<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended June 30, 1996 Commission file number 1-7585
THE NEWHALL LAND AND FARMING COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
(Exact name of Registrant as specified in its charter)
California 95-3931727
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23823 Valencia Boulevard, Valencia, CA 91355
(Address of principal executive offices) (Zip Code)
(805) 255-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
<PAGE> 2
Part I. Financial Information
Item 1 - Financial Statements
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Unaudited Three Months Ended Six Months Ended
June 30 June 30
-------------------- ------------------
In thousands, except units 1996 1995 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Real estate
Residential home and land sales
Valencia $16,732 $ 9,987 $ 26,630 $17,931
McDowell Mountain Ranch 43,570 1,182 49,101 3,383
Industrial and other sales 270 19,732 2,406 25,143
Commercial operations 9,161 9,510 17,470 18,343
------- ------- -------- -------
69,733 40,411 95,607 64,800
------- ------- -------- -------
Agriculture
Operations 1,738 2,068 2,445 2,721
Ranch sales - - 6,145 -
------- ------- -------- -------
1,738 2,068 8,590 2,721
------- ------- -------- -------
Total revenues $71,471 $42,479 $104,197 $67,521
======= ======= ======== =======
CONTRIBUTION TO INCOME
Real estate
Residential home and land sales
Valencia $ 2,070 $ 1,003 $ 2,590 $ 1,143
McDowell Mountain Ranch 24,352 (224) 25,954 61
Industrial and other sales (1,017) 11,939 (618) 13,651
Community development (2,944) (390) (5,371) (2,208)
Commercial operations 3,973 4,656 8,056 8,962
------- ------- -------- -------
26,434 16,984 30,611 21,609
------- ------- -------- -------
Agriculture
Operations 285 339 1,047 747
Ranch sales - - 5,872 -
------- ------- -------- -------
285 339 6,919 747
------- ------- -------- -------
Operating income 26,719 17,323 37,530 22,356
General and administrative expense (2,228) (2,265) (4,428) (4,315)
Interest and other, net (2,019) (2,910) (4,399) (5,507)
------- ------- -------- -------
Net income $22,472 $12,148 $ 28,703 $12,534
======= ======= ======== =======
Net income per unit $ 0.64 $ 0.33 $ 0.81 $ 0.34
======= ======= ======== =======
Number of units used in computing per
unit amounts 35,361 36,181 35,630 36,347
Cash distributions per unit $ 0.10 $ 0.10 $ 0.20 $ 0.20
</TABLE>
2
<PAGE> 3
Part I. Financial Information
Item 1 - Financial Statements
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
In thousands, except units 1996 1995
- ---------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,207 $ 4,285
Accounts and notes receivable 15,502 25,156
Land under development 80,241 88,457
Land held for future development 32,371 32,459
Property and equipment, net 214,309 186,697
Other assets and deferred charges 14,438 12,699
-------- --------
$360,068 $349,753
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 13,016 $ 11,285
Accrued expenses 38,169 32,999
Deferred revenues 1,756 4,041
Mortgage and other debt 147,709 152,302
Advances and contributions from
developers for utility construction 17,589 17,811
Other liabilities 20,184 18,459
-------- --------
Total liabilities 238,423 236,897
Partners' capital
35,160,591 units outstanding, excluding 1,611,552 units
in treasury, at June 30, 1996 and 35,910,243 units
outstanding, excluding 861,900 units in treasury
at December 31, 1995 121,645 112,856
-------- --------
$360,068 $349,753
======== ========
</TABLE>
3
<PAGE> 4
Part I. Financial Information
Item 1 - Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Unaudited Six months ended
June 30,
----------------------
In thousands 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 28,703 $ 12,534
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,792 3,924
Increase in land under development (36,038) (37,574)
Cost of sales and other inventory changes 44,254 21,930
Decrease in accounts and notes receivable 9,654 1,464
Increase (decrease) in accounts payable,
accrued expenses and deferred revenues 4,616 (6,749)
Cost of property sold 294 4,879
Other adjustments, net 220 (97)
-------- --------
Net cash provided by operating activities 55,495 311
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (31,610) (4,524)
-------- --------
Cash flows from financing activities:
Distributions paid (7,105) (7,293)
Increase in mortgage and other debt 12,400 30,680
Decrease in mortgage and other debt (16,993) (16,595)
(Decrease) increase in advances and contributions
from developers for utility construction (222) 1,651
Purchase of partnership units (13,043) (8,547)
-------- --------
Net cash used by financing activities (24,963) (104)
-------- --------
Net decrease in cash and cash equivalents (1,078) (4,317)
Cash and cash equivalents, beginning of period 4,285 7,656
-------- --------
Cash and cash equivalents, end of period $ 3,207 $ 3,339
======== ========
</TABLE>
4
<PAGE> 5
Part I. Financial Information
Item 1 - Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Accounting Policies
The consolidated financial statements include the accounts of The Newhall Land
and Farming Company and its subsidiaries, all of which are wholly-owned,
(collectively, "the Company"). All significant intercompany transactions are
eliminated.
The Company's unaudited interim financial statements have been prepared
substantially in conformity with generally accepted accounting principles used
in the preparation of the Company's annual financial statements. In the opinion
of the Company, all adjustments necessary for a fair statement of the results
of operations for the three and six months ended June 30, 1996 and 1995 have
been made. Certain reclassifications have been made to prior periods' amounts
to conform to the current period presentation.
The interim statements are condensed and do not include some of the information
necessary for a more complete understanding of the financial data. Accordingly,
your attention is directed to the footnote disclosures found on pages 25
through 31 of the December 31, 1995 Annual Report to Partners and particularly
to Note 2 which includes a summary of significant accounting policies.
Interim financial information for the Company has substantial limitations as an
indicator for the calendar year because:
- - Land sales occur irregularly and are recognized at the close of escrow
or on the percentage of completion basis if the Company has an
obligation to complete certain future improvements and provided profit
recognition criteria are met.
- - Agricultural crops are on an annual cycle and income is recognized
upon harvest. Most major crops are harvested during the fall and
winter.
- - Sales of non-developable farm land occur irregularly and are
recognized upon close of escrow provided profit recognition criteria
are met.
Note 2. Details of Land Under Development
<TABLE>
<CAPTION>
(In $000) June 30, December 31,
1996 1995
----------- ------------
Valencia (Unaudited)
<S> <C> <C>
Residential land development $ 7,534 $ 1,848
Industrial and commercial land development 46,888 43,256
Homes completed or under construction
with venture partners 22,603 25,302
McDowell Mountain Ranch land development - 17,824
Agriculture 3,216 227
-------- -------
Total land under development $ 80,241 $88,457
======== =======
</TABLE>
Note 3. Details for Earnings per Unit Calculation
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------ ------------------------------
(Unaudited) 1996 1995 1996 1995
- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average number of units
outstanding during the period 35,238,950 36,167,913 35,495,544 36,333,537
Net units issuable in connection with
dilutive options based upon use 121,799 12,851 134,252 13,077
of the treasury stock method
---------- ---------- ---------- ----------
Average number of primary units 35,360,749 36,180,764 35,629,796 36,346,614
========== ========== ========== ==========
</TABLE>
5
<PAGE> 6
Part I. Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Comparison of Second Quarter and Six Months 1996 to Second Quarter and Six
Months 1995 (unaudited)
The amounts of increase or decrease in revenues and income from the prior year
periods are as follows (in $000, except per unit):
<TABLE>
<CAPTION>
Increase / (Decrease) Increase / (Decrease)
--------------------- ---------------------
Three Months Six Months
--------------------- ---------------------
Revenues Amount % Amount %
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Real estate
Residential home and land sales
Valencia $ 6,745 68 % $ 8,699 49 %
McDowell Mountain Ranch 42,388 3,586 45,718 1,351
Industrial and other sales (19,462) (99) (22,737) (90)
Commercial operations (349) (4) (873) (5)
Agriculture
Operations (330) (16) (276) (10)
Ranch sales - - 6,145 100
------- ------- -------- -----
$28,992 68 % $36,676 54 %
======= ======= ======== =====
Contribution to income
Real estate
Residential home and land sales
Valencia $ 1,067 106 % $ 1,447 127 %
McDowell Mountain Ranch 24,576 10,971 25,893 42,448
Industrial and other sales (12,956) (109) (14,269) (105)
Community development (2,554) (655) (3,163) (143)
Commercial operations (683) (15) (906) (10)
Agriculture
Operations (54) (16) 300 40
Ranch sales - - 5,872 100
------- ------- -------- -----
Operating income 9,396 54 15,174 68
General and administrative expense 37 2 (113) (3)
Interest and other, net 891 31 1,108 20
------- ------- -------- -----
Net income $10,324 85 % $16,169 129 %
======= ======= ======== =====
Net income per unit $ 0.31 94 % $ 0.47 138 %
======= ======= ======== =====
Number of units used in computing
per unit amounts (in 000) (820) (2)% (717) (2)%
======= ======= ======== =====
</TABLE>
6
<PAGE> 7
Part I. Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
The increases and decreases in revenues and income for the three and six months
are attributable to the following:
RESIDENTIAL HOME AND LAND SALES
VALENCIA
The Company generates revenues and income from Valencia residential projects in
two ways. Through the merchant builder program, residential lots are sold to
builders to construct homes. Generally, revenues and income are recorded upon
sale of the lots to the builder. Through the joint venture program, the
Company participates in home construction on lots owned by the Company by
establishing homebuilding joint ventures and partnerships with regional and
small builders who have created innovative new home designs. Here, the Company
recognizes its portion of revenues and income upon close of escrow to the
homebuyer and generally enjoys increased income as it receives a portion of the
homebuilding profits in return for participating in the risk of homebuilding
and financing the construction costs.
New home sales in Valencia by merchant builders and joint-venture partners
totaled 172 homes in the 1996 second quarter, up 91% from the year earlier
quarter when 90 homes were sold. This represents the best quarterly sales
results since the third quarter of 1989. For the six months ended June 30,
1996, new home sales by merchant builders and joint ventures were 65% ahead of
the 1995 six month period. In addition, Valencia captured a 46% market share in
the Santa Clarita Valley and more than a 10% market share of new home sales in
Los Angeles County, according to an independent research group. While the
Company does not participate in the revenues and income from home sales by
merchant builders, the absorption of these previously sold lots is key to the
Company's future success in selling additional lots to merchant builders.
Merchant Builder Program
The sale of 58 residential lots in NorthPark to a merchant builder contributed
$4.1 million to revenues and $1.1 million to income for the 1996 second quarter
and six-month period. The buyer, West Venture Homes, committed to 95 lots,
with the remaining 37 lots scheduled to close escrow later this year. The 1996
second quarter also includes deferred revenues totaling $250,000 and income of
$59,000 recognized from prior residential lot sales under percentage of
completion accounting. Results for the 1996 six-month period include deferred
revenues of $1.3 million and income of $266,000.
The 1995 second quarter and six-month period included the sale of 19 lots in
NorthPark to Beazer Homes contributing $1.5 million to revenues and $568,000 to
income. Deferred revenues and income recognized in the 1995 three and
six-month periods respectively totaled $1.1 million and $138,000.
At June 30, 1996, two residential parcels totaling 94 lots were in escrow for
approximately $7.9 million. In addition, 491 unimproved lots in Castaic, a
community north of Valencia, are in escrow. These escrows are expected to
close later this year subject to market conditions. In addition, the sale of
48 lots to Presley Homes for $3.6 million closed escrow in July and will be
reflected in 1996 third quarter results.
Joint Venture Program
In the 1996 second quarter, escrow closings from joint ventures totaled 67
homes in five projects contributing $12.4 million to revenues and $1.4 million
to income. This represents a 60% increase in closings from the prior year
second quarter when 42 escrow closings in three projects contributed $7.3
million to revenues and $946,000 to income. For the 1996 six-month period, 116
escrow closings contributed $21.3 million to revenues and $2.3 million to
income which represents a 35% increase in closings from the 1995 comparable
period when 86 closings contributed $15.3 million to revenues and $1.9 million
to income. Overall gross profit margins decreased slightly to 11% for the three
and six month periods of 1996 primarily as a result of changes in product mix.
A total of seven joint-venture projects were active in Valencia at June 30,
1996. Three of these projects are expected to close out by the end of 1996.
Models for the Company's most recent joint-venture projects opened in May.
Castlerock, a joint venture with Braemar Homes, will consist of 44
single-family homes and is designed to
7
<PAGE> 8
Part I. Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
meet the demand for higher-priced executive homes. Carmel, a new joint venture
with EPAC Communities, will consist of 52 single-family homes priced from about
$200,000. At June 30, 1996, these joint ventures had 51 homes in escrow
compared with 41 at June 30, 1995.
McDOWELL MOUNTAIN RANCH
On April 17, 1996, the Company completed the sale of the McDowell Mountain
Ranch project. The sale contributed $43.6 million to revenues and $24.4
million to income. Results for the six-month period also include 219 lots sold
in the first quarter of 1996 for $5.5 million adding $2.1 million to income.
No lot sales were recorded during the 1995 second quarter. However,
finalization of a merchant builder lot premium participation combined with
recognition of deferred revenues contributed $692,000 to income in the 1995
second quarter. These factors combined with the sale of 40 lots in the first
quarter of 1995 contributed a total of $3.4 million to revenues and $1.5 million
to income in the 1995 six-month period.
INDUSTRIAL AND OTHER SALES
No industrial or commercial land sales were completed in the current year
second quarter. Deferred revenues of $264,000 and income of $96,000 were
recognized on prior land sales under percentage of completion accounting. Sale
of a 2.7-acre commercial parcel in the 1996 first quarter contributed $1.7
million in revenues and $861,000 in income to results for the 1996 first half.
The sale of the Bouquet Shopping Center in June 1995 for $17.9 million added
$10.4 million to second quarter income. Also included in second quarter 1995
results was the sale of a 7.1-acre parcel for $1.7 million contributing $1.5
million to income. Results for the 1995 six-month period also include escrow
closings on 8.8 commercial acres and a 1.1-acre industrial parcel in Valencia
Industrial Center for $5.6 million contributing $2.2 million to income.
Interest in industrial space in Valencia continues to increase as the vacancy
rates in the Company's two industrial centers reached a historic low of 3.7%.
Interest in the build-to-suit and build-to-lease programs continues to
increase. Under these programs, the Company has over 550,000 square feet of
new space completed or under construction, and plans for an additional 370,000
square feet are underway.
At June 30, 1996 four commercial parcels totaling 5.2 acres to be sold for $4.2
million and two industrial parcels totaling 9.1 acres to be sold for $3.2
million are in escrow. Escrows on these parcels are expected to close later
this year subject to market conditions.
COMMUNITY DEVELOPMENT
Increases in community development expenses of 49% and 41% from the prior year
three and six month periods, respectively, excluding a prior year recovery from
a lawsuit settlement, are a result of the Company's emphasis on obtaining the
necessary governmental land use approvals and an intensified strategic
marketing program to continue the build-out of Valencia and future development
of Newhall Ranch. Community development expenses for the year are expected to
increase substantially compared to 1995.
In Valencia, initial entitlements for new lake and golf-oriented lifestyle
villages are expected in 1997 and will position the Company to commence lot
sales for these villages in 1998 or 1999. The specific plan and environmental
impact report for the 12,000-acre Newhall Ranch community west of Valencia are
being reviewed by Los Angeles County Regional Planning Staff with public
hearings tentatively scheduled for October 1996. With final approval expected
in the next two years, this 24,000-home development is expected to provide
significant income to the Company after the build-out of Valencia is complete.
Plans for the 1,800-home Westridge golf course community have been redesigned
and will be submitted to the Los Angeles County Regional Planning staff this
summer along with an updated environmental impact report. If the entitlement
process proceeds as anticipated and litigation is resolved, land development on
this project could begin by 1998.
8
<PAGE> 9
Part I. Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
COMMERCIAL OPERATIONS
Commercial operations include the Company's portfolio of income-producing
properties and Valencia Water Company, a wholly-owned public water utility.
Reductions in rental income due to sale of the Bouquet Shopping Center and a
build-to-suit facility for ITT in 1995 are the principal contributors to
decreases in revenues and income from the income-producing portfolio compared
to the same periods in 1996. Tenant turnover at Valencia Town Center also
contributed to the decreases. At June 30, 1996, the mall was 92% leased;
however, with strong interest by potential tenants, occupancy is expected to
return to previous levels of about 95% by the end of 1996. For all of 1996,
the Company expects revenues and income from the commercial portfolio to be
below last year's level due to the above sales and the fact that projects
started in 1995 will not begin to contribute meaningful revenues and income
until 1997.
The decreases from the commercial income portfolio are partially offset in both
the three and six-month periods by increases in revenues and income from
Valencia Water Company due to a general rate increase approved by the
California Public Utilities Commission effective January 1, 1996. Operating
expenses were approximately the same as the 1995 periods.
The Company currently has ten income-producing properties under development.
The largest of these projects is Valencia Marketplace, a 750,000-square-foot,
value-oriented retail complex which is currently 71% preleased. Phase I, which
includes WalMart, Circuit City, Toys R Us, Staples and Sport Chalet, is
scheduled to open in time for the 1996 holiday shopping season.
Also under construction is the first phase of NorthPark Village Square, an
85,000-square-foot neighborhood shopping center with Ralphs supermarket as the
anchor tenant. This center and Skycrest, a 264-unit apartment complex under
construction adjacent to the shopping center, are expected to open this fall.
A 57,000-square-foot office building under construction in Valencia Town
Center, the first of three planned for Valencia Town Center, is 43% preleased.
In addition, land preparation has started on a full-service sports and fitness
complex, Spectrum/Valencia, and a 203-room hotel and conference center.
AGRICULTURAL OPERATIONS
Revenues and income from agricultural operations, including energy operations,
were approximately the same as the prior year three and six-month periods.
Contributing to an increase in income from the prior year six-month period is
reversal of a $400,000 contingency associated with previously sold farm land.
RANCH SALES
No sale of farm land was completed in the current year second quarter or in the
prior year second quarter or six-month period. In March, 1996 the Company
completed the sale of 539 acres of valuable row crop land on its 38,800-acre
Suey Ranch for $6.5 million which contributed $5.9 million to income.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expenses for the three and six-month periods were
approximately the same as the prior year periods. The Company expects general
and administrative expenses for the year to be approximately 4% higher than in
1995.
INTEREST AND OTHER, NET
Decreases of 31% and 20% from the respective prior year three and six-month
periods are attributable to the assumption of project and bond debt by the
buyer in conjunction with the sale of the McDowell Mountain Ranch project on
April 17, 1996 plus an increase in capitalized interest related to ten
income-producing properties under construction in Valencia.
9
<PAGE> 10
Part I. Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
OUTLOOK
The Company is on track to meet its five-year average annual earnings growth
goal of more than 30% established last year. With earnings in the first half
of 1996 exceeding income for all of last year, the Company is well positioned
to achieve more than a 30% growth rate this year. Earnings for 1997 are not
expected to increase in line with the previous two years as governmental
approvals for new lake and golf-oriented lifestyle villages are not anticipated
until 1997 with lot sales commencing in late 1998 or early 1999 and because of
the 1996 sale of McDowell Mountain Ranch.
The forward-looking statements made in this report are based on present trends
the Company is experiencing in residential, commercial and industrial markets.
Also, the Company's success in obtaining entitlements, governmental and
environmental regulations, timing of escrows, continued expansion of its income
portfolio and marketplace acceptance of Company business strategies are factors
which could affect results. These risks are described in detail in the Risks
and Related Factors section of this report and in the 1995 Annual Report.
Negative changes in these markets or reduced support for Company strategies
could reduce results.
FINANCIAL CONDITION
Liquidity and Capital Resources
At June 30, 1996, the Company had cash and cash equivalents of $3.2 million
with short-term borrowings totaling $28.4 million. Borrowings included $27
million against a $40 million revolving mortgage facility secured by Valencia
Town Center and $1.4 million against lines of credit totaling $121 million.
As of June 30, 1996, a total of 1,025,278 of the Company's partnership units
have been repurchased for $17.0 million under a repurchase program for up to
1.5 million units approved by the Board of Directors in December, 1995. Of
these units, 763,378 units were repurchased in 1996 for $13.0 million. As
previously announced, a portion of the $25.9 million cash generated from the
sale of the McDowell Mountain Ranch project in Scottsdale, Arizona was used for
these repurchases. Additional units may be repurchased depending on market
conditions.
There are no material commitments for capital expenditures other than the
Company's plans in the ordinary course of business to expand its portfolio of
income-producing properties. At June 30, 1996, ten new commercial projects
were in various stages of development and several new projects are planned to
be started in the second half of 1996. Approximately $90 million is expected to
be invested in these projects in 1996. A portion of the estimated construction
costs for these projects is expected to be provided from a combination of
available lines of credit and project financings.
The following discussion relates to principal items on the Consolidated
Statement of Cash Flows:
Operating Activities
Net cash provided by operating activities for the six-month period totaled
$55.5 million and included the sale of the McDowell Mountain Ranch project in
Scottsdale, Arizona which generated $25.9 million cash and the sale of 539
acres of row crop land at the Suey Ranch for $6.5 million. Sales in Valencia
included, 58 residential lots to a merchant builder, 116 homes under the
Company's joint venture program and a 2.7- acre commercial parcel which
combined generated $26.0 million in cash.
Land under development inventory expenditures totaling $36.0 million for the
first half of 1996 were more than offset by $44.3 million in real estate sales
activity primarily due to the sale of the McDowell Mountain Ranch project in
April. Inventory expenditures in Valencia were related to land development and
infrastructure to support future and pending land sales including expansion of
Valencia NorthPark and home construction advances for the Company's joint
venture homebuilding program. The Company's net homebuilding investment
decreased by $2.7 million during the first six months of 1996 to a total $22.6
million in seven joint venture projects. At June 30, 1996, the Company's
homebuilding partnerships had 59 homes under construction and 89 completed,
unsold homes for sale which were included in residential land under development
inventories. The majority of the completed, unsold homes are in the Rose Arbor
condominium project.
10
<PAGE> 11
Part I. Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Investing Activities
Expenditures for property and equipment totaled $31.6 million and were
primarily related to ten income-producing properties under development in
Valencia and water utility construction. The properties under development
consist of Valencia Marketplace, a 750,000-square-foot value-oriented retail
complex; a build-to-lease and two build-to-suit industrial buildings in
Valencia Commerce Center totaling 344,000 square feet; a 57,000-square-foot
office building and a 50,000-square-foot Spectrum health club facility in
Valencia Town Center; a 264-unit apartment complex and a neighborhood shopping
center in Valencia NorthPark; a 51,000-square-foot retail/light industrial
complex in Valencia Industrial Center; and an automotive service center which
opened in April. The Company plans to start several additional
income-producing projects in 1996 including land development for a 203-room
full service hotel with a 20,000-square-foot conference center and an
entertainment-related mixed-use project in Valencia Town Center.
Financing Activities
Two quarterly distributions totaling $7.1 million , or 20 cents per unit, have
been paid year-to-date. An additional quarterly distribution of 10 cents per
partnership unit was declared on July 17, 1996 payable September 12, 1996. The
declaration of distributions, and the amount declared, is determined by the
Board of Directors on a quarterly basis taking into account the Company's
earnings, financial condition and prospects. The next quarterly distribution
will be considered by the Board of Directors on November 20, 1996.
In conjunction with the sale of the McDowell Mountain Ranch in Scottsdale,
Arizona in April, project and bond debt totaling $16.3 million were assumed by
the buyer. A $12.4 million increase in borrowings against a revolving mortgage
facility were primarily for costs associated with ten income-producing projects
under development.
A total of 763,378 of the Company's partnership units have been repurchased for
$13.0 million during the six-month period ending June 30, 1996 under a
repurchase program for up to 1.5 million units approved by the Board of
Directors in December, 1995.
RISKS AND RELATED FACTORS
Included in this report are forward-looking statements regarding the status of
proposed or pending sales and rental activity, future planned development, plus
the long-term growth goals for the Company. The following risks and related
factors, among others, should be taken into consideration in evaluating the
future prospects for the Company. Actual results may materially differ from
those predicted.
Sales of Real Estate: The majority of the Company's revenues are generated by
its real estate operations. The ability of the Company to consummate sales of
real estate is dependent upon various factors, including but not limited to
availability of financing to the buyer, regulatory and legal issues and
successful completion of the buyer's due diligence. The fact that a real estate
transaction has entered escrow does not necessarily mean that the transaction
will ultimately close. Therefore the timing of sales may differ from that
anticipated by the Company. The inability to close sales as anticipated could
adversely impact the recognition of revenue in any specific period.
Economic Conditions: Real estate development is impacted significantly by
general and local economic conditions which are often beyond the control of the
Company. The Company's real estate operations are concentrated in Southern
California. The regional economy is profoundly affected by the entertainment,
technology and certain other segments, which have been known to affect the
region's demographics. Consequently, all sectors of real estate development for
the Company tend to be cyclical. While the economy of Southern California has
shown improvements recently, there can be no assurances that the present trend
will continue.
Interest Rates and Financings: Fluctuations in interest rates and the
availability of financing have an important impact on the Company's
performance. Sales of the Company's projects could be adversely impacted by the
ability of buyers to obtain adequate financing. Further, the Company's real
estate development activities are dependent on the availability of adequate
sources of capital. Certain of the Company's credit facilities bear interest at
variable rates and would be negatively impacted by increasing interest rates.
11
<PAGE> 12
Part I. Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Competition: The sale and leasing of residential, industrial and commercial
real estate is highly competitive, with competition coming from numerous and
varied sources. The degree of competition is affected by such factors as the
supply of real estate available comparable to that sold and leased by the
Company and the level of demand for such real estate.
Geographic Concentration: With the 1996 sale of McDowell Mountain Ranch, the
Company's real estate development activities currently are focused on its
37,000-acres on the Newhall Ranch, 30 miles north of Los Angeles. The Company's
entire commercial income portfolio is located in the Valencia area.
Governmental Regulation and Entitlement Risks: In developing its projects, the
Company must obtain the approval of numerous governmental authorities
regulating such matters as permitted land uses, levels of population, density
and traffic, and the provision of utility services such as electricity, water
and waste disposal. In addition, the Company is subject to a variety of
federal, state and local laws and regulations concerning protection of health
and the environment. This governmental regulation affects the types of projects
which can be pursued by the Company and increases the cost of development and
ownership. The Company devotes substantial financial and managerial resources
to complying with these requirements and dealing with the process. To varying
degrees, certain permits and approvals will be required to complete the
developments currently being undertaken, or planned by the Company.
Furthermore, the timing, cost and scope of planned projects may be subject to
legal challenges, particularly large projects with regional impacts. In
addition, the continued effectiveness of permits already granted is subject to
factors such as changes in policies, rules and regulations and their
interpretation and application. The ability to obtain necessary approvals and
permits for its projects can be beyond the Company's control and could restrict
or prevent development of otherwise desirable new properties.
Part II. Other Information
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits (listed by numbers corresponding to the Exhibit Table of Item
601 in Regulation S-K):
27 Financial Data Schedule
(b) The following report was filed on Form 8-K in the second quarter ended
June 30, 1996
<TABLE>
<CAPTION>
Date of Report Item Reported Financial Statements Filed
-------------------------------------------------------------------------------------------------
<S> <C> <C>
April 17, 1996 Sale of McDowell Mountain Ranch None
</TABLE>
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE NEWHALL LAND AND FARMING COMPANY
(a California Limited Partnership)
Registrant
By Newhall Management Limited Partnership,
Managing General Partner
By Newhall Management Corporation,
Managing General Partner
<TABLE>
<S> <C>
Date: August 9, 1996 By / S / THOMAS L. LEE
-----------------------------------------------------------
Thomas L. Lee, Chairman and Chief Executive Officer of
Newhall Management Corporation
(Principal Executive Officer)
Date: August 9, 1996 By / S / STUART R. MORK
-----------------------------------------------------------
Stuart R. Mork, Senior Vice President and Chief Financial
Officer of Newhall Management Corporation
(Principal Financial Officer)
Date: August 9, 1996 By / S / DONALD L. KIMBALL
-----------------------------------------------------------
Donald L. Kimball, Vice President - Controller of
Newhall Management Corporation
(Principal Accounting Officer)
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 3,207
<SECURITIES> 0
<RECEIVABLES> 15,502
<ALLOWANCES> (770)
<INVENTORY> 80,241
<CURRENT-ASSETS> 0
<PP&E> 308,911
<DEPRECIATION> (62,231)
<TOTAL-ASSETS> 360,068
<CURRENT-LIABILITIES> 0
<BONDS> 119,309
0
0
<COMMON> 0
<OTHER-SE> 121,645
<TOTAL-LIABILITY-AND-EQUITY> 360,068
<SALES> 86,727
<TOTAL-REVENUES> 104,197
<CGS> 50,808
<TOTAL-COSTS> 65,797
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,399
<INCOME-PRETAX> 28,703
<INCOME-TAX> 0
<INCOME-CONTINUING> 28,703
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,703
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.81
</TABLE>
