SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) March 9, 1999
Tejon Ranch Co.
(Exact Name of Registrant Specified in Charter)
Delaware 1-7183 77-0196136
(State or other jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
4436 Lebec Road, Lebec, California 93243
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (661) 248-3000
Not Applicable
(Former name or former address, if changed since last report)
Item 2. Acquisition or Disposition of Assets.
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On February 26, 1999 Registrant completed the purchase of three industrial
and commercial buildings in Phoenix Arizona having aggregate rentable square
feet of 101,482. The Phoenix property is a cluster of three buildings in a
master planned industrial park located near Sky Harbor International Airport and
adjacent to the Interstate 10 Freeway. The buildings were built in 1996 and are
100% leased to three tenants under triple net leases expiring in 2002 to 2005.
Annualized rentals under the leases currently aggregate $845,000. The leases
provide for built in rental escalations which approximate current inflation
factors based on the CPI index. The buildings were acquired to complete a tax
deferred exchange of real property in which $4,500,000 in proceeds from the sale
of land in December 1998 were used together with $4,800,000 borrowed from First
Union Bank, with the loan secured by the property acquired.
The acquisition price resulted from arm's length negotiations between
Registrant and The Douglas Allred Company, the seller of the properties, and,
from Registrant's point of view, took into account the prices at which other
comparable properties had been sold, the amount of rent payable under the
leases, the financial strength of the tenants, the age of the buildings, vacancy
factors in the area and the overall demographics and financial outlook for the
Phoenix area. Based upon information obtained in connection with the
transaction, Registrant believes that the rental rates under the leases are
consistent with rental rates typically being paid for other comparable
properties, that, while other industrial and commercial properties are available
in the vicinity of the properties, vacancy rates are low and the Phoenix area is
expected to continue to grow in future years. In purchasing the properties,
Registrant also considered the patterns of increasing values of properties
located near airports, the fact that all operating expenses are payable by the
tenants under the leases and that only limited management of the property would
be required. The Phoenix Airport and Interstate 10 corridor has also
historically been an important part of the industrial market for the Metro-
Phoenix area.
The property acquired was held by the seller as an investment and will be
held by Registrant for that purpose as well. The purchase is expected to allow
Registrant to improve its current revenue flow. The revenues from the buildings
are expected to partially fund on-going real estate activities on Registrant's
land and partially offset the ups and downs in Registrant's revenues due to the
cyclical nature of the commodity markets where its principal products are sold.
The purchase also is expected to allow Registrant to defer federal and state
income tax on the proceeds from the December 1998 sale of land.
The foregoing description of factors considered by Registrant in acquiring
the properties involve forward looking statements which may not turn out to be
correct. Actual results could differ materially from those in the forward
looking statements as a result of over-building of commercial and industrial
structures in the area, a significant decline the economy of the Phoenix area or
the U.S. generally, changes in the financial condition of the tenants, possible
unknown defects in the properties and other factors.
1
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
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Item 7(a) Financial Statements of Businesses Acquired
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Included herein is the Statement of Revenue and Certain Expense for
commercial and industrial buildings purchased per rule 3-14 of Regulation S-X.
2
Statement of Revenue and Certain Expenses
3820, 3826 & 3832 East Watkins
Year ended December 31, 1998
with Report of Independent Auditors
3
3820, 3826 & 3832 East Watkins
Statement of Revenue and Certain Expenses
Year ended December 31, 1998
Contents
Report of Independent Auditors..............................................5
Audited Financial Statement
Statement of Revenue and Certain Expenses...................................6
Notes to Statement of Revenue and Certain Expenses.........................7
4
Report of Independent Auditors
To the Board of Directors
Tejon Ranch Co.
We have audited the accompanying statement of revenue and certain expenses of
3820, 3826 & 3832 East Watkins (the Property) for the year ended December 31,
1998. This statement of revenue and certain expenses is the responsibility of
management of the Property. Our responsibility is to express an opinion on the
statement of revenue and certain expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenue and certain expenses is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying statement of revenue and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission. Certain expenses (described in Note 1) that would not be
comparable to those resulting from the proposed future operations of the
Property are excluded and the statement is not intended to be a complete
presentation of the revenue and expenses of the Property.
In our opinion, the statement of revenue and certain expenses presents fairly,
in all material respects, the revenue and certain expenses, as defined above, of
the Property for the year ended December 31, 1998, in conformity with generally
accepted accounting principles.
Los Angeles, California
April 12, 1999
5
3820, 3826 & 3832 East Watkins
Statement of Revenue and Certain Expenses
Year ended December 31, 1998
Revenue:
Rental $ 782,000
Tenant reimbursables 119,000
-----------
Total revenue 901,000
Certain expenses:
Management fees 26,000
Repairs and maintenance 4,000
Landscape maintenance 11,000
Insurance 5,000
Property taxes 89,000
Janitorial 4,000
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Total certain expenses 139,000
-----------
Excess of revenue over certain expenses $ 762,000
===========
See accompanying report of independent auditors and notes to statement of
revenue and certain expenses.
6
3820, 3826 & 3832 East Watkins
Notes to Statement of Revenue and Certain Expenses
December 31, 1998
1. Organization and Summary of Significant Accounting Policies
Organization
The accompanying statement of revenue and certain expenses includes the rental
operations of 3820, 3826 & 3832 East Watkins located in Phoenix, Arizona (the
Property) which was acquired by Tejon Ranch Co., a Delaware corporation (the
Company), from a nonaffiliated third party. As of December 31, 1998, the
Property was 100% occupied and leased under leases which require tenants either
to pay their share of operating expenses including operating and maintenance,
utilities, taxes and insurance or to pay their share of these expense in excess
of the specified amounts. At December 31, 1998, the Property was fully leased
with three tenants.
Basis of Presentation
The accompanying statement has been prepared to comply with the rules and
regulations of the Securities and Exchange Commission.
The Property is not a legal entity and the accompanying statement is not
representative of the actual operations for the period presented as certain
expenses that may not be comparable to the expenses expected to be incurred by
the Company in the future operations of the Property have been excluded.
Excluded expenses consist of interest, depreciation and amortization, and
utility and general and administrative expenses not directly comparable to the
future operations of the Property. Certain expenses include property taxes
which may increase in the future due to property value reassessments.
Revenue and Certain Expense Recognition
Rental revenue is recognized on a straight-line basis over the terms of the
related leases.
Certain expenses are recognized as incurred.
Risks and Uncertainties
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of revenue and certain expenses and disclosure
of certain contingent expenses during the reporting period. Actual results
could differ from those estimates.
7
2. Rental Property
The future minimum lease payments to be received under current noncancelable
operating leases for the years succeeding December 31, 1998 are as follows:
1999 $ 882,000
2000 882,000
2001 882,000
2002 666,000
2003 256,000
Thereafter 341,000
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Total $3,909,000
==========
The above future minimum lease payments do not include specified payments for
tenant reimbursements of operating expenses.
8
Item 7(b) Pro Forma Financial Information
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TEJON RANCH CO. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AND UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
On February 26, 1999 Registrant completed the purchase of three industrial and
commercial buildings in Phoenix, Arizona having aggregate rentable square feed
of 101,482. The Phoenix property is a cluster of three buildings in a master
planned industrial park located near Sky Harbor International Airport adjacent
to the Interstate 10 Freeway. The buildings were built in 1996 and are 100%
leased to three tenants under triple net leases expiring in 2002 to 2005.
Annualized rentals under the leases currently aggregate $845,000. The leases
provide for built in rental escalations, which approximate current inflation
factors based on the CPI index. The buildings were acquired to complete a tax
deferred exchange of real property in which $4,500,000 in proceeds from the sale
of land in December 1998, were used together with $4,800,000 borrowed from First
Union Bank, with the loan secured by the property acquired.
The following Unaudited Pro Forma Consolidated Balance Sheet and Unaudited Pro
Forma Consolidated Statements of Income assumes that the above acquisition
occurred at the beginning of the period being presented. The Unaudited Pro
Forma Consolidated Balance Sheet and Unaudited Pro Forma Consolidated Statements
of Income should be read in conjunction with Registrant's 1998 Form 10-K. In
Registrant's opinion, all adjustments necessary to reflect the effects of the
above acquisition have been made.
The Unaudited Pro Forma Consolidated Balance Sheet is not necessarily indicative
of what the actual financial position of Registrant would have been at December
31, 1998, nor does it purport to present the future financial position of
Registrant.
The Unaudited Pro Forma Consolidated Statements of Income are not necessarily
indicative of what the actual results of operations of Registrant would have
been assuming the acquisition had been consummated as of the beginning of the
year presented, nor do the purport to present the future operations of
Registrant.
9
TEJON RANCH CO. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1998
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PRO FORMA PRO FORMA
HISTORICAL, a ADJUSTMENTS CONSOLIDATE
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ASSETS:
Current Assets:
Cash and cash equivalents 743 (300) b
601 c 1,044
Cash in escrow 4,200 (4,200) b ---
Marketable securities 13,294 --- 13,294
Accounts receivable 7,359 --- 7,359
Inventories 17,416 --- 17,416
Prepaid expense and other current assets 996 --- 996
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Total Current Assets 44,008 (3,899) 40,109
Property and Equipment, net 27,553 9,300 b
(338) c 36,515
Other Assets 1,453 --- 1,453
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Total Assets 73,014 5,063 78,077
=========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable 3,235 --- 3,235
Other accrued liabilities 502 --- 502
Current deferred income 62 --- 62
Income taxes payable 192 100 c 292
Short-term debt 19,999 --- 19,999
Current portion of long-term debt 250 --- 250
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Total Current Liabilities 24,240 100 24,340
Long-term Debt, less current portion 1,875 4,800 b 6,675
Deferred Income Taxes 4,194 --- 4,194
Stockholders' Equity
Common Stock 6,346 --- 6,346
Additional paid-in capital 382 --- 382
Unrealized gains on available
For sale securities, net of tax 37 --- 37
Defined benefit plan funding
Adjustment, net of tax (216) --- (216)
Retained earnings 36,156 163 c 36,319
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Total Stockholders' Equity 42,705 163 42,868
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Total Liabilities and Stockholders' Equity 73,014 5,063 78,077
=========================================================================
10
NOTES TO CONSOLIDATED BALANCE SHEET:
(DOLLARS IN THOUSANDS)
a - Reflects Tejon Ranch Co. and Subsidiaries Consolidated Balance Sheet at
December 31, 1998.
b - Reflects the purchase of buildings in Phoenix, Arizona:
Cash Payment $ 4,500
Long-term debt, mortgage
First Union Bank $ 4,800
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Total Purchase price $ 9,300
c - Balance sheet impact of revenues and expenses due to purchase of buildings
in Phoenix:
Revenues $ 1,001
Interest Expense, from First Union Bank (365)
Other Expense (35)
------------
Net cash generated $ 601
Accumulated depreciation - buildings $ (338)
Income tax payable - buildings $ (100)
Retained earnings - net from buildings $ (163)
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TEJON RANCH CO. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS)
YEAR ENDED
DECEMBER 31, 1998
PRO FORMA PRO FORMA
HISTORICAL, a ADJUSTMENTS CONSOLIDATE
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REVENUES:
Real Estate 5,742 1,001 b 6,743
Livestock 34,871 --- 34,871
Farming 8,671 --- 8,671
Resource Management 2,597 --- 2,597
Interest Income 1,001 --- 1,001
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Total Revenues 52,882 1,001 53,883
COSTS AND EXPENSES:
Real Estate 2,799 338 c
35 d 3,172
Livestock 33,777 --- 33,777
Farming 6,402 --- 6,402
Resource Management 1,636 --- 1,636
Corporate Expense 2,581 --- 2,581
Interest Expense 1,065 365 e 1,430
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Total Costs and Expenses 48,260 738 48,998
Income Before Income Taxes 4,622 263 4,885
Income Taxes 1,613 100 1,713
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Net Income Before Cumulative Effect
of a Change in Accounting Principle 3,009 163 3,172
Cumulative Effect of A Change in
Accounting Principle, net of tax of
$70,000 130 --- 130
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Net Income 3,139 163 3,302
==========================================================================
Net Income Per Share, Basic 0.25 0.26
Net Income Per Share, Diluted 0.25 0.26
12
NOTES TO CONSOLIDATED STATEMENTS OF INCOME:
(DOLLARS IN THOUSANDS)
a - Reflects Tejon Ranch Co. and Subsidiaries Consolidated Statements of Income
for the year-ended December 31, 1998.
b - Reflects estimated revenues generated from purchase of buildings in
Phoenix:
December
1998
------------
Rental Revenue $ 882
Tenant Reimbursables 119
------------
Total Revenue $ 1,001
c - Depreciation expense related to purchased buildings and were adjusted to
reflect the new basis of the properties based on its purchase price
of $9,300,000.
d - Other expenses related to management of the purchased buildings.
e - Interest expense on the $4,800,000 mortgage related to purchased buildings.
13
Item 7(c) Exhibits.
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EXHIBIT NO. 2. Agreement for Purchase and Sale and Joint Escrow Instructions
dated February 2, 1999 between The Douglas Allred Company and Tejon Ranchcorp.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned duly authorized.
TEJON RANCH CO.
Dated: May 11, 1999 /s/ Allen E. Lyda
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Allen E. Lyda, Vice-President, Finance
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INDEX TO EXHIBITS
Sequentially
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Exhibit No. Description Numbered Page
- ------------ ----------- -------------
2 Agreement for Purchase and Sale and Joint Escrow *
Instructions dated February 2, 1999 between The Douglas
Allred Company and Tejon Ranchcorp.
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*Indicated in the manually signed copy
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