10-Q 1 j1887_10q.htm 10-Q Prepared by MERRILL CORPORATION

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10 - Q

 

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2001

 

or

 

o 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 1-8885

 

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 incorporation or organization)

 

(I.R.S. Employer 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 ý No o

 

24,530,757  partnership units outstanding at September 30, 2001.

 

 

Part I. Financial Information

Item 1. Financial Statements

 

Consolidated Statements of Income

(Unaudited)

(In thousands, except per unit)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2001

 

2000

 

2001

 

2000

 

Revenues

 

 

 

 

 

 

 

 

 

Real estate

 

 

 

 

 

 

 

 

 

Residential home and land sales

 

$

25

 

$

4,861

 

$

204

 

$

23,817

 

Industrial and commercial sales

 

19,725

 

20,711

 

117,437

 

49,044

 

Commercial operations

 

 

 

 

 

 

 

 

 

Income-producing properties

 

10,097

 

14,156

 

32,074

 

43,110

 

Valencia Water Company

 

4,480

 

4,220

 

10,012

 

9,613

 

 

 

34,327

 

43,948

 

159,727

 

125,584

 

 

 

 

 

 

 

 

 

 

 

Agriculture operations

 

2,889

 

2,522

 

5,200

 

4,569

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

37,216

 

$

46,470

 

$

164,927

 

$

130,153

 

 

 

 

 

 

 

 

 

 

 

Contribution to income (loss)

 

 

 

 

 

 

 

 

 

Real estate

 

 

 

 

 

 

 

 

 

Residential home and land sales

 

$

(1,522

)

$

(3,403

)

$

(3,286

)

$

2,945

 

Industrial and commercial sales

 

3,652

 

4,135

 

88,569

 

9,004

 

Community development

 

(2,222

)

(2,411

)

(7,996

)

(6,848

)

Commercial operations

 

 

 

 

 

 

 

 

 

Income-producing properties

 

2,897

 

7,221

 

10,298

 

20,268

 

Valencia Water Company

 

1,433

 

1,237

 

2,444

 

2,476

 

 

 

4,238

 

6,779

 

90,029

 

27,845

 

 

 

 

 

 

 

 

 

 

 

Agriculture operations

 

(197

)

202

 

404

 

919

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

4,041

 

6,981

 

90,433

 

28,764

 

 

 

 

 

 

 

 

 

 

 

General and administrative expense

 

(2,423

)

(2,184

)

(8,775

)

(6,707

)

Interest and other, net

 

(1,132

)

(5,409

)

(4,796

)

(13,124

)

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

486

 

$

(612

)

$

76,862

 

$

8,933

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per unit

 

$

0.02

 

$

(0.02

)

$

3.01

 

$

0.32

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per unit - diluted

 

$

0.02

 

$

(0.02

)

$

2.97

 

$

0.32

 

 

 

 

 

 

 

 

 

 

 

Number of units used in computing per unit amounts:

 

 

 

 

 

 

 

 

 

Net income (loss) per unit

 

24,691

 

26,967

 

25,552

 

27,942

 

Net income (loss) per unit - diluted

 

25,053

 

26,967

 

25,842

 

28,289

 

 

 

 

 

 

 

 

 

 

 

Cash distributions per unit:

 

 

 

 

 

 

 

 

 

Regular

 

$

0.10

 

$

0.10

 

$

0.30

 

$

0.30

 

Special

 

 

 

 

 

0.10

 

0.35

 

 

Consolidated Balance Sheets

(In thousands)

 

 

 

September 30,

 

December 31,

 

 

 

2001

 

2000

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,260

 

$

3,717

 

Accounts and notes receivable

 

5,870

 

17,154

 

Land under development

 

86,406

 

63,155

 

Land held for future development

 

21,575

 

22,419

 

Income-producing properties held for sale, net

 

7,783

 

12,720

 

Income-producing properties, net

 

146,922

 

147,785

 

Property and equipment, net

 

73,491

 

67,631

 

Investment in joint venture

 

820

 

591

 

Other assets and deferred charges

 

17,079

 

16,536

 

 

 

 

 

 

 

 

 

$

363,206

 

$

351,708

 

 

 

 

 

 

 

LIABILITIES AND PARTNERS' CAPITAL

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

24,252

 

$

28,267

 

Accrued expenses

 

54,327

 

68,932

 

Deferred revenues

 

2,301

 

3,137

 

Mortgage and other debt

 

95,751

 

74,557

 

Advances and contributions from developers for utility construction

 

34,045

 

32,166

 

Other liabilities

 

22,838

 

25,445

 

Total liabilities

 

233,514

 

232,504

 

 

 

 

 

 

 

Partners' capital

 

 

 

 

 

 

 

 

 

 

 

24,531 units outstanding, excluding 12,241 units in treasury

      (cost-$298,093), at  September 30, 2001 and

26,590 units outstanding, excluding 10,182 units in  treasury

      (cost-$242,098), at December 31, 2000

 

129,692

 

119,204

 

 

 

$

363,206

 

$

351,708

 

 

 

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2001

 

2000

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income

 

$

76,862

 

$

8,933

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

   

 

   

Depreciation and amortization

 

8,651

 

7,442

 

Increase in land under development

 

(48,686

)

(51,180

)

Cost of sales and other inventory changes

 

16,268

 

34,275

 

Decrease in accounts and notes receivable

 

11,284

 

30,873

 

Decrease in accounts payable, accrued expenses and deferred revenues

 

(10,289

)

(3,090

)

Cost of property sold

 

8,127

 

15,997

 

Other adjustments, net

 

(2,981

)

2,422

 

 

 

 

 

 

 

Net cash provided by operating activities

 

59,236

 

45,672

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Development of income-producing properties

 

(7,666

)

(18,701

)

Purchase of property and equipment

 

(8,577

)

(8,461

)

(Investment in) distribution from joint venture

 

(229

)

3,974

 

 

 

 

 

 

 

Net cash used in investing activities

 

(16,472

)

(23,188

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Distributions paid

 

(10,299

)

(18,552

)

Increase in mortgage and other debt

 

21,194

 

84,894

 

Increase in advances and contributions from developers for utility construction

 

1,879

 

6,402

 

Purchase of partnership units

 

(59,619

)

(81,240

)

Issuance of partnership units

 

3,624

 

1,740

 

 

 

 

 

 

 

Net cash used in financing activities

 

(43,221

)

(6,756

)

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

(457

)

15,728

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

3,717

 

1,624

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

3,260

 

$

17,352

 

 

 

 

 

 

 

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

)

 

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, 2001 and 2000 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 26 through 38 of the December 31, 2000 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.

Note 2. Details of Land Under Development

 

 

 

September 30,

 

December 31,

 

(In $000)

 

2001

 

2000

 

Residential land development

 

$

50,517

 

$

25,154

 

Industrial and commercial land development

 

35,318

 

37,689

 

Agriculture

 

571

 

312

 

Total land under development

 

$

86,406

 

$

63,155

 

 

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, 2001

 

 

 

 

 

 

 

Net income per unit

 

 

 

 

 

 

 

Net income available to unitholders

 

$

486

 

24,691

 

$

.02

 

Effect of dilutive securities

 

 

 

 

 

 

 

Unit options

 

-

 

362

 

-

 

Net income per unit - diluted

 

$

486

 

25,053

 

$

.02

 

 

 

 

Income (Loss)

 

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

)

 

 

 

 

 

 

 

 

For nine months ended September 30, 2001

 

 

 

 

 

 

 

Net income per unit

 

 

 

 

 

 

 

Net income available to unitholders

 

$

76,862

 

25,552

 

$

2.97

 

Effect of dilutive securities

 

 

 

 

 

 

 

Unit options

 

-

 

290

 

.04

 

Net income per unit - diluted

 

$

76,862

 

25,842

 

$

3.01

 

 

 

 

 

 

 

 

 

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

 

 

Note 4. Details of Income-Producing Properties, Income Producing Properties Held for Sale and Property and Equipment

 

 

 

September 30,

 

December 31,

 

(In $000s)

 

2001

 

2000

 

Income-producing properties

 

 

 

 

 

Land

 

$

37,055

 

$

34,822

 

Buildings

 

131,961

 

106,916

 

Other

 

8,334

 

10,468

 

Properties under development

 

4,762

 

25,780

 

 

 

182,112

 

177,986

 

Accumulated depreciation

 

(35,190

)

(30,201

)

 

 

$

146,922

 

$

147,785

 

Income-producing properties held for sale

 

 

 

 

 

Office

 

$

2,720

 

$

8,503

 

Other

 

6,197

 

7,311

 

 

 

8,917

 

15,814

 

Accumulated depreciation

 

(1,134

)

(3,094

)

 

 

$

7,783

 

$

12,720

 

 

Part I.      Financial Information                                                                                                 

Item 2.    Management’s Discussion

 

 

 

September 30,

 

December 31,

 

(In $000s)

 

2001

 

2000

 

Property and equipment

 

 

 

 

 

Land

 

$

3,759

 

$

3,759

 

Buildings

 

5,974

 

5,974

 

Equipment

 

9,820

 

9,470

 

Water supply systems, orchards and other

 

88,760

 

81,620

 

Construction in progress

 

4,628

 

5,545

 

 

 

112,941

 

106,368

 

Accumulated depreciation

 

(39,450

)

(38,737

)

 

 

$

73,491

 

$

67,631

 

 

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, 2001

 

 

(In $000s)

 

Revenues

 

Contribution
to Income

 

Assets

 

Real Estate

 

 

 

 

 

 

 

Residential

 

$

25

 

$

(1,498

)

$

41,039

 

Industrial and commercial

 

19,725

 

3,742

 

50,868

 

Community development

 

–

 

(2,135

)

18,863

 

Income-producing properties

 

10,097

 

2,909

 

161,330

 

Valencia Water Company

 

4,480

 

1,445

 

72,942

 

Agriculture

 

2,889

 

(196

)

6,668

 

Central administration

 

–

 

(2,249

)

11,496

 

 

 

37,216

 

2,018

 

363,206

 

Interest and other, net

 

–

 

(1,132

)

–

 

All other

 

–

 

(400

)

–

 

 

 

$

37,216

 

$

486

 

$

363,206

 

 

 

 

Three months ended September 30, 2000

 

 

(In $000s)

 

Revenues

 

Contribution
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

 

 

 

 

Nine months ended September 30, 2001

 

 

(In $000s)

 

Revenues

 

Contribution
to Income

 

Assets

 

Real Estate

 

 

 

 

 

 

 

Residential

 

$

204

 

$

(3,013

)

$

41,039

 

Industrial and commercial

 

117,437

 

89,294

 

50,868

 

Community development

 

–

 

(7,288

)

18,863

 

Income-producing properties

 

32,074

 

10,418

 

161,330

 

Valencia Water Company

 

10,012

 

2,629

 

72,942

 

Agriculture

 

5,200

 

501

 

6,668

 

Central administration

 

–

 

(6,883

)

11,496

 

 

 

164,927

 

85,658

 

363,206

 

Interest and other, net

 

–

 

(4,796

)

–

 

All other

 

–

 

(4,000

)

–

 

 

 

$

164,927

 

$

76,862

 

$

363,206

 

 

 

 

Nine months ended September 30, 2000

 

 

(In $000s)

 

Revenues

 

Contribution
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

 

 

 

Part 1.  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 2001 to Third Quarter and Nine Months of 2000

Unaudited

 

The amounts of increase or decrease in revenues and income from the prior year third quarter and ninemonths 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

 

$

(4,836

)

-99

%

$

(23,613

)

-99

%

Industrial and commercial sales

 

(986

)

-5

%

68,393

 

139

%

Commercial operations

 

 

 

 

 

 

 

 

 

Income-producing properties

 

(4,059

)

-29

%

(11,036

)

-26

%

Valencia Water Company

 

260

 

6

%

399

 

4

%

 

 

(9,621

)

-22

%

34,143

 

27

%

Agriculture

 

 

 

 

 

 

 

 

 

Operations

 

367

 

15

%

631

 

14

%

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

(9,254

)

-20

%

$

34,774

 

27

%

 

 

 

 

 

 

 

 

 

 

Contribution to Income

 

 

 

 

 

 

 

 

 

Real Estate

 

 

 

 

 

 

 

 

 

Residential home and land sales

 

$

1,881

 

-55

%

$

(6,231

)

-212

%

Industrial and commercial sales

 

(483

)

-12

%

79,565

 

884

%

Community development

 

189

 

8

%

(1,148

)

-17

%

Commercial operations

 

 

 

 

 

 

 

 

 

Income-producing properties

 

(4,324

)

-60

%

(9,970

)

-49

%

Valencia Water Company

 

196

 

16

%

(32

)

-1

%

 

 

(2,541

)

-37

%

62,184

 

223

%

Agriculture

 

 

 

 

 

 

 

 

 

Operations

 

(399

)

-198

%

(515

)

-56

%

 

 

 

 

 

 

 

 

 

 

Operating income

 

(2,940

)

-42

%

61,669

 

214

%

 

 

 

 

 

 

 

 

 

 

General and administrative expense

 

(239

)

-11

%

(2,068

)

-31

%

Interest and other, net

 

4,277

 

79

%

8,328

 

63

%

 

 

 

 

 

 

 

 

 

 

Net income

 

$

1,098

 

179

%

$

67,929

 

760

%

 

 

 

 

 

 

 

 

 

 

Net income per unit

 

$

0.04

 

200

%

$

2.69

 

841

%

Net income per unit - diluted

 

$

0.04

 

200

%

$

2.65

 

828

%

 

 

 

 

 

 

 

 

 

 

Number of units used in computing per unit amounts:

 

 

 

 

 

 

 

 

 

Net income per unit

 

(2,276

)

-8

%

(2,390

)

-9

%

Net income per unit - diluted

 

(2,240

)

-8

%

(2,447

)

-9

%

 

For the three months ended September 30, 2001, revenues totaled $37.2 million and net income totaled $486,000 compared to revenues for the 2000 third quarter of $46.5 million and a net loss of $612,000.  Revenues for the nine months ended September 30, 2001 totaled $164.9 million and net income totaled $76.9 million compared to the same 2000 period when revenues totaled $130.2 million and net income $8.9 million.

 

The primary contributors to the 2001 third quarter and nine month results were the sales of four commercial parcels totaling 11.5 net acres, including a 208-unit apartment complex site on 9.6 net acres in the Alta Vista community, and two asset sales. Combined, these sales added $18.4 million to revenues and $5.5 million to income.  In addition, the second quarter 2001 sales of the Chiquita Canyon Landfill, an option to purchase approximately 1,800 acres in Broomfield, Colorado and a 7.9 acre commercial parcel contributed a combined total of $88.1 million to revenues and $84.6 million to income for the nine-month results.

 

Results for the 2000 third quarter included a right-of-way purchase by Caltrans, which contributed $5.1 million to revenues and $4.0 to income.  The 2000 third quarter also included a $4.5 million loss as a result of the divestiture of a residential joint venture project.  In addition, two accounting charges were recorded in the 2000 third quarter.  This included a $2.1 million charge for the Company’s acceptance of a reduced pay-off on a 1998 industrial land sale note in return for the acceleration of the due date.  The second charge was a $1.2 million loss related to the leaseback of retail space in four office buildings in Valencia Town Center, which were in escrow at September 30, 2000.  The 2000 nine-month period also included the sale of 208 residential lots, revenue recognized under percentage of completion accounting from residential lots sold in the prior year, the sale of an 11.2 acre commercial parcel and the sale of two income properties, which added a combined total of $46.6 million to revenues and $15.9 million to income.

 

At September 30, 2001, the Company had about 20 acres of industrial land and 56 acres of commercial land in escrow for approximately $52 million, closings for which are expected to occur during the fourth quarter 2001.  In addition, the Company is marketing 695 residential lots on about 97 net acres in Valencia Westridge’s golf course community and expects approximately 400 of these lots to be sold in 2002.  Due to uncertainties arising from the events of September 11, 2001, the resulting U.S. military actions and the slowing economy, it is difficult to predict how many of the anticipated land sales or commercial and industrial escrows will close in the fourth quarter 2001, or if any escrows will be cancelled or closing dates moved to 2002.  The ability to complete sales in 2001 will be dependent upon a variety of factors, including, but not limited to, identification of suitable buyers, agreement with the buyers on definitive terms, successful completion of due diligence work by buyers, availability of financing to suitable buyers, market and other conditions.  In addition, 300 lots in Alta Vista that were expected to close escrow in the 2001 fourth quarter, may not be sold until early next year.

 

Residential Home and Land Sales

 

No residential lots closed escrow during the 2001 third quarter or nine-month period and no residential lots were in escrow at September 30, 2001.  The development and sale of 3,986 residential lots and apartment units are being delayed by the California Public Utilities Commission (PUC) decision to combine its review of Valencia Water Company’s request to expand its service area together with the water company’s water management plan.  The total includes 1,650 lots and apartments that the City of Santa Clarita annexed in December 2000 and 2,336 lots and apartments in the Company’s West Creek community approved in January 2001 by the Los Angeles County Board of Supervisors.  The number of homes in this project was reduced from the previously reported 2,545 homes due to the relocation of a junior high school to this planning area.  The Company expects the PUC’s decision later this year.  An adverse decision would likely delay the sale of these lots and apartments.

 

Opponents to the Los Angeles County Board of Supervisors’ approval of the West Creek community filed a California Environmental Quality Act (CEQA) lawsuit early in 2001.  In early November 2001, the court denied the claims made by the opponents.  The opponents may appeal the ruling; however, development of the community may proceed during the appeal process, subject to the PUC’s decision discussed in the previous paragraph.

 

New home sales in the Valencia area continued strong as merchant builders sold 682 homes on lots previously purchased from the Company for the nine months ended September 30, 2001, compared to 278 homes for the prior year nine-month period.  At September 30, 2001, merchant builders had 349 homes in escrow, compared to 163 at September 30, 2000.  While the Company does not participate directly in profits generated from escrow closings by merchant builders, the sale of these previously sold lots to homebuyers is key to the Company’s future success in selling additional lots.

 

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 accounting.  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.  Results also included a $4.5 million loss for the three months and $4.8 million loss for the nine months related to a joint venture, which was divested in September 2000.

 

Industrial and Commercial Sales

 

Industrial Land Sales

No industrial land sales closed escrow in the quarter ended September 30, 2001.  Results for the nine months ended September 30, 2001 included the sale of a 9.5-acre industrial parcel which contributed $4.7 million to revenues and $1.3 million to income.  At September 30, 2001, three parcels totaling 20 acres were in escrow for approximately $10 million with closings scheduled in the fourth quarter. As previously mentioned, due to uncertainties arising from the events of September 11, 2001, the resulting military action, the slowing economy, and a variety of factors outside the Company's control, it is difficult to predict when, if at all, the escrows will close.

 

At September 30, 2001, the combined vacancy rate in both Valencia Industrial Center and Valencia Commerce Center was 9.6%, compared to 4.7% at the end of September 30, 2000. Higher vacancy rates in Valencia industrial properties are a result of the slowing economy and approximately 1.8 million square feet of new space coming on-line. The Company has approximately 380 acres of entitled industrial land remaining.  Planning continues on 500 acres west of I-5 surrounding Six Flags Magic Mountain for mixed-use development.

 

Two industrial parcels 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.  The nine-month period also included two industrial parcels totaling 4.2 acres for $2.3 million contributing $700,000 to income.  At September 30, 2000, a total of 15.1 acres was in escrow for $8.4 million.

 

Commercial Land Sales

Four commercial parcels totaling 11.5 acres closed escrow in the third quarter 2001 contributing $11.2 million to revenues and $5.0 million to income.  The parcels include a 9.6 acre site for a 208-unit apartment complex in the Alta Vista community and three small parcels totaling 1.9 net acres combined.  The 2001 nine-month period also included a 7.9 acre parcel for a 341-unit apartment complex with 10,000 square feet of ground floor retail space contributing $10.1 million to revenues and $7.7 million to income.  A total of 56 net acres of commercial land was in escrow at September 30, 2001 for approximately $42 million, with closings scheduled for the fourth quarter 2001. As previously mentioned, due to uncertainties arising from the events of September 11, 2001, the resulting military action, the slowing economy, and a variety of factors outside the Company's control, it is difficult to predict when, if at all, the escrows will close.

 

 

Escrow closed on 4.3 commercial acres during 2000 third quarter for $2.8 million and contributed $1.8 to income. The results for the nine month period in 2000 also included the sale of an 11.2 acre parcel for $6.4 million which contributed $1.5 million to income under percentage of completion accounting.  Partially offsetting these results for the 2000 third quarter was a $2.1 million charge against earnings for a note reserve on a 1998 industrial land sale.  At September 30, 2000, a total of 72.0 commercial acres was in escrow for $51 million.

 

Income Property and Other Sales

In the third quarter 2001, the Company closed escrow on its Bank of America building and a small office building. The two sales contributed $7.2 million to revenues and $506,000 to income.  Results for the 2001 nine-month period also include the sale of the Chiquita Canyon Landfill for $65 million contributing $64 million to income and the sale of an option on 1,800 acres in Colorado for $13 million adding $12.9 million to income.   In the 2001 third quarter, the 26,000 square foot Town Center Plaza mixed-use building in Valencia Town Center was added to the asset sale program and is expected to be sold and close escrow within the next six months.   A 35,310 square foot building in Valencia Commerce Center also was added to the asset sale program and is being marketed for sale.  As previously mentioned, due to uncertainties arising from the events of September 11, 2001, the resulting military action, the slowing economy, and a variety of factors outside the Company's control, it is difficult to predict when, if at all, the escrows will close.

 

No income property sales were completed in the 2000 third quarter.  However, a $1.2 million accounting loss was recorded related to the leaseback of retail space in four office buildings along Town Center Drive, which were in escrow at September 30, 2000.  During the nine months ended September 30, 2000, the Company closed escrow on two retail properties in the Company’s asset sale program, Castaic Shopping Center and Plaza del Rancho, adding $18.8 million to revenues and $3.7 million to income in the nine-month period.

 

During the 2001 third quarter, an easement was sold contributing $600,000 to revenues and income.  In the 2000 third quarter, a right-of-way parcel was sold to Caltrans, which contributed $5.1 million to revenues and $4.0 million to income.

 

Community Development

 

Community development expenses decreased by 8% for the three-month period primarily due to expenses in the prior year related to preliminary entitlement efforts on the 1,800-acre parcel in Colorado held under option, which was sold in the 2001 second quarter.  An increase of 17% in community development expenses for the nine-month period ended September 30, 2001 compared to the same 2000 period is primarily due to higher administrative expenses and entitlement expenses partially offset by the reduction in expenses related to the option on land in Colorado.  Community development expenses for the year are expected to increase over 20% from the 2000 level.

 

On October 24, 2001, the Los Angeles County Regional Planning Commission approved the analyses with respect to six issues that had been under further review in connection with the Company’s Newhall Ranch Environmental Impact Report.   The Company anticipates the Los Angeles County Board of Supervisors’ approval of the additional analysis in early 2002, and that development is expected to commence during 2004.

 

The Company reported in January 2001 that housing affordability proponents filed an appeal of the Kern County Superior Court’s March 2000 decision to dismiss their challenges to the Newhall Ranch Environmental Impact Report.  The court rejected arguments asserting alleged inconsistencies with Los Angeles County’s General Plan on affordable housing requirements and the impact created by such inconsistencies on certain required California Environmental Quality Act (CEQA) analyses such as traffic and air quality.  An appellate court hearing date has been set for November 13, 2001.  An adverse decision will likely further delay the commencement of development beyond 2004.

 

The length of time that 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.  In addition, an adverse decision by the County or court and/or additional legal action could further delay the start of development.

 

In the 2001 fourth quarter, California Governor Gray Davis signed into law two bills (commonly known as SB 221 and SB 610).  Both bills require cities and counties to assess and verify water availability for proposed new projects.  The new legislation does not affect Newhall Ranch’s specific plan (which has recently undergone additional analyses and which soon will be reconsidered by the Los Angeles County Board of Supervisors).  The legislation will affect subsequent subdivision map filings for Newhall Ranch.  The bills encourage developers to work with local government officials in order to identify and finance a supplemental supply of water, if one is needed, to serve proposed development projects.  The bills will likely make the process for seeking project approvals more complicated; however the Company believes that the Newhall Ranch project will be able to comply with the new requirements.

 

Income-Producing Properties

 

For the 2001 third quarter, revenues and income decreased 29% and 60%, respectively, and for the 2001 nine-month period, revenues and income decreased 26% and 49%, respectively, from the same prior year periods primarily due to: 1) the sale of income properties late in 2000 and in the second and third quarters of 2001; and 2) the recording of depreciation expense on properties that were previously classified as held for sale and reclassified as held for investment as of September 30, 2001.

 

Income for the current and prior year third quarters include the effects of the cessation of depreciation on Properties Held for Sale and Sold Properties of $81,000 and $1,234,000, respectively, and for the current and prior nine-month periods of $300,000 and $4,215,000, respectively.   These amounts include depreciation expense suspended on Valencia Town Center regional mall and Entertainment Center, and Spectrum Club because they were classified as held for sale as of September 30, 2000.  When these properties were reclassified as held for investment in the 2000 fourth quarter for the mall and entertainment center, and in the 2001 second quarter for Spectrum Club building, depreciation expense was recorded in amounts equal to the suspended depreciation during the entire period the properties were classified as held for sale.

 

Retained income-producing properties produced slightly lower net operating income in the third quarter 2001 versus the same period in 2000 primarily due to higher operating costs at the Company’s two hotels.  For the nine months ended September 30, 2001, net operating income was 10% higher than the same period in 2000 primarily due to increased revenues and lower operating expenses at Valencia Town Center mall.

 

Income-Producing Properties

 

(Dollars in thousands)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

Net Operating Income

 

2001

 

2000

 

2001

 

2000

 

Retained Properties1

 

$

5,253

 

$

5,235

 

$

16,239

 

$

14,420

 

Properties Held for Sale2

 

153

 

176

 

476

 

486

 

Sold Properties3

 

17

 

3,780

 

1,417

 

11,312

 

 

 

 

 

 

 

 

 

 

 

Net Operating Income4

 

5,423

 

9,191

 

18,132

 

26,218

 

Admin/Depreciation

 

(2,526

)

(1,970

)

(7,834

)

(5,950

)

Total Contribution to Income

 

$

2,897

 

$

7,221

 

$

10,298

 

$

20,268

 

 

1Includes NorthPark Village Square and River Oaks shopping centers, Valencia Town Center regional mall and entertainment center, retail along Town Center Drive, Hyatt Valencia and Valencia Hilton hotels, restaurants, leases, etc.

2Includes a 35,310 sq. ft. building in Valencia Commerce Center and the 26,000 square foot Town Center Plaza mixed-use building in Valencia Town Center.

3For 2000, includes Castaic Shopping Center and Plaza del Rancho (sold in second quarter), and a 3-story office building, three office buildings for Princess Cruises, and four apartment complexes (sold in fourth quarter).  For 2001, includes the Chiquita Canyon landfill (sold in second quarter), and the Bank of America building and a small office building (sold in third quarter).

4Before depreciation.  Maintenance expensed as incurred.

 

Occupancy rates at the Company’s various income properties were as follows at September 30, 2001 and 2000:

 

Occupancy Rates(a):

 

September 30, 2001

 

September 30, 2000

 

Valencia Town Center Mall(b)

 

83%

 

99%

 

Entertainment Center(c)

 

96%

 

91%

 

Valencia Town Center Master Lease(d)

 

71%

 

N/A

 

Town Center Plaza

 

100%

 

84%

 

NorthPark/River Oaks Shopping Centers

 

100%

 

100%

 

Hotels

 

79%

 

73%

 

 

(a)  Includes signed lease space and leases to short-term tenants.

(b)  Includes 334,470 sq. ft. of leasable retail space and 8,400 sq. ft. of office space.

(c)  Includes 126,050 sq. ft. of leasable space.

(d)  Includes 50,000 sq. ft. of retail space from a 12-1/2 year lease-back agreement that was part of the sale of four office buildings along Town Center Drive that closed in early December 2000.

 

The occupancy rate at September 30, 2001 at the Valencia Town Center regional shopping mall was 83% versus 99% on the same date in 2000.  The primary contributor to the decrease was the closure on September 4, 2001 of Edwards Theaters’ 39,426 square foot, 10-screen theater located in the shopping center.  In conjunction with its filing for Chapter 11 bankruptcy in 2000, Edwards Theaters Circuit, Inc. rejected the lease for this location effective June 25, 2001.  The Company is in the process of reviewing alternative uses for the space.

 

Valencia Water Company

 

Valencia Water Company is a regulated utility and a wholly-owned subsidiary of the Company serving over 23,000 metered connections.  Third-quarter income rose 16% on a 6% increase in revenues over the same year-earlier period.  Income for the 2001 third quarter benefited from a property tax refund relating to tax law changes.  For the first nine months of 2001, Valencia Water Company recorded an increase of 4% in revenues and a 1% decrease in income over the corresponding period in 2000.  The decrease in income was primarily due to higher administrative expenses and expenses relating to legal proceedings in which Valencia Water Company is involved.  Increased revenues in the three- and nine-month periods were primarily due to an expanded customer base.

 

Agricultural Operations and Ranch Sales

 

Revenues from agriculture operations, including the Company’s energy operations, for the three and nine months ended September 30, 2001, were 15% and 14% higher, respectively, than the same periods in 2000 primarily due to increased acreage for tomatoes and higher gas prices.  The increases were offset by loss reserves taken on oranges, grapes and other crops, which were partially offset by improved alfalfa prices and higher gas prices resulting in decreases in income of 198% and 56% for the three and nine months ended September 30, 2001, respectively, compared to the same periods in 2000.

 

General and Administrative Expense

 

Increases in general and administrative expenses of 11% for the three-month period and 31% for the nine-month period from the prior year same periods are primarily for expenses related to the increased difference between the exercise price of unit appreciation rights on employee non-qualified options and the market price of partnership units, and higher incentive compensation expense accrued based on the timing of land and asset sales.  All outstanding appreciation rights expired in July 2001.  For all of 2001, general and administrative expenses are expected to decrease about 17% from 2000 levels due to lower compensation expense.

 

Interest and Other

 

Interest and other expense for the 2001 three-month and nine-month periods decreased 79% and 63%, respectively, from the comparable prior year periods.  Interest expense in the 2000 three-month and nine-month periods was greater than the 2001 periods primarily due to the Company’s strategy in 2000 of utilizing existing debt capacity to fund unit repurchases until the sale of income properties were completed later that year.  Interest expense in 2001 for the total year is expected to be substantially lower than in the previous year due to lower anticipated borrowings outstanding compared to 2000 and favorable interest rates.

 

Financial Condition

Liquidity and Capital Resources

At September 30, 2001, the Company had cash and cash equivalents of $3.3 million and had $149.2 million available under bank lines, net of $12.0 million in letters of credit. Borrowings outstanding totaled $32.8 million against unsecured lines of credit.  No borrowings were outstanding against a revolving mortgage facility.  The Company believes it has adequate sources of cash from operations and debt capacity to finance future operations on both a short- and long-term basis and, combined with anticipated land sales, to fund its authorized unit repurchases.  The Company ended the 2001 third quarter with a debt to income portfolio ratio of 36% which provides adequate debt capacity to fund operations and complete the current repurchase program as discussed below.

 

In May 2001, the Company completed the repurchase program authorized by the Board of Directors in September 1999 of 6,384,446 units (including 884,446 units under a previous authorization), equal to approximately 20% of the outstanding units in September 1999.  The total cost of the unit repurchases was $167.3 million, of which 1,484,944 units were repurchased in 2001 for $38.6 million.  Also in May 2001, the Company’s Board of Directors authorized a new unit repurchase program of up to 2,520,000 units, or 10% of the then outstanding units.  As of September 30, 2001, a total of 736,518 units had been repurchased under this program for a total of $21.1 million, or an average price of $28.59 per unit, and a total of 1,783,482 units remained to be repurchased. However, with fewer residential lots expected to close escrow in the fourth quarter, uncertainty as to how many commercial and industrial land sales will close escrow by year-end and the relatively low number of units available for purchase, it is anticipated that the completion of the current repurchase program may be delayed until sometime in 2002.

 

The Company repurchases units from time-to-time at prevailing prices and, depending on market conditions, either through open market or unsolicited private transactions.  Factors that could affect the Company’s ability to complete the current program include, but are not limited to, changing market and economic conditions, changing interest rates, challenges to governmental approvals, and finding suitable buyers for certain properties.

 

At September 30, 2001, there were no material commitments for capital expenditures.  The Company expects to invest over $25 million in major roads and freeway improvements in 2001 to enable the Company to continue its land sales program for Valencia of which $9.3 has been expended as of September 30, 2001.

 

The following discussion relates to principal items on the Consolidated Statement of Cash Flows for the nine months ended September 30, 2001:

 

Operating Activities

Net cash provided by operating activities totaled $59.2 million for the nine months ended September 30, 2001.  Cash generated from operating activities included the sale of 33.0 industrial/commercial acres; the sale of Chiquita Canyon Landfill and two asset sales; sale of an option on 1,800 acres in Broomfield, Colorado; the income-property portfolio; collection of $10.5 million of land sale notes; and $600,000 from a sale of an easement.  These transactions combined generated cash totaling $126.1 million. Cash used by operating activities included $48.7 million of expenditures for land under development inventories mostly related to land preparation and infrastructure improvements to ready land for sale.  Additional uses of cash included the Company’s general and administrative, community development and interest expenses.

 

Investing Activities

Expenditures for development of income-producing properties totaled $7.7 million and were primarily to complete the construction of two office buildings that were sold in December 2000.  Purchase of property and equipment was primarily for water utility construction.

 

Financing Activities

Quarterly distributions totaling $10.3 million have been paid year-to-date consisting of three quarterly distributions of $.10 per unit each and a $.10 per unit special distribution.  An additional $.10 per unit distribution was declared on October 23, 2001 payable December 10, 2001 to unitholders of record November 2, 2001. The Company’s policy is to provide sufficient distributions, including special distributions, to pay the taxes associated with Company earnings. The declaration of distributions, and the amount declared, are determined by the Board of Directors on a quarterly basis taking into account the Company’s earnings, financial condition and prospects.

 

For the nine-month period ended September 30, 2001, a total of 2,221,462 units was repurchased for $59.6 million, or an average price of $26.84 per unit.

 

New Accounting Pronouncements

 

In June 2001, the Financial Accounting Standards Board (FASB) issued two new pronouncements: Statement of Financial Accounting Standards No. 141, Business Combinations, effective for business combinations initiated after June 30, 2001, and Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001.  These pronouncements are not expected to have a material impact on the Company’s financial position or results of operations.

 

In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, effective for fiscal years beginning after December 15, 2001.  This Statement supercedes FASB Statement No. 121 and creates a single accounting model for long-lived assets (including discontinued operations) to be disposed of.  FASB No. 144 retains the requirements of FASB No. 121 for measuring impairment loss and ceasing depreciation for assets held for sale.  The Company does not expect this new pronouncement to have a material impact on the Company’s financial position or results of operations.

 

Inflation, Risks And Related Factors Affecting Forward-Looking Information

Except for historical matters, the matters discussed in this report are forward-looking statements that involve risks and uncertainties.  We have tried, wherever practical, to identify these forward-looking statements by using words like “anticipate,” “believe,” “estimate,” “project,” “expect,” and similar expressions.  Forward-looking statements include, but are not limited to, statements about plans; opportunities; anticipated regulatory approvals; negotiations; market and economic conditions; development, construction, and sales activities; and availability of financing.

We caution you not to place undue reliance on these forward-looking statements, which reflect our current beliefs and are based on information currently available to us.  We expressly undertake no obligation to publicly revise or update these forward-looking statements to reflect future events or changes in circumstances.

These forward-looking statements are subject to risks and uncertainties that could cause our actual results, performance, or achievements to differ from those expressed in or implied by these statements.  In particular, among the factors that could cause actual results to differ materially are:

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, agreement with buyers on definitive terms, 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 ultimately will 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 revenues and income in any specific period.

Economic Conditions: Real estate development and commercial income property can be 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 north Los Angeles County. The Southern California economy is profoundly affected by the entertainment, technology, defense and certain other segments. Consequently, all sectors of the Company’s real estate operations tend to be cyclical. The regional economy, like that of the state and nationally, has slowed.  There can be no assurances that the economic slowdown will not worsen or the slowdown will not result in a recession.

Inflation: The Company believes it is well positioned against the effects of inflation. Historically, during periods of inflation, the Company has been able to increase selling prices of properties to offset rising costs of land development and construction.  A portion of the commercial income portfolio is protected from inflation since percentage rent clauses and Consumer Price Index increases in the Company’s leases tend to adjust rental receipts for inflation, while the underlying value of commercial properties has tended to rise over the long term.

 

Interest Rates and Financing: Fluctuations in interest rates and the availability of financing have an important impact on the Company’s performance. Sales of the Company’s properties could be adversely impacted by the inability of buyers to obtain adequate financing. Further, the Company’s real estate development activities are dependent on the availability of adequate sources of capital. Certain of the Company’s credit facilities bear interest at variable rates and would be negatively impacted by increasing interest rates.

Competition: The sale and leasing of residential, industrial and commercial real estate is highly competitive, with competition coming from numerous and varied sources. The degree of competition is affected by such factors as the supply of real estate available comparable to that sold and leased by the Company and the level of demand for such real estate. Currently, the residential market in the Santa Clarita Valley, including Valencia, is strong and has been capturing an increasing portion of Los Angeles County’s new home sales.  However, there is no assurance that this trend will continue.  The industrial market in Valencia is experiencing declining demand and rising vacancy rates as the national and regional economy slows and concerns linger over California’s power crisis.  In addition, local competition has intensified as local business parks have opened or are in the planning stages.

Geographic Concentration: The Company’s real estate development activities are focused on the 19,400 acres that it owns in north Los Angeles County. The Company’s entire commercial income portfolio is located in the Valencia area. Therefore, any factors affecting that concentrated area, such as changes in the housing market, economic conditions and environmental factors, which cannot be predicted with certainty, could affect future results.

Exposure to Natural Occurrences and Acts of Terror: The Company’s assets and real estate operations may be adversely affected by natural occurrences such as earthquakes, weather conditions and acts of terrorism or armed conflict that may cause damage to assets or delay progress of infrastructure construction and land development, and the pace of sales.

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 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 government regulation affects the types of projects which can be pursued by the Company and increases the cost of development and ownership. The Company devotes substantial financial and managerial resources to comply with these requirements. To varying degrees, certain permits and approvals will be required to complete the developments currently being undertaken or planned by the Company. Furthermore, the timing, cost and scope of planned projects may be subject to legal challenges, particularly large projects with regional impacts. (See following “Litigation” discussion.) In addition, the continued effectiveness of permits already granted is subject to factors such as changes in policies, rules and regulations and their interpretation and application. The ability to obtain necessary approvals and permits for its projects can be beyond the Company’s control and could restrict or prevent development of otherwise desirable new properties. The Company’s results of operations in any period will be affected by the amount of entitled properties the Company has in inventory.

Litigation: The land use approval processes the Company must follow to ultimately develop its projects have become increasingly complex. Moreover, the statutes, regulations and ordinances governing the approval processes provide third parties the opportunity to challenge the proposed plans and approvals. As a result, the prospect of, and actual, third-party challenges to planned real estate developments have provided additional uncertainties in real estate development planning and entitlements. Third-party challenges in the form of litigation will, by its nature, adversely affect the length of time required to obtain the necessary approvals. In addition, adverse decisions arising from any litigation increase the costs and may adversely affect the design, scope, plans and profitability of a project.

 

Part 1.  Financial Information

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.

 

The Company is exposed to market risk primarily due to fluctuations in interest rates. The Company utilizes both fixed rate and variable rate debt. At September 30, 2001, the Company had $32.8 million of variable debt with interest rates ranging from 3.9% to 4.9% and $63.0 million of fixed rate debt with interest rates ranging from 7.25% 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, 2001, by expected maturity dates:

 

 

Expected Maturity Date

 

 

 

Fair

 

(In $000s)

 

2001

 

2002

 

2003

 

2004

 

2005

 

Thereafter

 

Total

 

Value

 

Mortgage and Other Debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Rate Debt

 

$

1,069

 

$

4,164

 

$

10,968

 

$

1,512

 

$

1,655

 

$

43,583

 

$

62,951

 

$

68,648

(2) 

Weighted Average Interest Rate

 

7.61

%

7.36

%

8.32

%

7.35

%

7.37

%

7.55

%

7.67

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable Rate Debt (1)

 

 

 

$

32,800

 

 

 

 

 

 

 

 

 

$

32,800

 

$

32,800

 

Weighted Average Interest Rate

 

 

 

4.69

%

 

 

 

 

 

 

 

 

4.69

%

 

 

(1)       The Company has a $50 million revolving mortgage facility which bears interest at LIBOR plus 1.25% against which no borrowings were outstanding at September 30, 2001.  The Company also has unsecured lines of credit consisting of a $130 million line and a $10 million line on which the interest rate is LIBOR plus 1.25% - 1.45% and a $2 million line on which the rate is LIBOR plus 1.35%, against which borrowings of $30.8 million, 0 and $2.0 million were outstanding, respectively, at September 30, 2001.  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.  The $10 million line of credit is scheduled to mature mid-November 2001, and the Company does not anticipate the need to renew the line of credit.  Management believes that remaining facilities will be renewed at the respective maturity.

(2)       The fair values of the Company's fixed rate debt either approximate carrying value or are estimated using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements ranging from 4.75% to 7.5%.

There is inherent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and the Company's future financing requirements. The Company manages its interest rate risk by maintaining a conservative ratio of fixed-rate, long-term debt to total debt in order to maintain variable rate exposure at an acceptable level and by taking advantage of favorable market conditions for long-term debt. In addition, the Company’s guideline for total debt is up to approximately 60% of the appraised value of its income portfolio.  As of September 30, 2001, the Company’s debt to income portfolio ratio was 36%.

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):

 

10 (a)  Retention Agreement effective March 31, 2001 between The Newhall Land and Farming Company and Gary M. Cusumano.

 

10 (b)  Retention Agreement effective March 31, 2001 between The Newhall Land and Farming Company and Thomas E. Dierckman.

 

10 (c)  Retention Agreement effective March 31, 2001 between The Newhall Land and Farming Company and Stuart R. Mork.

 

(b)     The following report on Form 8-K was filed in the third quarter ended September 30, 2001.

 

Item Reported                                                                                                             Date of Report

Change in Certifying Accountants for The                                                                July 9, 2001

Newhall Land and Farming Company’s Employee

Savings Plan effective for the year ended

December 31, 2000.

 

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 9, 2001

 

By

/S/ Gary M. Cusumano

 

 

 

Gary M. Cusumano, President and Chief Executive Officer

of Newhall Management Corporation

 

 

 

(Principal Executive Officer)

 

 

 

 

 

 

 

 

Date:  November 9, 2001

 

By

/S/ Stuart R. Mork

 

 

 

Stuart R. Mork, Senior Vice President and Chief Financial

 

 

 

Officer of Newhall Management Corporation

 

 

 

(Principal Financial Officer)

 

 

 

 

 

 

 

 

Date:  November 9, 2001

 

By

/S/ Donald L. Kimball

 

 

 

Donald L. Kimball, Vice President - Finance

 

 

 

and Controller of Newhall Management Corporation

 

 

 

(Principal Accounting Officer)