FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
--------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from __________ to__________
For Quarter Ended Commission File Number
----------------- ----------------------
June 30, 1996 1-7183
TEJON RANCH CO.
(Exact name of Registrant as specified in its charter)
Delaware 77-0196136
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
P.O. Box 1000, Lebec, California 93243
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code...(805) 248-6774
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
---- ----
Total Shares of Common Stock issued and outstanding on June 30, 1996,
were 12,682,244.
- 1 -
PART I FINANCIAL INFORMATION
TEJON RANCH CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
June 30 June 30
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Livestock $ 3,269 $ 683 $ 3,818 $ 1 043
Farming 50 49 74 171
Oil and Minerals 338 319 619 582
Commercial and Land Use 336 399 672 693
Interest Income 319 342 647 712
------- ------- ------- -------
4,312 1,792 5,830 3,201
Costs and Expenses:
Livestock 2,580 775 3,277 1,435
Farming 369 323 747 1,125
Oil and Minerals 40 41 83 52
Commercial and Land Use 588 666 1,068 1,050
Corporate Expense 586 566 1,062 1,141
Interest Expense 54 103 104 182
------- ------ ------ ------
4,217 2,474 6,341 4,985
------- ------ ------ ------
Operating Income(Loss) 95 (682) (511) (1,784)
Income Tax Expense(Benefit) 38 (273) (204) (714)
------- ------- ------- -------
Net Income(Loss) $ 57 $ (409) $ (307) $(1,070)
======= ======= ======= =======
Earnings Per Share $ .00 $ (.03) $ (.02) $ (.08)
Cash Dividends Paid
Per Share $ .025 $ .025 $ .025 $ .025
See Notes to Consolidated Condensed Financial Statements.
- 2 -
TEJON RANCH CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
JUNE 30, 1996 DECEMBER 31, 1995*
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 102 $ 44
Short-term Investments 20,139 20,257
Accounts & Notes Receivable 1,155 4,487
Inventories:
Cattle 1,682 2,672
Farming 2,237 --
Other 111 155
Prepaid Expenses and Other 830 1,063
Total Current Assets 26,256 28,678
PROPERTY AND EQUIPMENT-NET 15,516 15,073
OTHER ASSETS 1,471 1,452
TOTAL ASSETS $ 43,243 $ 45,203
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade Accounts Payable $ 585 $ 932
Other Accrued Liabilities 325 343
Other Current Liabilities 1,651 2,619
Total Current Liabilities 2,561 3,894
LONG-TERM DEBT 1,800 1,800
DEFERRED CREDITS 2,619 2,540
Total Liabilities 6,980 8,234
STOCKHOLDERS' EQUITY
Common Stock 6,341 6,341
Additional Paid-In Capital 387 387
Retained Earnings 29,578 30,202
Marketable Securities -
Unrealized Gains (Losses), Net (43) 39
Total Stockholders' Equity 36,263 36,969
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 43,243 $ 45,203
See Notes to Consolidated Condensed Financial Statements.
* The Balance Sheet at December 31, 1995 has been derived from the
audited financial statements at that date.
TEJON RANCH CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
SIX MONTHS ENDED
June 30
-------------------
1996 1995
---- ----
OPERATING ACTIVITIES
Net Income (Loss) $ (307) $(1,070)
Items Not Effecting Cash:
Depreciation and Amortization 541 495
Deferred Income Taxes 134 (89)
Gain on Sale of Investments -0- 2
Changes in Operating Assets and
Liabilities:
Receivables, Inventories and
Other Assets, Net 2,362 (2,153)
Current Liabilities, Net (846) (2,216)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,884 (5,031)
INVESTING ACTIVITIES
Maturities and Sales of Marketable
Securities 5,484 4,788
Funds Invested in Marketable
Securities (5,503) (2,022)
Property and Equipment
Expenditures (947) (1,913)
Net Change in Breeding Herds (60) 3
Other 3 (51)
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (1,023) 805
FINANCING ACTIVITIES
Proceeds From Revolving Line of Credit 6,698 6,710
Payments on Revolving Line of Credit (7,184) (1,855)
Decrease in Long-Term Debt -0- (200)
Cash Dividend Paid (317) (317)
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (803) 4,338
INCREASE IN CASH AND CASH EQUIVALENTS 58 112
Cash and Cash Equivalents at
Beginning of Year 44 68
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 102 $ 180
See Notes to Consolidated Condensed Financial Statements.
- 4 -
TEJON RANCH CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1996
NOTE A - BASIS OF PRESENTATION
------------------------------
The summarized information furnished by Registrant pursuant to the
instructions to Part I of Form 10-Q is unaudited and reflects all
adjustments which are, in the opinion of Registrant's Management,
necessary for a fair statement of the results for the interim period.
All such adjustments are of a normal recurring nature.
The results of the period reported herein are not indicative of the
results to be expected for the full year due to the seasonal nature of
Registrant's agricultural activities. Historically, the largest
percentage of revenues are recognized during the third and fourth
quarters.
F o r further information, refer to the Consolidated Financial
Statements and footnotes thereto included in Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995.
NOTE B - CALCULATIONS OF EARNINGS PER SHARE
-------------------------------------------
Earnings per share are calculated using the weighted average number of
c o m mon shares outstanding during the period. Common shares
outstanding for the three month and six month periods ended June 30,
1996 and 1995 were 12,682,244. Registrant has a stock option plan
providing for the granting of options to purchase a maximum of 230,000
shares of Registrant's Common Stock to employees, advisors and
consultants of Registrant. Currently, options to purchase 179,000
shares are outstanding at prices equal to the fair market value at
date of grant (100,000 shares at $17.875 per share, 59,000 shares at
$20.00 per share, and 20,000 shares at $15.00 per share). During the
first quarter of 1996, an option to purchase 14,000 shares was
cancelled. Stock options granted will be treated as common stock
equivalents in accordance with the treasury method when such amounts
would be dilutive. Fully diluted common shares outstanding for the
three month period ended June 30, 1996 and 1995 were 12,685,361 and
12,683,844 respectively. Fully diluted common shares outstanding for
the six month period ended June 30, 1996 and 1995 were 12,684,228 and
12,683,303, respectively. There is no change in earnings per share
based on the fully diluted common shares outstanding.
NOTE C - MARKETABLE SECURITIES
------------------------------
Registrant has elected to classify its securities as available-for-
s a le per Statement of Financial Accounting Standard No. 115,
Accounting for Certain Investments in Debt and Equity Securities, and
therefore is required to adjust the carrying value of securities to
fair value at each reporting date.
- 5 -
Marketable securities consist of the following at:
June 30 December 31
1996 1995
------- -----------
Estimated Estimated
Fair Fair
Cost Value Cost Value
Marketable securities:
(in thousands)
U.S. Treasury and
agency notes $13,807 $13,752 $14,868 $14,869
Corporate notes 6,402 6,387 5,323 5,388
------------------------------------------
$20,209 $20,139 $20,191 $20,257
As of June 30, 1996, the cumulative fair value adjustment is a $70,000
u n r e a lized loss. The cumulative fair value adjustment to
stockholders' equity, net of deferred tax of $27,000, is an unrealized
loss of $43,000. Registrant's gross unrealized holding gains equals
$147,000, while gross unrealized holding losses equals $217,000. On
June 30, 1996, the average maturity of U.S. Treasury and agency
s e curities was 1.2 years and corporate notes was 1.7 years.
Currently, Registrant has no securities with a weighted average life
of greater than five years.
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. Registrant's investments in
corporate notes are with companies with a credit rating of A or
better.
NOTE D - COMMODITY CONTRACTS USED TO HEDGE PRICE FLUCTUATIONS
-------------------------------------------------------------
Registrant uses commodity contracts to hedge its exposure to price
fluctuations on its purchased stocker cattle and cattle feed costs.
The objective is to protect or create a future price for stocker
cattle that will provide a profit or minimize a loss once the cattle
are sold and all costs are deducted and to protect Registrant against
market declines. To help achieve this objective Registrant uses the
cattle futures and cattle options markets. Registrant continually
monitors any open futures and options contracts to determine the
appropriate hedge based on market movement of the underlying asset,
stocker cattle. The option and futures contracts used typically
expire on a quarterly or semi-annual basis and are structured to
expire close to or during the month the stocker cattle are scheduled
to be sold. The risk associated with hedging is that hedging imposes
a limit on the potential profits from the sale of cattle if cattle
prices begin to increase dramatically. The costs of buying and
selling options and futures contracts reduce profits. Any payments
received and paid related to options contracts are deferred in and
- 6 -
reflected as an asset on the balance sheet in prepaid expenses until
contracts are closed or expire. There were no outstanding option
contracts at June 30, 1996. Cattle futures contracts are carried
off-balance sheet until the contracts are settled. Realized gains,
losses, and costs associated with closed contracts equal to $587,000
of net gain is currently included in cost of sales expense due to the
sale of hedged cattle.
The following table identifies the cattle futures contract amounts
outstanding at June 30, 1996 (in thousands, except No. of Contracts):
Cattle Hedging Estimated
Activity Original Fair Value Estimated
Commodity Contract Contract At Gain
Future/Option No. Expiration (Bought) Settlement (Loss) at
Description Contracts Date Sold (Buy) Sell Settlement
---------------------------------------------------------------------
Cattle futures
sold 50,000
lbs. per
contract 10 Jan. 97 $ 302 $ (314) $(12)
Cattle futures
sold 50,000
lbs. per
contract 15 Apr. 97 466 (473) (7)
Estimated fair value at settlement is based upon quoted market prices
at June 30, 1996.
NOTE E - CONTINGENCIES
----------------------
Registrant leases land to National Cement Company of California, Inc.
("National") for the purpose of manufacturing portland cement from
limestone deposits found on the leased acreage. National, LaFarge
Corporation (the parent company of the previous operator) and
Registrant have been ordered to clean up and abate old industrial
waste landfill sites and other contamination of land and groundwater
on the leased premises. Under existing lease agreements, either
National or LaFarge is required to indemnify Registrant for costs and
liabilities incurred in connection with the cleanup order depending
upon when they arise. Due to the financial strength of National and
LaFarge, Registrant believes that it is remote there will be a
material effect on the Company.
- 7 -
MANAGEMENT'S ANALYSIS OF FINANCIAL STATEMENTS
---------------------------------------------
Results of Operations
---------------------
Total revenues, including interest income, for the first six months of
1996 were $5,830,000 compared to $3,201,000 for the first six months
of 1995. The increase in revenues during 1996 is primarily
attributable to increased livestock revenue that was partially offset
by reduced farming revenues and lower interest income. Livestock
revenues increased when compared to 1995 due to 7,246 head of cattle
being sold during 1996 compared to 1,271 head of cattle during the
same period in 1995. This large variation in the number of cattle
sold is due to the decision during the second quarter of 1995 to delay
the sale of stocker cattle until the fall of 1995 due to low market
prices. Registrant continues to hedge the future sales price of
stocker cattle using commodity contracts. See Note D - Commodity
Contracts Used to Hedge Price Fluctuations, for further information.
Farming revenues have declined due to reduced farm management fees
because of the completion of the sale of farmland by Laval Farms
Limited Partnership, a limited partnership whose farming operations
were managed by Registrant. Interest income declined primarily due to
fewer funds being available for investment.
Operating activities during the first six months of 1996 resulted in a
net loss of $307,000, or $.02 per share, compared to a net loss of
$1,070,000, or $.08 per share, for the same period in 1995. The
decrease in the net loss when compared to 1995 is due to improved
revenues as described above, and a reduction in farming and general
and administrative expenses. These favorable variances were partially
offset by an increase in livestock cost of sales. The decrease in
farming expenses when compared to the same period of 1995 was due to
the $400,000 ($240,000, or $.02 per share, after tax) charge to
earnings in 1995 due to almond trees being destroyed in a winter
storm. For further information related to the destroyed almond trees
p l e a se refer to Registrant's 1995 Form 10-K. General and
administrative expenses have declined due to a reduction in staffing
costs related to the timing of hiring a new chief executive officer.
The increase in livestock cost of sales is related to the higher
number of cattle sold during 1996 as compared to 1995.
Total revenues for the second quarter, including interest income, were
$4,312,000 compared to $1,792,000 for the second quarter of 1995. The
increase in second quarter revenues is due to the timing of cattle
sales as described above.
During the second quarter of 1996 Registrant had net income of
$58,000, or $.00 per share, compared to a loss of $409,000, or $.03
per share, for the same period of 1995. The improvement in net income
compared to 1995 is due to increased revenues as described above.
These revenues were partially offset by higher cost of sales within
the livestock division. Livestock cost of sales are higher due to
more cattle being sold during the second quarter of 1996.
- 8 -
Registrant continues to be concerned that cattle prices will stay at
lower levels due to high cattle inventories and high grain prices.
Registrant does not expect an improved cattle market during the
balance of 1996.
Based on industry estimates it appears that the California almond crop
will be approximately 520 million pounds. Based on this estimate and
low inventory levels due to the small 1995 almond crop, the price per
pound for almonds could again be over $2.00 as it was in 1995.
Harvest for Registrant's crops will begin during August. All of
Registrant's crops appear to be doing very well with the exception of
certain grape varieties, which may be slightly below expectations.
Actual production numbers will not be known until harvest is
completed. Although Registrant and others find it necessary from time
to time to make the statements above as to projections of future
yields and prices, such projections are subject to many uncertainties,
by necessity are made on the basis of only limited information and are
subject to factors beyond the control of Registrant, such as weather
and market forces. No assurance can be given any such projections will
turn out to be accurate.
Registrant is involved in various environmental proceedings related to
leased acreage. For a further discussion refer to Registrant's 1995
Form 10-K, Part I, Item 3, - "Legal Proceedings". There have been
no changes since the filing of the 1995 Form 10-K.
Prices received by Registrant for many of its products are dependent
upon prevailing market conditions and commodity prices. Therefore,
Registrant is unable to accurately predict revenue, just as it cannot
pass on any cost increases caused by general inflation, except to the
extent reflected in market conditions and commodity prices. The
operations of the Registrant are seasonal and results of operations
cannot be predicted based on quarterly results.
Liquidity and Capital Resources
-------------------------------
Cash and marketable securities on June 30, 1996 were $20.2 million
compared to $20.3 million on December 31, 1995. Working capital on
June 30, 1996 was $23.7 million compared to $24.8 million on December
31, 1995. The decrease in working capital at June 30, 1996 as compared
to December 31, 1995 is primarily due to property and equipment
expenditures and the payment of dividends.
Cash provided from operations and cash and short-term investments on
hand are expected to be sufficient to satisfy all anticipated working
capital and capital expenditure needs in the near term.
Impact of Accounting Change
---------------------------
None
- 9 -
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
------------------------------------
Not Applicable
Item 2. Changes in Securities
----------------------------------------
Not Applicable
Item 3. Defaults upon Senior Securities
--------------------------------------------------
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
----------------------------------------------------------------------
Not Applicable
Item 5. Other Information
------------------------------------
None
Item 6. Exhibits and Reports on Form 8-K
---------------------------------------------------
(a) Exhibits - None
(b) Reports - None
- 10 -
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
TEJON RANCH CO.
(Registrant)
------------------- BY______________________________
Date Allen E. Lyda
Vice President, Finance
& Treasurer
- 11 -
5
6-MOS
DEC-31-1996
JUN-30-1996
102
20,139
1,155
0
4,030
26,256
29,581
(14,065)
43,243
2,561
0
0
0
6,341
29,922
43,243
5,830
5,830
5,175
5,175
1,062
0
104
(511)
(204)
(307)
0
0
0
(307)
(.02)
(.02)
