-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q5DQpTwJLxq9bxfsA7PCN2512weDfgBD76ZfbgzNW4+kLeyCZ59VqqwaU0VaLySq LwIf1NQyoPZYt8zDZeHUCg== 0000912057-00-023080.txt : 20000512 0000912057-00-023080.hdr.sgml : 20000512 ACCESSION NUMBER: 0000912057-00-023080 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEWHALL LAND & FARMING CO /CA/ CENTRAL INDEX KEY: 0000751976 STANDARD INDUSTRIAL CLASSIFICATION: LAND SUBDIVIDERS & DEVELOPERS (NO CEMETERIES) [6552] IRS NUMBER: 953931727 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08885 FILM NUMBER: 625360 BUSINESS ADDRESS: STREET 1: 23823 VALENCIA BLVD CITY: VALENCIA STATE: CA ZIP: 91355 BUSINESS PHONE: 6612554000 MAIL ADDRESS: STREET 2: 23823 VALENCIA BLVD CITY: VALENCIA STATE: CA ZIP: 91355 10-Q 1 FORM 10-Q 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 March 31, 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 __ At March 31, 2000, 28,323,088 partnership units were outstanding. PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended IN THOUSANDS, EXCEPT PER UNIT March 31, - ----------------------------------- -------------------- 2000 1999 -------- -------- REVENUES Real estate Residential home and land sales $ 8,388 $ 4,300 Industrial and commercial sales 2,585 19,986 Commercial operations Income-producing properties 14,327 11,307 Valencia Water Company 2,411 2,238 -------- -------- 27,711 37,831 -------- -------- Agriculture Operations 653 485 Ranch sales -- 3,957 -------- -------- 653 4,442 -------- -------- Total revenues $ 28,364 $ 42,273 ======== ======== CONTRIBUTION TO INCOME Real estate Residential home and land sales $ 2,778 ($ 207) Industrial and commercial sales 199 8,407 Community development (2,020) (2,021) Commercial operations Income-producing properties 6,897 3,748 Valencia Water Company 599 401 -------- -------- 8,453 10,328 -------- -------- Agriculture Operations 407 180 Ranch sales -- 2,847 -------- -------- 407 3,027 -------- -------- Operating income 8,860 13,355 General and administrative expense (2,243) (2,652) Interest and other, net (3,420) (2,420) -------- -------- Net income $ 3,197 $ 8,283 ======== ======== Net income per unit $ 0.11 $ 0.26 ======== ======== Net income per unit - diluted $ 0.11 $ 0.25 ======== ======== Number of units used in computing per unit amounts: Net income per unit 28,944 32,448 Net income per unit - diluted 29,313 32,752 Cash distributions per unit: Regular $ 0.10 $ 0.10 Special 0.35 0.22
2 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS
March 31, December 31, IN THOUSANDS 2000 1999 - ---------------------------------------------- -------- -------- ASSETS Cash and cash equivalents $ 5,043 $ 1,624 Accounts and notes receivable 50,993 61,567 Land under development 49,081 39,401 Land held for future development 28,570 28,570 Income-producing properties held for sale, net 154,075 149,433 Income-producing properties, net 131,470 131,627 Property and equipment, net 62,501 61,318 Investment in joint ventures 16,877 16,682 Other assets and deferred charges 15,137 14,602 -------- -------- $513,747 $504,824 ======== ======== LIABILITIES AND PARTNERS' CAPITAL Accounts payable $ 25,806 $ 24,244 Accrued expenses 45,533 46,329 Deferred revenues 15,830 21,227 Mortgage and other debt 280,993 222,825 Advances and contributions from developers for utility construction 28,611 25,690 Other liabilities 25,355 24,784 -------- -------- Total liabilities 422,128 365,099 Partners' capital 28,323 units outstanding, excluding 8,449 units in treasury (cost-$195,651), at March 31, 2000 and 29,668 units outstanding, excluding 7,104 units in treasury (cost-$157,394), at December 31, 1999 91,619 139,725 -------- -------- $513,747 $504,824 ======== ========
3 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended IN THOUSANDS March 31, - ------------------------------------------------------------------------ -------------------- 2000 1999 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,197 $ 8,283 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,510 3,133 Increase in land under development (16,121) (16,425) Cost of sales and other inventory changes 6,441 9,546 Decrease (increase) in accounts and notes receivable 10,574 (12,311) Decrease in accounts payable, accrued expenses and deferred revenues (4,631) (574) Cost of property sold 55 3,782 Other adjustments, net 5 267 -------- -------- Net cash provided by (used in) operating activities 2,030 (4,299) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Development of income-producing properties (6,159) (14,044) Purchase of property and equipment (2,043) (3,644) (Investment in) distribution from joint venture (195) 18 -------- -------- Net cash used in investing activities (8,397) (17,670) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions paid (13,046) (10,459) Increase in mortgage and other debt 58,168 43,114 Increase in advances and contributions from developers for utility construction 2,921 1,032 Purchase of partnership units (39,305) (12,909) Issuance of partnership units 1,048 565 Other -- (870) -------- -------- Net cash provided by financing activities 9,786 20,473 -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,419 (1,496) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,624 2,188 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,043 $ 692 ======== ========
4 PART 1. 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 months ended March 31, 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.
- --------------------------------------------------------------------------------------------------------------------------- NOTE 2. DETAILS OF LAND UNDER DEVELOPMENT March 31, December 31, (IN $000) 2000 1999 - --------------------------------------------------------------------------------------------------------------------------- Valencia Residential development $ 7,747 $ 4,532 Industrial and commercial land development 40,599 34,524 Agriculture 735 345 - --------------------------------------------------------------------------------------------------------------------------- Total land under development $ 49,081 $ 39,401 ---------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Note 3. Details for Earnings per Unit Calculation Income Units Per Unit (in 000's except per unit) (numerator) (denominator) - --------------------------------------------------------------------------------------------------------------------------- For three months ended March 31, 2000 Net income per unit Net income available to unitholders $3,197 28,944 $0.11 Effect of dilutive securities Unit options - 369 - - --------------------------------------------------------------------------------------------------------------------------- Net income per unit - diluted $3,197 29,313 $0.11 ---------------------------------------------------- For three months ended March 31, 1999 Net income per unit Net income available to unitholders $8,283 32,448 $0.26 Effect of dilutive securities Unit options - 304 (.01) - --------------------------------------------------------------------------------------------------------------------------- Net income per unit - diluted $8,283 32,752 $0.25 ----------------------------------------------------
5 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------------------------------------------ NOTE 4. DETAILS OF INCOME-PRODUCING PROPERTIES, INCOME PRODUCING PROPERTIES HELD FOR SALE AND PROPERTY AND EQUIPMENT March 31, December 31, (IN $000) 2000 1999 - ------------------------------------------------------------------------------------------------------------------------ Income-producing properties Land $ 21,399 $ 21,399 Buildings 112,552 112,304 Other 14,500 14,498 Properties under development 10,138 8,904 -------------------------------------------------------------------------------------------------------------------- 158,589 157,105 Accumulated depreciation (27,119) (25,478) -------------------------------------------------------------------------------------------------------------------- $131,470 $131,627 ------------------------------------------------- Income-Producing Properties Held for Sale Retail $120,067 $115,462 Office 36,550 36,545 Other 19,889 19,857 ------------------------------------------------------------------------------------------------------------------- 176,506 171,864 Accumulated depreciation (22,431) (22,431) -------------------------------------------------------------------------------------------------------------------- $154,075 $149,433 ------------------------------------------------- Property and equipment Land $ 3,759 $ 3,759 Buildings 5,343 5,343 Equipment 9,311 9,311 Water supply systems, orchards and other 75,716 73,635 Construction in progress 4,839 5,111 -------------------------------------------------------------------------------------------------------------------- 98,968 97,159 Accumulated depreciation (36,467) (35,841) -------------------------------------------------------------------------------------------------------------------- $62,501 $61,318 ------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------
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:
THREE MONTHS ENDED MARCH 31, 2000 ---------------------------------- Contribution (In $000'S) Revenues to Income Assets - ------------------------------------------------------------------ Real Estate Residential $ 8,388 $ 2,796 $ 32,241 Industrial and commercial 2,585 231 123,784 Community development -- (1,994) 21,413 Income-producing properties 14,327 6,903 252,516 Valencia Water Company 2,411 607 61,459 Agriculture 653 411 8,904 Central administration -- (2,137) 13,430 ---------------------------------- 28,364 6,817 513,747 Interest and other, net -- (3,420) -- Other -- (200) -- ---------------------------------- $ 28,364 $ 3,197 $ 513,747 ==================================
6 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NOTE 5. CONTINUED
THREE MONTHS ENDED MARCH 31, 1999 ---------------------------------- Contribution (In $000'S) Revenues to Income Assets - ------------------------------------------------------------------ Real Estate Residential $ 4,300 $ (147) $ 19,492 Industrial and commercial 19,986 8,477 76,118 Community development -- (1,966) 18,369 Income-producing properties 11,307 3,763 262,192 Valencia Water Company 2,238 426 57,316 Agriculture 4,442 3,047 19,798 Central administration -- (2,397) 7,629 ---------------------------------- 42,273 11,203 460,914 Interest and other, net -- (2,420) -- Other -- (500) -- ---------------------------------- $ 42,273 $ 8,283 $ 460,914 ================================== - -------------------------------------------------------------------------------
7 PART 1. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Comparison of First Quarter of 2000 to First Quarter of 1999 - ------------------------------------------------------------- UNAUDITED The amounts of increase or decrease in revenues and income from the prior year first quarter are as follows (in 000s, except per unit):
Three months ----------------------- Increase (Decrease) ----------------------- Amount % -------- ----- REVENUES Real Estate Residential home and land sales $ 4,088 95% Industrial and commercial sales (17,401) -87% Commercial operations Income-producing properties 3,020 27% Valencia Water Company 173 8% -------- ----- Agriculture (10,120) -27% Operations 168 35% Ranch sales (3,957) -100% -------- ----- Total revenues $(13,909) -33% ======== ===== CONTRIBUTION TO INCOME Real Estate Residential home and land sales 2,985 1442% Industrial and commercial sales (8,208) -98% Community development 1 0% Commercial operations Income-producing properties 3,149 84% Valencia Water Company 198 49% -------- ----- (1,875) -18% Agriculture Operations 227 126% Ranch sales (2,847) -100% -------- ----- Operating income (4,495) -34% General and administrative expense 409 15% Interest and other, net (1,000) -41% -------- ----- Net income $ (5,086) -61% ======== ===== Net income per unit $ (0.15) -58% ======== ===== Net income per unit - diluted $ (0.14) -56% ======== ===== Number of units used in computing per unit amounts: Net income per unit (3,504) -11% ======== ===== Net income per unit - diluted (3,439) -11% ======== =====
8 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 months are attributable to the following: For the three months ended March 31, 2000, revenues totaled $28.4 million and income totaled $3.2 million compared with revenues of $42.3 million and income of $8.3 million for the first quarter of 1999. The major contributor to the decrease in first quarter revenues and income was the sale of Cowell Ranch, which contributed $10.0 million to revenues and $8.2 million to income in the first quarter of 1999. RESIDENTIAL HOME AND LAND SALES Demand for new homes in Valencia continued to exceed the supply as the low new home inventory continued to restrict merchant builder home sales. However, the number of new home product lines is expected to more than double over the next two quarters. During the first quarter of 2000, merchant builders sold 86 homes compared to the prior year first quarter when 122 Valencia homes were sold, 90 by merchant builders and 32 by the Company's joint venture partners. The Company completed its remaining Valencia homebuilding joint venture in 1999 and now is concentrating its efforts 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 Company's future success in selling additional lots. In the 2000 first quarter, 130 lots in Valencia for attached homes closed escrow in Bridgeport, the Company's newest "lifestyle village" centered around a 15-acre lake. The sale added $4.2 million to revenues and $1.9 million to income. In addition, $4.1 million in revenues and $1.9 million in income were recognized from previous lot sales in Bridgeport under percentage of completion accounting. At March 31, 2000, the remaining 76 residential lots for detached homes in Bridgeport were in escrow for $7.8 million and closed escrow early in the second quarter. No other residential lots were in escrow at March 31, 2000. During the first quarter of 1999, no lot sales closed escrow and a net loss of $207,000 was recorded for the residential division after deducting operating expenses. The 1999 first quarter also included 26 escrow closings at Cheyenne, the Company's joint-venture homebuilding project with EPAC, which added $4.2 million to revenues and $.3 million to income. At March 31, 1999, 273 lots in Bridgeport were in escrow. The Company is working with its joint-venture partner, Kaufman and Broad of Southern California, on the business plan for City Ranch, a 1,900-acre development in Palmdale, California. The Company has a 50.1% interest in the joint venture and is managing the project. Current plans provide for tract maps to be submitted later this year with the first lot sales to merchant builders now planned for 2001. When completed, this master-planned community is expected to have approximately 4,200 single-family homes, 300 apartment units, 260,000 square feet of commercial development and several hundred acres of open space. The project will offer homes for the entry and move-up level buyer in an expanding housing market. INDUSTRIAL AND COMMERCIAL SALES During the first three months of 2000, no industrial or commercial land sales closed escrow. At March 31, 2000, four industrial parcels totaling 8.4 acres were in escrow for $5.3 million and six commercial parcels totaling 42.8 acres were in escrow for $25.6 million with closings scheduled in the second and third quarters. All escrow closings are subject to market and other conditions. Industrial building activity continued at record levels in the first quarter of 2000 following the high level of land sales in previous years and record absorption in 1999. As a result of the availability of new space, the vacancy rate in Valencia's two industrial parks is 5.8%, slightly above the average for Los Angeles, but still at historically low levels. The Company has approximately 400 net entitled acres of industrial land remaining in Valencia and a goal of absorbing 50 to 75 acres per year to buildout, as few large land parcels are available in Los Angeles County. In addition, planning continues for mixed-use development on 500 acres west of Interstate 5, surrounding Six Flags Magic Mountain amusement park. In the 1999 first quarter, escrows closed on four industrial parcels in Valencia Commerce Center. Sales of these parcels, totaling 15.1 acres, contributed $6.9 million to revenues and $1.0 million to income. Also during the 1999 9 PART 1. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS first quarter, escrow closed on the Company's last remaining large parcel at the Cowell Ranch in northern California. The sale contributed $8.2 million to income in the first quarter of 1999. At March 31, 1999, five industrial parcels totaling 16.5 acres for $13.9 million, including a 110,000-square-foot build-to-suit on 5.2 acres, and five commercial parcels totaling 41.5 acres for $38.4 million were in escrow. The commercial escrows included a 32.8-acre apartments site in South River adjacent to Valencia Town Center for $31.8 million. 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's residential land by 2005 and begin the development 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. Lawsuits filed in connection with Newhall Ranch were heard in court on March 2 and 3, 2000. No decision has been rendered to date. These lawsuits, which challenge the Environmental Impact Report, were filed under the California Environmental Quality Act. The Company is confident that the Environmental Impact Report has been well documented, however, the results of these types of legal challenges are difficult to predict. An adverse decision may delay the development of the community and may affect project plans and expenses. Development plans continue for Valencia Westridge, the Company's 1,700-home golf course community just west of Interstate 5. This project will feature executive homes surrounding a Tournament Players Club championship golf course, designed to serve as the site for an annual PGA TOUR-sanctioned golf tournament. The Company expects to start development later this year following grading approval, with the first lot sales planned in 2001. Lawsuits concerning Valencia Westridge, originally scheduled to be heard in late March, were heard in court on April 25. On May 2, 2000, the petition for Writ of Mandate alleging violations of the Los Angeles County General Plan, the County Development Monitoring System and the California Environmental Quality Act was denied. In March 2000, the City of Santa Clarita approved the annexation of 136 acres and granted tentative approval for 1,900 homes in the Decoro South, Creekside and East Creek areas northwest of Valencia Northbridge. Final city approval was received in April 2000 and the Company plans to market 700 lots later this year. Another 2,545 lots in Valencia received tentative approval from the Los Angeles County Regional Planning Commission with final approval from the Los Angeles County Board of Supervisors expected later this year. The Company continues to work on plans for a new community with the City of Broomfield, Colorado, where it has an option on 1,700 acres located between Denver and Boulder. Plans call for approximately 3,000 homes and 215 acres of office and commercial development. Entitlements for the project are expected later this year, with development planned to start in 2001, and the first lot sales in 2002. Community development expenses for the first quarter of 2000 were approximately the same as the first quarter of 1999. With the continued focus on obtaining entitlements and strategic marketing as well as litigation costs relating to Newhall Ranch and Valencia Westridge, community development expenses for the year are expected to remain at about the same level as in 1999. INCOME-PRODUCING PROPERTIES As announced in September 1999, the sale of a portion of the Company's income portfolio is planned this year to accommodate the repurchase of 6.3 million units. Plans call for over $200 million to be generated from the sale of eleven properties before necessary debt reductions. With property values near record highs, the Company is working with three major real estate brokerage firms and has targeted sales opportunities in three principal categories - retail, office and other properties. The Company is experiencing strong interest in the properties and it appears that sales prices will be consistent with targets established at the beginning of the year. Currently, buyers have been identified for two retail properties in the portfolio, Castaic Shopping Center and Plaza del 10 PART 1. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Rancho. The Company expects these properties will enter escrow shortly and anticipates them to close this summer. The Company's commercial portfolio benefited from the addition of income-producing properties during the past year, particularly along Town Center Drive in Valencia Town Center. With new properties open and occupancy rates up, the commercial portfolio's revenues and income increased 27% and 84%, respectively, in the first quarter of 2000 over the year earlier quarter. Approximately 40% of the increase in income in the 2000 first quarter is attributable to the suspension of depreciation of properties held for sale. For the full year, income from the commercial portfolio is expected to increase temporarily also due to the cessation of depreciation of properties held for sale. Demand for space is strong in Valencia Town Center. BJ's Chicago Pizza and Brewery, a leading regional eatery, recently opened in the 16,000-square-foot expansion of the entertainment complex. The 394,000 square feet of retail and office space along Town Center Drive is 87% leased with leases on an additional 5% out for signatures. Office space in the Company's three-story office building on Town Center Drive, the six-story Princess Cruises building on Town Center Drive and the Bank of America building adjacent to the Company's headquarters are all 100% leased. Construction of the two additional buildings for Princess Cruises totaling 208,000 square feet is on schedule and delivery to Princess Cruises for tenant improvements is expected this fall with occupancy planned in early 2001. All five of these office buildings are targeted for sale in 2000. The Hyatt Valencia Hotel posted improved performance for the first quarter of 2000 compared to the same period last year. The Hilton Garden Inn and the Hyatt Valencia had an average occupancy of 60% for the three months ended March 31, 2000 compared to 50% for the same period in 1999. The portfolio's shopping centers all enjoy high occupancy rates. NorthPark Village Square, Castaic Shopping Center and Plaza del Rancho are all 100% leased. Valencia Town Center regional mall continues at 98% leased including short-term tenants. Castaic Shopping Center, Plaza del Rancho and Valencia Town Center, including Town Center Drive and the entertainment complex, are included in the properties identified for sale in 2000. Occupancy rates at the Company's three established apartment complexes averaged 95% at the end of the 2000 first quarter. Montecito, a 210-unit, high-end apartment complex which opened in Valencia Town Center in 1999, was 80% leased as of April 20, 2000 and commands the highest rents in the Santa Clarita Valley. The complex includes 12 townhomes which, along with many of the units, overlook Valencia Country Club. Demand for apartments continues to be strong as new jobs are being created in Valencia. VALENCIA WATER COMPANY Valencia Water Company is a regulated public water utility and a wholly-owned subsidiary of the Company. Revenues and income from Valencia Water Company for the three months ended March 31, 2000 increased over the 1999 first quarter by 8% and 49%, respectively, as a result of drier weather and the continued expansion of its customer base, which now exceeds 21,000 metered connections. Profit margins benefited from increased operating efficiencies. AGRICULTURAL OPERATIONS AND RANCH SALES For the first quarter of 2000, revenues and income, including the Company's energy operations, were ahead of the year earlier quarter by 35% and 126%, respectively. The major contributor to the increases was energy operations, where oil prices more than doubled from prices received during the first quarter of 1999. With the 1999 first quarter sale of the remaining portions of the Merced Ranch and the fourth quarter sale of the Suey Ranch, agriculture operations are now concentrated on the 14,000-acre New Columbia Ranch, which is 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 11 PART 1. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS grazing. Income from agricultural operations is expected to decrease substantially in 2000 due to the previously mentioned ranch sales. GENERAL AND ADMINISTRATIVE EXPENSE For the first quarter of 2000, general and administrative expenses decreased 15% from the comparable prior year period. The major contributors to the decrease are lower expenses for land acquisition activities and accrued incentive compensation based on lower earnings in the 2000 first quarter. For all of 2000, general and administrative expenses are expected to decrease about 15% from 1999 levels. INTEREST AND OTHER A 41% increase in net interest expense from the comparable 1999 quarter is primarily due to the Company utilizing existing debt capacity to fund unit repurchases. The increase was partially offset by higher interest income from land sale notes. A portion of the sales proceeds from income properties held for sale will be used to pay down debt, however, escrow closings on most of the properties are not expected to occur until the second half of 2000. Interest expense in 2000 for the total year is expected to be substantially higher than in the previous year due the above mentioned factors. FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES At March 31, 2000, the Company had cash and cash equivalents of $5.0 million and $22.3 million available under bank lines, net of $14.9 million in letters of credit. Borrowings outstanding totaled $122.8 million against unsecured lines of credit and $35 million against a revolving mortgage facility. In addition the Company had fixed rate debt totaling $123.2 million. The Company believes it has adequate sources of cash from operations and debt capacity to finance future operations and, combined with anticipated land and property sales, to fund its unit repurchases. At March 31, 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, has been extended until May 22, 2000. The Company is reviewing its alternatives regarding the facility. As reported in September 1999, the Company developed a business strategy to repurchase up to 6,384,446 units, including 884,446 units under a previous authorization, equal to approximately 20% of the then outstanding units. During the first quarter of 2000, a total of 1,406,421 partnership units was repurchased for $39.3 million, or an average price of $27.95 per unit. From the time the repurchase plan was announced through March 31, 2000, a total of 3,130,373 units, or 49% of the 6,384,446 units, were repurchased at an average price of $26.05 per unit. A total of 3,254,073 units remained to be repurchased at the end of the 2000 first quarter 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 has a gross cash generation plan of over $200 million from income property sales, before necessary debt retirements or special distributions. The Company also has an aggressive land sales program for this year, capitalizing on the strong regional economy. 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 identified for sale. There are no material commitments for capital expenditures other than the Company's plans in the ordinary course of business to complete the development of income properties under construction. The Company expects to expend approximately $30 million in 2000 to complete construction on the two office buildings which have been leased to Princess Cruises and to complete the Valencia Entertainment Center expansion. In addition, over $40 12 PART 1. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS million is expected to be invested in major roads and freeway improvements in 2000 to enable the Company to close additional land sales. THE FOLLOWING DISCUSSION RELATES TO PRINCIPAL ITEMS IN THE CONSOLIDATED STATEMENTS OF CASH FLOW: OPERATING ACTIVITIES Net cash provided by operating activities totaled $2.0 million for the 2000 first quarter and included the sale of 130 residential lots which generated $1.3 million in cash and a $3.7 million note which was paid early in the second quarter. In addition, $13.7 million of notes in conjunction with land sales in prior years were collected during the quarter. Expenditures for land under development totaled $16.1 million and were primarily related to land preparation and infrastructure to ready land for development or sale and agricultural crop costs. INVESTING ACTIVITIES Expenditures for development of income-producing properties totaled $6.2 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 A quarterly distribution totaling $13.0 million was paid in the 2000 first quarter which consisted of a $.10 per unit quarterly distribution and a $.35 per unit special distribution. Borrowings against lines of credit increased by $58.2 million during the quarter primarily due to the unit repurchase program. Units repurchased during the quarter totaled 1,406,421 for $39.3 million or an average price of $27.95 per unit. LITIGATION In late March 2000, a verdict in the approximate amount of $7.7 million was rendered against the Company in a lawsuit brought by an insurance company and the homeowners association of the Franciscan Hill condominium project alleging construction defects that came to light in the Northridge earthquake in January 1994. Newhall Land is considering various legal alternatives, including an appeal of the decision. The Company does not expect any ultimate adverse decision to have a material impact on its earnings or financial condition based on expected insurance recoveries and reserves. 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. 13 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 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, 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. 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 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. 14 PART 1. FINANCIAL INFORMATION 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 March 31, 2000, the Company had $157.8 million of variable debt with interest rates ranging from 6.88% to 7.40% and $123.1 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 March 31, 2000 by expected maturity dates:
Expected Maturity Date -------------------------------------------------------------------------- Fair Dollars in thousands 2000 2001 2002 2003 2004 Thereafter Total Value -------------------------------------------------------------------------- ---------- --------- Mortgage and Other Debt Fixed Rate Debt $ 1,611 $ 4,992 $ 5,153 $ 14,688 $ 5,272 $ 91,477 $ 123,193 $ 123,193 Weighted Average Interest Rate 7.30% 7.70% 7.68% 8.16% 7.61% 7.02% 7.24% Variable Rate Debt (1) $ 157,800 $ 157,800 $ 157,800 Weighted Average Interest Rate 7.14% 7.14%
(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 $35 million was outstanding at March 31, 2000. The Company also has a $159 million unsecured revolving line of credit on which the rate is LIBOR plus 1.2% At March 31, 2000, $121.8 million was outstanding against this line and a $1 million line of credit with Valencia Bank & Trust. The amounts set forth in the table above assume that the outstanding amounts under the variable rate credit facilities will be repaid at the facilities' respective maturity dates. Management believes that 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 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" and "Litigation" 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 (a) Exhibits (listed by numbers corresponding to the Exhibit Table of Item 601 in Regulation S-K): 27 Financial Data Schedule 15 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: May 10, 2000 By /s/ THOMAS L. LEE ----------------------------------------------- Thomas L. Lee, Chairman and Chief Executive Officer of Newhall Management Corporation (Principal Executive Officer) Date: May 10, 2000 By /s/ STUART R. MORK ----------------------------------------------- Stuart R. Mork, Senior Vice President and Chief Financial Officer of Newhall Management Corporation (Principal Financial Officer) Date: May 10, 2000 By /s/ DONALD L. KIMBALL ----------------------------------------------- Donald L. Kimball, Vice President - Finance and Controller of Newhall Management Corporation (Principal Accounting Officer) 16 EX-27 2 EXHIBIT 27
5 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 5,043 0 50,993 878 49,081 0 462,634 86,018 513,747 0 280,993 0 0 0 91,619 513,747 11,626 28,364 8,242 19,504 0 0 3,420 3,197 0 3,197 0 0 0 3,197 0.11 0.11
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