SEC Filing | Tejon Ranch Co.

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, 2000 ---------------- 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, 2000 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...(661) 248-3000 ------------- 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, 2000, were 12,706,236.

TEJON RANCH CO. INDEX Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Consolidated Condensed Statements of 1 Operations for the Three Months and Six Months Ended June 30, 2000 and 1999 Unaudited Consolidated Condensed Balance Sheets 2 As of June 30, 2000 and December 31, 1999 Unaudited Consolidated Condensed Statements of 3 Cash Flows for the Six Months Ended June 30, 2000 and 1999 Consolidated Condensed Statements of Stockholders' 4 Equity Notes to Consolidated Condensed Financial 5 Statements (unaudited) Item 2. Management's Discussion and Analysis of 11 Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 19

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 ----------------------------------------------------------------------------------- 2000 1999 2000 1999 ----------------- ---------------- ---------------- --------------- Revenues: Livestock $14,398 $4,840 $22,188 $13,233 Farming 235 7 405 283 Real Estate 1,352 1,685 2,398 4,028 Interest Income 154 180 312 331 -------------- ---------------- ---------------- --------------- 16,139 6,712 25,303 17,875 Costs and Expenses: Livestock 13,097 4,714 20,306 12,917 Farming 612 335 1,039 700 Real Estate 1,203 1,542 2,434 2,680 Corporate Expense 749 782 1,509 1,488 Interest Expense 825 266 1,283 421 -------------- ---------------- ---------------- --------------- 16,486 7,639 26,571 18,206 -------------- ---------------- ---------------- --------------- Operating Loss (347) (927) (1,268) (331) Provision for Income Tax (132) (352) (482) (125) -------------- ---------------- ---------------- --------------- Net Loss $ (215) $ (575) $ (786) $ (206) ============== ================ ================ =============== Net Loss Per Share, basic $ (0.02) $(0.05) $ (0.06) $ (0.02) Net Loss Per Share, diluted $ (0.02) $(0.05) $ (0.06) $ (0.02) Cash Dividends Paid $ --- $0.025 $ --- $ 0.025 See Notes to Unaudited Consolidated Condensed Financial Statements. 1

TEJON RANCH CO. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS ------------------------------------- (In Thousands) June 30, 2000 December 31, 1999* ------------------------- ------------------------- ASSETS (Unaudited) CURRENT ASSETS Cash and Cash Equivalents $ 520 $ 423 Marketable Securities 10,247 9,942 Accounts & Notes Receivable 4,335 5,019 Inventories: Cattle 24,652 21,172 Farming 3,429 1,077 Other 380 559 Prepaid Expenses and Other 1,693 1,101 ------------------ ---------------- Total Current Assets 45,256 39,293 PROPERTY AND EQUIPMENT - NET 47,568 50,737 OTHER ASSETS 2,772 1,489 ------------------ ---------------- TOTAL ASSETS $95,596 $91,519 ================== ================ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade Accounts Payable $ 1,359 $ 3,315 Other Accrued Liabilities 142 214 Short-term Borrowings 21,874 19,486 ------------------ ---------------- Total Current Liabilities 23,375 23,015 LONG-TERM DEBT 24,331 20,606 DEFERRED INCOME TAXES 5,031 4,738 ------------------ ---------------- Total Liabilities 52,737 48,359 MINORITY INTEREST IN CONSOLIDATED JOINT VENTURE 300 --- STOCKHOLDERS' EQUITY Common Stock 6,354 6,349 Additional Paid-In Capital 589 379 Deferred Compensation (129) --- Retained Earnings 35,915 36,701 Accumulated Other Comprehensive Income (170) (269) ------------------ ---------------- Total Stockholders' Equity 42,559 43,160 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $95,596 $91,519 ================== ================ See Notes to Unaudited Consolidated Condensed Financial Statements. * The Consolidated Condensed Balance Sheet at December 31, 1999 has been derived from the audited consolidated financial statements at that date. 2

TEJON RANCH CO. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS ----------------------------------------------- (In Thousands) (Unaudited) Six Months Ended June 30 -------------------------------------------- 2000 1999 -------------------- ----------------- OPERATING ACTIVITIES Net Loss $ (786) $ (206) Items Not Affecting Cash: Depreciation and Amortization 1,227 1,185 Deferred Income Taxes 337 (164) Equity in Net Income from Unconsolidated Joint Venture 131 --- Changes in Operating Assets and Liabilities: Receivables, Inventories and other Assets, Net (5,070) (3,402) Current liabilities, Net (2,028) 2,170 -------------------- ----------------- (6,189) (417) NET CASH USED IN OPERATING ACTIVITIES INVESTING ACTIVITIES Cash in Escrow --- 4,200 Maturities of Marketable Securities 1,599 6,190 Funds Invested in Marketable Securities (2,012) (4,614) Property and Equipment Expenditures (6,368) (18,400) Property and Equipment Disposals 331 --- Bond Reimbursement from Community Facilities District 8,065 --- Change in Breeding Herds (136) (260) Investment in Unconsolidated Joint Venture (1,606) --- Other --- 345 -------------------- ----------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (127) (12,539) -------------------- ----------------- FINANCING ACTIVITIES Proceeds From Revolving Line of Credit 30,015 22,483 Payments of Revolving Line of Credit (26,208) (14,336) Borrowing of Long-term Debt 4,181 4,800 Payments of Long-term Debt (1,875) (74) Cash contribution from Investor in consolidated Joint Venture 300 --- Cash Dividends Paid --- (317) -------------------- ----------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 6,413 12,556 -------------------- ----------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 97 (400) Cash and Cash Equivalents at Beginning of Period 423 743 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 520 $ 343 ==================== ================= See Notes to Unaudited Consolidated Condensed Financial Statements. 3

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY --------------------------------------------------------- (Unaudited) Accumulated Additional Other Common Paid-In Retaind Deferred Comprehensive Stock Capital Earnings Compensation Income Total - ------------------------------------------------------------------------------------------------------------------------ Balance at January 1, 1999 $6,346 $382 $36,156 $ - $(179) $42,705 Net Income --- --- 1,181 $ - --- 1,181 Defined Benefit Plan Funding Adjustments, Net of taxes of $133 --- --- --- - 216 216 Changes in Unrealized Losses on Available-For-Sale Securities, net of taxes of $205 --- --- --- - (306) (306) ----- Comprehensive Income - 1,091 ===== Exercise of Stock Options 3 (3) --- --- --- Cash Dividends Paid - $.05 per share --- --- (636) - --- (636) ------------------------------------------------------------------------------ Balance at December 31, 1999 $6,349 $379 $36,701 - $(269) $43,160 Net Loss --- --- (786) - --- (786) Changes in Unrealized Losses on Available-For-Sale Securities, net of taxes of $44 --- --- --- - (64) (64) Interest Rate Swap Adjustment --- --- --- - 163 163 ----- Comprehensive Loss - (687) ===== Restricted Stock Issuance 5 210 --- (215) --- Amortization of deferred compensation --- --- --- 86 --- 86 ----------------------------------------------------- ---------------------------- Balance at June 30, 2000 $6,354 $589 $35,915 $ 129 $(170) $42,688 ================================================================================= See Notes to Unaudited Consolidated Condensed Financial Statements. 4

TEJON RANCH CO. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -------------------------------------------------------------- June 30, 2000 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. Certain amounts in the prior 2000 quarterly financial statements have been reclassified to conform to the current year presentation. 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 percentages of revenues are recognized during the third and fourth quarters. 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, 1999. NOTE B - NET LOSS PER SHARE - --------------------------- Basic net loss per share is based upon the weighted average number of shares of common stock outstanding during the year, which at June 30, 2000 was 12,706,236 and at June 30, 1999 was 12,691,253. Diluted net loss per share is based upon the weighted average number of shares of common stock outstanding during the year, assuming the issuance of common stock for stock options using the treasury stock method. Basic and diluted common shares outstanding are the same for the periods shown because the calculation for determining diluted common shares outstanding resulted in antidilution. NOTE C - 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 and equity securities as either held-to-maturity, trading, or available-for-sale. Registrant has elected to classify its securities as available-for-sale and therefore is required to adjust securities to fair value at each reporting date. 5

The following is a summary of available-for-sale securities at June 30, 2000 and December 31, 1999: June 30, 2000 December 31, 1999 -------------------------------------------------------------------- Estimated Estimated Cost Fair Value Cost Fair Value -------------------------------------------------------------------- Marketable Securities: (in thousands) U.S. Treasury and agency notes $ 5,875 $ 5,400 $ 5,191 $4,824 Corporate notes 4,930 4,847 5,201 5,118 -------------------------------------------------------------------- $10,805 $10,247 $10,392 $9,942 ==================================================================== As of June 30, 2000, the cumulative fair value adjustment to stockholders' equity is an unrealized loss of $333,000, net of a tax benefit of $225,000. The Company's gross unrealized holding gains equal $3,000, while gross unrealized holding losses equal $561,000. On June 30, 2000, the average maturity of U.S. Treasury and agency securities was 3.2 years and corporate notes was two 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 CONTRACTS USED TO HEDGE PRICE FLUCTUATIONS - ------------------------------------------------------------- Registrant uses commodity derivatives to manage its exposure to price fluctuations on its purchased stocker cattle and its cattle feed costs. The objective is to protect or create a future price for stocker cattle that will protect a profit or minimize a loss once the cattle are sold and all costs are deducted and protect Registrant against a disastrous cattle market decline or feed cost increase. To help achieve this objective Registrant used both the futures commodity markets and options commodity markets. A futures 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. Registrant continually monitors any open futures and options contracts to determine the appropriate risk exposure 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 hedging for Registrant is that hedging limits or caps the potential profits if cattle or feed prices begin to increase dramatically or can add additional costs if cattle or grain prices fall dramatically. Realized gains, losses, and costs associated with both open and closed contracts are recognized in costs of sales expense. During the six months ended June 30, 2000 there were $92,000 of gains associated with futures and option contracts included in cost of sales. 6

The following table identifies the cattle futures contract amounts outstanding at June 30, 2000 and December 31, 1999 (in thousands, except number of contracts): Original Estimated No. Contract/Cost Fair Value Cattle Future / Option Description Contracts (Bought) Sold (Bought) Sold - -------------------------------------------------------------------------------------------------------------- Corn futures bought, 50,000 lbs. per contract 280 $(3,288) $ 2,781 Corn options sold, 50,000 lbs. per contract 105 $ 22 $ (1) Corn options bought, 50,000 lbs. per contract 105 $ (54) $ 189 Cattle futures bought, 50,000 lbs. per contract 20 $ (843) $ 865 Cattle futures sold, 40,000 lbs. per contract 195 $ 5,465 $(5,335) Cattle options sold, 40,000 lbs. per contract 60 $ 15 $ (1) Cattle options bought, 40,000 lbs. per contract 60 $ (20) $ 30 Original Estimated December 31, 1999 No. Contract/Cost Fair Value Commodity Future / Option Description Contracts (Bought) Sold (Bought) Sold - -------------------------------------------------------------------------------------------------------------- Cattle futures sold 40,000 lbs. per contract 142 $ 3,897 $(3,985) Cattle futures bought 50,000 lbs. per contract 280 $(3,035) $ 2,960 Cattle options bought, 40,000 lbs. per contract 50 $ (20) $ 8 Cattle options sold 40,000 lbs. per contract 50 $ 20 $ (18) The June 30, 2000 futures contracts and options expire between August 2000 and December 2000. Estimated fair value at settlement is based upon quoted market prices at June 30, 2000. NOTE E - INTEREST RATE RISK MANAGEMENT - -------------------------------------- Objectives: Registrant uses variable-rate debt to finance its operations. These debt obligations expose Registrant to variability in interest payments due to changes in interest rates. If interest rates increase, interest expense increases. Conversely, if interest rates decrease, interest expense also decreases. Management believes it is prudent to limit the variability of a portion of its interest payments. It is Registrant's objective to hedge between 25% and 50% of its variable-rate interest payments. 7

Strategies: To meet this objective management entered into interest rate swap to manage the potential fluctuations in cash flows resulting from interest rate risk. The interest rate swap eliminates the risk of variable-interest rates on the portion of the debt covered by the swap by effectively converting the variable rates to fixed rates. Under the interest rate swap, Registrant receives variable interest rate payments and makes fixed interest rate payments thereby creating fixed-rate debt. Registrant's risk management objective as described above is to minimize the interest expense cash outflows related to our floating-rate debt obligations. Registrant's current floating-rate debt obligations float at Prime or LIBOR plus 1.5%. To minimize the variability of the floating-rate debt obligations, Registrant entered into a three-year interest rate swap with a notional amount of $10.0 million to receive interest at a variable-rate equal to one month LIBOR and pay interest at a fixed-rate of 6.91%. The combination of the swap and the 1.5% additional spread within the debt obligation results in a net cash outflow equal to a fixed rate of 8.41%. Registrant does not enter into interest rate swap for any purpose other than cash flow hedging purposes. Registrant does not speculate using derivative instruments but uses them only for cash flow hedging purposes. Risk management policies: Registrant assesses interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. Registrant maintains risk management control systems to monitor interest rate cash flow risk attributable to both Registrant's outstanding or forecasted debt obligations as well as Registrant's offsetting hedge positions. The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on Registrant's future cash flows. Changes in the fair value of the interest rate swap is reported in accumulated other comprehensive income. These amounts are subsequently reclassified into interest expense as a yield adjustment in the same period in which the related interest on the floating-rate obligations affects earnings. During the six months ended June 30, 2000 the fair value of the interest rate swap had increased $163,000. NOTE F - CONTINGENCIES - ---------------------- As of June 30, 2000, Registrant was guaranteeing the repayment of $3.8 million of debt of the Petro Travel Plaza L.L.C., its unconsolidated joint venture. Total debt at Petro Travel Plaza L.L.C. is $13.0 million and is related to the construction of the travel plaza. Registrant does not expect to ever realize any loss as a result of the guarantee due to the cash flow provided by the operations of the Petro Travel 8

Plaza, L.L.C. On June 27, 2000, the Tejon Ranch Public Facilities Financing Authority through Community Facilities District No. 2000-1 issued $17,000,000 of tax-free special tax bonds. The funds from this bond issuance are to be used to fund public infrastructure improvements within the Tejon Industrial Complex. The Tejon Ranch Public Financing Authority placed a lien on 1,401 acres of Registrant's land to secure the collection of special taxes each year related to the bond. Landowners within the Facilities District are responsible for these special taxes, which are included each year with their property taxes. Commencing July 1, 2000 Registrant's property tax expense will increase by approximately $380,000 over the next twelve months. The payments for subsequent periods are not known at this time due to the timing of future development. As the Tejon Industrial Complex is developed, new landowners and tenants will bear their portion of the special tax and over time it is possible the portion of the special tax actually paid by Registrant will be reduced to zero. As Tejon Industrial Complex is developed and the collection of special taxes increases due to development of the land, the Facilities District may at its option release the lien on 1,101 acres of the above 1,401 acres that currently have a lien against them. Out of the above $17,000,000 in proceeds from the bond issuance Registrant received $8,065,000 due to local government entities accepting infrastructure improvements previously paid for by Registrant. The remainder of the proceeds are in escrow and will be released in future years as new infrastructure is completed at the Tejon Industrial Complex. 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 cleanup or abate an old industrial waste landfill site, a storage area for drums containing lubricants and solvents, an underground storage tank for waste oil and solvents, an underground plume of hydrocarbons, diesel fuel which leaked from a pipeline, 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 where it has been found to be leaking into a local creek. Lafarge is undertaking additional investigation work as directed by the Regional Water Board and is developing a feasibility study evaluating different remediation options. The 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 the orders, Registrant is secondarily liable and will be called upon to perform work only if National and Lafarge fail to do so, although the relative priority of Lafarge and Registrant is being reconsidered by the Board. Under the lease agreements with National and Lafarge, each of the companies is required to indemnify Registrant for its designated portion of any costs and liabilities incurred in connection with the cleanup order. Due to the financial strength of National and Lafarge, Registrant believes that a material effect on the company is remote at this time. For further discussion refer to Registrant's 1999 Form 10-K, Part I, Item 3, - "Legal Proceedings". There have been no significant changes since the filing of the 1999 Form 10-K. 9

NOTE G - INVESTMENT IN UNCONSOLIDATED JOINT VENTURES - ---------------------------------------------------- Registrant is a member in a limited liability company, Petro Travel Plaza, LLC, in which it has an ownership interest of 60%. Registrant accounts for its investment in Petro Travel Plaza using the equity method of accounting. Petro Travel Plaza owns and operates a travel plaza/commercial highway operation in the Tejon Industrial Complex. Registrant's share of operating losses in this unconsolidated joint venture are $1,020,000 at June 30, 2000. This amount is included in other assets in the accompanying consolidated condensed balance sheets as an adjustment to Registrant's investment in the joint venture. The portion of the net loss of the unconsolidated joint venture allocable to Registrant for the six months ended June 30, 2000 was $131,000, which is included in Real Estate revenues in the accompanying unaudited consolidated condensed statements of income. Condensed financial information of Registrant's unconsolidated joint venture as of and for the six months ended June 30, 2000 is as follows (in thousands): Unaudited Condensed Combined Income Statement Information --------------------------------------------------------- Net Sales $16,040 ------- Net Loss (222) Partner's Share of net loss (91) ------- Equity in net loss of unconsolidated joint venture $ (131) ======= Unaudited Condensed Combined Balance Sheet Information ------------------------------------------------------ Current Assets $ 2,356 Property and equipment, net 16,830 Long-term Debt (13,000) Other Liabilities (1,382) -------- Net Assets $ 4,804 ======== NOTE H - PAYMENT OF DIVIDEND - ---------------------------- On May 2, 2000, the Board of Directors voted to eliminate Registrant's annual dividend of $0.05 per share. The dividend was eliminated in order to reinvest all internally generated cash flow to support Registrant's growth. 10

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ----------------------------------------------------------- Throughout "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Quantitative and Qualitative Disclosures About Market Risk," and the narratives on the preceding pages of this report, Registrant has made forward-looking statements regarding future events, including without limitation future yields, and prices, future development of Registrant's property, future revenue and income of Registrant's jointly-owned travel plaza, potential losses to Registrant 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, market and economic forces) and, with respect to 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 the actual future results will not differ materially from those in the forward-looking statements. Results of Operations - --------------------- Total revenues, including interest income, for the first six months of 2000 were $25,303,000 compared to $17,875,000 for the same period in 1999. The growth in revenues during the first six months of 2000 is primarily attributable to increases in livestock division revenues of $8,955,000, which were partially offset by a decrease in real estate division revenues of $1,630,000. The growth in livestock division revenues was due to an increase in livestock sales of $8,128,000 and livestock feed sales of $859,000. Livestock sales increased due to 8,229 additional head of cattle being sold during the first six months of 2000 when compared to the same period of 1999. This increase in cattle sales is primarily due to the growth in Registrant's cattle herd over the prior two years. Livestock feed sales increased due to an increase in the average head count at the feedlot of approximately 6,000 head. The decrease in real estate revenues when compared to 1999 is primarily due to the sale of a fiber optic communications easement of $1,750,000 that occurred in the first quarter of 1999. Operating activities during the first six months of 2000 resulted in a net loss of $786,000, or $0.06 per share diluted, compared to a net loss of $206,000, or $0.02 per share diluted, for the same period of 1999. The increased loss when compared to 1999 is primarily attributable to the decrease in real estate revenues discussed above and an increase in interest expense of $862,000 in the first six months of 2000 when compared to the same period of 1999. The increase in interest expense is due to increased real estate development activities. Partially offsetting these unfavorable variances was an increase in profit margins on cattle sold of approximately $950,000 due to improved cattle prices and lower cost of sales. The Company believes that overall for 2000, cattle prices should continue to improve due to the increases in demand for product in the U.S. and to increased export demand because of the improving economies in Asia. Net margins on 2000 cattle sales increased approximately 12% over 1999. The higher margin is the result of selling a greater percentage of cattle raised on Registrant's property, which have lower costs than purchased cattle. It is early in the year for Registrant to make production estimates for its grapes and nuts. California statewide estimates are for almonds to have lower production than the prior year due to storms and cold weather during the bloom period. This potential reduction in the almond crop could improve prices for the 2000 almond crop. It is also being estimated that grape production will be equal to or greater than 1999. This level of production could put additional pricing pressure on grapes during 2000. 11

Total revenues for the second quarter of 2000, including interest income, were $16,139,000 compared to $6,712,000 for the second quarter of 1999. The increase is due primarily to an increase in livestock division revenues of $9,558,000, which is primarily the result of approximately 9,400 additional head of cattle being sold during the second quarter of 2000 when compared to the same period in 1999. During the second quarter of 2000 Registrant had a net loss of $215,000, or $0.02 per share, compared to a loss of $575,000, or $0.05 per share diluted, for the same period of 1999. The improvement in operations is due primarily to an increase in profit margins on cattle sold, as discussed above. This improvement was partially offset by an increase in interest expense in the second quarter of 2000 compared to the second quarter of 1999 due to an increase in real estate development activities. Registrant continues to be involved in various environmental proceedings related to leased acreage. For a further discussion, refer to Note F - 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 Registrant are seasonal and results of operations cannot be predicted based on quarterly results. In order to fund public infrastructure improvements within Registrant's Tejon Industrial Complex, registrant agreed to subject 1,401 acres of the property in the complex to a lien securing the payment of principal and interest on $17,000,000 of tax-free special tax bonds. See Note E of Notes to Consolidated Condensed Financial Statements. Landowners of parcels within the Complex are responsible for the special taxes applicable to their respective parcels. As a result of the debt service on the bonds, Registrant's property tax expense will be increased by $380,000 for the twelve months commencing July 1, 2000, and this expense will increase as the bond proceeds are spent for development of the infrastructure. Registrant intends to have purchasers and tenants of land in the complex bear portions of these payments allocable to their parcels. Any delay or inability to sell or lease the land could result in Registrant bearing more of the debt service than is presently anticipated. When the entire $17,000,000, has been spent, the annual debt service will increase to approximately $1,250,000. Although Registrant can control the timing and extent of the construction of the infrastructure improvements in the event that marketing of the parcels in the complex is disappointing, it is possible that Registrant could have to bear a substantial portion of the increased debt service for an indefinite period of time. Liquidity and Capital Resources - ------------------------------- Registrant's cash, cash equivalents and short-term investments totaled approximately $10,767,000 at June 30, 2000, compared to $10,365,000 at December 31, 1999, an increase of 4%. Working capital as of June 30, 2000 was $22,010,000 compared to $16,278,000 on December 31, 1999. The increase in working capital during the first quarter of 2000 is due primarily to the growth of cattle and farming inventories that were partially funded by an increase in the use of short-term debt financing. Registrant has a revolving line of credit of $27,000,000 that as of June 30, 2000 had a balance outstanding of $17,000,000 bearing interest at an average rate of 8.50%, which floats with changes in the 12

lending bank's prime interest rate. At Registrant's option, the interest rate on this line of credit can be fixed at 1.50% over a selected LIBOR rate or float at .50% less than the bank's prime lending rate. Registrant's feedlot also has a short-term revolving line of credit for the feedlot with a local bank for $6,800,000 with an outstanding balance at June 30, 2000 of $4,704,000 and an interest rate of 1.00% less than the bank's prime lending rate of 9.50%. The revolving lines of credit are used as a short-term cash management tool and for the financing of customer cattle and feed receivables at the feedlot, respectively. The use of short-term credit has grown due to increases in inventories because of the growth of Registrant's core business lines and to the funding of infrastructure construction costs on a short-term basis until longer term sources of debt are used. Registrant's use of long-term debt funding sources also increased due to the purchase of an almond processing plant and to financing land improvements and infrastructure with long-term financing as opposed to using short-term lines of credit. This allows for better matching of assets to the liabilities funding those assets. At June 30, 2000 the current long-term note payable balance included a $15,730,000 note used in funding long-term assets that is secured by farm acreage. Principal is payable in quarterly payments of $375,000 beginning June 2000, with remaining principal due June 2004. Interest is at .50% less than the bank's prime rate or a fixed rate of 1.50% greater than the specified LIBOR rate. In order to minimize the variability of interest expense cash flows Registrant entered into an interest rate swap with a notional amount of $10,000,000. See Note E - Interest Rate Risk Management for a discussion of the interest rate swap. Long-term notes payable also consist of debt related to the purchase of commercial/industrial buildings totaling $4,709,000 at June 30, 2000. The interest rate is fixed at 7.61% with monthly principal and interest payments of $34,000. The remaining long-term debt of $3,892,000 consists of a note for $2,092,000 secured by Registrant's feedlot. This note has quarterly payments of $58,000 at an interest rate of 8.5%. The remaining $1,800,000 is secured by an almond processing plant that Registrant purchased during the first quarter of 2000. This note has annual payments of $180,000 beginning in 2001. Interest on this note is at a rate of 8.21%. 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's exposure to financial market risks, includes changes to interest rates and credit risk related to marketable securities, interest rates 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 and 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 Investors Services, Inc. or Standard and Poor's Rathings Group to minimize risk. In addition, market value changes due to interest rate changes are reduced because a large portion of the portfolio has interest rates that float and 13

are reset on a quarterly basis. See Note C - Marketable Securities. 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 interest rate or LIBOR, and changes when those rates changed. The long-term debt has a fixed interest rate component and a floating rate component that is tied to the lending bank's prime rate or LIBOR, and the fair value of the long-term debt will change based on interest rate movements in the market. The floating rate obligations expose Registrant to variability in interest payments due to changes in interest rates. If interest rates increase, interest expense increases. Conversely, if interest rates decrease, interest expense also decreases. Management believes it is prudent to limit the variability of a portion of its interest payments. It is Registrant's objective to hedge between 25% and 50% of its variable-rate interest payments. To meet this objective management entered into an interest rate swap to manage the potential fluctuations in cash flows resulting from interest rate risk. See Note E - Notes to Condensed Consolidated Financial Statements. Registrant's 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. Market risk is discussed below in "Commodity Price Exposure." Registrant believes its credit risk related to receivables is minimal based on historical experience with current customers and periodic credit evaluations of its customers' financial condition. The following table provides information about Registrant's financial instruments that are sensitive to changes in interest rates. The tables presents Registrant's debt obligations, principal cash flows and related weighted-average interest rates by expected maturity dates as of June 30, 2000 and December 31, 1999. 14

Interest Rate Sensitivity Financial Market Risks Principal Amount by Expected Maturity At June 30, 2000 (Dollars in thousands) Fair There Value 2000 2001 2002 2003 2004 -after Total 6/30/00 - ------------------------------------------------------------------------------------------------------------------ Assets: Marketable $ 1,698 $2,449 $1,761 $ 3,697 $1,200 --- $10,805 $ 10,247 Securities Weighted Average Interest Rate 6.99% 5.66% 6.06% 5.91% 5.20% --- 5.97% Liabilities: Short-term Debt $ 21,874 --- --- --- --- --- $21,874 $ 21,874 Weighted Average Interest Rate 8.72% --- --- --- --- --- 8.72% Long-term Debt $ 630 $1,973 $1,977 $ 2,855 $9,983 $6,913 $24,331 $ 24,331 Weighted Average Interest Rate 8.26% 8.26% 8.26% 8.26% 8.21% 7.91% 8.24% Variable-To-Fixed Swap: Notional Amount 3-Year Swap --- --- $10,000 --- --- --- $ 10,000 Weighted Average Pay Fixed-Rate Contract Rate 6.91% 6.91% 6.91% --- --- --- 6.91% Weighted Average Receive Variable-Rate, Current Rate, Adjusts Monthly 6.63% --- --- --- --- --- 6.63% --------------------------------------------------------------------------------------------- Interest Rate Sensitivity Financial Market Risks Principal Amount by Expected Maturity At December 31, 1999 (Dollars in thousands) ---------------------------------------------------------------------------------------- Fair There-after Value 2000 2001 2002 2003 2004 Total 12/31/99 - ------------------------------------------------------------------------------------------------------------------ Assets: Marketable $ 3,303 $2,477 $1,915 $ 2,351 $ 346 --- $10,392 $ 9,942 Securities Weighted Average 6.31% 5.66% 6.49% 6.13% 6.70% --- 6.16% Interest Rate Liabilities Short-term Debt $18,447 --- --- --- --- --- $18,447 $ 18,447 Weighted Average Interest Rate 8.00% --- --- --- --- --- 8.00% Long-term Debt $ 1,039 $1,793 $1,797 $ 2,675 $9,803 $4,538 $21,645 $ 21,645 Weighted Average Interest Rate 7.96% 7.96% 7.96% 7.96% 7.91% 7.61% 7.86% ---------------------------------------------------------------------------------------------- 15

In comparison to the prior year Registrant's risk in regards to fluctuations in interest rates has increased overall due to the growth in the use of both short- term and long-term lines of credit that fluctuate with the bank's prime lending rate. 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 manages it 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 D - Commodity Contracts Used to Manage Risk. Gains on future contracts and options as of June 30, 2000 were $92,000 as compared to losses on future contracts and options as of December 31, 1999 of $256,000. The gain thus far in 2000 is due to favorable pricing trends related to feed costs. Livestock inventories consist primarily of cattle for sale, and price fluctuations are managed with futures and options contracts. 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 June 30, 2000 approximately 50% of the cattle held in inventory or 24,827 head of cattle were not protected by futures and options for price movement. This compares to 10,217 head of cattle at June 30, 1999. The 2000 number of head of cattle that are unprotected equates to approximately 27.3 million pounds of beef. For each $.01 per pound change in price, Registrant has a potential exposure of $273,000 in future value. Although the prices at which the cattle will ultimately be sold are unknown, over the last three years the market price has ranged from $.50 per pound to $.72 per pound and the market price at June 30, 2000 was $.69 per pound. With respect to accounts receivable, the amount at risk relates to almonds, pistachios, walnuts and grapes. These receivables are recorded at estimates of the prices that ultimately will be received for the crops. The final price will not be known until the third or fourth quarter of 2000. Of the accounts receivable outstanding at June 30, 2000, only $537,000 is at risk to changing prices. Of the amount at risk to changing prices, $192,000 is attributable to almonds, $118,000 to pistachios, $139,000 to walnuts, and $88,000 to grapes. The comparable amounts of accounts receivable at December 31, 1999 were $661,000 attributable to almonds, $430,000 to pistachios, $285,000 to walnuts, and $424,000 to grapes. The price estimated for recording accounts receivable at June 30, 2000 was $.89 per pound for almonds. For every $.01 change in the price of almonds Registrant's receivable for almonds increases or decreases by $24,000. 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 $1.32 to $2.26. With respect to pistachios, the price estimated for recording the receivable was $1.35 per pound, each $.01 change in the price increases or decreased the receivable by $6,000 and the range of final prices over the last three years has been $.92 to $1.17. 16

The price estimated for recording accounts receivable for walnuts was $.45 per pound. For every $.01 change in the price of walnuts, Registrant's receivable increases or decreases by $16,000. The final price for walnuts has averaged from $.45 to $.60 over the last three years. The prices used to estimate accounts receivable related to grapes is based on the variety of wine grape and the market for that grape. At year-end the average price used for recording the accounts receivable was $292.00 per ton. For every $1.00 change in the price, Registrant's receivables related to grapes can increase or decrease approximately $14,000. The average price for grapes has averaged between $250.00 per ton to $375.00 per ton over the last three years. For information about futures contracts and options outstanding at June 30, 2000 and December 31, 1999, see Note D of Notes to Consolidated Condensed Financial Statements. 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. 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. 17

Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ (a) The Annual Meeting of Shareholders was held on May 2, 2000. (b) The only matter submitted to a vote of security holders was for the election of directors. Each of the persons named in the Proxy Statement as nominee for director was elected. Following are the voting results on each of the nominees for director: - ------------------------------------------------ Votes Votes Election of Directors For Withheld - ------------------------------------------------ Otis Booth, Jr........ 10,908,689 25,400 Dan T. Daniels........ 10,911,302 22,787 Robert C. Roucco...... 10,910,590 23,499 Geoffrey L. Stack..... 10,908,090 25,999 Item 5. Other Information - -------------------------- Not applicable. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits - 3.1 Restated Certificate of Incorporation * 3.2 Bylaws ** 27.1 Financial Data Schedule (Edgar), June 30, 2000 (b) Reports - on Form 8-K None. * This document, filed with the Securities Exchange Commission in Washington, D.C. (file number 1-7183) under Item 14 to Registrant's Annual report on Form 10-K for year ended December 31, 1987, is incorporated herein by reference. ** This document, filed with the Securities Exchange Commission in Washington, D.C. (file number 1-7183) under Item 14 to Registrant's Annual report on Form 10-K for year ended December 31, 1994, is incorporated herein by reference. 18

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) August 14, 2000 BY /s/ Allen E. Lyda - ---------------------- ------------------------- DATE Allen E. Lyda Vice President, Chief Financial Officer 19

5 Financial Data Schedule (amounts in thousands) This schedule contains summary financial information extracted from the balance sheet, income statement, and footnotes and is qualified in its entirety by reference to such financial statements.

6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 520 10,247 4,335 0 28,461 45,256 67,865 (20,297) 95,596 23,375 0 6,354 0 0 36,205 95,596 25,303 25,303 23,779 23,779 1,509 0 1,283 (1,268) (482) (786) 0 0 0 (786) (0.06) (0.06)