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 September 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
----------------- ----------------------
September 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 September 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 NINE MONTHS ENDED
September 30 September 30
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Livestock $ 1,022 $ 4,601 $ 4,840 $ 5,644
Farming 3,765 3,035 3,839 3,206
Oil and Minerals 353 425 972 1,007
Commercial and Land Use 372 335 1,044 1,028
Interest Income 312 320 959 1,032
----- ----- ------ ------
5,824 8,716 11,654 11,917
Costs and Expenses:
Livestock 952 3,888 4,229 5,323
Farming 2,145 1,665 2,892 2,790
Oil and Minerals 43 38 126 90
Commercial and Land Use 430 793 1,498 1,843
Corporate Expense 646 543 1,708 1,684
Interest Expense 78 171 182 353
----- ----- ------ ------
4,294 7,098 10,635 12,083
----- ----- ------ ------
Operating Income (Loss) 1,530 1,617 1,019 (166)
Income Tax Expense (Benefit) 611 648 407 (66)
----- ----- ------ ------
Net Income (Loss) $ 919 $ 970 $ 612 $ (100)
===== ====== ====== ======
Earnings (Loss) Per Share $ .07 $ .08 $ .05 $ (.01)
Cash Dividends Paid
Per Share $ -- $ -- $ .025 $ .025
See Notes to Consolidated Condensed Financial Statements.
- 2 -
TEJON RANCH CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
SEPTEMBER 30,1996 DECEMBER 31, 1995*
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 123 $ 44
Short-term Investments 20,140 20,257
Accounts & Notes Receivable 4,615 4,487
Inventories:
Cattle 2,081 2,672
Farming 1,989 --
Other 117 155
Prepaid Expenses and Other 1,153 1,063
Total Current Assets 30,218 28,678
PROPERTY AND EQUIPMENT-NET 15,663 15,073
OTHER ASSETS 1,504 1,452
TOTAL ASSETS $ 47,385 $ 45,203
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade Accounts Payable $ 562 $ 932
Other Accrued Liabilities 263 343
Other Current Liabilities 4,876 2,619
Total Current Liabilities 5,701 3,894
LONG-TERM DEBT 1,800 1,800
DEFERRED CREDITS 2,652 2,540
Total Liabilities 10,153 8,234
STOCKHOLDERS' EQUITY
Common Stock 6,341 6,341
Additional Paid-In Capital 387 387
Retained Earnings 30,496 30,202
Marketable Securities -
Unrealized Gains, Net 8 39
Total Stockholders' Equity 37,232 36,969
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 47,385 $ 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.
- 3 -
TEJON RANCH CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
NINE MONTHS ENDED
September 30
---------------
1996 1995
---- ----
OPERATING ACTIVITIES
Net Income $ 612 $ (100)
Items Not Affecting Cash:
Depreciation and Amortization 889 756
Decrease Income Taxes 134 (89)
Gain on Sale of Investments -0- 6
Changes in Operating Assets and
Liabilities:
Receivables, Inventories and
Other Assets, Net (1,579) (3,256)
Current Liabilities, Net 394 (1,241)
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 450 (3,924)
INVESTING ACTIVITIES
Maturities and Sales of Marketable
Securities 6,767 5,816
Funds Invested in Marketable
Securities (6,703) (2,079)
Property and Equipment
Expenditures (1,424) (2,274)
Net Change in Breeding Herds (81) (64)
Other (26) (46)
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (1,467) 1,353
FINANCING ACTIVITIES
Proceeds From Revolving Line of Credit 9,803 7,610
Payments of Revolving Line of Credit (8,390) (4,555)
Decrease in Long-Term Debt -0- (200)
Cash Dividend Paid (317) (317)
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,096 2,538
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 79 (33)
Cash and Cash Equivalents at
Beginning of Year 44 68
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 123 $ 35
See Notes to Consolidated Condensed Financial Statements.
- 4 -
TEJON RANCH CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
September 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
quarter.
For 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
common shares outstanding during the period. Common shares
outstanding for the three month and nine month periods ended September
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, 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 September 30, 1996 and 1995 were 12,683,670 and
12,685,198 respectively. Fully diluted common shares outstanding for
the nine month period ended September 30, 1996 and 1995 were
12,684,042 and 12,683,946 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-
sale per Statement of Financial Accounting Standard No. 115,
Accounting for Certain Investments in Debt and Equity Securities, and
therefore is required to adjust securities to fair value at each
reporting date.
- 5 -
Marketable securities consist of the following at:
September 30 December 31
1996 1995
------------ -----------
Estimated Estimated
Fair Fair
Cost Value Cost Value
Marketable securities:
(in thousands)
U.S. Treasury and
agency notes $13,314 $13,332 $14,868 $14,869
Corporate notes 6,813 6,808 5,323 5,388
------ ------ ------ ------
$20,127 $20,140 $20,191 $20,257
As of September 30, 1996, the cumulative fair value adjustment is a $13,000
unrealized gain. The cumulative fair value adjustment to stockholders'
equity, net of a deferred tax of $5,000, is an unrealized gain of $8,000.
Registrant's gross unrealized holding gains equal $183,000, while gross
unrealized holding losses equal $170,000. On September 30, 1996, the average
maturity of U.S. Treasury and agency securities was 1.2 years and corporate
notes was 1.7 years. Currently, Registrant has no securities with a remaining
term to maturity 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 DERIVATIVES 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 to hedge the price of cattle. Registrant also hedges to protect
against fluctuations in feed cost by using the corn futures and options
markets. Feed costs are hedged in order to protect against large pricing
increases in feed costs. Registrant continually monitors any open futures and
options contracts to determine the appropriate hedge based on market movement
of the underlying asset. 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 future contracts
- 6 -
reduce profits. Any payments received and paid related to options contracts
are deferred in and reflected as an asset on the balance sheet in prepaid
expenses until contracts are closed or expire. There were no outstanding
option contracts at September 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 gains are
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 September 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 20 Oct. 96 $ 633 $ (644) $(11)
10 Jan. 97 302 (328) (26)
15 Apr. 97 466 (487) (21)
20 May. 97 645 (650) (5)
Estimated fair value at settlement is based upon quoted market prices at
September 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 on the leased acreage. National, LaFarge Corporation (the parent
company of the previous operator) and Registrant have been ordered to clean
up and abate certain hazardous waste sites on the leased premises. Under
existing lease agreements, National or LaFarge is required to indemnify
Registrant for costs and liabilities incurred in connection with the cleanup
order depending on when the release of hazardous waste occurred. Due to the
financial strength of National and LaFarge, Registrant believes that it is
remote there will be a material effect on Registrant.
Registrant leases land to TA Operating Corporation, dba Truckstops of America
("TA") for the purpose of operating a truck stop at an exit off of Interstate
5. Registrant has recently learned that a Notice of Violation was issued to
TA by the California Regional Water Quality Control Board with respect to two
sites on the leased land alleged to contain high concentrations of total
petroleum hydrocarbons, including diesel fuel. Although Registrant has not
been notified by the Water Board that it is also a responsible party, the
Board has taken the position in the past that owners of leased property are
responsible for releases of polluting materials by their tenants and
Registrant may be designated as a responsible party in the future. Under
- 7 -
existing lease agreements, TA is obligated to restore the land to a clean
condition and to indemnify Registrant for its losses and expenses incurred in
connection with any cleanup order. Under an existing guaranty,
BP Exploration & Oil Inc., as the successor of the Standard Oil Company of
Ohio ("BP"), has guaranteed all of the obligations of TA under the lease.
Due to the financial strength of BP, Registrant believes that it is remote
there will be a material effect on Registrant.
MANAGEMENT'S ANALYSIS OF FINANCIAL STATEMENTS
- ---------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
Total revenues, including interest income, for the first nine months of 1996
were $11,654,000 compared to $11,917,000 for the first nine months of 1995.
The decrease in revenues during 1996 is primarily attributable to lower
livestock revenue that was partially offset by increased farming revenues.
Livestock revenues decreased due to 4,721 fewer head of cattle being sold
during 1996 and to lower average weights on the cattle sold during 1996. The
reduction in the number of head sold was caused by the timing of sales during
1996 and the sale of cattle in 1995 that were originally scheduled for sale in
1994. Cattle weights were lower due to less forage on the ranch. 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 are higher due to
the timing of crop harvests and the recording of crop revenues. In 1996,
pistachio and French Colombard, Zinfandel, and Cabernet Sauvignon grape
harvests were completed during the third quarter whereas in 1995 only almond
and Zinfandel harvests were completed during the third quarter. This
resulted in $3,715,000 of crop revenue in 1996 compared to $2,953,000 of crop
revenue in 1995. In addition to the timing of crop harvests, grape prices
are slightly higher thus far in 1996 than in 1995.
Registrant's operations during the first nine months of 1996 resulted in net
income of $612,000, or $.05 per share, compared to a net loss of $100,000,
or $.01 per share, for the same period in 1995. The increase in net income
when compared to 1995 is due to reductions in livestock and commercial/land
planning expenses. These favorable expense variances were partially offset
by the decrease in revenues as described above. The decrease in livestock
expense is primarily due to lower cost of sales of $1,265,000 on cattle sold
during 1996. Cost of sales declined due to fewer cattle being sold and the
recognition of hedging gains as described in Note D - Commodity Contracts
Used to Hedge Price Fluctuations. Commercial/land planning expenses have
decreased due to a reduction in consulting fees associated with planning and
entitlement activities.
Total revenues for the third quarter, including interest income, were
$5,824,000 compared to $8,716,000 for the third quarter of 1995. The
decrease in revenue when compared to 1995 is due to a reduction in livestock
revenues that were partially offset by increased farming revenues. Livestock
revenues decreased in 1996 due to 3,259 fewer head of cattle being sold
during the third quarter of 1996. This large variation in the number of
cattle sold is due to the decision during the second quarter of 1995 to delay
- 8 -
the sale of stocker cattle until the fall of 1995 due to low market prices.
The increase in farming revenues is described above.
During the third quarter of 1996 Registrant had net income of $919,000, or
$.07 per share, compared to net income of $970,000, or $.08 per share, for
the same period of 1995. The decline in net income when compared to 1995 is
due to the decrease in revenues as described above. The decline in revenues
was partially offset by reduced expenses as described above. 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 the 1996 harvest completed during October, it appears that the
California almond crop will be approximately 520 to 550 million pounds.
Based on this estimate and the beginning 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. The yields for all of Registrant's crops appear to
be within expectations with the exception of the almond crop which is coming
in slightly below expectations. However, any decline in almond production
appears to be offset by higher price levels.
Although Registrant finds it necessary from time to time to make projections
of future yields and prices in connection with the operation of its business,
such projections above as to yields and prices 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 that any such projections will
turn out to be accurate.
Registrant is involved in various environmental proceedings related to leased
acreage. See Note E - Contingencies. For a further discussion refer to
Registrant's 1995 Form 10-K, Part I, Item 3, - "Legal Proceedings". The only
material change since the filing of the 1995 Form 10-K is that Registrant may
become involved in administrative or legal proceedings respecting the
contamination of the Truckstops of America leased premises, as described
above under Note E - Contingencies.
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 September 30, 1996 were $20.3 million
compared to $20.3 million on December 31, 1995. Working capital on
September 30, 1996 was $24.5 million compared to $24.8 million on
December 31, 1995. The decrease in working capital at September 30, 1996 as
compared to December 31, 1995 is primarily due to property and equipment
expenditures, which were partially offset by increased inventory levels.
- 9 -
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
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
9-MOS
DEC-31-1996
SEP-30-1996
123
20,140
4,615
0
4,187
30,218
29,919
(14,256)
47,385
5,701
0
0
0
6,341
30,883
47,385
11,654
11,654
8,745
8,745
1,708
0
182
1,019
407
612
0
0
0
612
.05
.05
