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 March 31, 1997
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
March 31, 1997 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 March 31,
1997, were 12,682,244.
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PART I FINANCIAL INFORMATION
TEJON RANCH CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED
March 31
1997 1996
Revenues:
Livestock $ 1,569 $ 549
Farming 452 24
Oil and Minerals 302 281
Commercial and Land Use 377 336
Interest Income 323 328
3,023 1,518
Costs and Expenses:
Livestock 1,694 697
Farming 444 378
Oil and Minerals 45 43
Commercial and Land Use 517 480
Corporate Expense 709 476
Interest Expense 71 50
3,480 2,124
Operating Loss (457) (606)
Income Tax Benefit (171) (242)
Net Loss $ (286) $ (364)
Net Loss Per Share $ (.02) $ (.03)
See Notes to Consolidated Condensed Financial Statements.
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TEJON RANCH CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
March 31,1997 DECEMBER 31, 1996*
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 758 $ 693
Marketable Securities 19,032 20,127
Accounts & Notes Receivable 2,771 4,303
Inventories:
Cattle 4,112 3,082
Farming 1,720 191
Other 505 157
Prepaid Expenses and Other 1,218 1,319
Total Current Assets 30,116 29,872
PROPERTY AND EQUIPMENT-NET 20,692 16,270
OTHER ASSETS 1,248 1,227
TOTAL ASSETS $ 52,056 $ 47,369
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade Accounts Payable $ 1,589 $ 488
Other Accrued Liabilities 217 569
Other Current Liabilities 8,464 4,129
Total Current Liabilities 10,270 5,186
LONG-TERM DEBT 1,800 1,800
DEFERRED CREDITS 2,607 2,651
Total Liabilities 14,677 9,637
STOCKHOLDERS' EQUITY
Common Stock 6,341 6,341
Additional Paid-In Capital 387 387
Retained Earnings 30,967 31,253
Defined Benefit Plan-Funding
Adjustment, net of taxes (256) (256)
Marketable Securities -
Unrealized Gains (Losses)
Net (60) 7
Total Stockholders' Equity 37,379 37,732
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 52,056 $ 47,369
See Notes to Consolidated Condensed Financial Statements.
* The Balance Sheet at December 31, 1996 has been derived from
the audited financial statements at that date.
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TEJON RANCH CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
THREE MONTHS ENDED
March 31
1997 1996
OPERATING ACTIVITIES
Net Loss $ (286) $ (364)
Items Not Affecting Cash:
Depreciation and Amortization 355 269
Decrease Income Taxes 0 134
Gain on Sale of Investments (4) 0
Changes in Operating Assets and
Liabilities:
Receivables, Inventories and
Other Assets, Net (876) (1,408)
Current Liabilities, Net (43) (689)
NET CASH (USED) BY
OPERATING ACTIVITIES (854) (758)
INVESTING ACTIVITIES
Acquisition of Champion Feeders (3,874) ---
Maturities and Sales of Marketable
Securities 1,916 3,987
Funds Invested in Marketable
Securities (928) (4,081)
Property and Equipment
Expenditures (1,278) (450)
Net Change in Breeding Herds (1) (104)
Other (43) (3)
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (4,208) 645
FINANCING ACTIVITIES
Proceeds From Revolving Line of Credit 10,041 3,700
Payments of Revolving Line of Credit (4,914) (3,779)
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 5,127 (79)
INCREASE IN CASH AND
CASH EQUIVALENTS 65 34
Cash and Cash Equivalents at
Beginning of Year 693 44
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 758 $ 78
See Notes to Consolidated Condensed Financial Statements.
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TEJON RANCH CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1997
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.
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, 1996.
NOTE B - CALCULATIONS OF EARNINGS PER SHARE
Earnings per share is calculated using the weighted average
number of common shares outstanding during the period. Common
shares outstanding for the three month period ended March 31,
1997 and 1996 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. At March 31,1997,
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). 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 March 31, 1997 and
1996 were 12,683,431 and 12,683,670 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.
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Marketable securities consist of the following at:
March 31 December 31
1997 1996
Estimated Estimated
Fair Fair
Cost Value Cost Value
Marketable securities:
(in thousands)
U.S. Treasury and
agency notes $11,768 $11,701 $13,156 $13,158
Corporate notes 7,364 7,331 6,960 6,969
$19,132 $19,032 $20,116 $20,127
As of March 31, 1997, the cumulative fair value adjustment is a
$100,000 unrealized loss. The cumulative fair value adjustment
to stockholders' equity, net of a deferred tax of $40,000, is an
unrealized loss of $60,000. Registrant's gross unrealized
holding gains equal $149,000, while gross unrealized holding
losses equal $249,000. On March 31, 1997, the average maturity
of U.S. Treasury and agency securities was 1.2 years and
corporate notes was 1.6 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
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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 reflected as an
asset on the balance sheet in prepaid expenses until contracts
are closed or expire. There were no outstanding option contracts
at March 31, 1997. Cattle futures contracts are carried off-
balance sheet until the contracts are settled. Realized losses
associated with closed contracts equal to $116,000 are currently
included in cattle inventory and will be recognized in cost of
sales when the cattle are sold during the second quarter of 1997.
The following table identifies the cattle futures contract
amounts outstanding at March 31, 1997 (in thousands, except
number 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 25 May 97 $ 827 $ (873) $(46)
Cattle futures
sold 40,000 20 Aug. 97 508 (511) (3)
lbs. per
contract
Cattle futures 20 Sept. 97 (733) 737 4
purchased,
50,000 lbs. 15 Oct. 97 (534) 558 24
per contract
Estimated fair value at settlement is based upon quoted market
prices at March 31, 1997.
NOTE E - ACQUISITION OF ASSETS
On March 10, 1997, Registrant completed the purchase of certain
assets from Champion Feeders, Inc., a cattle feedlot company in
western Texas. The assets purchased include land, a feed mill,
cattle pins, office and shop buildings, all rolling stock,
inventory and intangibles. No debt or material liabilities of
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Champion Feeders, Inc. were assumed in the purchase of these
assets. The purchase price for these assets is $3.5 million plus
inventory value of $358,000, as of February 28, 1997 and will be
accounted for as a purchase. The purchase price of the assets
was based upon a dollar value per head of capacity at the
feedyard and the fair market value of assets purchased. The
purchase price was allocated based on estimated fair value at
date of acquisition. The excess of the purchase price over the
fair market value of assets acquired was immaterial.
The purchase of these assets allows the Company to begin to meet
its long-term objective of becoming vertically integrated within
the beef industry. The assets purchased will allow Registrant to
own and operate a cattle feedyard operation in western Texas.
The following unaudited pro forma information presents a summary
of consolidated results of operations of Registrant as if the
acquisition had occurred as of January 1, 1996.
Three Months Ended
March 31
(In thousands except per
share amounts)
1997 1996
Total Revenue $5,726 $6,181
Net Operating Income (Loss) (128) (512)
Net Income (Loss) (34) (308)
Net Income (Loss) Per Share $0.00 $(0.02)
NOTE F - 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 successor to 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
its parent company, which guaranteed National's obligations, and
Lafarge, Registrant believes that it is remote there will be a
material effect on Registrant.
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As an unrelated matter, Registrant has recently become aware that
soils contaminated by gasoline, diesel fuel, and heavy metals are
present on the premises leased from Registrant by Truckstops of
America for a truck stop and gas station. Registrant has become
actively engaged in the regulatory oversight activities of the
Kern County Environmental Health Services Department, which has
named Registrant as a responsible party with respect to the
underground diesel storage tanks that have leaked, and of the
Central Valley Regional Water Quality Control Board. Registrant
has demanded the cleanup of the contaminated soils. This demand
has been made on the current tenant, and the guarantors of the
lease, Standard Oil of Ohio and BP Oil & Exploration, Inc.
Registrant has entered into settlement discussions with the
foregoing parties, is currently working with them on a jointly
approved investigation plan, and is hopeful that this dispute can
be resolved without resorting to litigation. Because of the
financial strength of Standard Oil of Ohio and BP Oil &
Exploration, Inc. Registrant believes it is remote that this
matter will have a material effect on Registrant.
For a further discussion refer to Registrant's 1996 Form 10-K,
Part I, Item 3, - "Legal Proceedings". There have been no
changes since the filing of the 1996 Form 10-K.
NOTE G - PAYMENT OF DIVIDEND
On April 7, 1997, the Board of Directors voted to declare a cash
dividend of two and one-half cents ($0.025) per share. The
dividend will apply to stockholders of record as of the close of
business on May 14, 1997, with payment to be made on June 16,
1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Results of Operations
This Management's discussion and Analysis of Financial Condition
and Results of Operations includes forward-looking statements
that are subject to many uncertainties and may turn out not to be
accurate. These forward looking statements are subject to
factors beyond the control of Registrant (such as weather and
market 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 any such projections will turn out to
be accurate.
Total revenues, including interest income for the first quarter
of 1997 were $3,023,000 compared to $1,518,000 for the first
quarter of 1996. The growth in revenues during the first quarter
of 1997 is primarily attributable to increases in livestock and
farming revenues. The increase in livestock revenues is due
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primarily to the purchase of a cattle feedlot located near
Hereford, Texas that was completed on March 10, 1997. The
revenues from the feedlot were approximately $1,270,000.
Revenues at the feedlot are derived from the sale of grain and
other types of feed ration to customers that are feeding cattle
at the feedlot. This growth in revenues within the livestock
division was partially offset by a decline in cattle sales
revenues due to 527 fewer head of cattle being sold in 1997,
which resulted in cattle sales revenues being $219,000 less than
in 1996. Farming revenues increased due to the receipt of
additional crop proceeds related to the 1996 grape and walnut
crops. This increase is due to an increase in crop prices that
were reflected in the final settlement payments received during
January and February 1997.
Operating activities during the first quarter of 1997 resulted in
a net loss of $286,000, or $0.02 per share, compared to a net
loss of $364,000, or $0.03 per share, for the same period of
1996. The improvement in net earnings when compared to 1996 is
due to the increase in revenues as described above which was
partially offset by increased livestock and general and
administrative expenses. The increase in livestock expense is
primarily attributable to the purchase of the new feedlot.
Expenses at the feedlot for the month of March were approximately
$1,140,000. This increase in expense was partially offset by
lower cost of sales on cattle due to fewer head of cattle being
sold. General and administrative costs have increased when
compared to the first quarter of 1996 due to higher staffing
costs and professional service fees related to work performed by
J.P. Morgan. Staffing costs increased in 1997 due to the timing
of hiring a new chief executive officer. During the first
quarter of 1996 Registrant had not yet hired a new chief
executive officer.
Registrant believes that cattle prices should continue to improve
throughout 1997 due to lower supplies during the latter part of
1997 and the continued increase in demand due to export growth
and U.S. population growth. It is a little early in the crop
year to make production estimates for grapes and nuts, but winter
storms and flooding in certain areas of California could have a
negative effect on total state production. Based on current
inventory levels within the grape and almond industry, Registrant
believes that prices for these crops will remain at high levels.
Registrant has been advised that final approvals were received
for the construction of a major crude oil pipeline through ranch
lands. During December 1995 Registrant completed negotiations
with respect to an easement agreement related to this pipeline.
The actual start date of construction is still unknown at this
time, but Registrant has been advised by the pipeline company
that construction could begin during 1997, although there are
still substantial uncertainties about the project and its timing.
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If and when construction starts, Registrant will receive a
substantial one time payment for this easement that will be
recorded as revenues when received.
Registrant continues to be involved in various environmental
proceedings related to leased acreage. For a further discussion
refer to 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
Registrant's cash, cash equivalents and short-term investments
totaled approximately $19,790,000 at March 31, 1997, compared to
$20,820,000 on March 31, 1996, a decrease of 5%. Working capital
as of March 31, 1997 was $19,846,000 compared to $24,686,000 on
December 31,1996. Working capital uses during the first quarter
of 1997 were for capital expenditures and the purchase of a
cattle feedlot. The assets of the cattle feedlot were purchased
on March 10, 1997 for $3,500,000 plus an additional $350,000 in
beginning inventories. Registrant funded this purchase with cash
and short-term lines of credit. Registrant has a revolving line
of credit of $5,000,000 that as of March 31, 1997 had a balance
of $3,935,000 at an interest rate of 8.50%. Registrant also has
a short-term line of credit outstanding of $4,000,000 from an
investment banking firm. The lines of credit are expected to be
paid down throughout the year from the proceeds of cattle and
crop sales. The revolving lines of credit are used as a short-
term cash management tool.
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.
Registrant is currently evaluating the possibility of new farming
developments, expansion of the cattle herd, and commercial
development along the Interstate 5 corridor. These potential new
projects would be funded from current cash resources and from
additional borrowings.
Registrant has traditionally funded its growth and capital
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additions from internally generated funds. Management believes
that the combination of net earnings, short-term investments and
borrowing capacity will be sufficient for its near term
operations.
Item 8. Financial Statements and Supplementary Data.
The response to this Item is submitted in a separate section of
this report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
Not applicable.
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
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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 /s/
Date Allen E. Lyda
Vice President, Finance
& Treasurer
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