Annual Report (Form 10-K), fiscal year 1994

ITEM 1: BUSINESS ----------------- New Mexico and Arizona Land Company ("the Company") was organized in 1908 as an Arizona Corporation. It now has 19 full time employees. The Company's principal business is real estate which is currently conducted principally in Arizona and New Mexico. The Company also owns over one million acres of fee mineral rights in these two states. Financial information about industry segments appears in Note 9 to the consolidated financial statements. The Company's real estate and mineral holdings are listed and described under Item 2.



ITEM 2: PROPERTIES ------------------- The following are schedules of properties owned by the Company at December 31, 1994: ----------------------------------------------------------------- Year Encumbrance Acquired/ (Dollars in Location Description Developed thousands) ----------------------------------------------------------------- RENTAL PROPERTIES ARIZONA Scottsdale I.C.E. Buildings 13,020-square feet of buildings 1983 $ 844
Tempe 12th Place Building 37,908-square foot building 1983 844
Tucson 8 acres leased to Parking Company of America; Park and fly facility 1984-1988 0 NEW MEXICO Albuquerque Brentwood Gardens Apartments 122-unit complex on 7.5 acres 1985 3,248
Airpark Building 40,000-square foot office building on 2.5 acres 1985-1986 0
Farmington Apple Ridge Apartments 80-unit complex on 5.7 acre 1985 2,148
Las Cruces Montana Meadows Apartments 80-unit complex on 6.1 acre 1985 2,039
Roswell Wildewood Apartments 60-unit complex on 4.3 acre 1985 1,470 ITEM 2: PROPERTIES (Continued) ------------------------------- LAND HELD FOR SALE --------------------------------------------------------------- NEW MEXICO Albuquerque Manzano Mesa Ltd Partnership Residential lot development 1992-2006 419 planned for 500 lots in five phases of which 262 lots were sold as of mid-February, 1995.
Brown/NZD Development Joint Venture Residential lot development 1993-1995 299 SEVEN BAR SOUTH, 174 lots in three phases of which 104 were sold as of mid- February, 1995. SEVEN BAR NORTH, 587 lots 1995-1999 0 planned in nine phases, with 103 lots in phase I under contract for sale as of mid-February, 1995. [FN] The property is owned by a general partnership of which the Company owns 50%. The property is owned by a limited partnership of which the Company owns 75%. The property is owned by a general partnership of which the Company owns 75%. [/FN]
ITEM 3:

ITEM 3: LEGAL PROCEEDINGS ------------------------- As of December 31, 1994 there existed no litigation which posed a significant threat to New Mexico and Arizona Land Company or its assets.
ITEM 4:

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ----------------------------------------------------------- On November 18, 1994, a special meeting of shareholders of New Mexico and Arizona Land Company was held in Phoenix, Arizona to consider whether to amend the company's articles of incorporation to grant authority to the Board of Directors to issue preferred stock. No other matters were considered. The number of votes cast were: 1,569,648 for; 272,007 against; and 2,908 abstain. ITEM 5:

ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS --------------------------------------------------------- At December 31, 1994, there were 2,490,679 shares of no par common stock issued, which when restated for the 10% stock dividend payable on May 1, 1995, will increase to 2,739,746. These restated shares consist of 2,727,838 shares outstanding and 11,908 shares of treasury stock. The stock is admitted to unlisted trading privileges on the American Stock Exchange under the symbol "NZ". On April 28, 1994, Burlington Resources Inc. sold 1,246,175 (1,370,792 restated) shares, which is approximately 50.25% of the outstanding shares of Company, to Sun NZ, LLC. Shareholders of record at December 31, 1994, totaled 925. On March 4, 1995, the Board of Directors declared a 10% stock dividend, payable May 1, 1995. No dividends were declared in 1994, 1993 or 1992.
ITEM 7: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES Cash flow from sales of land, single-family and recreational lots, distributions from its joint ventures and other ongoing operations, along with unused borrowing capacity, should be adequate for continuing operations and considerable future investments during the next year. The Company invested approximately $2,848,000, in 1993, to purchase the 383-acre Seven Bar Ranch property. As of December 31, 1994, the Company recouped all its initial investment as well as the majority of its preferred return from the Seven Bar joint ventures. As development of this property continues, additional development loans and corporate guarantees may be required by the Company and/or its partner. The Company and a partner have guaranteed a $2 million and $2.8 million development loan. At February 22, 1995, the $299,000 balance on the $2 million, that was owed at December 31, 1994, had been paid off and $350,000 had been borrowed on the $2.8 million development loan. In 1994, the Company reduced its outstanding debt by $722,000. The Company s line of credit converted to a reducing revolving term loan on January 1, 1994. The loan, with a commitment base of $1,250,000, matures on June 30, 1995. At February 22, 1995, there were no borrowings against this line. Negotiations are in progress for the extension of this line of credit. Also in 1994, the Company refinanced its four apartment complexes, the interest rate was decreased by 1.5 points and the maturity date was extended from 1996 to 2009. Cash flow from these properties after debt service was $650,000 in 1994 and we are expecting a similar amount for 1995.
INFLATION, DEFLATION, AND CHANGING PRICES The results of operations and capital expenditures will continue to be affected by inflation, deflation and changing prices. Price changes in real estate, rental rates, oil, gas and uranium could have significant effects on Company operations.
RESULTS OF OPERATIONS - 1994 COMPARED TO 1993 Results for 1994 were the best in eight years, with net income of $3,936,000 compared to $1,282,000 in 1993. On March 4, 1995, the Board of Directors declared a 10% stock dividend payable May 1, 1995. Earnings per share were $1.59 and $.052 before restatement for the 10% dividend and $1.44 and $.047 after the restatement in 1994 and 1993, respectively. Revenue from the sale of residential lots doubled over last year, $8,700,000 compared to $4,300,000 in 1993. The two multi-family parcels in our Seven Bar property were also sold in 1994, which generated revenue of $4,400,000. The total gain on sales of properties increased by $5,600,000 in 1994 over 1993. Rental properties continue to produce a steady cash flow and income from year to year. One of the industrial/office buildings located in Phoenix was sold in 1994, for a gain of over 620,000. ITEM 7: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------------------- The increase of $325,000 in interest income resulted from the recognition of interest received from a note receivable. Interest expense decreased by $488,000. The principal contributing factors were (a) the ability to capitalize interest as a result of the on-going lot development programs in our Seven Bar and WillowWood projects, (b) the refinancing of the four apartment complexes at a lower interest rate and (c) the repayment of the outstanding balance on the credit line. General and administrative expenses increased by $512,000 in 1994. The major factor in the increase was due to a one time charge of $398,000. This represented the amount due under an employment agreement with Richard E. Leonard, who resigned as Chairman, President and Chief Executive Officer of the Company on June 27, 1994. Also in 1994, the majority of the shares of the Company changed ownership. With the change in ownership, certain costs such as insurance, legal fees and board of director fees increased. The increase in cash flow from operating activities and investing activities in 1994 compared to 1993, was the result of sales of property, single and multi-family residential lots in Albuquerque and an industrial property in Phoenix.
RESULTS OF OPERATIONS - 1993 COMPARED TO 1992 Net income for 1993 was $1,282,000 ($.47 per share) compared to a loss of $892,000 ($.33 per share) in 1992. The loss in 1992 resulted principally from the establishment of a valuation allowance in the amount of $3,596,000 for several of the Company's real estate properties and losses from its joint venture holdings offset by the one-time credit associated with the cumulative effect of adopting the new accounting pronouncement for income taxes. The Company continually updates its analysis of the estimated realizable values of its real estate properties and concluded that no further writedowns of its properties was necessary . The results of operations before income taxes in 1993 was $2,167,000 as compared to pre-tax income of $1,186,000 before the above mentioned valuation allowance. The increase in pre-tax income in 1993 was due to the absence of losses from the Company's joint venture holdings. Losses from these joint ventures in 1992 consisted of a $220,000 loss on the sale of one of the buildings and a $527,000 loss from the writedown of another building to its estimated realizable value. ITEM 7: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------------------- PROPOSED ACCOUNTING STANDARD The Financial Accounting Standards Board has issued an exposure draft of a proposed accounting standard entitled Accounting for the Impairment of Long Lived Assets. The Company believes that the final standard may be different from the exposure draft. Accordingly, the Company cannot predict the impact, if any, that such a final standard might have on the Company's financial position or results of operations.
OUTLOOK TO THE FUTURE Single-family lot sales are expected to continue at a good pace generating positive cash flows and earnings. Land sales and rental revenue from the apartment complexes and commercial buildings also continue to generate positive cash flows and earnings. A 12-acre parcel of the Seven Bar property was sold in January 1995, for a gain of $358,000. The Company is focusing on the acquisition of one or more new business, possibly unrelated to real estate or minerals. Along with any new ventures, the Company will continue with residential and recreational lot sales and investment in various real estate properties. The Company also continues to monitor the various minerals' markets in a effort to capitalize on its expertise and sizeable holdings. The Company's current businesses, real estate and minerals, tend to be cyclical, so investors should expect results in earnings, cash flow and other performance indicators to vary from year-to-year. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT ---------------------------- The Board of Directors and Shareholders New Mexico and Arizona Land Company:
We have audited the accompanying consolidated balance sheets of New Mexico and Arizona Land Company and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the years in the three year period ended December 31, 1994. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules for each of the years in the three year period ended December 31, 1994. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of New Mexico and Arizona Land Company and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. As discussed in Notes 1 and 5 to the consolidated financial statements, the Company changed its method of accounting for income taxes in 1992.
Phoenix, Arizona KPMG Peat Marwick LLP
Date: February 17, 1995, except as to note 11, which is as of March 4, 1995
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES --------------------------------------- PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of New Mexico and Arizona Land Company, its wholly-owned subsidiaries and majority-owned partnerships ("the Company"). All material intercompany transactions have been eliminated in consolidation. Certain financial statement items from prior years have been reclassified to be consistent with the current year financial statement presentation.
PROPERTIES Properties are recorded at cost net of valuation allowances. Depreciation on rental properties is provided over the estimated useful lives of the assets using the straight-line method. Maintenance and repairs are charged to income as incurred and renewals or betterments are capitalized.
INVESTMENTS IN JOINT VENTURES The Company's investments in joint ventures are accounted for using the equity method.
PROPERTY SALES AND DEFERRED REVENUE Profits on property sales are recognized, subject to the assessment of collectibility of the related receivables, when the buyer's investment amounts to at least 25% of the sales price and the buyer remains obligated to increase this investment by a minimum amount annually. Profits on sales that do not meet these requirements are recognized on the installment basis provided minimum down payments are received. Deferred revenue consists of land sales being accounted for on the installment basis, rents collected in advance and deferred commissions. Rents collected in advance represent annual rental payments made in advance of the lease year and are considered earned ratably over the lease year for financial statement purposes.
INCOME TAXES In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.109, 'Accounting for Income Taxes' ("Statement 109"). Statement 109 requires the accounting for income taxes to be changed from the deferred method of APB Opinion 11 to the asset and liability method. Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (Continued) --------------------------------------------------- income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Effective January 1, 1992, the Company adopted Statement 109 and it has reported the cumulative effect of the change in the method of accounting for income taxes in the 1992 consolidated statement of operations.
EARNINGS PER SHARE Earnings per share computations are based on the weighted average number of common shares outstanding during the year of 2,727,838 in 1994, 2,728,626 in 1993 and 2,732,038 in 1992, which have been restated to reflect a 10% stock dividend payable May 1, 1995.
CASH AND CASH EQUIVALENTS For purposes of reporting cash flows, cash and cash equivalents include cash on hand, money market accounts and temporary investments, with an original maturity of three months or less.
The future rentals on non-cancelable operating leases related to the Company's rental properties, but excluding its four apartment complexes, are as follows: $598,000 in 1995; $511,000 in 1996; $367,000 in 1997; $94,000 in 1998; $94,000 in 1999; and $676,000 in later years. The four apartment complexes, which are Federally subsidized under the U.S.Department of Housing and Urban Development Section 8 Housing-Assistance-Payments Program, have contributed revenue of $2,377,000 in 1994, $2,337,000 in 1993 and $2,266,000 in 1992. Revenue should equal or exceed that recorded in 1994 for each of the next four years. NOTE 2: - PROPERTIES (Continued) -------------------------------- During 1994 and 1993 the Company acquired residential real estate parcels at a cost of $1,438,000 and 3,469,000, of which $999,000 and $437,000 was financed, respectively. In 1992, the Company assessed the carrying value of its properties and concluded that the carrying value of certain of the unimproved urban properties that it holds for investment exceeded their estimated realizable value. In determining the realizable value, the Company considered current selling prices for comparable properties and projected future selling prices. As a result, a non-cash charge to operations of $3,596,000 was recorded. On an annual basis the Company does a net realizable value ("NRV") determination of its properties. At December 31, 1994, it was determined that the NRV was at or above the book carrying value of its properties.
The Company sells recreational land, principally in 40-acre parcels. Since 1980, over 65,000 acres have been sold in Arizona. The mortgage notes receivable from these land sales, due over ten to fifteen years, bear interest at rates ranging from 11% to 12%, and are secured by the properties sold. At December 31, 1994 and 1993 mortgage notes receivable relating to these sales totalled $6,499,000 and $6,450,000, respectively. The Company sold land for mortgage notes receivable in the amount of $1,286,000, $2,167,000 and $1,470,000 during the years ended December 31, 1994, 1993 and 1992, respectively. The Company has a mortgage note receivable with a principal balance remaining of $2,238,000, from a 1983 sale of an apartment complex located in Flagstaff, Arizona. This note, which matured in September 1992, was restructured under a bankruptcy reorganization plan. Under the reorganization plan the maturity of the note was extended to January 13, 2000, the interest rate was reduced from 10% to 8.75% and the payments were changed from quarterly interest-only payments to monthly payments of principal and interest. Also in connection with the sale, the Company NOTE 3 - RECEIVABLES (Continued) -------------------------------- remained contingently liable under a mortgage note that was assumed by the purchaser. The estimated fair value of the property securing the Company's mortgage note receivable exceeds the basis of the mortgage note receivable and the mortgage assumed by the buyer. Consequently, should the buyer default under the note, the Company would not recognize a loss on foreclosure.
NOTE 4 - NOTES PAYABLE AND LINES OF CREDIT ------------------------------------------ On January 1, 1994 the Company's line of credit converted to a reducing revolving term loan which has a commitment of $1,250,000 and matures on June 30, 1995. The loan is secured by various real estate holdings and notes receivable. Interest is at the bank's prime rate (8.5% at December 31,1994) plus 1 1/2%. At December 31, 1994 there were no borrowings on this line. The Company is currently negotiating with the bank for an extension of this facility. The Company and a partner guaranteed development loans for one of its majority-owned partnerships. The maximum amount of the two loans is $2,000,000 and $2,800,000, respectively. The loans are secured by the real property. At December 31, 1994 the partnership has $299,000 borrowed on the $2,000,000 loan facility and no borrowings on the $2,800,000 facility. The interest rate is at prime plus 1% and prime plus 1/2%, respectively, paid monthly. At December 31, 1994, the Company had other notes payable secured principally by real estate properties, aggregating $14,247,000, with interest rates ranging from prime plus 1% to 10 3/4%, payable through 2009. Interest payments vary from monthly to semiannually. Principal payments on all notes payable and lines of credit are as follows: $1,620,000 in 1995; $4,001,000 in 1996; $744,000 in 1997; $530,000 in 1998; $517,000 in 1999; and $7,134,000 in later years. Interest paid in 1994, 1993 and 1992, respectively, amounted to $1,449,000, $1,601,000 and $1,942,000. Interest cost incurred in 1994 and 1993, respectively, was $1,434,000 and $1,650,000 of which $381,000 and $141,000, respectively, was capitalized. All interest incurred in previous years was expensed. NOTE 5 - INCOME TAXES --------------------- The Company adopted Statement 109 as of January 1, 1992 and the cumulative effect of this change in accounting for income taxes is reported separately in the consolidated statement of operations for the year ended December 31, 1992.
Income taxes paid in 1994, 1993 and 1992 amounted to $2,164,000, $1,004,000 and $569,000, respectively. The Internal Revenue Service is currently conducting examinations of the Company's Federal income tax returns for the years 1990 and 1992. The Company believes that any adjustments that might arise from their examination have been adequately provided for. NOTE 6 - INVESTMENTS IN JOINT VENTURES -------------------------------------- The Company is involved in a joint venture that developed an office building. Revenues, costs and profits or losses are shared equally. During 1992, the Company concluded that the book value of its interest in this joint venture exceeded the estimated realizable value and recorded a loss of $527,000, reducing its investment to its share of estimated realizable value of the building. Operations of this joint venture continue. In 1993 an office building that was owned by a joint venture of which the Company had a 50% interest, was sold. The loss on the sale of this office building was provided for by this joint venture in 1992. The joint venture was dissolved in 1993. The following is a summary of the condensed combined balance sheets and results of operations of these joint ventures:
NOTE 7 - RESTRICTED STOCK PLAN ------------------------------ In 1988 the Company adopted a Restricted Stock Plan ("the Plan") to distribute shares of stock to senior executives at no cost. 100,000 shares of common stock are authorized for awards during the Plan's ten year term. No shares were awarded in 1994 and 1993. 9,000 shares were awarded in 1992. A total of 31,400 shares have been awarded since inception of the plan. Forfeiture restrictions lapse on the third, fourth and fifth anniversary after award. In 1994 a special dispensation was given due to the change of control of the Company and restrictions were lifted on 15,334 shares. Restrictions will be lifted on the remaining shares as follows: 3,265 in 1995; 2,273 in 1996; 1,282 in 1997, which have been restated to reflect a 10% stock dividend payable on May 1, 1995. Compensation expense is accrued for the awards of stock in each period in which services are performed. The Company recognized compensation expense of $38,000, $51,000 and $67,000 related to these awards for the years ended December 31, 1994, 1993 and 1992, respectively.
NOTE 8 - RETIREMENT PLANS ------------------------- PENSION PLAN: The Company's defined benefit retirement plan covers substantially all full-time employees. The benefits are based on employment commencement date, years of service and compensation. In accordance with Statement of Financial Accounting Standards No. 87 Enployers' Accounting for Pensions (FAS87) rules, the effect of the restatement will be recognized in 1995. No additional post-employment benefits are provided and plan assets are invested in various mutual funds.
NOTE 7 - RESTRICTED STOCK PLAN (Continued) ------------------------------------------ The Company accrues retirement benefits based on an independent actuarial valuation for the plan. The discount rate and the rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligations were 7% and 0% at December 31, 1994 and 1993 and 8% and 0% at December 31, 1992. The expected long-term rate of return on plan assets was 7% for 1994 and 1993 and 8% for 1992.
401(K) SAVINGS PLAN: In 1992, the Company established a 401(k) Savings Plan for all of its employees. The Company matches up to 3% of the employee's salary contributed. Total expense for the Company under this plan was $23,600, $21,500 and $11,900 for 1994, 1993 and 1992, respectively.
NOTE 11 - SUBSEQUENT EVENT: On March 4, 1995, the Board of Directors declared a 10% stock dividend, payable May 1, 1995. Shares and earnings per share for 1994 and all prior years have been retroactively restated to reflect the additional shares.
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION (Cont.) --------------------------------------------------------------
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE --------------------------------------------------------- The Company changed independent accounting firms as reported on Form 8-K, dated March 6, 1992. There were no disagreements with the independent accountants over the past 24 months.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; ITEM 11 - EXECUTIVE COMPENSATION; ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT; and ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS --------------------------------------------------------- Information required under these items is contained in New Mexico and Arizona Land Company's 1995 Proxy Statement, pursuant to Regulation 14A, and is incorporated herein by reference.
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K -------------------------------------------------- The following consolidated financial statements and schedules are included in Item 8: Independent Auditors' Report Balance Sheets Statements of Operations Statements of Changes in Shareholders' Equity Statements of Cash Flows Notes to Consolidated Financial Statements Real Estate and Accumulated Depreciation Mortgage Loans on Real Estate Exhibit 3. Articles of Incorporation of Registrant amended November 18, 1994. By-laws of Registrant and wholly-owned subsidiaries, revised March 30, 1994. All other exhibits are omitted because they are inapplicable, contained elsewhere in the report or have been previously filed with the Securities and Exchange Commission. A report on Form 8-K was filed on April 28, 1994. SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized:
NEW MEXICO AND ARIZONA LAND COMPANY (Registrant)
s/Willam A Pope s/Elizabeth M. Bedewi ------------------------ ------------------------ William A. Pope Elizabeth M. Bedewi President and Principal Sr. Vice President, and Executive Officer Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in behalf of the Registrant and in the capacities and on the date indicated:
s/Stephen E. Renneckar s/Mari P. Berry ------------------------ ---------------------- Stephen E. Renneckar Mari P.Berry Chairman Director
s/Sherman O. Kasper s/Richard E. Leonard ------------------------ ---------------------- Sherman O. Kasper Richard E. Leonard Director Director
s/John C. Lucking s/Arnold L. Putterman ------------------------ ---------------------- John C. Lucking Arnold L. Putterman Director Director
s/Ronald E. Strasburger s/Robert Wertheim ------------------------ ---------------------- Ronald E. Strasburger Robert Wertheim Director Director
s/Richard A. Wessman ------------------------ Richard A. Wessman Director Dated: March 4, 1995


ITEM 7: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES Cash flow from sales of land, single-family and recreational lots, distributions from its joint ventures and other ongoing operations, along with unused borrowing capacity, should be adequate for continuing operations and considerable future investments during the next year. The Company invested approximately $2,848,000, in 1993, to purchase the 383-acre Seven Bar Ranch property. As of December 31, 1994, the Company recouped all its initial investment as well as the majority of its preferred return from the Seven Bar joint ventures. As development of this property continues, additional development loans and corporate guarantees may be required by the Company and/or its partner. The Company and a partner have guaranteed a $2 million and $2.8 million development loan. At February 22, 1995, the $299,000 balance on the $2 million, that was owed at December 31, 1994, had been paid off and $350,000 had been borrowed on the $2.8 million development loan. In 1994, the Company reduced its outstanding debt by $722,000. The Company s line of credit converted to a reducing revolving term loan on January 1, 1994. The loan, with a commitment base of $1,250,000, matures on June 30, 1995. At February 22, 1995, there were no borrowings against this line. Negotiations are in progress for the extension of this line of credit. Also in 1994, the Company refinanced its four apartment complexes, the interest rate was decreased by 1.5 points and the maturity date was extended from 1996 to 2009. Cash flow from these properties after debt service was $650,000 in 1994 and we are expecting a similar amount for 1995.
INFLATION, DEFLATION, AND CHANGING PRICES The results of operations and capital expenditures will continue to be affected by inflation, deflation and changing prices. Price changes in real estate, rental rates, oil, gas and uranium could have significant effects on Company operations.
RESULTS OF OPERATIONS - 1994 COMPARED TO 1993 Results for 1994 were the best in eight years, with net income of $3,936,000 compared to $1,282,000 in 1993. On March 4, 1995, the Board of Directors declared a 10% stock dividend payable May 1, 1995. Earnings per share were $1.59 and $.052 before restatement for the 10% dividend and $1.44 and $.047 after the restatement in 1994 and 1993, respectively. Revenue from the sale of residential lots doubled over last year, $8,700,000 compared to $4,300,000 in 1993. The two multi-family parcels in our Seven Bar property were also sold in 1994, which generated revenue of $4,400,000. The total gain on sales of properties increased by $5,600,000 in 1994 over 1993. Rental properties continue to produce a steady cash flow and income from year to year. One of the industrial/office buildings located in Phoenix was sold in 1994, for a gain of over 620,000. ITEM 7: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------------------- The increase of $325,000 in interest income resulted from the recognition of interest received from a note receivable. Interest expense decreased by $488,000. The principal contributing factors were (a) the ability to capitalize interest as a result of the on-going lot development programs in our Seven Bar and WillowWood projects, (b) the refinancing of the four apartment complexes at a lower interest rate and (c) the repayment of the outstanding balance on the credit line. General and administrative expenses increased by $512,000 in 1994. The major factor in the increase was due to a one time charge of $398,000. This represented the amount due under an employment agreement with Richard E. Leonard, who resigned as Chairman, President and Chief Executive Officer of the Company on June 27, 1994. Also in 1994, the majority of the shares of the Company changed ownership. With the change in ownership, certain costs such as insurance, legal fees and board of director fees increased. The increase in cash flow from operating activities and investing activities in 1994 compared to 1993, was the result of sales of property, single and multi-family residential lots in Albuquerque and an industrial property in Phoenix.
RESULTS OF OPERATIONS - 1993 COMPARED TO 1992 Net income for 1993 was $1,282,000 ($.47 per share) compared to a loss of $892,000 ($.33 per share) in 1992. The loss in 1992 resulted principally from the establishment of a valuation allowance in the amount of $3,596,000 for several of the Company's real estate properties and losses from its joint venture holdings offset by the one-time credit associated with the cumulative effect of adopting the new accounting pronouncement for income taxes. The Company continually updates its analysis of the estimated realizable values of its real estate properties and concluded that no further writedowns of its properties was necessary . The results of operations before income taxes in 1993 was $2,167,000 as compared to pre-tax income of $1,186,000 before the above mentioned valuation allowance. The increase in pre-tax income in 1993 was due to the absence of losses from the Company's joint venture holdings. Losses from these joint ventures in 1992 consisted of a $220,000 loss on the sale of one of the buildings and a $527,000 loss from the writedown of another building to its estimated realizable value. ITEM 7: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------------------- PROPOSED ACCOUNTING STANDARD The Financial Accounting Standards Board has issued an exposure draft of a proposed accounting standard entitled Accounting for the Impairment of Long Lived Assets. The Company believes that the final standard may be different from the exposure draft. Accordingly, the Company cannot predict the impact, if any, that such a final standard might have on the Company's financial position or results of operations.
OUTLOOK TO THE FUTURE Single-family lot sales are expected to continue at a good pace generating positive cash flows and earnings. Land sales and rental revenue from the apartment complexes and commercial buildings also continue to generate positive cash flows and earnings. A 12-acre parcel of the Seven Bar property was sold in January 1995, for a gain of $358,000. The Company is focusing on the acquisition of one or more new business, possibly unrelated to real estate or minerals. Along with any new ventures, the Company will continue with residential and recreational lot sales and investment in various real estate properties. The Company also continues to monitor the various minerals' markets in a effort to capitalize on its expertise and sizeable holdings. The Company's current businesses, real estate and minerals, tend to be cyclical, so investors should expect results in earnings, cash flow and other performance indicators to vary from year-to-year. ITEM 8:


ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT ---------------------------- The Board of Directors and Shareholders New Mexico and Arizona Land Company:
We have audited the accompanying consolidated balance sheets of New Mexico and Arizona Land Company and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the years in the three year period ended December 31, 1994. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules for each of the years in the three year period ended December 31, 1994. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of New Mexico and Arizona Land Company and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. As discussed in Notes 1 and 5 to the consolidated financial statements, the Company changed its method of accounting for income taxes in 1992.
Phoenix, Arizona KPMG Peat Marwick LLP
Date: February 17, 1995, except as to note 11, which is as of March 4, 1995
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES --------------------------------------- PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of New Mexico and Arizona Land Company, its wholly-owned subsidiaries and majority-owned partnerships ("the Company"). All material intercompany transactions have been eliminated in consolidation. Certain financial statement items from prior years have been reclassified to be consistent with the current year financial statement presentation.
PROPERTIES Properties are recorded at cost net of valuation allowances. Depreciation on rental properties is provided over the estimated useful lives of the assets using the straight-line method. Maintenance and repairs are charged to income as incurred and renewals or betterments are capitalized.
INVESTMENTS IN JOINT VENTURES The Company's investments in joint ventures are accounted for using the equity method.
PROPERTY SALES AND DEFERRED REVENUE Profits on property sales are recognized, subject to the assessment of collectibility of the related receivables, when the buyer's investment amounts to at least 25% of the sales price and the buyer remains obligated to increase this investment by a minimum amount annually. Profits on sales that do not meet these requirements are recognized on the installment basis provided minimum down payments are received. Deferred revenue consists of land sales being accounted for on the installment basis, rents collected in advance and deferred commissions. Rents collected in advance represent annual rental payments made in advance of the lease year and are considered earned ratably over the lease year for financial statement purposes.
INCOME TAXES In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.109, 'Accounting for Income Taxes' ("Statement 109"). Statement 109 requires the accounting for income taxes to be changed from the deferred method of APB Opinion 11 to the asset and liability method. Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (Continued) --------------------------------------------------- income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Effective January 1, 1992, the Company adopted Statement 109 and it has reported the cumulative effect of the change in the method of accounting for income taxes in the 1992 consolidated statement of operations.
EARNINGS PER SHARE Earnings per share computations are based on the weighted average number of common shares outstanding during the year of 2,727,838 in 1994, 2,728,626 in 1993 and 2,732,038 in 1992, which have been restated to reflect a 10% stock dividend payable May 1, 1995.
CASH AND CASH EQUIVALENTS For purposes of reporting cash flows, cash and cash equivalents include cash on hand, money market accounts and temporary investments, with an original maturity of three months or less.
The future rentals on non-cancelable operating leases related to the Company's rental properties, but excluding its four apartment complexes, are as follows: $598,000 in 1995; $511,000 in 1996; $367,000 in 1997; $94,000 in 1998; $94,000 in 1999; and $676,000 in later years. The four apartment complexes, which are Federally subsidized under the U.S.Department of Housing and Urban Development Section 8 Housing-Assistance-Payments Program, have contributed revenue of $2,377,000 in 1994, $2,337,000 in 1993 and $2,266,000 in 1992. Revenue should equal or exceed that recorded in 1994 for each of the next four years. NOTE 2: - PROPERTIES (Continued) -------------------------------- During 1994 and 1993 the Company acquired residential real estate parcels at a cost of $1,438,000 and 3,469,000, of which $999,000 and $437,000 was financed, respectively. In 1992, the Company assessed the carrying value of its properties and concluded that the carrying value of certain of the unimproved urban properties that it holds for investment exceeded their estimated realizable value. In determining the realizable value, the Company considered current selling prices for comparable properties and projected future selling prices. As a result, a non-cash charge to operations of $3,596,000 was recorded. On an annual basis the Company does a net realizable value ("NRV") determination of its properties. At December 31, 1994, it was determined that the NRV was at or above the book carrying value of its properties.
The Company sells recreational land, principally in 40-acre parcels. Since 1980, over 65,000 acres have been sold in Arizona. The mortgage notes receivable from these land sales, due over ten to fifteen years, bear interest at rates ranging from 11% to 12%, and are secured by the properties sold. At December 31, 1994 and 1993 mortgage notes receivable relating to these sales totalled $6,499,000 and $6,450,000, respectively. The Company sold land for mortgage notes receivable in the amount of $1,286,000, $2,167,000 and $1,470,000 during the years ended December 31, 1994, 1993 and 1992, respectively. The Company has a mortgage note receivable with a principal balance remaining of $2,238,000, from a 1983 sale of an apartment complex located in Flagstaff, Arizona. This note, which matured in September 1992, was restructured under a bankruptcy reorganization plan. Under the reorganization plan the maturity of the note was extended to January 13, 2000, the interest rate was reduced from 10% to 8.75% and the payments were changed from quarterly interest-only payments to monthly payments of principal and interest. Also in connection with the sale, the Company NOTE 3 - RECEIVABLES (Continued) -------------------------------- remained contingently liable under a mortgage note that was assumed by the purchaser. The estimated fair value of the property securing the Company's mortgage note receivable exceeds the basis of the mortgage note receivable and the mortgage assumed by the buyer. Consequently, should the buyer default under the note, the Company would not recognize a loss on foreclosure.
NOTE 4 - NOTES PAYABLE AND LINES OF CREDIT ------------------------------------------ On January 1, 1994 the Company's line of credit converted to a reducing revolving term loan which has a commitment of $1,250,000 and matures on June 30, 1995. The loan is secured by various real estate holdings and notes receivable. Interest is at the bank's prime rate (8.5% at December 31,1994) plus 1 1/2%. At December 31, 1994 there were no borrowings on this line. The Company is currently negotiating with the bank for an extension of this facility. The Company and a partner guaranteed development loans for one of its majority-owned partnerships. The maximum amount of the two loans is $2,000,000 and $2,800,000, respectively. The loans are secured by the real property. At December 31, 1994 the partnership has $299,000 borrowed on the $2,000,000 loan facility and no borrowings on the $2,800,000 facility. The interest rate is at prime plus 1% and prime plus 1/2%, respectively, paid monthly. At December 31, 1994, the Company had other notes payable secured principally by real estate properties, aggregating $14,247,000, with interest rates ranging from prime plus 1% to 10 3/4%, payable through 2009. Interest payments vary from monthly to semiannually. Principal payments on all notes payable and lines of credit are as follows: $1,620,000 in 1995; $4,001,000 in 1996; $744,000 in 1997; $530,000 in 1998; $517,000 in 1999; and $7,134,000 in later years. Interest paid in 1994, 1993 and 1992, respectively, amounted to $1,449,000, $1,601,000 and $1,942,000. Interest cost incurred in 1994 and 1993, respectively, was $1,434,000 and $1,650,000 of which $381,000 and $141,000, respectively, was capitalized. All interest incurred in previous years was expensed. NOTE 5 - INCOME TAXES --------------------- The Company adopted Statement 109 as of January 1, 1992 and the cumulative effect of this change in accounting for income taxes is reported separately in the consolidated statement of operations for the year ended December 31, 1992.
Income taxes paid in 1994, 1993 and 1992 amounted to $2,164,000, $1,004,000 and $569,000, respectively. The Internal Revenue Service is currently conducting examinations of the Company's Federal income tax returns for the years 1990 and 1992. The Company believes that any adjustments that might arise from their examination have been adequately provided for. NOTE 6 - INVESTMENTS IN JOINT VENTURES -------------------------------------- The Company is involved in a joint venture that developed an office building. Revenues, costs and profits or losses are shared equally. During 1992, the Company concluded that the book value of its interest in this joint venture exceeded the estimated realizable value and recorded a loss of $527,000, reducing its investment to its share of estimated realizable value of the building. Operations of this joint venture continue. In 1993 an office building that was owned by a joint venture of which the Company had a 50% interest, was sold. The loss on the sale of this office building was provided for by this joint venture in 1992. The joint venture was dissolved in 1993. The following is a summary of the condensed combined balance sheets and results of operations of these joint ventures:
NOTE 7 - RESTRICTED STOCK PLAN ------------------------------ In 1988 the Company adopted a Restricted Stock Plan ("the Plan") to distribute shares of stock to senior executives at no cost. 100,000 shares of common stock are authorized for awards during the Plan's ten year term. No shares were awarded in 1994 and 1993. 9,000 shares were awarded in 1992. A total of 31,400 shares have been awarded since inception of the plan. Forfeiture restrictions lapse on the third, fourth and fifth anniversary after award. In 1994 a special dispensation was given due to the change of control of the Company and restrictions were lifted on 15,334 shares. Restrictions will be lifted on the remaining shares as follows: 3,265 in 1995; 2,273 in 1996; 1,282 in 1997, which have been restated to reflect a 10% stock dividend payable on May 1, 1995. Compensation expense is accrued for the awards of stock in each period in which services are performed. The Company recognized compensation expense of $38,000, $51,000 and $67,000 related to these awards for the years ended December 31, 1994, 1993 and 1992, respectively.
NOTE 8 - RETIREMENT PLANS ------------------------- PENSION PLAN: The Company's defined benefit retirement plan covers substantially all full-time employees. The benefits are based on employment commencement date, years of service and compensation. In accordance with Statement of Financial Accounting Standards No. 87 Enployers' Accounting for Pensions (FAS87) rules, the effect of the restatement will be recognized in 1995. No additional post-employment benefits are provided and plan assets are invested in various mutual funds.
NOTE 7 - RESTRICTED STOCK PLAN (Continued) ------------------------------------------ The Company accrues retirement benefits based on an independent actuarial valuation for the plan. The discount rate and the rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligations were 7% and 0% at December 31, 1994 and 1993 and 8% and 0% at December 31, 1992. The expected long-term rate of return on plan assets was 7% for 1994 and 1993 and 8% for 1992.
401(K) SAVINGS PLAN: In 1992, the Company established a 401(k) Savings Plan for all of its employees. The Company matches up to 3% of the employee's salary contributed. Total expense for the Company under this plan was $23,600, $21,500 and $11,900 for 1994, 1993 and 1992, respectively.
NOTE 11 - SUBSEQUENT EVENT: On March 4, 1995, the Board of Directors declared a 10% stock dividend, payable May 1, 1995. Shares and earnings per share for 1994 and all prior years have been retroactively restated to reflect the additional shares.
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION (Cont.) --------------------------------------------------------------
ITEM 9:

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE --------------------------------------------------------- The Company changed independent accounting firms as reported on Form 8-K, dated March 6, 1992. There were no disagreements with the independent accountants over the past 24 months.
ITEM 10



ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; ITEM 11

ITEM 11 - EXECUTIVE COMPENSATION; ITEM 12

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT; and ITEM 13

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS --------------------------------------------------------- Information required under these items is contained in New Mexico and Arizona Land Company's 1995 Proxy Statement, pursuant to Regulation 14A, and is incorporated herein by reference.
ITEM 14:

ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K -------------------------------------------------- The following consolidated financial statements and schedules are included in Item 8: Independent Auditors' Report Balance Sheets Statements of Operations Statements of Changes in Shareholders' Equity Statements of Cash Flows Notes to Consolidated Financial Statements Real Estate and Accumulated Depreciation Mortgage Loans on Real Estate Exhibit 3. Articles of Incorporation of Registrant amended November 18, 1994. By-laws of Registrant and wholly-owned subsidiaries, revised March 30, 1994. All other exhibits are omitted because they are inapplicable, contained elsewhere in the report or have been previously filed with the Securities and Exchange Commission. A report on Form 8-K was filed on April 28, 1994. SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized:
NEW MEXICO AND ARIZONA LAND COMPANY (Registrant)
s/Willam A Pope s/Elizabeth M. Bedewi ------------------------ ------------------------ William A. Pope Elizabeth M. Bedewi President and Principal Sr. Vice President, and Executive Officer Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in behalf of the Registrant and in the capacities and on the date indicated:
s/Stephen E. Renneckar s/Mari P. Berry ------------------------ ---------------------- Stephen E. Renneckar Mari P.Berry Chairman Director
s/Sherman O. Kasper s/Richard E. Leonard ------------------------ ---------------------- Sherman O. Kasper Richard E. Leonard Director Director
s/John C. Lucking s/Arnold L. Putterman ------------------------ ---------------------- John C. Lucking Arnold L. Putterman Director Director
s/Ronald E. Strasburger s/Robert Wertheim ------------------------ ---------------------- Ronald E. Strasburger Robert Wertheim Director Director
s/Richard A. Wessman ------------------------ Richard A. Wessman Director Dated: March 4, 1995