and
July 19, 2004, stating its agreement with such statements.
58
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure controls and procedures. As of the end of the period covered by this
report, we carried out an evaluation of the effectiveness of the design and
operation of Wilshire's disclosure controls and procedures. This evaluation was
carried out under the supervision and with participation of Wilshire's
management, including Wilshire's Chairman and Chief Executive Officer and Chief
Financial Officer, who concluded that the Company's disclosure controls and
procedures are effective. There have been no significant changes in Wilshire's
internal controls subsequent to the date we carried out our evaluation.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in Wilshire's
reports filed or submitted under the Exchange Act is recorded, processed,
summarized, and reported, within the time periods specified in the SEC's rules
and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed in Wilshire's reports filed under the Exchange Act is accumulated and
communicated to management, including Wilshire's Chief Executive Officer and
Chief Financial Officer as appropriate, to allow timely decisions regarding
required disclosure.
During the quarter there was a material weakness in our recording of a
transaction involving equity compensation for one former employee, which was
brought to our attention by our independent registered public accounting firm
and was corrected prior to the finalization of our consolidated financial
statements. Management believes it has taken the necessary actions to ensure the
appropriate accounting treatment for this type of transaction if it occurs in
the future.
ITEM 9B. OTHER INFORMATION
None
59
PART III
Certain information required by Part III is incorporated by reference to
Wilshire's 2005 definitive proxy statement (the "Proxy Statement") to be filed
with the Securities and Exchange Commission no later than 120 days after the end
of Wilshire's fiscal year covered by this Annual Report. Only those sections of
the Proxy Statement that specifically address the items set forth in this Annual
Report are incorporated by reference from the Proxy Statement into this Annual
Report.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning Wilshire's Board of Directors required by this item
is incorporated herein by reference to the sections titled "Election of
Directors" and "Compliance with Section 16(a) of the Securities Exchange Act" in
Wilshire's Proxy Statement for its Annual Meeting to be held in June 2005.
The information concerning Wilshire's executive officers required by this item
is included in Item 4A of this Annual Report on Form 10-K.
The Company has adopted a Code of Conduct for its officers and employees. A copy
of the Code of Conduct is available on the Company's website
(http://www.wilshireenterprisesinc.com) under the caption "Corporate Policies."
ITEM 11. EXECUTIVE COMPENSATION
The information pertaining to executive compensation required by this item is
incorporated herein by reference to the section titled "Election of Directors -
Executive Compensation" in Wilshire's Proxy Statement for its Annual Meeting to
be held in June 2005.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 403 of Regulation S-K to be included as part of
this item is incorporated herein by reference to the section titled "Voting
Securities and Principal Holders Thereof" and "Election of Directors" in
Wilshire's Proxy Statement for its Annual Meeting to be held in June 2005.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to the
section titled "Compensation Committee Interlocks and Insider Participation;
Other Transactions" in Wilshire's Proxy Statement for its Annual Meeting to be
held in June 2005.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required in response to this item is incorporated by reference
to the information contained in Wilshire's Proxy Statement for its Annual
Meeting to be held in June 2005 under the caption "Audit Fees and Related
Matters."
60
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements
(i) Reports of Independent Registered Public Accounting Firm
(ii) Consolidated Balance Sheets as of December 31, 2004 and 2003
(iii) Consolidated Statements of Operations for the years ended December
31, 2004, 2003 and 2002
(iv) Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 2004, 2003 and 2002
(v) Consolidated Statements of Cash Flows for the years ended December 31,
2004, 2003 and 2002
(vi) Notes to Consolidated Financial Statements
Financial Statement Schedules:
(i) Real Estate and Accumulated Depreciation December 31, 2004
(b) Exhibits
EXHIBIT # DESCRIPTION
- --------- -----------
3.1 Restated Certificate of Incorporation of Wilshire Enterprises,
Inc., as amended. (Incorporated by reference to Exhibit 3.1 of
Item 14 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992.)
3.2 Amended By-Laws, as of June 11, 1998, of Wilshire Enterprises,
Inc. (Incorporated by reference to Exhibit 3 of the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998.)
4.1 Stockholder Protection Rights Agreement, dated as of June 21,
1996, between Wilshire Enterprises, Inc. and Continental Stock
Transfer & Trust Company, as Rights Agent. (Incorporated by
reference to Exhibit 1 to the Company's Current Report on Form
8-K dated June 21, 1996.)
4.2 Reference is made to Exhibits 10.7 through 10.27.
4.3 The Company agrees to furnish the Commission upon request any
agreements with respect to long-term debt not referenced
herein.
10.1 General Assignments and Assignments of Leases dated March 31,
1992 with respect to the purchase of income producing real
estate properties. (Incorporated by reference to Exhibit 1 and
2 of Form 8 dated December 9, 1992 filed with the Commission.)
10.2 General Assignments, Assignments of Leases, and Escrow
Agreements and Early Possession Agreements with respect to the
purchase of four income producing real estate properties.
(Incorporated by reference to Exhibits 1(a) through 4(c) on
the Company's Form 8-K dated December 31, 1992 filed with the
Commission.)
10.3 Wilshire Enterprises, Inc. 1995 Stock Option and Incentive
Plan. (Incorporated by reference to Exhibit A of the
Registrant's Definitive Proxy Statement for its 1995 Annual
Meeting of Stockholders.)
10.4 Wilshire enterprises, Inc. 1995 Non-Employee Director Stock
Option Plan. (Incorporated by reference to Exhibit B of the
Registrant's Definitive Proxy Statement for its 1995 Annual
Meeting of Stockholders.)
61
10.5 Wilshire Enterprises, Inc. 2004 Stock Option and Incentive
Plan. (Incorporated by reference to Appendix C of the
Registrant's Definitive Proxy Statement for its 2004 Annual
Meeting of Stockholders.)
10.6 Wilshire Enterprises, Inc. 2004 Non-Employee Director Stock
Option Plan. (Incorporated by reference to Appendix D of the
Registrant's Definitive Proxy Statement for its 2004 Annual
Meeting of Stockholders.)
10.7 Environmental Indemnity Agreement between Biltmore Club
Apartments, L.L.C., a subsidiary of Wilshire Enterprises,
Inc., and Merrill Lynch Mortgage Lending, Inc. dated February
27, 2003. (Incorporated by reference to the similarly numbered
exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 2002.)
10.8 Promissory Note given by Biltmore club Apartments, L.L.C., a
subsidiary of Wilshire Enterprises, Inc., and Merrill Lynch
Mortgage Lending, Inc. dated February 27, 2003. (Incorporated
by reference to the similarly numbered exhibit to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2002.)
10.9 Indemnity and Guaranty Agreement between Biltmore Club
Apartments, L.L.C., a subsidiary of Wilshire Enterprises,
Inc., and Merrill Lynch Mortgage Lending, Inc. dated February
27, 2003. (Incorporated by reference to the similarly numbered
exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 2002.)
10.10 Multifamily Deed of Trust, Security Agreement, Assignment of
Rents and Fixture Filing between Biltmore club Apartments,
L.L.C., a subsidiary of Wilshire Enterprises, Inc., and
Merrill Lynch Mortgage Lending, Inc. dated February 27, 2003.
(Incorporated by reference to the similarly numbered exhibit
to the Company's Annual Report on Form 10-K for the year ended
December 31, 2002.)
10.11 Promissory Note given by Alpine Village Apartments, L.L.C., a
subsidiary of Wilshire Enterprises, Inc., and Merrill Lynch
Mortgage Lending, Inc. dated February 28, 2003. (Incorporated
by reference to the similarly numbered exhibit to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2002.)
10.12 Environmental Indemnity Agreement between Alpine Village
Apartments, L.L.C., a subsidiary of Wilshire Enterprises,
Inc., and Merrill Lynch Mortgage Lending, Inc. dated February
28, 2003. (Incorporated by reference to the similarly numbered
exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 2002.)
10.13 Indemnity and Guaranty Agreement between Alpine Village
Apartments, L.L.C., a subsidiary of Wilshire Enterprises,
Inc., and Merrill Lynch Mortgage Lending, Inc. dated February
28, 2003. (Incorporated by reference to the similarly numbered
exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 2002.)
10.14 Multifamily Mortgage, Security Agreement, Assignment of Rents
and Fixture Filing between Alpine Village Apartments, L.L.C.,
a subsidiary of Wilshire Enterprises, Inc., and Merrill Lynch
Mortgage Lending, Inc. dated February 28, 2003. (Incorporated
by reference to the similarly numbered exhibit to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2002.)
62
10.15 Promissory Note given by Sunrise Ridge, L.L.C., a subsidiary
of Wilshire Enterprises, Inc., and Merrill Lynch Mortgage
Lending, Inc. dated February 27, 2003. (Incorporated by
reference to the similarly numbered exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31,
2002.)
10.16 Environmental Indemnity Agreement between Sunrise Ridge,
L.L.C., a subsidiary of Wilshire Enterprises, Inc., and
Merrill Lynch Mortgage Lending, Inc. dated February 27, 2003.
(Incorporated by reference to the similarly numbered exhibit
to the Company's Annual Report on Form 10-K for the year ended
December 31, 2002.)
10.17 Indemnity and Guaranty Agreement between Sunrise Ridge,
L.L.C., a subsidiary of Wilshire Enterprises, Inc., and
Merrill Lynch Mortgage Lending, Inc. dated February 27, 2003.
(Incorporated by reference to the similarly numbered exhibit
to the Company's Annual Report on Form 10-K for the year ended
December 31, 2002.)
10.18 Multifamily Deed of Trust, Security Agreement, Assignment of
Rents and Fixture Filing between Sunrise Ridge, L.L.C., a
subsidiary of Wilshire Enterprises, Inc., and Merrill Lynch
Mortgage Lending, Inc. dated February 27, 2003. (Incorporated
by reference to the similarly numbered exhibit to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2002.)
10.19 Promissory Note given by Van Buren, L.L.C., a subsidiary of
Wilshire Enterprises, Inc., and Merrill Lynch Mortgage
Lending, Inc. dated February 27, 2003. (Incorporated by
reference to the similarly numbered exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31,
2002.)
10.20 Environmental Indemnity Agreement between Van Buren, L.L.C., a
subsidiary of Wilshire Enterprises, Inc., and Merrill Lynch
Mortgage Lending, Inc. dated February 27, 2003. (Incorporated
by reference to the similarly numbered exhibit to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2002.)
10.21 Indemnity and Guaranty Agreement between Van Buren, L.L.C., a
subsidiary of Wilshire Enterprises, Inc., and Merrill Lynch
Mortgage Lending, Inc. dated February 27, 2003. (Incorporated
by reference to the similarly numbered exhibit to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2002.)
10.22 Multifamily Deed of Trust, Security Agreement, Assignment of
Rents and Fixture Filing between Van Buren, L.L.C., a
subsidiary of Wilshire Enterprises, Inc., and Merrill Lynch
Mortgage Lending, Inc. dated February 27, 2003. (Incorporated
by reference to the similarly numbered exhibit to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2002.)
10.23 Promissory Note given by Wellington Apartments, L.L.C., a
subsidiary of Wilshire Enterprises, Inc., and Merrill Lynch
Mortgage Lending, Inc. dated February 27, 2003. (Incorporated
by reference to the similarly numbered exhibit to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2002.)
10.24 Environmental Indemnity Agreement between Wellington
Apartments, L.L.C., a subsidiary of Wilshire Enterprises,
Inc., and Merrill Lynch Mortgage Lending, Inc. dated February
27, 2003. (Incorporated by reference to the similarly numbered
exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 2002.)
10.25 Indemnity and Guaranty Agreement between Wellington
Apartments, L.L.C., a subsidiary of Wilshire Enterprises,
Inc., and Merrill Lynch Mortgage Lending, Inc. dated February
27, 2003. (Incorporated by reference to the similarly numbered
exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 2002.)
63
10.26 Multifamily Deed of Trust, Security Agreement, Assignment of
Rents and Fixture Filing between Wellington Apartments,
L.L.C., a subsidiary of Wilshire Enterprises, Inc., and
Merrill Lynch Mortgage Lending, Inc. dated February 27, 2003.
(Incorporated by reference to the similarly numbered exhibit
to the Company's Annual Report on Form 10-K for the year ended
December 31, 2002.)
10.27 The Company agrees to furnish to the Commission upon request
any other agreements with respect to long term debt.
10.28 Agreement dated March 17, 2004 between Wilshire Enterprises,
Inc. and Crow Creek Energy L.L.C. to sell the U.S. Oil and Gas
business. (Incorporated by reference to the similarly numbered
exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 2003.)
10.29 Contract of sale dated January 23, 2004 between Wilshire
Enterprises, Inc. and Economic Properties 2004 L.L.C. for the
sale of eleven properties in Jersey City, New Jersey.
(Incorporated by reference to the similarly numbered exhibit
to the Company's Annual Report on Form 10-K for the year ended
December 31, 2003.)
10.30 Employment agreement between the Company and Philip Kupperman
dated as of July 1, 2002. (Incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K dated
September 4, 2002.)
10.31 Severance Letter Agreement between the Company and Sherry
Wilzig Izak dated as of March 29, 2004. (Incorporated by
reference to the similarly numbered exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31,
2003.)
10.32 Employment agreement between the Company and Daniel C. Pryor
dated as of April 24, 2004.
10.33 Employment letter between the Company and Seth H. Ugelow dated
as of June 1, 2004.
10.34 Purchase agreement and escrow instructions between Biltmore
Club Apartments, L.L.C. (a subsidiary of Wilshire Enterprises,
Inc.) and GDG Partners L.L.C. dated February 2, 2005.
10.35 Purchase agreement between Wilshire Enterprises, Inc. and
Interstate East Management, Inc. dated March 23, 2005.
16.1 Letter from E&Y to the Securities and Exchange Commission
dated June 25, 2004. (Incorporated by reference to Exhibit
16.1 to the Company's Current Report on Form 8-K dated May 14,
2004.)
16.2 Letter from E&Y to the Securities and Exchange Commission
dated July 19, 2004. (Incorporated by reference to Exhibit
16.1 to the Company's Current Report on Form 8-K dated July
19, 2004.)
21 List of significant subsidiaries of the Registrant.
(Incorporated by reference to the similarly numbered exhibit
to the Company's Annual Report on Form 10-K for the year ended
December 31, 2003.)
23.1 Consent of J.H. Cohn LLP, Independent Registered Public
Accounting Firm.
23.2 Consent of Ernst & Young, LLP, Independent Registered Public
Accounting Firm.
24 Power of attorney.
64
31.1 Certification of the Chief Executive Officer Pursuant to
Section 302 of Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer Pursuant to
Section 302 of Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of the Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
65
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.
WILSHIRE ENTERPRISES, INC.
(Registrant)
Date: March 31, 2005 /s/ S. Wilzig Izak
-------------- ---------------------------------------------
By: S. Wilzig Izak
Chairman of the Board and Chief Executive Officer
/s/ Seth H. Ugelow
------------------
By: Seth H. Ugelow
Chief 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 dates indicated.
DIRECTORS:
By: * Date: March 31, 2005
--------------------------------------
Miles Berger
By: * Date: March 31, 2005
---------------------------------------
Milton Donnenberg
By: /s/ S. Wilzig Izak Date: March 31, 2005
--------------------------------------
S. Wilzig Izak
By: * Date: March 31, 2005
--------------------------------------
Eric J. Schmertz, Esq.
By: * Date: March 31, 2005
--------------------------------------
Ernest Wachtel
By: * Date: March 31, 2005
--------------------------------------
Martin Willschick
OFFICERS:
By: /s/ S. Wilzig Izak Date: March 31, 2005
--------------------------------------
S. Wilzig Izak
Chairman of the Board and Chief Executive Officer
By: /s/ Daniel C. Pryor Date: March 31, 2005
--------------------------------------
Daniel C. Pryor
President and Chief Operating Officer
By: /s/ Seth H. Ugelow Date: March 31. 2005
--------------------------------------
Seth H. Ugelow
Chief Financial Officer
* Signed under power of attorney dated March 30, 2005 and filed herewith as
Exhibit 24.
66
EXHIBIT INDEX
EXHIBIT # DESCRIPTION
- --------- -----------
10.32 Employment agreement between the Company and Daniel C. Pryor
dated as of April 24, 2004.
10.33 Employment letter between the Company and Seth H. Ugelow dated
as of June 1, 2004.
10.34 Purchase agreement and escrow instructions between Biltmore
Club Apartments, L.L.C. (a subsidiary of Wilshire Enterprises,
Inc.) and GDG Partners L.L.C. dated February 2, 2005.
10.35 Purchase agreement between Wilshire Enterprises, Inc. and
Interstate East Management, Inc. dated March 23, 2005.
16.1 Letter from E&Y to the Securities and Exchange Commission
dated June 25, 2004. (Incorporated by reference to Exhibit
16.1 to the Company's Current Report on Form 8-K dated May 14,
2004.)
16.2 Letter from E&Y to the Securities and Exchange Commission
dated July 19, 2004. (Incorporated by reference to Exhibit
16.1 to the Company's Current Report on Form 8-K dated July
19, 2004.)
23.1 Consent of J.H. Cohn LLP, Independent Registered Public
Accounting Firm.
23.2 Consent of Ernst & Young, LLP, Independent Registered Public
Accounting Firm.
24 Power of attorney.
31.1 Certification of the Chief Executive Officer Pursuant to
Section 302 of Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer Pursuant to
Section 302 of Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of the Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
67