<PAGE>
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, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-7585
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)
(661) 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>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income
(in thousands except per unit)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------------ -------------------------------
1999 1998 1999 1998
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
REVENUES
Real estate
Residential home and land sales $20,254 $35,482 $24,554 $44,116
Industrial and commercial sales 26,679 100,249 46,665 102,922
Commercial operations
Income-producing properties 11,714 9,798 23,021 19,476
Valencia Water Company 2,699 2,210 4,937 3,935
------------- ------------- ------------- --------------
61,346 147,739 99,177 170,449
------------- ------------- ------------- --------------
Agriculture
Operations 1,692 1,560 2,177 2,289
Ranch sales - - 3,957 323
------------- ------------- ------------- --------------
1,692 1,560 6,134 2,612
------------- ------------- ------------- --------------
Total revenues $63,038 $149,299 $105,311 $173,061
============= ============= ============= ==============
CONTRIBUTION TO INCOME
Real estate
Residential home and land sales $3,779 $17,665 $3,572 $18,745
Industrial and commercial sales 13,410 31,032 21,817 30,473
Community development (3,819) (2,577) (5,840) (4,231)
Commercial operations
Income-producing properties 4,203 5,135 7,951 10,561
Valencia Water Company 676 413 1,077 731
------------- ------------- ------------- --------------
18,249 51,668 28,577 56,279
------------- ------------- ------------- --------------
Agriculture
Operations 411 186 591 855
Ranch sales - - 2,847 323
------------- ------------- ------------- --------------
411 186 3,438 1,178
------------- ------------- ------------- --------------
Operating income 18,660 51,854 32,015 57,457
General and administrative expense (3,404) (3,684) (6,056) (6,403)
Expense from unit ownership plans - - - (400)
Interest and other, net (2,533) (2,429) (4,953) (4,656)
------------- ------------- ------------- --------------
Net income $12,723 $45,741 $21,006 $45,998
============= ============= ============= ==============
Net income per unit $0.40 $1.32 $0.66 $1.33
============= ============= ============= ==============
Net income per unit - diluted $0.40 $1.31 $0.65 $1.31
============= ============= ============= ==============
Number of units used in computing per unit amounts:
Net income per unit 31,688 34,546 32,066 34,540
Net income per unit - diluted 31,998 35,005 32,369 34,995
Cash distributions per unit:
Regular $0.10 $0.10 $0.20 $0.20
Special 0.22
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------ -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $2,350 $2,188
Accounts and notes receivable 67,629 30,255
Land under development 57,240 47,667
Land held for future development 30,170 30,553
Income-producing properties, net 270,693 248,712
Property and equipment, net 60,708 58,836
Other assets and deferred charges 16,671 13,996
------------------ -----------------
$505,461 $432,207
================== =================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $30,651 $28,716
Accrued expenses 42,736 43,196
Deferred revenues 27,419 10,041
Mortgage and other debt 236,587 157,609
Advances and contributions from developers for
utility construction 24,402 26,466
Other liabilities 22,884 22,366
------------------ -----------------
Total liabilities 384,679 288,394
Partners' capital
31,456 units outstanding, excluding 5,317 units in
treasury (cost-$113,020), at June 30, 1999 and
32,676 units outstanding, excluding 4,096 units in
treasury (cost-$83,530), at December 31, 1998 120,782 143,813
------------------ -----------------
$505,461 $432,207
================== =================
</TABLE>
3
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Cash Flow
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30
------------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,006 $ 45,998
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,878 4,758
Increase in land under development (47,614) (28,333)
Cost of sales and other inventory changes 38,041 28,512
(Increase) decrease in accounts and notes receivable (37,374) 3,752
Increase in accounts payable, accrued expenses
and deferred revenues 18,853 29,950
Cost of property sold 5,045 60,299
Other adjustments, net 40 494
------------------ ------------------
Net cash provided by operating activities 4,875 145,430
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Development of income-producing properties (32,681) (44,796)
Purchase of property and equipment (4,919) (3,850)
Distribution from (investment in) joint venture 10 (126)
------------------ ------------------
Net cash used in investing activities (37,590) (48,772)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid (13,677) (11,053)
Increase (decrease) in mortgage and other debt 78,978 (51,891)
(Decrease) increase in advances and contributions from
developers for utility construction (2,064) 2,295
Purchase of partnership units (30,323)
Other, net (37) 542
------------------ ------------------
Net cash provided by (used in) financing activities 32,877 (60,107)
------------------ ------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 162 36,551
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,188 2,770
------------------ ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,350 $ 39,321
================== ==================
</TABLE>
4
<PAGE>
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 balances and
transactions are eliminated.
The Company's unaudited interim financial statements have been prepared 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, 1999 and 1998 have
been made. 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 30 through 38 of the December 31, 1998 Annual Report to
Partners and particularly to Note 2 therein which includes a summary of
significant accounting policies. Certain reclassifications have been made to
prior periods' amounts to conform to the current period presentation.
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 farmland occur irregularly and are recognized
upon close of escrow provided profit recognition criteria are met.
- -------------------------------------------------------------------------------
NOTE 2. DETAILS OF LAND UNDER DEVELOPMENT
<TABLE>
<CAPTION>
June 30, December 31,
(In $000) 1999 1998
- ----------------------------------------------------------------------------------------
Valencia (Unaudited)
<S> <C> <C>
Residential land development $ 5,720 $ 1,166
Industrial and commercial land development 40,956 32,686
Homes completed or under construction
with venture partners 8,478 13,525
Agriculture 2,086 290
---------- ---------
Total land under development $ 57,240 $47,667
=========================================================================================
NOTE 3. DETAILS FOR EARNINGS PER UNIT CALCULATION
(UNAUDITED) Income Units Per Unit
(in 000's except per unit) (numerator) (denominator)
- -----------------------------------------------------------------------------------------
For three months ended June 30, 1999
Net income per unit
Net income available to unitholders $12,723 31,688 $0.40
Effect of dilutive securities
Unit options - 310 -
- -----------------------------------------------------------------------------------------
Net income per unit - diluted $12,723 31,998 $0.40
====================================
5
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Note 3 (continued)
Income Units Per Unit
(in 000's except per unit) (numerator) (denominator)
- ----------------------------------------------------------------------------------------
For three months ended June 30, 1998
Net income per unit
Net income available to unitholders $45,741 34,546 $1.32
Effect of dilutive securities
Unit options - 459 (.01)
- -----------------------------------------------------------------------------------------
Net income per unit - diluted $45,741 35,005 $1.31
=====================================
For six months ended June 30, 1999
Net income per unit
Net income available to unitholders $21,006 32,066 $0.66
Effect of dilutive securities
Unit options - 303 (.01)
- -----------------------------------------------------------------------------------------
Net income per unit - diluted $21,006 32,369 $0.65
=====================================
For six months ended June 30, 1998
Net income per unit
Net income available to unitholders $45,998 34,540 $1.33
Effect of dilutive securities
Unit options - 455 (.02)
- -----------------------------------------------------------------------------------------
Net income per unit - diluted $45,998 34,995 $1.31
=====================================
- ----------------------------------------------------------------------------------------
NOTE 4. DETAILS OF INCOME-PRODUCING PROPERTIES AND PROPERTY AND EQUIPMENT
- -------------------------------------------------------------------------
June 30, December 31,
(In $000s) 1999 1998
- -----------------------------------------------------------------------------------------
Income-producing properties (Unaudited)
Land $ 50,509 $ 48,319
Buildings 154,775 119,453
Other 14,966 14,611
Properties under development 91,799 105,772
- -----------------------------------------------------------------------------------------
312,049 288,155
Accumulated depreciation (41,356) (39,443)
- -----------------------------------------------------------------------------------------
$270,693 $248,712
=====================================
Property and equipment
Land $ 3,664 $ 4,819
Buildings 5,469 5,600
Equipment 9,842 8,993
Water supply systems, orchards and other 73,505 68,688
Construction in progress 5,102 7,172
- -----------------------------------------------------------------------------------------
97,582 95,272
Accumulated depreciation (36,874) (36,436)
- -----------------------------------------------------------------------------------------
$60,708 $58,836
=====================================
</TABLE>
6
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 5. BUSINESS SEGMENT REPORTING (UNAUDITED)
The following table provides financial information regarding revenues from
external customers, income and total assets for the Company's business
segments and also provides a reconciliation to the Company's consolidated
totals:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
------------------------------
Contribution
(In $000s) Revenues to Income Assets
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Real Estate
Residential $ 24,554 $ 3,704 $ 17,023
Industrial and commercial 46,665 21,971 106,432
Community development - (5,719) 18,537
Income-producing properties 23,021 7,984 276,354
Valencia Water Company 4,937 1,132 58,030
Agriculture 6,134 3,482 19,563
Central administration - (5,495) 9,522
------------ -------- ----------
105,311 27,059 505,461
Interest and other, net - (4,953) -
All other - (1,100) -
------------ ----------- --------------
$105,311 $21,006 $505,461
===============================================
SIX MONTHS ENDED JUNE 30, 1998
------------------------------
Contribution
(In $000s) Revenues to Income Assets
- ----------------------------------------------------------------------------------
Real Estate
Residential $ 44,116 $ 18,955 $ 24,825
Industrial and commercial 102,922 30,788 47,980
Community development - (3,874) 17,194
Income-producing properties 19,476 10,624 212,449
Valencia Water Company 3,935 836 54,325
Agriculture 2,612 1,283 20,518
Central administration - (5,458) 42,854
-------------- --------- ----------
173,061 53,154 420,145
Interest and other, net - (4,656) -
All other - (2,500) -
-------------- ----------- --------------
$173,061 $ 45,998 $420,145
=================================================
- ----------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
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 of 1999 to Second Quarter
and Six Months of 1998
- -------------------------------------------------------------------------------
UNAUDITED
The amounts of increase or decrease in revenues and income from the prior
year second quarter and six months are as follows (in 000s except per unit):
<TABLE>
<CAPTION>
Second Quarter Six Months
------------------------------- ----------------------------------
Increase (Decrease) Increase (Decrease)
------------------------------- ----------------------------------
Amount % Amount %
--------------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Real Estate
Residential home and land sales $ (15,228) -43% $ (19,562) -44%
Industrial and commercial sales (73,570) -73% (56,257) -55%
Commercial operations
Income-producing properties 1,916 20% 3,545 18%
Valencia Water Company 489 22% 1,002 25%
------------------------------- ------------------------------
(86,393) -58% (71,272) -42%
Agriculture
Operations 132 8% (112) -5%
Ranch sales - - 3,634 1125%
--------------- ----------- -------------- -------------
Total revenues $ (86,261) -58% $ (67,750) -39%
=============== =========== ============== =============
CONTRIBUTION TO INCOME
Real Estate
Residential home and land sales $ (13,886) -79% $ (15,173) -81%
Industrial and commercial sales (17,622) -57% (8,656) -28%
Community development (1,242) -48% (1,609) -38%
Commercial operations
Income-producing properties (932) -18% (2,610) -25%
Valencia Water Company 263 64% 346 47%
------------------------------- ------------------------------
(33,419) -65% (27,702) -49%
Agriculture
Operations 225 121% (264) -31%
Ranch sales - - 2,524 781%
--------------- ----------- -------------- -------------
Operating income (33,194) -64% (25,442) -44%
General and administrative expense 280 8% 347 5%
Expense from unit ownership plans - 400 100%
-
Interest and other, net (104) -4% (297) -6%
--------------- ----------- -------------- -------------
Net income $ (33,018) -72% $ (24,992) -54%
=============== =========== ============== =============
Net income per unit $ (0.92) -70% $ (0.67) -50%
=============== =========== ============== =============
Net income per unit - diluted $ (0.91) -69% $ (0.66) -50%
=============== =========== ============== =============
Number of units used in computing per unit amounts:
Net income per unit (2,858) -8% (2,474) -7%
=============== =========== ============== =============
Net income per unit - diluted (3,007) -9% (2,626) -8%
=============== =========== ============== =============
</TABLE>
8
<PAGE>
PART 1. 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:
For the 1999 second quarter, revenues totaled $63.0 million and net income
totaled $12.7 million compared to revenues for the 1998 second quarter of
$149.3 million and income of $45.7 million. For the six months ended June 30,
1999, revenues totaled $105.3 million and income totaled $21.0 million. This
compares to revenues of $173.1 million and income of $46.0 million for the
six months ended June 30, 1998. Results for the second quarter and six months
of 1998 included the sale of Valencia Marketplace, a retail power center,
which contributed $85.3 million to revenues and $30.4 million to income under
percentage of completion accounting.
The major contributors to the 1999 second quarter results are escrow closings
on 40.8 acres of industrial and commercial land as well as 193 residential
lots. The escrow closing on a 32.8-acre apartment site was the most
significant, adding $18.7 million to revenues and $10.9 million to income
under percentage of completion accounting. Results for the six months ended
June 30, 1999 also include sale of the Company's remaining 85 acres in
northern California and the last three parcels totaling 3,077 acres at the
Merced Ranch. These two transactions combined added $13.9 million to revenues
and $11.1 million to income.
RESIDENTIAL HOME AND LAND SALES
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, on a limited basis, in home construction on
lots it owns by establishing joint ventures with builders who have created
innovative home designs, targeting niche markets not met by merchant builders.
Through the joint venture program, the Company recognizes its portion of
revenues and income upon close of escrow to the homebuyer.
Demand for homes continues to increase throughout Los Angeles County,
particularly in Valencia, where employment is rising with more companies
relocating to the master-planned community. Current supply constraints in
Valencia's new home inventory continue to hamper sales as four residential
housing projects sold out during the first half of 1999. During the second
quarter of 1999, merchant builders and the Company's joint ventures sold 87
homes, compared with 160 homes sold in the year earlier quarter. This brings
the total of homes sold during the first six months of 1999 to 209 compared
with 330 for the year earlier first half, primarily due to supply
constraints.
The inventory of new homes is expected to increase starting in the third
quarter of 1999 when Kaufman & Broad Home Corporation is scheduled to open
the first of three model complexes on 445 residential lots purchased last
year from the Company in the Hasley Hills area just outside the
master-planned community of Valencia. Shea Homes, which purchased 458
unimproved lots in the Decoro Highlands section of Valencia last year, will
start selling homes in the fourth quarter of 1999.
MERCHANT BUILDER PROGRAM
Results for the 1999 second quarter and six months include the sale of 193
residential lots adding $8.9 million to revenues and $3.6 million to income
under percentage of completion accounting. These lots were the first sold in
Bridgeport, the Company's new lake-oriented lifestyle village. At June 30,
1999, one builder was in escrow for 85 lots and three more builders have
deposits on 232 lots in Bridgeport, with closings scheduled for the third and
fourth quarters of 1999. The Company is in serious negotiations on the
remaining lots in Bridgeport which, when fully developed, will offer a wide
range of housing and many amenities including a private beach club and park.
The Company expects to realize the highest values ever received for
residential land in this project. In addition, Kaufman & Broad has a deposit
on an additional 294 lots adjacent to its current development in Hasley
Hills, with closing scheduled later this year. These five residential parcels
in escrow or being held under deposit are expected to contribute
approximately $60 million to 1999 revenues. All escrow closings are subject
to market and other conditions.
In the 1998 second quarter, a total of 903 entitled, unimproved residential
lots closed escrow for $32 million contributing $18.6 million to income.
Included in the 1998 six-month results is the sale of 37 improved residential
lots adding $2.6 million to revenues and $749,000 to income. At June 30,
1998, 168 improved lots for higher density housing were in escrow for $6.2
million.
9
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
JOINT VENTURE PROGRAM
In the three months ended June 30, 1999, a total of 50 homes closed escrow by
the Company's two joint ventures contributing $11.4 million to revenues and
$1.3 million to income. The 1999 six-month period includes a total of 76 home
closings which combined added $15.7 million to revenues and $1.6 million to
income. At June 30, 1999, 62 homes remained in the Cheyenne townhome project
of which 16 were in escrow and 46 had been reserved. In the Avignon luxury
townhome project, 31 homes remained of which 22 were in escrow and 2 had been
reserved. To increase absorption in a strong market, the Company is
concentrating its efforts on lot sales to merchant builders and no new joint
ventures are planned for 1999.
A total of 15 joint-venture homes closed escrow during the 1998 second
quarter contributing $3.1 million to revenues and $333,000 to income. The
1998 six-month period included 33 home closings adding $7.2 million to
revenues and $684,000 to income. At June 30, 1998, there were 39
joint-venture homes in escrow.
INDUSTRIAL AND COMMERCIAL SALES
In the second quarter of 1999, escrow closed on three industrial parcels
totaling 5.3 acres, contributing $2.9 million to revenues and $1.0 million to
income. These sales bring industrial escrow closings for the first six months
of 1999 to a total of 20.4 acres which combined contributed $9.9 million to
revenues and $2.0 million to income. The six-month period ended June 30, 1999
also includes the sale of the Company's last remaining large parcel at the
Cowell Ranch in northern California which added $10.0 million to revenues and
$8.2 million to income.
Industrial escrow closings in the 1998 second quarter totaled 4.8 acres which
contributed $2.2 million to revenues and $500,000 to income and two
industrial buildings on 10.0 acres, constructed as part of the Company's
build-to-suit/lease program, adding $10.6 million to revenues and $786,000 to
income. The 1998 first half also included two industrial parcels totaling 3.9
acres and an industrial build-to-suit on .5 acres which combined contributed
$2.7 million to revenues and $605,000 to income.
Three commercial escrow closings in the 1999 second quarter totaling 35.6
acres contributed $22.6 million to revenues and $13.3 million to income. The
largest was a 32.8-acre site planned for 828 apartments which added $18.7
million to revenues and $10.9 million to income under percentage of
completion accounting. The Company expects to recognize additional revenues
of approximately $13.6 million and income of approximately $7.9 million as
land development and landscaping work is completed over the next six to nine
months. In the first six months of 1999, the Company recognized $3.4 million
in revenues from the prior year sale of Valencia Marketplace, a
720,000-square-foot high-volume retail center. However, due to revised costs
to complete the construction and leasing of the center, no income was
recognized in the 1999 first half and the Company does not expect to
recognize any additional income from the sale of this property as remaining
revenues are recognized.
The second quarter of 1998 included the sale of Valencia Marketplace for $111
million and the Company recognized $85.3 million in revenues and $30.4
million in income under percentage of completion accounting. Additional
revenues of $12.5 million and income of $5.0 million were recognized in the
third and fourth quarters of 1998. The 1998 second quarter also included the
sale of three small commercial parcels totaling 4.6 acres for $1.5 million
adding $433,000 to income.
At June 30, 1999, four industrial parcels, totaling 47.5 acres, were in
escrow or were being held under deposit for $30.6 million, including a
101,000-square-foot build-to-suit on 5.2 acres. In addition, a
170,000-square-foot build-to-suit is scheduled to close escrow upon
completion on an 8.5-acre parcel which closed escrow in the 1999 first
quarter. Also in escrow or being held under deposit at June 30, 1999 were
three commercial parcels, totaling 7.0 acres for $3.6 million with closings
scheduled during the remainder of 1999. Subsequent to the end of the 1999
second quarter, a deposit on 30.9 industrial acres for $16.5 million was
withdrawn. The Company is in negotiation for the sale of other industrial
parcels to the same prospective buyer. All escrow closings are subject to
market and other conditions.
At June 30, 1998, seven industrial parcels totaling 90.8 acres were in escrow
for $46.4 million and 14.3 commercial acres were in escrow for $4.8 million.
Included in the June 30, 1998 commercial escrows was a 12.6-acre, restricted
use site for a senior apartment complex with low land values.
COMMUNITY DEVELOPMENT
The Company's community development activities are focused on securing the
necessary entitlements as well as an intensified strategic marketing program
to support the buildout of Valencia by 2005 and begin the development
10
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
of Newhall Ranch, a new town on the Company's 12,000 acres west of Valencia.
The Company's ability to achieve its goals and increase the pace of
development is contingent upon obtaining the necessary entitlements from the
County of Los Angeles and the City of Santa Clarita.
During the 1999 first quarter, the Company received final approval from the
Los Angeles County Board of Supervisors for its 21,600-home Newhall Ranch. Of
the five villages planned, development is expected to begin with Riverwood,
an area located along Highway 126. The Company will begin processing
subdivision maps and applications for permits, which need approval before
development can begin. Initial development is expected to start in 2002.
As a result of Newhall Ranch's approval, four separate petitions were filed
against the County of Los Angeles and the Los Angeles County Board of
Supervisors, and name the Company as a real party in interest. The four
actions were petitions for writs of mandate and were filed in the Ventura
County (California) Superior Court. The petitions were filed by: 1) Ventura
County (California), Ventura County Flood Control District, Ventura County
Air Pollution Control District and certain municipalities located within the
County of Ventura (petition filed on April 21, 1999); 2) United Water
Conservation District (petition filed on April 21, 1999); 3) Sierra Club,
Friends of the Santa Clara River and Santa Clarita Organization for Planning
the Environment (petition filed on April 22, 1999); and 4) Maria Vega, et al.
(petition filed on April 22, 1999). In general, the petitions allege
violation of the California Subdivision Map Act for illegally subdividing
parcels that cross the county border; violations of the California
Environmental Quality Act; inconsistency between the Los Angeles County
General Plan and Specific Plan; and violation of the housing element of the
County General Plan as it relates to affordability and discrimination. A
Ventura County Superior Court judge ruled in favor of Los Angeles County's
request that the lawsuit be transferred out of Ventura County and designated
the neutral venue of Kern County.
In May, the Los Angeles County Board of Supervisors gave final approval to
the Company's 1,711-home Valencia Westridge Golf Course Community. A focal
point of the Valencia project is a Tournament Players Club (TPC) championship
golf course, a joint venture with PGA TOUR Golf Course Properties. Subsequent
to the approval, a petition for writ of mandate was filed on June 24, 1999 in
the Los Angeles County Superior Court. The petition was filed by the Santa
Clarita Organization for Planning the Environment and the Angeles Chapter of
the Sierra Club against the County of Los Angeles, the Los Angeles County
Board of Supervisors and Valencia Water Company, and names the Company as a
real party in interest. In general, the petition alleges violations of the
Los Angeles County General Plan, the California Water Code, the County
Development Monitoring System and the California Environmental Quality Act.
The petition also alleges Valencia Water Company, a subsidiary of the
Company, failed to comply with state law and the County Development
Monitoring System.
The Company prepared the Environmental Impact Reports on both projects in a
thorough manner and is confident that they can withstand legal challenges.
The Company is in the process of entitling all its remaining residential lots
in Valencia. This fall, the Company expects to entitle 1,900 lots through
annexation by the City Santa Clarita, making them available for sale next
year. An additional 2,545 lots are expected to complete the entitlement
process with Los Angeles County early next year.
The Company has intensified its focus on developing communities in other
geographic areas in the western states. Currently the Company is working with
the city of Broomfield, Colorado to develop a plan that could result in
approximately 3,000 homes on 1,700 acres. Broomfield is a growing suburb
between Denver and Boulder. The Company is also looking at development
opportunities in other locations.
Community development expenses increased by 48% and 38% from the 1998 second
quarter and six-month period, respectively, primarily due to entitlement
expenses for Newhall Ranch and certain initial costs relating to commercial
properties under development. With the continued focus on obtaining
entitlements and strategic marketing as well as litigation costs relating to
Newhall Ranch and Westridge, expenses for the year are expected to continue
at or possibly exceed this increased level over 1998.
For the 1998 three and six-month periods, entitlement expenses decreased by
10% and 15%, respectively, from the prior year periods due to final approvals
received in 1997 for several projects in Valencia.
11
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
INCOME-PRODUCING PROPERTIES
The Company's commercial portfolio is a relatively stable source of earnings
and cash flow that also provides debt capacity to grow the Company and
working capital for continuing operations. Revenues from the portfolio
increased 20% and 18% for the second quarter and six-month periods of 1999,
respectively, compared with year earlier results, as new properties in the
income portfolio more than compensated for the strategic sale of Valencia
Marketplace in June 1998. However, income decreased by 18% for the
three-month period and by 25% for the six-month period due to increased
depreciation associated with new properties and expenses in connection with
the Hyatt Valencia Hotel. While new properties continue to be added to the
portfolio, the Company expects 1999 earnings from the income portfolio to be
about 20% lower than in 1998.
Excellent retail and apartment occupancy rates and favorable rents
contributed to the portfolio's results. Retail space along Town Center Drive,
a pedestrian-oriented "Main Street", including Town Center Plaza adjacent to
the Hyatt Valencia Hotel is more than 58% leased. The entertainment complex
has opened and includes an IMAX 3-D Theatre, 11 additional movie screens, a
Borders bookstore and three restaurants. A small food court will open in the
complex in the third quarter.
In June 1999, Princess Cruises signed 15-year leases on two additional
buildings to be constructed in Valencia Town Center to consolidate all its
headquarter operations in Valencia. Construction will start on these
buildings - a 125,000-square-foot five story and an 83,000-square-foot four
story - prior to the end of 1999 with occupancy slated for early 2001.
Princess Cruises will occupy all but the ground floors in both buildings,
which will be leased for retail and office use. The total amount of office
space currently and prospectively occupied by Princess Cruises is the largest
office lease in Valencia's history. With the move, Princess Cruises will
bring another 750 employees to Valencia.
The Company's shopping centers are all performing well with occupancy rates
averaging close to 100%. Valencia Town Center regional mall is 99% leased
including short-term tenants. Occupancy at NorthPark Village Square is at 93%
with 4,400 square feet of newly added space remaining to be leased. River
Oaks shopping center is 100% leased, Castaic Shopping Center is 99% leased
and Plaza del Rancho, the mixed-use project in Valencia Industrial Center
which opened last year, is 100% leased. Construction of the next neighborhood
shopping center is planned for the South River area next year, subject to
achieving pre-leasing requirements.
Occupancy rates at the Company's three apartment complexes averaged over 92%
for the second quarter. As Princess Cruises and other large employers
relocate to Valencia, demand for apartments, as well as single-family homes,
is expected to increase substantially. Models opened in June at Montecito, a
210-unit, high-end apartment complex which includes 12 townhomes, overlooking
Valencia Country Club in Valencia Town Center. As of June 30th, approximately
50 units have been pre-leased, seven of which are for the 1,422-square-foot
townhomes at the highest rental rates achieved in Valencia. Construction on a
second apartment complex in Valencia NorthPark with 320 units is scheduled to
start before the end of 1999. These units will be larger in size, appealing
to families. Additional apartment complexes are planned for the future to
meet anticipated demand.
As the number of commercial income properties built increases, sales of
mature income properties may be made on a selective basis, allowing the
Company to benefit from strong capitalization rates and to maximize the
return on its investment as a whole.
VALENCIA WATER COMPANY
Valencia Water Company is a regulated public utility and a wholly-owned
subsidiary of the Company serving over 20,000 metered customers in the
Valencia area. Continued customer growth and drier weather contributed to
increases in revenues of 22% and income of 64% from the year earlier quarter
and increases in revenues of 25% and income of 47% from the prior year six
month-period.
AGRICULTURAL OPERATIONS
For the 1999 second quarter and first six months, agriculture revenues,
including the Company's energy operations, were about the same level as last
year. Income for the second quarter of 1999 increased, primarily due to
excellent prices received for Valencia oranges, and expenses in 1998 in
connection with heavy rains. For the first six months of 1999, income
declined from the year earlier levels partly due to lower oil and gas prices
and additional income recorded in the prior year for crop price adjustments.
12
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RANCH SALES
No sales of farm land were completed during the 1999 second quarter. The
six-month period includes the sale of the Company's three remaining parcels
at the Merced Ranch for $4.0 million contributing $2.8 million to income. The
sale is part of a strategic plan to sell land not suitable for development.
As part of that plan, the remaining 36,000 acres at the Suey Ranch in Santa
Barbara and San Luis Obispo counties are being marketed.
No sales of farm land were completed during the 1998 second quarter or
six-month period. Revenues and income of $323,000 were recognized in the 1998
first quarter from the 1996 sale of 539 acres of row crop land at the Suey
Ranch.
GENERAL AND ADMINISTRATIVE EXPENSE
Decreases of 8% for the second quarter and 5% for the six-month period are
primarily due to expenses in the prior year periods in connection with the
Company's replacement of its computerized accounting system, consulting
services associated with an improving real estate market and accrued
incentive compensation based on the Company's higher earnings. The decreases
were partially offset in the current year periods due to expenses relating to
the Company's intensified focus on development opportunities in other
geographic areas in the western states.
EXPENSE FROM UNIT OWNERSHIP PLANS
In the 1998 six-month period, an expense of $400,000 was recorded for
increases in the market price of partnership units in connection with
appreciation rights on outstanding, non-qualified options granted prior to
1992. No expense was recorded in the 1999 three- or six-month periods.
INTEREST AND OTHER
Increased debt outstanding against lines of credit in the current year,
partially offset by higher interest income from notes receivables from land
sales, contributed to increases of 4% for the three-month period and 6% for
the six-month period in net interest expense compared to the prior year
periods. For the year, higher debt levels due to the continuing planned
expansion of the Company's income portfolio and unit repurchases are expected
to increase net interest expense compared to 1998.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company had cash and cash equivalents of $2.4 million and
$26.3 million in available lines of credit to fund operations, net of $26.7
million in letters of credit. Borrowings outstanding totaled $109 million
against unsecured lines of credit and $40 million against a revolving mortgage
loan. The Company believes it has adequate sources of cash from operations and
debt capacity, including lines of credit, to finance future operations and take
advantage of new development opportunities. At June 30, 1999, there was no debt
against raw land or land under development inventories.
On March 1, 1999, the Company completed the refinancing of a portfolio
mortgage with a remaining principal balance of $44.6 million. This portfolio
mortgage with Prudential had a rate 8.995% and was secured by five of the
Company's commercial properties. The new financings total $50 million and are
secured by three of the Company's apartment complexes. The loans were
obtained from Freddie Mac at a 6.51% weighted average interest rate and
mature in ten years. Annual interest savings on the refunded portion alone
are $1.1 million. Net of the refunding payment and transaction costs,
proceeds of $4.4 million were used to pay down lines of credit.
In 1999, the Company expects to complete approximately $175 million to $200
million in financings, including the refinancing of a portfolio mortgage
completed in the first quarter and a $40 million revolving mortgage loan
secured by Valencia Town Center which is expected to be refinanced in the
fourth quarter. Also in the 1999 second half, the Company anticipates
completing new financings consisting of $25 million in mortgage loans secured
by River Oaks and NorthPark Village Square shopping centers and $60 million
to $80 million in other secured and unsecured financings. Net proceeds will
be used to reduce bank line borrowings, finance the income portfolio
expansion, develop new inventory and continue the unit repurchase program.
There are no material commitments for capital expenditures other than the
Company's plans in the ordinary course of business to develop its portfolio
of income-producing properties. In 1999, the Company expects to
13
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
invest approximately $50 million in new income-producing
properties. This follows the $100 million invested in 1998. In addition,
approximately $30 million is expected to be invested in major roads and freeway
improvements in 1999 to enable the Company to close additional land sales.
In May, the Company's Board of Directors approved an increase in the current
repurchase program to two million units, representing an additional one
million units to the previous units approved in January 1999. During the
first six months of 1999, the Company repurchased 1,257,626 of its
partnership units, including 271,772 units from the repurchase program
authorized in 1998, at an average price of $24.11 per unit. This represents
3.8% of the total units outstanding at the end of 1998. At June 30, 1999,
1,014,146 remained to be repurchased under the current authorization. The
repurchases are being made because management and the Board continue to
believe that the units are undervalued and that the current market price does
not reflect the Company's underlying value, performance and future outlook.
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 months ended June 30,
1999 totaled $4.9 million and included sales of 40.8 acres of industrial and
commercial land, 193 residential lots, 76 joint-venture homes, and the
Company's remaining acreage at the Merced Ranch and Cowell Ranch in central
and northern California. These sales combined generated $46.1 million in cash
and $37.6 million in notes.
Expenditures for land under development inventories and home construction
totaled $47.6 million for the six-month period and were offset by $38.0
million in cost of sales relief. Expenditures for Valencia area land
preparation, infrastructure and home construction totaled $44.1 million with
the remainder primarily for agricultural crop costs.
INVESTING ACTIVITIES
Expenditures for development of income-producing properties totaled $32.7
million for the 1999 first half. Major expenditures included $8.0 million for
Montecito apartments and $13.1 million for retail/office/entertainment
projects in Valencia Town Center. Purchase of property and equipment was
primarily for water utility construction.
FINANCING ACTIVITIES
Distributions totaling $13.7 million have been paid year-to-date consisting
of two quarterly distributions of $.10 per unit each and a $.22 per unit
special distribution. An additional $.10 per unit distribution was declared
on July 21, 1999 payable September 13, 1999. The declaration of distributions
is reviewed by the Board of Directors on a quarterly basis. The declaration
of any distribution, and the amount declared, is determined by the Board of
Directors talking into account the Company's earnings, financial condition
and prospects.
As previously discussed, in March 1999, a $44.6 million portfolio mortgage
financing was replaced with three financings totaling $50 million secured by
three of the Company's apartment complexes. Borrowings against lines of
credit increased by $85.8 million to $149 million at June 30, 1999.
A total of 1,257,626 units was repurchased in the first six months of 1999
for $30.3 million. The Company's goal is to repurchase at least two million
units in 1999, depending upon market conditions.
YEAR 2000 ISSUE
The Year 2000 issue concerns the possibility that computer programs with
date-sensitive software may recognize a date using "00" as the year 1900,
rather than as the year 2000, because the programs were written using two
digits rather than four to define the applicable year. This could result in a
system failure or miscalculations causing disruptions of operations such as,
among others, a temporary inability to process transactions or engage in
normal business activities.
READINESS: The Company's Year 2000 remediation efforts are progressing
appropriately. At the end of 1997, a Year 2000 Task Force was formed to
coordinate Company-wide efforts to be Year 2000 compliant. To date, the
Company has inventoried its internal systems as well as identified systems
and applications outside of the Company that may include imbedded computer
technology that could be impacted by the Year 2000 Issue.
As a result of the Company's comprehensive review of its internal systems in
1997, and for other strategic reasons, the Company has replaced its
computerized accounting system. The Company successfully converted to the new
accounting system on January 1, 1999, and the payroll and human resources
subsystem on July 1, 1999.
14
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Company has completed the modification and testing of its internally
developed systems for Year 2000 compliance and compatibility with the new
accounting system. The Company is currently in the process of testing
software provided by third parties for Year 2000 compliance, all of which
have been previously confirmed by the respective vendors to be Year 2000
compliant. Completion of these tests is planned for the third quarter of
1999.
COSTS: The Company estimates the total cost of its compliance efforts in
connection with the Year 2000 Issue will be less than $400,000 and will be
expensed as incurred. As of June 30, 1999, $210,000 had been expensed for this
project, including $114,000 expensed in 1998. The majority of the expenditures
is expected to be for testing existing third party supplied software for Year
2000 compliance. In addition, the cost of the new accounting system was
approximately $1 million and has been capitalized and is being amortized over
its useful life.
The cost of the Year 2000 Issue and the estimated completion dates are based
on management's best estimates, which were derived utilizing assumptions of
future events, including the continued availability of certain resources,
third-party modification plans and other factors. There can be no guarantee
that these estimates will prove accurate and actual results could differ from
those estimated.
RISKS: The Company believes the worst-case scenario for the Year 2000 Issue
would be for the Company or a significant number of its significant vendors,
consultants, suppliers and governmental agencies (collectively, "business
partners") to fail to successfully complete their respective Year 2000
remediation efforts by December 31, 1999. Under this scenario, the Company's
operations would most likely be disrupted which would result in a material
adverse effect on its business, operating results and financial condition.
CONTINGENCY PLANS: The Company is dependent upon its business partners to
conduct its operations and, as a result, has asked these business partners
about their Year 2000 compliance efforts. As of June 30, 1999, substantially
all of the business partners contacted have stated that they are either
already Year 2000 compliant or will be Year 2000 compliant prior to December
31, 1999. The Company does not plan to independently test or verify its
business partners' Year 2000 efforts. However, the Company has compiled a
list of alternate business partners in case any significant business partners
fail to successfully complete their Year 2000 remediation efforts by December
31, 1999. There can be no assurance that any contingency plans developed by
the Company will prevent any service interruption on the part of one or more
of the Company's business partners or that such service interruption would
not have a material adverse effect upon the Company's business, operating
results or financial condition. A failure of the computer systems of a
significant number of the Company's customers or business partners, or any of
their financial institutions or lenders, would likely have a material adverse
effect on the Company's business, operating results and financial condition.
INFLATION, RISKS AND RELATED FACTORS AFFECTING FORWARD-LOOKING INFORMATION
This report and other published reports by the Company contain
forward-looking statements regarding the status of proposed or pending sales
and rental activity, future planned development, plus the long-term growth
goals of the Company. The forward-looking statements made in this report are
based, in part, on present trends the Company is experiencing in residential,
industrial and commercial markets. The forward-looking statements may also
involve unknown risks, uncertainties and other factors that may cause the
Company's actual results and performance in future periods to be materially
different from any future results or performance suggested by the
forward-looking statements in this report. Such forward-looking statements
speak only as of the date of this report. The Company expressly disclaims any
obligation to update or revise any forward-looking statements found herein to
reflect any changes in Company expectations or results or any change in
events. Also, the Company's success in obtaining entitlements, governmental
and environmental regulations, timing of escrow closings, expansion of its
income portfolio and marketplace acceptance of its business strategies are
among the factors that could affect results. 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 is
generated by its real estate operations. The ability of the Company to
consummate sales of real estate is dependent on 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.
15
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
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, defense 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 improved, 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. The Company
recently has experienced a slight decrease in its new home sale market share
at both the local and the county level, due to the temporary decline in
Valencia new home inventory. New competition is expected to deliver competing
projects in the future that could impact the Company's ability to reverse
this trend.
GEOGRAPHIC CONCENTRATION: The Company's real estate development activities
are focused on its 19,000 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, economic changes and environmental factors,
including seismic activity, 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, and the
providing 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 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 comply with
these requirements. 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. The Company's results of operations in any period will be
affected by the amount of entitled properties the Company has in inventory.
INFLATION: The Company believes it is well positioned against the effects of
inflation. Historically, during periods of inflation, the Company has been
able to increase selling prices of properties to offset rising costs of land
development and construction. Recently, land values have been increasing at a
faster rate than costs. However, there are no assurances that this trend will
continue. A portion of the commercial income portfolio is protected from
inflation since percentage rent clauses and Consumer Price Index increases in
the Company's leases tend to adjust rental receipts for inflation, while the
underlying value of commercial properties has tended to rise over the long
term.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk primarily due to fluctuations in
interest rates. The Company utilizes both fixed rate and variable rate debt.
At June 30, 1999, the Company had $149 million of variable debt with interest
rates ranging from 5.91% to 7.8% and $87.6 million of fixed rate debt with
interest rates ranging from 6.51% to 8.45%.
16
<PAGE>
Part I. Financial Information
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The table below presents principal cash flows and related weighted average
interest rates of the Company's long-term fixed rate and variable rate debt,
by expected maturity dates, as of June 30, 1999:
<TABLE>
<CAPTION>
Expected Maturity Date Fair
-------------------------------------------------------------------
(IN $000S) 1999 2000 2001 2002 2003 Thereafter Total Value
------------------------------------------------------------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage and Other Debt
Fixed Rate Debt (1) $ 1,234 $ 1,481 $ 1,596 $ 1,727 $11,226 $ 70,323 $ 87,587 $ 87,587
Weighted Average Interest Rate 7.27% 7.19% 7.18% 7.17% 8.24% 6.89% 7.08%
Variable Rate Debt (2) $ 40,000 $ 109,000 $149,000 $149,000
Weighted Average Interest Rate 6.63% 6.83% 6.78%
</TABLE>
(1) The carrying amount of the Company's fixed rate debt reflects its fair
value based on current interest rates available to the Company for
comparable debt.
(2) The Company has a $40 million revolving mortgage facility which bears
interest at LIBOR plus 1.0% or Wells Fargo Bank's prime rate, at the
election of the Company. The Company also has a $159 million unsecured
revolving line of credit on which the rate is LIBOR plus 1.2%. At June 30,
1999, $108 million was outstanding against this line. The above assumes
that these variable rate credit facilities are repaid at maturity.
Management believes these lines will be renewed at maturity with similar
terms.
There is inherent rollover risk for borrowings as they mature and are renewed
at current market rates. The extent of this risk is not quantifiable or
predictable because of the variability of future interest rates and the
Company's future financing requirements. The Company manages its interest
rate risk by maintaining conservative debt levels, spreading its scheduled
debt amortization, by periodically converting short-term variable debt to
long-term fixed rate debt, and by evaluating the merits of interest rate
derivative products. At June 30, 1999, the Company did not have any interest
rate derivative products or transactions.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Please refer to "Community Development" under Part I, Item 2. - "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
concerning writs of mandate filed in April 1999 and June 1999.
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):
10 Amendment No. 4 to The Newhall Land and Farming Company Retirement
Plan dated July 21, 1999
10(a) Second Amendment to The Newhall Land and Farming Company 1995
Option/Award Plan adopted as of July 15, 1998
27 Financial Data Schedule
17
<PAGE>
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: August 4, 1999 By / S / THOMAS L. LEE
-------------------------------------------------
Thomas L. Lee, Chairman and Chief Executive
Officer of Newhall Management Corporation
(Principal Executive Officer)
Date: August 4, 1999 By / S / STUART R. MORK
-------------------------------------------------
Stuart R. Mork, Senior Vice President and Chief
Financial Officer of Newhall Management Corporation
(Principal Financial Officer)
Date: August 4, 1999 By / S / DONALD L. KIMBALL
--------------------------------------------------
Donald L. Kimball, Vice President - Finance
and Controller of Newhall Management Corporation
(Principal Accounting Officer)
18
<PAGE>
Exhibit 10
THE NEWHALL LAND AND FARMING COMPANY
RETIREMENT PLAN
AMENDMENT NO. 4
The Newhall Land and Farming Company Retirement Plan (the
"Plan"), as restated in its entirety effective January 1, 1989, and subsequently
amended, is hereby further amended, as follows:
1. Section 1.45 of the Plan is hereby amended, effective as of
January 1, 1997, by striking the last paragraph and inserting the following:
"Remuneration shall include any employer contribution under a
cash or deferred arrangement to the extent not included in
gross income under Code Section 402(g)(3) and any amount which
the employee would have received in cash but for an election
under a cafeteria plan (within the meaning of Code Sections
125).
"Notwithstanding the foregoing, for purposes of Section 15.01
(b), an Employee's Remuneration shall not exceed the
limitation amount contained in Section 1.10(b)."
2. Section 1.30 of the Plan is hereby amended in its entirety,
as of January 1, 1997, as follows:
"LEASED EMPLOYEE means any person, other than a common law
employee of an Affiliated Company, who pursuant to an
agreement between an Affiliated Company and any other person
("leasing organization") has performed services for the
Affiliated Company (or for the Affiliated Company and related
persons determined in accordance with Section 414(n)(6) of the
Code) on a substantially full-time basis for a period of at
least one year (as determined in accordance with the
applicable provisions of the proposed Income Tax Regulations
section 1.414(n)-1(b)(10)), and such services are performed
under the primary direction or control of the Affiliated
Company."
3. Section 1.01 of the Plan is hereby amended in its entirety,
effective as of January 1, 2000, to read as follows:
"ACTUARIAL EQUIVALENT shall mean the determination of a
benefit having the same value as the benefit under the Plan
which it replaces. Determination of a Participant's vested
accrued benefit for purposes other than a lump sum payment
shall be based on an interest rate of six percent (6%) and
mortality specified in Table 18-a of the Society of Actuaries
1983 Exposure Draft on Development of the 1983 Group Annuity
Mortality Table ("GAM 83"); mortality rates used for
individual Participants shall be based on Table 18-a rates for
individuals one year younger. Notwithstanding the preceding
sentence, determining (i) whether the present value of a
Participant's accrued benefit exceeds $5,000 for purposes of
Section 7.05 and (ii) the amount of a lump sum benefit, shall
be calculated using
<PAGE>
whichever of the following yields the largest present value of
the vested accrued lump sum retirement benefit due an
Employee:
(a) The Applicable Interest Rate under Section 417(e) of the
Code for the second full calendar month before the date of
distribution, and the Applicable Mortality Table under Section
417(e) of the Code; or
(b) Eighty-eight percent (88%) of the average interest rate on
30-year Treasury securities for the third full calendar month
before the date of distribution, and the GAM 83 mortality
table blended 50% male and 50% female.
Notwithstanding any other provision of the Plan to the
contrary, the present value of the accrued lump sum retirement
benefit due an Employee who became a Participant prior to
January 1, 2000 shall not be less than the present value of
such Participant's vested accrued benefit as of December 31,
1999 utilizing an interest rate that is equal to nine percent
(9%) and mortality table specified above for purposes other
than a lump sum payment."
4. Section 7.04 of the Plan is hereby amended, effective as of
January 1, 1999, by adding the following paragraph:
"The Annuity Starting Date for a distribution in a form other
than a joint and survivor annuity may be less than 30 days
after receipt of the written explanation described above
provided: (a) the Participant has been provided with
information that clearly indicates that the Participant has at
least 30 days to consider whether to waive the joint and
survivor annuity and to elect (with spousal consent) a form of
distribution other than a joint and survivor annuity; (b) the
Participant is permitted to revoke any affirmative
distribution election at least until the annuity starting date
or, if later, at any time prior to the expiration of the 7-day
period that begins the day after the explanation of the joint
and survivor annuity is provided to the Participant; and (c)
the Annuity Starting Date is a date after the date that the
written explanation was provided to the Participant."
5. Except as modified by this Amendment No. 4, all the terms and
provisions of the Plan, as previously amended, shall continue in full force
and effect.
IN WITNESS WHEREOF, The Newhall Land and Farming Company, has
caused this instrument to be executed on its behalf by its duly authorized
officer as of this 21st day of July, 1999.
The Newhall Land and Farming Company
(A California Limited Partnership)
By: Newhall Management Limited Partnership,
Managing General Partner
By: Newhall Management Corporation,
Managing General Partner
By: / S / Trude Tsujimoto
----------------------------------------
<PAGE>
Exhibit 10(a)
SECOND AMENDMENT TO
THE NEWHALL LAND AND FARMING COMPANY
1995 OPTION/AWARD PLAN
This Second Amendment to The Newhall Land and Farming Company 1995
Option/Award Plan (the "Plan") is adopted as of July 15, 1998.
Paragraph 3.3 of the Plan, which previously read as follows:
"3.3 NO DISCRETION
No person will have any discretion to select which Independent
Directors will be granted depositary units or to determine the number
of depositary units to be granted to Independent Directors under this
Article Three; provided, however, that nothing in this Plan will be
construed to prevent an Independent Director from declining to receive
depositary units under this Plan."
Is hereby deleted in its entirety and replaced with the following:
"3.3 OPTION FEE PROGRAM
A. Eligibility. Each Independent Director shall be eligible to
receive, in lieu of receiving all or any portion of the annual retainer
fee otherwise payable to such individual, non-statutory options with
terms and conditions substantially similar to those set forth in
Paragraph 3.1 D and Paragraph 3.1 E of this Plan.
B. Election. The election to receive options in lieu of all or
any portion of the Independent Director's annual retainer fee otherwise
payable to the Independent Director in cash under the Option Fee
Program must be made, (i) with respect to any remaining portion of the
annual retainer fee payable in 1998, within 30 days following approval
of this Paragraph 3.3 of the Plan by the Board, and (ii) with respect
to any calendar year after 1998, before the start of the calendar year
for which the election is to be effective. The election must be made on
the form provided by the Committee and must specify the percentage or
dollar amount of his or her annual retainer fee to be applied to the
Option Fee Program. The election, once filed, shall be irrevocable. The
Independent Director may file a standing election to be in effect for
two (2) or more consecutive calendar years or to remain in effect
indefinitely until revoked by written notice filed with the Committee
at least six (6) months prior to the start of the first calendar year
for which such standing election is no longer to remain in effect.
<PAGE>
C. Option Issuance. On the first trading day of each calendar
quarter during the year for which the election to receive options is
effective, an option shall be issued to such Independent Director to
purchase a number of depositary units equal to (i) one-quarter (1/4),
times (ii) the amount of annual retainer fee for such year which the
Independent Director elects to receive in the form of options, divided
by (iii) the "Black-Scholes Value" as of such date; provided, however,
the foregoing formula shall be appropriately adjusted in the case of
any election to receive options in lieu of the quarterly retainer fee
due on October 1, 1998. The "Black-Scholes Value" shall be an amount,
as of any date, equal to the estimated value of an option to purchase
one depositary unit with an exercise price equal to the Fair Market
Value of a depositary unit as of such date and a term of ten years,
determined using the Black-Scholes option pricing formula in a manner
consistent with the methodology employed in the Partnership's annual
report to partners. The exercise price per depositary unit of such
option shall be equal to the Fair Market Value of one depositary unit
on the date of grant."
IN WITNESS WHEREOF, The Newhall Land and Farming Company (a California
Limited Partnership) has adopted this Second Amendment to The Newhall Land and
Farming Company 1995 Options/Award Plan.
THE NEWHALL LAND AND FARMING COMPANY
(A CALIFORNIA LIMITED PARTNERSHIP)
By: Newhall Management Limited Partnership,
Managing General Partner
By: Newhall Management Corporation,
Managing General Partner
By: /S/ Thomas H. Almas
---------------------------------------
Name: Thomas H. Almas
Title: Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,350
<SECURITIES> 0
<RECEIVABLES> 67,629
<ALLOWANCES> 1,474
<INVENTORY> 57,240
<CURRENT-ASSETS> 0
<PP&E> 439,801
<DEPRECIATION> 78,230
<TOTAL-ASSETS> 505,461
<CURRENT-LIABILITIES> 0
<BONDS> 236,587
0
0
<COMMON> 0
<OTHER-SE> 120,782
<TOTAL-LIABILITY-AND-EQUITY> 505,461
<SALES> 77,353
<TOTAL-REVENUES> 105,311
<CGS> 48,526
<TOTAL-COSTS> 73,296
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,953
<INCOME-PRETAX> 21,006
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 21,006
<EPS-BASIC> .66
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