** **

**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**

**SECURITIESEXCHANGE ACT OF 1934**

 

#### **For the quarterly period endedSeptember 30, 2001**

 

**or**

** **

**o****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**

**SECURITIESEXCHANGE ACT OF 1934**

 

**For the transition period from    to**

** **

**Commission file number 1-8885**

 

#### **THENEWHALL LAND AND FARMING COMPANY**

**(a California Limited Partnership)**

(Exactname 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) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the Registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

 

YesýNo o

 

24,530,757  partnership units outstanding at September30, 2001.

 

 

PartI. Financial Information

Item1. 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 CashFlows**

*(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**

Note1. Accounting Policies

The consolidated financial statements include the accounts of TheNewhall Land and Farming Company and its subsidiaries, all of which arewholly-owned (collectively, "the Company"). All significantintercompany balances and transactions are eliminated.

The Company's unaudited interimfinancial statements have been prepared in conformity with generally acceptedaccounting principles used in the preparation of the Company's annual financialstatements. In the opinion of the Company, all adjustments necessary for a fairstatement of the results of operations for the three and nine months endedSeptember 30, 2001 and 2000 have been made. The interim statements arecondensed and do not include some of the information necessary for a morecomplete understanding of the financial data. Accordingly, your attention isdirected to the footnote disclosures found on pages 26 through 38 of theDecember 31, 2000 Annual Report to Partners and particularly to Note 2 thereinwhich includes a summary of significant accounting policies.  Certain reclassifications have been made toprior periods’ amounts to conform to the current period presentation.

Interim financial information for the Company has substantiallimitations as an indicator for the calendar year because:

•        Landsales occur irregularly and are recognized at the close of escrow or on thepercentage of completion basis if the Company has an obligation to completecertain future improvements and provided profit recognition criteria are met.

•        Salesof income properties and non-developable farmland occur irregularly and arerecognized upon close of escrow provided profit recognition criteria are met.

Note 2. Details of Land UnderDevelopment

 
|                                       |   | **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 UnitCalculation

 
|                                      |   | **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 forSale 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 |   |

 

PartI.      Financial Information                                                                                                  

Item2.    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 providesfinancial information regarding revenues from external customers, income andtotal assets for the Company's business segments and also provides areconciliation 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 Discussionand Analysis of Financial Condition and Results of Operations.

 

 

**Resultsof 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 andincome from the prior year third quarter and ninemonths are as follows (in000s, 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 threemonths ended September 30, 2001, revenues totaled $37.2 million and net incometotaled $486,000 compared to revenues for the 2000 third quarter of $46.5million and a net loss of $612,000. Revenues for the nine months ended September 30, 2001 totaled $164.9million and net income totaled $76.9 million compared to the same 2000 periodwhen revenues totaled $130.2 million and net income $8.9 million.

 

The primarycontributors to the 2001 third quarter and nine month results were the sales offour commercial parcels totaling 11.5 net acres, including a 208-unit apartmentcomplex 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 toincome.  In addition, the second quarter2001 sales of the Chiquita Canyon Landfill, an option to purchase approximately1,800 acres in Broomfield, Colorado and a 7.9 acre commercial parcelcontributed a combined total of $88.1 million to revenues and $84.6 million toincome for the nine-month results.

 

Results forthe 2000 third quarter included a right-of-way purchase by Caltrans, whichcontributed $5.1 million to revenues and $4.0 to income.  The 2000 third quarter also included a $4.5million loss as a result of the divestiture of a residential joint ventureproject.  In addition, two accountingcharges were recorded in the 2000 third quarter.  This included a $2.1 million charge for the Company’s acceptanceof a reduced pay-off on a 1998 industrial land sale note in return for the accelerationof the due date.  The second charge wasa $1.2 million loss related to the leaseback of retail space in four officebuildings in Valencia Town Center, which were in escrow at September 30, 2000.  The 2000 nine-month period also included thesale of 208 residential lots, revenue recognized under percentage of completionaccounting from residential lots sold in the prior year, the sale of an 11.2acre commercial parcel and the sale of two income properties, which added acombined 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 landand 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 695residential lots on about 97 net acres in Valencia Westridge’s golf coursecommunity and expects approximately 400 of these lots to be sold in 2002.  Due to uncertainties arising from the eventsof September 11, 2001, the resulting U.S. military actions and the slowingeconomy, it is difficult to predict how many of the anticipated land sales orcommercial and industrial escrows will close in the fourth quarter 2001, or ifany escrows will be cancelled or closing dates moved to 2002.  The ability to complete sales in 2001 willbe dependent upon a variety of factors, including, but not limited to,identification of suitable buyers, agreement with the buyers on definitiveterms, successful completion of due diligence work by buyers, availability offinancing to suitable buyers, market and other conditions.  In addition, 300 lots in Alta Vista thatwere expected to close escrow in the 2001 fourth quarter, may not be sold untilearly next year.

 

**Residential Home and Land Sales**

 

No residential lots closed escrow during the 2001 third quarter ornine-month period and no residential lots were in escrow at September 30,2001.  The development and sale of 3,986residential lots and apartment units are being delayed by the California PublicUtilities Commission (PUC) decision to combine its review of Valencia WaterCompany’s request to expand its service area together with the water company’swater management plan.  The total includes1,650 lots and apartments that the City of Santa Clarita annexed in December2000 and 2,336 lots and apartments in the Company’s West Creek communityapproved in January 2001 by the Los Angeles County Board of Supervisors.  The number of homes in this project wasreduced from the previously reported 2,545 homes due to the relocation of ajunior high school to this planning area. The Company expects the PUC’s decision later this year.  An adverse decision would likely delay thesale of these lots and apartments.

 

Opponents to the Los Angeles County Board of Supervisors’ approval ofthe West Creek community filed a California Environmental Quality Act (CEQA)lawsuit early in 2001.  In earlyNovember 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 merchantbuilders sold 682 homes on lots previously purchased from the Company for thenine months ended September 30, 2001, compared to 278 homes for the prior yearnine-month period.  At September 30,2001, merchant builders had 349 homes in escrow, compared to 163 at September30, 2000.  While the Company does notparticipate directly in profits generated from escrow closings by merchantbuilders, the sale of these previously sold lots to homebuyers is key to theCompany’s future success in selling additional lots.

 

In the quarterended September 30, 2000, no residential lots closed escrow, however, revenuesof $4.9 million and income of $2.2 million were recognized from previous lotsales in Bridgeport under percentage of completion accounting.  The 2000 nine-month period includes the saleof 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 andincome of $5.2 million were recognized in the nine-month period from lots soldin the prior year.  Results alsoincluded a $4.5 million loss for the three months and $4.8 million loss for thenine months related to a joint venture, which was divested in September 2000.

 

# **Industrial and CommercialSales**

 

## **IndustrialLand Sales**

No industrial land sales closed escrow in the quarter ended September30, 2001.  Results for the nine monthsended September 30, 2001 included the sale of a 9.5-acre industrial parcelwhich contributed $4.7 million to revenues and $1.3 million to income.  At September 30, 2001, three parcelstotaling 20 acres were in escrow for approximately $10 million with closingsscheduled in the fourth quarter. As previously mentioned, due to uncertaintiesarising from the events of September 11, 2001, the resulting military action,the slowing economy, and a variety of factors outside the Company's control, itis difficult to predict when, if at all, the escrows will close.

 

At September30, 2001, the combined vacancy rate in both Valencia Industrial Center andValencia 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 ofthe slowing economy and approximately 1.8 million square feet of new spacecoming on-line. The Company has approximately 380 acres of entitled industrialland remaining.  Planning continues on500 acres west of I-5 surrounding Six Flags Magic Mountain for mixed-usedevelopment.

 

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

 

## **CommercialLand Sales**

Fourcommercial parcels totaling 11.5 acres closed escrow in the third quarter 2001contributing $11.2 million to revenues and $5.0 million to income.  The parcels include a 9.6 acre site for a208-unit apartment complex in the Alta Vista community and three small parcelstotaling 1.9 net acres combined.  The2001 nine-month period also included a 7.9 acre parcel for a 341-unit apartmentcomplex with 10,000 square feet of ground floor retail space contributing $10.1million to revenues and $7.7 million to income.  A total of 56 net acres of commercial land was in escrow atSeptember 30, 2001 for approximately $42 million, with closings scheduled forthe fourth quarter 2001. As previously mentioned, due to uncertainties arisingfrom the events of September 11, 2001, the resulting military action, theslowing economy, and a variety of factors outside the Company's control, it isdifficult to predict when, if at all, the escrows will close.

 

 

Escrow closedon 4.3 commercial acres during 2000 third quarter for $2.8 million andcontributed $1.8 to income. The results for the nine month period in 2000 alsoincluded 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 the2000 third quarter was a $2.1 million charge against earnings for a notereserve on a 1998 industrial land sale. At September 30, 2000, a total of 72.0 commercial acres was in escrowfor $51 million.

 

Income Property andOther Sales

In the thirdquarter 2001, the Company closed escrow on its Bank of America building and asmall office building. The two sales contributed $7.2 million to revenues and$506,000 to income.  Results for the2001 nine-month period also include the sale of the Chiquita Canyon Landfillfor $65 million contributing $64 million to income and the sale of an option on1,800 acres in Colorado for $13 million adding $12.9 million to income.   In the 2001 third quarter, the 26,000square foot Town Center Plaza mixed-use building in Valencia Town Center wasadded to the asset sale program and is expected to be sold and close escrowwithin the next six months.   A 35,310square foot building in Valencia Commerce Center also was added to the assetsale program and is being marketed for sale. As previously mentioned, due to uncertainties arising from the events ofSeptember 11, 2001, the resulting military action, the slowing economy, and avariety of factors outside the Company's control, it is difficult to predictwhen, if at all, the escrows will close.

 

No incomeproperty sales were completed in the 2000 third quarter.  However, a $1.2 million accounting loss wasrecorded related to the leaseback of retail space in four office buildingsalong 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 assetsale program, Castaic Shopping Center and Plaza del Rancho, adding $18.8million to revenues and $3.7 million to income in the nine-month period.

 

During the2001 third quarter, an easement was sold contributing $600,000 to revenues andincome.  In the 2000 third quarter, aright-of-way parcel was sold to Caltrans, which contributed $5.1 million torevenues and $4.0 million to income.

 

# **Community Development**

 

Communitydevelopment expenses decreased by 8% for the three-month period primarily dueto expenses in the prior year related to preliminary entitlement efforts on the1,800-acre parcel in Colorado held under option, which was sold in the 2001second quarter.  An increase of 17% incommunity development expenses for the nine-month period ended September 30, 2001compared to the same 2000 period is primarily due to higher administrativeexpenses and entitlement expenses partially offset by the reduction in expensesrelated to the option on land in Colorado. Community development expenses for the year are expected to increaseover 20% from the 2000 level.

 

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

 

The Companyreported in January 2001 that housing affordability proponents filed an appealof the Kern County Superior Court’s March 2000 decision to dismiss theirchallenges to the Newhall Ranch Environmental Impact Report.  The court rejected arguments asserting allegedinconsistencies with Los Angeles County’s General Plan on affordable housingrequirements and the impact created by such inconsistencies on certain requiredCalifornia Environmental Quality Act (CEQA) analyses such as traffic and airquality.  An appellate court hearingdate has been set for November 13, 2001. An adverse decision will likely further delay the commencement ofdevelopment beyond 2004.

 

The length of time that the public hearings and judicial process willtake is difficult to predict, and circumstances beyond the Company’s controlcould further delay resolution of the issues. In addition, an adverse decision by the County or court and/oradditional legal action could further delay the start of development.

 

In the 2001 fourth quarter, California Governor Gray Davis signed intolaw two bills (commonly known as SB 221 and SB 610).  Both bills require cities and counties to assess and verify wateravailability for proposed new projects. The new legislation does not affect Newhall Ranch’s specific plan (whichhas recently undergone additional analyses and which soon will be reconsideredby the Los Angeles County Board of Supervisors).  The legislation will affect subsequent subdivision map filingsfor Newhall Ranch.  The bills encouragedevelopers to work with local government officials in order to identify andfinance a supplemental supply of water, if one is needed, to serve proposeddevelopment projects.  The bills willlikely make the process for seeking project approvals more complicated; howeverthe Company believes that the Newhall Ranch project will be able to comply withthe new requirements.

 

# **Income-Producing Properties**

 

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

 

Income for thecurrent and prior year third quarters include the effects of the cessation ofdepreciation 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.   Theseamounts include depreciation expense suspended on Valencia Town Center regionalmall and Entertainment Center, and Spectrum Club because they were classifiedas held for sale as of September 30, 2000. When these properties were reclassified as held for investment in the2000 fourth quarter for the mall and entertainment center, and in the 2001second quarter for Spectrum Club building, depreciation expense was recorded inamounts equal to the suspended depreciation during the entire period theproperties were classified as held for sale.

 

Retainedincome-producing properties produced slightly lower net operating income in thethird quarter 2001 versus the same period in 2000 primarily due to higheroperating costs at the Company’s two hotels. For the nine months ended September 30, 2001, net operating income was10% higher than the same period in 2000 primarily due to increased revenues andlower 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 Oaksshopping 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 ValenciaCommerce Center and the 26,000 square foot Town Center Plaza mixed-use buildingin Valencia Town Center.

3For 2000, includes Castaic Shopping Center andPlaza del Rancho (sold in second quarter), and a 3-story office building, threeoffice buildings for Princess Cruises, and four apartment complexes (sold infourth quarter).  For 2001, includes theChiquita Canyon landfill (sold in second quarter), and the Bank of Americabuilding 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 asfollows 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)  Includessigned lease space and leases to short-term tenants.

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

(c)  Includes126,050 sq. ft. of leasable space.

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

 

The occupancyrate at September 30, 2001 at the Valencia Town Center regional shopping mallwas 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 theshopping center.  In conjunction withits 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 reviewingalternative uses for the space.

 

# **Valencia Water Company**

 

Valencia WaterCompany is a regulated utility and a wholly-owned subsidiary of the Companyserving over 23,000 metered connections. Third-quarter income rose 16% on a 6% increase in revenues over the sameyear-earlier period.  Income for the2001 third quarter benefited from a property tax refund relating to tax lawchanges.  For the first nine months of2001, 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 tohigher administrative expenses and expenses relating to legal proceedings inwhich Valencia Water Company is involved. Increased revenues in the three- and nine-month periods were primarilydue to an expanded customer base.

 

# **Agricultural Operations andRanch Sales**

 

Revenues fromagriculture operations, including the Company’s energy operations, for thethree and nine months ended September 30, 2001, were 15% and 14% higher,respectively, than the same periods in 2000 primarily due to increased acreagefor tomatoes and higher gas prices.  Theincreases were offset by loss reserves taken on oranges, grapes and othercrops, which were partially offset by improved alfalfa prices and higher gasprices resulting in decreases in income of 198% and 56% for the three and ninemonths ended September 30, 2001, respectively, compared to the same periods in2000.

 

# **General and AdministrativeExpense**

 

Increases in general and administrative expenses of 11% for thethree-month period and 31% for the nine-month period from the prior year sameperiods are primarily for expenses related to the increased difference betweenthe exercise price of unit appreciation rights on employee non-qualifiedoptions and the market price of partnership units, and higher incentive compensationexpense accrued based on the timing of land and asset sales.  All outstanding appreciation rights expiredin July 2001.  For all of 2001, generaland administrative expenses are expected to decrease about 17% from 2000 levelsdue to lower compensation expense.

 

# **Interest and Other**

 

Interest andother expense for the 2001 three-month and nine-month periods decreased 79% and63%, respectively, from the comparable prior year periods.  Interest expense in the 2000 three-month andnine-month periods was greater than the 2001 periods primarily due to theCompany’s strategy in 2000 of utilizing existing debt capacity to fund unitrepurchases until the sale of income properties were completed later thatyear.  Interest expense in 2001 for thetotal year is expected to be substantially lower than in the previous year dueto lower anticipated borrowings outstanding compared to 2000 and favorableinterest rates.

 

**Financial Condition**

**Liquidity and CapitalResources**

At September30, 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 ofcredit. Borrowings outstanding totaled $32.8 million against unsecured lines ofcredit.  No borrowings were outstandingagainst a revolving mortgage facility. The Company believes it has adequate sources of cash from operations anddebt capacity to finance future operations on both a short- and long-term basisand, combined with anticipated land sales, to fund its authorized unit repurchases.  The Company ended the 2001 third quarterwith a debt to income portfolio ratio of 36% which provides adequate debtcapacity to fund operations and complete the current repurchase program asdiscussed below.

 

In May 2001,the Company completed the repurchase program authorized by the Board ofDirectors in September 1999 of 6,384,446 units (including 884,446 units under aprevious authorization), equal to approximately 20% of the outstanding units inSeptember 1999.  The total cost of theunit repurchases was $167.3 million, of which 1,484,944 units were repurchasedin 2001 for $38.6 million.  Also in May2001, the Company’s Board of Directors authorized a new unit repurchase programof up to 2,520,000 units, or 10% of the then outstanding units.  As of September 30, 2001, a total of 736,518units had been repurchased under this program for a total of $21.1 million, oran average price of $28.59 per unit, and a total of 1,783,482 units remained tobe repurchased. However, with fewer residential lots expected to close escrowin the fourth quarter, uncertainty as to how many commercial and industrialland sales will close escrow by year-end and the relatively low number of unitsavailable for purchase, it is anticipated that the completion of the currentrepurchase program may be delayed until sometime in 2002.

 

The Companyrepurchases units from time-to-time at prevailing prices and, depending onmarket conditions, either through open market or unsolicited privatetransactions.  Factors that could affectthe Company’s ability to complete the current program include, but are notlimited to, changing market and economic conditions, changing interest rates,challenges to governmental approvals, and finding suitable buyers for certainproperties.

 

At September30, 2001, there were no material commitments for capital expenditures.  The Company expects to invest over $25million in major roads and freeway improvements in 2001 to enable the Companyto continue its land sales program for Valencia of which $9.3 has been expendedas of September 30, 2001.

 

*The following discussion relates to principal items onthe Consolidated Statement of Cash Flows for the nine months ended September30, 2001:*

 

## **Operating Activities**

Netcash provided by operating activities totaled $59.2 million for the nine monthsended September 30, 2001.  Cashgenerated from operating activities included the sale of 33.0industrial/commercial acres; the sale of Chiquita Canyon Landfill and two assetsales; sale of an option on 1,800 acres in Broomfield, Colorado; theincome-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. Cashused by operating activities included $48.7 million of expenditures for landunder development inventories mostly related to land preparation andinfrastructure improvements to ready land for sale.  Additional uses of cash included the Company’s general and administrative,community development and interest expenses.

 

**Investing Activities**

Expendituresfor development of income-producing properties totaled $7.7 million and wereprimarily to complete the construction of two office buildings that were soldin December 2000.  Purchase of propertyand equipment was primarily for water utility construction.

 

# **Financing Activities**

Quarterlydistributions totaling $10.3 million have been paid year-to-date consisting ofthree quarterly distributions of $.10 per unit each and a $.10 per unit specialdistribution.  An additional $.10 perunit distribution was declared on October 23, 2001 payable December 10, 2001 tounitholders of record November 2, 2001. The Company’s policy is to providesufficient distributions, including special distributions, to pay the taxes associatedwith Company earnings. The declaration of distributions, and the amountdeclared, are determined by the Board of Directors on a quarterly basis takinginto account the Company’s earnings, financial condition and prospects.

 

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

 

**NewAccounting 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 combinationsinitiated after June 30, 2001, and Statement of Financial Accounting StandardsNo. 142, *Goodwill and Other IntangibleAssets,*effective for fiscal years beginning after December 15,2001.  These pronouncements are notexpected to have a material impact on the Company’s financial position orresults of operations.

 

In October2001, the FASB issued Statement of Financial Accounting Standards No. 144*, Accounting for the Impairment or Disposal ofLong-Lived Assets*, effective for fiscal years beginning afterDecember 15, 2001.  This Statementsupercedes FASB Statement No. 121 and creates a single accounting model forlong-lived assets (including discontinued operations) to be disposed of.  FASB No. 144 retains the requirements ofFASB No. 121 for measuring impairment loss and ceasing depreciation for assetsheld for sale.  The Company does notexpect this new pronouncement to have a material impact on the Company’sfinancial position or results of operations.

 

**Inflation, Risks And Related Factors AffectingForward-Looking Information**

Except for historical matters, the mattersdiscussed in this report are forward-looking statements that involve risks anduncertainties.  We have tried, whereverpractical, to identify these forward-looking statements by using words like“anticipate,” “believe,” “estimate,” “project,” “expect,” and similarexpressions.  Forward-looking statementsinclude, 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 theseforward-looking statements, which reflect our current beliefs and are based oninformation currently available to us. We expressly undertake no obligation to publicly revise or update theseforward-looking statements to reflect future events or changes incircumstances.

These forward-looking statements are subject torisks and uncertainties that could cause our actual results, performance, orachievements to differ from those expressed in or implied by thesestatements.  In particular, among thefactors that could cause actual results to differ materially are:

*Sales of Real Estate:*Themajority 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 onvarious factors including, but not limited to, availability of financing to thebuyer, agreement with buyers on definitive terms, regulatory and legal issuesand successful completion of the buyer’s due diligence. The fact that a realestate transaction has entered escrow does not necessarily mean that thetransaction ultimately will close. Therefore, the timing of sales may differfrom that anticipated by the Company. The inability to close sales asanticipated could adversely impact the recognition of revenues and income inany specific period.

*Economic Conditions:*Real estate development and commercial income property can be significantlyimpacted by general and local economic conditions, which are beyond the controlof the Company. The Company’s real estate operations are concentrated in northLos Angeles County. The Southern California economy is profoundly affected bythe entertainment, technology, defense and certain other segments.Consequently, all sectors of the Company’s real estate operations tend to becyclical. The regional economy, like that of the state and nationally, hasslowed.  There can be no assurances thatthe economic slowdown will not worsen or the slowdown will not result in arecession.

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

 

*Interest Rates and Financing:* Fluctuations ininterest rates and the availability of financing have an important impact onthe Company’s performance. Sales of the Company’s properties could be adverselyimpacted by the inability of buyers to obtain adequate financing. Further, theCompany’s real estate development activities are dependent on the availabilityof adequate sources of capital. Certain of the Company’s credit facilities bearinterest at variable rates and would be negatively impacted by increasinginterest rates.

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

*Geographic Concentration:* The Company’s realestate development activities are focused on the 19,400 acres that it owns innorth Los Angeles County. The Company’s entire commercial income portfolio islocated in the Valencia area. Therefore, any factors affecting thatconcentrated area, such as changes in the housing market, economic conditionsand environmental factors, which cannot be predicted with certainty, couldaffect future results.

*Exposure to NaturalOccurrences and Acts of Terror:*TheCompany’s assets and real estate operations may be adversely affected bynatural occurrences such as earthquakes, weather conditions and acts ofterrorism or armed conflict that may cause damage to assets or delay progressof 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 numerousgovernmental 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 offederal, state and local laws and regulations concerning protection of healthand the environment. This government regulation affects the types of projectswhich can be pursued by the Company and increases the cost of development andownership. The Company devotes substantial financial and managerial resourcesto comply with these requirements. To varying degrees, certain permits andapprovals will be required to complete the developments currently beingundertaken or planned by the Company. Furthermore, the timing, cost and scopeof planned projects may be subject to legal challenges, particularly largeprojects with regional impacts. (See following “Litigation” discussion.) Inaddition, the continued effectiveness of permits already granted is subject tofactors such as changes in policies, rules and regulations and theirinterpretation and application. The ability to obtain necessary approvals andpermits for its projects can be beyond the Company’s control and could restrictor prevent development of otherwise desirable new properties. The Company’sresults of operations in any period will be affected by the amount of entitledproperties the Company has in inventory.

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

 

Part 1.  Financial Information

Item 3.  Quantitative andQualitative Disclosures about Market Risk.

 

The Company is exposed to market riskprimarily due to fluctuations in interest rates. The Company utilizes bothfixed rate and variable rate debt. At September 30, 2001, the Company had $32.8million 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% to8.45%.

Thetable below presents principal cash flows and related weighted average interestrates of the Company's long-term fixed rate and variable rate debt, as ofSeptember 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 Companyhas a $50 million revolving mortgage facility which bears interest at LIBORplus 1.25% against which no borrowings were outstanding at September 30,2001.  The Company also has unsecuredlines of credit consisting of a $130 million line and a $10 million line onwhich the interest rate is LIBOR plus 1.25% - 1.45% and a $2 million line onwhich 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 aboveassume that the outstanding amounts under the variable rate credit facilitieswill be repaid at the facilities’ respective maturity dates.  The $10 million line of credit is scheduledto mature mid-November 2001, and the Company does not anticipate the need torenew the line of credit.  Managementbelieves that remaining facilities will be renewed at the respective maturity.

(2)       The fairvalues of the Company's fixed rate debt either approximate carrying value orare estimated using discounted cash flow analyses based on the Company'scurrent incremental borrowing rates for similar types of borrowing arrangementsranging from 4.75% to 7.5%.

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

PartII. Other Information

 

Item1.  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 andResults of Operations.”

 

### Item6. Exhibits and Reports on Form 8-K

 

(a)      Exhibits (listed by numbers correspondingto the Exhibit Table of Item 601 in Regulation S-K):

 

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

 

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

 

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

 

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

 

Item Reported                                                                                                             Date of Report

Change in CertifyingAccountants for The                                                                July 9, 2001

Newhall Land and FarmingCompany’s Employee

Savings Plan effectivefor the year ended

December 31, 2000.

 

SIGNATURES

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly 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) |
|                                             |  |  |  |  |  |  |