<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, 2000
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
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER UNIT)
<TABLE>
<CAPTION>
Three Months ended Six Months Ended
June 30, June 30,
------------------- --------------------
2000 1999 2000 1999
-------- ------- -------- -------
<S> <C> <C> <C> <C>
REVENUES
Real estate
Residential home and land sales $ 10,568 $ 20,254 $ 18,956 $ 24,554
Industrial and commercial sales 25,748 26,679 28,333 46,665
Commercial operations
Income-producing properties 14,627 11,714 28,954 23,021
Valencia Water Company 2,982 2,699 5,393 4,937
-------- -------- -------- --------
53,925 61,346 81,636 99,177
-------- -------- -------- --------
Agriculture
Operations 1,394 1,692 2,047 2,177
Ranch sales - - - 3,957
-------- -------- -------- --------
1,394 1,692 2,047 6,134
-------- -------- -------- --------
Total revenues $ 55,319 $ 63,038 $ 83,683 $105,311
======== ======== ======== ========
CONTRIBUTION TO INCOME
Real estate
Residential home and land sales $ 3,570 $ 3,779 $ 6,348 $ 3,572
Industrial and commercial sales 4,670 13,410 4,869 21,817
Community development (2,417) (3,819) (4,437) (5,840)
Commercial operations
Income-producing properties 6,150 4,203 13,047 7,951
Valencia Water Company 640 676 1,239 1,077
-------- -------- -------- --------
12,613 18,249 21,066 28,577
-------- -------- -------- --------
Agriculture
Operations 310 411 717 591
Ranch sales - - - 2,847
-------- -------- -------- --------
310 411 717 3,438
-------- -------- -------- --------
Operating income 12,923 18,660 21,783 32,015
General and administrative expense (2,280) (3,404) (4,523) (6,056)
Interest and other, net (4,295) (2,533) (7,715) (4,953)
-------- -------- -------- --------
Net income $ 6,348 $ 12,723 $ 9,545 $ 21,006
======== ======== ======== ========
Net income per unit $ 0.23 $ 0.40 $ 0.34 $ 0.66
======== ======== ======== ========
Net income per unit - diluted $ 0.22 $ 0.40 $ 0.33 $ 0.65
======== ======== ======== ========
Number of units used in computing per unit amounts:
Net income per unit 27,925 31,688 28,435 32,066
Net income per unit - diluted 28,289 31,998 28,799 32,369
Cash distributions per unit:
Regular $ 0.10 $ 0.10 $ 0.20 $ 0.20
Special 0.35 0.22
</TABLE>
2
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,883 $ 1,624
Accounts and notes receivable 36,344 61,567
Land under development 56,762 39,401
Land held for future development 28,073 28,570
Income-producing properties held for sale, net 139,626 149,433
Income-producing properties, net 136,580 131,627
Property and equipment, net 64,947 61,318
Investment in joint ventures 17,070 16,682
Other assets and deferred charges 16,065 14,602
--------- ---------
$ 498,350 $ 504,824
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 25,032 $ 24,244
Accrued expenses 49,404 46,329
Deferred revenues 14,095 21,227
Mortgage and other debt 290,958 222,825
Advances and contributions from developers for
utility construction 30,445 25,690
Other liabilities 25,348 24,784
--------- ---------
Total liabilities 435,282 365,099
Partners' capital
27,157 units outstanding, excluding 9,615 units in
treasury (cost-$227,778), at June 30, 2000 and
29,668 units outstanding, excluding 7,104 units in
treasury (cost-$157,394), at December 31, 1999 63,068 139,725
--------- ---------
$ 498,350 $ 504,824
========= =========
</TABLE>
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
2000 1999
--------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,545 $ 21,006
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,968 6,878
Increase in land under development (34,640) (47,614)
Cost of sales and other inventory changes 17,775 38,041
Decrease (increase) in accounts and notes receivable 25,223 (37,374)
(Decrease) increase in accounts payable, accrued expenses
and deferred revenues (3,269) 18,853
Cost of property sold 14,669 5,045
Other adjustments, net (915) 40
--------- ---------
Net cash provided by operating activities 33,356 4,875
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Development of income-producing properties (13,075) (32,681)
Purchase of property and equipment (5,320) (4,919)
(Investment in) distribution from joint venture (388) 10
--------- ---------
Net cash used in investing activities (18,783) (37,590)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid (15,618) (13,677)
Increase in mortgage and other debt 68,133 78,978
Increase (decrease) in advances and contributions from
developers for utility construction 4,755 (2,064)
Purchase of partnership units (71,767) (30,323)
Issuance of partnership units 1,383 833
Other - (870)
--------- ---------
Net cash provided by (used in) financing activities (13,314) 32,877
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,259 162
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,624 2,188
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,833 $ 2,350
========= =========
</TABLE>
4
<PAGE>
NOTES TO CONDENSED 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, 2000 and 1999 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 24 through 32
of the December 31, 1999 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.
- Sales of income properties and non-developable farmland occur
irregularly and are recognized upon close of escrow 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.
<TABLE>
<CAPTION>
===========================================================================================================
NOTE 2. DETAILS OF LAND UNDER DEVELOPMENT
June 30, December 31,
(In $000) 2000 1999
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Valencia
Residential development $ 8,389 $ 4,532
Industrial and commercial land development 47,171 34,524
Agriculture 1,202 345
-------------------------------------------------------------------------------------------------------
Total land under development $ 56,762 $ 39,401
=================================================
</TABLE>
<TABLE>
<CAPTION>
===========================================================================================================
NOTE 3. DETAILS FOR EARNINGS PER UNIT CALCULATION
Income Units Per Unit
(In 000's except per unit) (numerator) (denominator)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For three months ended June 30, 2000
Net income per unit
Net income available to unitholders $6,348 27,925 $.23
Effect of dilutive securities
Unit options - 364 (.01)
-----------------------------------------------------------------------------------------------------------
Net income per unit - diluted $6,348 28,289 $.22
=================================================
</TABLE>
5
<PAGE>
NOTE 3 (CONTINUED)
<TABLE>
<CAPTION>
Income Units Per Unit
(In 000's except per unit) (numerator) (denominator)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For three months ended June 30, 1999
Net income per unit
Net income available to unitholders $12,723 31,688 $.40
Effect of dilutive securities
Unit options - 310 -
---------------------------------------------------------------------------------------------------------------
Net income per unit - diluted $12,723 31,998 $.40
======================================================
For six months ended June 30, 2000
Net income per unit
Net income available to unitholders $9,545 28,435 $.34
Effect of dilutive securities
Unit options - 364 (.01)
---------------------------------------------------------------------------------------------------------------
Net income per unit - diluted $9,545 28,799 $.33
======================================================
For six months ended June 30, 1999
Net income per unit
Net income available to unitholders $21,006 32,066 $.66
Effect of dilutive securities
Unit options - 303 (.01)
---------------------------------------------------------------------------------------------------------------
Net income per unit - diluted $21,006 32,369 $.65
======================================================
</TABLE>
<TABLE>
<CAPTION>
===============================================================================================================
NOTE 4. DETAILS OF INCOME-PRODUCING PROPERTIES, INCOME PRODUCING PROPERTIES HELD FOR SALE AND PROPERTY AND
EQUIPMENT
June 30, December 31,
(In $000s) 2000 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income-producing properties
Land $ 21,399 $ 21,399
Buildings 112,552 112,304
Other 14,500 14,498
Properties under development 16,888 8,904
-----------------------------------------------------------------------------------------------------------
165,339 157,105
Accumulated depreciation (28,759) (25,478)
-----------------------------------------------------------------------------------------------------------
$136,580 $131,627
==================================================
Income-producing properties held for sale
Retail $103,131 $115,462
Office 36,550 36,545
Other 19,924 19,857
-----------------------------------------------------------------------------------------------------------
159,605 171,864
Accumulated depreciation (19,979) (22,431)
-----------------------------------------------------------------------------------------------------------
$139,626 $149,433
==================================================
</TABLE>
6
<PAGE>
NOTE 4 (CONTINUED)
<TABLE>
<CAPTION>
June 30, December 31,
(In $000s) 2000 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Property and equipment
Land $ 3,759 $ 3,759
Buildings 5,803 5,343
Equipment 9,354 9,311
Water supply systems, orchards and other 76,468 73,635
Construction in progress 6,777 5,111
-----------------------------------------------------------------------------------------------------------
102,161 97,159
Accumulated depreciation (37,214) (35,841)
-----------------------------------------------------------------------------------------------------------
$ 64,947 $ 61,318
==================================================
</TABLE>
================================================================================
NOTE 5. BUSINESS SEGMENT REPORTING
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>
THREE MONTHS ENDED JUNE 30, 2000
-----------------------------------------------
Contribution
(In $000s) Revenues to Income Assets
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real Estate
Residential $10,568 $ 3,602 $ 30,237
Industrial and commercial 25,748 4,726 92,440
Community development - (2,372) 11,851
Income-producing properties 14,627 6,160 280,271
Valencia Water Company 2,982 654 64,414
Agriculture 1,394 317 7,505
Central administration - (2,094) 11,632
--------------------------------------------------
$55,319 10,993 498,350
Interest and other, net - (4,295) -
All other - (350) -
--------------------------------------------------
$55,319 $ 6,348 $498,350
==================================================
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
-----------------------------------------------
Contribution
(In $000s) Revenues to Income Assets
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real Estate
Residential $20,254 $ 3,851 $ 19,442
Industrial and commercial 26,679 13,494 114,068
Community development - (3,753) 8,482
Income-producing properties 11,714 4,221 276,354
Valencia Water Company 2,699 706 58,030
Agriculture 1,692 435 19,563
Central administration - (3,098) 9,522
--------------------------------------------------
63,038 15,856 505,461
Interest and other, net - (2,533) -
All other - (600) -
--------------------------------------------------
$63,038 $12,723 $505,461
==================================================
</TABLE>
7
<PAGE>
NOTE 5 (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
-------------------------------------------
Contribution
(In $000s) Revenues to Income Assets
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real Estate
Residential $ 18,956 $ 6,398 $ 30,237
Industrial and commercial 28,333 4,957 92,440
Community development - (4,366) 11,851
Income-producing properties 28,954 13,063 280,271
Valencia Water Company 5,393 1,261 64,414
Agriculture 2,047 728 7,505
Central administration - (4,231) 11,632
-----------------------------------------------
$ 83,683 17,810 498,350
Interest and other, net - (7,715) -
All other - (550) -
-----------------------------------------------
$ 83,683 $ 9,545 $ 498,350
===============================================
</TABLE>
<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 $ 19,442
Industrial and commercial 46,665 21,971 114,068
Community development - (5,719) 8,482
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
===============================================
</TABLE>
8
<PAGE>
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 2000 to Second Quarter and Six
Months of 1999
--------------------------------------------------------------------------------
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 $ (9,686) -48% $ (5,598) -23%
Industrial and commercial sales (931) -3% (18,332) -39%
Commercial operations
Income-producing properties 2,913 25% 5,933 26%
Valencia Water Company 283 10% 456 9%
-------- -------- -------- --------
(7,421) -12% (17,541) -18%
Agriculture
Operations (298) -18% (130) -6%
Ranch sales - - (3,957) -100%
-------- -------- -------- --------
Total revenues $ (7,719) -12% $(21,628) -21%
======== ======== ======== ========
CONTRIBUTION TO INCOME
Real Estate
Residential home and land sales $ (209) -6% $ 2,776 78%
Industrial and commercial sales (8,740) -65% (16,948) -78%
Community development 1,402 37% 1,403 24%
Commercial operations
Income-producing properties 1,947 46% 5,096 64%
Valencia Water Company (36) -5% 162 15%
-------- -------- -------- --------
(5,636) -31% (7,511) -26%
Agriculture
Operations (101) -25% 126 21%
Ranch sales - - (2,847) -100%
-------- -------- -------- --------
Operating income (5,737) -31% (10,232) -32%
General and administrative expense 1,124 33% 1,533 25%
Interest and other, net (1,762) -70% (2,762) -56%
-------- -------- -------- --------
Net income $ (6,375) -50% $(11,461) -55%
======== ======== ======== ========
Net income per unit $ (0.17) -43% $ (0.32) -48%
======== ======== ======== ========
Net income per unit - diluted $ (0.18) -45% $ (0.32) -49%
======== ======== ======== ========
Number of units used in computing per unit amounts:
Net income per unit (3,763) -12% (3,631) -11%
======== ======== ======== ========
Net income per unit - diluted (3,709) -12% (3,570) -11%
======== ======== ======== ========
</TABLE>
9
<PAGE>
The increases and decreases in revenues and income for the three and six months
are attributable to the following:
For the three months ended June 30, 2000, revenues totaled $55.3 million and
net income totaled $6.3 million compared to revenues for the 1999 second
quarter of $63.0 million and net income of $12.7 million. Results for the
second quarter of 1999 included the sale of 40.9 acres of industrial and
commercial land, including a high value 32.8-acre apartment site as well as
193 residential lots.
Revenues for the six months ended June 30, 2000 totaled $83.7 million and net
income totaled $9.5 million compared to the same 1999 period when revenues
totaled $105.3 million and net income $21.0 million. Results for the 1999
six-month period also included the first quarter sale of the Cowell Ranch
which contributed $10 million to revenues and $8.2 million to income.
The primary contributors to the 2000 second quarter results are the sale of two
of the 11 income properties slated for sale as part of the Company's strategic
plan to finance its unit repurchase program. These two properties, Castaic
Shopping Center and Plaza del Rancho, contributed $18.8 million to revenues and
$3.7 million to income. Also contributing to second quarter results were the
sale of the last 78 residential lots in Bridgeport and an 11.2-acre site for a
Lowe's Home Improvement Warehouse. These two sales combined added $11.1 million
to revenues and $4.7 million to income under percentage of completion
accounting. The 2000 six-month period also includes the first quarter sale of
130 residential lots which added $4.4 million to revenues and $1.9 million to
income under percentage of completion.
RESIDENTIAL HOME AND LAND SALES
The supply of new homes released for sale increased 50% during the second
quarter and merchant builders are now better positioned to meet demand for new
homes in Valencia. Four new projects were added to the seven projects available
at the end of the first quarter, with at least four additional projects slated
to open in the third quarter. During the 2000 second quarter, merchant builders
sold 68 homes bringing the total for the first six months of 2000 to 154 homes
sold. This is below the 87 homes sold during the second quarter of 1999, which
included 55 homes by merchant builders and 32 by the Company's joint ventures.
The Company completed the sell-out of its remaining Valencia homebuilding joint
ventures in 1999 and its efforts have since been concentrated on lot sales to
merchant builders. While the Company does not participate directly in profits
generated from escrow closings by merchant builders, the absorption of these
previously sold lots is key to the Company's future success in selling
additional lots.
In the quarter ended June 30, 2000, the last 78 lots closed escrow in
Bridgeport, the Company's lake community, adding $7.0 million to revenues and
$3.2 million to income under percentage of completion accounting. In addition,
revenues of $3.4 million and income of $1.4 million were recognized from
previous lot sales in Bridgeport under percentage of completion. The 2000
six-month period also includes the sale of 130 lots in Bridgeport which added
$4.4 million to revenues and $1.9 million to income as well as revenues of $3.8
million and income of $1.8 million from prior lot sales all accounted for under
percentage of completion.
In the 2000 second quarter, the City of Santa Clarita approved the annexation of
136 acres planned for 1,900 homes. The area, located northwest of Valencia
Northbridge, will include three neighborhoods: Alta Vista, Creekside and East
Creek. The Company is marketing lots in Alta Vista and combined with East Creek
expected to be marketed later this year, plans to offer approximately 500 lots
for sale during the remainder of 2000. The Company expects final approval from
the Los Angeles County Board of Supervisors on another 2,545 lots in Valencia's
West Creek neighborhood later this year.
The Company continues to work with its joint-venture partner, Kaufman and Broad
of Southern California, on plans for the 1,900-acre City Ranch development in
Palmdale, California. The Company is the master planner and has a 50.1% interest
in the project. The master plan calls for approximately 4,200 single-family
homes, 300 apartment units, 260,000 square feet of commercial development and
several hundred acres of open space.
10
<PAGE>
Results for the 1999 second quarter and six months included the sale of 193
residential lots adding $8.9 million to revenues and $3.6 million to income
under percentage of completion. Also included were a total of 50 home-sale
closings by the Company's two joint ventures contributing $11.4 million to
revenues and $1.3 million to income to the 1999 second quarter. The 1999
six-month period included a total of 76 joint-venture home closings for $15.7
million adding $1.6 million to income. At June 30, 1999, a total of 85
residential lots were in escrow.
INDUSTRIAL AND COMMERCIAL SALES
INDUSTRIAL SALES
Results for the second quarter and six-month period of 2000 include two
industrial parcels totaling 4.2 acres which closed escrow for $2.3 million and
contributed $0.7 million to income. At June 30, 2000, a total of 41.6 acres was
in escrow for $21.1 million, with closings scheduled during the remainder of the
year. All escrow closings are subject to market and other conditions.
The industrial vacancy rate in the Company's two industrial/business parks is
3.9% compared with 5.8% at the end of the 2000 first quarter. The Company has
approximately 360 acres of entitled industrial land remaining. Planning
continues on 500 acres west of I-5 surrounding Six Flags Magic Mountain for
mixed-use development.
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 brought 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 included the sale of the last remaining large parcel at the Cowell Ranch in
northern California which added $10.0 million to revenues and $8.2 million to
income.
COMMERCIAL LAND SALES
One commercial parcel totaling 11.2 acres closed escrow for $6.4 million and
contributed $1.5 million to income for the 2000 second quarter and six-month
period under percentage of completion accounting. A Lowe's Home Improvement
Warehouse will be constructed on the site. At June 30, 2000, eight parcels
totaling 42.7 acres were in escrow for approximately $28 million with closings
scheduled during the third and fourth quarters. All escrow closings are subject
to market and other conditions.
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 apartment site which added $18.7 million to revenues and
$10.9 million to income under percentage of completion accounting. In the first
six months of 1999, the Company recognized $3.4 million in revenues from the
prior year sale of Valencia Marketplace, a high volume retail center; however,
no income was recognized due to revised costs to complete the construction and
leasing of the center.
COMMERCIAL ASSET SALES
During the 2000 first quarter, escrow closed on the first two retail properties
in the Company's asset sales program, Castaic Shopping Center and Plaza del
Rancho, adding $18.8 million to revenues and $3.7 million to income. The sales
are part of the Company's plan to sell approximately one-half of its income
portfolio, valued at $220 million, to finance the unit repurchase program. For
additional information on the unit repurchase program, refer to the LIQUIDITY
AND CAPITAL RESOURCES section of this discussion.
A buyer has been identified for the Valencia Town Center regional mall, Valencia
Entertainment Center and retail buildings along Town Center Drive. Escrow is
expected to close in the third quarter. A prospective buyer for the three-story
building on Town Center Drive, six-story Princess Cruises building and two
additional buildings under construction for Princess Cruises has commenced its
due diligence review on the properties. The sale is expected to be completed
later this year. All escrow closings are subject to market and other conditions.
Aggregate prices are on target with the Company's expectations. Offers are still
being received and reviewed on the Bank of America building and the Spectrum
Club building, including 7.9 acres surrounding the club.
11
<PAGE>
COMMUNITY DEVELOPMENT
The Company's community development activities are focused on securing the
necessary entitlements as well as an intensified strategic marketing and
branding program to support the buildout of Valencia residential land by 2005
and begin the development of approximately 21,600 homes in 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.
As previously announced, on May 31, Superior Court Judge Roger Randall sent six
issues addressed in the Newhall Ranch Environmental Impact Report to Los Angeles
County for further environmental review. These six issues include the impact of
the Newhall Ranch development on the Salt Creek wildlife corridor and traffic in
Ventura County; biological impacts on the Santa Clara River corridor due to bank
protection and storm water runoff; consistency with the General Plan and impacts
in Significant Ecological Area 23; adequacy and reliability of water supply;
and, a further alternative site analysis for the water reclamation plant
location. The Court ruled in the Company's favor on all other issues raised by
opponents.
After evaluating the above ruling, the Company is addressing the issues and
believes they can be resolved to the satisfaction of the Court in about one
year, in which case the process is expected to delay the start of the project
until 2003. However, the length of time of the public hearing and judicial
process is difficult to predict, and circumstances could further delay
resolution of the issues. The supplemental environmental analysis of the six
issues will be circulated for public review and comments. Following the public
review period, both the Los Angeles County Regional Planning Commission and the
Board of Supervisors must review the issues, hold public hearings and certify
the environmental analysis before the case is referred back to the Court. An
adverse decision by the County or the Court and/or additional legal action will
likely delay the start of the development of the community beyond 2003.
Also during the second quarter, a Los Angeles Superior Court ruled favorably on
the Environmental Impact Report for Valencia's Westridge Golf Course community;
however, the plaintiff has filed a notice that it will appeal the ruling. The
Company continues to work on plans for the community consisting of approximately
1,200 homes and 500 apartments. About 400 homes are expected to have golf course
frontage or other spectacular views, many on estate-size lots. The community
will also have approximately 230 acres as designated open space, including a
preserve for oak trees. Lots are expected to be sold to builders starting in
2001, with homes expected for sale in 2002 and 2003; and the Tournament Players
Club (TPC) Golf Course scheduled to open in 2002. These schedules may be
adversely affected by additional legal actions, including, but not limited to,
the appeal of the Los Angeles County Superior Court ruling. In addition, several
groups have provided the Company with notice of their intent to challenge a
permit relating to the development of a portion of the community which was
issued by the U.S. Army Corps of Engineers.
The Company holds an option on 1,800 acres in the City of Broomfield, Colorado,
between Denver and Boulder. The Company is in discussions with a possible buyer
to assume development of the project. Current plans are for approximately 3,000
homes and 215 acres of office and commercial development.
Community development expenses decreased 37% and 24% from comparative prior year
three and six-month periods, respectively, primarily due to expenses in the
prior year relating to Newhall Ranch entitlements and certain initial costs
relating to commercial properties under development. With additional entitlement
and legal costs relating to Newhall Ranch and with the Company's continued focus
on obtaining entitlements and strategic marketing, community development
expenses for the year are expected to increase about 10% over 1999.
INCOME-PRODUCING PROPERTIES
As announced in September 1999, the Company plans to sell approximately one-half
of its income portfolio, valued at about $220 million, to finance the repurchase
of up to 6,384,446 of the Company's partnership units, equal to approximately
20% of the outstanding units at that time. During the 2000 second quarter,
escrow closed
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on two retail properties, Castaic Shopping Center and Plaza del Rancho. When the
asset sales program is completed, revenues and income from the commercial
portfolio will be substantially reduced. For additional information on
properties to be sold and the unit repurchase program, refer to the INDUSTRIAL
AND COMMERCIAL LAND SALES and LIQUIDITY AND CAPITAL RESOURCES sections of this
discussion. Revenues and income increased 25% and 46%, respectively, in the
second quarter of 2000 over the year earlier quarter due in large part to
suspension of depreciation on income properties held for sale. Also,
contributing to the increases were new retail leases along Town Center Drive,
improved performances by the Hyatt Valencia hotel, and higher apartment
occupancy rates. For the six-month period, revenues and income were up 26% and
64%, respectively, over the first six months of 1999. Approximately 60% of the
increase in income in the second quarter of 2000 and approximately 50% of the
increase in the 2000 six-month period is attributable to depreciation no longer
being taken on properties expected to be sold this year.
With businesses moving into Valencia creating new jobs, demand for apartments
continues to be strong. At the end of the second quarter, occupancy rates at the
Company's three established apartment complexes were close to 100%, while
Montecito, the Company's new 210-unit, high-end apartment complex is 94% leased
and continues to command the highest rents in the Santa Clarita Valley.
The Hyatt Valencia hotel followed an improved first quarter 2000 performance
with a stronger second quarter. For the six months ended June 30, 2000,
occupancy rates were 64% compared with 42% for the year earlier period. Room
rates also increased. Occupancy rates at the Hilton Garden Inn were 72% compared
with 74% last year.
The Company's two neighborhood shopping centers, River Oaks and NorthPark
Village Square, are 99% and 100% leased, respectively.
VALENCIA WATER COMPANY
Valencia Water Company is a regulated utility and a wholly-owned subsidiary of
the Company. For the second quarter of 2000, revenues increased 10% and income
decreased 5% as a result of nonrecurring administration costs in connection with
Public Utilities Commission proceedings. For the six months ended June 30, 2000,
income increased 15% on a 9% increase in revenues as the utility benefited from
continued expansion of the customer base, drier weather and continued
improvement in operating efficiencies.
AGRICULTURAL OPERATIONS AND RANCH SALES
For the three months ended June 30, 2000, agriculture revenues and income,
including the Company's energy operations, were below the year earlier quarter
primarily due to a sharp decline in the price of oranges. This was partially
offset by higher earnings from energy operations, due to oil prices being more
than double from prices recorded during the three months ended June 30, 1999.
For the first half of 2000, income was ahead of the year earlier on slightly
lower revenues, again with energy being a primary contributor. With less land
for farming as a result of sales of ranch land in the prior year, income from
agricultural operations is expected to decrease substantially for all of 2000
compared to last year.
The 1999 six-month period included 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 was part of a strategic plan to sell land not suitable for
development. No additional sales of non-developable farmland are planned for
2000.
With the first quarter 1999 sale of the remaining portions of the Merced Ranch
and the fourth quarter 1999 sale of the Suey Ranch, agricultural operations are
now concentrated on the 14,000-acre New Columbia Ranch, which is about 74%
leased to tenant farmers, and the 1,000-acre Newhall Orchard in Ventura County,
where oranges and lemons remain as the major crops. Most of the remaining 15,000
acres owned in Ventura County is leased for cattle grazing.
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<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSE
Decreases of 33% and 25% in general and administrative expenses from the prior
year comparable three- and six- month periods, respectively, are primarily due
to lower expenses for land acquisition activities. For all of 2000, general and
administrative expenses are expected to decrease about 15% from 1999 levels.
INTEREST AND OTHER
Net interest expense for the second quarter increased 70% from the prior year
three-month period and 56% from the prior year six-month period due to the
Company increasing its borrowings under credit facilities to fund partnership
unit repurchases. The increases are partially offset in both periods by higher
interest income from land sale promissory notes. A portion of the sales proceeds
from income properties held for sale will be used to pay down debt as escrows
close. Interest expense in 2000 for the total year is expected to be
substantially higher than in the previous year due to the Company's increased
borrowings.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had cash and cash equivalents of $2.9 million and
$40.6 million, respectively, available under bank lines, net of $13.4 million in
letters of credit. Borrowings outstanding totaled $128 million against unsecured
lines of credit and $40 million against a revolving mortgage facility. In
addition, the Company had fixed rate debt totaling $123.0 million. The Company
believes it has adequate sources of cash from operations and debt capacity to
finance its operations and, combined with anticipated land and property sales,
to fund its unit repurchases. At June 30, 2000, there was no debt against raw
land or land under development inventories in Valencia.
A $40 million revolving mortgage facility secured by Valencia Town Center, which
matured in December 1999 and was previously extended until May 22, 2000, has
been extended until the earlier of September 22, 2000 or the sale of the center.
In addition, in June 2000, the Company procured a new $20 million unsecured line
with Wells Fargo which matures on September 22, 2000.
The Company continues to follow its business strategy announced in September
1999 to capitalize on its significant underlying asset values by repurchasing up
to 6,384,446 units, including 884,446 units under a previous authorization,
equal to approximately 20% of the outstanding units at that time. During the
first six months of 2000, the Company repurchased a total of 2,584,355 units for
$71.8 million, or an average price of $27.77 per unit. From the plan's
announcement through June 30, 2000, the Company has repurchased 4,308,307 units,
or 67.5% of the 6,384,446 units, for $114.0 million, or $26.46 per unit. At June
30, 2000, a total of 2,076,139 units remained to be repurchased under the
current authorization.
The Company plans to provide the cash to fund the unit repurchases and provide
the capital to continue ongoing planning and land development activities through
the use of existing debt capacity until the proposed land and income property
sales are completed during 2000. The Company repurchases partnership units from
time to time in the open market and through block transactions. Numerous factors
could affect the Company's ability to complete the repurchase program including,
but not limited to, changing market conditions, rising interest rates,
challenges to governmental approvals, and finding suitable buyers for certain
properties.
There are no material commitments for capital expenditures other than the
Company's plans in the ordinary course of its business to complete income
properties under construction. The Company expects to spend approximately $15
million in the second half of 2000 to complete construction of the two office
buildings which have been leased to Princess Cruises and to complete the
Valencia Entertainment Center expansion. These properties are expected to be
sold later this year as part of the Company' plan to fund the unit repurchase
program. In addition, the Company expects to invest approximately $25 million in
major roads and freeway improvements and approximately $30 million in land
development in the second half of 2000 to enable the Company to close additional
land sales.
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<PAGE>
THE FOLLOWING DISCUSSION RELATES TO PRINCIPAL ITEMS IN THE CONSOLIDATED
STATEMENTS OF CASH FLOW:
OPERATING ACTIVITIES
Net cash provided by operating activities totaled $33.4 million for the first
six months of 2000 and included the sale of 208 residential lots, 15.4
industrial and commercial acres, and the sale of two income properties, Castaic
Shopping Center and Plaza del Rancho. These sales provided $40.0 million in cash
including a $3.7 million note from a first quarter residential lot sale which
was paid in the second quarter. In addition, $21.9 million of notes in
conjunction with land sales in prior years were collected. Expenditures for land
under development inventories totaled $34.6 million and were primarily related
to land preparation and infrastructure improvements to ready land for
development for sale and agricultural crop costs.
INVESTING ACTIVITIES
Expenditures for development of income-producing properties totaled $13.1
million and were primarily for two office buildings under construction for
Princess Cruises and the Valencia Entertainment Center expansion. Purchase of
property and equipment was primarily for water utility construction
FINANCING ACTIVITIES
Distributions totaling $15.8 million have been paid year-to-date consisting of
two quarterly distributions of $.10 per unit each and a $.35 per unit special
distribution. An additional $.10 per unit distribution was declared on July 19,
2000 payable September 11, 2000 to unitholders of record on August 4, 2000. The
declaration of distributions and the amount declared is reviewed by the Board of
Directors on a quarterly basis taking into account the Company's earnings,
financial condition and prospects.
Borrowings against lines of credit increased $68.6 million during the six-month
period due to the Company's plan to utilize available debt capacity to fund the
unit repurchase program until income property sales and land sales close escrow
later in the year. For the six-month period ended June 30, 2000, a total of
2,584,355 units were repurchased for $71.8 million, or an average price of
$27.77per unit.
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 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.
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
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<PAGE>
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 is
currently robust, there can be no assurances that present trends will continue.
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, residential 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.
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 properties 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. A majority 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 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 21,500 acres in Los Angeles County. 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. (See following "Litigation"
discussion.) 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.
LITIGATION: The land use approval processes the Company must follow to
ultimately develop its projects have become increasingly complex. Moreover, the
statutes, regulations and ordinances governing the approval processes provide
third parties the opportunity to challenge the proposed plans and approvals. As
a result, the prospect of, and actual, third-party challenges to planned real
estate developments have provided additional uncertainties in real estate
development planning and entitlements. Third-party challenges in the form of
litigation will, by its nature, adversely affect the length of time required to
obtain the necessary approvals. In addition, adverse decisions arising from any
litigation increase the costs and may adversely affect the designs, scope, plans
and profitability of a project.
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<PAGE>
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,
2000, the Company had $168 million of variable debt with interest rates ranging
from 7.61% to 8.15% and $123 million of fixed rate debt with interest rates
ranging from 6.51% to 8.45%
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 at
of June 30, 2000 by expected maturity dates:
<TABLE>
<CAPTION>
Expected Maturity Date Fair
--------------------------------------------------------------
(IN $000S) 2000 2001 2002 2003 2004 Thereafter Total Value
-------------------------------------------------------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage and Other Debt
Fixed Rate Debt $ 1,376 $ 4,992 $ 5,153 $ 14,688 $ 5,272 $91,477 $122,958 $122,958
Weighted Average Interest
Rate 7.37% 7.70% 7.68% 8.16% 7.61% 7.02% 7.24%
Variable Rate Debt (1) $ 168,000 $168,000 $168,000
Weighted Average Interest
Rate 7.83% 7.83%
</TABLE>
(1) 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, against which $40 million was outstanding at June
30, 2000. The Company also has a $159 million unsecured revolving line of
credit on which the rate is LIBOR plus 1.2%. At June 30, 2000, $128 million
was outstanding against this line and $1 million was outstanding against a
$1 million line of credit with Valencia Bank & Trust. In addition, the
Company has procured a $20 million unsecured line with Wells Fargo on which
the rate is LIBOR plus 1.35%. There was no outstanding balance against this
line at June 30, 2000. The amounts set forth in the table above assume that
the outstanding amounts under variable rate credit facilities will be
repaid at the facilities' respective maturity dates. Management is in
discussions with its lenders on a new unsecured revolving credit facility.
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 a conservative ratio of fixed rate, long-term debt to total debt in
order to maintain variable rate exposure at an acceptable level and by taking
advantage of favorable market conditions for long-term debt.
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".
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C>
(a) Exhibits (listed by numbers corresponding to the Exhibit Table of Item
601 in Regulation S-K):
27 Financial Data Schedule
99(a) Amended and Restated Shareholders' Agreement dated July 19,
2000 by and among Newhall Management Corporation, its
shareholders and the Newhall Management Corporation Voting
Trust.
99(b) Extension Agreement dated July 19, 2000 by and among Newhall
Management Corporation, its shareholders and the Newhall
Management Corporation Voting Trust, which extends the term
for an additional ten years of the Voting Trust Agreement
dated November 14, 1990.
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<PAGE>
99(c) Amendment Number One dated July 19, 2000 to the Limited
Partnership Agreement of Newhall Management Limited
Partnership.
99(d) Second Amendment dated July 19, 2000 to the Partnership
Agreement of Newhall General Partnership.
99(e) Amended and Restated By-laws of Newhall Management Corporation
(b) The following report on Form 8-K was filed in the second quarter ended
June 30, 2000.
</TABLE>
<TABLE>
<CAPTION>
Item Reported Date of Report
------------- --------------
<S> <C>
A news release issued by the Company on June 1, 2000 June 1, 2000
concerning a ruling on the Newhall Ranch EIR litigation.
</TABLE>
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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: July 28, 2000 By /s/ THOMAS L. LEE
---------------------------------------------
Thomas L. Lee, Chairman and Chief Executive
Officer of Newhall Management Corporation
(Principal Executive Officer)
Date: July 28, 2000 By /s/ STUART R. MORK
---------------------------------------------
Stuart R. Mork, Senior Vice President and
Chief Financial Officer of Newhall Management
Corporation (Principal Financial Officer)
Date: July 28, 2000 By /s/ DONALD L. KIMBALL
---------------------------------------------
Donald L. Kimball, Vice President - Finance
and Controller of Newhall Management
Corporation (Principal Accounting Officer)
19
