-----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, L8TiKnTSy0QPfsOCh9HydZCH5HOJngZqi9wnmuKMjG8f2AaIgu7c6gzmX6PR6J4h tJfrWesGBzVsWY5aoa3IjQ== 0000950150-96-001371.txt : 19961115 0000950150-96-001371.hdr.sgml : 19961115 ACCESSION NUMBER: 0000950150-96-001371 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NYSE SROS: PSE 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: 1934 Act SEC FILE NUMBER: 001-08885 FILM NUMBER: 96662023 BUSINESS ADDRESS: STREET 1: 23823 VALENCIA BLVD CITY: VALENCIA STATE: CA ZIP: 91355 BUSINESS PHONE: 8052554000 MAIL ADDRESS: STREET 2: 23823 VALENCIA BLVD CITY: VALENCIA STATE: CA ZIP: 91355 10-Q 1 FORM 10-Q FOR PERIOD ENDED SEPTEMBER 30, 1996. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10 - Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to For Quarter Ended September 30, 1996 Commission file number 1-7585 THE NEWHALL LAND AND FARMING COMPANY (A CALIFORNIA LIMITED PARTNERSHIP) (Exact name of Registrant as specified in its charter) California 95-3931727 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 23823 Valencia Boulevard, Valencia, CA 91355 (Address of principal executive offices) (Zip Code) (805) 255-4000 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- 2 Part I. Financial Information 2. Item 1 - Financial Statements CONSOLIDATED STATEMENTS OF INCOME Unaudited
Three Months Ended Nine Months Ended September 30 September 30 -------------------------- -------------------------- In thousands except per unit 1996 1995 1996 1995 - ----------------------------------------------------------------------------------------------- REVENUES Real estate Residential home and land sales Valencia $23,120 $9,086 $49,750 $27,017 McDowell Mountain Ranch 3,169 49,101 6,552 Industrial and other sales 2,049 10,459 4,455 35,602 Commercial operations 10,365 10,103 27,835 28,446 ------------ ------------ ------------ ------------ 35,534 32,817 131,141 97,617 ------------ ------------ ------------ ------------ Agriculture Operations 3,030 2,999 5,475 5,720 Ranch sales 600 7,428 6,745 7,428 ------------ ------------ ------------ ------------ 3,630 10,427 12,220 13,148 ------------ ------------ ------------ ------------ Total revenues $39,164 $43,244 $143,361 $110,765 ============ ============= ============ ============ CONTRIBUTION TO INCOME Real estate Residential home and land sales Valencia $6,332 $354 $8,922 $1,497 McDowell Mountain Ranch 400 25,954 461 Industrial and other sales (616) 2,131 (1,234) 15,782 Community development (2,625) (1,773) (7,996) (3,981) Commercial operations 4,740 4,465 12,796 13,427 ------------ ------------ ------------ ------------ 7,831 5,577 38,442 27,186 ------------ ------------ ------------ ------------ Agriculture Operations 285 538 1,332 1,285 Ranch sales 472 4,629 6,344 4,629 ------------ ------------ ------------ ------------ 757 5,167 7,676 5,914 ------------ ------------ ------------ ------------ Operating income 8,588 10,744 46,118 33,100 General and administrative expense (1,911) (1,905) (6,339) (6,220) Interest and other, net (2,509) (2,586) (6,908) (8,093) ------------ ------------ ------------ ------------ Net income $4,168 $6,253 $32,871 $18,787 ============ ============= ============ ============ Net income per unit $0.12 $0.18 $0.93 $0.52 ============ ============= ============ ============ Number of units used in computing per unit amounts 35,269 36,176 35,507 36,281 Cash distributions per unit $.10 $.10 $.30 $.30
3 Part I. Financial Information 3. Item 1 - Financial Statements CONSOLIDATED BALANCE SHEETS
September 30, December 31, In thousands, except units 1996 1995 - ---------------------------------------------------------------------------------------- Unaudited ASSETS Cash and cash equivalents $4,222 $4,285 Accounts and notes receivable 16,222 25,156 Land under development 75,542 88,457 Land held for future development 32,371 32,459 Property and equipment, net 237,456 186,697 Other assets and deferred charges 13,913 12,699 ------------- ------------- $379,726 $349,753 ============= ============= LIABILITIES AND PARTNERS' CAPITAL Accounts payable $14,830 $11,285 Accrued expenses 35,962 32,999 Deferred revenues 1,482 4,041 Mortgage and other debt 166,171 152,302 Advances and contributions from developers for utility construction 18,603 17,811 Other liabilities 20,311 18,459 ------------- ------------- Total liabilities 257,359 236,897 Partners' capital 35,165,426 units outstanding, excluding 1,606,717 units in treasury, at September 30, 1996 and 35,910,243 units outstanding, excluding 861,900 units in treasury, at December 31, 1995 122,367 112,856 ------------- ------------- $379,726 $349,753 ============= =============
4 Part I. Financial Information 4. Item 1 - Financial Statements CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited
Nine Months Ended September 30 -------------------------- In thousands 1996 1995 - ------------------------------------------------------------------------------------- Cash flows from operating activities Net income $32,871 $18,787 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,799 5,674 Decrease (increase) in land development inventories 12,915 (20,460) Decrease in accounts and notes receivable 8,934 1,809 Increase (decrease) in accounts payable, accrued expenses and deferred revenues 3,949 (5,114) Cost of property sold 409 12,657 Other adjustments, net 943 829 ---------- ---------- Net cash provided by operating activities 65,820 14,182 ---------- ---------- Cash flows from investing activities Purchase of property and equipment (56,879) (10,644) ---------- ---------- Cash flows from financing activities Distributions paid (10,622) (10,910) Increase in mortgage and other debt 31,000 26,243 Decrease in mortgage and other debt (17,131) (14,910) Increase in advances and contributions from developers for utility construction 792 2,349 Purchase of partnership units (13,043) (8,547) ---------- ---------- Net cash used by financing activities (9,004) (5,775) ---------- ---------- Net decrease in cash and cash equivalents (63) (2,237) Cash and cash equivalents, beginning of period 4,285 7,656 ---------- ---------- Cash and cash equivalents, end of period $4,222 $5,419 ========== ==========
5 Part I. Financial Information 5. Item 1 - Financial Statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Note 1. Accounting Policies The consolidated financial statements include the accounts of The Newhall Land and Farming Company and its subsidiaries, all of which are wholly-owned, (collectively, "the Company"). All significant intercompany transactions are eliminated. The Company's unaudited interim financial statements have been prepared substantially in conformity with generally accepted accounting principles used in the preparation of the Company's annual financial statements. In the opinion of the Company, all adjustments necessary for a fair statement of the results of operations for the three and nine months ended September 30, 1996 and 1995 have been made. Certain reclassifications have been made to prior periods' amounts to conform to the current period presentation. The interim statements are condensed and do not include some of the information necessary for a more complete understanding of the financial data. Accordingly, your attention is directed to the footnote disclosures found on pages 25 through 31 of the December 31, 1995 Annual Report to Partners and particularly to Note 2 which includes a summary of significant accounting policies. Interim financial information for the Company has substantial limitations as an indicator for the calendar year because: o 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. o Agricultural crops are on an annual cycle and income is recognized upon harvest. Most major crops are harvested during the fall and winter. o Sales of non-developable farm land occur irregularly and are recognized upon close of escrow provided profit recognition criteria are met. - -------------------------------------------------------------------------------- Note 2. Details of Land Under Development
(In $000) September 30, December 31, 1996 1995 ------------ ------------ (Unaudited) Valencia Residential land development $ 8,305 $ 1,848 Industrial and commercial land development 47,388 43,256 Homes completed or under construction with venture partners 16,903 25,302 McDowell Mountain Ranch land development -- 17,824 Agriculture 2,946 227 --------- -------- Total land under development $ 75,542 $ 88,457 ========= ========
- -------------------------------------------------------------------------------- Note 3. Details for Earnings per Unit Calculation
Three months ended Nine months ended September 30, September 30, ------------------------------ ------------------------------ (Unaudited) 1996 1995 1996 1995 ----------- -------------- --------------- -------------- ------------- Average number of units outstanding during the period 35,164,797 36,170,831 35,384,490 36,278,706 Net units issuable in connection with dilutive options based upon use of the treasury stock method 104,233 4,702 122,852 2,495 ---------- ---------- ---------- ---------- Average number of primary units 35,269,030 36,175,533 35,507,342 36,281,201 ========== ========== ========== ==========
6 Part I. Financial Information 6. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS (in $000, except per unit) Comparison of Third Quarter and Nine Months 1996 to Third Quarter and Nine Months 1995 (unaudited) The amounts of increase or decrease in revenues and income from the prior year periods are as follows:
Increase / (Decrease) Increase / (Decrease) -------------------------- -------------------------- Three Months Nine Months -------------------------- -------------------------- Amount % Amount % ------------ ------------ ------------ ------------ REVENUES Real estate Residential home and land sales Valencia $14,034 154% $22,733 84% McDowell Mountain Ranch (3,169) -100% 42,549 649% Industrial and other sales (8,410) -80% (31,147) -87% Commercial operations 262 3% (611) -2% Agriculture Operations 31 1% (245) -4% Ranch sales (6,828) -92% (683) -9% ------------ ------------ ------------ ------------ $(4,080) -9% $32,596 29% ============ =========== ============ ============ CONTRIBUTION TO INCOME Real estate Residential home and land sales Valencia $5,978 1689% $7,425 496% McDowell Mountain Ranch (400) -100% 25,493 5530% Industrial and other sales (2,747) -129% (17,016) -108% Community development (852) -48% (4,015) -101% Commercial operations 275 6% (631) -5% Agriculture Operations (253) -47% 47 4% Ranch sales (4,157) -90% 1,715 37% ------------ ------------ ------------ ------------ Operating income (2,156) -20% 13,018 39% General & Administrative expense (6) 0% (119) -2% Interest and other, net 77 3% 1,185 15% ------------ ------------ ------------ ------------ Net income $(2,085) -33% $14,084 75% ============ =========== ============ ============ Net income per unit $(0.06) -33% $0.41 79% ============ =========== ============ ============ Number of units used in computing per unit amounts (907) (3)% (774) (2)% ============ =========== ============ ============
7 Part I. Financial Information 7. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations The increases and decreases in revenues and income for the three and nine months are attributable to the following: For the quarter ended September 30, 1996, revenues totaled $39.2 million and net income totaled $4.2 million, compared to revenues for the 1995 third quarter of $43.2 million and net income of $6.3 million. The sale of 491 entitled, unimproved residential lots in Castaic, a community north of Valencia, was completed in the 1996 third quarter adding approximately $4.5 million to revenues and $4.3 million to operating income. Included in the 1995 third quarter results was the sale of 5,501 acres of the Merced Ranch which added $7.4 million to revenues and $4.6 million to operating income. Nine month results for 1996 benefited from the second quarter sale of McDowell Mountain Ranch in Scottsdale, Arizona, which contributed $43.6 million in revenues and $24.4 million to operating income. The improved earnings in 1996 were partially offset by increased expenditures for obtaining government approvals for new projects. RESIDENTIAL HOME AND LAND SALES VALENCIA The Company generates revenues and income from Valencia residential projects in two ways. Through the merchant builder program, residential lots are sold to builders to construct homes. Generally, revenues and income are recorded upon sale of the lots to the builder. Through the joint venture program, the Company participates in home construction on lots owned by the Company by establishing homebuilding joint ventures and partnerships with builders who have created innovative new home designs. Here, the Company recognizes its portion of revenues and income upon close of escrow to the homebuyer and generally enjoys increased income as it receives a portion of the homebuilding profits in return for participating in the risk of homebuilding and financing the construction costs. New home sales in Valencia by merchant builders and joint ventures totaled 148 homes in the 1996 third quarter, up from 133 homes sold in the year earlier quarter. For the nine months ended September 30, 1996, new home sales by merchant builders and joint ventures totaled 457 homes, a 42% increase from the 1995 nine-month period when 321 new homes were sold. In addition, Valencia captured a 49% market share of new home sales in the Santa Clarita Valley through the 1996 third quarter and nearly a 12% market share for all of Los Angeles County through the 1996 second quarter, the last reported period. While the Company does not participate in the revenues and income from home sales by merchant builders, the absorption of these previously sold lots is key to the Company's future success in selling additional lots to merchant builders. Merchant Builder Program Results for the 1996 third quarter include the sale of 48 lots in NorthPark to Presley Homes for $3.7 million which contributed $1.0 million to income and the sale of 491 unimproved residential lots in Castaic, a community north of Valencia, for $4.5 million which contributed $4.3 million to income. The 1996 nine month period also includes the sale of 58 residential lots contributing $4.1 million to revenues and $1.1 million to income, plus recognition of $1.3 million of deferred revenues and $266,000 of income from lot sales to merchant builders in prior years. No deferred revenues or income were recognized in the 1996 third quarter. In the 1995 third quarter, revenues and income from the merchant builder program consisted of recognition of deferred revenues and income totaling $566,000 and $66,000, respectively, from lot sales in prior years. No residential lot sales to merchant builders closed escrow in the 1995 third quarter. Results for the 1995 nine-month period included the sale of 19 lots in NorthPark to Beazer Homes which contributed $1.5 million to revenues and $568,000 to income plus $1.7 million of deferred revenues adding $204,000 to income. At September 30, 1996, a total of 212 single- and multi-family lots were in escrow to four merchant builders with closings anticipated in the fourth quarter. All escrow closings are subject to market and other conditions. At September 30, 1995, the Company had approximately 300 single and multi-family residential lots in escrow, including an escrow for the sale of 62 lots which was subsequently cancelled. 8 Part I. Financial Information 8. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Joint Venture Program In the 1996 third quarter, 71 homes closed escrow in seven projects contributing $14.9 million to revenues and $1.5 million to income. This represents a 69% increase in home closings from the prior year third quarter when 42 closings in three projects contributed $8.5 million to revenues and $1.0 million to income. For the 1996 nine-month period, 187 escrow closings contributed $36.2 million to revenues and $3.9 million to income which represents a 46% increase in closings from the 1995 comparable period when 128 closings contributed $23.8 million to revenues and $2.9 million to income. Overall gross profit margins decreased slightly for the three- and nine-month periods of 1996 primarily as a result of closing a greater number of multi-family homes. At September 30, 1996, the Company's three joint-venture partners, EPAC Communities, RGC and Braemar Homes, had six projects underway. A seventh project, Traditions, closed out during the quarter and two of the remaining projects, Montana and The CourtHome Collection, are expected to be completed during the fourth quarter of 1996 or first quarter of 1997. At the end of the 1996 third quarter, these joint ventures had a total of 50 homes in escrow, compared with 63 escrows at the end of the same period last year. With the completion of Montana, the Company is entering another joint venture project, Montana II, with EPAC for approximately 60 townhomes. Models are expected to be ready by mid-1997. In addition, a new project with a fourth joint venture partner, Warmington Homes, is starting for 72 homes with models scheduled to open in January, 1997. McDOWELL MOUNTAIN RANCH On April 17, 1996, the Company completed the sale of the McDowell Mountain Ranch project in Scottsdale, Arizona. The sale contributed $43.6 million to revenues and $24.4 million to income. Results for the nine-month period also include 219 lots sold in the first quarter of 1996 for $5.5 million adding $2.1 million to income. The sale of 106 lots in the third quarter of 1995 contributed $3.2 million to revenues and $1.1 million to income. In addition, the sale 40 lots in the 1995 first quarter, finalization of builder lot premiums with a merchant builder and recognition of deferred revenues combined contributed $3.4 million to revenues and $1.5 million to income for the 1995 nine-month period. INDUSTRIAL AND OTHER SALES Decreases in revenues and income from the comparable 1995 third quarter and nine-month period are primarily due to the 1995 sale of the ITT build-to-suit on 10 acres in Valencia Commerce Center for $8.5 million contributing $1.6 million to income and sale of the Bouquet Shopping Center for $17.9 million adding $11.0 million to income. The Company expects revenues and income from industrial and other sales for all of 1996 to be below the prior year due to the absence of any significant commercial land sales. Two industrial parcels totaling 6.2 acres closed escrow in the 1996 third quarter contributing $2.0 million to revenues and $434,000 to income. Results for the 1996 nine-month period also include sale of a 2.7-acre commercial parcel for $1.7 million adding $861,000 to income plus recognition of deferred revenues of $713,000 adding $273,000 to income. During the 1995 third quarter, the Company completed the sale of the ITT build-to-suit on 10 acres in Valencia Commerce Center and two small commercial parcels. These sales, combined with deferred income recognition from sales in prior quarters, added $10.5 million to revenues and $2.7 million to income. Results for the 1995 nine-month period also include the sale of Bouquet Shopping Center for $17.9 million adding $11.0 million to income and escrow closings on 15.9 commercial acres and a 1.1-acre industrial parcel which combined generated $7.2 million in revenues and $3.7 million in income. During the 1996 third quarter, a 5.7-acre parcel that had been in escrow was canceled and the property is being re-marketed. At September 30, 1996, two facilities in Valencia Commerce Center had opened escrows for a total of $16.5 million -- a 216,000-square-foot, build-to-suit for Remo, Inc. and a 93,000-square-foot, build-to-lease for a local manufacturer. Two other land sales are in escrow for approximately $2.2 million. Escrows on these sales are expected to close in the fourth quarter. All escrow closings are subject to market and other conditions. COMMUNITY DEVELOPMENT 9 Part I. Financial Information 9. Item 2 - Management s Discussion and Analysis of Financial Condition and Results of Operations Increases in community development expenses of 48% and 44% from the prior year three- and nine-month periods, respectively, excluding a prior year recovery from a lawsuit settlement, are a result of the Company's emphasis on obtaining the necessary governmental land use approvals and an intensified strategic marketing program to continue the build-out of Valencia and future development of Newhall Ranch. Community development expenses for the year are expected to continue at this increased level for the balance of 1996. The Company has entered into a joint venture with PGA TOUR Golf Course Properties to develop a Tournament Players Club championship course in the proposed Westridge Golf Course Community, west of Interstate 5 in Valencia. The 18-hole, public course will be designed, constructed and managed by PGA TOUR Golf Course Properties, and will be the only TPC golf course located in Los Angeles County. The project will undergo public hearings before the Los Angeles County Planning Commission in mid-1997. Pending approvals, construction of the golf course is expected to start in late 1998 or early 1999. The environmental impact report on the proposed 12,000-acre Newhall Ranch has been completed. The first two public hearings have been held. The approval process for this new community is expected to take several years to complete. COMMERCIAL OPERATIONS Commercial operations include the Company's portfolio of income-producing properties and Valencia Water Company, a wholly-owned public water utility. Contributing to increases in revenues and income from commercial operations for the third quarter comparison and partially offsetting decreases in the nine-month comparison are improved operating results from Valencia Water Company due to a general rate increase approved by the California Public Utilities Commission effective January 1, 1996. Third quarter 1996 revenues and income from the commercial portfolio were approximately the same as the prior year third quarter. For the 1996 nine-month period, revenues and income were slightly below the year earlier results due to the 1995 sale of the ITT build-to-suit and Bouquet Shopping Center. At the end of the 1996 third quarter, occupancy at Valencia Town Center shopping mall was approximately 90%. The center is expected to be 100% leased during the holidays with seasonal tenants and should return to higher full-time occupancy in early 1997 due to strong current interest by potential replacement tenants. Other properties in the commercial portfolio remain fully occupied with normal turnover. Results for all of 1996 from the portfolio are expected to be approximately 10% below 1995 due to the sale of Bouquet Shopping Center and the ITT build-to- suit in 1995. New commercial projects started in 1995 and 1996 will not contribute meaningful revenues and income until 1997. Of the ten income-producing properties started in 1995 and 1996, five are in various stages of development and five have been completed. Construction continues on the first phase of Valencia Marketplace, a 750,000-square-foot value oriented center. WalMart, Sport Chalet, Toys R Us and Staples are open. The balance of the center is expected to open in 1997. The center is currently 71% pre-leased and will ultimately contain a wide variety of national retail shops, restaurants, a supermarket, nursery and daycare center. Also under construction are NorthPark Village Square, a neighborhood shopping center, where Ralphs supermarket and a Starbucks are open; Skycrest, a 264-unit apartment complex adjacent to NorthPark Village Square, where the first phase of apartments will be available for move-in by mid-November; and Spectrum/Valencia, a 50,000-square-foot sports and fitness complex with completion scheduled for mid-1997. Land development for a 250-room hotel and conference center has commenced with completion scheduled for fall 1997. Completed projects include two build-to-suit facilities and a build-to-lease facility totaling 344,000 square feet in Valencia Commerce Center, a 57,000-square-foot office building in Valencia Town Center which is 45% leased and an automotive service center. The Company plans to start several additional income-producing projects in 1997 including an entertainment-related complex in Valencia Town Center where a letter of intent has been signed with Edwards Cinema for a 60,000-square-foot state-of the-art theater complex. Also, development is underway for four new industrial buildings under the build-to-lease program which is expected to add 265,000 square feet of industrial space and approximately 500 jobs to Valencia. As the number of commercial income properties built each year increases, sales of mature income properties are expected to be made on a selective basis allowing the Company to realize a greater return on its investment in the income property portfolio. 10 Part I. Financial Information 10. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations AGRICULTURAL OPERATIONS For the three and nine months ended September 30, 1996, revenues and income from agricultural operations, including the Company's energy operations, were comparable to the 1995 periods. RANCH SALES During the 1996 third quarter, an eight-acre parcel in northern California closed escrow for $600,000 contributing $472,000 to income. The nine-month period also includes the sale of 539 acres of row crop land on the 38,800-acre Suey Ranch for $6.5 million which contributed $5.9 million to income. Results for the 1995 three- and nine-month periods include sale of 5,501 acres at the Merced Ranch for $7.4 million which added $4.6 million to income. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses for the three- and nine-month periods were approximately the same as the prior year periods. The Company expects general and administrative expenses for the year to be approximately 8% higher than in 1995 primarily due to termination of a retirement plan for outside directors and replacement with a deferred equity compensation plan. INTEREST AND OTHER, NET Net interest expense for 1996 decreased by 3% and 15% from the respective prior year three- and nine-month periods primarily as a result of the sale of the McDowell Mountain Ranch project in April 1996 whereby the buyer assumed the related project and bond debt. Increases in 1996 interest expenditures for borrowings against a revolving mortgage facility and lines of credit in connection with completing income portfolio projects in Valencia are being capitalized during the construction period. Therefore, interest expense is expected to increase in 1997 as income properties are completed. OUTLOOK With the economic recovery in California in its third year, the Company is experiencing increased activity in all three of its businesses - residential, commercial and industrial. Emphasis continues on obtaining the necessary residential entitlements to build out Valencia where initial government approvals for lake and golf course oriented "lifestyle villages" are expected to enable the Company to increase absorption when lot sales begin in late 1998 or 1999. FINANCIAL CONDITION Liquidity and Capital Resources For 1996, the Company is in a stage of rapid commercial portfolio development requiring capital expenditures projected to total $67 million for the year as more fully described below. The Company relies upon a combination of operating cash flow and available lines of credit to fund its development activities. In 1996, a primary contributor to operating cash flow is the April 1996 sale of the McDowell Mountain Ranch project in Scottsdale, Arizona which generated $25.9 million in cash for the Company. In addition, the Company had cash and cash equivalents of $4.2 million and $114 million in available lines of credit at September 30, 1996. There is no debt against raw land under development in Valencia. The Company believes it has sufficient operating cash flow and available debt capacity to continue with the planned development of Valencia. A total of 1,025,278 of the Company's partnership units have been repurchased for $17 million under a unit repurchase program for up to 1.5 million units approved by the Board of Directors in December, 1995. Of these units, 763,378 units were repurchased in 1996 for $13 million. As previously announced, a portion of the $25.9 million in cash generated from the sale of the McDowell Mountain Ranch in Scottsdale, Arizona was used for these repurchases. Additional units may be repurchased depending on market conditions. 11 Part I. Financial Information 11. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations There are no material commitments for capital expenditures other than the Company's plans in the ordinary course of business to expand its portfolio of income-producing properties. Of the ten new commercial projects started in 1995 and 1996, five were in various stages of development at September 30, 1996, and five had been completed. Development is underway on four new industrial buildings under the build-to-lease program and several additional commercial projects are planned to be started in 1997. As of September 30, 1996, $49.4 million had been invested in commercial portfolio projects in 1996 and an additional $18 million is projected to be expended during the remainder of 1996. In 1997, the Company expects to invest approximately $90 million to complete projects under construction and start several new projects. A portion of the estimated construction costs for these projects is expected to be provided from a combination of available lines of credit and project financings. The following discussion relates to principal items on the Consolidated Statement of Cash Flows: Operating Activities Net cash provided by operating activities for the nine-month period totaled $65.8 million and included the sale of McDowell Mountain Ranch in Scottsdale, Arizona which generated $25.9 million in cash and the sale of 539 acres of row crop land at the Suey Ranch for $6.5 million. Sales in Valencia included 106 residential lots to merchant builders, 187 homes under the Company's joint venture program, 6.2 acres of industrial land and a 2.7-acre commercial parcel which combined generated $47.8 million in cash. The sale of 491 unimproved residential lots in Castaic, just north of Valencia, in September 1996 for $4.5 million included a $3.4 million note receivable. Land under development inventory expenditures totaling $57.1 million for the 1996 nine-month period were more than offset by $70.0 million in real estate cost of sales activity. Inventory expenditures in Valencia were related to land development and infrastructure to support future and pending land sales including expansion of Valencia NorthPark and home construction advances for the Company's joint venture homebuilding program. The Company's net homebuilding investment decreased by $8.4 million since December 31, 1995 to a total of $16.9 million in six joint venture projects. At September 30, 1996, the Company's homebuilding partnerships had 42 homes under construction and 66 completed, unsold homes for sale which were included in residential land under development inventories. The majority of the completed, unsold homes are in the Rose Arbor condominium project. Investing Activities Expenditures for property and equipment totaled $56.9 million and were primarily for income-producing properties under development in Valencia and water utility construction. Properties under development include Valencia Marketplace, a 750,000-square-foot value-oriented retail complex, a 264-unit apartment complex and a neighborhood shopping center in Valencia NorthPark; a 50,000-square-foot sport and fitness complex; and land development for a 250-room hotel and conference center in Valencia Town Center. Projects completed in 1996 include a 57,000-square-foot office building which opened in September, a build-to-lease and two build-to-suit industrial buildings in Valencia Commerce Center; and an automotive service center which opened in April. Financing Activities Three quarterly distributions totaling $10.6 million, or .30 cents per unit, have been paid year-to-date. The declaration of distributions, and the amount declared, is determined by the Board of Directors on a quarterly basis taking into account the Company's earnings, financial condition and prospects. The next quarterly distribution will be considered by the Board of Directors on November 20, 1996. In conjunction with the sale of McDowell Mountain Ranch in April, project and bond debt totaling $16.3 million were assumed by the buyer. A $31 million increase in borrowings against a revolving mortgage facility and lines of credit were primarily for costs associated with income-producing projects under development. A total of 763,378 of the Company's partnership units have been repurchased for $13 million during the nine-month period ending September 30, 1996 under a repurchase program for up to 1.5 million units approved by the Board of Directors in December, 1995. RISKS AND RELATED FACTORS 12 Part I. Financial Information 12. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Included in this report are forward-looking statements regarding the status of proposed or pending sales and rental activity, future planned development, plus the long-term growth goals for the Company. These forward-looking statements made in this report are based on present trends the Company is experiencing in residential, industrial and commercial markets. Also, the Company's success in obtaining entitlements, governmental and environmental regulations, timing of escrow closings, expansion of its income portfolio and marketplace acceptance of its business strategies are 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 are generated by its real estate operations. The ability of the Company to consummate sales of real estate is dependent upon various factors, including but not limited to availability of financing to the buyer, regulatory and legal issues and successful completion of the buyer's due diligence. The fact that a real estate transaction has entered escrow does not necessarily mean that the transaction will ultimately close. Therefore the timing of sales may differ from that anticipated by the Company. The inability to close sales as anticipated could adversely impact the recognition of revenue in any specific period. Economic Conditions: Real estate development is impacted significantly by general and local economic conditions which are often beyond the control of the Company. The Company's real estate operations are concentrated in Southern California. The regional economy is profoundly affected by the entertainment, technology and certain other segments, which have been known to affect the region's demographics. Consequently, all sectors of real estate development for the Company tend to be cyclical. While the economy of Southern California has shown improvements recently, there can be no assurances that the present trend will continue. Interest Rates and Financings: 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 ability 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 comparable to that sold and leased by the Company and the level of demand for such real estate. Geographic Concentration: With the 1996 sale of McDowell Mountain Ranch, the Company's real estate development activities currently are focused on its 37,000-acres on the Newhall Ranch, 30 miles north of Los Angeles. The Company's entire commercial income portfolio is located in the Valencia area. Governmental 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, levels of population, density and traffic, and the provision 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 governmental regulation affects the types of projects which can be pursued by the Company and increases the cost of development and ownership. The Company devotes substantial financial and managerial resources to complying with these requirements and dealing with the process. To varying degrees, certain permits and approvals will be required to complete the developments currently being undertaken, or planned by the Company. Furthermore, the timing, cost and scope of 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. 13 Part I. Financial Information 13. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Part II. Other Information Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits (listed by numbers corresponding to the Exhibit Table of Item 601 in Regulation S-K): 27 Financial Data Schedule (b) The following report was filed on Form 8-K in the third quarter ended September 30, 1996 None 14 14. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE NEWHALL LAND AND FARMING COMPANY (a California Limited Partnership) ---------------------------------- Registrant By Newhall Management Limited Partnership, Managing General Partner By Newhall Management Corporation, Managing General Partner Date: November 11, 1996 By / S / THOMAS L. LEE ----------------------------------- Thomas L. Lee, Chairman and Chief Executive Officer of Newhall Management Corporation (Principal Executive Officer) Date: November 11, 1996 By / S / STUART R. MORK ----------------------------------- Stuart R. Mork, Senior Vice President and Chief Financial Officer of Newhall Management Corporation (Principal Financial Officer) Date: November 11, 1996 By / S / DONALD L. KIMBALL ----------------------------------- Donald L. Kimball, Vice President - Controller of Newhall Management Corporation (Principal Accounting Officer) EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1995 SEP-30-1996 4,222 0 16,222 (403) 75,542 0 333,538 (63,711) 379,726 0 166,171 0 0 0 122,367 379,726 115,126 143,361 74,208 97,243 0 0 6,908 32,871 0 32,871 0 0 0 32,871 0.93 0.93
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