<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 September 30, 1997
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 September 30, 1997 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
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- -------------------------
In thousands except per unit 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Real estate
Residential home and land sales
Valencia $ 38,478 $ 23,120 $ 56,867 $ 49,750
McDowell Mountain Ranch -- -- -- 49,101
Industrial and other sales 13,743 2,049 38,754 4,455
Commercial operations 12,091 10,365 32,750 27,835
--------- --------- --------- ---------
64,312 35,534 128,371 131,141
--------- --------- --------- ---------
Agriculture
Operations 2,929 3,030 5,700 5,475
Ranch sales 62 600 17,962 6,745
--------- --------- --------- ---------
2,991 3,630 23,662 12,220
--------- --------- --------- ---------
Total revenues $ 67,303 $ 39,164 $ 152,033 $ 143,361
========= ========= ========= =========
CONTRIBUTION TO INCOME
Real estate
Residential home and land sales
Valencia $ 13,005 $ 6,332 $ 13,948 $ 8,922
McDowell Mountain Ranch -- -- -- 25,954
Industrial and other sales 1,157 (616) 15,254 (1,234)
Community development (2,213) (2,625) (7,573) (7,996)
Commercial operations 4,866 4,740 14,047 12,796
--------- --------- --------- ---------
16,815 7,831 35,676 38,442
--------- --------- --------- ---------
Agriculture
Operations 379 285 1,508 1,332
Ranch sales 45 472 16,995 6,344
--------- --------- --------- ---------
424 757 18,503 7,676
--------- --------- --------- ---------
Operating income 17,239 8,588 54,179 46,118
General and administrative expense (2,438) (1,911) (6,799) (6,339)
Interest and other, net (2,262) (2,509) (7,137) (6,908)
--------- --------- --------- ---------
Net income $ 12,539 $ 4,168 $ 40,243 $ 32,871
========= ========= ========= =========
Net income per unit $ 0.36 $ 0.12 $ 1.16 $ 0.93
========= ========= ========= =========
Number of units used in computing per
unit amounts 34,809 35,269 34,758 35,507
Cash distributions per unit:
Regular $ 0.10 $ 0.10 $ 0.30 $ 0.30
Special 0.08
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
In thousands 1997 1996
- ------------------------------------ ------------- ------------
Unaudited
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,955 $ 2,412
Accounts and notes receivable 18,019 25,557
Land under development 59,722 63,266
Land held for future development 32,551 32,357
Income producing properties, net 213,838 182,641
Property and equipment, net 58,445 57,064
Other assets and deferred charges 13,890 13,147
-------- --------
$399,420 $376,444
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 17,886 $ 11,451
Accrued expenses 39,453 38,101
Deferred revenues 6,378 2,483
Mortgage and other debt 148,827 163,256
Advances and contributions from developers for
utility construction 21,024 19,075
Other liabilities 21,986 21,425
-------- --------
Total liabilities 255,554 255,791
Partners' capital
34,488 units outstanding, excluding 2,285
units in treasury, at September 30, 1997 and
34,701 units outstanding, excluding 2,071
units in treasury, at December 31, 1996 143,866 120,653
-------- --------
$399,420 $376,444
======== ========
</TABLE>
3
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended
In thousands September 30
- -------------------------------------------------------- -----------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 40,243 $ 32,871
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 7,154 5,799
Decrease in land under development 3,794 12,915
Decrease in accounts and notes receivable 7,538 8,934
Increase in accounts payable, accrued
expenses and deferred revenues 11,682 3,949
Cost of property sold 14,707 409
Other adjustments, net 1,669 943
-------- --------
Net cash provided by operating activities 86,787 65,820
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Development of income-producing properties (50,791) (50,068)
Purchase of property and equipment (4,092) (6,811)
-------- --------
Net cash used in investing activities (54,883) (56,879)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid (13,135) (10,622)
(Decrease) increase in mortgage and other debt (14,429) 13,869
Increase in advances and contributions from
developers for utility construction 1,949 792
Purchase of partnership units (5,746) (13,043)
-------- --------
Net cash used in financing activities (31,361) (9,004)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 543 (63)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,412 4,285
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,955 $ 4,222
======== ========
</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 nine months ended September 30, 1997 and 1996 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
32 of the December 31, 1996 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
(In $000)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
Valencia
Residential land development $ 538 $ 1,093
Industrial and commercial land development 48,579 49,580
Homes completed or under construction
with venture partners 8,484 12,371
Agriculture 2,121 222
------- -------
Total land under development $59,722 $63,266
======= =======
</TABLE>
- --------------------------------------------------------------------------------
Note 3. Details for Earnings per Unit Calculation
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------- --------------------------
(Unaudited) 1997 1996 1997 1996
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average number of units
outstanding during the period 34,464,082 35,164,797 34,522,690 35,384,490
Net units issuable in connection with
dilutive options based upon use
of the treasury stock method 344,852 104,233 235,290 122,852
---------- ---------- ---------- ----------
Average number of primary units 34,808,934 35,269,030 34,757,980 35,507,342
========== ========== ========== ==========
</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 Third Quarter and Nine Months of 1997 to
Third Quarter and Nine Months of 1996
Unaudited
The amounts of increase or decrease in revenues and income from the prior year
third quarter and nine months are as follows (in 000s, except per unit):
<TABLE>
<CAPTION>
Third Quarter Nine Months
------------------------ -----------------------
Increase (Decrease) Increase (Decrease)
------------------------ -----------------------
Amount % Amount %
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Real Estate
Residential home and land sales
Valencia $ 15,358 66% $ 7,117 14%
McDowell Mountain Ranch -- -- (49,101) -100%
Industrial and other sales 11,694 571% 34,299 770%
Commercial operations 1,726 17% 4,915 18%
-------- -------- -------- --------
28,778 81% (2,770) -2%
Agriculture
Operations (101) -3% 225 4%
Ranch sales (538) -90% 11,217 166%
-------- -------- -------- --------
Total revenues $ 28,139 72% $ 8,672 6%
======== ======== ======== ========
CONTRIBUTION TO INCOME
Real Estate
Residential home and land sales
Valencia $ 6,673 105% $ 5,026 56%
McDowell Mountain Ranch -- -- (25,954) -100%
Industrial and other sales 1,773 288% 16,488 1336%
Community development 412 16% 423 5%
Commercial operations 126 3% 1,251 10%
-------- -------- -------- --------
8,984 115% (2,766) -7%
Agriculture
Operations 94 33% 176 13%
Ranch sales (427) -90% 10,651 168%
-------- -------- -------- --------
Operating income 8,651 101% 8,061 17%
General and administrative expense (527) -28% (460) -7%
Interest and other, net 247 10% (229) -3%
-------- -------- -------- --------
Net income $ 8,371 201% $ 7,372 22%
======== ======== ======== ========
Net income per unit $ 0.24 200% $ 0.23 25%
======== ======== ======== ========
Number of units used in computing
per unit amounts (460) -1% (749) -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 nine months
are attributable to the following:
For the three months ended September 30, 1997, revenues totaled $67.3 million
and income totaled $12.5 million compared with revenues of $39.2 million and
income of $4.2 million for the 1996 third quarter. The primary contributors to
1997 third quarter results were sales of North Hills, a 50-acre parcel of 366
entitled, unimproved, high margin lots, and 251 additional, improved residential
lots in Valencia. In addition, three industrial parcels and one build-to-suit
project in Valencia Commerce Center closed escrow contributing to the quarter's
revenues and income.
For the 1997 nine-month period, revenues totaled $152.0 million and income
totaled $40.2 million. Revenues and income totaled $143.4 million and $32.9
million, respectively, for the prior year nine-month period which included the
sale of the McDowell Mountain Ranch project in April, 1996 for $43.6 million
adding $24.4 million to income.
RESIDENTIAL HOME AND LAND SALES
VALENCIA
The Company generates revenues and income from Valencia residential projects by
selling residential lots to merchant builders and home sales through joint
ventures. Revenues and income are recorded by the Company on residential lot
sales when title is transferred to the merchant builder who, in turn, builds
homes for sale. The Company also participates in home construction on lots it
owns by establishing joint ventures with builders who have created innovative
new home designs, targeting niche markets unmet by merchant builders. Under the
joint-venture program the Company recognizes its portion of revenues and income
upon close of escrow to the homebuyer. By participating in joint ventures, the
Company generates increased income as it receives a portion of the homebuilding
profits in return for sharing in the risk of homebuilding and financing
construction costs.
Currently there are 12 active builders in Valencia, offering 12 different
product lines. These merchant builders, including the Company's homebuilding
joint-ventures, sold 206 homes in Valencia in the 1997 third quarter, up from
148 homes sold in the year earlier quarter, representing the most homes sold in
a quarter in Valencia since the 1989 third quarter.
During the three months ended September 30, 1997, 155 homes closed escrow in
Valencia, with 104 by merchant builders on lots previously sold by the Company
and the remaining 51 by the Company's joint ventures. This compares with 1996
third quarter escrow closings of 149 homes with 71 by joint ventures. The
close-out of several joint-venture projects this year will result in lower joint
venture home sales for all of 1997 and is consistent with the Company's strategy
to concentrate on lot sales to merchant builders in an improving real estate
market.
Merchant Builder Program
Residential lot sales in Valencia set a quarterly record in the 1997 third
quarter with the sale of 617 residential lots adding $27.3 million to revenues
and $13.1 million to income. The largest transaction was the sale of 366
entitled, unimproved lots to Taylor Woodrow for $17 million contributing $10.1
million to income. In addition, escrow closed on 251 improved residential lots
to three merchant builders contributing $10.3 million to revenues and $3.0
million to income under percentage of completion accounting. The 1997 nine-month
period also includes the sale of 94 residential lots which added $4.0 million to
revenues and $1.2 million to income.
Results for the 1996 third quarter included the sale of 48 residential lots in
Valencia for $3.7 million which contributed $1.0 million to income and the sale
of 491 unimproved residential lots in Castaic, a community north of Valencia,
for $4.5 million which contributed $4.3 million to income. The 1996 nine-month
period also included the sale of 58 residential lots in Valencia contributing
$4.1 million to revenues and $1.1 million to income, plus recognition of $1.3
million of deferred revenues and $266,000 of income from lot sales to merchant
builders in prior years.
At September 30, 1997, an additional 43 residential lots were in escrow to
Richmond American with closing scheduled for later this year. All escrow
closings are subject to market and other conditions. At September 30, 1996, a
total of 212 single- and multi-family lots were in escrow.
7
<PAGE> 8
PART I. FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's current inventory of entitled, improved residential lots includes
168 multi-family and 37 single-family lots in Valencia NorthPark, and 752
entitled, unimproved residential lots near Castaic. The Company anticipates
receiving final approval in late 1997 for the next development area in North
River called Decoro Highlands, which is planned for 460 homes, including a
multi-family project. In addition, entitlements for the first "lifestyle
village", Lago De Valencia, is expected by the end of 1997 or early 1998.
Joint Venture Program
In the 1997 third quarter, the Company's joint-venture homebuilding projects
closed escrow on 51 homes contributing $11.2 million to revenues and $1.0
million to income. This compares with 71 joint-venture closings during the year
earlier quarter contributing $14.9 million to revenues and $1.5 million to
income. The 1997 nine-month period included 111 joint-venture closings for $24.4
million adding $2.6 million to income compared to the year earlier period when
187 closings added $36.2 million to revenues and $3.9 million to income. With
the close-out of the CourtHomes and Avalon joint-venture projects earlier in the
year and Castlerock and Rose Arbor during the 1997 third quarter, the Company
does not expect to match the number of joint-venture home sales achieved last
year.
Nouvelle, a joint-venture project with Warmington which opened in May, closed
escrow on 14 homes in the third quarter. Models for Cheyenne, a 166 townhome
project similar to the popular Montana townhomes, and Avignon, a 76-townhome
project adjacent to Valencia Country Club, both joint ventures with EPAC
Communities, are scheduled to open in the fourth quarter. At September 30, 1997,
there were 31 joint-venture homes in escrow compared with 50 homes at the end of
the year earlier period.
INDUSTRIAL AND OTHER SALES
During the 1997 third quarter, three parcels in Valencia Commerce Center
totaling 13.5 acres closed escrow adding $5.9 million to revenues and $1.1
million to income. Demand for industrial land is increasing, reflecting low
vacancy rates in the Company's two industrial/business parks and the
availability of financing for projects. Industrial land development is
concentrated in Valencia Commerce Center where prices for land have increased
about $2 per square foot to $9.50, from the low in the early 90's. Industrial
land sales and construction will absorb about 60 acres in 1997, an eight-year
high, compared with 20 acres in 1996.
Also in the 1997 third quarter, a 135,220-square-foot build-to-suit constructed
on 6.3 acres in Valencia Commerce Center closed escrow to an institutional
investor for $7.9 million contributing $1.1 million to income. Demand for
buildings being constructed under the Company's industrial build-to-suit/lease
program is resulting in an additional 29,000 square feet of industrial space
planned for this year with 465,000 square feet expected to be built in 1998.
Results for the 1997 nine-month period also includes sales of a 5.2-acre
industrial parcel and 3.5 commercial acres which combined contributed $4.5
million to revenues and $2.5 million to income. Also included in 1997 nine-month
results are the sale of Stonecreek, a 208-unit apartment complex, for $18.3
million adding $12.9 million to income and the sale of Orchard Plaza, a
17,400-square-foot office building, for $2.2 million adding $618,000 to income.
Two industrial parcels totaling 6.2 acres closed escrow in the 1996 third
quarter contributing $2.0 million to revenues and $434,000 to income. Results
for the 1996 nine-month period also include the sale of a 2.7-acre commercial
parcel for $1.7 million adding $861,000 to income and recognition of deferred
revenues of $606,000 adding $275,000 to income.
At September 30, 1997, eight parcels totaling 12.2 industrial acres, 33.5
commercial acres and two build-to-suits in Valencia Commerce Center were in
escrow for $18.9 million with closings scheduled for later this year and early
1998. All escrow closings are subject to market and other conditions. At
September 30, 1996, two industrial build-to-suit facilities in Valencia Commerce
Center for $16.5 million and two other land sales for $2.2 million were in
escrow.
8
<PAGE> 9
PART I. FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMMUNITY DEVELOPMENT
The Company's community development activities are focused on securing the
necessary governmental land use approvals as well as an intensified strategic
marketing program to support the build-out of Valencia by 2005 and begin the
development of Newhall Ranch, the next new town to be developed on the Company's
12,000 acres west of Valencia. The Company's ability to increase the pace of
development is contingent upon obtaining the necessary entitlement or
governmental approvals. Final approval is anticipated in late 1997 for Decoro
Highlands, the next major development area in the North River area, which is
planned for 460 homes, including a multi-family project. Completion of the
entitlement process for several major "lifestyle villages" in Valencia is
anticipated in 1998 and 1999.
The Environmental Impact Report on the Company's Westridge project, which
includes a Tournament Players Club (TPC) championship golf course, is expected
to be released for public review before the end of the year with public hearing
before the Los Angeles County Regional Planning Commission in early 1998. The
project is expected to go before the Board of Supervisors later in 1998.
The entitlement process continues on the 24,000-home Newhall Ranch community as
the Los Angeles County Regional Planning Commission has directed its staff to
prepare the final Environmental Impact Report which will become part of the
recommendation to the Board of Supervisors. Hearings before the Board of
Supervisors are expected to begin in spring 1998.
Community development expenses increased 16% from the prior year third quarter
and 5% from the prior year nine-month period. Expenditures for community
development expenses are expected to continue at present high levels as the
Company is placing significant emphasis on obtaining approvals for current and
future developments. Although these preliminary planning and entitlement
expenses reduce short-term earnings, the investment in new entitlements is vital
to the Company's long-term success. Generally, the single largest increase in
land value occurs when these entitlements are received.
COMMERCIAL OPERATIONS
Commercial operations include the Company's portfolio of income-producing
properties and Valencia Water Company, a wholly-owned public water utility. The
commercial portfolio is a relatively stable source of earnings and cash flow,
which provides debt capacity to grow the Company and working capital for
continuing operations.
For the three months ended September 30, 1997, revenues and income from
commercial operations increased 17% and 3%, respectively, over the same prior
year period. For the first nine months of 1997, revenues and income increased
18% and 10%, respectively, over the 1996 period.
Contributing to increases in revenues and income is the addition of new
properties including the 720,000-square-foot Valencia Marketplace where
Michael's, a national arts and crafts retailer, opened this summer joining other
major retailers such as WalMart, Sport Chalet, Staples, Circuit City, Payless
Shoe Source and Toys R Us. A Vons supermarket, more restaurants and other
retailers are scheduled to open for the holiday shopping season. The center is
82% leased and is expected to be 75% constructed by year-end.
Valencia Town Center shopping mall is continuing its strong performance with 98%
of the space leased, including temporary tenants. River Oaks and Castaic Village
neighborhood shopping centers are 96% and 97% leased, respectively, and
NorthPark Village Square is fully leased with plans for further expansion. Also,
the first tenants opened for business at Plaza Del Rancho, a mixed-use project
in Valencia Industrial Center, where 82% of the leasable space is occupied or
committed.
SkyCrest, a new 264-unit apartment complex, set a Company record by reaching
100% leased in only ten months. With Portofino and Northglen apartment complexes
fully leased, all three of the Company's apartment complexes have been
increasing rental rates for incoming tenants. In response to this strong demand,
additional apartment complexes are in the planning stages including one in
Valencia Town Center to be located between the Spectrum Health Club and the
Avignon townhome project. As previously reported, Stonecreek, a 208-unit
apartment complex, was sold in the first quarter of 1997 as part of the
Company's strategy to selectively sell mature properties in strong markets.
9
<PAGE> 10
PART I. FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The majority of the Company's commercial development and portfolio expansion is
now occurring along Town Center Drive, a mixed used "main street" extending west
from the regional mall to the 250-room Hyatt Valencia Hotel and Spectrum Health
Club. Construction is well underway on the Hyatt Valencia Hotel and adjoining
20,000-square-foot conference center, and has commenced on the six-story office
building where Princess Cruises will occupy the top five floors with the first
floor reserved for retail. Land development will start shortly on a two-story
26,000-square-foot office/retail building and the 100,000-square-foot
entertainment complex with an IMAX Theater, 12 additional movie screens,
restaurants and retail shops.
AGRICULTURAL OPERATIONS
Income from agricultural operations increased 33% and 13% from the prior year
three- and nine month periods, respectively, while revenues were approximately
the same as the prior year periods. A strong market for alfalfa, higher tomato
yields as well as expense reductions contributed to the results.
RANCH SALES
The sale of a small remaining parcel in northern California was completed during
the 1997 third quarter for $62,000 adding $45,000 to income. Results for the
1997 nine-month period includes the sale of 1,674 acres of vineyard and
undeveloped land at the 38,000-acre Suey Ranch for $17.9 million adding $17.0
million to income.
During the 1996 third quarter, a 4.5-acre parcel in northern California closed
escrow for $600,000 contributing $472,000 to income. The 1996 nine-month period
also includes the sale of 539 acres of row crop land on the Suey Ranch for $6.5
million which contributed $5.9 million to income.
Since 1992, the Company's strategic plan to sell land not suitable for
development has resulted in the sale of 23,704 acres of land. The last major
acreage to be sold under this plan involves the 3,940 acres remaining on the
Merced Ranch, which is anticipated to close later this year. As previously
announced, this sale is expected to add approximately $4.5 million to revenues
and about $3 million to income. Currently, no other agricultural land sales are
planned.
GENERAL AND ADMINISTRATIVE EXPENSE
A 28% increase for the third quarter and a 7% increase for the nine-month period
over the corresponding period in 1996 in general and administrative expenses are
primarily due to expense recorded for appreciation rights on outstanding
non-qualified options granted before 1992 due to the higher market price of the
Company's partnership units. General and administrative expenses for the year
are expected to be slightly lower than in 1996 due to the prior year charge for
curtailment of a retirement plan for outside directors and its replacement with
a deferred equity compensation plan.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had cash and cash equivalents of $3.0 million
and $127 million in available lines of credit to fund its development
activities. The Company believes it has adequate sources of cash from operations
and available debt capacity to finance future operations and take advantage of
new development opportunities. There was no debt secured by raw land or land
under development inventories at September 30, 1997.
The Company is in the process of establishing a $200 million unsecured revolving
line of credit. The three-year syndicated facility will replace five separate
lines of credit totaling $119 million. Proceeds available under the line of
credit will be used for general corporate purposes including development of
income-producing properties in Valencia. The transaction is expected to close by
the end of 1997.
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. The Company expended $50.8 million for commercial
portfolio development during the nine months ended September 30, 1997. Total
expenditures for
10
<PAGE> 11
PART I. FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
commercial projects are expected to reach approximately $75 million in 1997 with
an additional $100 million scheduled to be invested in 1998. For additional
information on income-producing properties under development see the Investing
Activities section. Construction of new income properties on Company-owned land
creates additional debt capacity. It is the Company's policy to limit total
Company debt to approximately 60% or less of the value of the portfolio of
income-producing properties.
In January, 1997, the Board of Directors increased an existing unit repurchase
program to a total of 2 million units, bringing units available for repurchase
to 510,022. As of September 30, 1997, a total of 328,637 partnership units had
been repurchased at an average price of $17.48.
The following discussion relates to principal items on the Consolidated
Statement of Cash Flows:
Operating Activities
Net cash provided by operating activities totaled $86.8 million in the nine
months ended September 30, 1997 and included sales of 711 residential lots, 111
residential homes, plus 22.2 acres of industrial and commercial land which
combined provided $67.8 million in cash and $1.2 million in notes receivable.
Also completed were the sale of a 208-unit apartment complex for $18.3 million
in cash, the sale of 1,673 acres of vineyard and undeveloped land at the Suey
Ranch for $17.9 million in cash, and the sale of an industrial build-to-suit on
6.3 acres in Valencia Commerce Center for $7.9 million in cash. Additionally,
notes totaling $10.3 million from land sales in prior years were collected
during the nine-month period.
Expenditures for land under development inventories totaled $47.0 million and
were primarily for land development and infrastructure to support future and
pending land sales and home construction advances for the Company's joint
venture homebuilding program.
Investing Activities
Expenditures for development of income-producing properties totaled $50.8
million for the 1997 nine-month period. Properties under construction include
Valencia Marketplace, a 720,000-square-foot power center; the 250-room Hyatt
Valencia Hotel and 20,000-square-foot conference center; a six-story office
building where Princess Cruises will occupy the top five floors under a
long-term lease; and three industrial buildings. Land development is expected to
start in the fourth quarter on a two-story, 26,000-square-foot office/retail
building and a 100,000-square-foot entertainment complex with an IMAX 3D
Theater, 12 additional movie screens, restaurants and retail shops. The above
projects will be completed in 1998.
Projects completed to date in 1997 include SkyCrest, a 264-unit apartment
complex; NorthPark Village Square, a neighborhood shopping center where a
21,000-square-foot expansion is planned; a 57,000-square-foot Spectrum Health
Club; three industrial buildings; and Plaza del Rancho, a mixed-use project in
Valencia Industrial Center where 82% of the leasable space is occupied or
committed. Other purchases of properties and equipment are primarily for various
tenant improvements and water utility construction costs.
Financing Activities
Three quarterly distributions of $.10 per unit each and a special distribution
of $.08 per unit, totaling $13.1 million, have been paid year-to-date. 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 19, 1997.
Borrowings against lines of credit totaled $35 million at September 30, 1997, a
decrease of $14.5 million since December 31, 1996. A total of 328,637 units have
been purchased for $5.7 million to date during 1997 under the Company's unit
repurchase program.
New Accounting Pronouncement
The Company anticipates that the adoption of SFAS No. 128 - Earnings Per Share
for the year ending December 31, 1997, will not result in disclosures that are
materially different than those currently required by generally
11
<PAGE> 12
PART I. FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
accepted accounting principles contained in this quarterly report. This new
statement simplifies the standards for computing earnings per share (unit) and
makes them comparable to international standards.
RISKS AND RELATED FACTORS
This report and other published documents contain forward-looking statements
regarding the status of proposed or pending sales and rental activity, future
planned development, future results of operations and financial condition, the
long-term growth of the Southern California economy and other matters. These
forward-looking statements are based on present trends the Company is
experiencing in residential, industrial and commercial markets. However, the
timing and ability to obtain entitlements, governmental and environmental
regulations, timing of escrow closings, expansion of its income portfolio and
marketplace acceptance of its business strategies could adversely affect the
Company's future results. The following risks and related factors, among others,
should be taken into consideration in evaluating the prospects for the Company.
Actual results may materially differ from those projected.
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 significantly impacted by
general and local economic conditions which are 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 present trends will
continue.
Interest Rates and Financing: 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 inability 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.
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 which is 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 20,000
acres in Los Angeles County, 30 miles north of Los Angeles. The Company's entire
commercial income portfolio is located in the Valencia area. Therefore, any
factors affecting that concentrated area, such as changes in the housing market
or environmental factors which cannot be predicted with certainty, could affect
future results.
Government 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, density and traffic, the providing of
utility services such as electricity, water and waste disposal and the providing
of public facilities such as schools, parks and libraries. 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 government 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
12
<PAGE> 13
PART I. FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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. The Company's results of operations in any period will be affected
by the amount of entitled properties the Company has in inventory.
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 third quarter ended
September 30, 1997:
None
13
<PAGE> 14
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
Date: November 10, 1997 By /s/ THOMAS L. LEE
--------------------------------------------
Thomas L. Lee, Chairman and Chief Executive
Officer of Newhall Management Corporation
(Principal Executive Officer)
Date: November 10, 1997 By /s/ STUART R. MORK
--------------------------------------------
Stuart R. Mork, Senior Vice President and
Chief Financial Officer of Newhall
Management Corporation (Principal
Financial Officer)
Date: November 10, 1997 By /s/ DONALD L. KIMBALL
--------------------------------------------
Donald L. Kimball, Vice President - Finance
and Controller of Newhall Management
Corporation (Principal Accounting Officer)
14
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