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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2000

OR

For the transition period from                to                

Commission File Number 1-8885

THE NEWHALL LAND AND FARMING COMPANY
(a California Limited Partnership)
(Exact name of Registrant as specified in its charter)

Registrant's telephone number, including area code (661) 255-4000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

    Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES /x/  NO / /

    Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / /

    The aggregate market value of depositary receipts held by non-affiliates based upon the closing price of such depositary receipts on the New York Stock Exchange on February 28, 2001 was $585,437,073

THE NEWHALL LAND AND FARMING COMPANY
2000
FORM 10-K

TABLE OF CONTENTS

PART I

Item 1. Business

INTRODUCTION

    The Newhall Land and Farming Company (a California Limited Partnership) (the "Company" or the "Partnership") is engaged in the development of residential, industrial and commercial real estate and in agriculture, on its approximately 50,000 acres in California. The interests in the Company (other than those held by the general partners) are represented by transferable Depositary Units listed on the New York and Pacific Stock Exchanges under the ticker symbol NHL (also referred to in this Annual Report as "partnership units"). The Company was reorganized from a corporation to a limited partnership on January 8, 1985. The predecessor corporation was established in 1883 by the family of Henry Mayo Newhall; the shares of the corporation were listed on the New York Stock Exchange in 1970.

    The Company's primary business is developing master-planned communities. Since 1965, the Company has been developing the town of Valencia on a portion of the Company's landholdings in Los Angeles County which now is home to approximately 42,000 residents and over 1,400 companies that provide 42,000 jobs. With approximately 6,700 acres remaining to be developed, and residential buildout expected by 2005, Valencia is the regional center for north Los Angeles County and the northern gateway to the entire Los Angeles metropolitan area.

    In 1994, the Company started the entitlement process on Newhall Ranch, a new master-planned community located on 12,000 acres adjacent to Valencia and west of Interstate 5. In March 1999, the Los Angeles County Board of Supervisors gave final approval for the project. The Newhall Ranch Specific Plan permits 21,600 homes in five villages and 325 net acres of commercial and business park uses. Planning and design work has started on the infrastructure for the project and detailed planning is proceeding on two of the five villages planned for the community. In June 2000, six issues in the project's Environmental Impact Report were identified by a Kern County Superior Court judge as needing additional environmental review. For additional information on these issues, please refer to the "Community Development" section under Part II. Item 7.—Management's Discussion and Analysis of Financial Condition and Results of Operations.

    Valencia and Newhall Ranch are located on the Company's prime landholding consisting of over 19,000 contiguous acres in north Los Angeles County, the fastest growing region in California. The development potential of these properties is unmatched in the entire County and is directly in the path of growth along the Interstate 5 corridor, just 30 miles north of downtown Los Angeles. Four major freeways intersect Interstate 5 within ten minutes of Valencia providing businesses and residents easy access to the Los Angeles metropolitan area, major airports and the ports of Los Angeles and Long Beach.

    In the late 1980s, the Company adopted the strategy of selling farm properties with little or no potential for development and re-deploying the proceeds into real estate operations. As of December 31, 2000, more than 70,000 acres of non-strategic farmland have been sold. The Company's remaining agricultural properties are the New Columbia Ranch in the San Joaquin Valley and the Newhall Orchard in Ventura County.

    In September 1999, the Company initiated a strategy to repurchase up to 20%, or 6,384,446 units, of its outstanding partnership units. This represented a significant shift in business strategy and afforded the Company a major arbitrage opportunity to capitalize on the gap in its underlying asset value relative to the market price of the Company's units.

    The Company's strategy to accomplish the unit repurchases involved the sale of approximately one-half of the Company's income portfolio and the suspension of capital spending for new income

1

portfolio additions. In 2000, two retail properties, four apartment complexes and four office buildings were sold and, as of December 31, 2000, a total of 4,899,502 units had been repurchased of which 3,175,550 units were repurchased in 2000. For additional information about income properties sold and unit repurchases, please refer to the sections titled "Results of Operations," "Income Property Sales" and "Liquidity and Capital Resources" under Part II. Item 7.—Management's Discussion and Analysis of Financial Condition and Results of Operations.

    Financial information concerning the Company's business segments appears in Note 10 of the Notes to Consolidated Financial Statements in this Annual Report. Information regarding competition and compliance with governmental and environmental regulations appears in the Inflation, Risks and Related Factors section of Management's Discussion and Analysis of Financial Condition and Results of Operations in this Annual Report. At December 31, 2000, the Company had 195 employees.

Competition

    The sale and leasing of residential, industrial and commercial real estate is highly competitive, with competition coming from numerous and varied sources. The degree of competition is affected by such factors as the supply of real estate available which is comparable to that sold and leased by the Company and the level of demand for such real estate. Valencia experienced a slight decrease in its new home sale market share at both the local and the county level in 2000, due to the temporary decline in new home inventory. There is no assurance that this new home sales decline will reverse in the future even with an increasing supply of new homes in Valencia given competing projects in the region. This could impact the pace at which the Company is able to sell additional residential land.

Appraisal of Real Property Assets

    The independent appraisal firm of Buss-Shelger Associates appraised the market value of the Company's real property assets to be $991 million at December 31, 2000. The appraised properties did not include oil and gas assets, water supply systems, cash and cash equivalents and certain other assets. The net appraised value of the Company's total assets, including assets not independently appraised, was $922 million, after reduction for debt and certain other liabilities as shown in the table below.

    For the purpose of the appraisals, market value was defined as the most probable price in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. A significant portion of the appraised real property assets is located on the Company's 19,000 acres, 30 miles north of downtown Los Angeles and currently is undeveloped.

    Entitlements and the continuing development of Valencia enhance the appraised value of the Company's land assets. Although raw land increases in value as development opportunities arise, the most significant increases occur when necessary land use entitlements, including zoning and mapping approvals, are obtained from city and county governments. The appraised values of the Company's land and income-producing properties in the Valencia master-planned community have increased from $222 million in 1984, the first year independent property appraisals were obtained, to $740 million in 2000. On a per unit basis, the Company's net appraised value has increased from $11.74 to $34.66 over the same 17-year period.

    In 1999, Newhall Land initiated an aggressive unit repurchase program to capitalize on the investment opportunity to create unitholder value based upon the difference in the record-high underlying asset values relative to Newhall Land's unit price. Consequently, the 2000 results reflect the removal of $86.5 million in asset value for repurchases and $21.2 million in distributions. To fund these unit repurchases in 2000, the Company sold $78 million in Valencia land and $220 million of income-producing properties. A portion of sales proceeds was used to reduce mortgage and other debt. This activity was more than offset by a 10% reduction in units outstanding, resulting in a 6% increase in net

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appraised value on a per unit basis for 2000. Declines in Valencia area properties presented below for 2000 are the result of this significant sales activity. Absent these sales, remaining Valencia land values and income-producing properties increased in value by 12% and 4%, respectively.

    A summary of year-end appraised values follows (the appraisals were performed by independent appraisers except as noted):

Appraised Values

*

The Company's 50.1% interest in City Ranch was divested in 2000 and McDowell Mountain Ranch in Scottsdale, Arizona, was sold in 1996.

    Appraised values are judgments. Land and property appraisals are an estimated value based on the sale of comparably located and zoned real estate or on the present value of income anticipated from commercial properties. There is no assurance that the appraised value of property would be received if any of the assets were sold. No assumptions have been made with respect to the bulk sale of the Company's total real estate assets. Certain reclassifications within categories have been made to conform to the current year presentation; however, prior period amounts have not been restated to reflect land sale activity, unit repurchases or distributions to unitholders. For the five-year period ended 2000, the Company has invested $237.4 million in unit repurchases and paid out $89.5 million in distributions.

REAL ESTATE

    The Company's primary business is developing new towns and master-planned communities in north Los Angeles County. This includes the town of Valencia, 30 miles north of Los Angeles and Newhall Ranch, a new community planned for over 21,000 homes on 12,000 acres adjacent to Valencia, just west of Interstate 5.

    Valencia, the first master-planned community developed by the Company, has experienced tremendous success and set the standard for the Company's other planned communities. Today, Valencia is a balanced community, providing residential, commercial and retail properties, along with

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industrial and recreational facilities and is the regional center for north Los Angeles County. Residents are attracted to the quality of life offered in Valencia's safe, clean environment, combined with award-winning schools. Major business such as Princess Cruises and Explorer Insurance, have relocated to Valencia for these same reasons plus the added benefit of a strong local labor pool and proximity to the Los Angeles metropolitan area. Approximately 6,700 acres including over 7,300 homes and apartments remain to be developed in Valencia. The Company's goal is to complete the sellout of Valencia residential land by 2005.

    Newhall Ranch, the next major master-planned community planned for the Company's 12,000 acres west of Interstate 5 and adjacent to Valencia, is based on a master plan that incorporates the natural beauty of the Santa Clara River and preserves over 6,000 acres of open space. Approval of this 21,600 home project was received in 1999 from the Los Angeles County Board of Supervisors. The first two villages, Riverwood and The Mesas, are in the planning stages, along with design work on the major infrastructure to open the project.

    For information regarding lawsuits pertaining to the Company's residential projects, please refer to the section entitled "Community Development" under Part II. Item 7.—Management's Discussion and Analysis of Financial Condition and Results of Operations.

    In 2000, the Company divested its 50.1% interest in a joint venture with Kaufman and Broad of Southern California, Inc. to develop a 1,900-acre parcel in Palmdale, 30 miles northeast of Valencia in the Antelope Valley. The Company is in discussions with potential buyers interested in acquiring the Company's option on 1,800 acres for a new community in Broomfield, Colorado, located between Denver and Boulder.

    The Company sells residential lots to merchant builders, operates a portfolio of commercial properties, provides building-ready sites for sale to industrial and commercial developers/users and owns a public water utility. For additional information regarding the Company's business refer to "Item 7.—Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Annual Report.

Residential Development and Land Sales

    In 2000, merchant builders in Valencia sold 419 new homes on land previously sold by the Company, an increase of 18%, compared to the 355 new homes sold in the prior year by merchant builders and the Company's joint ventures. Despite the increase, home sales were well below the level expected in 2000 due to builders being slow to bring product to market, an over abundance of higher priced product on the market and general softening in market conditions. At December 31, 2000, there were 186 new homes in escrow, well above the 99 homes in escrow at the end of 1999. Merchant builders had an inventory of 931 lots remaining on which to build new homes at December 31, 2000. While the Company does not participate directly in profits generated from escrow closings by merchant builders, the absorption of these previously sold lots is key to the Company's future success in selling additional lots.

    A total of 208 residential lots closed escrow by the Company in 2000. Lot sales in 2000 were impacted by the Public Utilities Commission's (PUC) decision to combine its review of Valencia Water Company's request to expand its service area together with the water company's water management plan. The PUC requested environmental studies be submitted on water availability for the projects included in the service expansion area. The water company is in the process of providing the PUC the necessary information. Valencia Water Company expects the PUC will render its decision in the 2001 third quarter. A total of 4,445 residential lots and apartment units are affected. The total number includes 1,900 lots and apartments that the City of Santa Clarita annexed in December 2000, and 2,545 lots and apartments in the Company's West Creek community approved in December by the Los Angeles County Board of Supervisors.

4

    The Company's goal is to double the historical pace of development and achieve new home sales of approximately 1,200 annually by capturing a greater share of the Santa Clarita Valley housing market. The continued fundamentals of low housing supply and high demand, as predicted by economists, will fuel an estimated annual demand for 25,000 new homes in Los Angeles County, compared to an annual average of about 12,000 homes over the past decade.

Industrial/Commercial Development and Land Sales

    The Company develops the infrastructure and provides sites for sale to industrial/commercial developers and users. Valencia's location just 30 miles from downtown Los Angeles on Interstate 5, California's major north-south freeway, provides an attractive environment for industrial, commercial, service, distribution and entertainment businesses. Valencia now is the regional center for north Los Angeles County and boasts a 1:1 jobs-to-housing ratio. Businesses continue to be attracted to the advantages Valencia has to offer including easy freeway access, a safe and clean work environment and a highly skilled local workforce.

    The Company markets industrial and commercial land as Valencia Gateway which encompasses 4,500 acres and has 15 million square feet of building space today, making it the largest master-planned center for business, technology and industry in Los Angeles County. The Company plans to aggressively market Valencia Gateway and targets an annual absorption of 50 to 75 acres per year, which accommodates about one million square feet of new development. The Company also plans to explore opportunities to create strategic partnerships with large-scale developers to accelerate cash flow and minimize capital requirements within its business parks. In 2000, the Company sold 59 acres of industrial land and 50 acres of commercial land.

Community Development

    The Company continues to invest heavily in land use entitlements to support accelerated growth and to maximize the value of its landholdings. The Company's community development activities are focused on securing the necessary governmental land use approvals as well as community planning and marketing to complete the projected sellout of Valencia residential land by 2005 and begin development of Newhall Ranch in 2003. Planning and design work has started on the infrastructure for the 21,600-home Newhall Ranch project and detailed planning is proceeding on two of the five villages planned for the community.

Commercial Real Estate Development

    As previously discussed, in 2000, the Company sold several income properties to finance the repurchase of up to 6.3 million partnership units. For additional information about the properties sold and the repurchase plan, see the sections entitled "Income Producing Properties" and "Liquidity and Capital Resources" under Part II. Item 7.—"Management's Discussion and Analysis of Financial Condition and Results of Operations".

    For additional information about the Company's remaining commercial properties at December 31, 2000, see Part I. Item 2—"Properties" and Schedule III—Real Estate and Accumulated Depreciation. To conserve capital and accelerate the cash flow, the Company does not plan to develop new income properties in 2001 and instead is marketing retail sites to third-party developers.

Valencia Water Company

    Valencia Water Company, a wholly-owned subsidiary that supplies water to Valencia and other adjacent developments, is a regulated public utility serving over 22,000 metered customers. The water supply for the service area is obtained from wells owned by Valencia Water Company and by purchases

5

from the California State Water Project. In 2000, 52% of Valencia Water Company's water was supplied through ground sources.

AGRICULTURE

    The Company's agricultural division consists of farming and energy operations. The principal remaining agricultural properties are New Columbia Ranch in the San Joaquin Valley and the Newhall Orchard in Ventura County on which the Company and its tenants raised over 20 different crops during the calendar year 2000. Of the Company's land devoted to farming, over 67% was leased to others in 2000. Approximately 21,000 acres of land at the Newhall Ranch and Newhall Orchard not suitable for cultivation or ready for development are leased to third parties for cattle grazing.

    The Company's agricultural operations supply most of their water through underground sources and are not dependent on state or federal water projects. The Company continues to improve conservation practices to minimize the cost of irrigation and the amount of water used.

    Energy operations consist of royalty interests in oil and gas assets on the Newhall Ranch. The Company's 50% mineral interest at the Meridian Ranch, which was sold in 1994, ended on June 30, 2000. In total, the Company has royalty interests in approximately 150 oil wells and 16 gas wells. Energy operations do not represent a material source of revenues and income for the Company.

Item 2. Properties

Land

    Listed below are the location and acreage of properties owned by the Company at December 31, 2000:

Plants and buildings

    Agriculture—Various buildings located at two farming operations in California.

6

    Commercial Real Estate—Listed below are square footage, occupancy, net operating income by group and anchor tenants of major commercial properties owned by the Company at December 31, 2000. The Company also has numerous land leases including 541 acres for a landfill. The commercial properties are leased to 225 tenants.

(1)

Gross Leaseable Area

(2)

Including leases signed and not open

(3)

Santa Clarita Conference Center totals 26,000 square feet

    All of the commercial real estate properties and the properties of Valencia Water Company are located in and around Valencia, California. At December 31, 2000, two of the shopping centers secured loans with a $24.5 million principal balance and borrowings totaling $12 million were outstanding against a $50 million revolving mortgage facility secured by Valencia Town Center. An $11 million

7

financing is secured by the water utility plant of Valencia Water Company. For additional information concerning encumbrances against Company properties, refer to Note 7 of the Notes to Consolidated Financial Statements section.

    For additional information on the Company's properties, refer to the summary of appraised values on page 3 and Schedule III—Real Estate and Accumulated Depreciation on pages 71 and 72.

Item 3. Legal Proceedings

    The Company, including its subsidiary, are named defendants in many lawsuits arising from the ordinary course of its business. While the outcome of these lawsuits cannot be predicted, management does not expect these matters to have a material adverse effect on the Company's business, financial condition or results of operations.

    For information on lawsuits pertaining to Newhall Ranch, Valencia Westridge and the West Creek community, please refer to the section entitled "Community Development" under Part II. Item 7.—"Management's Discussion and Analysis of Financial Condition and Results of Operations".

Item 4. Submission of Matters to a Vote of Security Holders

    None.

Part II

Item 5. Market for the Registrant's Depositary Units and Related Security Holder Matters

Market Price and Distribution Data

Years ended December 31

    The Company's Depositary Units are traded on the New York and Pacific Stock Exchanges under the ticker symbol NHL and, at December 31, 2000, the Company had 1,144 unitholders of record. The Company has paid uninterrupted quarterly cash distributions since 1936. The declaration of any distribution and the amount declared is determined by the Board of Directors taking into account the Company's earnings, cash requirements, financial condition and prospects.

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Item 6. Selected Financial Data

(1)

Includes lots sold at McDowell Mountain Ranch in Arizona prior to the sale of the project in 1996.

(2)

Includes income-producing properties held for sale, net

9

(1)

Includes lots sold at McDowell Mountain Ranch in Arizona prior to the sale of the project in 1996.

(2)

Includes income-producing properties held for sale, net

10

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Years ended December 31, 2000, 1999 and 1998

RESULTS OF OPERATIONS

    For 2000, the Company achieved record revenues of $401.0 million primarily as a result of the sale of income properties which included two shopping centers, four apartment complexes and four office buildings. These sales were part of the Company's business strategy, announced in 1999, to sell approximately one-half of its income portfolio to finance the repurchase of 6,384,446 million of its partnership units. In addition to the income properties, 208 residential lots and over 108 acres of commercial and industrial land were sold during the year. These sales, combined with the sale of income properties, added $298.0 million to revenues and $106.0 million to income. Net income for 2000 was $85.4 million, or $3.05 per unit, representing a record high on a per unit basis.

    In 1999, the Company recorded revenues of $322.5 million and net income of $90.4 million as a result of accelerated residential, commercial and industrial land sales in Valencia. Altogether, 1,060 residential lots and joint-venture homes, 63 acres of commercial land and 58 acres of industrial land, including two build-to-suits, were sold. In addition, the Company closed escrow on the sale of the 36,000-acre Suey Ranch as well as its remaining property at the Merced and Cowell ranches.

    The Company's business plan for 2001 anticipates revenues being generated from 1) residential, commercial and industrial land sales; 2) the remaining portfolio of income-producing properties; and 3) sale of two properties identified in the asset sale program that did not close escrow in 2000. Net income from these core operations (before any asset sales) is expected to be approximately 50 cents to 60 cents per unit, compared to 45 cents per unit in 2000. Potential additions to income are expected to be generated from sales of the Bank of America and Spectrum Club buildings and the option on the Broomfield, Colorado property. Anticipated sales will be dependent upon a variety of factors including, but not limited to, identification of a suitable buyer, availability of financing to the buyer, regulatory and legal issues, market conditions, agreement with the buyer on definitive terms and successful completion of the buyer's due diligence.

    The 2001 plan also includes completion of the current unit repurchase program of approximately 1.5 million units in the first half of 2001. If current strong business conditions continue, additional repurchases may be authorized in 2001 depending primarily on the level of land sales that close escrow. Numerous factors could affect the Company's ability to complete the current repurchase program and start a new program including, but not limited to, changing market and economic conditions, rising interest rates, challenges to governmental approvals, and finding suitable buyers for certain properties.

Residential Home and Land Sales

    The Company primarily sells lots to merchant builders who, in turn, build homes for sale. Revenues and income are recorded when title is transferred to the merchant builder. Generally, residential lot sale agreements contain a provision whereby the Company will receive from the merchant builder a portion of the home sales prices above an agreed upon base price ("price participation") and/or in the overall profitability of the home building project after the merchant builder has received an agreed upon return ("profit participation"). If home prices and/or project profitability fall short of the participation thresholds, the Company receives no additional revenues or income and has no financial obligation to the builder. Prior to 2000, the Company participated, on a limited basis, in home construction on lots it owned through joint ventures with certain builders.

    A total of 208 residential lots were sold in 2000 for $12.7 million contributing $5.7 million to income. These lot sales were the last remaining lots in the Bridgeport lake community. Results for 2000 also include $14.4 million in revenues and $5.9 million in income recognized under percentage of

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completion accounting from lot sales in the prior year and $309,000 received from price and profit participation agreements relating to Valencia lot sales in prior years.

    Lot sales in 2000 were below expectations and the1999 level of 891 residential lots sold because of the Public Utilities Commission's (PUC) decision to combine its review of Valencia Water Company's request to expand its service area together with the water company's water management plan. The PUC requested environmental studies to be submitted on water availability for the projects included in the service area expansion. The water company is in the process of providing the PUC the necessary information. Valencia Water Company expects the PUC to render its decision in the 2001 third quarter. A total of 4,445 residential lots is affected. This includes 1,900 lots that the City of Santa Clarita annexed in December 2000, and 2,545 lots in the Company's West Creek community approved in December 2000 by the Los Angeles County Board of Supervisors. At December 31, 2000, no residential lots were in escrow.

    In September 2000, the Company divested its 50.1% interest in City Ranch, a joint venture project with Kaufman and Broad of Southern California. Results for 2000 include a $5.2 million loss as a result of the divestiture and expenses incurred in 2000 prior to the divestiture. The divestiture eliminates significant future cash requirements relating to development costs for the 4,500-home project in Palmdale, California and allows the Company to focus its resources on its unit repurchase program and the strong real estate market in Valencia.

    The Company sold a total of 891 residential lots in 1999 which included 597 in the Bridgeport lake community, where finished lots were sold at the highest residential per acre prices in Valencia's history. These combined lot sales added $54.1 million to revenues and $26.6 million to income under percentage of completion accounting. Revenues exceeded $1 million per acre on prime parcels and profit per net acre is expected to average approximately $394,000 when all revenues and income have been realized as remaining land development and amenities are completed. In 1999, the Company also completed the sale of 294 lots in Hasley Hills, just north of Valencia, to Kaufman and Broad. This sale contributed $15.9 million to revenues and $10.7 million to income. At December 31, 1999, no residential lots were in escrow.

    In addition, results for 1999 included $1.5 million received from price and profit participation agreements relating to Valencia lot sales in prior years. This represented the first price and profit participation income received since 1993. Escrow closings from the Company's two remaining joint ventures totaled 169 homes in 1999, contributing $38.0 million to revenues and $3.9 million to income. These closings represented the last homes in the Company's joint-venture program.

    In 1998, the Company sold a total of 1,108 residential lots which added $40.8 million to revenues and $24.2 million to income. Deferred revenues of $2.3 million and income of $766,000 were recognized in 1998 from prior residential lot sales under percentage of completion accounting. Results for 1998 also included escrow closings on 124 joint-venture homes in three projects which contributed $27.7 million to revenues and $2.9 million to income.

    For 2001, the Company plans to market approximately 650 entitled, improved residential lots on 91 net acres in the 1,700-home Westridge Golf Course Community. An additional 300 lots on 40 net acres in Altavista also may be marketed for sale in 2001, depending on results and timing of the PUC decision. The Altavista lots may be marketed for sale as entitled, unimproved lots.

Industrial and Commercial Sales

Industrial Land Sales

    In 2000, escrows closed on 58.8 industrial acres contributing $28.4 million to revenues and $8.5 million to income. No industrial land sales were in escrow at December 31, 2000. In September 2000, the Company agreed to accept a reduced note pay-off in return for accelerating the

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due date on a 1998 industrial land sale note with scheduled maturities through September 2002. This resulted in the Company recording a $2.1 million charge to income to reduce the note receivable and accrued interest to the negotiated $14.4 million pay-off amount. The note was collected in December 2000.

    In 1999, the Company sold 57.7 industrial acres, including two build-to-suit facilities totaling 280,000 square feet on 13.7 acres for $13.7 million. These closings contributed $40.1 million to revenues and $8.7 million to income. At December 31, 1999, two industrial parcels totaling 4.1 acres were in escrow for $2.7 million. In 1998, the Company closed escrow on 111 acres of industrial land, including four buildings constructed as part of its build-to-suit/lease program. These escrow closings contributed $62.6 million to revenues and $16.1 million to income.

    As of December 31, 2000, there are approximately 390 net acres of entitled industrial land remaining in Valencia. With few large land parcels available in Los Angeles County, the Company anticipates sales in the range of 50 to 75 acres per year to build-out. Additionally, consideration of marketing concepts for the prime acreage west of Interstate 5 surrounding the Six Flags Magic Mountain amusement park has started.

Commercial Land Sales

    In 2000, a total of 49.7 commercial acres closed escrow contributing $36.9 million to revenues and $18.9 million to income. The sales included a 16.5-acre parcel for a retail center for $12.9 million adding $6.3 million to income. Results for 2000 also include revenues of $3.2 million and income of $1.9 million recognized under percentage of completion accounting from the prior year sale of an apartment site. At December 31, 2000, seven commercial parcels totaling 37.9 acres were in escrow for $24.9 million with closings expected in 2001. The Company's ability to complete sales in escrow and generate future land sales is subject to market and other conditions beyond the control of the Company.

    Commercial escrow closings in 1999 totaled 62.8 acres which contributed $51.4 million to revenues and $30.1 million to income. Two apartment sites totaling 49.9 acres for approximately 1,100 units were the major commercial land sales during the year. At December 31, 1999, three commercial parcels totaling 13.2 acres were in escrow for $7.9 million.

    In 1998, commercial escrow closings included a 12.6-acre, restricted use site for a senior apartment project and two small commercial parcels totaling 2.0 acres. These sales combined contributed $2.5 million to revenues and $608,000 to income.

Income Property Sales

    Sales of income-producing properties in 2000 included Castaic Village Shopping Center, Plaza del Rancho, four office buildings and four apartment complexes. These sales combined added $220 million to revenues and $72.9 million to income. The primary contributor to the results was the sale of the apartment complexes for $129.0 million, contributing $74.0 million to income.

    The sale of the four office buildings for $72.3 million exceeded the construction costs by approximately $7.8 million. A condition of the sale includes a monthly rental payment by the Company to the buyer for 161,000 square feet of building space (principally to be occupied by Princess Cruises) until Princess' rent commencement date in the first quarter of 2001. In addition, the Company has agreed to lease back approximately 49,000 square feet of retail space for 12¹/2 years. With regard to the retail leaseback, accounting guidelines do not allow the consideration of any future new or renewal leasing activity to reduce the calculation of the net lease obligation. As a result, the Company recorded an accounting loss on the sale of the buildings of $4.9 million. This amount includes a loss of $2.2 million for a restaurant tenant which closed in late December 2000. Management believes that

13

sub-leasing of the retail space will more than offset this accounting loss over the life of the leaseback and ultimately will result in additional revenues and income. As of December 31, 2000, approximately 25,000 square feet of the retail space was leased.

    In 2001, the Company is marketing for sale its Bank of America and Spectrum Club buildings. These sales are expected to generate $15 million to $16 million in revenues based upon 2000 year-end values. The ability to complete these sales in 2001 will be dependent upon a variety of factors including, but not limited to, identification of a suitable buyer, availability of financing to the buyer, market conditions, agreement with the buyer on definitive terms and successful completion of the buyer's due diligence.

    No income-producing properties were sold in 1999; however, the Company recognized $6.3 million in deferred revenues and a loss of $400,000 on the prior year sale of Valencia Marketplace, a 705,000-square-foot high-volume retail center.

    In 1998, the Company sold Valencia Marketplace for $111 million cash and recognized $98 million in revenues and $35 million in income under percentage of completion accounting. Also in 1998, results included the sale of Valley Business Center, a 56,800-square-foot mixed-use center on approximately 15 acres, and the remaining building in Valencia Industrial Center which combined added $8.8 million to revenues and $2.4 million to income.

Community Development

    Community development expenses in 2000 decreased 6% from the prior year primarily due to expenses in the prior year relating to Newhall Ranch entitlements and certain initial costs relating to commercial properties under development. Community development expenses are expected to increase about 20% in 2001 with the continued focus on entitlements, planning and community marketing to complete the projected sellout of Valencia residential land by 2005 and begin the development of Newhall Ranch.

    Community development expenses in 1999 increased to $12.3 million, or 14%, from 1998 due to entitlements work for Newhall Ranch, certain initial costs relating to commercial properties under development and a strategic marketing program. Certain costs for developing Newhall Ranch subsequent to the approval of the Specific Plan in 1999 are being capitalized to the project.

    The Company has started planning and design work on the infrastructure for the 21,600-home Newhall Ranch project. Detailed planning is proceeding on two of the five villages planned in the community. Riverwood, a village planned along Highway 126 overlooking the Santa Clara River, is expected to contain approximately 3,200 homes, 122 acres of commercial property, 256 acres for a business park and 130 acres of mixed-use development. Development of The Mesas, a second village south of the river, is also in the planning process. Current plans are for approximately 8,000 homes and 1.5 million square feet of commercial development.

    Additional research and analyses is proceeding on six issues in the project's Environmental Impact Report, which were identified in June 2000 by a Kern County Superior Court Judge as requiring further environmental review. As previously reported, the six issues include the impact of the 21,600-home Newhall Ranch development on the Salt Creek wildlife corridor and traffic in Ventura County; biological impacts on the Santa Clara River corridor; consistency with the General Plan and impacts in Significant Ecological Areas (SEAs); adequacy and reliability of the water supply; and a further alternative site analysis for the water reclamation plant location. The court ruled in the Company's favor on all other issues raised by the opponents. The "affordable housing" opponent has appealed the Superior Court's decision.

    The Company believes the six issues in question can be resolved to the satisfaction of the Court in 2001, in which case the development is expected to start in 2003. However, the length of time the

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public hearings and judicial process will take is difficult to predict, and circumstances beyond the Company's control could further delay resolution of the issues. The additional environmental analyses of the six issues will be circulated for public review and comments. Following the public review period, both the Los Angeles County Regional Planning Commission and Board of Supervisors must review the issues, hold public hearings and certify the additional environmental analyses before the case can be referred back to the Court. The Company anticipates being before the Regional Planning Commission in the spring of 2001, through the Board of Supervisors by the fall and back before the Superior Court judge by the end of 2001. An adverse decision by the County or Court and/or additional legal action will likely delay the start of the development of Newhall Ranch beyond 2003.

    The Company has begun land development work on Valencia Westridge, which will feature 1,700 homes surrounding a Tournament Players Club (TPC) golf course, a joint venture with PGA TOUR Golf Course Properties. The Los Angeles County Board of Supervisors approved the community in May 1999. Opponents to the project subsequently filed a lawsuit under the California Environmental Quality Act (CEQA) challenging the Board of Supervisors' approval. In May 2000, a Los Angeles County Superior Court Judge dismissed the lawsuit. This dismissal is being appealed. The Company expects to deliver lots for sale in the second half of 2001, subject to the results of the pending appeal.

    In December 2000, the West Creek community in the North River planning area consisting of 2,545 homes received final approval from the Los Angeles County Board of Supervisors. Opponents to the community have filed a CEQA lawsuit challenging the Board of Supervisors' approval. As with prior CEQA lawsuits, the results of these types of legal challenges are difficult to predict. An adverse decision will likely delay the development of the community beyond the delay created by the PUC process previously mentioned.

    The Company is in discussion with potential buyers interested in acquiring the Company's option to develop the 1,800-acre project in Broomfield, Colorado, located between Denver and Boulder. The plan calls for approximately 3,000 homes and 215 acres of office and other commercial development. As of December 31, 2000, the Company has expended $2.4 million on the project and, if the option is sold, would expect the sale to generate a profit.

Income-Producing Properties

    In December 1999, the Company announced its intention to sell approximately half of its income portfolio to accommodate the repurchase of more than 6.3 million of the Company's partnership units authorized for repurchase in September 1999. Accordingly, in 2000, four apartment complexes, four office buildings, a neighborhood shopping center and a mixed-use retail property were sold.

    Revenues in 2000 increased 15% from the prior year while income increased 32% primarily due to suspension of depreciation on income properties while they were held for sale which accounted for approximately 56% of the increase in income compared to 1999. Improved results from hotel operations, continued high retail occupancy and favorable rents also contributed to increases in revenues and income for 2000.

    In December 2000, the Company announced it was no longer marketing for sale the Valencia Town Center regional shopping mall and entertainment center. In August 2000, a potential buyer terminated its due diligence work due to Edwards Theaters' bankruptcy filing. Edwards has not completed its reorganization; however, it remained current on rent due as of December 31, 2000. In December 2000, a charge of $4 million was recorded for depreciation that had been suspended when the assets were held for sale. The Company also announced that it terminated discussions with a potential buyer for its landfill and is proceeding with its contractual right to terminate the lease with the current operator. The operator recently filed a lawsuit against the Company in connection with the termination. The Company is currently engaged in the discovery phase of the lawsuit.

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    In 1999, revenues from the income portfolio increased 31% and income declined 3% compared to 1998. The income decline resulted primarily from depreciation associated with new properties and operating expenses in connection with the Hyatt Valencia Hotel. In 1998, revenues and income from the portfolio increased 16% and 13%, respectively, over 1997 benefiting from the continued development of new income-producing properties as well as excellent retail and apartment occupancies and favorable rents throughout the portfolio.

    The Company's shopping centers continue to have high occupancy rates with Valencia Town Center 99% leased and adjacent Town Center Drive retail 81% leased. NorthPark Village Square and River Oaks retail centers are both 100% leased including spaces with signed leases but not yet occupied. A 26,000-square-foot mixed-use building next to the Hyatt Valencia hotel is 100% leased.

Valencia Water Company

    Valencia Water Company is a regulated public utility and a wholly-owned subsidiary of the Company, serving over 22,000 metered customers in the Valencia area. In 2000, revenues increased 8% and income increased 18% compared to 1999 due to the continuing expansion of the utility's customer base. Revenues in 1999 increased 20% and income increased 8% compared to 1998 primarily due to an 11% increase in the customer base. Revenues in 1999 also benefited from drier weather while income gains were impacted by increased maintenance and operating costs.

Agricultural Operations

    Agriculture revenues and income, including the Company's energy operations, decreased in 2000 primarily due to the sale of over 39,000 acres of farm land in 1999 and lower prices for oranges. The decreases were partially offset by higher revenues and income from energy operations due to higher oil and gas prices. Revenues and income increased in 1999 primarily due to excellent citrus yields and prices. The income comparison to 1998 is impacted by a non-cash write-off of $1.9 million relating to mineral rights associated with previously sold ranch land.

Ranch Sales

    No farm land was sold in 2000. In 1999, the Company completed the sale of the 36,000-acre Suey Ranch and the three remaining parcels at the Merced Ranch as part of the Company's strategy of selling farm land not suitable for development. These sales combined contributed $29.0 million to revenues and $25.0 million to income.

    A 970-acre parcel of the Merced Ranch closed escrow in 1998 for $1.1 million, contributing $775,000 to income. Also included in 1998 results is $323,000 recognized from the 1996 sale of 539 acres of crop land at the Suey Ranch. The sale of 1,674 acres of vineyards and undeveloped land at the Suey Ranch in 1997 for $17.9 million added $17.0 million to income.

    The Company's remaining agricultural properties include the 14,000-acre New Columbia Ranch in Madera County and the 1,000-acre Newhall Orchard in Ventura County. Most of the remaining 15,000 acres owned by the Company in Ventura County are leased for cattle grazing.

General and Administrative Expenses

    A net increase of 4% in general and administrative expenses in 2000 is primarily due to a reduction of $2.2 million in land acquisition activities compared to the prior year being more than offset by an increase of $3.1 million in compensation expense. A 14% increase in expenses in 1999 over 1998 was primarily for land acquisition activities. General and administrative expenses are expected to decrease by about 30% in 2001 compared to 2000.

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Interest and Other Expense, net

    Net interest expense for 2000 increased 73% compared to the prior year due to increased borrowings under credit facilities to fund partnership unit repurchases prior to the sale of income properties, most of which occurred in December 2000. Interest expense in 2001 is expected to decrease substantially due to lower debt levels against credit facilities and the assumption of mortgages totaling $49.0 million by the buyer of the Company's four apartment complexes.

    An increase of 45% in net interest expense in 1999 compared to 1998 was due to higher debt levels against lines of credit, a new $25 million mortgage financing secured by two shopping centers completed in the 1999 third quarter and a reduction in capitalized interest due to the completion of several income portfolio projects. The increase was partially offset by higher interest income from land sales notes.

    In 1998, reduction of debt due to the receipt of $111 million cash upon the sale of Valencia Marketplace in June 1998 and an increase in interest capitalized to portfolio projects contributed to a decrease in net interest expense of 39% from 1997 expense. In 1998, interest income from increased cash available for investment was offset by a reduction in interest income due to collection of notes from prior land sales.

FINANCIAL CONDITION

Liquidity and Capital Resources

    At December 31, 2000, the Company had cash and cash equivalents of $3.7 million and $158.8 million in available lines of credit, net of $21.2 in letters of credit. Borrowings outstanding totaled $2 million against unsecured lines of credit and $12 million against a revolving mortgage loan. In addition, the Company had fixed rate debt totaling $60.6 million. The Company believes it has adequate sources of cash from operations and debt capacity, including lines of credit, to finance future operations on both a short- and long-term basis and, combined with anticipated land and income property sales, to fund its approved partnership unit repurchases. Debt levels are targeted to remain at or below 60% of the appraised value of remaining income-producing properties. The Company ended 2000 with a debt to income portfolio ratio of 23% providing adequate debt capacity in 2001 to fund ongoing operations and continue unit repurchases. Furthermore, at December 31, 2000, there was no debt against raw land or land under development inventories in Valencia.

    In November 2000, three matured debt facilities totaling $219 million were replaced. An existing $159 million unsecured line of credit was replaced with a $130 million three-year, unsecured revolving line of credit; a $20 million unsecured line of credit was replaced by a one-year, $40 million unsecured line of credit (which was reduced to $10 million after the sale of the four office buildings); and a $40 million mortgage secured by Valencia Town Center was replaced by a one-year, $50 million secured mortgage.

    In September 1999, the Board of Directors approved a plan to repurchase over 6.3 million partnership units, or approximately 20% of the Company's outstanding units at the time of the authorization, which included 884,446 units remaining for repurchase from a previous authorization. As of December 31, 2000, a total of 4,899,502 units has been repurchased of which 3,175,550 units were repurchased in 2000 for $86.5 million, or an average price of $27.25 per unit, and 1,484,944 units remained to be repurchased in 2001.

    The Company repurchases units from time to time in the open market or through block transactions. Numerous factor factors which may affect the Company's ability to complete its unit repurchase program include, but are not limited to, governmental approvals, changing market conditions, rising interest rates and the ability to find suitable buyers for certain properties.

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    As of December 31, 2000, there were no material commitments for capital expenditures other than approximately $23 million for the completion of two office buildings which were sold in December 2000 and the expected landfill lease termination. In 2001, the Company expects to invest over $40 million in major roads and freeway improvements to enable the Company to continue its sales program in Valencia.

    The following discussion relates to principal items in the Consolidated Statements of Cash Flows.

Operating Activities

    Net cash provided by operating activities in 2000 totaled $226.0 million and included sales of 208 residential lots, over 108 acres of industrial and commercial land and sales of income properties which included four apartment complexes, four office buildings, a neighborhood shopping center and a mixed-use center. These sales combined provided $239.8 million in cash and $10.5 million in notes. In addition, notes totaling $49.7 million from land sales in prior years were collected and $5.1 million was received from a right-of-way purchase by Cal Trans. The notes collected included $14.4 million from a 1998 land sale note on which the Company recorded a $2.1 million charge to income in 2000 to reduce the note principal and accrued interest to a negotiated $14.4 million payoff amount in return for accelerating the due date to December 2000.

    Expenditures for land under development inventories in 2000 totaled $76.1 million and were partially offset by $52.4 million in cost of sales relief. The expenditures included $69.7 million for land preparation and infrastructure to ready land for development or sale with the remainder primarily for agricultural crop costs.

    Net cash provided by operating activities in 1999 totaled $122.4 million and included sales of 1,060 residential lots and homes; 121 acres of industrial and commercial land including two build-to-suit buildings; sale of the Suey Ranch and the remaining property at the Merced and Cowell Ranches. These sales combined provided $222.8 million in cash and $30.2 million in notes. Expenditures for land under development inventories in 1999 totaled $103.9 million and were more than offset by $112.2 million in cost of sales relief. The expenditures primarily were for land preparation and infrastructure to ready land for development or sale, home construction and agricultural crop costs.

    Net cash provided by operating activities in 1998 totaled $167.6 million and included sales of 1,232 residential lots and homes in the Valencia area plus 125 acres of industrial and commercial land including four build-to-suit/lease buildings; sale of Valencia Marketplace, a high-volume retail center; and 970 acres of farm land. These sales combined provided $227.5 million in cash and $15.3 million in notes. In addition, $4.0 million was collected on notes from land sales in prior years. Expenditures for land under development inventories and home construction totaled $79.7 million in 1998 and were more than offset by $85.9 million in cost of sales relief. Expenditures in Valencia were related to land preparation and infrastructure to ready land for development or sale and home construction advances for the Company's homebuilding partnerships. The Company's net investment in homebuilding partnerships totaled $13.5 million at the end of 1998.

Investing Activities

    Expenditures for development of income-producing properties totaled $27.4 million in 2000 and primarily were for two office buildings under construction to be occupied by Princess Cruises and the Valencia Entertainment Center expansion. The office buildings were sold in December 2000, however, the Company is obligated to complete construction of the buildings which is anticipated in the first quarter of 2001.

    Development of income-producing properties in 1999 primarily were related to Montecito apartments and various retail/office/entertainment projects in Valencia Town Center and expenditures totaled $68.0 million.

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    In 1998, expenditures for development of income-producing properties in Valencia totaled $101.8 million. Major expenditures included $27.5 million for the Hyatt Valencia Hotel and Santa Clarita Conference Center; $32.8 million for various retail/office/entertainment projects in Valencia Town Center including parking structures; $11.6 million for a six-story office building occupied by Princess Cruises; and $6.6 million for the 210-unit Montecito apartment complex in Valencia Town Center. Also included was $14.1 million for Valencia Marketplace which was sold in June 1998. The Company was obligated to complete the construction and leasing of the center and the sale was recognized under percentage of completion accounting.

    Purchase of property and equipment expenditures in 2000, 1999 and 1998 primarily were for water utility construction.

Financing Activities

    In 2000, distributions totaling $21.2 million were paid which consisted of four quarterly distributions of $.10 per unit and a $.35 per unit special distribution. Distributions totaling $19.7 million were paid in 1999 and consisted of four quarterly distributions of $.10 per unit and a $.22 per unit special distribution. In 1998, distributions totaling $17.8 million were paid consisting of four quarterly distributions of $.10 per unit and a special distribution of $.12 per unit. The Company's policy is to provide sufficient distributions, including special distributions, to pay the taxes associated with Company earnings. The declaration of distributions, and the amount declared, are determined by the Board of Directors on a quarterly basis taking into account the Company's earnings, financial condition and prospects.

    A decrease in mortgage and other debt of $87.2 million in 2000 included an $85 million reduction in lines of credit and the remainder for scheduled debt service on fixed-rate, secured debt. As planned, the Company utilized available debt capacity during the year to fund the repurchase program until major asset and land sales were completed. Mortgages totaling $49.0 million were assumed by the buyer of the apartment complexes in December 2000 and a $12.0 million note payable was cancelled upon divestiture of the Company's interest in the City Ranch joint-venture with Kaufman and Broad of Southern California, Inc. in September 2000.

    In 1999, increases in mortgage and other debt included a $44.7 million portfolio mortgage financing which was replaced with three financings totaling $50 million secured by three apartment complexes and a new $25 million financing secured by two neighborhood shopping centers. Also, in August 1999, a $12.0 million note was recorded in connection with the Company's acquisition of a 50.1% interest in City Ranch, a joint-venture project with Kaufman and Broad of Southern California, Inc. Borrowings outstanding against lines of credit increased by $36.2 million to $99.4 million at December 31, 1999. In addition to scheduled debt service on fixed rate debt, decreases in mortgage and other debt in 1999 included the refinanced portfolio mortgage and repayment of a $12 million unsecured financing.

    Upon the sale of Valencia Marketplace in June 1998, for $111 million cash, the Company paid off all outstanding debt against lines of credit and a revolving mortgage facility. At December 31, 1998, $23.2 million was outstanding against lines of credit and $40 million against the revolving mortgage facility. In 1998, a $6 million scheduled principal payment was paid on an unsecured financing and a $3.3 million commercial mortgage was paid in full. Also, a construction financing for a homebuilding joint venture was paid upon completion of the project in 1998.

Unit Repurchases

    In 2000, 1999 and 1998, the Company repurchased 3,175,550 partnership units for $86.5 million, 3,111,278 partnership units for $75.8 million and 1,909,613 partnership units for $49.0 million, respectively. For the three year period ended 2000, the Company has repurchased approximately 24% of its total partnership units outstanding at the end of 1997.

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New Accounting Pronouncements

    The Company has reviewed the provisions of the Securities and Exchange Commission's Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements, effective October 1, 2000, as amended by SAB 101A and SAB 101B. This pronouncement did not have a material impact on the Company's financial position or results of operations.

    The Company has reviewed the provisions of Statement of Financial Accounting Standards No. 133 (SFAS No. 133), Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS Nos. 137 and 138. This pronouncement is not expected to have a material impact on the Company's financial position or results of operations.

INFLATION, RISKS AND RELATED FACTORS AFFECTING FORWARD-LOOKING INFORMATION

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

    We caution you not to place undue reliance on these forward-looking statements, which reflect our current beliefs and are based on information currently available to us. We do not undertake any obligation to publicly revise these forward-looking statements to reflect future events or changes in circumstances.

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

    Sales of Real Estate:  The majority of the Company's revenues is generated by its real estate operations. The ability of the Company to consummate sales of real estate is dependent on various factors including, but not limited to, availability of financing to the buyer, agreement with buyers on definitive terms regulatory and legal issues and successful completion of the buyer's due diligence. The fact that a real estate transaction has entered escrow does not necessarily mean that the transaction ultimately will close. Therefore, the timing of sales may differ from that anticipated by the Company. The inability to close sales as anticipated could adversely impact the recognition of revenue in any specific period.

    Economic Conditions:  Real estate development is significantly impacted by general and local economic conditions which are beyond the control of the Company. The Company's real estate operations are concentrated in Southern California. The regional economy is profoundly affected by the entertainment, technology, defense and certain other segments. Consequently, all sectors of real estate development for the Company tend to be cyclical. While the economy of Southern California continues to be strong, there can be no assurances that present trends will continue.

    Inflation:  The Company believes it is well positioned against the effects of inflation. Historically, during periods of inflation, the Company has been able to increase selling prices of properties to offset rising costs of land development and construction. Recently, land values have been increasing at a faster rate than costs. However, there are no assurances that this trend will continue. A portion of the commercial income portfolio is protected from inflation since percentage rent clauses and Consumer Price Index increases in the Company's leases tend to adjust rental receipts for inflation, while the underlying value of commercial properties has tended to rise over the long term.

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

    Competition:  The sale and leasing of residential, industrial and commercial real estate is highly competitive, with competition coming from numerous and varied sources. The degree of competition is affected by such factors as the supply of real estate available which is comparable to that sold and leased by the Company and the level of demand for such real estate. Valencia experienced a slight decrease in its new home sale market share at both the local and the county level in 2000, due to the temporary decline in new home inventory. There is no assurance that this new home sales decline will reverse in the future even with an increasing supply of new homes in Valencia given competing projects in the region. This could impact the Company's ability to sell residential land.

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

    Exposure to Natural Occurrences:  The Company's real estate development and sales activities may be affected by natural occurrences such as earthquakes and weather conditions that may impact progress of infrastructure construction and land development, and the pace of sales.

    Government Regulation and Entitlement Risks:  In developing its projects, the Company must obtain the approval of numerous governmental authorities regulating such matters as permitted land uses, density and traffic, and the provision of utility services such as electricity, water and waste disposal. In addition, the Company is subject to a variety of federal, state and local laws and regulations concerning protection of health and the environment. This government regulation affects the types of projects which can be pursued by the Company and increases the cost of development and ownership. The Company devotes substantial financial and managerial resources to comply with these requirements. To varying degrees, certain permits and approvals will be required to complete the developments currently being undertaken or planned by the Company. Furthermore, the timing, cost and scope of planned projects may be subject to legal challenges, particularly large projects with regional impacts. (See following "Litigation" discussion.) In addition, the continued effectiveness of permits already granted is subject to factors such as changes in policies, rules and regulations and their interpretation and application. The ability to obtain necessary approvals and permits for its projects can be beyond the Company's control and could restrict or prevent development of otherwise desirable new properties. The Company's results of operations in any period will be affected by the amount of entitled properties the Company has in inventory.

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

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

    The Company is exposed to market risk primarily due to fluctuations in interest rates. The Company utilizes both fixed rate and variable rate debt. At December 31, 2000, the Company had $14.0 million of variable debt with an average interest rate of 7.94% and $60.6 million of fixed rate debt with interest rates ranging from 7.33% to 8.45%.

    The table below presents principal cash flows and related weighted average interest rates of the Company's long-term fixed rate and variable rate debt at December 31, 2000 by expected maturity dates:

(1)

The Company has a $50 million revolving mortgage facility, which bears interest at LIBOR plus 1.25% against which $12 million was outstanding at December 31, 2000. The Company also has unsecured lines of credit consisting of a $130 million line and a $10 million line on which the interest rate is LIBOR plus 1.25%—1.45% against which no borrowings were outstanding at December 31, 2000 and a $2 million line on which the rate is LIBOR plus 1.35% against which $2 million was outstanding at December 31, 2000. The amounts set forth in the table above assume that the outstanding amounts under the variable rate credit facilities will be repaid at the facilities' respective maturity dates. Management believes that these lines will be renewed at maturity with similar terms.

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

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Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS INCLUDED IN ITEM 8:

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Report of Independent Auditors

The Board of Directors of Newhall Management Corporation and Partners of The Newhall
Land and Farming Company:

    We have audited the accompanying consolidated balance sheets of The Newhall Land and Farming Company and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in partners' capital, and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

    We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

    In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Newhall Land and Farming Company and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America.

/ S / KPMG LLP

Los Angeles, California
January 16, 2001

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Consolidated Statements of Income

See notes to consolidated financial statements

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Consolidated Balance Sheets