-----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, JyeBbq8Nd4VlD/ZEn4QuLkgGPXsr3gCWNHvy8kHO74+IKXI+Q96D3ZJHdv9J/XN6 BhRGEwqBtWxkErlhWKoIyg== 0000950150-97-000710.txt : 19970512 0000950150-97-000710.hdr.sgml : 19970512 ACCESSION NUMBER: 0000950150-97-000710 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970509 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: 97598561 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 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 March 31, 1997 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 March 31, 1997 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 In thousands, except per unit March 31 - ------------------------------------ ----------------------------- 1997 1996 ----------- ----------- REVENUES Real estate Residential home and land sales Valencia $ 5,410 $ 9,898 McDowell Mountain Ranch -- 5,531 Industrial and other sales 19,765 2,136 Commercial operations 9,854 8,309 -------- -------- 35,029 25,874 -------- -------- Agriculture Operations 972 707 Ranch sales -- 6,145 -------- -------- 972 6,852 -------- -------- Total revenues $ 36,001 $ 32,726 ======== ======== CONTRIBUTION TO INCOME Real estate Residential home and land sales Valencia ($ 659) $ 520 McDowell Mountain Ranch -- 1,602 Industrial and other sales 12,955 399 Community development (2,343) (2,427) Commercial operations 4,510 4,083 -------- -------- 14,463 4,177 -------- -------- Agriculture Operations 541 762 Ranch sales -- 5,872 -------- -------- 541 6,634 -------- -------- Operating income 15,004 10,811 General and administrative expense (2,000) (2,200) Interest and other, net (2,451) (2,380) -------- -------- Net income $ 10,553 $ 6,231 ======== ======== Net income per unit $ 0.30 $ 0.17 ======== ======== Number of units used in computing per unit amounts 34,822 35,908 Cash distributions per unit Regular $ 0.10 $ 0.10 Special 0.08
3 Part I. Financial Information 3. Item 1 - Financial Statements CONSOLIDATED BALANCE SHEETS
March 31, December 31, In thousands 1997 1996 - ------------------------------------- --------- ------------ Unaudited ASSETS Cash and cash equivalents $ 2,107 $ 2,412 Accounts and notes receivable 21,238 25,557 Land under development 69,599 63,266 Land held for future development 32,314 32,357 Income producing properties, net 190,215 182,641 Property and equipment, net 57,614 57,064 Other assets and deferred charges 13,725 13,147 -------- -------- $386,812 $376,444 ======== ======== LIABILITIES AND PARTNERS' CAPITAL Accounts payable $ 14,324 $ 11,451 Accrued expenses 38,263 38,101 Deferred revenues 3,195 2,483 Mortgage and other debt 167,251 163,256 Advances and contributions from developers for utility construction 19,845 19,075 Other liabilities 21,289 21,425 -------- -------- Total liabilities 264,167 255,791 Partners' capital 34,567 units outstanding, excluding 2,205 units in treasury, at March 31, 1997 and 34,701 units outstanding, excluding 2,071 units in treasury, at December 31, 1996 122,645 120,653 -------- -------- $386,812 $376,444 ======== ========
4 Part I. Financial Information 4. Item 1 - Financial Statements CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited
Three Months Ended March 31, ----------------------- In thousands 1997 1996 - ------------------------------------- --------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 10,553 $ 6,231 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,299 1,891 Increase in land under development (6,333) (5,180) Decrease in accounts and notes receivable 4,319 2,545 Increase in accounts payable, accrued expenses and deferred revenues 3,747 2,663 Cost of property sold 5,078 264 Other adjustments, net (501) (425) -------- -------- Net cash provided by operating activities 19,162 7,989 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Development of income-producing properties (14,260) (10,518) Purchase of property and equipment (1,198) (2,611) -------- -------- Net cash used in investing activities (15,458) (13,129) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Distributions paid (6,247) (3,589) Increase in mortgage and other debt 3,995 11,316 Increase (decrease) in advances and contributions from developers for utility construction 770 (40) Purchase of partnership units (2,527) (2,468) -------- -------- Net cash (used in) provided by financing activities (4,009) 5,219 -------- -------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (305) 79 -------- -------- CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,412 4,285 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,107 $ 4,364 ======== ========
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 balances and 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 months ended March 31, 1997 and 1996 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 32 of the December 31, 1996 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: - - Land sales occur irregularly and are recognized at the close of escrow or on the percentage of completion basis if the Company has an obligation to complete certain future improvements and provided profit recognition criteria are met. - - Agricultural crops are on an annual cycle and income is recognized upon harvest. Most major crops are harvested during the fall and winter. - - Sales of non-developable 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) March 31, December 31, 1997 1996 -------- ----------- (Unaudited) Valencia Residential land development $ 4,094 $ 1,093 Industrial and commercial land development 51,845 49,580 Homes completed or under construction with venture partners 11,810 12,371 Agriculture 1,850 222 ------- ------- Total land under development $69,599 $63,266 ======= =======
- ------------------------------------------------- Note 3. Details for Earnings per Unit Calculation - -------------------------------------------------
Three months ended March 31, (Unaudited) 1997 1996 --------------------------- Average number of units outstanding during the period 34,694,506 35,752,138 Net units issuable in connection with dilutive options based upon use of the treasury stock method 127,570 156,233 ---------- ---------- Average number of primary units 34,822,076 35,908,371 ========== ==========
6 Part I. Financial Information 6. - ----------------------------- Item 2 - Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations ------------- RESULTS OF OPERATIONS Comparison of First Quarter 1997 to First Quarter 1996 Unaudited The amounts of increase or decrease in revenues and income from the prior year first quarter are as follows (in 000s, except per unit):
Increase (Decrease) ----------------------- Amount % ----------- -------- REVENUES Real Estate Residential home and land sales Valencia $ (4,488) -45% McDowell Mountain Ranch (5,531) -100% Industrial and other sales 17,629 825% Commercial operations 1,545 19% -------- -------- 9,155 35% Agriculture Operations 265 37% Ranch sales (6,145) -100% -------- -------- Total revenues $ 3,275 10% ======== ======== CONTRIBUTION TO INCOME Real Estate Residential home and land sales Valencia $ (1,179) -227% McDowell Mountain Ranch (1,602) -100% Industrial and other sales 12,556 3147% Community development 84 3% Commercial operations 427 10% -------- -------- 10,286 246% Agriculture Operations (221) -29% Ranch sales (5,872) -100% -------- -------- Operating income 4,193 39% General and administrative expense 200 9% Interest and other, net (71) -3% -------- -------- Net income $ 4,322 69% ======== ======== Net income per unit $ 0.13 76% ======== ======== Number of units used in computing per unit amounts (1,086) -3% ======== ========
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 months are attributable to the following: For the quarter ended March 31, 1997, revenues totaled $36.0 million and income totaled $10.6 million compared to revenues for the 1996 first quarter of $32.7 million and income of $6.2 million. The primary contributor to 1997 first quarter results was the sale of a 208-unit apartment complex for $18.3 million adding $12.9 million to income. In the 1996 first quarter, the Company completed the sale of 539 acres of crop land at the Suey Ranch for $6.5 million which added nearly $5.9 million to income. RESIDENTIAL HOME AND LAND SALES VALENCIA The Company generates revenues and income from Valencia residential projects by selling residential lots to merchant builders and home sales through joint ventures. Revenues and income are recorded by the Company on residential lot sales when title is transferred to the merchant builder who, in turn, builds homes for sale. The Company also participates in home construction on lots it owns by establishing joint ventures with builders who have created innovative new home designs, targeting niche markets unmet by merchant builders. Under the joint venture program, the Company recognizes its portion of revenues and income upon close of escrow to the homebuyer. By participating in joint ventures, the Company generates increased income as it receives a portion of homebuilding profits in return for sharing in the risk of homebuilding and financing construction costs. Merchant builders and the Company's homebuilding joint venture partners sold 150 homes in Valencia during the first quarter of 1997, an increase of 9.5% over home sales in the 1996 first quarter. This represents the highest first quarter of new home sales in Valencia since 1988. At March 31, 1997, 135 homes were in escrow by all builders compared to 54 at the end of the 1996 fourth quarter. The increase in home sales is a result of a strengthening market for homes in Los Angeles County and the wide variety of product choices and prices available to homebuyers in Valencia. With the close-out of three product lines in the 1997 first quarter, Valencia's market share of all new home sales in the Santa Clarita Valley dropped to 38%, compared with 45% for the same period last year, according to an independent research group. In the 1996 fourth quarter, the latest reporting period, Valencia accounted for 11% of new home sales in Los Angeles County compared with 7% for the previous year. Merchant Builder Program There were no residential lot sales completed by the Company in Valencia in the 1997 or 1996 first quarters. In the 1996 first quarter, deferred revenues totaling $1.0 million and income of $207,000 were recognized from prior residential lot sales under percentage of completion accounting. No deferred revenues or income were recognized in the 1997 first quarter. Currently, 388 lots are in escrow for approximately $23 million with closings scheduled through the remainder of the year subject to market and other conditions. At March 31, 1996, two residential parcels totaling 143 lots for approximately $10 million and 491 unimproved lots in Castaic, a community north of Valencia, for $4.5 million were in escrow. Merchant builders new to Valencia with initial projects in escrow with the Company include Richmond American with 90 lots for single-family homes, Laing Homes for 132 detached, cluster homes, and Brookfield Homes for 81 high-density, detached homes. In addition, Centex, which is opening models this month for its Willows single-family homes on lots purchased from the Company in 1996, is in escrow for an additional 33 lots for that project and 52 lots for a new project to be called Wildrose. Due to improving market conditions, the Company expects a higher proportion of total home and lot sales in 1997 to be from sales of lots to merchant builders compared to the prior year. During the 1997 first quarter, approval was received from the City of Santa Clarita for North Hills, an upscale 400-home community overlooking Valencia Country Club, site of the 1998 L.A. Nissan Open. The project will consist of higher-priced homes geared toward the growing number of executives desiring to live in Valencia. There is strong interest in this project and the Company anticipates selling most, if not all, of these high value lots in 1997. 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 1997 first quarter, the Company's five active joint-venture homebuilding projects closed escrow on 26 homes, contributing $5.4 million to revenues and $570,000 to income. This compares with 49 joint venture closings during the first three months of 1996, contributing $8.9 million to revenues and $983,000 to income. With the close-out of the CourtHomes and Avalon joint-venture projects during the 1997 first quarter and the Montana townhome project in the fourth quarter of last year, the Company does not expect to match the number of joint venture home sales achieved last year. New joint venture projects that are expected to open this summer include two projects with EPAC: Cheyenne, a 166 townhome neighborhood similar to and located near the successful Montana Townhomes which sold out last year, and 76 upscale townhomes adjacent to Valencia Country Club in the Valencia Town Center area, called Avignon. In addition, a new joint venture project in Valencia NorthPark with Warmington Homes, named Nouvelle, is starting with models scheduled to open in May. At March 31, 1997, 24 homes were in escrow by homebuilding joint ventures compared with 47 homes at the end of the 1996 first quarter. McDOWELL MOUNTAIN RANCH On April 17, 1996, the Company completed the sale of the entire remaining McDowell Mountain Ranch project in Scottsdale, Arizona. In the first quarter of 1996, prior to the sale of the entire project, escrow closed on 219 residential lots which contributed $5.5 million to revenues and $2.1 million to income. INDUSTRIAL AND OTHER SALES Sale of the 208-unit Stonecreek apartment complex contributed $18.3 million to revenues and $12.9 million to income in the 1997 first quarter. Also completed during the quarter, was the sale of a 2.1-acre commercial parcel in the expanded portion of Valencia Auto Center for $1.5 million adding $1.0 million to income. The 1996 first quarter included the sale of a 2.7-acre commercial parcel which contributed $1.7 million to revenues and $861,000 to income. Also included in 1996 first quarter results are deferred revenues of $449,000 and income of $234,000 recognized from prior year sales. At March 31, 1997, properties in escrow included two parcels totaling 9.8 acres for $2.3 million, a 12.6 acre site for a senior apartment complex for $1.8 million and a 17,400-square-foot, three-story office building for approximately $2.0 million. All escrow closings are subject to market and other conditions. COMMUNITY DEVELOPMENT The Company's community development activities are focused on securing the necessary governmental land use approvals as well as an intensified strategic marketing program to complete the build-out of Valencia by 2005 and begin the development of Newhall Ranch, a new community on the Company's 12,000 acres west of Valencia. The governmental approval process continues on this new town planned for 25,000 homes in five lifestyle villages. The Regional Planning Commission (RPC) has closed the public comment period on the Environmental Impact Report and RPC approval is expected this summer. The next step will be hearings at the Los Angeles County Board of Supervisors which should start later this year. Development is planned to begin around the year 2000. The Company is working with PGA Tour Golf Course Properties to incorporate the design of the Tournament Players Club (TPC) championship golf course into the overall plan of the Westridge project. This 1,700-home project, which is planned for a wide range of housing choices surrounding the 18-hole golf course, is expected to undergo public hearings before the Los Angeles County Planning Commission this year and the Board of Supervisors in early 1998. The Company is also focusing on obtaining additional residential entitlements in Valencia to support the accelerated pace of development to meet forecasted demand. Several lifestyle villages are planned, offering a wide range of homes based on extensive research studies of homebuyers. During the first quarter of 1997, approval was received from the City of Santa Clarita for North Hills, an upscale 400-home community overlooking Valencia Country Club. 9 Part I. Financial Information 9. - ----------------------------- Item 2 - Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations ------------- Community development expenses were approximately the same in the first quarter of 1997 as compared to the first quarter of 1996. Expenditures for entitlements are expected to continue at current levels to complete the approval process for the lifestyle villages that will enable the Company to increase residential absorption when those lot sales begin in late 1998 or early 1999. COMMERCIAL OPERATIONS Commercial operations include the Company's portfolio of income-producing properties and Valencia Water Company, a wholly-owned public water utility. The commercial portfolio is a relatively stable source of earnings and cash flow, which provides debt capacity to grow the Company and working capital for continuing operations. Revenues from commercial operations for the 1997 first quarter increased 19% while income increased 10% from the year earlier quarter. Income from commercial operations did not increase in line with revenues due to higher depreciation expense associated with new projects. One of the primary contributors to increases in revenues and income from commercial operations is the 750,000-square-foot Valencia Marketplace, a high-volume retail center along Interstate 5, which opened its fully-leased first phase consisting of 260,000 square feet during the fourth quarter of 1996 with Wal-Mart, Sport Chalet, Toys R Us and Staples. A Circuit City store opened in the 1997 first quarter, and two major restaurants - Chili's and Macaroni Grill, a Payless Shoe Store and Michaels, a national arts and crafts retailer, are scheduled to open by summer. Including space occupied and under development, the center is currently 77% leased. Also contributing to the increases is the first phase of NorthPark Village Square, the Company's newest neighborhood shopping center, which opened in September, 1996 and is 100% leased. Valencia Town Center shopping mall was 97% leased, including 5% leased to short-term tenants, at the end of the 1997 first quarter. The occupancy rate at both River Oaks and Castaic Village neighborhood shopping centers was 97% at the end of the 1997 first quarter. In March, 1997, escrow closed on the sale by the Company of Stonecreek, a 208-unit apartment complex. The sale enabled the Company to capitalize on strong demand for institutional quality apartments and invest the proceeds in its aggressive commercial expansion program. The Company's Northglen and Portofino apartment complexes were over 95% leased at March 31, 1997. SkyCrest, the Company's newest apartment complex, will contain 264 units when completed. At the end of the 1997 first quarter, 111 units of the 196 units completed were occupied and an additional 37 units were leased or reserved. SkyCrest is achieving the highest rental rates in the history of the Company. The focus of commercial development and portfolio expansion is along Town Center Drive, a mixed-use pedestrian-oriented "main street" extending west from the regional shopping mall to the 250-room Hyatt Valencia Hotel and 20,000-square-foot conference center currently under construction. A 55,000-square-foot Spectrum Health Club, across from the hotel, will open this summer. A 100,000-square-foot entertainment complex with an Edwards IMAX 3D theatre, 12 additional movie screens, restaurants and retail shops will begin construction this summer. The Company had a total of nine projects in various stages of development in the Valencia area at the end of the 1997 first quarter. AGRICULTURAL OPERATIONS Excluding a prior year reversal of a $400,000 contingency associated with previously sold farm land, revenues and income from agricultural operations increased over the prior year first quarter due to higher than anticipated price and yield on avocados harvested at the Suey Ranch. RANCH SALES No sale of farm land was completed during the current year first quarter. In the prior year first quarter, the Company completed the sale of 539 acres of row crop land on the Suey Ranch for $6.5 million contributing $5.9 million to income. 10 Part I. Financial Information 10. - ----------------------------- Item 2 - Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations ------------- On April 4, 1997, the Company announced the sale of 1,673 acres of vineyards and undeveloped land on its 38,000-acre Suey Ranch. This sale enabled the Company to realize historically high vineyard values and is in keeping with the strategy of selling farm properties that have little or no future development potential. The sale will contribute $17.9 million to revenues and about $17.0 million to operating income in the 1997 second quarter. The Company's remaining 3,940 acres at the Merced Ranch are under a purchase option which the Company expects the prospective buyer to exercise and complete the sale in the second half of 1997. The proceeds from these sales will be used to repurchase additional units as authorized by the Board of Directors, to expand our commercial portfolio and to pursue our aggressive plans to build out Valencia. GENERAL AND ADMINISTRATIVE EXPENSE A 9% decrease in general and administrative expenses is primarily due to variances in the timing of expenses. The Company expects general and administrative expenses for the year to be slightly lower than in 1996 due to the prior year charge for curtailment of a retirement plan for outside directors and its replacement with a deferred equity compensation plan. INTEREST AND OTHER, NET There were no significant variances from the prior year first quarter. FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES At March 31, 1997, the Company had cash and cash equivalents of $2.1 million and $108.9 million in available lines of credit to fund its development activities. The Company believes it has adequate sources of cash from operations and available debt capacity, including existing lines of credit, to finance future operations plus take advantage of new development opportunities. At March 31, 1997, there was no debt against raw land or land under development inventories. 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. In the first three months of 1997, the Company expended $14.3 million for commercial portfolio development. Up to $70 million in additional capital expenditures for income-producing properties under development is projected to for the remainder of 1997. Construction of new income-producing properties on Company-owned land creates additional debt capacity. It is the Company's policy to limit total Company-wide debt to approximately 60% or less of the value of the portfolio of income-producing properties. At the January 15, 1997 Board of Directors meeting, the existing unit repurchase program was increased to two million units, bringing total units available for repurchase to 510,022. From December 1, 1995 through April 16, 1997, the Company has repurchased a total of 1,818,615 units, including 328,637 in 1997, at an average purchase price of $16.49. The repurchases equaled 5.0% of the units outstanding at December 1, 1995. The following discussion relates to principal items in the Consolidated Statement of Cash Flows: Operating Activities Net cash provided by operating activities in the first quarter of 1997 totaled $19.2 million and included the sale of a 208-unit apartment complex for $18.3 million in cash. Sales of 26 residential homes and a 2.7-acre commercial parcel provided $5.7 million in cash and $1.2 million in notes. In addition, notes totaling $2.8 million from land sales in prior years were collected during the quarter. 11 Part I. Financial Information 11. - ----------------------------- Item 2 - Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations ------------- Expenditures for land under development inventories totaled $11.8 million in the 1997 first quarter and were primarily for land development and infrastructure to support future and pending land sales and home construction advances for the Company's joint-venture homebuilding program. Investing Activities Expenditures for income-producing properties under development in Valencia totaled $14.3 million during the 1997 first quarter. Properties under construction include Valencia Marketplace, a 750,000-square-foot value-oriented retail center; the 250-room Hyatt Valencia Hotel and 20,000-square-foot conference center; SkyCrest, a 264-unit apartment complex; a 55,000-square-foot Spectrum Health Club; four industrial buildings totaling nearly 300,000 square feet under the build-to-suit/lease program; and Plaza del Rancho, a 53,000-square-foot mixed-use project adjacent to Valencia Industrial Center. Construction is scheduled to start this summer on a 100,000-square-foot entertainment complex with an Edwards IMAX 3D theatre, 12 additional movie screens, restaurants and retail shops. Four additional build-to-suit/lease industrial buildings totaling over 300,000 square feet are planned to begin construction later this year. Of the approximately 600,000 square feet of build-to-suit/lease space under construction or planned to start this year, 290,000 square feet are already leased. Financing Activities An 18-cent per unit distribution totaling $6.2 million was paid on March 10, 1997. This distribution represented a 10-cents per unit regular quarterly cash distribution and an 8-cents per unit special distribution. The declaration of distributions is reviewed by the Board of Directors on a quarterly basis. The declaration of any distribution, and the amount declared, is determined by the Board of Directors taking into account the Company's earnings, financial condition and prospects. The next quarterly distribution will be considered by the Board of Directors on May 21, 1997. During the 1997 first quarter, borrowings against unsecured lines of credit totaled $3.6 million. The increase in borrowings was primarily for costs associated with income-producing projects under development. A total of 146,737 units were purchased for $2.5 million during the 1997 first quarter under the Company's unit repurchase program. For additional information on this repurchase program, refer to the Liquidity and Capital Resources section. New Accounting Pronouncement The Company anticipates that the adoption of SFAS No. 128 - Earnings Per Share for the year ending December 31, 1997, will not result in disclosures that are materially different than those presently required by generally accepted accounting principles contained in this quarterly report. This new statement simplifies the standards for computing earnings per share (unit) and makes them comparable to international standards. Inflation, Risks and Related Factors This report and other published documents contain forward-looking statements regarding the status of proposed or pending sales and rental activity, future planned development, future results of operations and financial condition, the long-term growth of the Southern California economy and other matters. These forward-looking statements 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 projected. 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 12 Part I. Financial Information 12. - ----------------------------- Item 2 - Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations ------------- 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 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 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. Geographic Concentration: With the 1996 sale of McDowell Mountain Ranch, the Company's real estate development activities currently are focused on its 20,000 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 or environmental factors 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 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. The Company's results of operations in any period will be affected by the amount of entitled properties the Company has in inventory. 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) No report was filed on Form 8-K in the first quarter ended March 31, 1997 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE NEWHALL LAND AND FARMING COMPANY (a California Limited Partnership) Registrant By Newhall Management Limited Partnership, Managing General Partner By Newhall Management Corporation, Managing General Partner Date: May 5, 1997 By /s/ THOMAS L. LEE ----------------------------------------------- Thomas L. Lee, Chairman and Chief Executive Officer of Newhall Management Corporation (Principal Executive Officer) Date: May 5, 1997 By /s/ STUART R. MORK ----------------------------------------------- Stuart R. Mork, Senior Vice President and Chief Financial Officer of Newhall Management Corporation (Principal Financial Officer) Date: May 5, 1997 By /s/ DONALD L. KIMBALL ----------------------------------------------- Donald L. Kimball, Vice President - Finance and Controller of Newhall Management Corporation (Principal Accounting Officer)
EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 MAR-31-1997 2,107 0 21,238 689 69,599 0 345,167 65,024 386,812 0 167,251 0 0 0 122,645 386,812 26,147 36,001 13,310 20,997 0 0 2,451 10,553 0 10,553 0 0 0 10,553 0.30 0.30
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