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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number : 1-7183
TEJON RANCH CO.
(Exact name of Registrant as specified in its Charter)
Delaware 77-0196136
(State or other jurisdiction (IRS Employer Identification
of incorporation or organization) Number)
P.O. Box 1000, Lebec, California 93243
(Address of principal executive office)
Registrant's telephone number, including area code: (805) 327-8481
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
Common Stock American Stock Exchange
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 (229.405 of this chapter)
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. [X]
The aggregate market value of Registrant's Common Stock,
$.50 par value per share, held by persons other than those who
may be deemed to be affiliates of Registrant on March 15, 1996
was $96,321,643 based on the closing price on that date on the
American Stock Exchange.
The number of Registrant's outstanding shares of Common
Stock on March 15, 1996 was 12,682,244 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the Annual Meeting of
Stockholders to be held on May 13, 1996, relating to the
directors and executive officers of Registrant are incorporated
by reference into Part III.
Total Pages - 62
Exhibit Index - Page 60
PART I
Item 1. Business
Registrant owns approximately 270,000 contiguous acres of
land located in Kern and Los Angeles counties in the State of
California on which it is engaged principally in production and
sale of beef cattle, farming, and leasing of land for oil, gas
and mineral production and commercial purposes. Registrant is
also engaged in planning the future uses of its lands.
The following table shows the revenues, operating profits
and identifiable assets of each of Registrant's industry segments
for the last three years:
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
(Amounts in thousands of dollars)
1995 1994 1993
Revenues (1)
Livestock $ 7,492 $ 6,030 $ 5,850
Farming 7,973 6,880 9,459
Oil and Minerals 1,295 1,296 1,358
Commercial and Land Use 1,356 1,237 1,211
Segment Revenues 18,116 15,443 17,878
Interest Income 1,374 1,439 1,591
Total Revenues $ 19,490 $ 16,882 $ 19,469
Operating Profits
Livestock $ 2 $ 549 $ 641
Farming 1,811 1,925 4,211
Oil and Minerals 1,191 1,208 1,239
Commercial and Land Use (830) (285) (435)
Segment Profits (2) 2,174 3,397 5,656
Interest Income 1,374 1,439 1,591
Corporate Expense (2,389) (2,212) (2,233)
Interest Expense (436) (287) (424)
Operating Profits $ 723 $ 2,337 $ 4,590
Identifiable Segment
Assets (3)
Livestock $ 5,533 $ 5,310 $ 4,364
Farming 10,370 7,347 8,000
Oil and Minerals 258 179 187
Commercial and Land Use 2,713 2,226 1,699
Corporate 26,329 29,858 32,861
Total Assets $ 45,203 $ 44,920 $ 47,111
(1) Intersegment sales were insignificant.
(2) Segment Profits are revenues less operating expenses,
excluding interest and corporate expenses.
(3) Identifiable assets by segment include both assets
directly identified with those operations and an
allocable share of jointly-used assets. Corporate
assets consist primarily of cash and cash equivalents,
refundable and deferred income taxes and buildings and
improvements.
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Livestock Operations
Registrant conducts a beef cattle range operation upon those
portions of its ranch which are not devoted to farming,
commercial or other purposes. This range operation depends
primarily upon forage from natural vegetation. The beef cattle
activities include both commercial cow-calf operations (the
maintenance of a cattle herd whose offspring are used to
replenish the herd, with excess numbers being sold commercially)
and the use of stocker cattle (cattle purchased at light weights
for growing on available range forage before being resold). At
December 31, 1995, Registrant's cattle herd numbered
approximately 13,773 of which approximately 6,169 head were
stockers and the remainder were in the breeding herd. At
December 31, 1994, Registrant's cattle herd numbered
approximately 13,272 of which approximately 6,047 head were
stockers. Registrant's range cattle are sold primarily to
stocker and feedlot operators. As market conditions and ranch
forage conditions warrant, Registrant may, from time to time,
feed some of its cattle in commercial feedlots prior to sale of
such cattle to packing houses. Registrant sells a few cattle
directly to packing houses and to other range operators. As to
the sale of cattle, Registrant is in direct competition with
other commercial cattle operations throughout the United States.
The prices received for Registrant's cattle are primarily
dependent upon the commodity market's perception of supply and
demand at the time cattle are sold. In an attempt to reduce the
market risks of its livestock activities, Registrant sometimes
hedges future sales of cattle in the futures and options markets
or obtains fixed prices for future delivery through contracts
with cattle buyers, feedlots, or packing houses. Registrant also
operates a horse breeding program consisting of the breeding of
quality bloodline quarter horses, the sale of horses, and the
boarding and training of horses.
Registrant continues to focus on improving the efficiency of
i t s livestock operations in an increasingly competitive
marketplace. The quarter horse program will continue to direct
its efforts to the improvement of Registrant's breeding mares and
the hosting of competitive horse events to enhance the revenues
of that operation. A membership program in conjunction with the
horse shows will help maximize the usage of the horse facility
and expose Registrant's lands to a broader portion of the
community.
The much anticipated correction downward in the national
cattle market occurred in late spring of 1994. Seven years of
relatively good cattle prices resulted in the inevitable return
to cattle over-production. Total meat supplies of all types in
1994 and early 1995 surged to record levels, and with the
cyclical increase in beef cattle production, cattle prices began
to fall. The continual erosion of the cattle market appears to be
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following its normal cycle and could possibly reach a cyclical
low in late 1996 or 1997. The stocker cattle side of
Registrant's cattle business might actually benefit from lower
prices. Stocker cattle margins can actually increase during this
phase of a cattle cycle because the basic input cost (the
purchase price of calves) drops considerably. The current cost
of lightweight stocker cattle are driven even lower due to the
current situation of extremely tight supplies of grain.
The bright spot for the beef industry is the continued
increase in United States beef exports. Total 1995 United States
beef exports are projected at $3.3 billion, up 20% from 1994 and
the seventh straight year of increases. The top foreign markets
for United States beef have been Japan, Canada, Mexico and South
Korea. The industry achieved this increase in 1995 despite the
collapse of the Mexican peso and the resultant elimination of
most exports to Mexico.
Regulatory requirements at all governmental levels continue
to raise the costs of operating a range cattle operation.
Ensuring compliance with various rules and testing requirements
requires the use of more staff time, outside advisors and testing
facilities.
Farming Operations
In the San Joaquin Valley, Registrant farms permanent crops
including the following acreage: wine grapes - 1,528, almonds -
1,192 pistachios - 730 and walnuts - 295. In 1994, 300 acres of
pistachio trees were planted with the first full year of
production expected in 1999. During 1996, work has begun on a
new farming development involving 240 acres of Registrant's land.
The new farming development will consist of 80 acres of rubired
grapes and 160 acres of almonds. In addition, the replanting of
160 acres of almonds destroyed by winds during January 1995 was
completed during February 1996. Some production is expected
within two years for the new grapes and within three years for
the new almonds. Registrant's objective in planting new trees and
grapes is to offset the normal yield decline as its older
plantings reach productive maturity and to improve revenues from
the farming operations. As certain of Registrant's permanent
crops age to the point of declining yields, Registrant will
evaluate the advisability of replanting such crops, or replacing
them with different crops, depending upon market conditions.
Registrant sells its farm commodities to several customers
or handlers. As a producer of these commodities, Registrant is
in direct competition with other producers within the United
States and throughout the world. Prices received by Registrant
for its commodities are determined by total industry production
and demand levels. Registrant attempts to improve price margins
by producing high quality crops through cultural practices and by
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obtaining better prices through marketing arrangements with
handlers. In 1995, almonds produced were sold to three domestic
customers or handlers, with one of the handlers receiving
approximately 54% of the crop. Typically, these almond handlers
process growers' almonds and sell the nuts to large commercial
buyers, such as cereal and candy manufacturers.
The California almond industry is subject to a federal
marketing order which empowers the Secretary of Agriculture to
set the percentage of almonds during any crop year which can be
sold and the percentage of almonds to be held in reserve in order
to assist in the orderly marketing of the crop. During 1995 and
1993 the saleable percentage was set at 100% of the total almond
crop. For 1994, due to a record crop within California, a 10%
reserve was set by the Secretary of Agriculture. This reserve
was released for sale during 1995 and is included in 1995 farm
revenues.
In 1995, Registrant's pistachios were sold to one customer.
Registrant's 1995 walnuts were sold to two customers, one of
which received approximately 90% of the crop. During 1995 all
winegrapes were sold to one winery.
Registrant's farming operations were hit very hard by winter
storms during January 1995. Near record rainfall and winds in
excess of 100 miles per hour uprooted approximately 23% of the
Ranch's 886 acres of mature almond orchards during the storms.
The remaining crops - walnuts, pistachios, winegrapes and newly
planted almonds were unharmed by these winds. These storms
affected California's entire almond industry, not only from
uprooted trees and flooded fields but also from hampered bee
a c t i vity needed during the critical pollination period.
Consequently, the State's almond crop was reduced to 50% of the
1994 crop and was the second lowest production year since 1986.
Due to the short supply of almonds, prices increased which more
than offset the revenue losses from the lower yields.
Grape yields increased when compared to 1994 production, and
1994 was one of Registrant's best grape production years. Prices
for grapes sold by Registrant were at very good levels, which
were slightly higher than in 1994. For 1995, almond yields were
down 34% from the previous year; however, average prices will be
up by some 65%. With the almond crop being as short as it is, it
should be sold out during the spring of 1996, which places the
industry in a good position for strong sales and above average
prices for the 1996 crop. Pistachios were in the "off year" of
their alternate bearing cycle with no substantial change in price
as handlers have a sufficient inventory of nuts from the previous
"on year" (1994) to meet consumer demands. The Company's 1995
walnut crop yields were as budgeted; however, statewide the crop
was 10% below earlier expectations with quality below normal and
smaller sized nuts. The price is expected to be up from 1994
- 7 -
because of this shortage. In addition, supplies of competing
nuts, primarily pecans, are down from last year.
Overall, during 1995, crop revenues were somewhat higher
than expected, given the loss of almond trees during January
1995. See "Management's Discussion and Analysis of Financial
Statements and Results of Operations." Almond, walnut and
pistachio demand should remain good during 1996. Industry
expectations are that statewide nut crops will improve when
compared to 1995. It is anticipated that nut prices during 1996
will be flat to down, especially almonds, which sold at all time
highs during 1995. Registrant has a three year contract with a
winery which provides a fixed price for its grape shipments.
Registrant's nut crop markets are particularly sensitive to the
size of each year's world crop. Large crops in California and
abroad can rapidly depress prices.
During February 1996, Registrant's almond orchards were
impacted by winter storms. The winter storms included heavy rain
and freezing temperatures. These storms arrived during the
critical bloom and pollination phase of the almond crop cycle.
Due to the timing of these storms, almond crop production could
be negatively affected. Registrant's other crops were not
affected by these storms.
1995 was an excellent water year with 100% of Registrant's
water entitlement being available from the State Water Contract.
In addition, local rainfall received was 200% above normal, which
allowed local mountain streams to flow throughout the year,
allowing Registrant to capture and utilize this water to offset
some of the higher priced State Water Project water. Because of
the abundant water, Registrant was able to bank (percolate into
the underground) some of its excess supply for future use. The
State Department of Water Resources has announced its initial
1996 water supply at 100% of full entitlement notwithstanding
below normal precipitation in the early winter months. This
level of supply will cover all of the Company's farming needs.
See discussion of water contract entitlements and long-term
outlook for water supply under Part I, Item 2, "Properties-
Farmland".
Farm Management Services. Tejon Farming Company ("TFC"), a
wholly-owned subsidiary of Registrant is currently managing the
winddown of the Laval Farms Limited Partnership ("Laval"),
formerly Tejon Agricultural Partners, under a Farm Management
Agreement with Laval, which is terminable on 30-days' notice by
Laval. Registrant will continue to manage Laval and receive a
fee until certain cleanup work is completed. (See "Laval Farms
Limited Partnership," below.)
- 8 -
Laval Farms Limited Partnership. Laval is a limited
partnership formed in 1972 to develop and farm certain land in
Kern County, California. Laval Farms Corporation, formerly Tejon
Agricultural Corporation and still a wholly-owned subsidiary of
Registrant, is the general partner of the partnership. Due to
significant losses in the partnership, Registrant wrote off its
investment in the partnership in 1976 and provided for all
commitments at that time.
In 1993 Registrant entered into an Agreement with John
Hancock Mutual Life Insurance Company ("John Hancock"), Laval's
sole limited partner and secured lender, for an orderly sale of
Laval's farmland and eventual dissolution of the partnership.
Under the Agreement approximately 13,000 acres of farmland
located in the southern San Joaquin Valley and owned by Laval
were to be sold. As of March 8, 1996, all of the crop lands have
been sold.
No land or assets owned by Registrant have been involved in
the sales, and Registrant has not received any of the proceeds of
the sales program. In connection with the Agreement, however,
Registrant obtained an option to purchase approximately 900 acres
of Laval land around Registrant's commercial operations at the
Laval Road/Interstate 5 interchange in the southern San Joaquin
Valley. Registrant exercised the option and purchased the
acreage during February 1995 at a price of $1.5 million. The
900 acres includes approximately 300 acres of rubired wine
grapes.
During 1993 and prior years Laval provided equipment and
d i r ect labor to Registrant in connection with planting,
development, and maintenance of permanent crops on Registrant's
lands. This arrangement ended at the beginning of 1994. Amounts
p a i d by Registrant for such services were approximately
$1,786,000 in 1993.
Oil and Minerals
Registrant leases certain portions of its land to oil
companies for the exploration for, and production of, oil and
gas, but does not itself engage in any such exploratory or
extractive activities.
As of December 31, 1995, approximately 9,645 acres were
committed to producing oil and gas leases from which the
operators produced an average of approximately 494 barrels of
oil, 276 MCF of dry gas, and 9 gallons of wet gas per day during
1995. Approximately 1,500 acres were also held under exploratory
leases. Registrant's share of production based upon its average
royalty rate during the last three years has been 62, 131, and
1 5 7 barrels of oil per day for 1995, 1994, and 1993,
respectively. Approximately 271 producing oil wells were located
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on the leased land as of December 31, 1995. An additional 137
wells were shut-in and non-productive. Shut-in wells occur as
oil revenues received by the operators lag behind the cost of
keeping the wells in production. Low prices in the oil market
have been a disincentive to exploratory leasing and drilling on
Registrant's lands. No new wells were drilled on Registrant's
lands during 1995. Certain lessees are planning "infill"
drilling programs on Registrant's existing producing lands during
1996.
The continuing economic difficulties in the petroleum
industry have caused larger companies to attempt to divest
economically marginal oil and gas properties. Such interests are
typically sold to small independent oil companies which can
operate the leases with lower overhead costs. This trend has
occurred and is likely to continue with respect to Registrant's
oil and gas holdings. Of particular concern to Registrant is the
need to assure proper abandonment of non-producing wells and
restoration of the land surface upon lease termination. In such
instances, Registrant attempts to require the larger company to
guarantee performance of key lease terms by the acquiring
independent oil company. One positive event, which should help
California crude oil prices in the long run, was the lessening of
restrictions on export of Alaskan produced oil which became
effective during 1995. For years Alaskan crude oil has been
tankered to California, which creates an over-supply situation in
California. This has resulted in California crude oil receiving
prices per barrel less than oil in other parts of the United
States. Registrant has seen some price improvement in Kern
County during 1995.
Estimates of oil and gas reserves on Registrant's properties
are unknown to Registrant. Registrant does not make such
estimates and does not file reports as to reserve estimates with
g o vernmental agencies. Registrant's lessees do not make
information concerning reserves available to Registrant.
Registrant has approximately 2,440 acres under lease to
National Cement Company of California, Inc. ("National") for the
purpose of manufacturing portland cement from limestone deposits
found on the leased acreage. National owns and operates on the
property a cement manufacturing plant having a design capacity of
600,000 tons of cement per year. The amount of payment which
Registrant receives under the lease is based upon shipments from
the cement plant. The term of this lease expires in 2007, but
National has remaining options to extend the term for two
additional successive increments of 20 years each and one final
increment of 19 years. For information as to proceedings under
environmental laws relating to the cement plant see Item 1 -
"Legal Proceedings".
- 10 -
Approximately 433 acres of Registrant's land are leased to
owners and operators of sand and gravel screening and rock
crushing plants under three leases with rental payments based on
the amount of sand and gravel removed and sold.
In 1990 Registrant negotiated a new lease with a major sand
and gravel producer which was expected to result in the
reactivation of Registrant's dormant 205-acre aggregate deposit
in the Antelope Valley. Such reactivation did not occur. During
1995, the lessee notified Registrant of its intent not to extend
the lease an additional five years. Registrant has not been able
to release this site as of March 1996.
Timber Management and Hunting Programs
Significant areas of the foothills and mountainous portions
of Registrant's land have a large variety of native trees and
other vegetation growing thereon, including oak, pine, fir and
cedar. During 1993 only oak trees were subject to a timber
management and harvesting program for firewood production.
During 1994, the firewood production program was phased out due
to declining returns. Registrant also operates a hunting program
in close cooperation with the California Department of Fish and
Game.
Commercial and Land Use
Registrant leases to various tenants lands which are used
for a full-service truckstop facility, a truck wash, four auto
service stations, six restaurants, an automotive repair garage, a
United States Postal Service facility, and several microwave
repeater locations and radio transmitter and relay sites.
The Commercial and Land Use Division continues to focus
s u bstantial attention on additional development along the
Interstate 5 corridor. The land planning process during 1995
identified the Interstate 5 corridor as an area of focus in near
term planning and entitlement activities. (See Part I, Item 2,
"Properties-Land Use Planning".) A major component of the land
planning process calls for commercial improvements and re-
landscaping along the sixteen miles of frontage land Registrant
owns along Interstate 5. This program began during 1995.
For 1995, commercial lease revenues increased due to higher
traffic counts at the Grapevine Interchange and to the addition
of a fast food outlet at the Laval Road Interchange. Within the
commercial leasing area, Registrant is in direct competition with
other landowners who have highway interchange locations along
Interstate 5 within California.
Customers
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During 1995, 1994 and 1993 the following customers accounted
for more than 10% of Registrant's consolidated revenues: Golden
State Vintners, a purchaser of grapes (18% in 1995 and 13% in
1994 and 1993), Timmerman Cattle (26% in 1995), and E.A. Miller
Cattle Co. (22% in 1994 and 13% in 1993).
- 12 -
Employees
At December 31, 1995, Registrant had 52 full-time employees.
Executive Officers of Registrant
The following table shows, as to each executive officer of
Registrant, the offices held as of March 7, 1996, the period they
have been held, and their age. All of such officers serve at the
pleasure of the board of directors. On March 16, 1995,
R e gistrant announced that Jack Hunt, President and Chief
Executive Officer of Registrant, resigned in order to take a
similar position at King Ranch in Texas. King Ranch is a
privately owned company with extensive ranching and farming
operations. Mr. Hunt's successor has not yet been selected,
although a search is ongoing. During January 1996, Charles J.
Berling resigned from Registrant to return to Colorado in order
to pursue other business opportunities.
Name Offices Held Since
Age
Matt J. Echeverria Senior Vice President, 1987 45
Livestock and acting
Chief Executive Officer
John A. Wood Vice President, Farming 1978 58
Dennis Mullins Vice President, Public 1993 43
Affairs Secretary and
General Counsel
Allen E. Lyda Vice President, 1990 38
Finance and Treasurer
David Dmohowski Vice President, Land 1991 48
Planning
A d e scription of present and prior positions with
Registrant, and business experience for the past five years is
given below.
Mr. Echeverria has served as Vice President since 1987 and
was elected Senior Vice President in 1995.
Mr. Wood has served Registrant as Vice President since 1978.
Mr. Mullins has been employed by Registrant since 1993,
serving as Vice President, Public Affairs, Secretary and General
Counsel. From January 1992 to January 1993 he served as General
Counsel of the United States General Services Administration in
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Washington, D.C. From 1985 to January 1992, Mr. Mullins was an
attorney with the firm of Jones, Day, Reavis & Pogue in Los
Angeles.
Mr. Lyda has been employed by Registrant since 1990, serving
as Vice President, Finance and Treasurer.
Mr. Dmohowski has been employed by Registrant since January
1991, serving as Vice President, Land Planning. From 1979
through 1990, he held a number of positions with The Irvine
Company of Newport Beach, California in the areas of land
development, government relations and entitlement, the most
recent position held there being Vice President, Entitlement for
the Irvine Pacific
division.
Item 2. Properties
Registrant owns approximately 270,000 acres of contiguous
land located approximately 60 miles north of Los Angeles and
approximately 15 miles east of Bakersfield. The land is
undeveloped, except for certain limited farming and commercial
uses. Included in the land are portions of the San Joaquin
Valley, foothills, portions of the Tehachapi Mountains and
portions of the western end of the Antelope Valley. A number of
key transportation and utility facilities, including Interstate 5
(the major north-south federal highway in California), U.S.
Highway 58, California Highways 138 and 223, the California
Aqueduct, the Southern Pacific-Santa Fe Railway Line and various
t r ansmission lines for electricity, oil, natural gas and
communication systems cross Registrant's lands.
For information as to Registrant's livestock, farming, oil
and minerals and commercial land use operations on the land, see
Part I, Item 1 - "Livestock Operations," "Farming Operations,"
"Oil and Minerals," and "Commercial Land Use."
Land Use Planning
Registrant has continued to engage in planning activities
related to future uses of its lands. During 1993 Registrant
initiated planning programs intended to guide decision making
relating to future development on the Ranch with special focus on
the important Interstate 5 corridor and potential development
opportunities available to Registrant in the next 20 to 25 years.
This planning effort was completed in early 1994. In 1995
Registrant conducted additional studies related to architectural
standards, landscape design and sign criteria for existing and
f u t ure commercial uses along the Interstate 5 corridor.
Registrant has filed a General Plan Amendment (GPA) covering
approximately 2,600 acres located around its existing truckstop
lease just south of the Interstate 5 and Highway 99 junction.
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This GPA includes a mix of proposed commercial and light
industrial uses. At present, however, Registrant has not filed a
s p ecific plan with any governmental jurisdiction for any
additional substantial commercial or residential development of
the property. Registrant expects the GPA to be approved during
the third or fourth quarters of 1996. The timing of any
extensive development of Registrant's property and its nature and
extent are expected to be dependent upon market demand, the
availability of adequate development capital and the obtaining of
appropriate governmental permits and approvals.
Approximately 250,000 acres of Registrant's land are located
in Kern County, California. The Kern County General Plan for this
land contemplates continued commercial, resource utilization,
farming, grazing and agricultural uses, as well as certain new
d e velopments and uses, including housing and recreational
facilities. While the County General Plan is intended to provide
general guidelines for land use and development, it is subject to
amendment to accommodate changing circumstances and needs.
Registrant has not yet made specific proposals to the
County to implement any part of its proposed land use concept,
except at the Grapevine and Laval Road Interchanges on Interstate
5. Registrant has been evaluating the potential for a resort or
guest ranch concept and for a large residential ranch estates
project in the mountain portions of the Ranch accessible from
Interstate 5. Since the prospects and timing of residential
p r o jects are dependent on market demand, no significant
residential development is contemplated in the near term.
Registrant is evaluating the environmental and regulatory factors
t h a t might affect its ability to secure value-enhancing
entitlements for potential land development. The results of this
e v aluation will help Registrant in formulating long-range
entitlement strategies.
The remainder of Registrant's land, approximately 20,000
acres, is in Los Angeles County. This area of the ranch is
accessible from Interstate 5 via Highway 138 and lies 30 miles
w e st of the Antelope Valley communities of Palmdale and
Lancaster. Los Angeles County has adopted general plan policies
which contemplate future limited residential development of
portions of this land, subject to further assessments of
environmental and infrastructure constraints. No specific land
proposals have been made by Registrant to the County. Registrant
is actively monitoring regional planning issues and continues to
develop its liaison with Los Angeles County government and other
r e gulatory agencies needed to preserve future development
opportunities.
In addition to its agricultural contract water entitlements,
Registrant has an entitlement to obtain from the California State
Water Project sufficient water to service a substantial amount of
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future residential development. In 1995, Registrant effected the
transfer of 4,121 acre feet of entitlement from the agricultural
water district that serves its San Joaquin Valley farmlands to an
urban water district controlled by Registrant. This action was
taken in an effort to assure the availability of the water in the
future and not because of any immediate plans for the development
of Registrant's property. Portions of the property also have
a v ailable ground water sufficient to support low density
development.
Portions of Registrant's property consist of mountainous
terrain, and much of the property is not presently served by
developed roads or by utility or water lines. Any significant
development of the property would involve the construction of
roads, utilities and other expensive infrastructure and have to
be done in a manner which accommodates a number of environmental
concerns, including endangered species issues, that may limit
development of portions of the property.
Due to the property's location and its undeveloped state,
from time to time unsolicited proposals are made for governmental
or quasi-public uses of portions of the property or neighboring
lands by entities, some of which may have the right of eminent
domain. For the most part Registrant opposes such uses, because
to the extent that any such proposals may be implemented through
the use of the power of eminent domain or otherwise, the
flexibility to develop some of Registrant's other lands could be
correspondingly limited. Registrant completed negotiations with
a company concerning the construction of a major oil pipeline
over the Ranch during December 1995. The pipeline will follow an
alignment of other oil pipelines which are along the Interstate 5
corridor. Final governmental approval has not been received by
the pipeline company, and as a result the start of construction
may not begin until 1997 or later, if ever. Registrant's lands
are also being evaluated as a possible alignment for a high speed
rail system between Los Angeles and San Francisco.
Farmland
Although changing crop market conditions and the cost and
availability of irrigation water bear on the economic feasibility
of farming on Registrant's lands, portions of the land located in
the San Joaquin Valley are suitable for farming a wide variety of
tree, vine and row crops.
Existing long-term contracts with the Wheeler Ridge-Maricopa
Water Storage District ("Wheeler Ridge") provide for water
deliveries from the California State Water Project ("Project") to
c e rtain farmland in the San Joaquin Valley belonging to
Registrant. The long-term water supply picture in the state is
uncertain, however, not only due to recurring droughts, but also
because of existing and likely additional restrictions placed on
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exported water from the Sacramento-San Joaquin River Delta
("Delta") to protect allegedly endangered species and improve
water quality in the Delta. Reserving water flowing into the
Delta for environmental purposes (which water then flows into the
San Francisco Bay and is unavailable for beneficial use) has been
required. Existing U.S. Fish & Wildlife Service ("FWS")
regulations restrict the export of water south of the Delta.
Additional restrictions on water exports could be adopted related
to the proposed listing of the Sacramento splittail (a fish) as
an endangered species and the recent designation of critical
habitat for the Delta smelt. However, the impact of these events
has been postponed because Congress has placed a moratorium on
new endangered species listings, and FWS issued a biological
opinion of non-jeopardy for the Delta smelt, which permitted
issuance of an incidental take permit for the smelt permitting
operation of Delta facilities in compliance with the interim
agreement described below. In 1995, the U.S. Environmental
Protection Agency withdrew its order restricting Delta exports
(issued in order to keep salinity levels in the Delta below
certain levels) because the State Water Resources Control Board
i s s u e d Delta water quality standards that met federal
requirements. The impact of these regulations could be severe
during drought years when the supply of water for all uses is
limited. Pursuant to an interim three-year agreement among the
federal agencies, the concerned state agencies, environmental
groups, and water users, a maximum of 1.1 million acre feet of
water has been reserved for such environmental uses, which water
would otherwise be available for beneficial use by state and
federal water project participants. However, there is no
assurance that this interim agreement will be made permanent, and
it could be unwound before its term expires because of a suit
filed on a related matter.
Registrant's total water entitlements substantially exceed
its permanent crops needs. The 100% allocation made by the
Project to the Kern County Water Agency, of which Wheeler Ridge
is a sub-unit, should cause deliveries from Wheeler Ridge to be
sufficient for Registrant's 1996 crops. Longer term, however,
year-to-year uncertainty of the water supply and potentially
higher costs for water may jeopardize the financial viability of
Wheeler Ridge by forcing marginal operators out of business and
shifting a greater portion of the financial burden imposed by
long term fixed costs and defaulted water assessments upon the
remaining growers. High water costs prevent farmers from raising
annual crops. Farmers also may be unable to obtain conventional
financing for the higher value permanent crops because of the
unpredictability of a water supply to nourish the trees and
vines. These effects will be mitigated if the set of agreements
among the State and all Project water users known as the
"Monterey Agreement" become effective. The Monterey Agreement
has been signed but its effective date has been postponed by
litigation under the California Environmental Quality Act. The
- 17 -
Monterey Agreement would improve the reliability of water supply
to agricultural users in drought years, and would improve the
financial viability of Wheeler Ridge and similarly situated water
d i stricts by allowing for the sale of substantial water
entitlements to urban users.
Registrant's contracts with Wheeler Ridge, as of December
31, 1995, provide for annual water entitlements to approximately
5,488 acres of Registrant's lands. Existing Wheeler Ridge water
delivery facilities are capable of delivering the contract water
entitlement amounts to all of that acreage. The water contracts
require annual payments related to the Project and Wheeler Ridge
fixed costs, whether or not water is used or available. Payments
made under these contracts in 1995 by Registrant totaled
approximately $1,109,000.
I n 1995, Registrant transferred 4,021 acre feet of
entitlement from Wheeler Ridge to Tejon-Castac Water District
( " T C WD"), which lies entirely within the boundaries of
R e g istrant's lands. TCWD contributed 900 acre feet of
entitlement to the newly formed Kern Water Bank Authority in
order to join the Authority and obtain water banking rights. The
Kern Water Bank provides Registrant with a supplemental source of
water for agricultural and development uses in drought years.
Registrant's investment in the Kern Water Bank could be unwound
if the Monterey Agreement, of which the formation of the water
bank is a part, fails to become effective due to pending
litigation or otherwise. The remaining 3,121 acre feet retained
by TCWD are now more directly under the control of Registrant,
and would be available for future development purposes in the San
Joaquin Valley or in other areas of the Ranch. This water could
also be used for farming purposes in the same manner it was used
before the transfer with the consent of Wheeler Ridge and the
Kern County Water Agency.
L a n ds benefiting from Wheeler Ridge are subject to
contingent assessment liens under the California Water Storage
District Law. These liens are senior in priority to any mortgages
on the property. The liens secure Wheeler Ridge bonds issued to
finance construction of water distribution facilities. Lien
enforcement can involve foreclosure of the lands subject to the
liens. These liens will be enforced only if Wheeler Ridge
revenues from water contracts and other regular revenue sources
are not sufficient to meet Wheeler Ridge obligations. Lien
assessments are levied by Wheeler Ridge based on estimated
benefits to each parcel of land from the water project serving
the land. Lands belonging to Registrant are presently subject to
such contingent liens totaling approximately $867,000. Since
commencement of operations in 1971, Wheeler Ridge has had
sufficient revenues from water contract payments and other
service charges to cover its obligations without calls on
assessment liens, and Wheeler Ridge has advised Registrant that
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it does not anticipate the need to make any calls on assessment
liens.
Under California law, lands located in a water storage
district may be reassessed at the request of the district board
of directors or at the request of 10% or more of the district
landholders. As a result of any reassessment, which is based
upon relative benefits from district facilities to each land
parcel, the lien assessments may be redistributed and may
increase or decrease for any particular parcel. Additional
projects, if any, which might result in new assessment liens,
must be approved by landowners of more than one-half of the land
(based on valuation) in the district as well as by the California
Department of Water Resources.
Item 3. Legal Proceedings
As explained above in the discussion under Part I, Item 1 -
"Oil and Minerals", Registrant leases land to National Cement
Company of California, Inc. ("National") for the purpose of
manufacturing portland cement from limestone deposits found on
the leased acreage. National and its subtenant, Systech
E n v ironmental Corporation, ("Systech"), currently burn
supplemental fuels in the cement plant located on the land leased
from Registrant. While National's and Systech's permits to do so
have expired, they have been permitted to continue burning
hazardous waste as fuel at the cement plant pending a final
decision on their permit renewal applications.
In 1994, the U.S. Environmental Protection Agency ("USEPA")
denied National's application for a renewal of its permit to burn
supplemental fuels due to the lack of a proper certification of
t h e application. USEPA required that Registrant sign a
certification in the exact form specified in USEPA's regulations
even though under the facts of the case, Registrant was legally
precluded from doing so. National appealed the denial of its
permit application to the Ninth Circuit Court of Appeals, which
in 1995 ruled in favor of National. The Court held that a
certification with modified language that Registrant had signed
was sufficient as it accomplished the legitimate purposes of the
federal regulation at issue. The Court ordered USEPA to consider
National's permit on the merits. National has since updated its
application for review by USEPA. As a separate matter, Systech
has applied for a renewal of its state permit to store
supplemental fuels on the leased premises. While the processing
of this application by state authorities had been held in
abeyance pending the outcome of the Ninth Circuit case, Systech
is updating its application for review by the state agency.
On October 9, 1990, the California Regional Water Quality
Control Board for the Lahontan Region ("Regional Board") issued
Cleanup and Abatement Order No. 6-90-59 requiring National,
- 19 -
LaFarge Corporation ("LaFarge", the parent company of the
previous operator) and Registrant to clean up and abate ground
water contamination in the vicinity of the plant site caused by
pollutants being discharged from an old industrial waste landfill
on the leased premises. Although Registrant did not deposit any
materials in the landfill, the order states that Registrant, as
the landowner, is ultimately responsible for complying with the
order if LaFarge and National fail to perform the necessary work.
Civil fines for violations of a cleanup and abatement order can
be as high as $10,000 per day for each day the violation occurs
and as high as $15,000 per day for each day a discharge of
p o l l utants and a violation of the order occurs. The
indemnification obligation under the lease with Registrant,
described below, includes claims of this kind. In late 1995,
Kern County and the Regional Board accepted a report from LaFarge
stating that the old industrial landfill had been cleaned and
closed by LaFarge. Thus, LaFarge has completed a major portion
of the 1990 Cleanup and Abatement Order ("CAO"). The Regional
Board also extended the deadlines and approved amendments
proposed by LaFarge to the portion of the CAO dealing with
groundwater contamination resulting from this landfill.
In 1994, the Regional Board determined that additional old
industrial waste landfills ("Additional Landfills") existed on
the leased premises, which appeared to have impacted the
groundwater in the area. LaFarge volunteered to undertake the
investigation and remediation of the Additional Landfills under
the Regional Board's supervision, and asked that a CAO not be
issued while it was pursuing such work to the Regional Board's
satisfaction. Exercising its discretionary authority, the
Regional Board agreed not to issue a CAO while LaFarge pursued
its work in a satisfactory manner. The presence of two
additional landfills has been confirmed.
In August 1994, the Regional Board issued CAO's naming
LaFarge and National as primarily responsible parties with
respect to two additional sites on the leased premises alleged to
have been contaminated with hazardous waste. One of those sites
was alleged to be a storage area for drums containing lubricants
and grease and the other was alleged to be an underground plume
of chlorinated hydrocarbons. The orders directed LaFarge and
National in effect to determine the extent of the contamination,
to determine the source of the chlorinated hydrocarbon plume, to
develop a clean-up plan for each site to be approved by the
Regional Board, and to perform the work contemplated by the
approved clean-up plans. Registrant also was named in the orders
with respect to the two additional sites and was directed to
provide access to LaFarge and National to the extent it has the
right to do so, and to investigate, characterize, and clean up
the sites if LaFarge and National fail to do so. Registrant has
appealed these orders regarding Registrant's secondary liability,
which appeal is pending before the State Water Resources Control
- 20 -
Board and is expected to be held in abeyance until it is
determined whether LaFarge and National comply with the Regional
Board's orders. In November 1995, the Regional Board dismissed
the CAO for the drum storage area because it determined that the
low level of petroleum contamination that was present on the site
did not contribute to the contamination of the groundwater. Such
contamination was found to be present, but was attributed to the
old industrial waste landfill and the Additional Landfills, which
a r e upgradient from the drum storage area. Thus, such
groundwater contamination will be handled as part of the existing
CAO and the Additional Landfill cleanup process, which LaFarge is
undertaking voluntarily.
I n 1991, the Regional Board adopted Waste Discharge
Requirements concerning future kiln dust disposal and the
existing kiln dust piles stored on the leased premises. The
order names National and Registrant as "dischargers" and states
that Registrant is responsible for ensuring compliance with the
Waste Discharge Requirements if National fails to do so. Persons
who violate waste discharge requirements are also subject to the
$10,000 per day and $15,000 per day civil fines referenced above.
The indemnification obligations under the lease with Registrant,
described below, include claims of this kind. The USEPA has
proposed to regulate all kiln dust nationwide under the hazardous
waste program, but with a tailored set of standards. The
proposed rules will mostly involve careful groundwater monitoring
and possibly covering dust piles so they do not blow in the wind.
Measures of this type are already being taken by National on the
c e ment plant site. Kiln dust from cement plants using
supplemental fuels will not be treated any differently under this
program. The cement industry filed comments opposing the
proposed rules for kiln dust and is engaged in a legislative
effort to secure the management of kiln dust as a non-hazardous
waste. The industry has also proposed an enforceable agreement
between the cement manufacturers and USEPA with respect to the
management of kiln dust in lieu of regulations. USEPA is
considering this approach. In 1995, The California Legislature
enacted legislation classifying kiln dust as a non-hazardous
waste if it is managed on-site under regulations administered by
a regional water quality control board, and it would otherwise be
classified as hazardous solely because of its extreme pH content.
Management believes this legislative reclassification will apply
to the new kiln dust pile currently used by National, but not to
older piles created by National's predecessors in interest.
Under the lease between Registrant and National, the tenant
is obligated to indemnify Registrant for costs and liabilities
arising directly or indirectly out of the use of the leased
premises by the tenant. All obligations under this indemnity
provision arising after the assignment of the lease to National
(which occurred in August 1987) were assumed by National, and
LaFarge has liability for all obligations under the indemnity
- 21 -
provisions arising before the assignment. National's obligation
is guaranteed by its parent, National Cement Company, Inc.
Registrant believes that all of the matters described above in
this Item 3 are included within the scope of the National and
LaFarge indemnity obligations. National and LaFarge have reached
an agreement to share cleanup responsibilities.
To date Registrant is not aware of any failure by LaFarge
and National to comply with the orders of the Regional Board or
t o pursue the cleanup of the Additional Landfills in a
satisfactory manner, and Registrant has not been called upon to
become involved in any of the investigative, characterization or
clean-up activities. Registrant believes that LaFarge and
National have sufficient resources to perform any reasonably
possible or reasonably likely obligations relating to these
matters. Publicly available financial information with respect
to LaFarge indicates that it had a net worth of approximately
$959 million as of September 30, 1995. National and its
parent/guarantor are subsidiaries of a large French company, and
so far as the Company is aware, no separate financial statements
are publicly available with respect to it. However, Registrant
has held discussions with National which indicate sufficient
r e sources are available to satisfy any reasonably likely
obligations relating to the above matters. Due to the fact that
LaFarge and National appear to have been complying with the
Regional Board orders and appear to have the financial strength
to continue to do so and also to perform their indemnification
obligations to Registrant, Registrant believes that it is remote
there will be a material effect on the Company. If, however,
N a t i onal and LaFarge do not fulfill their cleanup and
indemnification responsibilities and Registrant is required at
its own cost to perform the landfill, kiln dust, and underground
plume remedial work likely to be mandated by the regulatory
agencies, the amount of any such expenditure by Registrant could
be material.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
Registrant's Common Stock is traded on the American Stock
Exchange. The following table shows the high and low sale prices
for Registrant's Common Stock on the American Stock Exchange for
each period during the last two years, as reported by the
American Stock Exchange.
1995 1994
Quarter High Low High Low
First 13-1/4 11-5/8 15-1/4 13-5/8
Second 14-3/8 12-3/4 14-5/8 13-5/8
Third 17-3/4 13-1/4 15-1/2 13
Fourth 16-1/8 13-5/8 14-1/2 11-1/2
As of March 11, 1996, there were 763 owners of record of
Registrant's Common Stock.
Registrant paid cash dividends of $.05 per share in each of
the years 1995 and 1994. Two and one-half cents per share was
paid in June and December of each year.
- 23 -
Item 6. Selected Financial Data.
Years Ended December 31
(In thousands of dollars, except
per share amounts)
1995 1994 1993 1992 1991
Operating Revenues,
Including Interest
Income $19,490 $16,882 $19,469(2) $16,563 $15,220
Net Income 434(1) 1,527 2,972(2) 1,492 1,484
Total Assets 45,203 44,920 47,111 45,729 45,341
Long-term Debt 1,800 1,950 3,550 5,150 6,854
Income Per Share .03(1) .12 .23(2) .12 .12
Cash Dividends
Declared and Paid
Per Share .05 .05 .05 .05 .05
(1) Net income from continuing operations was reduced by
$400,000 ($240,000 after tax or $.02 per share) due to
the charge-off of almond trees destroyed by 1995 winter
storms.
(2) Net income from continuing operations was enhanced by
the recognition of a $1,054,000 ($632,000 after tax or
$.05 per share) refund from a local water district.
(See Note 10 to the Audited Consolidated Financial
Statements.)
- 24 -
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
As reflected in the accompanying financial statements, net
income was $434,000 in 1995, $1,527,000 in 1994 and $2,972,000 in
1993.
Net income for 1995 decreased when compared to 1994 due
primarily to lower operating profits within the Livestock and
Commercial and Land Use divisions. Also affecting 1995 net
income was the $400,000 ($240,000, or .02 per share, after tax)
charge-off of producing almond trees destroyed by winter storms
during January 1995.
Net income for 1994 decreased when compared to 1993 net
income due to lower operating profits within the Livestock and
Farming divisions as well as the favorable impact in 1993 of a
$1,054,000 refund from a water district ($632,000 after tax).
The decrease in 1994 operating profits was partially offset by an
improvement in operations within the Commercial and Land Use
Division. Reduced interest income also affected 1994 results.
Changes in revenues and expenses of Registrant's industry
segments for the years 1995 and 1994 are summarized below.
Livestock. Livestock operating profits of $2,000 in 1995
decreased $547,000 or almost 100%, when compared to 1994
operating results. The decrease in operating profits is due
primarily to increases in cost of sales ($2,070,000) and the
continuing decline of cattle prices during 1995. Cattle sales
revenue increased ($1,493,000) during 1995, which partially
offset the increase in cost of sales. Cost of sales increased
during 1995 due to Registrant delaying the sale of approximately
7,000 head of cattle from May 1995 to October 1995 and placing
the cattle in feedlots during the summer months. The extra four
months of feedlot costs and an increase in the number of head
sold during 1995 were primary factors in the increase in cost of
sales. Registrant delayed the sale of cattle during 1995 due to
the low cattle prices during May 1995. By delaying the sale,
these cattle increased in weight from approximately 750 pounds to
approximately 1,150 pounds at the time of sale in October. The
increase in weight of cattle sold and the increase in number of
cattle sold led to the increase in cattle sales revenue during
1995. Total cattle sold during 1995 were 9,551 compared to 8,474
during 1994. Prices received during 1995 were approximately 15%
per pound less than received during 1994. By extending the
cattle feeding phase, Registrant realized net profits from the
sale of those cattle of approximately $125,000 more than if the
cattle had been sold during May as is normally the case.
- 25 -
During 1995, Registrant continued to use the futures and options
market to protect the future selling price of cattle. Without
the ability to hedge cattle positions, Registrant would have
sustained a further price erosion of approximately $215,000 on
the sale of cattle during 1995. Registrant's goal in hedging its
cattle is to protect or create a range of selling prices that in
years like 1995 allow Registrant to recognize a profit on the
sale of cattle once all costs are deducted. The risk in hedging
cattle prices is that in those years that prices increase the
hedge may limit or cap the potential gains from the increase in
price.
Net earnings for 1995 were also affected by the decision to place
ranch raised calves on feed during late summer and not sell until
early 1996 due to low prices. This decision pushed revenues that
would normally be recognized in 1995 into 1996. The year 1996 is
a l s o expected to be difficult financially for livestock
producers. Registrant is concerned that cattle prices will stay
flat or decrease even further during this inventory correction
cycle. Registrant does not expect an improved cattle market
until late 1997 or early 1998.
Livestock Division operating profits of $549,000 in 1994 were
$92,000, or 14% less than 1993 operating profits. This decrease
in operating profits was due primarily to an increase in the cost
of sales of cattle ($393,000) and to lower prices on cattle sold.
In addition, revenues from the quarter horse program decreased
$106,000 due to a decrease in sales revenues and horse event
revenues. These unfavorable variances were partially offset by
an increase in revenues from cattle sales ($368,000). The
increase in cost of sales and cattle sales revenue was due to an
increase in the number of cattle sold during 1994. During 1994,
8,474 head of cattle were sold compared to 7,734 head of cattle
during 1993. Cost of sales expense also increased due to a
longer than normal carrying time on a portion of the cattle sold
during 1994, which increased the inventory cost of the cattle.
During 1994 an additional 550 head of cattle were scheduled to be
sold but were held over until 1995 so that the cattle could have
additional weight gains. The carry over of cattle into 1995 was
necessary due to the below normal precipitation during 1994.
See Part I, Item 1 -"Business-Livestock Operations" for a further
discussion of Registrant's livestock operations for 1995 and
future expectations.
Farming. Farming operating profits of $1,811,000 in 1995 were
$114,000 or 6% less than 1994 operating profits. The decrease in
net earnings is due to the $400,000 ($240,000 after tax) charge-
off of destroyed almond trees, lower almond production, reduced
pistachio production due to 1995 being the alternate bearing
year, and to higher cultural costs and water costs ($125,000).
Partially offsetting these unfavorable variances was an increase
- 26 -
in almond prices during 1995, the release of the 1994 almond
reserve ($200,000) during 1995, and higher grape revenues.
C u l t u ral costs increased approximately $650,000 due to
unfavorable weather conditions, storm cleanup costs, and to the
addition of 304 acres of rubired grapes.
Changes in individual crop revenues in 1995 compared to 1994 were
s i gnificant. Grape revenues increased $1,275,000 due to
increases in production and prices during 1995. Of the
$1,275,000 favorable variance in grape revenues, $1,038,000 is
related to the addition of 304 acres of rubired grapes that were
purchased during February 1995. Almond revenues increased
$347,000 during 1995 in spite of lower production due to a 65%
increase in prices and to the release of the 1994 almond reserve.
Walnut revenues increased $194,000 due to improved production and
a 24% increase in prices during 1995. Pistachio revenues fell
approximately $695,000 due to lower production. Pistachio
volumes decreased because 1995 was the "off" production year in
the alternate year bearing cycle.
During January 1995, a portion of Registrant's farming operations
suffered damages as a result of high winds that were associated
with a series of winter storms. Nearly all of the loss occurred
in Registrant's producing almond orchards. Approximately 200
acres of trees were uprooted by a combination of high winds and
saturated soil conditions due to heavy rainfall. The lost trees
r e p resented 23% of Registrant's mature, almond producing
orchards. As a result of the storm damage, Registrant recorded a
charge to earnings as described above. Registrant incurred only
m i n imal damage to its remaining orchards and vineyards.
Registrant completed replanting the damaged acreage with almond
trees during February 1996. The loss of mature trees will affect
future revenues until the replanted crops begin full production,
which could take three to five years.
Registrant expects farming operations to improve during 1996 due
to higher production from its almond orchards and continued good
production within the grape vineyards. However, with higher
production, the price paid for almonds will fall from the all
time highs of 1995. Registrant is continuing to develop
additional farming acreage in order to improve future revenues
and have new crops in full production to offset the loss of any
production in current producing orchards in the future as they
mature. For a further discussion of the 1995 farming year and
expectations refer to Part I, Item 1 - "Business - Farming
Operations".
Farming Division operating profits of $1,925,000 during 1994 were
$2,286,000, or 54% less than 1993 operating profits. The
decrease in operating profits was due to lower aggregate crop
proceeds of $1,325,000 during 1994, the recognition of the gain
of $1,054,000 related to water refunds during 1993, and increased
- 27 -
fixed water costs during 1994. In addition, 1993 revenues
included $294,000 of favorable pricing adjustments related to the
1992 crop which was approximately $200,000 greater than 1993 crop
adjustments recognized in 1994. These unfavorable variances were
partially offset by reductions in cultural and Farming Division
costs of $437,000 during 1994. The decrease in farming expense
was due to very favorable farming weather during the spring and
summer, which allowed Registrant to change pest, fertilizer, and
irrigation programs.
There were numerous changes in individual crop revenues when
comparing 1994 and 1993 results. For 1994, grape revenues fell
$389,000 due to lower prices. Registrant sold all of its grapes
to one winery under the second year of a three-year contract.
Had Registrant not contracted for the sale of its grapes in
advance, revenues from its grapes would have been even less, due
to the down market for generic white grapes. Walnut revenues
decreased $555,000 due to substantially lower prices and to lower
production. Pistachio revenues increased $312,000 due to 1994
being the "on" production year in the alternate year bearing
cycle. Almond revenues decreased $693,000 due primarily to lower
p r ices. The decrease in almond revenues would have been
approximately $200,000 less if the California Almond Board had
not required a 10% withhold of 1994 production.
Oil and Minerals. Oil and Mineral operating profits of
$1,191,000 in 1995 were $17,000, or 1% less than 1994 operating
profits. The decrease in operating profits during 1995 were due
p r i m arily to lower land lease income and to increased
professional service fees. An increase in cement royalties
during 1995 partially offset the above unfavorable variances.
Professional service fees increased due to Registrant spending
considerable time negotiating with lessees to perform the
required field development or abandonment of idle wells. This
process increased the number of operating wells in operation
during 1995. Land lease revenues declined and are expected to
continue to decline due to the economics of exploring for oil
within California. Registrant's royalty income from oil and gas
should improve slightly during 1996 due to the return of idled
wells to production in late 1995 and to the anticipation of
improved prices. As discussed in Part I, Item 1 - "Business -
Oil and Minerals", crude oil prices have been improving due to
the lessening of export restrictions on California and Alaskan
crude oil. Cement royalties increased approximately 9.4% during
1995 due to increases in production. Sand and rock royalties
should continue to grow due to the addition of an asphalt plant
at one location and the proposed expansion of the second sand and
rock lease site.
Oil and Mineral Division operating profits of $1,208,000 in 1994
were $31,000, or 3% below 1993 profits. The decrease in
operating profits was due to lower oil and gas royalties
- 28 -
($165,000) which were partially offset by increased cement
royalties ($96,000) and increased land lease income. Oil and
mineral royalties declined due to lower prices and to the receipt
of adjustments related to the sharing of gas processing and
t r ansportation costs. Cement royalties increased due to
improving prices and higher production. Production increased due
to additional construction activity within Los Angeles which was
related to the 1994 earthquake.
Commercial and Land Use. An operating loss of $830,000 in 1995
compares to a 1994 operating loss of $285,000 for the Commercial
and Land Use Division. The decrease when compared to 1994 is due
to an increase in professional service fees ($367,000) and an
increase in staffing costs ($170,000) during 1995. Partially
offsetting these negative variances was an increase in commercial
rents and right of way income of $57,000. Commercial rents
increased due to improved traffic flows and to the addition of
a n other fast food outlet at the Laval Road Interchange.
Professional service costs increased due primarily to legal,
legislative, and public affairs activity Registrant was involved
in related to a proposed major crude oil pipeline through the
ranch. During December 1995 Registrant completed negotiations
with respect to an easement for the crude oil pipeline. The
actual date of start of construction on the pipeline is not known
at this time because governmental approvals have not been
received and it is not certain they will be received. Upon the
start of construction Registrant will receive a substantial
payment that will be recorded as right of way and easement
revenues. This potential revenue will not be received until
construction of the pipeline begins. See Part I, Item 2,
"Properties - Land Planning" for further discussion of planning
activities.
The Commercial and Land Use Division had an operating loss of
$285,000 in 1994 which compares to an operating loss of $435,000
in 1993. The improvement over 1993 was due to a reduction in
professional service fees ($234,000) related to the Registrant's
long-term land planning efforts. The expense was below 1993 due
to the timing of planning projects. Registrant will continue to
h a ve substantial expense related to future land planning
activities (see Part I, Item 2 "Properties - Land Planning" for
further discussion of 1994 and future planning activities).
Commercial rents and right-of-way rents were comparable to 1993
even though percentage rents were below expectations due to low
traffic on Interstate 5 during January and February because of
the January 1994 earthquake in Los Angeles.
Interest. Interest income of $1,374,000 during 1995 was $65,000,
or 4.5%, less than 1994 interest income. The decrease when
compared to 1994 is due to lower gains on the sale of securities,
lower interest rates during 1995 and to lower outstanding
investment balances. Investment funds continued to decline
- 29 -
during 1995 due to the purchase of land, the payment of
dividends, and to capital expenditures.
Interest income during 1994 of $1,439,000 declined $152,000, or
10% when compared to 1993 interest income. The decrease is due
to lower gains on the sale of securities and to lower average
outstanding balances of marketable securities. Investment funds
have declined due to additional principal payments on long-term
debt, the payment of dividends, and to capital expenditures.
Interest expense increased $149,000 during 1995 due to the
increased use of short-term credit lines throughout the year.
Short-term debt use increased due to the timing of cash flows
throughout 1995 because of the delays in the sale of cattle and
the timing of 1995 crop proceeds. Interest expense in 1994 and
1993 was principally attributable to interest on borrowings used
to finance Registrant's 758 acre almond and 897 acre wine grape
developments, which were developed in 1981.
Corporate Expenses. Corporate expenses during 1995 increased
$177,000, or 8%, when compared to 1994 expenses. The increase
was due primarily to higher professional service fees ($157,000)
and maintenance fees ($80,000). Partially offsetting these
unfavorable variances was a decrease in staff costs of $100,000.
Professional service costs were higher because of fees related to
the Chief Executive Officer search. Staffing costs fell due to
the President resigning during the middle of 1995.
Corporate expenses for 1994 decreased $21,000, or 1% when
c o m pared to 1993 expenses. The decrease was primarily
attributable to lower professional service fees and legal fees.
Inflation. Inflation can have a major impact on Registrant's
operations. The farming operations are most affected by
escalating costs and unpredictable revenues (due to an oversupply
of certain crops) and very high irrigation water costs. High
fixed water costs related to Registrant's farm lands will
continue to adversely affect earnings.
Prices received by Registrant for many of its products are
dependent upon prevailing market conditions and commodity prices.
Therefore, it is difficult for Registrant to accurately predict
revenue, just as it cannot pass on cost increases caused by
general inflation, except to the extent reflected in market
conditions and commodity prices.
Impact of Accounting Change. Registrant will adopt Statement of
Financial Accounting Standard (SFAS) No. 123 at year-end December
31, 1996. Registrant will continue to apply APB 25 for the
a c c ounting of stock options and provide the appropriate
disclosures and pro forma information as described in SFAS No.
123.
- 30 -
In January 1994, Registrant adopted Statement of Financial
Accounting Standard (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. SFAS No. 115 requires
that an enterprise classify all debt securities as either held-
to-maturity, trading, or available-for-sale. In addition, if an
enterprise has classified its securities as either trading or
available-for-sale it must adjust securities to fair value at
each reporting date.
R e gistrant invests in debt securities, consisting of
treasuries, government agencies, corporate notes, and mortgage
backed securities. Registrant has elected to classify its
securities as available-for-sale. As of December 31, 1995 the
cumulative unrealized fair value adjustment to stockholders'
equity is an unrealized gain of $39,000, net of a tax credit of
$27,000.
Financial Condition. Registrant's cash, cash equivalents and
short-term investments totaled approximately $20,301,000 at
December 31, 1995, a decrease of 15% from the corresponding
amount at the end of 1994. Working capital at the end of 1995
was $24,800,000, which is 7% less than a year earlier. Working
capital decreased during the year due to capital expenditures,
the purchase of land ($1,500,000), and the payment of dividends.
Registrant has a revolving line of credit of $5,000,000 that as
of December 31, 1995 had a balance of $1,682,000 at an interest
rate of 8.50%. The outstanding balance on Registrant's revolving
credit line was paid down during January 1996. The revolving
line of credit is used as a short-term cash management tool.
The principal uses of cash and cash equivalents during 1995,
1994, and 1993 consisted of capital expenditures, purchase of
land, payments of long-term debt and the payment of dividends.
The accurate forecasting of cash flows by Registrant is made
more difficult due to the fact that commodity markets set the
prices for the majority of Registrant's products and the fact
that the cost of water changes significantly from year-to-year as
a result of changes in its availability. Registrant, based on
its past experience, believes it will have adequate cash flows
over the next twelve months to fund internal operations.
During 1996, $2,161,000 has been budgeted for capital
expenditures, which includes new equipment and improvements to
existing facilities. The capital budget also includes 240 acres
of farming development at approximately $600,000. (See Part I,
Item 1 - "Business-Farming").
Registrant has traditionally funded its growth and capital
additions from internally generated funds. Management believes
- 31 -
that the combination of short-term investments, excess borrowing
c a pacity, and capital presently available to it will be
sufficient for its near term operations.
Item 8. Financial Statements and Supplementary Data.
The response to this Item is submitted in a separate section
of this Report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
Not applicable.
- 32 -
PART III
Item 10. Directors and Executive Officers of the Registrant.
I n f o r mation as to the directors of Registrant is
incorporated by reference from the definitive proxy statement to
b e filed by Registrant with the Securities and Exchange
C o m m ission with respect to its 1996 Annual Meeting of
Stockholders. Information as to the Executive Officers of
Registrant is set forth in Part I, Item 1 under "Executive
Officers of Registrant."
Item 11. Executive Compensation.
Information required by this Item is incorporated by
reference from the definitive proxy statement to be filed by
Registrant with
the Securities and Exchange Commission with respect to its 1996
Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Information required by this Item is incorporated by
reference from the definitive proxy statement to be filed by
Registrant with the Securities and Exchange Commission with
respect to its 1996 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions.
Information required by this Item is incorporated by
reference from the definitive proxy statement to be filed by
Registrant with the Securities and Exchange Commission with
respect to its 1996 Annual Meeting of Stockholders.
- 33 -
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.
(a) Documents filed as part of this report: Page
Number
1. Consolidated Financial Statements:
1.1 Report of Independent Auditors 39
1.2 Consolidated Statements of Financial
Position - December 31, 1995 and 1994 40
1.3 Consolidated Statements of Income -
Years Ended December 31, 1995, 1994
and 1993 42
1.4 Consolidated Statements of Stockholders'
Equity - Three Years Ended
December 31, 1995 43
1.5 Consolidated Statements of Cash Flows -
Years Ended December 31, 1995, 1994
and 1993 44
1.6 Notes to Consolidated Financial
Statements 45
2. Supplemental Financial Statement Schedules:
NONE
3. Exhibits:
3.1 Restated Certificate of Incorporation *
3.2 By-Laws *
10.1 Water Service Contract with Wheeler
Ridge-Maricopa Water Storage District
(without exhibits), amendments originally
filed under Item 11 to Registrant's
Annual Report on Form 10K **
10.2 Tejon Ranch Co. Stock Option Plan **
10.3 Lease agreement for Mr. San Olen **
22 List of subsidiaries of Registrant 61
27 Financial Data Schedule (Edgar) 62
- 34 -
(b) Report on Form 8-K filed during the last quarter of the
period covered by this report:
None.
(c) Exhibits
* This document, filed with the Securities Exchange
Commission in Washington D.C. (file number 1-7183)
under Item 14 to Registrant's Annual Report on Form 10-
K for year ended December 31, 1987, is incorporated
herein by reference.
** This document, filed with the Securities Exchange
Commission in Washington D.C. (file Number 1-7183)
under item 14 to Registrant's Annual Report on Form 10-
K for year ended December 31, 1994, is incorporated
herein by reference.
(d) Financial Statement Schedules -- The response to this
portion of Item 14 is submitted as a separate section
of this report.
- 35 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TEJON RANCH CO.
DATED: March 20, 1996 BY
Matt Echeverria
Senior Vice President and
acting Chief Executive
Officer
(Principal Executive Officer)
DATED: March 20, 1996 BY
Allen E. Lyda
Vice President, Finance &
Treasurer
(Principal Financial and
Accounting Officer)
- 36 -
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the date indicated.
Name Capacity Date
Director March 8, 1996
Otis Booth, Jr.
Director March 8, 1996
Craig Cadwalader
Director March 8, 1996
Dan T. Daniels
Director March 8, 1996
Rayburn S. Dezember
Director March 8, 1996
Robert F. Erburu
Director March 8, 1996
Clayton W. Frye, Jr.
Director March 8, 1996
Donald Haskell
Director March 8, 1996
Raymond L. Watson
Director March 8, 1996
Phillip L. Williams
- 37 -
Annual Report on Form 10-K
Item 8, Item 14(a)(1) and (2),(c) and (d)
List of Financial Statements and Financial Statement Schedules
Financial Statements
Certain Exhibits
Year Ended December 31, 1995
Tejon Ranch Co.
Lebec, California
- 38 -
Form 10-K - Item 14(a)(1) and (2)
Tejon Ranch Co. and Subsidiaries
Index to Financial Statements and Financial Statement Schedules
ITEM 14(a)(1) - FINANCIAL STATEMENTS
The following consolidated financial statements of Tejon Ranch
Co. and subsidiaries are included in Item 8:
Page
Report of Independent Auditors 39
Consolidated Statements of Financial Position -
December 31, 1995 and 1994 40
Consolidated Statements of Income -
Years Ended December 31, 1995, 1994 and 1993 42
Consolidated Statements of Stockholders' Equity -
Three Years Ended December 31, 1995 43
Consolidated Statements of Cash Flows -
Years Ended December 31, 1995, 1994 and 1993 44
Notes to Consolidated Financial Statements 45
ITEMS 14(a)(2) - FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
a r e not required under the related instructions or are
inapplicable, and therefore have been omitted.
- 39 -
Report of Independent Auditors
Stockholders and Board of Directors
Tejon Ranch Co.
We have audited the consolidated financial statements of Tejon
Ranch Co. and subsidiaries listed in the accompanying index to
financial statements and financial statement schedules (Item
14(a)(1)). These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. 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.
I n our opinion, the financial statements listed in the
a c c ompanying index to financial statements and financial
statement schedules (Item 14(a)(1)) present fairly, in all
material respects, the consolidated financial position of Tejon
Ranch Co. and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
February 27, 1996
- 40 -
Tejon Ranch Co. and Subsidiaries
Consolidated Statements of Financial Position
December 31
1995 1994
Assets
Current assets:
Cash and cash equivalents $ 44,000 $ 68,000
Marketable securities 20,257,000 23,718,000
Accounts receivable 4,487,000 2,125,000
Inventories 2,827,000 3,128,000
Prepaid expenses and other current assets 1,063,000 1,223,000
Total current assets 28,678,000 30,262,000
Property and equipment, net 15,073,000 13,284,000
Other assets:
Breeding herd, net of accumulated
depreciation of $112,000 in 1995 and
$116,000 in 1994 961,000 907,000
Other assets 491,000 467,000
1,452,000 1,374,000
Total assets $45,203,000 $44,920,000
See accompanying notes.
- 41 -
December 31
1995 1994
Liabilities and Stockholders' equity
Current liabilities:
Trade accounts payable $ 932,000 $1,061,000
Other accrued liabilities 343,000 465,000
Current deferred income 473,000 287,000
Income taxes payable 264,000 556,000
Short-term note 1,682,000 907,000
Current portion of long-term debt 200,000 200,000
Total current liabilities 3,894,000 3,476,000
Long-term debt, less current portion 1,800,000 1,950,000
Deferred income taxes 2,540,000 2,736,000
Commitments and contingencies
Stockholders' equity:
Common Stock, $.50 par value per share:
Authorized shares - 30,000,000
Issued and outstanding shares - 6,341,000 6,341,000
Additional paid-in capital 387,000 387,000
Unrealized gains (losses) on
available-for-sale securities, net of 39,000 (372,000)
taxes
Retained earnings 30,202,000 30,402,000
Total stockholders' equity 36,969,000 36,758,000
Total liabilities and stockholders' equity $45,203,000 $44,920,000
See accompanying notes
- 42 -
Tejon Ranch Co. and Subsidiaries
Consolidated Statements of Income
Year Ended December 31
1995 1994 1993
Revenues:
Livestock $ 7,492,000$ 6,030,000$ 5,850,000
Farming 7,973,000 6,880,000 9,459,000
Oil and minerals 1,295,000 1,296,000 1,358,000
Commercial and land use 1,356,000 1,237,000 1,211,000
Interest income 1,374,000 1,439,000 1,591,000
19,490,000 16,882,000 19,469,000
Costs and expenses:
Livestock 7,490,000 5,481,000 5,209,000
Farming 6,162,000 4,955,000 5,248,000
Oil and minerals 104,000 88,000 119,000
Commercial and land use 2,186,000 1,522,000 1,646,000
Corporate expenses 2,389,000 2,212,000 2,233,000
Interest expense 436,000 287,000 424,000
18,767,000 14,545,000 14,879,000
Income before income taxes 723,000 2,337,000 4,590,000
Income taxes 289,000 810,000 1,618,000
Net income 434,000$ 1,527,000$ 2,972,000
Net income per share $.03 $.12 $.23
See accompanying notes.
- 43 -
Tejon Ranch Co. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Three years ended December 31, 1995
Additional Unrealized
Common Paid-In Gains Retained
Stock Capital (Losses) Earnings Total
Balance,
January 1, 1993 $6,341,000 $387,000 --- $27,171,000 $33,899,000
Net income --- --- --- 2,972,000 2,972,000
Cash dividends
paid -
$.05 per share --- --- --- (634,000) (634,000)
Balance,
December 31, 1993 6,341,000 387,000 --- 29,509,000 36,237,000
Adjustment to
beginning balance
for change in
accounting method,
net of taxes of
$62,000 --- --- 122,000 --- 122,000
Net income --- --- --- 1,527,000 1,527,000
Cash dividends
paid-
$.05 per share --- --- --- (634,000) (634,000)
Change in
unrealized gains
(losses) on
available-for-
sale securities,
net of a tax
benefit of
$254,000 --- --- (494,000) --- (494,000)
Balance, December
31, 1994 6,341,000 387,000 (372,000) 30,402,000 36,758,000
Net income --- --- --- 434,000 434,000
- 44 -
Cash dividends
paid-
$.05 per share --- --- --- (634,000) (634,000)
Changes in
unrealized
gains (losses) on
available-for-
sale
securities, net
of taxes
of $164,000 --- ---- 411,000 --- 411,000
Balance, December
31, 1995 $6,341,000 $387,000 $39,000 $30,202,000 $36,969,000
See accompanying notes.
- 45 -
Tejon Ranch Co. and Subsidiaries
Consolidated Statements of Cash Flows
Year ended December 31
1995 1994 1993
Operating activities
Net income $ 434,000 $ 1,527,000 $ 2,972,000
Items not affecting cash:
Depreciation and
amortization 1,017,000 906,000 916,000
Deferred income taxes (196,000) (23,000) (330,000)
Recognition of deferred
gains on assets sold --- (29,000) (29,000)
Gains on sales of
investments (7,000) (52,000) (71,000)
Current deferred income 71,000 (38,000) (990,000)
Changes in certain current
assets and current
liabilities
Accounts receivable (2,362,000) 980,000 (615,000)
Inventories 301,000 (268,000) (357,000)
Prepaid expenses and
other current assets 57,000 (15,000) 63,000
Trade accounts payable
and other accrued
liabilities (251,000) --- 136,000
Income taxes payable (292,000) (1,077,000) 811,000
Net cash (used in) provided
by operating activities (1,228,000) 1,911,000 2,506,000
Investing activities
Maturities of marketable 8,754,000 14,224,000 20,586,000
securities
Funds invested in marketable
securities (4,657,000) (11,620,000) (20,120,000)
Net change in breeding herd (125,000) (194,000) (73,000)
Property and equipment
expenditures (3,263,000) (2,179,000) (1,441,000)
Net book value of property
and equipment disposals 528,000 49,000 13,000
Other (24,000) (43,000) 138,000
- 46 -
Net cash provided by (used
in) investing activities 1,213,000 237,000 ( 897,000)
Financing activities
Proceeds from revolving line
of credit 9,792,000 7,094,000 6,764,000
Payments on revolving line of
credit (9,017,000) (7,187,000) (5,914,000)
Borrowing of long-term debt 2,000,000 --- ---
Repayments of long-term debt (2,150,000) (1,600,000) (1,600,000)
Cash dividends paid (634,000) (634,000) (634,000)
Net cash used in financing
activities (9,000) (2,327,000) (1,384,000)
Increase (decrease) in cash
and cash equivalents (24,000) (179,000) 225,000
Cash and cash equivalents at
beginning of year 68,000 247,000 22,000
Cash and cash equivalents at $ 44,000 $ 68,000 $ 247,000
end of year
See accompanying notes
- 47 -
Tejon Ranch Co. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1995
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All intercompany
transactions have been eliminated in consolidation.
Cash Equivalents
The Company considers all highly liquid investments, with a
maturity of three months or less when purchased, to be cash
e q u ivalents. The carrying amount for cash equivalents
approximates fair value.
Marketable Securities
The Company considers those investments not qualifying as cash
equivalents, but which are readily marketable, to be marketable
securities. The Company classifies all marketable securities as
available-for-sale, which are stated at fair value with the
unrealized gains (losses), net of tax, reported in a separate
component of stockholders' equity.
Credit Risk
The Company grants credit to customers, principally large cattle
purchasers, co-ops, wineries, nut marketing companies, and
lessees of Company facilities, all of which are located in
California. The Company performs periodic credit evaluations of
its customers financial condition and generally does not require
collateral.
During 1995, 1994 and 1993 the following customers accounted for
more than 10% of the Company's consolidated revenues, Golden
State Vintners (18% in 1995 and 13% in 1994 and 1993), Timmerman
Cattle (26% in 1995), and E.A. Miller Cattle Company (22% in
1994 and 13% in 1993).
Farm Inventories
Costs of bringing crops to harvest are capitalized when
incurred. Such costs are expensed when the crops are sold.
Farm inventories held for sale are valued at the lower of cost
(first-in, first-out method) or market.
- 48 -
Tejon Ranch Co. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Cattle Inventories and Breeding Herd
Cattle raised on the Ranch are stated at the accumulated cost of
developing such animals for sale or transfer to a productive
f u n ction and purchased cattle are stated at cost plus
development costs. All cattle held for sale are valued at the
lower of cost (first-in, first-out method) or market and are
included in the caption inventories. Purchased bulls and cows,
included in the breeding herd and used for breeding, are
depreciated using the straight-line method over five to seven
years.
Commodity Contracts Used to Hedge Price Fluctuations
The Company enters into cattle futures and option contracts to
hedge its exposure to price fluctuations on its stocker cattle.
The goal of the Company is to protect or create a future price
for its cattle that will provide a profit once the cattle are
sold and all costs are deducted. Realized gains, losses, and
costs associated with closed contracts are included in cattle
inventory and recognized in cost of sales expense at the time
the hedged cattle are sold.
Property and Equipment
Property and equipment accounts are stated on the basis of cost,
except for land acquired upon organization in 1936 which is
stated on the basis (presumed to be at cost) carried by the
Company's predecessor. Depreciation is computed using the
straight-line method over the estimated useful lives of the
various assets. Buildings and improvements are depreciated
over a 10 year to 27.5 year life. Machinery and equipment is
depreciated over a 3 year to 10 year life depending on the type
of equipment. Vineyards and orchards are generally depreciated
over a 20 year life with irrigation systems over a 10 year life.
Oil, gas and mineral reserves have not been appraised, as no
value has been assigned to them.
Vineyards and Orchards
Costs of planting and developing vineyards and orchards are
capitalized until the crops become commercially productive.
Interest costs and depreciation of irrigation systems and
trellis installations during the development stage are also
capitalized. Revenue from crops earned during the development
stage are credited against development costs. Depreciation
commences when the crops become commercially productive.
- 49 -
At the time crops are harvested, delivered to buyers and
revenues are estimatable, revenues and related costs are
recognized, which traditionally occurs in the fourth quarter.
Orchard revenues are based upon estimated selling prices,
whereas vineyard revenues are recognized at the contracted
selling price. Estimated prices for orchard crops are based
upon the quoted estimate of what the final market price will be
by marketers and handlers of the orchard crops. Actual final
orchard crop selling prices are not determined for several
months following the close of the Company's fiscal year due to
supply and demand fluctuations within the orchard crops markets.
Adjustments for differences between original estimates and
actual revenues received are recorded during the period in which
such amounts become known. The net effect of these adjustments
increased farming revenue by $124,000 in 1995, $97,000 in 1994,
and $294,000 in 1993.
The California Almond Board has the authority to require
producers of almonds to withhold a portion of their annual
production from the marketplace. During 1994 the California
Almond Board required the Company to hold back 10% of almond
production which amounted to 163,000 pounds. The almond
withhold was due to the record almond production within
California during 1994. During 1995, the reserved almonds were
released for sale and the Company recorded $236,000 in revenues
upon the sale of those almonds. At December 31, 1995 and
1993, no such withholding was mandated.
Net Income Per Share
Net income per share is based upon the weighted average number
o f shares of common stock and common stock equivalents
outstanding during the year (12,684,105 in 1995 and 12,682,244
in 1994 and 1993). Fully diluted earnings per share are the
same as primary earnings per share.
In March 1992, the Company's Board of Directors adopted the 1992
Stock Option Plan providing for the granting of options to
purchase a maximum of 230,000 shares of the Company's common
stock to employees, advisors, and consultants of the Company.
Since the adoption of the Plan, the Company has granted options
to purchase 93,000 shares at a price equal to fair market value
at date of grant. Stock options granted have been treated as
common stock equivalents per the treasury method when such
amounts would be dilutive.
Environmental
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that
relateto an existing condition caused by past operations and
which do not contribute to current or future revenue generation
- 50 -
Tejon Ranch Co. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Environmental (continued)
are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable and the costs
can be reasonably estimated. Generally, the timing of these
accruals coincides with the completion of a feasibility study or
the Company's commitment to a formal plan of action. No
liabilities for environmental costs have been recorded at
December 31, 1995, 1994 or 1993.
Reclassifications
Certain amounts in the 1994 and 1993 income statement have been
r e c lassified, in order to be consistent with the 1995
presentation.
2. Laval Farms Limited Partnership
The Laval Farms Limited Partnership (Laval), formerly Tejon
Agricultural Partners, is a limited partnership, formed in 1972,
to develop and farm land in Kern County, California. Laval
Farms Corporation, formerly Tejon Agricultural Corporation , a
wholly-owned subsidiary of Tejon Ranchcorp, is the general
partner of the partnership.
Due to significant losses in the partnership, the Company wrote-
off its investment in the partnership in 1976 and provided for
all commitments at that time.
The Company entered into an Agreement with John Hancock Mutual
Life Insurance Company, Laval's sole limited partner and secured
lender during 1993, for the sale of Laval's farmland and the
eventual dissolution of the partnership. Under the Agreement,
approximately 13,000 acres of farmland located in the southern
San Joaquin Valley, were divided into smaller farming parcels
and as of April 20, 1995, all of the farmland had been sold.
In connection with the sale of this farmland, the Company
purchased 900 acres, which includes 300 acres of rubired grapes,
for a price of $1.5 million.
Tejon Farming Company (TFC), a wholly-owned subsidiary of the
Company, performs services for Laval under a farm management
agreement, which is terminable on 30 days' notice by Laval. TFC
was paid $200,000 during 1995 and $240,000 in 1994 and 1993
under the management agreement. In addition, during 1993 Laval
provided equipment and direct labor to the Company in connection
with planting, development and maintenance of permanent crops on
Company-owned lands. Total amount paid by the Company for such
services was approximately $1,786,000 in 1993.
- 51 -
Tejon Ranch Co. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Marketable Securities
In January 1994, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. SFAS No. 115
requires that an enterprise classify all debt securities as
either held-to-maturity, trading, or available-for-sale. The
Company has elected to classify its securities as available-for-
sale and therefore, is required to adjust securities to fair
value at each reporting date.
The following is a summary of available-for-sale securities at
December 31:
1995 1994
Estimated Estimated
Fair Fair
Cost Value Cost Value
Marketable securities:
U.S. Treasury and
agency notes $14,868,000 $14,869,000 $18,837,000 $18,409,000
Corporate notes 5,323,000 5,388,000 5,445,000 5,309,000
$20,191,000 $20,257,000 $24,282,000 $23,718,000
As of December 31, 1995, the cumulative fair value adjustment to
stockholders' equity is an unrealized gain of $39,000, net of a
tax credit of $27,000. The Company's gross unrealized holding
gains equals $187,000, while gross unrealized holding losses
equals $121,000. On December 31, 1995, the average maturity of
U.S. Treasury and agency securities was 1.7 years and corporate
notes was 1.2 years. Currently, the Company has no securities
with a weighted average life of greater than five years. During
1995, the Company recognized gains of $7,000 on the sale of $5.1
million of securities, carried at historical cost adjusted for
amortization and accretion.
Market value equals quoted market price, if available. If a
quoted market price is not available, market value is estimated
using quoted market prices for similar securities. The
Company's investments in Corporate notes are with companies with
a credit rating of A or better.
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Tejon Ranch Co. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Inventories
Inventories at December 31, 1995 and 1994 consist principally of
cattle held for sale.
5. Property and Equipment
Property and equipment consists of the following at December 31:
1995 1994
Land and land improvements $ 3,541,000 $ 3,255,000
Buildings and improvements 7,260,000 6,519,000
Machinery, water pipelines, furniture and
fixtures and other equipment 4,331,000 4,120,000
Vineyards and orchards 13,543,000 12,579,000
28,675,000 26,473,000
Less allowance for depreciation (13,602,000) (13,189,000)
$ 15,073,000 $13,284,000
6. Line of Credit and Long-Term Debt
The Company may borrow up to $5,000,000 on a short-term
u n s e c ured revolving line of credit at interest rates
approximating the bank's prime rate (8.50% at December 31,
1995). The revolving line expires in September 1997. At
December 31, 1995, there was $1,682,000 of outstanding debt
under the line of credit agreement.
At December 31, 1994, the Company had an outstanding short-term
borrowing with an investment banking company. The short-term
borrowing was in the amount of $907,000, with a maturity of
January 16, 1995, and an interest rate of 6.5%.
Long-term debt consists of the following at December 31:
1995 1994
Note payable to a bank $2,000,000 $ ---
Note payable to an insurance company --- 2,150,000
Less current portion (200,000) (200,000)
$1,800,000 $1,950,000
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Tejon Ranch Co. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Line of Credit and Long-Term Debt (continued)
The note payable to a bank provides for interest at an average
rate of 7.91% per annum, payable quarterly , on amounts
outstanding. Principal is payable in semi-annual installments
of $100,000, with the remaining balance due December 31, 1998.
Amounts borrowed under the agreement are unsecured. The note
payable to an insurance company which was paid off during
December 1995, provided for interest at 10% per annum.
Interest paid approximated interest expense incurred for each
of the three years in the period ended December 31, 1995.
Maturities of long-term debt at December 31, 1995 are $200,000
per year for 1996 and 1997, and $1,600,000 in 1998.
7. Common Stock and Stock Option Information
The 1992 Stock Option Plan provides for the granting of options
to purchase a maximum of 230,000 shares of the Company's common
stock to employees, advisors, and consultants of the Company
at 100% of the fair market value as of the date of grant. The
compensation committee of the board of directors administers
the plan. There are 93,000 options granted under the 1992
stock option plan with 59,000 options at a grant price of $20
per share, 20,000 options at a grant price of $15 per share,
and 14,000 at a grant price of $11.88 per share. During 1995,
14,000 options were granted at a grant price of $11.88 per
share and 37,000 options were cancelled. The granting of
options are accounted for using APB 25.
Currently no options granted are exercisable. Options reserved
for future granting totalled 137,000 at December 31, 1995.
8. Commodity Contracts Used to Hedge Price Fluctuations
The Company uses commodity derivatives to hedge its exposure to
price fluctuations on its purchased stocker cattle and its
cattle feed costs. The objective is to protect or create a
future price for stocker cattle that will provide a profit once
the cattle are sold and all costs are deducted and protect the
Company against a disastrous cattle market decline. To help
achieve this objective the Company uses the cattle futures and
cattle options markets. The Company continually monitors any
open futures and options contracts to determine the appropriate
hedge based on market movement of the underlying asset, stocker
cattle. The option and futures contracts used typically expire
on a quarterly or semi-annual basis and are structured to
expire close to or during the month the stocker cattle are
- 54 -
scheduled to be sold. The risk associated with hedging for the
Company is that hedging limits or caps the potential profits if
cattle prices begin to increase dramatically. Payments
received and paid related to outstanding options contracts are
d e ferred in prepaid and other current assets and were
approximately $40,000 at December 31, 1995. Futures contracts
are carried off-balance sheet until the contracts are settled
because there is no exchange of cash until settlement.
Realized gains, losses, and costs associated with closed
contracts is included in cattle inventory and will be
recognized in cost of sales expense at the time the hedged
stocker cattle are sold. During 1995, the Company recognized
approximately $215,000 in net gains from hedging activity as a
reduction in cost of sales.
The following table identifies the futures contract amounts and
options contract costs outstanding at December 31, 1995:
Cattle Hedging
Activity Estimated
Commodity Original Fair Value Estimated Gain
Future/Option No. Contract/Cost At Settlement (Loss) at
Description Contracts (Bought) Sold (Buy) Sell Settlement
Corn futures bought
10,000 Bushels per
contract 190 $ (655,000) $ 704,000 $ 49,000
Cattle futures sold
50,000 lbs. per
contract 87 2,657,000 (2,527,000) 130,000
Cattle Feeder
Options:
Calls sold
50,000 lbs. per
contract 40 22,000 (12,000) 10,000
Puts bought
50,000 lbs. per
contract 55 (38,000) 62,000 24,000
Estimated fair value at settlement is based upon quoted market
prices at December 31, 1995.
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Tejon Ranch Co. and Subsidiaries
Notes To Consolidated Financial Statements (continued)
9. Income Taxes
The Company accounts for income taxes using SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109 is an asset and
liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences
of events that have been recognized in the Company's financial
statements or tax returns.
The provision for income taxes consists of the following at
December 31:
1995 1994 1993
Federal:
Current $ 176,000 $ 627,000 $1,531,000
Deferred 70,000 (12,000) (220,000)
246,000 615,000 1,311,000
State:
Current 65,000 205,000 417,000
Deferred (21,000) (10,000) (110,000)
44,000 195,000 307,000
$ 289,000 $ 810,000 $1,618,000
The reasons for the difference between total income tax expense
and the amount computed by applying the statutory Federal income
tax rate (34%) to income before taxes are as follows at December
31:
1995 1994 1993
Income tax at the $ 246,000 $ 795,000 $1,561,000
statutory rate
State income taxes,
net of Federal benefit 29,000 129,000 272,000
Other, net 14,000 (114,000) (215,000)
$ 289,000 $ 810,000 $1,618,000
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Tejon Ranch Co. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Income Taxes (continued)
Deferred income taxes result from temporary differences in the
financial and tax bases of assets and liabilities. The net
current deferred asset is included with prepaid expenses and
other assets on the statement of financial position. Significant
components of the Company's deferred tax liabilities and assets
are as follows at December 31:
Deferred tax assets: 1995 1994 1993
Unrealized gain (loss) on
available-for-sale securities $ --- $ 192,000 $ ---
Accrued expense 117,000 125,000 33,000
Prepaid revenues 140,000 98,000 123,000
Other 87,000 121,000 40,000
Total deferred tax assets 344,000 536,000 196,000
Deferred tax liabilities:
Depreciation and amortization 1,387,000 1,498,000 1,122,000
Involuntary conversion-land 412,000 412,000 1,211,000
Other 741,000 826,000 278,000
Total deferred tax liabilities 2,540,000 2,736,000 2,611,000
Net deferred tax liabilities $2,196,000 $2,200,000 $2,415,000
The Company made net payments of income taxes of $721,000,
$ 2 , 0 0 4 ,000, and $958,000 during 1995, 1994 and 1993,
respectively.
10. Operating Leases
The Company is lessor of certain property pursuant to various
commercial lease agreements having terms ranging up to 30 years.
T h e cost and accumulated depreciation of buildings and
i m p r ovements subject to such leases was $2,110,000 and
$1,014,000, respectively, at December 31, 1995. Income from
commercial rents, included in commercial and land use revenue was
$936,000 in 1995, $905,000 in 1994, and $871,000 in 1993. Future
minimum rental income on noncancelable operating leases as of
December 31, 1995 is: $971,000 in 1996, $889,000 in 1997,
$882,000 in 1998, $797,000 in 1999, $792,000 in 2000, and
$6,498,000 for years thereafter.
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Tejon Ranch Co. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Commitments and Contingencies
A total of 6,200 acres of the Company's land is subject to water
contracts requiring minimum future annual payments for as long as
the Company owns such land. The estimated minimum payments for
1996 are $1,382,000, whether water is available or is used.
Minimum payments made under these contracts were approximately
$1,109,000 in 1995, $985,000 in 1994, and $767,000 in 1993.
A p proximately 4,600 acres of these lands are subject to
contingent assessments of approximately $867,000 to service water
district bonded indebtedness, if water district revenues are
insufficient to cover bond interest and redemptions when due.
The Wheeler Ridge-Maricopa Water District prevailed in a lawsuit
against other water districts in Kern County, California, in a
proceeding involving the over-allocation and payment of state
fixed water charges. As a result of this ruling, landowners
served by the water district received, in 1992, certain refunds
for 1986-1989 water charges. The $1,054,000 received in March
1992 had been classified as current deferred income pending the
outcome of the appeals process. During October 1993, the appeals
process was successfully resolved in favor of the water district.
This favorable outcome allowed the Company to recognize the gain
of $1,054,000 ($632,000 after tax, or $.05 per share) included in
farming revenues in 1993.
The Company leases land to National Cement Company of California,
Inc. (National) for the purpose of manufacturing portland cement
from limestone deposits on the leased acreage. National, LaFarge
Corporation (the parent company of the previous operator) and the
Company have been ordered to cleanup and abate an old industrial
waste landfill site on the leased premises. Under the lease
agreements with National and LaFarge, both companies are required
to indemnify the Company for any costs and liabilities incurred
in connection with the cleanup order. Due to the financial
strength of National and LaFarge, the Company believes that a
material effect to the Company is remote at this time.
12. Retirement Plan
The Company has a retirement plan which covers substantially all
employees. The benefits are based on years of service and the
employee's five year final average salary. Contributions are
intended to provide for benefits attributable to service both to
date and expected to be provided in the future. The
Tejon Ranch Co. and Subsidiaries
- 58 -
Notes to Consolidated Financial Statements (continued)
12. Retirement Plan (continued)
Company funds the plan in accordance with the Employee Retirement
Income Security Act of 1974 (ERISA).
The following accumulated benefit information is as of December
31:
1995 1994
Accumulated actuarial present value of
benefit obligation, including vested
benefits of $1,542,000 in 1995 and
$1,755,000 in 1994 $1,560,000 $1,788,000
Projected benefit obligation for service
rendered to date $1,893,000 $2,144,000
Plan assets at fair value 1,795,000 1,578,000
Projected benefit obligation in excess of
Plan assets (98,000) (566,000)
Items not yet recognized in earnings:
Unrecognized net gain from past experience
different from that assumed and effects of
changes in assumptions 671,000 1,168,000
Unrecognized net transition asset being
amortized over approximately 17 years (158,000) (178,000)
Adjustment required to recognize minimum
liability --- (634,000)
Prepaid (accrued) pension cost $ 415,000 $ (210,000)
Plan assets consist of equity, debt, and short-term money market
investment funds. The weighted-average discount rate and rate of
increase in future compensation levels used in determining the
actuarial present value of projected benefits obligation was 6.5%
in 1995 and 1994. The expected long-term rate of return on plan
assets was 7.5% in 1995 and 8.0% in 1994.
Total pension and retirement expense was as follows for each of the
years ended December 31:
1995 1994 1993
Cost components:
Service cost-benefits
earned during the
period $ (80,000) $ (88,000) $ (85,000)
Interest cost on
projected benefit
obligation (136,000) (126,000) (124,000)
- 59 -
Actual return on plan
assets 305,000 (87,000) 140,000
Net amortization and
deferral (209,000) 173,000 (41,000)
Total net periodic
pension cost $(120,000) $(128,000) $(110,000)
13. Business Segments
The Company operates principally in four industries: livestock,
farming, oil and minerals, and commercial and land use. The
livestock segment includes the production and sale of beef cattle.
The farming segment involves those operations related to permanent
crops and the supervision of farming activities for Laval (see Note
2). The oil and minerals and the commercial and land use
operations collect rents and royalties from lessees of Company-
owned properties.
Information pertaining to the Company's business segments follows
for each of the years ended December 31:
1995 1994 1993
Segment profits:
Livestock $ 2,000 $ 549,000 $ 641,000
Farming 1,811,000 1,925,000 4,211,000
Oil and minerals 1,191,000 1,208,000 1,239,000
Commercial and land use (830,000) (285,000) (435,000)
Segment profits 2,174,000 3,397,000 5,656,000
Interest income 1,374,000 1,439,000 1,591,000
Corporate expenses (2,389,000) (2,212,000) (2,233,000)
Interest expense (436,000) (287,000) (424,000)
Operating profit $ 723,000 $ 2,337,000 $ 4,590,000
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Tejon Ranch Co. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. Business Segments (continued)
Depreciation
Identifiable and Capital
Assets Amortization Expenditures
1995
Livestock $ 5,533,000 $ 303,000 $ 270,000
Farming 10,370,000 477,000 2,287,000
Oil and minerals 258,000 1,000 ---
Commercial and land use 2,713,000 133,000 557,000
Corporate 26,329,000 103,000 149,000
Total $45,203,000 $1,017,000 $3,263,000
1994
Livestock $ 5,310,000 $ 276,000 $ 336,000
Farming 7,347,000 395,000 993,000
Oil and minerals 179,000 3,000 ---
Commercial and land use 2,226,000 132,000 801,000
Corporate 29,858,000 100,000 49,000
Total $44,920,000 $ 906,000 $2,179,000
1993
Livestock $ 4,364,000 $ 242,000 $ 203,000
Farming 8,000,000 381,000 873,000
Oil and minerals 187,000 5,000 ---
Commercial and land use 1,699,000 190,000 320,000
Corporate 32,861,000 98,000 45,000
Total $47,111,000 $ 916,000 $1,441,000
Intersegment sales are not significant. Segment profits are total
revenues less operating expenses, excluding interest and corporate
expenses. Identifiable assets by segment include both assets
directly identified with those operations and an allocable share of
jointly used assets. Corporate assets consist primarily of cash
and cash equivalents, refundable and deferred income taxes, land
and buildings. Land is valued at cost for acquisitions since 1936.
Land acquired in 1936, upon organization of the Company, is stated
on the basis (presumed to be at cost) carried by the Company's
predecessor.
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Tejon Ranch Co. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Unaudited Quarterly Operating Results
The following is a tabulation of unaudited quarterly operating
results for the years indicated (in thousands of dollars, except
per share amounts):
Segment Net Earnings
Total Profit Income (Loss)
Revenue(1) (Loss) (Loss) Per Share
1995
First quarter $ 1,409 $ (818) (2) $ (661) (2) $(.05) (2)
Second quarter 1,792 (355) (409) (.03)
Third quarter 8,716 2,012 970 .08
Fourth quarter 7,573 1,335 534 .04
$19,490 $2,174 $ 434 $ .03
1994
First quarter $ 1,383 $ (246) $ (267) $(.02)
Second quarter 5,200 996 441 .03
Third quarter 1,827 --- (153) (.01)
Fourth quarter 8,472 2,647 1,506 .12
$16,882 $3,397 $1,527 $ .12
(1) Includes interest income.
(2) Includes recognition of a $400,000 ($240,000 after tax, or
$.02 per share) charge-off of destroyed almond trees.
- 62 -
EXHIBIT INDEX
3. Exhibits:
3.1 Restated Certificate of Incorporation *
3.2 By-Laws *
10.1 Water Service Contract with Wheeler Ridge-
Maricopa Water Storage District
(without exhibits), amendments originally
filed under Item 11 to Registrant's
Annual Report on Form 10K **
10.2 Tejon Ranch Co. Stock Option Plan **
10.3 Lease agreement for Mr. San Olen **
22 List of subsidiaries of Registrant 61
27 Financial Data Schedule (Edgar) 62
(b) Report on Form 8-K filed during the last quarter of the
period covered by this report:
None.
(c) Exhibits
* T h is document, filed with the Securities Exchange
Commission in Washington D.C. (file number 1-7183) under
Item 14 to Registrant's Annual Report on Form 10-K for
year ended December 31, 1987, is incorporated herein by
reference.
** T h is document, filed with the Securities Exchange
Commission in Washington D.C. (file Number 1-7183) under
Item 14 to Registrant's Annual Report on Form 10-K for
year ended December 31, 1994, is incorporated herein by
reference.
(d) Financial Statement Schedules -- The response to this
portion of Item 14 is submitted as a separate section of
this report.
- 63 -
EXHIBIT 22
(22) Subsidiaries of Registrant
A. Registrant: Tejon Ranch Co.
B. Subsidiaries of Registrant
a. Tejon Ranchcorp (100% of whose Common Stock is
owned by Registrant);
b. Laval Farms Corporation, formerly Tejon
Agricultural Corporation (100% of whose Common
Stock is owned by Tejon Ranchcorp);
c. Tejon Farming Company (100% of whose Common Stock
is owned by Tejon Ranchcorp);
d. Tejon Marketing Company; (100% of whose Common
Stock is owned by Tejon Ranchcorp);
e. Tejon Ranch Feedlot, In. (100% of whose Common
Stock is owned by Tejon Ranchcorp);
f. White Wolf Corporation (100% of whose Common Stock
is owned by Tejon Ranchcorp);
g. Tejon Development Company; (100% of whose Common
Stock is owned by Tejon Ranchcorp).
C. Each of the aforesaid subsidiaries is included in
Registrant's Consolidated Financial Statement set forth in
answer to Item 14(a)(1) hereof.
D. Each of the aforesaid subsidiaries was organized and
incorporated under the laws of the State of California.
E. Each of the aforesaid subsidiaries does business under
its name, as shown. Tejon Ranchcorp also does business under
the names Tejon Ranch, Fireside Oak Co. and Grapevine Center.
In addition to the foregoing, Laval Farms Limited
Partnership, formerly Tejon Agricultural Partners, a
California limited partnership, may be deemed to be a
"subsidiary" of Registrant within the meaning of the Rules
under the Securities Exchange Act of 1934 by reason of the
fact that the sole general partner of said partnership is
L a v al Farms Corporation, a wholly-owned subsidiary of
Registrant.
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