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| WOC > SEC Filings for WOC > Form 10-Q on 16-Nov-2009 | All Recent SEC Filings |
16-Nov-2009
Quarterly Report
The following discussion addresses the Company's results of operations for the three and nine months ended September 30, 2009 compared to the three and nine months ended September 30, 2008 and the Company's consolidated financial condition as of September 30, 2009. It is presumed that readers have read or have access to Wilshire's 2008 Annual Report on Form 10-K which includes disclosures regarding critical accounting policies as part of Management's Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
This Report on Form 10-Q for the quarter ended September 30, 2009 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 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. For additional information regarding risk factors impacting the Company and its forward-looking statements, see Item 1A of the Company's Annual Report on Form 10-K, for the year ended December 31, 2008.
Effects of Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board ("FASB") issued an amendment to the accounting and disclosure requirements for transfers of financial assets. This amendment requires greater transparency and additional disclosures for transfers of financial assets and the entity's continuing involvement with them and changes the requirements for derecognizing financial assets. In addition, this amendment eliminates the concept of a qualifying special-purpose entity ("QSPE"). This amendment is effective for financial statements issued for fiscal years beginning after November 15, 2009. This amendment will not have a material effect on our financial position, results of operations or liquidity.
In June 2009, the FASB also issued an amendment to the accounting and disclosure requirements for the consolidation of variable interest entities ("VIEs"). The elimination of the concept of a QSPE, as discussed above, removes the exception from applying the consolidation guidance within this amendment. This amendment requires an enterprise to perform a qualitative analysis when determining whether or not it must consolidate a VIE. The amendment also requires an enterprise to continuously reassess whether it must consolidate a VIE. Additionally, the amendment requires enhanced disclosures about an enterprise's involvement with VIEs and any significant change in risk exposure due to that involvement, as well as how its involvement with VIEs impacts the enterprise's financial statements. Finally, an enterprise will be required to disclose significant judgments and assumptions used to determine whether or not to consolidate a VIE. This amendment is effective for financial statements issued for fiscal years beginning after November 15, 2009. This amendment will not have a material effect on our financial position, results of operations or liquidity.
In June 2009, the FASB issued the FASB Accounting Standards Codification ("Codification" or "ASC"). The Codification has become the single source for all authoritative Generally Accepted Accounting Principal ("GAAP") recognized by the FASB to be applied for financial statements issued for periods ending after September 15, 2009. The Codification does not change GAAP and will not have an effect on our financial position, results of operations or liquidity.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events, which was primarily codified into Topic 855 - Subsequent Events in the ASC. This standard establishes general standards for accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued and shall be applied to subsequent events not addressed in other applicable accounting principles generally accepted in the United States of America. ASC Topic 855, among other things, sets forth the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures an entity should make about events or transactions that occurred after the balance sheet date. ASC Topic 855 is effective for the fiscal quarter ended June 30, 2009. The Company's adoption of ASC Topic 855 did not have a material impact on the interim or annual consolidated financial statements or the disclosures in those financial statements.
In April 2009, the FASB issued FSP SFAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, which was primarily codified into ASC 82-10-65-4. ASC 82-10-65-4 provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased, and re-emphasizes that regardless of market conditions the fair value measurement is an exit price concept. The scope of this pronouncement does not include assets and liabilities measured under Level 1 inputs (quoted prices in active markets for identical assets). ASC 82-10-65-4 is applied prospectively to all fair value measurements where appropriate and is effective for the Company's interim and annual periods beginning in the second quarter of fiscal year 2009. The Company's adoption of ASC 82-10-65-4 did not have a material impact on the condensed consolidated financial statements.
In April 2008, the FASB issued FASB Staff Position FAS 142-3, Determination of
Useful Life of Intangible Assets, which was primarily codified into ASC Topic
350 - Intangibles. This guidance amends the factors that should be considered
in developing the renewal or extension assumptions used to determine the useful
life of a recognized intangible asset and requires enhanced related
disclosures. ASC Topic 350 also requires expanded disclosure related to the
determination of intangible asset useful lives. This guidance is effective for
fiscal years beginning after December 15, 2008. Earlier adoption is not
permitted. The adoption of ASC Topic 350 did not have a material impact on the
Company's consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133, which was primarily codified into ASC Topic 815 - Derivatives and Hedging. ASC Topic 815 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. ASC Topic 815 was effective beginning January 1, 2009. The Company does not have any derivative instruments or utilize any hedging activities and therefore, ASC Topic 815 is not applicable to the Company at this time.
In December 2007, the FASB issued SFAS No. 141-R, Business Combinations, which was primarily codified into ASC Topic 805 - Business Combinations. This guidance changes the accounting for acquisitions specifically eliminating the step acquisition model, changing the recognition of contingent consideration from being recognized when it is probable to being recognized at the time of acquisition, disallowing the capitalization of transaction costs and changes when restructurings related to acquisition can be recognized. The standard is effective for fiscal years beginning on or after December 15, 2008 and will only impact the accounting for acquisitions that are made after adoption. The Company believes the adoption of ASC Topic 805 will not have an effect on the Company's consolidated financial position or results of operations as there are no current acquisitions being contemplated.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51, which was primarily codified into ASC Topic 810 - Consolidation Noncontrolling Interest. ASC Topic 810 is effective for fiscal years beginning on or after December 15, 2008, with earlier adoption prohibited. This statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the Company's equity. The amount of net income attributable to the noncontrolling interest will be included in the consolidated net income on the face of the consolidated income statement. It also amends certain of ARB No. 51's consolidation procedures for consistency with the requirements of ASC Topic 805. ASC Topic 810 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. The Company believes the adoption of ASC Topic 810 will not have an effect on the Company's consolidated financial position or results of operations as there are no non-controlling interests.
Net loss for the three months ended September 30, 2009 was $472,000 or $0.07 per diluted share as compared to a net loss of $296,000 or $0.04 per diluted share for the three months ended September 30, 2008. For the nine months ended September 30, 2009, the Company recorded a net loss of $1,866,000 or $0.24 per diluted share as compared to a net loss of $1,088,000 or $0.14 per diluted share for the nine months ended September 30, 2008. Operations are shown as continuing and discontinued, with discontinued operations comprised of the results of operations from the Company's real estate properties held for sale, the gain from real estate properties held for sale that were sold during the period and the wind down of the oil and gas businesses.
In January 2008, the Company closed on the sale of a one bedroom condominium at Jefferson Gardens, New Jersey for gross proceeds of approximately $150,000. After payments of closing costs and providing for taxes, the Company realized a net gain during the nine months ended September 30, 2008 of approximately $61,000 from this sale.
In May 2008, the Company closed on the sale of its Tamarac Office Plaza,
Florida, office complex for gross proceeds of $2 million. After payments of
closing costs and providing for taxes, the Company realized a net gain during
the nine months ended September 30, 2008 of approximately $686,000 from this
sale.
The following table presents the increases (decreases) in each major statements of operations category for the three and nine months ended September 30, 2009 as compared to 2008. The following discussion of "Results of Operations" references these increases (decreases).
Increase (Decrease) in Consolidated Statements of Income Categories for the
Periods:
For the three months ended For the nine months ended
September 30, September 30,
2009 vs. 2008 2009 vs. 2008
Amount ($) % Amount ($) %
Revenues $ (100,000 ) -4.3 % $ (134,000 ) -1.9 %
Costs and expenses:
Operating expenses 51,000 3.5 % (70,000 ) -1.6 %
Depreciation (12,000 ) -4.2 % (44,000 ) -4.9 %
General and administrative (225,000 ) -21.4 % 143,000 5.0 %
Total costs and expenses (186,000 ) 29,000
Loss from Operations 86,000 (163,000 )
Other Income
Dividend and interest income (75,000 ) -93.8 % (322,000 ) -91.48 %
Loss on sale of marketable securities - - 553,000 -100.0 %
Other income - - 1,000 100.0 %
Interest expense 21,000 -4.7 % 48,000 3.6 %
Loss before benefit for income taxes 32,000 117,000
Income tax benefit 99,000 -26.1 % 159,000 -14.2 %
Loss from continuing operations (67,000 ) (42,000 )
Discontinued operations - real estate
Loss from operations 64,000 -53.3 % 81,000 -20.8 %
Gain from sales - - (747,000 ) -100.0 %
Discontinued operations - oil & gas -
Loss from operations (173,000 ) -62.5 % (70,000 ) -37.4 %
Gain from sale - - - -
Net loss $ (176,000 ) 59.5 % $ (778,000 ) 71.5 %
Basic loss per share:
Loss from continuing operations $ (0.01 ) 16.7 % $ (0.01 ) 4.8 %
Income (loss) from discontinued operations (0.02 ) -100.0 % $ (0.09 ) -128.6 %
Net loss applicable to common shareholders $ (0.03 ) 75.0 % $ (0.10 ) 71.4 %
Diluted loss per share:
Loss from continuing operations $ (0.01 ) 16.7 % $ (0.01 ) 4.8 %
Income (loss) from discontinued operations (0.02 ) -100.0 % $ (0.09 ) -128.6 %
Net loss applicable to common shareholders $ (0.03 ) 75.0 % $ (0.10 ) 71.4 %
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Results of Operations
Three Months Ended September 30, 2009 as Compared with Three Months Ended September 30, 2008
Continuing Operations:
Loss from continuing operations amounted to $520,000 during the three months
ended September 30, 2009 as compared to a loss from continuing operations of
$453,000 during the three months ended September 30, 2008. Results per diluted
share from continuing operations amounted to $(0.07) during the three months
ended September 30, 2009 as compared to $(0.06) during the three months ended
September 30, 2008. The 2009 period reflects a decrease in general and
administrative expense of $225,000, which primarily relates to decreased
professional fees, which was partially offset by an in increase in operating
expenses of $51,000. The 2008 period included the following charges to expense:
an increase in general and administrative expense of $159,000, which primarily
relates to professional fees incurred in connection with the proposed sale of
the Company, as well as an increase in operating expenses of $34,000 partially
offset by a decrease in depreciation expense of $80,000 and an increased income
tax benefit of $205,000 resulting from an increased operating loss for the
period.
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 Totals
Three months Three months Three months
Ended Increase Ended Increase ended Increase
September 30, (Decrease) September 30, (Decrease) September 30, (Decrease)
2009 2008 $ % 2009 2008 $ % 2009 2008 $ %
(In 000's of $) (In 000's of $) (In 000's of $)
Total revenues $ 1,916 $ 2,004 $ (88 ) (4.4 )% $ 318 $ 330 $ (12 ) (3.6 )% $ 2,234 $ 2,334 $ (100 ) (4.3 )%
Operating expenses 1,327 1,279 48 3.8 % 193 190 3 1.6 % 1,520 1,469 51 3.5 %
Net operating income
("NOI") $ 589 $ 725 $ (136 ) (18.8 )% $ 125 $ 140 $ (15 ) (10.7 )% $ 714 $ 865 $ (151 ) (17.5 )%
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Reconciliation to consolidated loss from continuing operations:
2009 2008
Net operating income $ 714 $ 865
Depreciation expense (272 ) (284 )
General and administrative expense (826 ) (1,051 )
Other income (loss) 5 80
Interest expense (422 ) (443 )
Income tax benefit 281 380
Loss from continuing operations $ (520 ) $ (453 )
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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 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 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
The residential segment is comprised of Sunrise Ridge Apartments and Van Buren Apartments, both in Arizona, Wellington Estates and Summercreek Apartments, both in Texas and Alpine Village Apartments in New Jersey. During the three months ended September 30, 2009, NOI decreased by $136,000 or 18.8% to $589,000 as compared to $725,000 during the same period in 2008.
Revenues decreased $88,000 or 4.4% during the quarter ended September 30, 2009 to $1,916,000, compared to $2,004,000 during the quarter ended September 30, 2008. Operating expenses increased $48,000 or 3.8% to $1,327,000. The decrease in revenues was primarily attributable to increased vacancy rates at the Company's Sunrise Ridge apartment complex. The increase in operating expenses was primarily attributable to increased maintenance costs and apartment preparation costs resulting from occupancy turnover.
Commercial Segment
The commercial segment is comprised of Royal Mall Plaza in Mesa, Arizona and Tempe Corporate Center in Tempe, Arizona. During the three months ended September 30, 2009, NOI decreased by $15,000 or 10.7% to $125,000 as compared to $140,000 during the same period in 2008. Revenues during the quarter ended September 30, 2009 as compared to the quarter ended September 30, 2008 decreased $12,000 or 3.6% to $318,000 and operating expenses increased $3,000 or 1.6% to $193,000. The revenue decrease was primarily attributable to decreased occupancy at Tempe Corporate Center (Tempe, AZ) resulting in decreased rental revenues in the amounts of $14,000, which was partially offset by an increase in rental revenues at Royal Mall Plaza in the amount of $2,000. The increased operating expenses were primarily attributable to increased real estate taxes and maintenance costs in the amount of $3,000.
Other Operating Expenses
Depreciation and amortization expense amounted to $272,000 during the three months ended September 30, 2009, a decrease of $12,000 from $284,000 during the three months ended September 30, 2008. The decrease in depreciation and amortization expense relates to the retirement of certain assets during the past year.
General and administrative expense decreased $225,000, or 21.4%, to $826,000 during the three months ended September 30, 2009 as compared to $1,051,000 during the same period in 2008. The decrease in general and administrative expense is primarily attributable to decreased professional fees as a result of the termination of the proposed merger of the Company during 2008, which was partially offset by increased payroll and payroll related costs associated with the appointment of the Company's new President and Chief Operating Officer in January 2009 and the costs associated with the Company's tender offer which was completed in September 2009.
Other income (loss) decreased from income of $80,000 in the 2008 quarter to income of $5,000 during the 2009 quarter, a decrease of $75,000. The decrease is primarily related to a decrease in interest and dividend income of $75,000 during the 2009 period. The decrease in interest and dividend income during the three months ended September 30, 2009 is a result of declining interest rates and the redemption of the Company's ARS held during 2008 and reduced dividend income.
Interest expense decreased to $422,000 during the three months ended September 30, 2009 as compared to $443,000 during the three months ended September 30, 2008. The decrease primarily relates to the reduction in the Company's mortgage liability and the refinancing of the Summercreek property.
The benefit for income taxes amounted to $281,000 and $380,000 during the three months ended September 30, 2009 and 2008, respectively. The change in the benefit for income taxes is related to a decreased loss from continuing operations before tax and a valuation allowance related to state taxes of $78,000 during the 2009 quarter as compared to the 2008 quarter.
Discontinued Operations, Net of Taxes:
Real Estate
The after tax loss from discontinued operations for the three months ended September 30, 2009 amounted to $56,000 as compared to an after tax loss of $120,000 during the three months ended September 30, 2008. The after tax loss of $56,000 and $120,000 for the 2009 and 2008 periods, respectively, reflects the loss from operations.
Oil and Gas
During the quarter ended September 30, 2009, the Company recorded a profit from the wind down of its former oil and gas business, of $104,000 as compared to income of $277,000 during the same period in 2008. The net profit from the wind down of the oil and gas business during the quarter ended September 30, 2009 relates to foreign currency gains during the period. The net income from the wind down of the oil and gas business during the quarter ended September 30, 2008 relates to foreign currency gains during the period and a tax refund in the amount of $85,000.
Nine Months Ended September 30, 2009 as Compared with Nine Months Ended September 30, 2008
Continuing Operations:
Loss from continuing operations amounted to $1,674,000 during the nine months
ended September 30, 2009 as compared to a loss from continuing operations of
$1,632,000 during the nine months ended September 30, 2008. Results per diluted
share from continuing operations amounted to $(0.22) during the nine months
ended September 30, 2009 as compared to $(0.21) during the nine months ended
September 30, 2008. The 2009 period included the following charges to expense:
an increase in general and administrative expense of $143,000, which primarily
relates to the increased payroll and payroll related costs associated with the
appointment of the Company's new President and Chief Operating Officer in
January 2009 of $315,000, an increase in shareholder reports and solicitations
primarily related to the Company's annual meeting and completed issuer tender
offer of $310,000, which was partially offset by a decrease in accounting fees
of $244,000 and consulting fees of $221,000 as a result of fees incurred in
connection with the proposed merger during the 2008 period.
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 Totals
Nine months Nine months Nine months
Ended Increase ended Increase ended Increase
September 30, (Decrease) September 30, (Decrease) September 30, (Decrease)
2009 2008 $ % 2009 2008 $ % 2009 2008 $ %
(In 000's of $) (In 000's of $) (In 000's of $)
Total revenues $ 5,757 $ 5,815 $ (58 ) (1.0 ) % $ 1,017 $ 1,093 $ (76 ) (7.0 )% $ 6,774 $ 6,908 $ (134 ) (1.9 )%
Operating expenses 3,769 3,854 (85 ) (2.2 )% 534 519 15 2.9 % 4,303 4,373 (70 ) (1.6 )%
Net operating
income ("NOI") $ 1,988 $ 1,961 $ 27 1.4 % $ 483 $ 574 $ (91 ) (15.9 )% $ 2,471 $ 2,535 $ (64 ) (2.5 )%
. . .
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