-----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, PRnnGzlIoJ4jKBuq05Bz1TuZ60BnmsGXYpVZJp5LqJbsRsRwFdIiGaYJ167jnyLB gEywUMBxjONgH1HbbQwT9w== /in/edgar/work/0000912057-00-049673/0000912057-00-049673.txt : 20001115 0000912057-00-049673.hdr.sgml : 20001115 ACCESSION NUMBER: 0000912057-00-049673 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEWHALL LAND & FARMING CO /CA/ CENTRAL INDEX KEY: 0000751976 STANDARD INDUSTRIAL CLASSIFICATION: [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: 764870 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 a2030476z10-q.txt 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 September 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 / / 26,833,513 partnership units outstanding at September 30, 2000. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Statements of Income (In thousands, except per unit)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------- ----------------------- 2000 1999 2000 1999 --------- --------- --------- --------- REVENUES Real estate Residential home and land sales $ 4,861 $ 36,829 $ 23,817 $ 61,383 Industrial and commercial sales 20,711 16,566 49,044 63,231 Commercial operations Income-producing properties 14,156 13,164 43,110 36,185 Valencia Water Company 4,220 3,765 9,613 8,702 --------- --------- --------- --------- 43,948 70,324 125,584 169,501 --------- --------- --------- --------- Agriculture Operations 2,522 2,880 4,569 5,057 Ranch sales - - - 3,957 --------- --------- --------- --------- 2,522 2,880 4,569 9,014 --------- --------- --------- --------- Total revenues $ 46,470 $ 73,204 $ 130,153 $ 178,515 ========= ========= ========= ========= CONTRIBUTION TO INCOME (LOSS) Real estate Residential home and land sales $ (3,403) $ 10,917 $ 2,945 $ 14,489 Industrial and commercial sales 4,135 3,981 9,004 25,798 Community development (2,411) (2,203) (6,848) (8,043) Commercial operations Income-producing properties 7,221 4,236 20,268 12,187 Valencia Water Company 1,237 1,031 2,476 2,108 --------- --------- --------- --------- 6,779 17,962 27,845 46,539 --------- --------- --------- --------- Agriculture Operations 202 271 919 862 Ranch sales - - - 2,847 --------- --------- --------- --------- 202 271 919 3,709 --------- --------- --------- --------- Operating income 6,981 18,233 28,764 50,248 General and administrative expense (2,184) (3,805) (6,707) (9,861) Interest and other, net (5,409) (2,531) (13,124) (7,484) --------- --------- --------- --------- Net income (loss) $ (612) $ 11,897 $ 8,933 $ 32,903 ========= ========= ========= ========= Net income (loss) per unit $ (0.02) $ 0.38 $ 0.32 $ 1.03 ========= ========= ========= ========= Net income (loss) per unit - diluted $ (0.02) $ 0.38 $ 0.32 $ 1.03 ========= ========= ========= ========= Number of units used in computing per unit amounts: Net income per unit 26,967 31,341 27,942 31,821 Net income per unit - diluted 26,967 31,611 28,289 32,100 Cash distributions per unit: Regular $ 0.10 $ 0.10 $ 0.30 $ 0.30 Special 0.35 0.22
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets (In thousands)
SEPTEMBER 30, DECEMBER 31, 2000 1999 --------- --------- ASSETS Cash and cash equivalents $17,352 $1,624 Accounts and notes receivable 28,545 61,567 Land under development 62,455 39,401 Land held for future development 22,419 28,570 Income-producing properties held for sale, net 157,927 149,433 Income-producing properties, net 119,846 131,627 Property and equipment, net 67,265 61,318 Investment in joint ventures 684 16,682 Other assets and deferred charges 16,169 14,602 --------- --------- $492,662 $504,824 ========= ========= LIABILITIES AND PARTNERS' CAPITAL Accounts payable $27,973 $24,244 Accrued expenses 47,882 46,329 Deferred revenues 12,855 21,227 Mortgage and other debt 295,695 222,825 Advances and contributions from developers for utility construction 32,092 25,690 Other liabilities 25,559 24,784 --------- --------- Total liabilities 442,056 365,099 Partners' capital 26,834 units outstanding, excluding 9,939 units in treasury (cost-$236,894), at September 30, 2000 and 29,668 units outstanding, excluding 7,104 units in treasury (cost-$157,394), at December 31, 1999 50,606 139,725 --------- --------- $492,662 $504,824 ========= =========
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Statements of Cash Flows (In thousands)
NINE MONTHS ENDED SEPTEMBER 30, ----------------------- 2000 1999 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 8,933 $ 32,903 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,442 11,092 Increase in land under development (51,180) (71,861) Cost of sales and other inventory changes 34,275 75,210 Decrease (increase) in accounts and notes receivable 30,873 (21,062) (Decrease) increase in accounts payable, accrued expenses and deferred revenues (3,090) 30,714 Cost of property sold 15,997 12,593 Other adjustments, net 2,422 175 -------- -------- Net cash provided by operating activities 45,672 69,764 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Development of income-producing properties (18,701) (56,401) Purchase of property and equipment (8,461) (6,657) Distribution from (investment in) joint venture 3,974 (4,062) -------- -------- Net cash used in investing activities (23,188) (67,120) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions paid (18,552) (16,716) Increase in mortgage and other debt 84,894 60,839 Increase (decrease) in advances and contributions from developers for utility construction 6,402 (1,348) Purchase of partnership units (81,240) (44,667) Issuance of partnership units 1,740 1,811 Other - (870) -------- -------- Net cash (used in) provided by financing activities (6,756) (951) -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 15,728 1,693 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,624 2,188 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 17,352 $ 3,881 ======== ======== Supplemental schedule of non-cash investing and financing activities: Divestiture of joint venture $ 16,469 Note payable in connection with investment in joint venture (12,024) $ 12,024
4 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ACCOUNTING POLICIES The consolidated financial statements include the accounts of The Newhall Land and Farming Company and its subsidiaries, all of which are wholly-owned (collectively, "the Company"). All significant intercompany balances and transactions are eliminated. The Company's unaudited interim financial statements have been prepared in conformity with generally accepted accounting principles used in the preparation of the Company's annual financial statements. In the opinion of the Company, all adjustments necessary for a fair statement of the results of operations for the three and nine months ended September 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. NOTE 2. DETAILS OF LAND UNDER DEVELOPMENT
SEPTEMBER 30, DECEMBER 31, (IN $000) 2000 1999 ----------- ---------- Residential land development $ 14,058 $ 4,532 Industrial and commercial land development 47,921 34,524 Agriculture 476 345 ----------- ---------- Total land under development $ 62,455 $ 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 September 30, 2000 Net loss per unit Net loss available to unitholders $ (612) 26,967 $ (.02) Effect of dilutive securities Unit options - N/A - ----------- --------- --------- Net loss per unit - diluted $ (612) 26,967 $ (.02) =======================================================================================================================
5 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Note 3 (continued)
INCOME UNITS PER UNIT (in 000's except per unit) (NUMERATOR) (DENOMINATOR) - ------------------------------------------------------------------------------------------------------------------------ For three months ended September 30, 1999 Net income per unit Net income available to unitholders $11,897 31,341 $ .38 Effect of dilutive securities Unit options - 270 - - ------------------------------------------------------------------------------------------------------------------------ Net income per unit - diluted $11,897 31,611 $ .38 =============================================== For nine months ended September 30, 2000 Net income per unit Net income available to unitholders $8,933 27,942 $ .32 Effect of dilutive securities Unit options - 347 - - ------------------------------------------------------------------------------------------------------------------------ Net income per unit - diluted $8,933 28,289 $.32 =============================================== For nine months ended September 30, 1999 Net income per unit Net income available to unitholders $32,903 31,821 $1.03 Effect of dilutive securities Unit options - 279 - - ------------------------------------------------------------------------------------------------------------------------ Net income per unit - diluted $32,903 32,100 $1.03 ===============================================
NOTE 4. DETAILS OF INCOME-PRODUCING PROPERTIES, INCOME PRODUCING PROPERTIES HELD FOR SALE AND PROPERTY AND EQUIPMENT
SEPTEMBER 30, DECEMBER 31, (In $000s) 2000 1999 - ------------------------------------------------------------------------------------------------------------------------- Income-producing properties Land $21,400 $ 21,399 Buildings 112,552 112,304 Other 14,500 14,498 Properties under development 1,792 8,904 - ------------------------------------------------------------------------------------------------------------------------- 150,244 157,105 Accumulated depreciation (30,398) (25,478) - ------------------------------------------------------------------------------------------------------------------------- $119,846 $131,627 =============================================== Income-producing properties held for sale Retail $104,687 $115,462 Office 53,295 36,545 OTHER 19,923 19,857 ---------------------------------------------------------------------------------------------------------------- 177,905 171,864 Accumulated depreciation (19,978) (22,431) - ----------------------------------------------------------------------------------------------------------------------- $157,927 $149,433 ===============================================
6 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NOTE 4 (CONTINUED)
SEPTEMBER 30, DECEMBER 31, (In $000s) 2000 1999 - ----------------------------------------------------------------------------------------------------------------------- Property and equipment Land $ 3,759 $ 3,759 Buildings 5,803 5,343 Equipment 9,435 9,311 Water supply systems, orchards and other 80,513 73,635 Construction in progress 5,651 5,111 - --------------------------------------------------------------------------------------------------------------------- 105,161 97,159 ACCUMULATED DEPRECIATION (37,896) (35,841) - ---------------------------------------------------------------------------------------------------------------------- $67,265 $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 SEPTEMBER 30, 2000 - ----------------------------------------------------------------------------------------------------------------------- CONTRIBUTION (In $000s) REVENUES TO INCOME (LOSS) ASSETS - ----------------------------------------------------------------------------------------------------------------------- Real Estate Residential $ 4,861 $(3,403) $ 13,379 Industrial and commercial 20,711 4,135 85,944 Community development - (2,411) 11,536 Income-producing properties 14,156 7,221 282,394 Valencia Water Company 4,220 1,237 66,905 Agriculture 2,522 202 6,553 Central administration - (2,184) 25,951 ------------------------------- ------------------ 46,470 4,797 492,662 Interest and other, net - (5,409) - All other - - - ------------------------------------------------- $46,470 $ (612) $492,662 ==================================================
THREE MONTHS ENDED SEPTEMBER 30, 1999 - ----------------------------------------------------------------------------------------------------------------------- CONTRIBUTION (In $000s) REVENUES TO INCOME ASSETS - ----------------------------------------------------------------------------------------------------------------------- Real Estate Residential $ 36,829 $ 10,989 $ 27,841 Industrial and commercial 16,566 4,065 92,547 Community development - (2,137) 8,393 Income-producing properties 13,164 4,254 288,994 Valencia Water Company 3,765 1,061 59,158 Agriculture 2,880 295 18,433 Central administration - (3,499) 12,133 ------------------------------------------------- 73,204 15,028 507,499 Interest and other, net - (2,531) - All other - ( 600) - ------------------------------------------------- $ 73,204 $ 11,897 $507,499 ==================================================
7 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NOTE 5 (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 - ----------------------------------------------------------------------------------------------------------------------- CONTRIBUTION (In $000s) REVENUES TO INCOME ASSETS - ----------------------------------------------------------------------------------------------------------------------- Real Estate Residential $ 23,817 $ 2,994 $ 13,379 Industrial and commercial 49,044 9,092 85,944 Community development - (6,776) 11,536 Income-producing properties 43,110 20,284 282,394 Valencia Water Company 9,613 2,498 66,905 Agriculture 4,569 930 6,553 Central administration - (6,415) 25,951 ------------------------------------------------- 130,153 22,607 492,622 Interest and other, net - (13,124) - All other - (550) - ------------------------------------------------- $130,153 $ 8,933 $492,662 ==================================================
NINE MONTHS ENDED SEPTEMBER 30, 1999 - ----------------------------------------------------------------------------------------------------------------------- CONTRIBUTION (IN $000S) REVENUES TO INCOME ASSETS > Real Estate Residential $ 61,383 $ 14,693 $ 27,841 Industrial and commercial 63,231 26,036 92,547 Community development - (7,856) 8,393 Income-producing properties 36,185 12,238 288,994 Valencia Water Company 8,702 2,193 59,158 Agriculture 9,014 3,777 18,433 Central administration - (8,994) 12,133 -------------------------------------------------- 178,515 42,087 507,499 Interest and other, net - (7,484) - All other - (1,700) - -------------------------------------------------- $178,515 $ 32,903 $507,499 ==================================================
8 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS Comparison of Third Quarter and Nine Months of 2000 to Third Quarter and Nine Months of 1999 - ------------------------------------------------------------------------------- UNAUDITED The amounts of increase or decrease in revenues and income from the prior year third quarter and nine months are as follows (in 000s, except per unit):
Third Quarter Nine Months ---------------------------- --------------------------------- Increase (Decrease) Increase (Decrease) --------------------------------------------------------------------- Amount % Amount % ------------ ------------ ------------ ------------ REVENUES Real Estate Residential home and land sales $ (31,968) -87% $ (37,566) -61% Industrial and commercial sales 4,145 25% (14,187) -22% Commercial operations Income-producing properties 992 8% 6,925 19% Valencia Water Company 455 12% 911 10% ------------ ------------ ------------ ------------ (26,376) -38% (43,917) -26% Agriculture Operations (358) -12% (488) -10% Ranch sales - - (3,957) -100% ------------ ------------ ------------ ------------ Total revenues $ (26,734) -37% $ (48,362) -27% =============== =========== ============== ============= CONTRIBUTION TO INCOME Real Estate Residential home and land sales $ (14,320) -131% $ (11,544) -80% Industrial and commercial sales 154 4% (16,794) -65% Community development (208) -9% 1,195 15% Commercial operations Income-producing properties 2,985 70% 8,081 66% Valencia Water Company 206 20% 368 17% ------------ ------------ ------------ ------------ (11,183) -62% (18,694) -40% Agriculture Operations (69) -25% 57 7% Ranch sales - - (2,847) -100% ------------ ------------ ------------ ------------ Operating income (11,252) -62% (21,484) -43% General and administrative expense 1,621 43% 3,154 32% Interest and other, net (2,878) -114% (5,640) -75% ------------ ------------ ------------ ------------ Net income $ (12,509) -105% $ (23,970) -73% ============ ============ ============ ============ Net income per unit ($0.40) -106% ($0.71) -69% ============ ============ ============ ============ Net income per unit - diluted ($0.40) -106% ($0.71) -69% ============ ============ ============ ============ Number of units used in computing per unit amounts: Net income per unit (4,374) -14% (3,879) -12% ============ ============ ============ ============ Net income per unit - diluted (4,644) -15% (3,811) -12% ============ ============ ============ ============
9 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. For the three months ended September 30, 2000, the Company recorded a net loss of $612,000 on revenues of $46.5 million. This compares with net income of $11.9 million on revenues of $73.2 million reported for the third quarter of 1999. Results for the 2000 third quarter include a $4.5 million loss as a result of the divestiture and expenses incurred prior to the divestiture of the Company's interest in City Ranch, a joint venture project with Kaufman and Broad of Southern California. The divestiture eliminates significant future cash requirements relating to development costs for the 4,500-home project and allows the Company to focus its resources on its unit repurchase program and the strong real estate market in Valencia where demand for residential, industrial and commercial land is excellent. In addition, two accounting charges were recorded in the 2000 third quarter. In September, the Company agreed to accept a reduced note pay-off in the fourth quarter of this year in return for accelerating the due date on a 1998 industrial land sale note with scheduled maturities through September 2002. This resulted in the Company recording a $2.1 million charge in the third quarter of 2000 to reduce the note receivable and accrued interest to the negotiated $14.4 million pay-off amount. The note relates to a land sale in Valencia Commerce Center to developers who bought several parcels upon which they intended to construct office buildings. The first project has not leased well, and the developers have decided to develop the second 27-acre parcel (the collateral for the note) as industrial. The payoff amount, net of accrued interest, reflects current Valencia industrial land values of slightly over $11 per square foot. The industrial market in Valencia remains strong with vacancy rates in the Company's two industrial/business parks at slightly below 5%. The second charge relates to the asset sale program. The Company has executed a letter of intent to sell its four office buildings in Valencia Town Center totaling 396,000 square feet, including two buildings under construction for Princess Cruises. Under the negotiated terms as of September 30, 2000, escrow is anticipated to close on the four office buildings in the fourth quarter of this year for approximately $74 million cash. This sales price exceeds the construction costs by approximately $11 million. However, a condition of the sale includes a monthly rental payment by the Company to the buyer for 161,000 square feet of building space (to be occupied by Princess Cruises) until Princess' rent commencement date in the first quarter of 2001. In addition, the Company has agreed to lease back approximately 49,000 square feet of retail space for 12-1/2 years. These provisions are treated as costs of the transaction. With regard to the retail leaseback, accounting guidelines do not allow the consideration of any future new or renewal leasing activity to reduce the calculation of the net obligation. As a result of the above accounting charge, the Company has estimated the accounting loss on the sale of the buildings, $1.2 million, as an impairment in the value of such assets and recognized it in the third quarter. Management believes that sub-leasing of the retail will more than offset this accounting loss over the life of the leaseback and ultimately will result in additional revenues and income. Closing of escrow under the terms described above is dependent on a number of factors including, but not limited to, completion of buyer's due diligence, completion of a definitive agreement and availability of buyer financing. During the third quarter, the Company was informed that Valencia Water Company's most recent request to expand its service area was undergoing further review by the Public Utilities Commission. In October 2000, the Commission determined that environmental studies on water availability should be submitted for Valencia Water Company's expansion areas which include the Company's remaining undeveloped residential properties in Valencia, excluding Westridge and River Park. Under the ruling, Valencia Water Company will be filing a response during the later half of the fourth quarter, after which the Commission will determine the scope of the necessary environmental review needed. It is expected that this process will delay lot sales in the affected areas previously scheduled to close in the fourth quarter of 2000 and early in 2001 well into next year. However, the length of time of the Commission's review and decision are difficult to predict, which could further delay the service expansion request. Valencia Westridge, the Company's golf course community planned for 1,200 homes and 500 apartments, is not affected by the PUC ruling and land development work has commenced. The Company expects to begin marketing this project next year with lot sales expected in the second half of 2001. As previously reported, a buyer had been identified for the Valencia Town Center Mall, Valencia Entertainment Center and retail buildings along Town Center Drive. As announced on August 28, 2000, the buyer terminated due diligence work and decided not to proceed with the proposed purchase as a result of the Chapter 11 10 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. bankruptcy filing by Edwards Theaters Circuit, Inc. Edwards Theaters has two theater complexes totaling 21 screens and an IMAX 3D theatre in the Mall and Entertainment Center. Independent industry data indicate that out of the approximately 70 Edwards Theater locations in Southern California, Valencia Town Center's complexes are among the top 25% in total box office performance. The theaters are state-of-the-art and are located in a premier shopping area in the heart of Valencia, which is a strong and growing area. Edwards has paid rent when due on its leases in the two complexes. The Company is in the process of identifying other potential buyers for the mall and entertainment center, but does not expect a sale to be completed this year. A buyer has been identified for Chiquita Canyon Landfill, a significant Company asset. Completion of the possible sale and the timing are uncertain. Sale of the Bank of America and Spectrum Club buildings is not expected to be completed this year. The Company expects this year's revenues to include about $25 million from the 208 residential lots sold in the first half of the year and revenues recognized on prior year lot sales. About 100 acres of industrial and commercial land are either sold or scheduled to close this year, for approximately $65 million. The retail asset sales that closed earlier in the year, together with the office portfolio in escrow, are scheduled to generate approximately $90 million in revenues. Escrow closings are dependent upon market and other conditions. The current unit repurchase program, begun in September 1999, is 73% complete. While the remaining 1.7 million units may not be repurchased by the end of this year, the Company is focused on completing the current authorization as soon as possible when major asset sales are completed. In addition, if current strong business conditions continue, additional unit repurchases may be authorized in addition to the current program in 2001, dependent primarily on the level of land sales that close escrow next year. During the third quarter of 2000, a total of 342,095 partnership units was repurchased at an average price of $27.69 per unit. From the date of the plan's announcement through September 30, 2000, a total of 4,650,402 units, or 73% of the 6,384,446 units, was repurchased at an average price of $26.55 per unit. A total of 1,734,044 units remains to be repurchased under the current authorization. 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. The increases and decreases in revenues and income by business segment for the three and nine months are attributable to the following: RESIDENTIAL HOME AND LAND SALES In the quarter ended September 30, 2000, no residential lots closed escrow, however, revenues of $4.9 million and income of $2.2 million were recognized from previous lot sales in Bridgeport under percentage of completion accounting. The 2000 nine-month period includes the sale of 208 lots in Bridgeport, which contributed $12.2 million to revenues, and $5.5 million to income under percentage of completion. In addition, revenues of $11.4 million and income of $5.2 million were recognized in the nine-month period from lots sold in the prior year. During the third quarter of 1999, the Company closed escrow on 154 finished lots in Bridgeport for $18.5 million, contributing $9.3 million to income under percentage of completion accounting. Results for the 1999 nine-month period also included the sale of 193 residential lots in Bridgeport for a multi-family project which added $9.5 million to revenues $3.8 million to income under percentage of completion. Results for the 1999 quarter and nine-month period also include $1.1 million received from price and profit participation agreements relating to Valencia lot sales in prior years. In addition, the 1999 three-month period included $16.7 million in revenues and $1.7 million in income and the 1999 nine-month period included revenues of $32.3 million and income of $3.3 million from 65 and 141 joint-venture home closings, respectively. 11 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The supply of new homes released for sale continues to increase and, during the 2000 third quarter, five new product lines were added to the 11 already available. Merchant builders sold 124 homes in the 2000 third quarter, up from the 110 homes sold in the year earlier quarter and 68 homes sold in the second quarter of 2000. This brings the total for the first nine months of 2000 to 278 homes sold compared with 319 homes sold in the first nine months of 1999 which included 141 by the Company's joint ventures. The Company completed the sell-out of its remaining Valencia homebuilding joint ventures in 1999 and its efforts since have 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. The Public Utilities Commission (PUC) review of Valencia Water Company's request to expand its service area will delay the sale of certain residential lots previously planned for later this year and early in 2001 well into next year. However, the length of time the PUC will take to review and render its decision is difficult to predict, which could further delay lot sales The neighborhoods affected include: 700 entitled lots on about 54 net acres in Alta Vista; 1,200 entitled lots on about 110 net acres in Creekside and Hidden Creek (formerly known as East Creek), all of which were approved for annexation to the City of Santa Clarita last year; and 2,545 entitled lots on about 287 net acres in the West Creek community, which received tentative approval by the L.A. County Board of Supervisors in September 2000. About 1,000 lots on approximately 100 net acres yet to be approved in River Park will be serviced by another water purveyor and will not be affected by the PUC ruling. The number of entitled lots for a specific project compared to the number of lots sold will vary according to market conditions, merchant builder needs and a variety of other conditions. In October 2000, a petition for writ of mandate and injunctive relief concerning the West Creek community was filed by Santa Clarita Organization for Planning the Environment in Los Angeles County Superior Court against the County of Los Angeles, the Los Angeles County Board of Supervisors, the California Department of Fish and Game, and the Company as the real party in interest. The petition alleges violations of: 1) the California Environmental Quality Act (CEQA); 2) Planning and Zoning Act; 3) California Endangered Species Act; and 4) Section 1603 of the California Fish and Game Code. The petition was recently filed and the Company is reviewing the allegations. As with prior CEQA lawsuits in which the Company was a real party in interest, the results of these types of legal challenges are difficult to predict. An adverse decision will likely delay the development of the community beyond the delay created by the PUC process previously mentioned. Valencia Westridge, the Company's 1,700-home golf course community, is not affected by the PUC ruling and land development work has commenced. The 280 net acre project will consist of approximately 1,200 homes and 500 apartments. About 400 homes will have golf course frontage or spectacular views, many on estate-size lots. The community also will contain a 200-acre preserve for oak trees and open space. Lots are anticipated to be sold to merchant builders starting in the second half of 2001, with homes expected to be available for sale in 2002. The Tournament Players Club (TPC) Golf Course, which is designed to serve as the site for an annual PGA TOUR-sanctioned golf tournament, is scheduled for completion 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 approving the project's Environmental Impact Report. In addition, several groups have given the Company notice of their intent to challenge a permit that was issued by the U.S. Army Corps of Engineers relating to the development of a portion of the community. INDUSTRIAL AND COMMERCIAL SALES INDUSTRIAL LAND SALES Two industrial parcels in Valencia Commerce Center totaling 34.4 acres closed escrow in the 2000 third quarter, adding $12.8 million to revenues and $3.2 million to income for the third quarter. Under percentage of completion accounting, an additional $3.6 million in revenues and $800,000 in income is expected to be recorded in the fourth quarter from these sales. The 2000 nine-month period also includes two industrial parcels totaling 4.2 acres for $2.3 million contributing $700,000 to income. At September 30, 2000, six parcels totaling 15.1 acres were in escrow for approximately $8.4 million, with closings scheduled for the fourth quarter. All escrow closings are subject to market and other conditions. 12 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The industrial market in Valencia remains strong with vacancy rates in the Company's two industrial/business parks at slightly below 5%. The Company has approximately 380 acres of entitled industrial land remaining in Valencia. In the 1999 third quarter, $7.6 million in revenues and $400,000 in income were recognized upon the completion and sale of a 170,000-square-foot build-to-suit facility in Valencia Commerce Center. The sale of the land for this facility closed escrow in the first quarter of 1999. A 4.4-acre parcel in Valencia Industrial center also closed escrow during the third quarter for $1.7 million adding $630,000 to income. In addition to third quarter sales, results for the 1999 nine-month period include industrial land closings on 20.5 acres contributing $9.8 million to revenues and $2.0 million to income. At September 30, 1999, four industrial parcels totaling 26.2 acres were in escrow or were being held under deposit for $19.3 million including a 100,000-square-foot build-to-suit on 5.2 acres. COMMERCIAL LAND SALES During the 2000 third quarter, three commercial parcels totaling 4.1 acres closed escrow, contributing $2.8 million to revenues and $1.8 million to income. The nine-month period also includes an 11.2-acre commercial parcel for a Lowe's Home Improvement Warehouse which closed escrow for $6.4 million, contributing $4.2 million to revenues and $1.5 million to income under percentage of completion accounting. At September 30, 2000, a total of 29.2 commercial acres was in escrow for approximately $24 million, with closings scheduled for the fourth quarter. An additional 42.8 commercial acres are in escrow for approximately $27 million, with closings anticipated in the first quarter of 2001. All escrow closings are subject to market and other conditions. Commercial escrow closings during the third quarter of 1999 totaled 8.1 acres adding $2.2 million to revenues and $1.4 million to income. In addition, the Company recognized additional revenues of $4.5 million and income of $2.9 million in the 1999 third quarter under percentage of completion accounting from the 1999 second quarter sale of a 32.8-acre apartment site. The 1999 nine-month period included $23.2 million in revenues and $13.8 million in income under percentage of completion from the 32.8-acre apartment site and sale of two commercial parcels totaling 2.7 acres for $3.9 million adding $2.3 million to income. At September 30. 1999, five commercial parcels totaling 31.7 acres were in escrow or were being held under deposit for $22.7 million. COMMERCIAL ASSET SALES No commercial asset sales were completed in the 2000 third quarter. During the nine months ended September 30, 2000, the Company closed escrow on 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 to the nine-month period. These sales are part of the Company's plan to sell approximately one-half of its income portfolio to finance the unit repurchase program. There were no commercial asset sales in the 1999 three- or nine-month periods. OTHER PROPERTY SALES During the 2000 third quarter, a right-of-way purchase by Caltrans for a widening project along Highway 126 contributed $5.1 million to revenues and $4.0 million to income. The 1999 nine-month period 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. 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 and begin the development of approximately 21,600 homes in Newhall Ranch located 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. 13 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Community development expenses in the 2000 third quarter increased 9% from the 1999 third quarter primarily due to legal expenses relating to Newhall Ranch. For the nine-month period, community development expenses decreased 15% from the comparative prior year period primarily due to expenses in the prior year relating to Newhall Ranch entitlements and certain initial costs relating to commercial properties under development. Community development expenses for the year are expected to decrease about 10% over 1999. The Company is proceeding with additional research and analyses on six issues in the Newhall Ranch Environmental Impact Report which were identified by a Kern County Superior Court as requiring further environmental review. As previously reported, the six issues include the impact of the Company's 21,600-home Newhall Ranch development on the Salt Creek wildlife corridor and traffic in Ventura County; biological impacts on the Santa Clara River corridor, consistency with the General Plan and impacts in Significant Ecological Areas (SEAs); adequacy and reliability of the 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. The "affordable housing" opponent has filed a notice of its intent to appeal the Superior Court's decision. The Company believes the six issues in question can be resolved to the satisfaction of the Court by the end of 2001, in which case development is expected to start in 2003. However, the length of time of the public hearings and judicial process will take is difficult to predict, and circumstances beyond the Company's control could further delay resolution of the issues. The additional environmental analyses 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 Board of Supervisors must review the issues, hold public hearings and certify the additional environmental analyses before the case is referred back to the Court. An adverse decision by the County or Court and/or additional legal action will likely delay the start of the development of the community beyond 2003. The Company is in discussions with potential buyers interested in assuming the Company's option to develop the 1,800-acre project in the City of Broomfield, Colorado, located between Denver and Boulder. During the third quarter, the Company submitted its development plan application to the City. The plan calls for approximately 3,000 homes and 215 acres of office and other commercial development. To date, the Company has invested $2.2 million in the project and, if the option is sold, would expect the sale to generate a profit. INCOME-PRODUCING PROPERTIES As announced in September 1999, the Company plans to sell approximately one-half of its income portfolio 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. In June 2000, escrow closed on two retail properties, Castaic Shopping Center and Plaza del Rancho. Suspension of depreciation on income properties held for sale, improved hotel operations and a recovery of tenant billings previously reserved for in Valencia Town Center, contributed to increases in the portfolio's revenues and income of 8% and 70%, respectively, in the third quarter of 2000 over the year earlier quarter. For the nine months ended September 30, 2000, revenues and income were up 19% and 66%, respectively, over the first nine months of 1999. Approximately 74% of the increase in income in the third quarter of 2000 and approximately 56% of the increase for the nine-month period is attributable to depreciation no longer being taken on properties expected to be sold. For the first nine months of this year, assets sold earlier this year and those being held for sale, including Valencia Town Center, contributed $13.8 million to earnings. After the sale of the assets currently being marketed (including Valencia Town Center mall and the landfill), the portfolio is expected to generate annual net income before depreciation of approximately $15 to $16 million and contribution to income (after depreciation) of about $7 to $8 million. 14 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The Company's four apartment complexes totaling 924 units, including Montecito, the Company's new 210-unit, luxury apartment complex in Valencia Town Center, were 99% leased at September 30, 2000. With a significant number of new jobs being created in Valencia, there continues to be strong demand for apartments. Actual average rents at the Company's four complexes range from $1.15 to $1.57 per square foot per month. The overall average, currently $1.32 per square foot per month, is 4.8% higher than at year-end 1999. Occupancy and room rates at the Hyatt Valencia Hotel continue to improve, with the third quarter of 2000 its strongest performance to date. During the third quarter, occupancy was 77% compared to 59% last year, on slightly higher average room rates. The Valencia Hilton Garden Inn benefited from new rides and attractions at the adjacent Six Flags Magic Mountain amusement park with a year-to-date occupancy rate of 80% at the end of the third quarter compared with 78% for the comparable period last year. The Company's two neighborhood shopping centers, River Oaks and NorthPark Village Square, were both 100% leased at September 30, 2000. VALENCIA WATER COMPANY Valencia Water Company is a regulated utility and a wholly-owned subsidiary of the Company. For the third quarter of 2000, income increased 20% on a 12% increase in revenues. For the nine-month period, increases of 17% and 10% in income and revenues were recorded, respectively, over the corresponding prior year period. Results benefited from increased operating efficiencies and a growing base which now totals over 22,000 connections. AGRICULTURAL OPERATIONS AND RANCH SALES For the third quarter of 2000, agriculture revenues and income, including the Company's energy operations, were below the year earlier quarter, primarily due to a decline in the price of oranges. The decline was partially offset from higher revenues and net income from energy operations due to higher oil and gas prices compared to last year's prices. For the first nine months of 2000, income was slightly ahead of the year earlier period, with energy being the primary contributor. With less land for farming, income from agricultural operations for 2000 is expected to decrease substantially from 1999. The 1999 nine-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 in 2000. The Company's agricultural operations are now concentrated on the 14,000-acre New Columbia Ranch and the 1,000-acre Newhall Orchard in Ventura County. Most of the remaining 15,000 acres owned in Ventura County are leased for cattle grazing. GENERAL AND ADMINISTRATIVE EXPENSE Decreases of 43% and 32% in general and administrative expenses from the prior year comparable three- and nine-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 20% from 1999 levels. INTEREST AND OTHER Net interest expense for the 2000 third quarter increased 114% from the prior year three-month period and 75% from the prior nine-month period primarily due the Company increasing its borrowings under credit facilities to fund partnership unit repurchases. The three-month comparison is also impacted by higher interest income from 15 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. industrial land sale notes in the prior year third quarter. 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 September 30, 2000, the Company had cash and cash equivalents of $17.4 million and $24.6 million in available lines of credit, net of $13.4 million in letters of credit. Borrowings totaled $145 million outstanding against unsecured lines of credit and $40 million against a revolving mortgage facility. In addition, the Company had fixed rate debt totaling $110.7 million. The Company believes it has adequate sources of cash from operations and debt capacity to finance its operations. At September 30, 2000, there was no debt against raw land or land under development inventories. A $40 million revolving mortgage facility secured by Valencia Town Center shopping center and a $20 million unsecured line have been extended to November 22, 2000. The Company expects to increase the $40 million mortgage facility to $50 million and increase the $20 million unsecured line to $40 million, both with a one-year term. An existing $159 million unsecured line of credit which matures on November 14, 2000 is expected to be replaced with a $130 million line of credit with a three-year term. The Company is following its business strategy announced in September 1999 to capitalize on its significant underlying asset values by repurchasing up to 6,384,446 units, equal to approximately 20% of the outstanding units at that time. As of September 30, 2000, a total of 4,650,402 units had been repurchased including 2,926,450 in the current year for $81.2 million. Due to delays in planned asset sales, the remaining 1,734,044 units may not be repurchased by the end of this year. However, the Company is focused on completing the current authorization as soon as possible when major asset sales are completed. In addition, if current strong business conditions continue, additional unit repurchases may be authorized in 2001 dependent primarily upon the level of land sales that close escrow next year. 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. In September 2000, the Company divested its interest in the joint venture with Kaufman and Broad of Southern California, Inc. to develop City Ranch in Palmdale, California. The Company's initial investment totaled $16 million, including $4 million cash and a $12 million note payable to Kaufman and Broad. As a result of the divestiture and expenses incurred prior to the divestiture, a $4.5 million loss was recorded. There are no material commitments for capital expenditures other than in the ordinary course of business. The Company expects to spend approximately $12.4 million in the fourth quarter of 2000 and first quarter of 2001 to complete the construction of two office buildings which have been leased to Princess Cruises. These buildings, along with two completed office buildings in Valencia Town Center, are expected to be sold in the fourth quarter as part of the Company's plan to fund the unit repurchase program. In addition, the Company expects to invest approximately $10 million in major roads and freeway improvements and approximately $10 million in land development during the remainder of the year. THE FOLLOWING DISCUSSION RELATES TO PRINCIPAL ITEMS IN THE CONSOLIDATED STATEMENT OF CASH FLOWS: OPERATING ACTIVITIES Net cash provided by operating activities totaled $45.7 million for the 2000 nine-month period and included the sale of 208 residential lots, 53.9 industrial and commercial acres, and the sale of two income properties, Castaic Shopping Center and Plaza del Rancho. These sales provided $59.4 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 16 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. conjunction with land sales in prior years were collected and $5.1 million was received from a right-of-way purchase by Cal Trans. As previously discussed, the Company recorded a $2.1 million charge in the 2000 third quarter to reduce a note receivable and accrued interest on a 1998 land sale to a negotiated $14.4 million pay-off amount in return for accelerating the due date to the fourth quarter of this year. Expenditures for land under development totaled $51.2 million and were primarily related to land preparation and infrastructure improvements to ready land for development or sale and agricultural crop costs. INVESTING ACTIVITIES Expenditures for development of income-producing properties totaled $18.7 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. As discussed in the LIQUIDITY AND CAPITAL RESOURCES section above, in September 2000, the Company divested its interest in the City Ranch joint venture and recorded a $4.5 million loss. FINANCING ACTIVITIES Distributions totaling $18.6 million have been paid year-to-date consisting of three quarterly distributions of $.10 per unit each and a $.35 per unit special distribution. The next quarterly distribution will be considered by the Board of Directors on November 15, 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 $85.6 million during the nine-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 are completed. For the nine-month period ended September 30, 2000, a total of 2,926,450 units was repurchased for $81.2 million, or an average price of $27.76 per unit. 2001 OUTLOOK The Company's 2001 business plan anticipates revenues being generated from 1) residential, commercial, and industrial land sales; 2) the portfolio of income-producing properties; and 3) properties identified in the asset sale program that did not close escrow in 2000. About 600 improved, residential lots in the Westridge golf course community are planned to be marketed. In addition to the 31 acres of commercial/ industrial land in escrow in the 2000 fourth quarter that are scheduled to close next year, the business plan targets another 50 acres of commercial/industrial land to be sold in 2001. Anticipated sales will be dependent on a variety of 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. Capital expenditures for 2001 primarily are limited to expenses for Valencia Water Company, the Company's wholly-owned water utility company, and are targeted at the same level as this year. With a projected sellout of Valencia residential land by 2005, community development expense is targeted to be somewhat higher than 2000, while general and administrative expense is expected to remain about the same. Debt is targeted to remain at or below approximately 60% of the value of our income portfolio. 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 17 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 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 certain other segments, which have been known to affect the region's demographics. Consequently, all sectors of real estate development for the Company tend to be cyclical. While the economy of Southern California has improved, there can be no assurances that present trends will continue. INTEREST RATES AND FINANCING: Fluctuations in interest rates and the availability of financing have an important impact on the Company's performance. Sales of the Company's projects could be adversely impacted by the inability of buyers to obtain adequate financing. Further, the Company's real estate development activities are dependent on the availability of adequate sources of capital. Certain of the Company's credit facilities bear interest at variable rates and would be negatively impacted by increasing interest rates. COMPETITION: The sale and leasing of residential, industrial and commercial real estate is highly competitive, with competition coming from numerous and varied sources. The degree of competition is affected by such factors as the supply of real estate available which is comparable to that sold and leased by the Company and the level of demand for such real estate. The Company recently has experienced a slight decrease in its new home sale market share at both the local and the county level, due to the temporary decline in Valencia new home inventory. New competition is expected to deliver competing projects in the future that could impact the Company's ability to reverse this trend. GEOGRAPHIC CONCENTRATION: The Company's real estate development activities are focused on its 19,000 acres in Los Angeles County, 30 miles north of Los Angeles. The Company's entire commercial income portfolio is located in the Valencia area. Therefore, any factors affecting that concentrated area, such as changes in the housing market, economic changes and environmental factors, including seismic activity, which cannot be predicted with certainty, could affect future results. GOVERNMENT REGULATION AND ENTITLEMENT RISKS: In developing its projects, the Company must obtain the approval of numerous governmental authorities regulating such matters as permitted land uses, density and traffic, and the providing of utility services such as electricity, water and waste disposal. In addition, the Company is subject to a variety of federal, state and local laws and regulations concerning protection of health and the environment. This government regulation affects the types of projects which can be pursued by the Company and increases the cost of development and ownership. The Company devotes substantial financial and managerial resources to comply with these requirements. To varying degrees, certain permits and approvals will be required to complete the developments currently being undertaken, or planned by the Company. Furthermore, the timing, cost and scope of planned projects may be subject to legal challenges, particularly large projects with regional impacts. In addition, the continued effectiveness of permits already granted is subject to factors such as changes in policies, rules and regulations and their interpretation and application. The ability to obtain necessary approvals and permits for its projects can be beyond the Company's control and could restrict or prevent development of otherwise desirable new properties. The Company's results of operations in any period will be affected by the amount of entitled properties the Company has in inventory. INFLATION: The Company believes it is well positioned against the effects of inflation. Historically, during periods of inflation, the Company has been able to increase selling prices of properties to offset rising costs of land 18 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. development and construction. Recently, land values have been increasing at a faster rate than costs. However, there are no assurances that this trend will continue. A portion of the commercial income portfolio is protected from inflation since percentage rent clauses and Consumer Price Index increases in the Company's leases tend to adjust rental receipts for inflation, while the underlying value of commercial properties has tended to rise over the long term. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company is exposed to market risk primarily due to fluctuations in interest rates. The Company utilizes both fixed rate and variable rate debt. At September 30, 2000, the Company had $185 million of variable debt with interest rates ranging from 7.63% to 8.15% and $110.7 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, as of September 30, 2000, by expected maturity dates:
Expected Maturity Date ------------------------------------------------------------------- Fair (IN $000S) 2000 2001 2002 2003 2004 Thereafter Total Value ------------------------------------------------------------------- ------------ ----------- Mortgage and Other Debt Fixed Rate Debt $ 1,327 $1,986 $2,147 $11,682 $2,266 $91,477 $110,695 $110,695 Weighted Average Interest Rate 7.48% 7.70% 7.68% 8.16% 7.61% 7.02% 7.24% Variable Rate Debt (1) $185,000 $185,000 $185,000 Weighted Average Interest Rate 7.79% 7.79%
(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. The Company also has a $159 million unsecured revolving line of credit on which the rate is LIBOR plus 1.2% and a $2 million unsecured line on which the rate is LIBOR plus 1.35%. At September 30, 2000, $145 million was outstanding against the unsecured lines and $40 million was outstanding against the revolving mortgage facility. 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 these lines will be renewed at maturity with similar terms. There is inherent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and the Company's future financing requirements. The Company manages its interest rate risk by maintaining conservative 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. In addition, the Company's guideline for total debt is up to approximately 60% of the appraised value of the income portfolio. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Please refer to "Residential Home and Land Sales" and "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 (a) Exhibits (listed by numbers corresponding to the Exhibit Table of Item 601 in Regulation S-K): 27 Financial Data Schedule 10(a) Amendment No. 3 to The Newhall Land and Farming Company Employee Savings Plan 10(b) The Newhall Land and Farming Company Employee Savings Restoration Plan (As Amended And Restated Effective July 19, 2000) 19 PART II. OTHER INFORMATION (b) The following report on Form 8-K was filed in the third quarter ended September 30, 2000. ITEM REPORTED DATE OF REPORT ------------- -------------- A news release issued by the Company on August 28, 2000 August 28, 2000 concerning the prospective buyer of regional shopping center terminating due diligence work and possible delay of completion of unit repurchase program. 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE NEWHALL LAND AND FARMING COMPANY (a California Limited Partnership) Registrant By Newhall Management Limited Partnership, Managing General Partner By Newhall Management Corporation, Managing General Partner Date: November 8, 2000 By /s/ Thomas L. Lee ----------------------------------- Thomas L. Lee, Chairman and Chief Executive Officer of Newhall Management Corporation (Principal Executive Officer) Date: November 8, 2000 By /s/ STUART R. MORK ---------------------------------- Stuart R. Mork, Senior Vice President and Chief Financial Officer of Newhall Management Corporation (Principal Financial Officer) Date: November 8, 2000 By /s/ DONALD L. KIMBALL ---------------------------------- Donald L. Kimball, Vice President - Finance and Controller of Newhall Management Corporation (Principal Accounting Officer) EX-10.A 2 a2030476zex-10_a.txt EX-10.A Exhibit 10(a) AMENDMENT NO. 3 TO THE NEWHALL LAND AND FARMING COMPANY EMPLOYEE SAVINGS PLAN The Newhall Land and Farming Company Employee Savings Plan, as restated in its entirety effective January 1, 1989, and subsequently amended, is hereby further amended as follows: FIRST: Section 2.11 is hereby amended to read in full as follows, effective for Plan Years beginning after December 31, 1996: "2.11 EARNINGS shall mean the compensation reportable for Federal Income Tax purposes that would have been paid to an Employee --------if such Employee had made no (i) Deferral Election, (ii) election under any plan described in Section 125 of the Code or (iii), for Plan Years beginning after December 31, 1998, deferral of salary or bonus (whether in the form of cash or employer securities) under a non-qualified deferral plan, but excluding (A) that portion of compensation imputed for tax purposes as a result of fringe benefits (including any gain upon the exercise of options to acquire employer securities or the sale of securities acquired thereunder, the vesting of restricted employer securities or other gains from equity compensation other than employer securities that are payable (or would be payable absent a deferral election by the Participant) as an annual bonus) or other similar amounts as determined by the Committee, (B) deferred compensation at the time of payment if attributable to amounts that were taken into account at the time of deferral; provided, however, that: (a) For Plan Years after 1988, the Earnings for any Plan Year shall not exceed $200,000 (indexed); provided, however, that for benefits on or after January 1, 1994, the annual Earnings of any Participant taken into account will not exceed $150,000 (indexed). (b) For Plan Years beginning before January 1, 1997, the compensation of each Highly Paid Employee who is (i) a Five Percent Owner or (ii) one of the ten (10) Highly Paid Employees paid the greatest Remuneration during the year shall, for purposes of this Section, include any compensation for such Plan Year which is paid to (or but for a Deferral Election would have been paid to) such Participant's spouse or any lineal descendants of the Participant who have not attained age 19 before the close of the Plan Year. To the extent required by applicable Regulations, if the limitation in subsection (a) is reached for a family group, then such limitation amount will be prorated among each member of the family group in the proportion that each family member's Earnings bears to the total Earnings of the family group. (c) With respect to any Plan Year beginning before January 1, 1990, "Earnings" shall exclude any amounts paid to an Employee on account of any period when he is not eligible to make a Deferral Election under Section 4.01. SECOND: Except as modified by this Amendment, all the terms and provisions of the Plan (as previously amended) shall continue in full force and effect. IN WITNESS WHEREOF, Newhall Management Corporation, managing general partner of Newhall Management Limited Partnership, managing general partner of The Newhall Land and Farming Company (a California Limited Partnership) has caused this Amendment No. 3 to be executed on behalf of such partnership by its duly authorized officer effective as of the day first above written. THE NEWHALL LAND AND FARMING COMPANY (A CALIFORNIA LIMITED PARTNERSHIP) By: Newhall Management Limited Partnership, Managing General Partner By: Newhall Management Corporation, Managing General Partner By: /s/ TRUDE TSUJIMOTO ------------------------------- Name: Trude A. Tsujimoto Title: Secretary EX-10.B 3 a2030476zex-10_b.txt EX-10.B Exhibit 10(b) THE NEWHALL LAND AND FARMING COMPANY EMPLOYEE SAVINGS RESTORATION PLAN (As Amended and Restated Effective July 19, 2000) 1. PURPOSE. The purpose of this Newhall Land and Farming Company Employee Savings Restoration Plan (the "Plan") is to permit certain eligible employees of The Newhall Land and Farming Company (a California Limited Partnership) ("Company") defer a portion of their compensation. 2. ELIGIBILITY. Any Participant of The Newhall Land and Farming Company Employee Savings Plan (the "Savings Plan") shall be eligible to participate in this Plan if the Company notifies such Participant of his eligibility to participate. However, the only Participants who shall be eligible to make Supplemental Deferrals ("Supplemental Deferral Participants") shall be those who have been so designated by the Company and who have received notice of such designation. 3. PARTICIPATION. (a) Each Plan Year (the period from any January 1st to the following December 31st) individuals eligible to participate in the Plan pursuant to Section 2 may irrevocably elect (i) Basic Deferrals (as defined below) of their Basic Earnings and/or (ii), in the case of Supplemental Deferral Participants, Supplemental Deferrals (as defined below) of their Excess Earnings that, in each case, are attributable to services to be rendered in the Plan Year immediately following the Plan Year in which such election is made. For purposes of this plan "Basic Earnings" shall be Earnings as defined in the Savings Plan, but, if not provided for in such definition for any the relevant period, INCREASED by the amount of (i) any salary or bonus deferred (whether in the form of cash or employer securities) under a non-qualified deferral plan and (ii) any amounts payable to a Participant as general partner income from Newhall General Partnership or as fees for serving as a director of any subsidiary of the Company, but REDUCED by (A) that portion of compensation imputed for tax purposes as a result of fringe benefits (including any gain upon the exercise of options to acquire employer securities or the sale of securities acquired thereunder, the vesting of restricted employer securities or other gains from equity compensation other than employer securities that are payable (or would be payable absent a deferral election by the Participant) as an annual bonus) or other similar amounts as determined by the Company, (B) deferred compensation at the time of payment if attributable to amounts that were taken into account at the time of deferral. "Excess Earnings" shall mean for any plan year, the Basic Earnings payable to a Participant after the Participant's Earnings as defined in the Savings Plan exceed the annual compensation limit of Section 401(a)(17) of the Code. (b) Individuals who first become eligible to participate in the Plan during the Plan Year pursuant to Section 2 may irrevocably elect, within 30 days of being notified of such eligibility, to make Basic Deferrals and/or, in the case of Supplemental Deferral Participants, Supplemental Deferrals with respect to Basic Earnings and Excess Earnings, respectively, that are attributable to services to be rendered between the making of such election and the end of the Plan Year. In addition, in the Plan Year in which the Plan is amended to first permit individuals to elect to make Supplemental Deferrals, they may irrevocably elect, within 30 days of being notified of such eligibility, to make Supplemental Deferrals of their Excess Earnings that are attributable to services to be rendered between the making of such election and the end of the Plan Year. (c) A Basic Deferral election shall provide for deferral of a "specified percentage" of a Participant's Basic Earnings and/or a specified dollar amount (not in excess of the percentage and dollar limits specified in the Savings Plan), which deferral shall be made to the Savings Plan to the extent permissible thereunder or to this Plan to the extent that such deferral cannot be made to the Savings Plan because of (I) the annual dollar limitation of section 402(g) of the Code of 1986 (the" Code"), (II) the nondiscrimination requirements of section 401(k)(3) of the Code (applied on an estimated basis), (III) the annual compensation limit of Section 401(a)(17) of the Code, or (IV) the difference, if any, in the definition of Basic Earnings under this Plan and the definition of Earnings under the Savings Plan for the relevant period. Specified percentage means the percentage (not less than 1% and no more than 6%) by which Participants elect to have the Company reduce Earnings and make contribution to the Savings Plan. (d) A Supplemental Deferral shall provide for deferral of a percentage (not less than 1% and not more than 25%) of a Participant's Excess Earnings; provided that Supplemental Deferrals for any plan year may not exceed $60,000 for any Participant. (e) Although amounts payable to a Participant as general partner income from Newhall General Partnership or as fees for serving as a director of any subsidiary of the Company are included in the definitions of Basic Earnings and Excess Earnings for purposes of determining the amount of a Basic Deferral or a Supplemental Deferral, all deferrals shall be made from items of Basic Earnings and Excess Earnings other than such general partner and director fees. 4. IN-SERVICE WITHDRAWALS. A Participant may be permitted to withdraw up to one hundred percent of (100%) of his or her vested benefits under the Plan, provided and only if the Participant furnishes the Board with satisfactory proof that the withdrawal is for an unanticipated emergency that was caused by an event beyond the control of the Participant or his or her beneficiary and that would result in severe financial hardship if the withdrawal is not permitted. In judging whether the payment of an expense satisfies the above requirements, the Board shall take into consideration the financial resources available to the Participant to meet the expense as reflected in a written statement furnished by the Participant in support of the request. In-service withdrawals shall be limited to the amount necessary to satisfy an emergency. 5. ACCOUNTS. (a) With respect to each Participant, any Company participating in the Savings Plan ("Participating Company") which is his or her employer shall reduce his or her Basic Earnings in each pay period in accordance with his or her Basic Deferral election and, to the extent that such amounts cannot be deferred into the Savings Plan because of (i) the annual dollar limitation of Section 402(g) of the Code, (ii) the annual compensation limitation of Section 401(a)(17) of the Code, (iii) the nondiscrimination requirements of Section 401(k)(3) of the Code (applied on an estimated basis) or (iv) the difference, if any, between the definition of Basic Earnings under this Plan and the definition of Earnings under the Savings Plan for the relevant period, shall credit such amounts to his or her Basic Employer Contribution Account under this Plan as of the last day of such pay period. (b) To the extent that a Participant's Basic Deferrals do not exceed 6% of his or her Basic Earnings and are credited to his or her Basic Employer Contribution Account (rather than the Savings Plan) for a Plan Year, the Participating Company which is his or her employer shall credit a matching contribution (computed under the terms of the Savings Plan, but with respect to Basic Earnings as defined herein) to his or her Matching Employer Contribution Account under this Plan with respect to the amount so credited to his Basic Employer Account (and which, when added to the amount deferred to the Savings Plan does not exceed 6% of his Basic Earnings). The matching contribution shall be credited as of the last day of the Plan Year. (c) With respect to each Participant, the Participating Company which is his or her employer shall reduce his or her Excess Earnings in each pay period in accordance with his or her Supplemental Deferral election and shall credit such amounts to his or her Supplemental Employer Contribution Account under this Plan as of the last day of such pay period. (d) Each Participant's Basic Employer Contribution Account, Matching Employer Contribution Account and Supplemental Employer Contribution Account under this Plan (together his "Accounts") shall be adjusted for deemed investment return equal to the rate of return on the assets in the Participant accounts under the Savings Plan other than the assets invested in the Newhall Fund. The Accounts of Participants who no longer retain amounts under the Savings Plan shall continue to be adjusted for deemed investment returns as if invested in the Savings Plan and shall have the opportunity to direct their investment under the Plan as if they continued to participate in the Savings Plan. 6. VESTING. Participants' vesting in their Basic Employer Contribution Accounts and Matching Employer Contribution Accounts under this Plan shall be subject to the vesting provisions applicable to their Basic Employer Contribution Accounts and Matching Employer Contribution Accounts, respectively, under the Savings Plan. Participants shall be fully vested in the Supplemental Employer Contribution Account at all times, 7. AMOUNT AND FORM OF BENEFIT PAYMENT. (a) Benefits under this Plan shall commence within thirty (30) days following the end of the Plan Year in which a Participant terminates employment with a Participating Company. The Participating Company which is the Participant's employer shall pay from its general assets, the entire amount to the Participant's credit under such Participant's Accounts in the Plan in installments consisting of approximately equal annual installments over a term of ten (10) years. The undistributed amounts shall continue to be adjusted for deemed investment returns as provided in Section 5(c). A Participant shall never receive a payment in excess his account balance and payments shall cease when his account balance equals zero. (b) Notwithstanding the preceding, if the credit under the Participant's Accounts does not exceed $25,000 the Participating Company which is such Participant's employer shall pay within thirty (30) days following the end of the Plan Year in which a Participant terminates employment with a Participating Company, from its general assets the entire amount to such Participant's credit under such Participant's Accounts in the Plan. (c) In the event of a Participant's death prior to distribution of all benefits under this Plan, the Participating Company which was the Participant's employer shall pay within thirty (30) days the balance of the Participant's Accounts to the Participant's beneficiary in the form of a single a lump sum payment. A married Participant's spouse shall be a Participant's beneficiary unless the spouse has given written consent, witnesses by a notary, to designation of another beneficiary. If a beneficiary dies prior to distribution of the portion of a Participant's Account to which the beneficiary was entitled or if a Participant is unmarried and dies without naming a beneficiary, the funds held in the Participant's Accounts will be distributed, to the Participant's estate in the form of a single lump sum payment. 8. AMENDMENT AND TERMINATION. This Plan may be amended or terminated at any time by action of the board of directors of the Corporation at its sole discretion without prior notice to any person. Members of the Board who are Participants are precluded from voting on any action to terminate this Plan. No amendment shall operate to reduce Participants' benefits accrued to the date of such amendment. Upon termination of this Plan, the rights of all affected Participants in benefits accrued to the date of termination shall be nonforfeitable. Notwithstanding Section 8, the Board may determine that such nonforfeitable accrued benefits shall be paid to all Participants as soon as practicable. 9. GENERAL. (a) Nothing contained herein shall confer on any Participant the right to be retained in the service of any Affiliated Company, nor shall it interfere with the right of each Affiliated Company to discharge or otherwise deal with Participants without regard to the existence of this Plan. (b) No amount payable to or in respect of any Participant under this Plan shall be subject in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind, and any attempt to do so will be void. Such amounts shall in no manner be liable for or subject to the debts or liabilities of Participants or their beneficiaries. A Participant's or beneficiary's rights to receive payments under this Plan are merely those of an unsecured general creditor of the Company and its affiliate corporations. Such rights constitute a mere promise by the Company and its affiliate corporations to make payments to Participants and their beneficiaries in the future. It is the intention of all of the parities to this agreement that the Plan be unfunded for federal tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended. (c) This Plan constitutes an unfunded plan of deferred compensation described in section 401(a)(1) of ERISA. The rights conferred on any individual by virtue of his participation in this Plan shall be limited to the right to receive, at the time specified herein, an amount equal to the vested portion of his Accounts. With respect to such rights, a Participant shall have the status of an unsecured general creditor of the Participating Company that is his employer. (d) The Plan shall be interpreted in accordance with the reporting and disclosure requirements of ERISA and, to the extent not preempted, with California law. IN WITNESS WHEREOF, The Newhall Land and Farming Company, (a California limited partnership), has caused this amendment and restatement of The Newhall Land and Farming Company Employee Savings Restoration Plan to be executed effective as of July 19, 2000. THE NEWHALL LAND AND FARMING COMPANY (A CALIFORNIA LIMITED PARTNERSHIP) By: Newhall Management Limited Partnership, Managing General Partner By: Newhall Management Corporation, Managing General Partner By: /s/ TRUDE TSUJIMOTO --------------------------------------- Name: Trude A. Tsujimoto Title: Secretary EX-27 4 a2030476zex-27.txt EXHIBIT 27 (FDS)
5 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 17,352 0 28,545 3,164 62,455 0 455,729 88,272 492,662 0 295,695 0 0 0 50,606 492,662 77,430 130,153 64,562 101,389 0 0 13,124 8,933 0 8,933 0 0 0 8,933 .32 .32
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