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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, 1998
-----------------

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 [ ].

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 25, 1999 was $211,785,284 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 23,
1999 was 12,691,253 shares.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held on May 4, 1999 relating to the directors and executive officers of
Registrant are incorporated by reference into Part III.

Total Pages - 64
Exhibit Index - Page 32


PART I


ITEM 1. BUSINESS

Throughout Item I-"Business," Item 2-"Properties," Item 3-"Legal Proceedings,"
Item 7-"Management's Discussion and Analysis of Financial Condition and Results
of Operations," and Item 7A "Quantitative and Qualitative Disclosures About
Market Risk," Registrant has made forward-looking statements regarding future
developments in the cattle industry, the Registrant's plans for future plantings
of permanent crops, future yields, prices and water availability for the
Registrant's crops, future prices, production and demand for oil and other
minerals, future development of the Registrant's property, potential losses to
the Company as a result of pending environmental proceedings and market value
risks associated with investment and risk management activities and with respect
to inventory, accounts receivable and Registrant's own outstanding indebtedness.
These forward-looking statements are subject to factors beyond the control of
Registrant (such as weather and market and economic forces) and, with respect to
the Registrant's future development of its land, the availability of financing
and the ability to obtain various governmental entitlements. No assurance can
be given that actual future events will be consistent with the forward-looking
statements made in this Annual Report.

Tejon Ranch Company ("Registrant") is a diversified, growth oriented land
development and agribusiness company whose purpose is to increase the value of
its real estate and resource holdings and maximize its market value for its
shareholders.

In January 1997, Registrant implemented a new strategic plan that sets out a
broad strategy for enhancing shareholder value. Specifically, the plan focuses
on planning and development and making more productive use of Registrant's
largest and most valuable asset, its 270,000-acre land holding, and increasing
revenue and net income in its three core businesses of real estate, livestock,
and farming.

Registrant intends to focus on increasing revenues and net income by continuing
to develop its significant land holding and by expanding its core business
lines. Currently, Registrant is working to take maximum advantage of existing
resources and market conditions as well as to anticipate and create future
market trends and demand. Part of this effort includes evaluating Registrant's
land and water resources to ensure that the resources essential for growing the
core businesses are available when and where needed. In the future, Registrant
will continue to assess the feasibility of entering into complementary new
related lines of business and refining or reconfiguring current core businesses
to take advantage of opportunities presented and changing market conditions.

The following table shows the revenues, operating profits and identifiable
assets of each of Registrant's industry segments for the last three years:

1


FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
---------------------------------------------
(Amounts in thousands of dollars)



1998 1997 1996
--------------- --------------- ---------------

Revenues (1)
- -----------

Livestock $34,871 $24,555 $ 4,573
Farming 8,671 9,173 9,107
Resource Management 2,597 2,696 2,508
Real Estate 5,742 3,403 1,464
------- ------- -------
Segment Revenues 51,881 39,827 17,652
Interest Income 1,001 1,159 1,308
------- ------- -------
Total Revenues $52,882 $40,986 $18,960
======= ======= =======

Operating Profits
- -----------------

Livestock $ 1,094 $ 1,499 $ 412
Farming 2,269 2,627 3,134
Resource Management 961 1,328 1,356
Real Estate 2,943 1,003 (841)
------- ------- -------
Segment Profits (2) 7,267 6,457 4,061

Interest Income 1,001 1,159 1,308
Corporate Expense (2,581) (2,346) (2,266)
Interest Expense (1,065) (747) (295)
------- ------- -------
Operating Profits $ 4,622 $ 4,523 $ 2,808

Identifiable Assets by (3) Segment
- ----------------------------------
Livestock $29,101 $24,215 $ 5,554
Farming 12,890 10,176 10,545
Resource Management 1,338 363 259
Real Estate 8,726 5,933 2,874
Corporate 20,959 23,006 28,137
------- ------- -------
Total Assets $73,014 $63,693 $47,369
======= ======= =======


(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.

2


Real Estate Operations

Registrant's real estate operations consist of four principal activities: land
planning and entitlement, real estate development, commercial sales and leasing,
and income portfolio management. Registrant's 270,000-acre land holding offers
significant real estate development opportunities. Registrant's land is
characterized by diverse topography, scenic vistas, and is conveniently served
by three inter-regional highways. Interstate 5, one the nation's most heavily
traveled freeways, brings in excess of 50,000 vehicles a day through
Registrant's lands, which includes 16 miles of Interstate 5 frontage and the
commercial land surrounding four interchanges. The strategic plan for real
estate focuses on development opportunities along the Interstate 5 corridor as
well as laying the necessary groundwork for moving forward with potential
destination uses, including residential and resort projects and themed
entertainment concepts.

During 1998, development activity was principally focused on the 350-acre Tejon
Industrial Complex at Interstate 5/Laval Road interchange. The activity at the
industrial complex included the beginning of infrastructure construction for the
complex as well as infrastructure construction for Petro Travel Plaza, a joint
venture with Petro Stopping Centers located on an approximately 50 acres in the
complex. Construction began in late 1998 for the Travel Plaza itself and the
opening of the facility is expected late in the second quarter of 1999.
Interest in developing industrial, warehouse, and distribution facilities on the
remaining 300 acres is being expressed by developers and end users. Registrant
has begun marketing building sites at the industrial complex and does not itself
plan to engage in constructing buildings. Registrant will be in direct
competition for customers with other industrial sites within the Southern
California market place.

Registrant continues to engage in land planning activities and feasibility
analysis related to future real estate uses of its lands. Evaluation and
marketing studies continue to proceed forward as they relate to developing a
major themed destination land use at the Grapevine Center interchange. The
Grapevine Center has been identified as an area that would be good for retail
destination types of projects, whereas the Laval Road interchange has been
identified for commercial and industrial uses. Evaluations are also being
conducted with various development groups to determine the potential of a ranch
estate residential program in the central canyon areas near Tejon Lake.
Planning and market research for this project should be completed in early 1999.
Since the prospects and timing of residential and recreational projects are
dependent on market demand, the timing of any significant residential and/or
recreational development is still uncertain. Registrant is evaluating the
environmental and regulatory factors that might affect its ability to secure
value-enhancing entitlements for potential land development. The results of
this evaluation will help Registrant in formulating long-range entitlement
strategies. The timing of any extensive development of Registrant's property
and its nature and extent will also be dependent upon the availability of
adequate development capital and the obtaining of appropriate governmental
permits and approvals.

Registrant leases to various tenants lands which are used for a full-service
truck stop facility, a truck wash, three auto service stations with convenience
stores, four full-service restaurants, five fast-foods operations, a motel, two
antique shops, and a United States Postal Service facility. In addition,
several microwave repeater locations and radio and cellular transmitters relay
sites are

3


also leased. During 1998 commercial lease activity included the opening of a new
fast-food operation at the Grapevine Center. Registrant is continuing to work on
plans that will increase commercial retail activity at both the Grapevine Center
interchange and the Laval Road interchange. Within the commercial sales and
leasing area, Registrant is in direct competition with other landowners which
have highway interchange locations along Interstate 5 in the southern San
Joaquin Valley.

Livestock Operations

Registrant conducts a beef cattle operation upon those portions of its ranch
which are not devoted to farming, commercial and real estate development, or
other purposes. 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, 1998, Registrant's cattle herd
numbered approximately 36,701 of which approximately 31,499 head were stockers
and the remainder were in the breeding herd. At December 31, 1997, Registrant's
cattle herd numbered approximately 30,975 of which approximately 22,882 head
were stockers and the remainder were breeding herd. Registrant's cattle are
either sold to stocker and feedlot operators or fed at Champion Feeders,
Registrant's feedlot in Texas, and then sold to packers. 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 usually 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 purchased Champion Feeders, a feedlot in Texas, in 1997 in order to
further vertically integrate its beef operations.

During the last few years, a number of companies in the cattle industry began to
explore in depth various forms of strategic alliances within the production,
feeding and meat-packing segments of the cattle business. Registrant believes
there will be dramatic shifts in the form of cattle marketing in the United
States. To be successful in the cattle industry in the future Registrant
believes that the producers of beef must become more consumer-oriented. To
achieve this goal Registrant began a program in 1997 to vertically integrate its
cattle operations. Registrant believes that vertical integration will allow
Registrant to control the quality of the product through the production process
to the end users. To vertically integrate, Registrant must control the feeding
of cattle and create strategic alliances with other producers to supply beef
products to end users. To begin the process of vertical integration within the
beef industry, Registrant purchased the assets of a cattle feedlot and entered
into a strategic alliance with several other cattle producers to sell high
quality source-verified beef to end users such as restaurants and grocery
stores.

1998 was a year that most commodity producers are glad to see end. Prices for
cattle, cotton, oil and feed grains all dropped to levels well under the cost of
production. Five straight months of declining cattle placements in United
States feedlots may eventually result in tightening supplies

4


relative to demand. Demand for leather is also showing improvement, and this may
result in improving prices for cattle hides.

Registrant is expecting financial improvement over 1998 results if the beef
industry recovers from low prices during 1999 which caused an industry-wide
$3.65 billion dollar loss in equity suffered in 1998.

Farming Operations

In the San Joaquin Valley, Registrant farms permanent crops including the
following acreage: wine grapes-1,555, almonds-1,947, pistachios-738 and
walnuts-295. Included in these acreage figures are 300 acres of almonds which
were planted in 1998 and 300 acres of almonds which were planted early in 1999.
These new almond developments will have their first harvestable crop in 2001 and
2002. Registrant's objective in planting new trees is to offset the normal
yield decline as its older plantings reach productive maturity and to improve
revenues from farming operations in future years. As certain of Registrant's
permanent plantings age to the point of declining yields, Registrant will
evaluate the advisability of replanting such crops or replacing them with
different plantings, depending upon market conditions.

Registrant sells its farm commodities to several commercial buyers. 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 obtaining better prices through
marketing arrangements with handlers.

In 1998, almonds produced were sold to two domestic commercial buyers, with one
of the buyers receiving approximately 65% of the crop.

The California almond industry is subject to a federal marketing order which
empowers the Secretary of Agriculture to set the percentage of almonds which can
be sold during any crop year and the percentage of almonds to be held in reserve
in order to assist in the orderly marketing of the crop. During 1998 and 1997
the saleable percentage was set at 100% of the total almond crop.

In 1998, Registrant's pistachios were sold to one customer. Registrant's 1998
walnuts were sold to two customers, each receiving approximately 50% of the
crop. During 1998 the majority of wine grapes were sold to one winery.

Overall crop production from Registrant's farming operation was greater than
1997 levels but less than expected due to winter and spring storms during the
pollination and bloom period for the crops. Statewide throughout California
production on average was down due to weather related factors. This reduction
in statewide production kept the prices received on crops higher than might
otherwise be expected.

5


Registrant's almond production increased 33% despite poor weather during the
spring, due primarily to the growth in production from new almond plantings.
Prices for almonds are also higher than the prior year due to the lower
statewide crop and minimal inventory carryover from the prior year. The
combination of increased production and higher prices caused almond revenues to
increase approximately 49%.

Grape yields in 1998 declined 17% when compared to 1997, and grape revenues
declined 16% when compared to 1997. Pistachio production fell 27% during 1998
due to weather related factors during the spring. Due to the reduction in
yield, pistachio revenues fell 26% when compared to 1997. Walnut production
increased during 1998 but revenues remained flat when compared to 1997 due to
lower prices on walnuts. Walnut prices declined due to the high inventory
levels at the beginning of 1998.

Overall 1998 crop revenues were less than expected due mainly to lower than
expected grape and pistachio production. See "Management's Discussion and
Analysis of Financial Statements and Results of Operations". Demand for
Registrant's crops is expected to remain good throughout 1999. Management
expects further price pressure on both nuts and grapes as new production within
California comes online. Nut and grape crop markets are particularly sensitive
to the size of each year's world crop. Large crops in California and abroad can
rapidly depress prices.

1998 was an excellent water year with 100% of Registrant's water entitlement
being available from the State Water Project. In addition, there was sufficient
runoff from local mountain streams allowing Registrant to capture this water in
reservoirs and utilize it 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 1999 water supply at 100%
of full entitlement. This level of supply will cover all the Registrant's
farming needs. If in any year the entire entitlement is not available,
Registrant will have to rely on ground water sources, water transfers from the
Tejon-Castac Water District and water banking arrangements that Registrant has
entered into. Water from these sources may be more expensive because of pumping
costs and transfer costs.

See discussion of water contract entitlement and long-term outlook for water
supply under Part I, Item 2, "Properties Farmland".

Resource Management

The Resource Management Division is made up of Registrant's oil and mineral
leases, game management program, film location activities, and the quarter horse
breeding program. These are all lines of business which are based on the use of
ranch lands and resources but are not of the size to warrant separate divisions
such as livestock, farming and real estate.

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.

6


As of December 31, 1998, approximately 9,645 acres were committed to producing
oil and gas leases from which the operators produced an average of approximately
256 barrels of oil, 128 MCF of dry gas, and 9 gallons of wet gas per day during
1998. Approximately 1,600 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 32, 49, and 66 barrels of oil per day for 1998, 1997,
and 1996, respectively. Approximately 264 producing oil wells were located on
the leased land as of December 31, 1998. An additional 66 wells during 1998
have been 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 1998.

Prices for Kern County's heavy crude oil were at historically low levels
throughout 1998, hitting a low of $6.75 per barrel during March 1998. These
reduced prices negatively impacted Registrant's royalties from the producing
wells. Registrant believes that revenue from oil and gas will be flat during
1999 due to low prices continuing throughout 1999. Registrant attempts to
require lessees to honor their lease obligations to legally and properly abandon
non-producing wells in an environmentally sound manner.

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 governmental 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 manufacturing plant is currently being
redesigned and construction is in process to increase production capacity to
1,000,000 tons. The amount of payment that 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 3-"Legal Proceedings".

Approximately 433 acres of Registrant's land are leased to owners and operators
of sand and gravel screening and rock crushing plants under two leases with
rental payments based on the amount of sand and gravel removed and sold.
Registrant is actively searching for a new lessee for a third area of the ranch
where rock aggregate deposits have been extracted in the past.

The quarter horse program consists of the breeding of quality blood line quarter
horses, the sale of horses, the boarding and training of horses, and the
management of horse events. The quarter horse program will continue to direct
its efforts to the improvement of Registrant's breeding mares and the hosting of
competitive events to enhance the revenues of the operation.

7


Registrant also provides filming location services and a game management
program, which is a hunting program that is managed in close cooperation with
California Department of Fish and Game.

Customers

During 1998, 1997 and 1996 the following customers accounted for more than 10%
of Registrant's consolidated revenues: Excel Meat Packing, a purchaser of
cattle, (20% in 1998), Golden State Vintners, a purchaser of grapes (14% in 1997
and 21% in 1996) and Harris Ranch, a purchaser of cattle, (18% in 1996).

Organization

Registrant is a Delaware corporation incorporated in 1936.

Employees

At December 31, 1998, Registrant had 92 full-time employees.

Executive Officers of Registrant
--------------------------------

The following table shows, as to each executive officer of Registrant, the
offices held as of March 25, 1999, the period the offices have been held, and
the age of the executive officers. All of such officers serve at the pleasure
of the board of directors.



Name Offices Held Since Age
- -----------------------------------------------------------------------------

Robert A. Stine President and Chief 1996 52
Executive Officer, Director

Matt J. Echeverria Senior Vice President, 1987 48
Livestock

Douglas M. Ford Senior Vice President, 1999 53
Real Estate

Allen E. Lyda Vice President, 1990 41
Finance, Treasurer
and Assistant Secretary

Dennis F. Mullins Vice President, 1993 46
Public Affairs, Secretary
and General Counsel

Dennis J. Atkinson Vice President, Farm Management 1998 48


8




James E. Taylor Vice President, Land Planning 1997 60

John A. Wood Vice President, Agriculture 1978 61


A description of present and prior positions with Registrant, and business
experience for the past five years is given below.

Mr. Stine has been employed by Registrant since May 1996, serving as President
and Chief Executive Officer and as a Director. Mr. Stine served as the Chief
Executive Officer of the Collins Companies, a real estate development company,
from 1986 to April 1995.

Mr. Echeverria has served as Vice President since 1987 and was elected Senior
Vice President in 1995. He also served as acting Chief Executive Officer of
Registrant from May 1995 to May 1, 1996.

Mr. Ford has been employed by Registrant since December 1998 serving as Senior
Vice President, Real Estate. Mr. Ford served as Vice President of Alper
Development Inc., a real estate development company, from 1993 through 1998.

Mr. Lyda has been employed by Registrant since 1990, serving as Vice President,
Finance and Treasurer. He was elected Assistant Secretary in 1995.

Mr. Mullins has been employed by Registrant since 1993, serving as Vice
President, Public Affairs, Secretary and General Counsel.

Mr. Atkinson has been employed by Registrant since July 1998, serving as Vice
President, Farming. From 1995 to 1998, he was a farm manager with Wilson Ag, an
agricultural company in Kern County. Prior to this he was a farm manager with
Tejon Farming Company a subsidiary of Tejon Ranch.

Mr. Taylor has been employed by Registrant since May 1997, serving as Vice
President, Land Planning. From 1992 to 1997, he was a principal partner and
President of Urban Assist, Inc., a planning and project management company
located in Irvine, California.

Mr. Wood has served Registrant as Vice President since 1978.


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 (a major north-south federal highway in California),
Highway 58, California

9


Highways 138 and 223, the California Aqueduct, railroad lines and various
transmission lines for electricity, oil, natural gas and communication systems
cross Registrant's lands.

For information as to Registrant's livestock, farming, resource management and
real estate operations on the land, see Part I, Item 1 - "Livestock Operations,"
"Farming Operations," "Oil and Minerals," and "Real Estate."

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 other agricultural uses,
as well as certain new developments and uses, including residential 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. In addition to the General Plan,
ranch lands will require specific zoning and site plan approvals prior to actual
development.

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. Along the Interstate 5 corridor, Registrant is
aggressively pursuing additional commercial activity in order to meet the needs
of the 50,000 vehicles per day that travel through the ranch. To meet this
built-in customer base, Registrant is investigating several potential
opportunities that can expand current commercial activities.

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 west of the Antelope Valley communities of
Palmdale and Lancaster. Registrant describes this area of land as Tejon
Meadows. 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. Registrant
is beginning to receive preliminary proposals for potential residential
development which Registrant is presently evaluating. At this time, no specific
land use proposals have been made by Registrant to the County. Registrant
continues to monitor regional planning issues and continues to develop its
liaison with Los Angeles County government and other regulatory agencies in
order to preserve future development opportunities.

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 would
have to be done in a manner which accommodates a number of environmental
matters, including endangered species and wetlands issues, that may limit
development of portions of the property.

On February 26, 1999 Registrant completed the purchase of three industrial and
commercial buildings in Phoenix, Arizona having aggregate rentable square feet
of 101,482 for a price of $9,300,000. The Phoenix property is a cluster of
three buildings in a master planned industrial park located near Sky Harbor
International Airport and adjacent to the Interstate 10 Freeway. The buildings
were built-in 1996 and are 100% leased to three tenants under triple net leases

10


expiring in 2002 to 2005. Annualized rentals under the leases currently
aggregate $845,000. The leases provide for built in rental escalations which
approximate current inflation factors based on the CPI index. The buildings
were acquired to complete a tax deferred exchange of real property in which
$4,250,000 in proceeds from the sale of land in December 1998 along with an
additional $250,000 were used together with $4,800,000 borrowed from First Union
Bank, with the loan secured by the property acquired.

Due to Registrant's location and the undeveloped state of its property, 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 power of eminent domain. For the most part, Registrant makes a
determined effort to ensure that any such proposals are implemented in a manner
that is environmentally sound and that will maintain Registrant's flexibility to
develop its adjoining lands. The construction of a major oil pipeline over the
Ranch was completed in February 1999. The pipeline follows the alignment of
other oil pipelines along the Interstate 5 corridor. The pipeline company
purchased its easement from Registrant in November 1997 for $2,050,000, and it
purchased a one-acre parcel for a pump station in 1998 for $150,000. In January
1999, Qwest Communications Corporation, an affiliate of the pipeline company,
purchased the same easement for fiber optic cable uses for $1,750,000.
Registrant's lands are also being evaluated as a possible route 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 certain 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 water exported 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 has been required. The reserved water then
flows into the San Francisco Bay and is unavailable for beneficial use. 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 agreement that has
been extended and now expires in late 1999 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.
This 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 or that the final agreement now in the final
stages of development will limit water used for environmental purposes to a
comparable amount.

11


Registrant's total water entitlement substantially exceeds its permanent crop
needs. If a 100% allocation is made by the Project to the Kern County Water
Agency, of which Wheeler Ridge is a sub-unit, then deliveries from Wheeler Ridge
will be sufficient for Registrant's 1999 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 have been mitigated by the set of agreements
among the State and nearly all Project water users known as the "Monterey
Agreement". The Monterey Agreement should improve the reliability of water
supply to agricultural users in drought years by eliminating the priority for
urban use that resulted in agriculture's allocation being reduced to as low as
zero in drought years, and should improve the financial viability of Wheeler
Ridge and similarly situated water districts by allowing for the sale of
substantial water entitlement to urban users and agricultural users. A number
of such water transfers have occurred, and interest in further transfers has
been expressed by urban water agencies.

Registrant's contracts with Wheeler Ridge provide for annual water entitlement
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 1998 by
Registrant totaled approximately $1,200,000.

In 1995, Registrant transferred 4,021 acre feet of entitlement from Wheeler
Ridge to Tejon-Castac Water District ("TCWD"), which lies entirely within the
boundaries of Registrant's lands. TCWD contributed 900 acre feet of entitlement
to the 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. 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.

Lands 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 of Wheeler Ridge assessments can involve foreclosure of the liens
and the resulting loss of the lands subject to the liens. Wheeler Ridge will
impose contingent assessments (over and above Registrants normal costs for its
water entitlement) 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

12


$792,000. 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 it does not anticipate the need to make any calls on
assessment liens.

In addition to its agricultural contract water entitlements, Registrant, through
TCWD, has an entitlement to obtain from the Project sufficient water to service
a substantial amount of future residential and/or commercial development.
Portions of the property also have available ground water; this would be
sufficient to support low density residential development in the Tejon Lake area
and significant commercial development in the Interstate 5 corridor.

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 Wheeler Ridge 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

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. See "Business-Resource Management." In
August 1997 National ceased burning hazardous waste as supplemental fuel in the
cement plant located on the land leased from Registrant. The fuel was obtained,
transported, stored and processed by National's subtenant, Systech Environmental
Corporation ("Systech"). Systech has removed the above-ground improvements from
its former sublease premises and has submitted a formal closure plan under the
Resource Conservation and Recovery Act. After this closure plan is approved by
the California Department of Toxic Substances Control, Systech will undertake
the site investigation and (if needed) cleanup work specified in the closure
plan.

A number of contaminated sites have been discovered on the land leased to
National, including several landfills containing industrial waste, a storage
area for drums containing lubricants and grease, an underground plume of
chlorinated hydrocarbons, and diesel fuel which leaked from a pipeline. Because
the waste in some or all of the sites has contaminated groundwater, the
California Regional Water Quality Control Board for the Lahontan Region (the
"Regional Water Board") has issued investigation and cleanup orders with respect
to certain of the sites. These orders, which have different provisions
depending on the site involved, generally require National, Lafarge Corporation
("Lafarge"), the predecessor in interest to National under the existing lease,
and the Registrant to investigate and clean up soil and groundwater
contamination in the vicinity of the sites. Although Registrant did not deposit
any of the contaminants, the orders state that Registrant, as a landowner, will
be responsible for complying with the orders if Lafarge and National fail to
perform the necessary work. Civil fines for violations of a Regional Water
Board order can be as high as $10,000 per day for each day the violation occurs
and as

13


high as $15,000 per day for each day a discharge of pollutants and a violation
of the order occurs.

Lafarge has undertaken the investigation and remediation of the landfills and
has completed the removal of contaminated soils above the groundwater level from
the landfills. Additional work is required to alleviate groundwater
contamination resulting from the landfills. The order issued by the Regional
Water Board with respect to the drum storage area has been dismissed because of
the low level of petroleum contamination. Lafarge has completed a substantial
amount of the site investigation with respect to the chlorinated hydrocarbons.
Lafarge is undertaking additional investigation work as directed by the Regional
Water Board, and is developing a feasibility study evaluating different
remediation options. The plume of chlorinated hydrocarbons covers an extensive
area and has migrated off of the leased premises in one direction. With respect
to the diesel pipe leak, Lafarge has performed some site investigation and there
appears to be significant contamination along the length of the pipeline.
Portions of the contamination appear to be located under the cement plant
itself.

In 1997, the Regional Water Board named National and Lafarge as primarily
responsible parties in a cleanup and abatement order relating to cement kiln
dust on the cement plant site and named National as the primarily responsible
party in a cease and desist order and waste discharge requirements. Those
orders require investigation and certain remedial activities related to the
cement kiln dust piles on the premises but do not require the removal or
disposal of the piles. The Regional Water Board named Registrant secondarily
responsible on these three orders relating to the kiln dust piles, which means
that Registrant could be ordered to perform the obligations of National or
Lafarge under the orders if either of them should fail to do so. Registrant has
appealed these orders but the appeals are currently stayed pending Lafarge's and
National's compliance.

The United States Environmental Protection Agency ("USEPA") has proposed to
regulate all kiln dust nationwide under the hazardous waste program, but with a
tailored set of standards. The proposed rules would 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
cement plant site and improved measures will be undertaken pursuant to the
Regional Water Boards orders described above. Kiln dust from cement plants that
used supplemental fuels like the plant operated by National 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 otherwise permitting kiln dust to be classified as hazardous solely because
of its extreme pH content. Registrant believes this legislative
reclassification will apply to the kiln dust pile currently used by National but
not to older piles created by Lafarge and its predecessors, which are believed
to contain bricks contaminated with chromium. If the chromium bricks are
present, that could provide an independent basis for classifying the kiln dust
as a hazardous waste.

14


To date, Registrant is not aware of any failure by Lafarge or National to comply
with the orders of the Regional Water Board or to pursue the cleanup of certain
landfills as informally instructed by Regional Water Board staff. Registrant
has not been ordered by the Regional Water Board to perform any of the
investigative, characterization, remediation or removal activities. However,
Registrant has been compelled to become involved in reviewing the investigative
reports and cleanup recommendations made by Lafarge and its consultants and in
monitoring the Regional Water Board proceedings and Lafarge's activities.

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 November 1987) were assumed by National, and Lafarge has liability
for all obligations under the indemnity 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. Until recently, National has generally honored its indemnity
obligations. However, during the last year National has refused to reimburse
Registrant for the costs and expenses, incurred by Registrant to monitor clean-
up activities and defend itself in Regional Water Board proceedings. While
Lafarge has recently reaffirmed its indemnity obligations generally, it too
disputes its liability for Registrant's defense costs. This matter is being
negotiated by the parties. To date Registrant's defense costs have not been
material.

Registrant has been advised that National and Lafarge have reached an agreement
to share cleanup responsibilities. This agreement settled a lawsuit between
National and Lafarge. Registrant has been advised that under this agreement
Lafarge is responsible for cleanup of the industrial waste landfills, the diesel
release and the chlorinated hydrocarbon plume, and National is responsible for
the cement kiln dust piles.

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 $1.3 billion as of September
30, 1998. National and its parent/guarantor are subsidiaries of a large French
company, and so far as Registrant is aware, no separate financial statements are
publicly available with respect to either company. However, Registrant has held
discussions with National which indicate sufficient resources are available to
satisfy any reasonably likely obligations relating to the above matters. Thus,
Lafarge and National have not been charged with violating any Regional Water
Board orders and appear to have the financial strength to carry out any future
orders that may be approved by the Regional Water Board. Therefore, Registrant
believes that it is remote that any cleanup orders issued by the Regional Water
Board will have a material effect on Registrant. If, however, National and
Lafarge do not fulfill their cleanup responsibilities and Registrant is required
at its own cost to perform the landfill, kiln dust, diesel release and/or
underground plume remedial work likely to be mandated by the regulatory
agencies, the amount of any such expenditure by Registrant could be material.

15


As an unrelated matter, Registrant became aware that soils contaminated by
leaking gasoline and diesel fuel tanks are present on the premises along the
Interstate 5 corridor leased by Travel Centers of America for a truck stop and
gas station. The Kern County Environmental Health Services Department has named
Registrant as a secondarily responsible party with respect to the underground
diesel storage tanks that have leaked. The Central Valley Regional Water
Quality Control Board has assumed jurisdiction over a contaminated storm water
pond, which was recently cleaned up by the tenant by removing contaminated
soils. Because of the financial strength of the lease guarantors, Registrant
believes that it is remote that complying with agency clean-up orders will have
a material effect on Registrant.

Registrant has demanded the clean-up of the contaminated soils. This demand has
been made on the current tenant, the company that owns all Travel Centers of
America truck stops nationally, the former tenant, and the guarantors of the
lease, Standard Oil Company of Ohio and BP Oil & Exploration, Inc. Registrant
conducted settlement discussions with the foregoing responsible parties, but
these negotiations broke down when Travel Centers backed away from its previous
commitments. Registrant has sued all responsible parties for breach of lease,
nuisance, trespass and waste and is seeking clean-up of the premises, damages
and eviction of the tenant.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

16


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.



1998 1997
-----------------------------------------------------------------
Quarter High Low High Low
------- ---- ---- ---- ----

First 32-3/4 22-7/16 18-3/4 14-1/8
Second 31-1/8 24-3/4 19-3/4 15-1/8
Third 26-3/8 19-1/2 45-3/4 17-3/4
Fourth 25-1/2 18-1/4 33-3/4 23-7/8


As of March 18, 1998, there were 702 owners of record of Registrant's Common
Stock.

Registrant paid cash dividends of $.05 per share in each of the years 1998 and
1997. Two and one-half cents per share was paid in June and December of each
year.


ITEM 6. SELECTED FINANCIAL DATA

Years Ended December 31
(In thousands of dollars, except
per share amounts)



1998 1997 1996 1995 1994

Operating Revenues,
Including Interest
Income $52,882 (1) $40,986 (2) $18,960 $19,554 $16,943
Net Income 3,139 (1) 3,032 (2) 1,685 434 (3) 1,527
Total Assets 73,014 63,693 47,369 45,203 44,920
Long-term Debt 1,875 3,925 1,800 1,800 1,950
Stockholder's Equity 42,705 40,488 37,732 36,969 36,758
Income Per Share 0.25 (1) 0.24 (2) 0.13 0.03 (3) 0.12
Cash Dividends
Declared and Paid
Per Share 0.05 0.05 0.05 0.05 0.05


(1) Includes receipt of one time payment of $4,250,000 ($2,569,000 net of tax,
or $0.20 per share) from the sale of land to Northrop-Grumman. This land
was previously leased to Northrop.

17


(2) Includes receipt of one time payment of $2,050,000 ($1,353,000 net of tax,
or $.11 per share) from a pipeline company for the acquisition of easement
rights.

(3) 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.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Throughout Item I-"Business," Item 2-"Properties," Item 3-"Legal Proceedings,"
Item 7-"Management's Discussion and Analysis of Financial Condition and Results
of Operations," and Item 7A "Quantitative and Qualitative Disclosures About
Market Risk," Registrant has made forward-looking statements regarding future
developments in the cattle industry, the Registrant's plans for future plantings
of permanent crops, future yields, prices and water availability for the
Registrant's crops, future prices, production and demand for oil and other
minerals, future development of the Registrant's property, potential losses to
the Company as a result of pending environmental proceedings and market value
risks associated with investment and risk management activities and with respect
to inventory, accounts receivable and Registrant's own outstanding indebtedness.
These forward-looking statements are subject to factors beyond the control of
Registrant (such as weather and market and economic forces) and, with respect to
the Registrant's future development of its land, the availability of financing
and the ability to obtain various governmental entitlements. No assurance can
be given that actual future events will be consistent with the forward-looking
statements made in this Annual Report.

Overview

In January 1997, Registrant implemented a new strategic plan that sets out a
broad strategy for enhancing shareholder value. Specifically, the plan focuses
on development and making more productive use of Registrant's largest and most
valuable asset, its 270,000-acre land holding, and increasing revenue and net
income in the three core businesses of real estate, livestock, and farming.

Registrant intends to focus on increasing revenues and net income by continuing
to develop its significant land holding and by expanding its core business
lines. Currently, Registrant is working to take advantage of existing resources
and market conditions as well as to anticipate and create future market trends
and demand. Part of this effort includes evaluating Registrant's land and water
resources to ensure that the resources essential for growing the core businesses
are available when and where needed. In the future, Registrant will continue to
assess the feasibility of entering into complementary new related lines of
business and refining or reconfiguring current core businesses to take advantage
of opportunities presented and changing market conditions.

Results of Operations

As reflected in the accompanying financial statements, net income was $3,139,000
in 1998, $3,032,000 in 1997, and $1,685,000 in 1996.

18


Net income for 1998 increased when compared to 1997 due primarily to increased
sales within the Livestock Division and the Real Estate Division.

Net income for 1997 increased when compared to 1996 due to higher operating
profits within the Livestock Division, and increased easement sales within the
Real Estate Division. Changes in revenues and expenses of Registrant's industry
segments for years 1998 and 1997 are summarized below.

Real Estate. Real Estate net operating income of $2,943,000 in 1998 is
$1,940,000 greater than 1997 net operating income. This increase in net
operating income during 1998 was due primarily to the sale of 1,400 acres of
previously leased land to Northrop-Grumman, which resulted in a gain of
$4,250,000 ($2,569,000 net of tax). In addition to the sale of land, real
estate revenues increased approximately $250,000 due to increased lease revenues
and the sale of land for a pump station to Pacific Pipeline. These increases in
revenue are partially offset by higher fixed water costs and the recording in
1997 of a one time payment of $2,050,000 related to the acquisition of easement
rights by a pipeline company. Fixed water costs increased due to the cost of
additional water entitlement and water banking charges.

In future years the Real Estate Division could continue to see an increase in
costs primarily related to professional service fees and staffing costs as
Registrant continues to increase its real estate activities and pursue
development opportunities. Registrant will also continue to evaluate land
resources to determine the highest and best uses for its land holdings. Future
sales of land, as in 1998, are dependent on market circumstances and specific
opportunities. Registrant's goal in the future is to increase land value and
create future revenue growth through planning and development of commercial,
industrial, and residential programs.

See Part I, Item 1, "Business - Commercial and Land Use" for a further
discussion of 1998 and 1999 activity and future planning activities.

Real Estate operating profits of $1,003,000 in 1997 is a $1,844,000 increase
when compared to 1996's operating loss. The increase during 1997 is due
primarily to the receipt of a one time payment of $2,050,000 ($1,353,000 net of
tax) in revenue from a pipeline company for the acquisition of easement rights.
This increase is partially offset by higher professional service and planning
fees ($154,000) and higher staffing costs ($75,000). Professional service fees
increased due to market evaluations being conducted to determine the feasibility
of developing a destination land use at Grapevine Center and a rural ranch
estates program. Staffing costs increased due to the hiring of a new Vice
President of Real Estate.

Livestock. Livestock net operating profits of $1,094,000 in 1998 is $405,000
less than 1997 net operating income. The decrease when compared to 1997 is
primarily attributable to reduced cattle prices throughout 1998 that reduced the
net margins on cattle sold. Net margins at Champion Feeders, Registrant's
feedlot, were also reduced due to increased feed inventory costs. Cattle sales
revenue increased approximately $4,000,000 during 1998 due to 7,560 additional
head of cattle being sold. On a comparable basis with 1997 sales, the increase
in 1998 cattle sales revenues was less than it should have been due to lower
cattle prices throughout 1998 and

19


the moving of sales scheduled for November and December 1998 to February 1999 to
take advantage of improving market conditions. Revenues at the feedlot increased
approximately $6,200,000 in 1998 when compared to 1997 due to owning Champion
Feeders for the entire year of 1998, increased average occupancy in the feedlot
during July and August 1998, and the sale of cattle as to which the feedlot was
in partnership with customers of the feedlot. Champion Feeders was purchased
March 10, 1997. These increases in revenues were more than offset by an increase
in the cost of sales on cattle sold and to increased feedlot expenses. Cost of
sales of cattle increased primarily due to the increase in the number of cattle
sold and to a slight increase in costs due to owning the cattle for longer
periods of time. Feedlot expenses increased approximately $6,500,000 when
compared to 1997 due to the timing of the purchase of the feedlot during 1997,
increased feed inventory costs and to cost of sales related to cattle sold as
described above.

Registrant, with the purchase of the feedlot in 1997, changed its operating
procedures and now continues to own cattle through the feedlot phase in order to
have more direct control over the quality of beef the cattle are producing. By
holding the cattle for a longer period of time, the weights on the cattle will
increase and Registrant will receive more for the animals but the cost of sales
will also increase due to the cost of feeding for the additional period of
ownership.

Registrant continued to use the futures and options markets to protect the
future selling price of cattle and purchase prices of feed throughout 1998.
Without the ability to manage cattle and feed positions during 1998,
Registrant's net operating income from livestock would have been $485,000 less.
During 1997, due to the increase in cattle prices throughout most of that year,
Registrant recognized approximately $360,000 in losses on hedge positions. Many
of the gains from these activities in 1998 were due to the decline of cattle
prices during 1998, especially during the first half of the year. Registrant's
goal in managing its cattle and feed costs is to protect or create a range of
selling prices and feed prices that allows Registrant to recognize a profit or
minimize a loss on the sale of cattle once all costs are deducted. The risk in
managing cattle prices is that in those years that prices increase the hedge may
limit or cap potential gains from the increase in price and the risk in managing
feed costs is that it can add additional costs for feed if grain prices fall
dramatically.

Cattle prices during 1998 were depressed due to the supply of cattle held in
feedlots and to lower export sales. With beef being the largest dollar
agricultural export and Asia receiving much of the beef exported, prices fell
significantly beginning in December 1997 and throughout the first five months of
1998. Not only did prices decline in the beef market, but prices for hides,
which are used in the production of leather, also declined. Hide prices
declined almost 30% over this time period. Continued periods of declining
cattle placement in United States feedlots may result in tightening supplies
relative to demand, even with the reduced demand from Asia and other parts of
the world. The effect of this could be improving prices during 1999, but the
prices may still be lower than might normally be the case due to continued
pressure on exports.

On March 10, 1997, Registrant purchased the assets of Champion Feeders, a
feedlot that is located in western Texas. Registrant will operate this feedlot
for its use as well as that of other customers who want to feed cattle. The
feedlot was purchased for $3.5 million, has a cattle head capacity of 35,000 and
covers approximately 650 acres. Registrant believes that by controlling

20


the feeding phase of its cattle before sending them to packing houses, a better
quality product will be produced providing higher margins to Registrant. In
connection with the purchase of the feedlot Registrant began a program in 1997
to expand the cattle herd. At December 31, 1998, Registrant had 36,701 head of
cattle, which is approximately 6,000 head more than in 1997. This will allow
Registrant to provide additional cattle for the feedlot operation and
potentially increase the earnings from its cattle operations. Registrant also
became involved in a strategic alliance during 1998 with other select producers
and a packer to produce a high-grade beef product to be sold to steak
restaurants and higher end grocery stores. The strategic alliance was formed in
order for the producers of cattle to gain higher margins on the beef they
produce and sell.

Livestock net operating income of $1,499,000 in 1997 was an increase of
$1,087,000 when compared to 1996 net operating income. The growth in net
operating income was due primarily to an increase in cattle sales revenue
($5,972,000) and net operating income provided by the cattle feedlot that was
purchased early in 1997 ($801,000). These favorable variances were partially
offset by an increase in cost of sales on cattle sold of approximately
$5,386,000. Cattle sales revenue grew during 1997 due to an increase in volume
of cattle sold, and higher prices on the cattle sold. During 1997 3,115
additional head of cattle were sold and the weights at which the cattle were
sold averaged approximately 300 pounds per head greater than in 1996. Cost of
sales increased due to owning the cattle for longer periods of time during 1997
than in past years.

See Part I, Item 1 -"Business-Livestock Operations" for a further discussion of
Registrant's livestock operations for 1998 and future expectations.

Farming. Net operating income within the Farming Division was $2,269,000, a
decrease of $358,000 when compared to 1997 net operating income. The decrease
in 1998 net operating income is due to lower grape revenues ($1,086,000) and
pistachio revenues ($641,000), and higher fixed water costs ($337,000). These
unfavorable variances were partially offset by higher almond revenues
($641,000), an increase in farming lease payments ($429,000), and lower cultural
costs ($261,000).

Registrant's almond production increased 33% despite poor weather during the
spring, due primarily to the increase in production from newer almond plantings.
Revenues from almonds also reflect higher estimated prices than the prior year
due to the lower statewide crop and a minimal inventory carryover from the prior
year. The combination of increased production and higher estimated prices led
to almond revenues increasing approximately 49% in 1998. Grape yields in 1998
declined 17% when compared to 1997, which caused grape revenues to decline 16%
when compared to 1997. Pistachio production fell 27% during 1998 due to weather
related factors during the spring. Due to the reduction in yield, pistachio
revenues fell 26% when compared to 1997. Walnut production increased during
1998 but revenues remained flat when compared to 1997 due to lower prices on
walnuts. Walnut prices declined due to the high inventory levels at the
beginning of 1998.

Overall crop production from Registrant's farming operation was greater than
1997 levels but less than expected due to winter and spring storms during the
pollination and bloom period for the crops. Statewide throughout California
production on average was down due to weather

21


factors. This reduction in statewide production kept the prices received on most
1998 crops higher than might otherwise be expected. Industry expectations are
that statewide nut crop yields should continue to improve, which may negatively
impact prices. In addition, industry projections show a continuation of new
almond and pistachio plantings that could impact prices once full production
begins. Within the grape industry there continues to be new land developed,
which could begin to depress prices in the future once all new developments are
in full production. Pricing pressure on grapes did begin during 1997 and 1998
due to improving production and should continue through 1999. All of
Registrant's crops are particularly sensitive to the size of each year's world
crop. Large crops in California and abroad can rapidly depress prices. For a
further discussion of the 1998 farming year refer to Part I, Item 1 -
"Business - Farming Operations".

Farming operating profits of $2,627,000 in 1997 were $507,000 less than 1996
operating profits. The decline in 1997 operating profits was due to a drop in
almond revenues ($1,069,000), lower walnut revenues ($377,000) and higher
cultural costs ($940,000). These unfavorable variances were partially offset by
increased grape revenues ($980,000), the receipt in 1997 of revenues associated
with the 1996 almond and grape crops ($693,000) and lower fixed water costs
($240,000).

The decrease in almond revenues during 1997 was due to a decrease in production
of 12% when compared to 1996 and a decrease in prices of approximately 47%.
Registrant's production fell during 1997 due to the timing of rains and cold
weather during the critical pollination period. Prices declined due to the
California almond industry producing a near record crop. Walnut revenues
declined due to a 39% drop in production during 1997. The decline in walnut
production was due primarily to below normal chilling hours that are required by
walnut trees for adequate dormancy during the winter months. Grape revenues
increased primarily due to an increase in production of 29% when compared to
1996. Production increased due to favorable summer weather.

Resource Management. Resource Management operating profits of $961,000 in 1998
were $367,000, or 28% below 1997 operating profits. The decrease in operating
profits during 1998 is due to lower revenues from oil and gas royalties,
increased staffing costs and to increases in the costs related to the annual
quarter horse events. These unfavorable variances were partially offset by an
increase in revenues from the equestrian program. Oil and gas royalties
continue to decline due to lower prices for crude oil and a decline of
exploration activities on ranch lands. The Resource Management division has
been very profitable over the last several years. However, oil and gas
royalties are expected to be adversely affected over the next few years by the
fact than little or no new oil and gas exploration is taking place on
Registrant's lands and oil prices, are expected to stay depressed as they were
throughout 1998. Registrant does expect royalties from cement production to
grow over the next year due to increased construction activity and to the cement
manufacturing plant being renovated and production capacity being increased but
only if economic conditions continue to be favorable for the construction
industry. See Part I, Item 1 - "Business - Resource Management", for a further
discussion of 1998 activities and future expectations.

22


Resource Management net operating income of $1,328,000 in 1997 was $28,000, or
2% below 1996 net operating income. The decrease in net operating income during
1997 was due to lower revenues from oil and gas royalties, increases in
professional service fees and an increase in staffing costs. These unfavorable
variances were partially offset by increased sand/rock aggregate royalties,
cement royalties, and game management permits. Oil and gas royalties declined
due to lower prices for crude oil. Professional service fees and staffing costs
increased due to the ongoing monitoring of the activities of oil and gas lessees
and monitoring of environmental activities at the National Cement lease site.
Sand/rock and cement royalties increased during 1997 due to the growth of
construction within Southern California and Kern County. Game management permit
revenues increased due to an expansion of services offered and an increase in
hunting programs.

Interest. Interest income of $1,001,000 fell $158,000 when compared to 1997
interest income. The decrease in interest income was due to lower interest
rates and the continuing growth of Registrant that resulted in a $3,895,000
decrease in funds invested. Invested funds declined due to the continued growth
of the cattle herd, capital expenditures, payment of dividends and the financing
of greater receivables and inventories.

Interest income declined to $1,159,000 during 1997 from $1,308,000 in 1996 due
to a $3,000,000 reduction in funds invested. Investment funds declined due to
the purchase of the feedlot, capital expenditures, an increase in the cattle
herd, payment of dividends and the financing of greater receivables and
inventories.

Interest expense during 1998 was $1,065,000, an increase of $318,000 over
interest expense in 1997. The increase in interest expense is due to the short-
term funding of the cattle inventory as well as funding the continuing growth in
the cattle herd and to infrastructure and construction costs related to
development at the Tejon Industrial Complex. The short-term funding of
infrastructure costs will be replaced in 1999 with longer-term debt, but
interest costs related to this expense will remain in 1999. See Note 5 to the
Audited Consolidated Financial Statements for a further description of short-
term and long-term debt.

Interest expense for 1997 was $747,000, an increase of $452,000 over 1996. The
growth in interest expense was due to the addition of long-term debt associated
with the purchase of the cattle feedlot ($2,375,000 outstanding at December 31,
1997) and the short-term funding of the growth in the cattle herd. The feedlot
also borrows on a short-term basis to provide cattle and feed financing for its
outside customers. The cost of this borrowing approximates the lending bank's
prime interest rate. The feedlot then charges its customers the bank's prime
interest rate plus one to one and one-half percent for any financing it does.

Corporate Expenses. Corporate expenses during 1998 were $2,581,000, an increase
of $235,000 when compared to 1997 corporate expenses. The increase in 1998 is
due primarily to an increase in staffing costs. This increase in staffing costs
is tied primarily to a change in Registrant's short-term incentive compensation
program. Partially offsetting this increase in staffing costs was a reduction
in professional service fees.

23


Corporate expenses for 1997 were $2,346,000, an increase of $80,000 when
compared to 1996 corporate expenses. The increase is due to higher professional
service charges and staffing costs. Staffing costs increased due to the fact
that Registrant's new Chief Executive Officer joined Registrant in May 1996 and
served the full year of 1997. Professional service fees increased due to costs
associated with consulting contracts with an investment banking firm.

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. Effective January 1, 1998, the Company adopted the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 superseded FASB Statement No. 14, Financial
Reporting for Segments of a Business Enterprise. SFAS 131 establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. SFAS 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The adoption of
SFAS 131 did not affect results of operations or financial position, nor did it
affect the disclosure of segment information previously or currently provided by
the Company. See Note 12 to the accompanying consolidated financial statements.

As of January 1, 1998, the Company adopted the Statement of Financial Accounting
Standard No. 130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS 130
establishes new rules for the reporting and display of comprehensive income and
its components; however adoption of this Statement had no impact on the
Company's net income. SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale securities, foreign currency translation
adjustments and defined benefit minimum liability adjustments, to be included in
other comprehensive income.

As of January 1, 1998, the Company adopted the Statement of Financial Accounting
Standard No. 132 ("SFAS 132"), "Employers' Disclosures about Pensions and Other
Postretirement Benefits." SFAS 132 revises employers' disclosures about pension
and other postretirement plans. It does not change the measurement or
recognition of those plans. Adoption of this statement had no impact on the
financial results or financial condition of the Company.

Effective October 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 133 (Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133). SFAS 133 standardizes accounting for all derivative contracts and
requires that all derivative contracts

24


be reported in the consolidated balance sheet at fair value. Derivatives meeting
certain specific requirements can be designated as hedges and the special
accounting of SFAS 133 applied. Unrealized gains and losses on derivatives not
designated as hedges are reported in the statement of income.

Management has elected to not designate its futures and option contracts as
hedges. Accordingly, the Company reported a $130,000, net of tax of $70,000,
cumulative effect adjustment.

Impact of Year 2000. Many older computer hardware, software and imbedded micro
controllers are designed to read and store dates using only the last two digits
of the year. As a result they cannot correctly interpret dates beyond the year
1999. If not corrected, this problem could cause processing errors or computer
system failures that materially adversely affect Registrant.

During early 1997 Registrant initiated a review of all its financial and
accounting systems and implemented a conversion plan involving the acquisition
of new hardware and software that read and store dates in four digits. This
conversion was completed in 1997 at a cost of approximately $200,000, of which
approximately $90,000 was for the purchase of new software and consulting
services relating to the conversion. These expenditures were capitalized and
are being depreciated over a three year useful life. The funds were provided by
operations, including use of Registrant's short-term line of credit. Registrant
has conducted limited testing of the new system and believes that it will
function effectively when the dates beyond the year 1999 are processed.

While Registrant believes that its financial and accounting systems are its
principal exposure to the Year 2000 problem, Registrant intends to undertake a
review of the balance of its operations to determine the extent to which other
computer programs and imbedded micro controllers are utilized. Registrant will
then undertake to modify or replace any such programs or devices in advance of
the end of 1999.

Registrant has communicated with and is communicating with all significant
suppliers, customers, financial institutions, utilities, and other third parties
upon which it is dependent to determine the extent to which Registrant's
business operations are vulnerable the failure of those parties to correct their
own Year 2000 problems. Although all responses received to date have been
satisfactory, Registrant has not completed this phase of its Year 2000 readiness
program. Registrant does not intend to independently test or verify which third
parties correct their Year 2000 problems.

Registrant also intends to develop contingency plans to handle its most likely
worst case scenarios with respect to the Year 2000 problem. Registrant intends
to complete its determination of worst case scenarios after it has received and
analyzed responses to substantially all of the inquiries made of third parties.
The contingency plans are expected to include methods of dealing with third
parties that are not dependent upon computer or micro controller technology.
The Registrant estimates that it will complete its inquiry of third parties and
development of contingency plans well in advance of the end of 1999.

25


Registrant believes that substantially all of the costs of completing its
efforts to be Year 2000 ready will consist of the compensation expense allocable
to employees who work on the project. Registrant does not separately track
these costs related to the year 2000 project but does not expect them to be
material.

All statements in this Report regarding the Year 2000 problem involve forward-
looking information as to which there is a great uncertainty. The actual
results of the Registrant's program to deal with the Year 2000 problem could
differ materially from what Registrant plans and anticipates because of the lack
of experience of registrant and others with problems of this kind, the extent to
which computer and other systems of business and other entities are inter-
related and the lack of control over, and access to information of third parties
upon whom Registrant's business is dependent. The failure of the Registrant to
correctly analyze and anticipate Year 2000 problems in its own operations or
those of third parties or the failure or inability to develop effective
contingency plans could have a material adverse effect on the Registrant's
business.

Financial Condition. Registrant's cash, cash equivalents and short-term
investments totaled approximately $18,237,000 at December 31, 1998, an increase
of $80,000 from the corresponding amount at the end of 1997. Working capital at
the end of 1998 was $19,768,000, which is approximately $4,800,000 less than
working capital at the end of 1997. Registrant has a revolving line of credit
of $13,700,000 that as of December 31, 1998, had a balance of $13,155,000
bearing interest at the rate of 7.75%, which floats with changes in the lending
bank's prime interest rate. In addition, Registrant has an outstanding short-
term borrowing with an investment banking firm with a balance of $5,308,000 at
December 31, 1998 at an interest rate of 5.75%. Registrant's feedlot also has a
short-term revolving line of credit for the feedlot with a local bank for
$4,000,000 with an outstanding balance at December 31, 1998 of $1,536,000, with
an interest rate approximating the bank's prime lending rate of 7.75% which
floats with changes in the lending bank's prime interest rate. The revolving
lines of credit are used as short-term cash management tools and for the
financing of customer cattle and feed receivables at the feedlot. The use of
short-term credit has grown when compared to 1997 due to increases in
inventories as a result of the growth of Registrant's core business lines, and
to the funding of infrastructure construction costs on a short-term basis.

The principal uses of cash and cash equivalents during 1998, 1997, and 1996
consisted of capital expenditures, expansion of the cattle herd, purchase of the
cattle feedlot, purchase of land, payments of long-term debt, the payment of
dividends and the financing of greater receivables and inventories.

The accurate forecasting of cash flows by Registrant is made 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.

26


During 1999, $10,705,000 has been budgeted for capital expenditures, which
includes new equipment and improvements to existing facilities. Registrant is
currently expanding its farming operations with the planting of additional
almonds completed in early 1999, will continue the expansion of the cattle herd,
and is investing approximately $7,000,000 in the infrastructure and off-site
improvements related to the Tejon Industrial Complex. These new projects have
been and will be funded from current cash resources and Registrant's excess
borrowing capacity.

Registrant has traditionally funded its growth and capital additions from
internally generated funds. Management believes that the combination of short-
term investments, excess borrowing capacity, and capital presently available to
it will be sufficient for its near term operations.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK:

Market risk represents the risk of loss that may impact the financial position,
results of operations, or cash flows of Registrant due to adverse changes in
financial or commodity market prices or rates. Registrant is exposed to market
risk in the areas of interest rates and commodity prices.

Financial Market Risks

Registrant is exposed to financial market risks, including changes to interest
rate and credit risk related to marketable securities, interest rate related to
its own outstanding indebtedness and trade receivables.

The primary objective of Registrant's investment activities is to preserve
principal while at the same time maximizing yields while prudently managing
risk. To achieve this objective and limit interest rate exposure, Registrant
limits its investments to securities with a maturity of less than five years to
limit interest rate exposure and with an investment grade of A or better from
Moody's or Standard and Poors to minimize credit risk. In addition, market
value changes due to interest rate changes are minimized because a large portion
of the portfolio has interest rates that float and are reset on a quarterly
basis. See Note 2, Marketable Securities, of Notes to Consolidated Financial
Statements.

Registrant is exposed to interest rate exposure on its short-term working
capital line of credit and the long-term debt currently outstanding. The short-
term line of credit interest rate is tied to the lending bank's prime rate, and
changes when that rate changes. The long-term debt has a fixed interest rate
and the fair value of the long-term debt will change based on interest rate
movements in the market. Registrant typically does not attempt to reduce or
eliminate its exposure on this debt through the use of any financial instrument
derivatives. Registrant manages its interest rate exposure through negotiation
of the terms.

27


Registrant's credit and market risk related to its inventories and receivables
ultimately depends on the value of the cattle, almonds, grapes, pistachios, and
walnuts at the time of payment or sale. Based on historical experience with
current customers and periodic credit evaluations of its customers' financial
condition, Registrant believes its credit risk is minimal. Market risk is
discussed below in commodity price exposure.

The following table provides information about Registrant's financial
instruments that are sensitive to changes in interest rates. The table presents
the Company's debt obligations, principal cash flows and related weighted-
average interest rates by expected maturity dates.



Interest Rate Sensitivity
Financial Market Risks
Principal Amount by Expected Maturity
Fair
Value
1999 2000 2001 2002 2003 There-after Total 12/31/98
---------- --------- --------- --------- --------- ----------- --------- ----------

Assets:
Marketable
Securities 5,885,000 2,939,000 2,662,000 1,747,000 --- --- 13,233,000 13,294,000
Average
Interest
Rate 6.92% 5.93% 5.81% 6.40% 6.41%

Liabilities
Short-term
Debt 19,999,000 --- --- --- --- --- 19,999,000 19,999,000
Average
Interest
Rate 7.38% --- --- --- --- --- 7.38%

Long-term
Debt 250,000 250,000 250,000 250,000 1,125,000 --- 2,125,000 2,125,000
Average
Interest
Rate 8.57% 8.57% 8.57% 8.57% 8.57% --- 8.57%



In comparison to the prior year Registrant's risks in regards to fluctuations in
interest rates has increased overall due to the growth in the use of short-term
lines of credit that fluctuate with the bank's prime lending rate. The use of
short-term debt increased approximately $8.0 million in 1998. Changes in
interest rates in 1998 had the same effect under the terms of the debt
instruments outstanding as they had in 1997.

Commodity Price Exposure

Registrant has exposure to adverse price fluctuations associated with certain
inventories, gross margins, accounts receivables, and certain anticipated
transactions in its Livestock and Farming Divisions. Commodities such as corn
and cattle are purchased and sold at market prices that are subject to
volatility. In order to manage the risk of market price fluctuations,
Registrant enters into various exchange-traded futures and option contracts.
Registrant closely monitors and

28


manages its exposure to market price risk on a daily basis in accordance with
formal policies established for this activity. These policies limit the duration
to maturity of contracts entered into as well as the level of exposure to be
hedged.

Registrant's goal in managing its cattle and feed costs is to protect or create
a range of selling prices and feed prices that allow Registrant to recognize a
profit or minimize a loss on the sale of cattle once all costs are deducted.
See Note 7, Commodity Contracts Used to Manage Risk of Notes to Consolidated
Financial Statements. Gains on future contracts and options as of December 31,
1998 were $485,000 as compared to the approximately $360,000 in losses at
December 31, 1997. The change is primarily due to a decline in cattle prices
during 1998, which caused future contracts and options to be repriced which
created gains on the derivative positions. These gains partially offset the
decline in prices received on the sale of cattle.

Inventories consist primarily of cattle for sale and price fluctuations are
managed with futures and options contracts. See table below for contracts
outstanding at year-end. Registrant is at risk with respect to changes in
market prices with respect to cattle held for sale that are not protected by
futures and options contracts. At December 31, 1998 approximately 65% of the
cattle held in inventory or 19,228 head of cattle were not protected by futures
and options for price movement. This compares to 21,082 head of cattle at
December 31, 1997. The 1998 number of head of cattle equates to approximately
11.5 million pounds of beef. For each $.01 per pound change in price,
Registrant has a potential exposure of $115,000 in future value. Although the
price which the cattle will ultimately be sold is unknown, over the last three
years the market price has ranged from $.50 per pound to $.68 per pound and the
current market price is $.66 per pound.

With respect to accounts receivable, the amount at risk relates to almonds and
pistachios. These receivables are recorded at estimates of the prices that
ultimately will be received for the crops. The final price is not known until
the third or fourth quarter of the following year. Of the accounts receivable
outstanding at December 31, 1998, only $1,236,000 is at risk to changing prices
of almonds and $122,000 is at risk to changing prices of pistachios. The
comparable amounts of accounts receivable at December 31, 1997 were $1,734,000
and $735,000, respectively. The price estimated for recording accounts
receivable at December 31, 1998 was $1.85 per pound for almonds. For every $.01
change in the price of almonds Registrant's receivable for almonds increases or
decreases by $14,000. Although the final price of almonds (and therefore the
extent of the risk) is not presently known, over the last three years the final
prices have ranged from $1.54 to $2.26. With respect to pistachios, the price
estimated for recording the receivable was $1.17 per pound, each $.01 change in
the price increases or decreases the receivable by $8,000 and the range of final
prices over the last three years has been $.92 to $1.17.

29


The following table identifies the future contract amounts and options contract
costs outstanding at December 31, 1998.


Original Estimated
Commodity Future/Option No. Contract/Cost Fair Value
Description Contracts (Bought) Sold (Bought) Sold
- ------------------------------------------------------------------------------------------------------------------

Cattle futures bought
50,000 lbs. per contract 20 $(710,000) $694,000

Cattle options bought
40,000 lbs. per contract 130 $ (72,000) $ 89,000

Cattle options sold
40,000 lbs. per contract 130 $ 42,000 $ (6,000)


The above futures contracts and options contracts expire between January 1999
and April 1999. Estimated fair value at settlement is based upon quoted market
prices at December 31, 1998.


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.

30


PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Information as to the directors of Registrant is incorporated by reference from
the definitive proxy statement to be filed by Registrant with the Securities and
Exchange Commission with respect to its 1999 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 1999 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 1999 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 1999 Annual Meeting of Stockholders.

31


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 Balance Sheets-
December 31, 1998 and 1997 40

1.3 Consolidated Statements of Income -
Years Ended December 31, 1998, 1997
and 1996 42

1.4 Consolidated Statements of Stockholders'
Equity - Three Years Ended
December 31, 1998 43

1.5 Consolidated Statements of Cash Flows -
Years Ended December 31, 1998, 1997
and 1996 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 **



32




10.3 Lease Agreement for Mr. San Olen **

10.4 Asset Purchase Agreement dated
March 10, 1997 for purchase of feedlot
assets ***

10.5 Petro Travel Plaza Operating Agreement ****

10.6 Amended and Restated Stock Option Agreement
Pursuant to the 1992 Employee Stock Incentive
Plan ****

10.7 Severance Agreement ****

10.8 Director Compensation Plan ****

10.9 Non-Employee Director Stock Incentive Plan ****

10.9(1) Stock Option Agreement Pursuant to the
Non-Employee Director Stock Incentive Plan ****

10.10 1998 Stock Incentive Plan ****

10.10(1) Stock Option Agreement Pursuant to the 1998
Stock Incentive Plan ****

10.11 Employment Contract - Robert L. Stine ****

21 List of Subsidiaries of Registrant 63

23 Consent of Ernst & Young LLP 64

27 Financial Data Schedule (Edgar) 65


(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.

33


** 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.

*** 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, 1996, 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, 1997, is incorporated herein by
reference.

Financial Statement Schedules -- The response to this portion of Item 14 is
submitted as a separate section of this report.

34


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 25, 1999 BY: /s/ Robert A. Stine
---------------------------------
Robert A. Stine
President and Chief Executive Officer
(Principal Executive Officer)


DATED: March 25, 1999 BY: /s/ Allen E. Lyda
---------------------------------
Allen E. Lyda
Vice President, Finance & Treasurer
(Principal Financial and
Accounting Officer)

35


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
- --------------------------------------------------------------------------------

/s/ Otis Booth, Jr.
- ---------------------------------------- Director March 16, 1999
Otis Booth, Jr.

/s/ Craig Cadwalader
- ---------------------------------------- Director March 16, 1999
Craig Cadwalader

/s/ Dan T. Daniels
- ---------------------------------------- Director March 16, 1999
Dan T. Daniels

/s/ Rayburn S. Dezember
- ---------------------------------------- Director March 16, 1999
Rayburn S. Dezember

/s/ Norman Metcalfe
- ---------------------------------------- Director March 16, 1999
Norman Metcalfe

/s/ Robert Ruocco
- ---------------------------------------- Director March 16, 1999
Robert Ruocco

/s/ Kent Snyder
- ---------------------------------------- Director March 16, 1999
Kent Snyder

/s/ Geoffrey Stack
- ---------------------------------------- Director March 16, 1999
Geoffrey Stack

/s/ Robert A. Stine
- ---------------------------------------- Director March 16, 1999
Robert A. Stine

/s/ Martin Whitman
- ---------------------------------------- Director March 16, 1999
Martin Whitman



36


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, 1998

Tejon Ranch Co.

Lebec, California

37


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 Balance Sheets -
December 31, 1998 and 1997 40
Consolidated Statements of Income -
Years Ended December 31, 1998, 1997 and 1996 42
Consolidated Statements of Stockholders' Equity -
Three Years Ended December 31, 1998 43
Consolidated Statements of Cash Flows -
Years Ended December 31, 1998, 1997 and 1996 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 are not required under the
related instructions or are inapplicable, and therefore have been omitted.

38


Report of Independent Auditors


Stockholders and Board of Directors
Tejon Ranch Co.

We have audited the consolidated balance sheets of Tejon Ranch Co. and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1998. 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.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Tejon Ranch Co.
and subsidiaries at December 31, 1998 and 1997, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.

As discussed in Note 1, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities."



ERNST & YOUNG LLP


Los Angeles, California
February 23, 1999

39


Tejon Ranch Co. and Subsidiaries

Consolidated Balance Sheets



December 31
1998 1997
-------------------------------------

Assets
Current assets:
Cash and cash equivalents $ 743,000 $ 976,000
Cash in escrow 4,200,000 ---
Marketable securities 13,294,000 17,189,000
Accounts receivable 7,359,000 8,448,000
Inventories 17,416,000 12,222,000
Prepaid expenses and other current assets 996,000 1,659,000
---------------------------------
Total current assets 44,008,000 40,494,000



Property and equipment, net 27,553,000 21,778,000

Other assets:
Breeding herd, net of accumulated depreciation of $155,000
in 1998 and $134,000 in 1997 1,133,000 1,147,000
Other assets 320,000 274,000
---------------------------------
1,453,000 1,421,000



---------------------------------
Total assets $73,014,000 $63,693,000
=================================


See accompanying notes.

40




December 31
1998 1997
---------------------------------------

Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $ 3,235,000 $ 2,889,000
Other accrued liabilities 502,000 390,000
Current deferred income 62,000 292,000
Income taxes payable 192,000 ---
Short-term debt 19,999,000 11,955,000
Current portion of long-term debt 250,000 450,000
---------------------------------
Total current liabilities 24,240,000 15,976,000

Long-term debt, less current portion 1,875,000 3,925,000

Deferred income taxes 4,194,000 3,304,000



Commitments and contingencies

Stockholders' equity:
Common Stock, $.50 par value per share:
Authorized shares - 30,000,000
Issued and outstanding shares - 12,691,253 in 1998
and 12,685,994 in 1997 6,346,000 6,343,000
Additional paid-in capital 382,000 385,000
Unrealized gains on available-for-sale
securities, net of taxes 37,000 109,000
Defined benefit plan funding adjustment, net of taxes (216,000) ---
Retained earnings 36,156,000 33,651,000
---------------------------------
Total stockholders' equity 42,705,000 40,488,000
---------------------------------
Total liabilities and stockholders' equity $73,014,000 $63,693,000
================================


See accompanying notes.

41


Tejon Ranch Co. and Subsidiaries

Consolidated Statements of Income



Year Ended December 31
1998 1997 1996
-------------------------------------------------------

Revenues:
Real Estate $ 5,742,000 $ 3,403,000 $ 1,464,000
Livestock 34,871,000 24,555,000 4,573,000
Farming 8,671,000 9,173,000 9,107,000
Resource Management 2,597,000 2,696,000 2,508,000
Interest income 1,001,000 1,159,000 1,308,000
-------------------------------------------------------
52,882,000 40,986,000 18,960,000

Costs and expenses:
Real Estate 2,799,000 2,400,000 2,305,000
Livestock 33,777,000 23,056,000 4,161,000
Farming 6,402,000 6,546,000 5,973,000
Resource Management 1,636,000 1,368,000 1,152,000
Corporate expenses 2,581,000 2,346,000 2,266,000
Interest expense 1,065,000 747,000 295,000
-------------------------------------------------------
48,260,000 36,463,000 16,152,000
-------------------------------------------------------
Income before income taxes 4,622,000 4,523,000 2,808,000
Income taxes 1,613,000 1,491,000 1,123,000
-------------------------------------------------------
Income before cumulative effect of
a change in an accounting principle 3,009,000 3,032,000 1,685,000

Cumulative effect of a change in an
accounting principle (net of taxes of
$70,000) 130,000 --- ---
-------------------------------------------------------
Net Income $ 3,139,000 $ 3,032,000 $ 1,685,000
=======================================================

Income per share before cumulative effect of
a change in accounting principle, basic $ 0.24 $ --- $ ---
-------------------------------------------------------

Income per share before cumulative effect of
a change in accounting principle, diluted $ 0.24 $ --- $ ---
-------------------------------------------------------
Net income per share, basic $ 0.25 $0.24 $0.13
=======================================================
Net income per share, diluted $ 0.25 $0.24 $0.13
=======================================================

See accompanying notes.


42


Tejon Ranch Co. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Three years ended December 31, 1998




Additional Accumulated Other
Common Paid-In Comprehensive Retained
Stock Capital Income Earnings Total
--------------------------------------------------------------------------


Balance January 1, 1996 $6,341,000 $387,000 $ 39,000 $30,202,000 $36,969,000
Net income --- --- --- 1,685,000 1,685,000
Defined benefit plan funding
Adjustments, net of
taxes of $170,000 --- --- (256,000) --- (256,000)
Changes in unrealized gains (losses)
on available-for-sale securities,
net of taxes of $21,000 --- --- (32,000) --- (32,000)
-----------
Comprehensive Income --- --- --- --- 1,397,000
-----------
Cash dividends paid-
$.05 per share --- --- --- (634,000) (634,000)
---------------------------------------------------------------------------
Balance December 31, 1996 6,341,000 387,000 (249,000) 31,253,000 37,732,000

Net Income --- --- --- 3,032,000 3,032,000

Defined benefit plan funding
Adjustments, net of taxes of --- --- 256,000 --- 256,000
$170,000
Changes in unrealized gains (losses)
On available-for-sale securities,
net of taxes of $73,000 --- --- 102,000 --- 102,000
-----------
Comprehensive Income --- --- --- --- 3,390,000
-----------
Exercise of stock options 2,000 (2,000) --- --- ---

Cash dividends paid-
$.05 per share --- --- --- (634,000) (634,000)
--------------------------------------------------------------------------
Balance, December 31,1997 6,343,000 385,000 109,000 33,651,000 40,488,000

Net Income --- --- --- 3,139,000 3,139,000

Defined benefit plan funding
Adjustments, net of taxes
of $133,000 --- --- (216,000) --- (216,000)
Changes in unrealized gains (losses)
on available-for-sale securities,
net of taxes of $49,000 --- --- (72,000) --- (72,000)
-----------
Comprehensive Income --- --- --- --- 2,851,000
-----------
Exercise of stock options 3,000 (3,000) --- --- ---

Cash dividends paid -
$.05 --- --- --- (634,000) (634,000)
--------------------------------------------------------------------------
Balance, December 31,1998 $6,346,000 $382,000 ($179,000) $36,156,000 $42,705,000
--------------------------------------------------------------------------
See accompanying notes.


43


Tejon Ranch Co. and Subsidiaries

Consolidated Statements of Cash Flows



Year Ended December 31
1998 1997 1996
------------------------------------------------------------------

Operating Activities
- -------------------
Net Income $ 3,139,000 3,032,000 $ 1,685,000
Items not affecting cash:
Depreciation and amortization 1,998,000 1,729,000 1,221,000
Deferred income taxes 1,049,000 585,000 134,000
Gain from sale of land (4,231,000) --- ---
Losses on sales of investments --- 3,000 ---
Current deferred income (230,000) 27,000 (208,000)
Changes in certain current assets and current
liabilities:
Accounts receivable 1,089,000 (4,145,000) 184,000
Inventories (5,194,000) (8,434,000) (603,000)
Prepaid expenses and other current assets 685,000 (100,000) (93,000)
Trade accounts payable and other accrued liabilities 432,000 2,222,000 (355,000)
Income taxes payable 192,000 (856,000) 592,000
------------------------------------------------------------------
Net cash provided by (used in) operating activities (1,071,000) (5,937,000) 2,557,000

Investing Activities
- --------------------
Acquisition of Champion Feeders --- (3,874,000) ---
Maturities of marketable securities 6,644,000 8,415,000 9,859,000
Funds invested in marketable securities (2,870,000) (5,310,000) (9,784,000)
Net change in breeding herd (77,000) (174,000) (168,000)
Funds from sale of land 4,250,000
Cash in escrow (4,200,000) --- ---
Property and equipment expenditures (7,700,000) (3,600,000) (2,343,000)
Other (369,000) (125,000) 36,000
------------------------------------------------------------------
Net cash (used in) investing (4,322,000) (4,668,000) (2,400,000)

Financing Activities
- --------------------
Proceeds from revolving line of credit 26,929,000 30,435,000 15,824,000
Payments on revolving line of credit (18,885,000) (21,288,000) (14,698,000)
Borrowing of long-term debt --- 2,500,000 ---
Repayment of long-term debt (2,250,000) (125,000) ---
Cash dividends paid (634,000) (634,000) (634,000)
------------------------------------------------------------------
Net cash provided by financing activities 5,160,000 10,888,000 492,000
------------------------------------------------------------------
Increase in cash and cash equivalents (233,000) 283,000 649,000
Cash and cash equivalents at beginning of year 976,000 693,000 44,000
------------------------------------------------------------------
Cash and cash equivalents at end of year $ 743,000 $ 976,000 $ 693,000
------------------------------------------------------------------
Supplemental Disclosure of Noncash Investing and
Financing Activities:
Interest Paid (net of amounts capitalized) $ 1,065,000 $ 747,000 $ 295,000
==================================================================
Income taxes paid $ 232,000 $ 1,317,000 $ 531,000
==================================================================
See accompanying notes.


44


Notes to Consolidated Financial Statements

December 31, 1998


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. Intercompany transactions have been eliminated
in.

Cash Equivalents

The Company considers all highly liquid investments, with a maturity of three
months or less when purchased, to be cash equivalents. The carrying amount for
cash equivalents approximates fair value.

Cash In Escrow

Cash in escrow consists of amounts held in an escrow account to facilitate a tax
deferred exchange of real property which occurred subsequent to year end (see
Note 14). These amounts were released from the escrow account subsequent to
year end and disbursed towards the acquisition price of the real property.

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 as a
component of comprehensive income in the consolidated statements of
stockholders' equity.

Credit Risk

The Company grants credit to customers, principally large cattle purchasers,
feedlot customers, 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 customer's financial condition and
generally does not require collateral.

During 1998, 1997 and 1996 the following customers accounted for more than 10%
of the Company's consolidated revenues, Excel Meat Packing, a purchaser of
cattle, (20% in 1998), Golden State Vintners (14% in 1997 and 21% in 1996), and
Harris Ranch, a purchaser of cattle, (18% in 1996).

45


Farm Inventories

Costs of bringing crops to harvest are capitalized when incurred. Such costs
are expensed when the crops are sold. Costs during the current year related to
the next year's crop are capitalized and carried in inventory until the matching
crop is harvested and sold. Farm inventories held for sale are valued at the
lower of cost (first-in, first-out method) or market.

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 function, 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 Manage Price Fluctuations

The Company enters into futures and option contracts to manage its exposure to
price fluctuations on its stocker cattle and its cattle feed costs. The goal of
the Company is to protect or create a future price for its cattle and feed that
will provide a profit once the cattle are sold and all costs are deducted.
Futures and options contracts are carried at market value with unrealized gains
and losses recognized in the consolidated income statement.

Property and Equipment

Property and equipment 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, and accordingly 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. Revenues from crops earned during the development stage are
credited against development costs. Depreciation commences when the crops
become commercially productive.

At the time crops are harvested and delivered to buyers and revenues are
estimatable, revenues and related costs are recognized, which traditionally
occurs during the third and fourth quarters of each year. Orchard revenues are
based upon estimated selling prices, whereas vineyard

46


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 crop 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 decreased farming revenue
$168,000 in 1998, increased farming revenue $693,000 in 1997, and decreased
farming revenue $129,000 in 1996.

The California Almond Board has the authority to require producers of almonds to
withhold a portion of their annual production from the marketplace. At December
31, 1998, 1997 and 1996, no such withholding was mandated.

Common Stock Options

The Company has elected to follow Accounting Principles Board Opinion No 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employees', advisors', and consultants' stock options
because, as discussed below, the alternative fair value accounting provided for
under SFAS No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of stock options
granted by the Company equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.

Net Income Per Share

Basic net income per share is based upon the weighted average number of shares
of common stock outstanding during the year (12,691,253 in 1998, 12,683,497 in
1997, and 12,682,244 in 1996). Diluted net income per share is based upon the
weighted average number of shares of common stock outstanding and the weighted
average number of shares outstanding assuming the issuance of common stock for
stock options using the treasury stock method (12,752,967 in 1998, 12,726,729 in
1997, and 12,683,760 in 1996). The weighted average of dilutive stock options
were 61,714 in 1998, 43,232 in 1997, and 1,516 in 1996.

Long-Lived Assets

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", the Company records impairment losses on long-lived assets held
and used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
their related carrying amounts. In addition, the Company accounts for its long-
lived assets to be disposed of at the lower of their carrying amounts or fair
value less selling and disposal costs. At December 31, 1998, Management of the
Company believes that none of its assets are impaired.

47


Sales of Real Estate

Revenues are recorded and profit is recognized when title has passed to the
buyer and a minimum down payment has been received.

Environmental

Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations and which do not contribute to current or future
revenue generation 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, 1998, 1997 or 1996.

Use of Estimates

The financial statements have been prepared in conformity with generally
accepted accounting principles and, as such, include amounts based on informed
estimates and judgments of management. Actual results could differ from these
estimates.

New Accounting Pronouncements

Effective January 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 superseded FASB Statement No. 14, Financial Reporting for
Segments of a Business Enterprise. SFAS 131 establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. SFAS 131
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS 131 did not affect
results of operations or financial position, nor did it affect the disclosure of
segment information previously or currently provided by the Company. See Note
12 to the accompanying consolidated financial statements.

As of January 1, 1998, the Company adopted the Statement of Financial Accounting
Standard No. 130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS 130
establishes new rules for the reporting and display of comprehensive income and
its components; however adoption of this Statement had no impact on the
Company's net income. SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale securities, foreign currency translation
adjustments and defined benefit minimum liability adjustments to be included in
other comprehensive income. The Company reflects its other comprehensive income
as a component of consolidated stockholders' equity.

48


As of January 1, 1998, the Company adopted the Statement of Financial Accounting
Standard No. 132 ("SFAS 132"), "Employers' Disclosures about Pensions and Other
Postretirement Benefits." SFAS 132 revises employers' disclosures about pension
and other postretirement plans. It does not change the measurement or
recognition of those plans. Adoption of this statement had no impact on the
financial results or financial condition of the Company.

Effective October 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 133 (Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 133 standardizes accounting for all
derivative contracts and requires that all derivative contracts be reported in
the consolidated balance sheet at fair value. Derivatives meeting certain
specific requirements can be designated as hedges and the special accounting of
SFAS 133 applied. Unrealized gains and losses on derivatives not designated as
hedges are reported in the statement of income.

Management has elected to not designate its futures and option contracts as
hedges. Accordingly, the Company reported a $130,000, net of tax of $70,000,
cumulative effect adjustment on the statement of income.


2. MARKETABLE SECURITIES

Statement of Financial Accounting Standard (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities, 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:



1998 1997
------------------------------------------------------------------------------
Estimated Fair Estimated Fair
Cost Value Cost Value
------------------------------------------------------------------------------

Marketable Securities:
U.S. Treasury
and agency notes $ 6,905,000 $ 6,961,000 $ 9,770,000 $ 9,947,000
Corporate notes 6,328,000 6,333,000 7,237,000 7,242,000
$13,233,000 $13,294,000 $17,007,000 $17,189,000
===============================================================================



As of December 31, 1998, the cumulative fair value adjustment to stockholders'
equity is an unrealized gain on available-for-sale securities of $37,000, net of
a tax expense of $24,000. The Company's gross unrealized holding gains equal
$177,000, while gross unrealized holding losses equal $116,000. On December 31,
1998, the average maturity of U.S. Treasury and agency securities was one year
and corporate notes was 1.6 years. Currently, the Company has no

49


securities with a weighted average life of greater than five years. During 1998
and 1996, there were no gains or losses on the sale of securities. During 1997,
the Company recognized losses of $3,000 on the sale of $2.0 million of
securities, carried at historical costs 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.



3. INVENTORIES

Inventories consist of the following at December 31:



1998 1997
-------------------------------------------------

Cattle held for sale $16,577,000 $11,737,000
Farming inventories 326,000 ---
Feed inventories 513,000 485,000
-------------------------------------------------
$17,416,000 $12,222,000
=================================================



4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31:



1998 1997
-------------------------------------------------

Land and land improvements $ 4,311,000 $ 4,040,000
Buildings and improvements 17,287,000 10,875,000
Machinery, water pipelines, furniture, fixtures,
and other equipment 6,455,000 6,480,000
Vineyards and orchards 17,339,000 16,478,000
-------------------------------------------------
45,392,000 37,873,000
Less allowance for depreciation (17,839,000) (16,095,000)
-------------------------------------------------
$ 27,553,000 $ 21,778,000
=================================================



5. LINE OF CREDIT AND LONG-TERM DEBT

The Company may borrow up to $13,700,000 on a short-term unsecured revolving
line of credit at interest rates approximating the bank's prime rate (7.75% at
December 31, 1998). The revolving line expires in September 1999. At December
31, 1998, there was $13,155,000 of outstanding debt under the line of credit
agreement. The Company also has an outstanding short-term borrowing with an
investment banking company, with an outstanding balance of

50


$5,308,000 at December 31, 1998, at an interest rate of 5.75%. The Company's
feedlot also has a short-term revolving line of credit with a local bank for
$4,000,000. The outstanding balance at December 31, 1998 was $1,536,000, with
the interest rate approximating the bank's prime lending rate of 7.75%. On all
short-term debt arrangements interest is payable monthly and principal is paid
or borrowed on a daily basis as needed. The weighted average interest rate on
short-term debt was 7.38 % for 1998.

At December 31, 1997, there was $5,897,000 of outstanding debt under an
unsecured revolving line of credit of $6,000,000 with interest rates
approximating the bank's prime lending rate of 8.25%. The Company also had an
outstanding short-term borrowing with an investment banking company, with an
outstanding balance of $4,827,000 at an interest rate of 6.50%. The Company's
feedlot, Champion Feeders, also had a short-term revolving line of credit with a
local bank for $4,000,000. The outstanding balance at December 31, 1997 was
$1,231,000 with an interest rate approximating the banks' prime lending rate of
8.25%. The weighted average interest rate on short-term debt was 7.89% for
1997.

Long-term debt consists of the following at December 31:



1998 1997
---------------------------------------------

Notes payable to a bank $2,125,000 $4,375,000
Less current portion (250,000) (450,000)
---------------------------------------------
$1,875,000 $3,925,000
=============================================


The current long-term note payable with an outstanding balance of $2,125,000 to
a bank provides for interest at an average rate of 8.57% per annum, payable
monthly, on amounts outstanding. Principal is payable quarterly in amounts of
$62,500, with the remaining balance due December 31, 2003. Amounts borrowed are
secured by land and assets of the acquired feedlot.

During 1997, there was a second note payable with an outstanding balance of
$2,000,000 to a bank at an average rate of 7.70% per annum, payable monthly.
Principal was payable in semi-annual installments of $100,000, with the
remaining balance due September 1999. Amounts borrowed under the agreement were
unsecured.

The amount of the line of credit and long-term debt instruments listed above
approximate the fair value of the instruments.

Interest paid approximated interest expense incurred for each of the three years
in the period ended December 31, 1998.

Maturities of long-term debt at December 31, 1998 are $250,000 from 1999 through
2002 and $1,125,000 in 2003.

51


6. 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. Since adoption of the plan in March 1992, options have been granted under
the 1992 Stock Option Plan with 159,000 shares at an exercise price of $16 per
share and 20,000 shares at an exercise price of $15 per share.

On April 7, 1997 options to purchase 159,000 shares were amended to lower the
previously existing exercise price to $16.00 per share, which was the market
price at the date of the amendment. These options have a ten-year term and vest
over a one-to-five-year periods from the grant date. The grant date for options
to purchase 59,000 shares is 1992, and the grant date for options to purchase
100,000 shares is May 1, 1996.

On January 26, 1998, the Board of Directors adopted the 1998 Stock Incentive
Plan. The Incentive Plan provides for the making of awards to employees,
consultants, and advisors of the Company with respect to 800,000 shares of
common stock. From the adoption of the Incentive Plan to December 31, 1998, the
Company has granted options to purchase 373,000 shares at a price equal to the
fair market value at date of grant, all of which were outstanding at December
31, 1998.

Also, on January 26, 1998, the Board of Directors adopted the Non-Employee
Director Stock Incentive Plan. This plan is intended to enable the Company to
attract, retain, and motivate its non-employee directors by providing for or
increasing the proprietary interests of such persons in the Company. The plan
provides for making of awards to non-employee directors with respect to an
aggregate of 200,000 shares of common stock. Since the adoption of the plan to
December 31, 1998, the Company has granted options under the plan to purchase
17,534 shares at a price equal to the fair market value at date of grant.

The 1998 Stock Incentive Plan and the Non-Employee Director Stock Incentive Plan
were approved by stockholders at the Company's Annual Meeting on May 11, 1998.

Pro forma information regarding net income and earnings per share is required by
SFAS No. 123 and has been determined as if the Company had accounted for its
stock options under the fair value method of the statement. The fair value for
these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted average assumptions for 1998: Risk-
free interest rate of 5.39%; dividend rate of .26%; volatility factor of the
expected market price of the Company's common stock of .38; and a weighted
average expected life of the options of six years from the option grant date.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can

52


materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its stock option plan.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting periods. The Company's pro
forma information follows:



1998 1997
------------------------------------------------

Pro forma net income $2,965,000 $2,940,000
Pro forma net income per share, diluted $ 0.23 $ 0.23



A summary of the Company's stock option activity and related information for the
years ended December 31, follows:



1998 1997
----------------------------------------------------------------------------------
Weighted-Average Weighted-
Exercise Prices Average Exercise
Options Options Prices

----------------------------------------------------------------------------------

Outstanding
beginning of year 172,178 $15.91 179,000 $17.84
Granted 390,534 21.29 159,000 16.00
Exercised (13,725) 16.00 (6,822) 15.33
Forfeited/Cancelled (2,546) 24.50 (159,000) 18.66
----------------------------------------------------------------------------------
Outstanding end of year 546,441 $19.73 172,178 $15.91
Options exercisable
end of year 83,453 $15.91 82,178 $15.91
Weighted-average fair
value of options granted $10.05 $6.34



The above options were exercised with a net 5,259 shares of common stock issued
by the Company as 8,466 of the options were given back by the grantees as
consideration for the exercise price of the options.

Exercise prices for options outstanding as of December 31, 1998 ranged from
$15.00 to $26.38. The weighted-average remaining contractual life of those
options is approximately six years.


7. COMMODITY CONTRACTS USED TO MANAGE RISK

The Company uses commodity derivatives to manage risk 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 protect a profit or minimize a loss
once the cattle are sold and all costs are deducted and to protect the Company
against a disastrous cattle market decline or feed cost increase. To help

53


achieve this objective the Company uses both the futures commodity markets and
options commodity markets. A future contract is an obligation to make or take
delivery at a specific future time of a specifically defined, standardized unit
of a commodity at a price determined when the contract is executed. Options are
contracts that give their owners the right, but not the obligation, to buy or
sell a specified item at a set price on or before a specified date. The Company
continually monitors any open futures and options contracts on a daily basis in
accordance with formal policies to determine the appropriate hedge based on
market movement of the underlying asset. The options 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 and feed are scheduled to
be sold or purchased. The risk associated with this strategy for the Company is
that it limits or caps the potential profits if cattle prices begin to increase
dramatically or can add additional costs for feed if grain prices fall
dramatically.

Realized gains, losses, and market value adjustments associated with both closed
and open contracts are recognized in cost of sales expense. During 1998, the
Company recognized approximately $485,000 in net gains from hedging and
derivative activity as a decrease in cost of sales. In 1997 and 1996, the
Company recognized approximately $360,000 in losses and $577,000, in gains,
respectively, from derivative activity.

The following table identifies the futures contract amounts and options contract
costs outstanding at December 31, 1998:



Original Estimated
Commodity Future/Option No. Contract/Cost Fair Value
Description Contracts (Bought) Sold (Bought) Sold
- ------------------------------------------------------------------------------------------------

Cattle futures bought
50,000 lbs. per contract 20 $(710,000) $694,000
Cattle options bought
40,000 lbs. per contract 130 $ (72,000) $ 89,000
Cattle options sold
40,000 lbs. per contract 130 $ 42,000 $ (6,000)


The above futures contracts and options contracts expire between January 1999
and April 1999. Estimated fair value at settlement is based upon quoted market
prices at December 31, 1998.


8. 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.

54


The provision for income taxes consists of the following at December 31:



1998 1997 1996
--------------------------------------------------------

Federal:
Current $ 132,000 $ 691,000 $ 746,000
Deferred 1,164,000 486,000 106,000
--------------------------------------------------------
1,296,000 1,177,000 852,000
State:
Current 60,000 182,000 248,000
Deferred 327,000 132,000 23,000
--------------------------------------------------------
387,000 314,000 271,000
--------------------------------------------------------
$1,683,000 $1,491,000 $1,123,000
========================================================



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:



1998 1997 1996
-----------------------------------------------------

Income tax at the statutory rate $1,639,000 $1,538,000 $ 955,000
State income taxes, net of Federal benefit 255,000 123,000 179,000
Other, net (211,000) (170,000) (11,000)
-----------------------------------------------------
$1,683,000 $1,491,000 $1,123,000
=====================================================



Deferred income taxes result from temporary differences in the financial and tax
bases of assets and liabilities. The total current deferred tax asset is
included with prepaid expenses and other current assets on the consolidated
balance sheets. Significant components of the Company's deferred tax
liabilities and assets are as follows at December 31:

55




Deferred tax assets: 1998 1997
----------------- -----------------

Accrued expenses $ 171,000 $ 126,000
Prepaid revenues 21,000 44,000
Other 65,000 65,000
------------------ -----------------
Total deferred tax assets 257,000 235,000
Deferred tax liabilities:
Depreciation and amortization 919,000 1,458,000
Involuntary conversion, tax exchange-land 2,520,000 1,339,000
Other 755,000 507,000
----------------- -----------------
Total deferred tax liabilities 4,194,000 3,304,000
----------------- -----------------
Net deferred tax liabilities $3,937,000 $3,069,000
================= =================


The Company made net payments of income taxes of $232,000, $1,317,000, and
$531,000 during 1998, 1997 and 1996, respectively.

9. OPERATING LEASES

The Company is lessor of certain property pursuant to various commercial lease
agreements having terms ranging up to 60 years. The cost and accumulated
depreciation of buildings and improvements subject to such leases were
$2,629,000 and $958,000, respectively, at December 31, 1998. Income from
commercial rents, included in real estate revenue was $975,000 in 1998, $985,000
in 1997, and $928,000 in 1996. Future minimum rental income on noncancelable
operating leases as of December 31, 1998 is: $990,000 in 1999, $966,000 in
2000, $936,000 in 2001, $895,000 in 2002, $878,000 in 2003, and $5,728,000 for
years thereafter.

10. 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 1999 are $1,300,000, whether or not
water is available or is used. Minimum payments made under these contracts were
approximately $1,200,000 in 1998, $1,215,000 in 1997, and $1,277,000 in 1996.
Approximately 4,600 acres of this land are subject to contingent assessments of
approximately $792,000 to service water district bonded indebtedness, if water
district revenues are insufficient to cover bond interest and redemptions when
due.

56


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 and the cement kiln dust piles
on the leased premises. Lafarge has undertaken the investigation and
remediation of landfills and has completed the removal of contaminated soils
above the groundwater level from the landfills. Lafarge has also completed a
substantial amount of the site investigation with respect to chlorinated
hydrocarbons. The plume of chlorinated hydrocarbons covers an extensive area
and has migrated off of the leased premises in one direction. Lafarge is
undertaking additional investigation work as directed by the Regional Water
Board and is developing a feasibility study evaluating different remediation
options. The cleanup order for the kiln dust piles now requires only site
stabilization measures of the sort previously undertaken by National and does
not call for transporting the large piles offsite. Under both orders, the
Company is secondarily liable and will be called upon to perform work only if
National and Lafarge fail to do so. 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 on the Company is remote at this time.

11. 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 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:

57




Pension Benefits
------------------------------------------
1998 1997

Change In Benefit Obligation $2,820,000 $2,466,000
Benefit Obligation At Beginning Of Year 170,000 81,000
Service Cost 179,000 155,000
Interest Cost 483,000 266,000
Actuarial Gain (122,000) (148,000)
Benefits Paid ----------------- ----------------

Benefit Obligation At End Of Year 3,530,000 2,820,000

Change In Plan Assets 2,323,000 1,947,000
Fair value of plan assets at beginning of year 447,000 415,000
Actual Return On Plan Assets 135,000 109,000
Employer Contribution (122,000) (148,000)
Benefits Paid ----------------- -----------------

Fair Value Of Plan Assets At End Of Year 2,783,000 2,323,000


Funded Status (747,000) (497,000)
Unrecognized net actuarial gain 1,206,000 1,036,000
Unrecognized net transition asset (98,000) (118,000)
Adjustment required to recognize minimum liability (387,000) ---
----------------- -----------------
Prepaid (accrued) benefit costs $ (26,000) $ 421,000




In accordance with the provisions of Financial Accounting Standard No. 87, the
Company recorded a minimum pension liability representing the excess of the
accumulated benefit obligation, $2,810,000, over the fair value of plan assets,
$2,784,000. The liability has been offset by intangible assets to the extent
possible. Because the asset recognized may not exceed the amount of
unrecognized past service cost, the balance of the liability at the end of 1998
is reported in accumulated other comprehensive income (loss), net of applicable
deferred income taxes.

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% and 6.0% in 1998 and 1997. The expected long-term
rate of return on plan assets was 7.5% in 1998 and 1997.

58


Total pension and retirement expense was as follows for each of the years ended
December 31:



1998 1997 1996
--------------------------------------------------------
Cost components:

Service cost-benefits earned during the period $(170,000) $ (81,000) $ (74,000)
Interest cost on projected benefit obligation (179,000) (155,000) (136,000)
Expected return on plan assets 174,000 144,000 130,000
Net amortization and deferral (20,000) (23,000) (5,000)
--------------------------------------------------------
Total net periodic pension cost $(195,000) $(115,000) $ (85,000)
========================================================



12. BUSINESS SEGMENTS

The Company operates principally in four industries: livestock, farming,
resource management, and real estate use. The livestock segment includes the
production and sale of beef cattle and operation of a feedlot. The farming
segment involves those operations related to permanent crops, leasing farmland,
and the supervision of farming activities. The resource management and the real
estate segments collect rents and royalties from lessees of Company-owned
properties, and the real estate segment obtains entitlements for and develops
Company-owned properties.

Information pertaining to the Company's business segments follows for each of
the years ended December 31:




1998 1997 1996
--------------------------------------------------------------
Segment profits:

Livestock $ 1,094,000 $ 1,499,000 $ 412,000
Farming 2,269,000 2,627,000 3,134,000
Resource management 961,000 1,328,000 1,356,000
Real Estate 2,943,000 1,003,000 (841,000)
--------------------------------------------------------------
Segment profits 7,267,000 6,457,000 4,061,000
Interest income 1,001,000 1,159,000 1,308,000
Corporate expenses (2,581,000) (2,346,000) (2,266,000)
Interest expense (1,065,000) (747,000) (295,000)
--------------------------------------------------------------
Operating profit $ 4,622,000 $ 4,523,000 $ 2,808,000
==============================================================


59




Depreciation
Identifiable and Capital
Assets Amortization Expenditures
------------------------------------------------------------------

1998
Livestock $29,101,000 $ 602,000 $ 572,000
Farming 12,890,000 780,000 1,962,000
Resource Management 1,338,000 148,000 198,000
Real Estate 8,726,000 380,000 4,895,000
Corporate 20,959,000 88,000 73,000
------------------------------------------------------------------
Total $73,014,000 $1,998,000 $7,700,000
==================================================================

1997
Livestock $24,215,000 $ 588,000 $4,109,000
Farming 10,176,000 737,000 1,287,000
Resource Management 363,000 21,000 25,000
Real Estate 5,933,000 328,000 1,571,000
Corporate 23,006,000 55,000 84,000
------------------------------------------------------------------
Total $63,693,000 $1,729,000 $7,076,000
==================================================================

1996
Livestock $ 5,554,000 $ 307,000 $ 98,000
Farming 10,545,000 626,000 1,051,000
Resource Management 259,000 1,000 ---
Real Estate 2,874,000 183,000 901,000
Corporate 28,137,000 104,000 293,000
------------------------------------------------------------------
Total $47,369,000 $1,221,000 $2,343,000
==================================================================


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.

60


13. 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):




Income (Loss) Earnings (Loss)
Segment Before Cumulative Per Share Before
Total Profit Effect of Accounting Cumulative Effect of
Revenue(1) (Loss) Change Accounting Change (2)
-----------------------------------------------------------------------------------

1998
First quarter $ 8,321 $ (789) $ (781) $(0.06)
Second quarter 7,581 (791) (943) (0.08)
Third quarter 16,703 3,871 1,986 0.16
Fourth quarter (3) 20,277 4,976 2,747 0.22
-----------------------------------------------------------------------------------
$52,882 $7,267 $3,009 $ 0.24
===================================================================================
1997
First quarter $ 3,037 $ (93) $ (288) $(0.02)
Second quarter 6,265 251 (6) 0.00
Third quarter 16,163 2,830 1,432 0.11
Fourth quarter (4) 15,521 3,469 1,894 0.15
-----------------------------------------------------------------------------------
$40,986 $6,457 $3,032 $ 0.24
===================================================================================



(1) Includes interest income.

(2) Earnings per share on a diluted basis.

(3) Includes receipt of one time payment of $4,250,000 ($2,569,000 net of tax
or $.20 per share) from the sale of non-strategic land.

(4) Includes receipt of one time payment of $2,050,000 ($1,353,000 net of tax
or $.11 per share) from a pipeline company for acquisition of easement
rights.

61


14. REAL ESTATE ACQUISITION - UNAUDITED

On February 26, 1999 Registrant completed the purchase of three industrial and
commercial buildings in Phoenix, Arizona having aggregate rentable square feet
of 101,482 for a price of $9,300,000. The Phoenix property is a cluster of
three buildings in a master planned industrial park located near Sky Harbor
International Airport and adjacent to the Interstate 10 Freeway. The buildings
were built-in 1996 and are 100% leased to three tenants under triple net leases
expiring in 2002 to 2005. Annualized rentals under the leases currently
aggregate $845,000. The leases provide for built in rental escalations which
approximate current inflation factors based on the CPI index. The buildings
were acquired to complete a tax deferred exchange of real property in which
$4,250,000 in proceeds from the sale of land in December 1998 along with an
additional $250,000 were used together with $4,800,000 borrowed from First Union
Bank, with the loan secured by the property

62