FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number : 1-7183
TEJON RANCH CO.
(Exact name of Registrant as specified in its Charter)
Delaware 77-0196136
(State or other jurisdiction (IRS Employer Identification
of incorporation or organization) Number)
P.O. Box 1000, Lebec, California 93243
(Address of principal executive office)
Registrant's telephone number, including area code: (805) 327-8481
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
Common Stock American Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
None
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (229.405 of this chapter)
is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K. [X]
The aggregate market value of Registrant's Common Stock,
$.50 par value per share, held by persons other than those who
may be deemed to be affiliates of Registrant on March 20, 1997
was $96,115,557 based on the closing price on that date on the
American Stock Exchange.
The number of Registrant's outstanding shares of Common
Stock on March 20, 1997 was 12,682,244 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the Annual Meeting of
Stockholders to be held on, May 12, 1997 relating to the
directors and executive officers of Registrant are incorporated
by reference into Part III.
Total Pages - 92
Exhibit Index - Page 57
PART I
Item 1. Business
Throughout Item I-"Business," Item 2-"Properties," Item 3-
"Legal Proceedings," and Item 7-"Management's Discussion and
Analysis of Financial Condition and Results of Operations,"
Registrant has made forward-looking statements regarding future
developments in the cattle industry, Registrant's plans for
future plantings of permanent crops, future yields and prices for
Registrant's crop, future prices, production and demand for oil
and other minerals, future development of Registrant's property,
and potential losses to Registrant as a result of pending
environmental proceedings. 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 actual future events will be
consistent with the forward-looking statements made in this
Annual Report.
Registrant owns approximately 270,000 contiguous acres of
land located in Kern and Los Angeles Counties in the State of
California on which it is engaged principally in production and
sale of beef cattle, farming, and leasing of land for oil, gas
and mineral production and commercial purposes. Registrant is
also engaged in planning the future uses of its lands.
The following table shows the revenues, operating profits
and identifiable assets of each of Registrant's industry segments
for the last three years:
<TABLE>
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
(Amounts in thousands of dollars)
<S> <C> <C> <C>
1996 1995 1994
Revenues (1)
Livestock $ 5,481 $ 7,492 $ 6,030
Farming 9,107 7,973 6,880
Oil and Minerals 1,356 1,295 1,296
Commercial and Land Use 1,643 1,356 1,237
Segment Revenues 17,587 18,116 15,443
Interest Income 1,308 1,374 1,439
Total Revenues $ 18,895 $ 19,490 $ 16,882
Operating Profits
Livestock $ 453 $ 2 $ 549
Farming 3,134 1,811 1,925
Oil and Minerals 1,156 1,191 1,208
Commercial and Land Use (358) (830) (285)
Segment Profits (2) 4,385 2,174 3,397
Interest Income 1,308 1,374 1,439
Corporate Expense (2,590) (2,389) (2,212)
Interest Expense (295) (436) (287)
Operating Profits $ 2,808 $ 723 $ 2,337
Identifiable Segment
Assets (3)
Livestock $ 5,554 $ 5,533 $ 5,310
Farming 10,545 10,370 7,347
Oil and Minerals 259 258 179
Commercial and Land Use 2,874 2,713 2,226
Corporate 28,137 26,329 29,858
Total Assets $ 47,369 $ 45,203 $ 44,920
(1) Intersegment sales were insignificant.
(2) Segment Profits are revenues less operating expenses,
excluding interest and corporate expenses.
(3) Identifiable assets by segment include both assets directly
identified with those operations and an allocable share of
jointly-used assets. Corporate assets consist primarily of
cash and cash equivalents, refundable and deferred income
taxes and buildings and improvements.
</TABLE>
Livestock Operations
Registrant conducts a beef cattle range operation upon those
portions of its ranch which are not devoted to farming,
commercial or other purposes. This range operation depends
primarily upon forage from natural vegetation. The beef cattle
activities include both commercial cow-calf operations (the
maintenance of a cattle herd whose offspring are used to
replenish the herd, with excess numbers being sold commercially)
and the use of stocker cattle (cattle purchased at light weights
for growing on available range forage before being resold). At
December 31, 1996, Registrant's cattle herd numbered
approximately 15,316 of which approximately 8,350 head were
stockers and the remainder were in the breeding herd. At
December 31, 1995, Registrant's cattle herd numbered
approximately 13,773 of which approximately 6,169 head were
stockers. Registrant's range cattle are sold primarily to
stocker and feedlot operators. As market conditions and ranch
forage conditions warrant, Registrant may, from time to time,
feed some of its cattle in commercial feedlots prior to sale of
such cattle to packing houses. Registrant sells a few cattle
directly to packing houses and to other range operators. As to
the sale of cattle, Registrant is in direct competition with
other commercial cattle operations throughout the United States.
The prices received for Registrant's cattle are primarily
dependent upon the commodity market's perception of supply and
demand at the time cattle are sold. In an attempt to reduce the
market risks of its livestock activities, Registrant sometimes
hedges future sales of cattle in the futures and options markets
or obtains fixed prices for future delivery through contracts
with cattle buyers, feedlots, or packing houses. Registrant also
operates a horse breeding program consisting of the breeding of
quality bloodline quarter horses, the sale of horses, and the
boarding and training of horses.
Registrant continues to focus on improving the efficiency of
its livestock operations in an increasingly competitive
marketplace. The quarter horse program will continue to direct
its efforts to the improvement of Registrant's breeding mares and
the hosting of competitive horse events to enhance the revenues
of that operation. A membership program in conjunction with the
horse shows will help maximize the usage of the horse facility
and expose Registrant's lands to a broader portion of the
community.
The cyclical low for this cattle cycle appeared to have
occurred in the early summer of 1996 and when coupled with record
prices for feed grains compounded price problems for cattle
producers. The hedging of Tejon's feeder cattle prices in
December of 1995 and January of 1996 prevented Registrant from
losing money on spring 1996 feeder cattle sales. Registrant also
took advantage of these low stocker cattle prices to purchase
several thousand calves from Texas, where drought conditions
prevailed, and expects to sell these calves later in 1997 after a
season of grazing. In the fall of 1996 an increase in cattle
prices began and signaled the possible beginning of the re-
building phase of a new cattle cycle. Producers will now begin
retaining more females for their cow herds and feeder cattle
supplies will diminish. A tremendous corn crop in the Midwest
brought feed grain prices back to more normal levels which also
helped accelerate the recovery in feeder cattle prices.
During the last low in the cattle cycle a number of
companies in the cattle industry began to explore in depth
various forms of strategic alliances within the production,
feeding and meat-packing segments of the cattle business.
Registrant believes there will be dramatic shifts in the form of
cattle marketing in the United States. To be successful in the
cattle industry in the future Registrant believes that the
producers of beef must become more consumer oriented. To achieve
this goal Registrant is beginning a program to vertically
integrate its cattle operations. Vertical integration will allow
Registrant to control the quality of the product through the
production process to the end users. To vertically integrate
Registrant must control the feeding of cattle and create
strategic alliances with other producers to supply beef products
to end users. To begin the process of vertical integration
within the beef industry, Registrant has purchased the assets of
a cattle feedlot that is located in western Texas. This feedlot
will allow Registrant to control the feeding and sales of cattle.
The operations of the feedlot will also provide Registrant
increased revenues in the future. The purchase of the feedlot
occurred on March 10, 1997
Farming Operations
In the San Joaquin Valley, Registrant farms permanent crops
including the following acreage: wine grapes-1,528, almonds-
1,366, pistachios-738 and walnuts-295. Included in the previous
acreages are 308 acres of pistachio trees which were planted in
1994, with the first harvestable crops expected in 1998. In
1996, 72 acres of Rubired grapes and 152 acres of almonds were
planted. In addition, work began during the fourth quarter of
1996 on the development of 36 acres for the planting of Cabernet
Sauvignon and Ruby Cabernet wine grapes in early 1997, with
production expected in 1998. In 1997, Registrant will evaluate
the possibility of farming developments which may include the
planting of approximately 300 acres of almonds and 125 acres of
wine grapes in 1998 and approximately 300 acres of almonds in
1999. Registrant's objective in planting new trees and grapes is
to offset the normal yield decline as its older plantings reach
productive maturity and to improve revenues from the farming
operations. As certain of Registrant's permanent crops age to
the point of declining yields, Registrant will evaluate the
advisability of replanting such crops, or replacing them with
different crops, depending upon market conditions.
Registrant sells its farm commodities to several commercial
buyers. As a producer of these commodities, Registrant is in
direct competition with other producers within the United States
and throughout the world. Prices received by Registrant for its
commodities are determined by total industry production and
demand levels. Registrant attempts to improve price margins by
producing high quality crops through cultural practices and by
obtaining better prices through marketing arrangements with
handlers.
In 1996, almonds produced were sold to three domestic
commercial buyers, with one of the buyers receiving approximately
54% of the crop.
The California almond industry is subject to a federal
marketing order which empowers the Secretary of Agriculture to
set the percentage of almonds which can be sold during any crop
year and the percentage of almonds to be held in reserve in order
to assist in the orderly marketing of the crop. During 1996 and
1995 the saleable percentage was set at 100% of the total almond
crop. For 1994, due to a record crop within California, a 10%
reserve was set by the Secretary of Agriculture. This reserve
was released for sale during 1995 and is included in 1995 farm
revenues.
In 1996, Registrant's pistachios were sold to one customer.
Registrant's 1996 walnuts were sold to two customers, one of
which received approximately 80% of the crop. During 1996 all
wine grapes were sold to one winery.
Registrant's farming operations obtained good yields in 1996
for all of its crops with the exception of almonds which, along
with the entire California almond industry, sustained cold
temperatures and rain early in the year, hampering bee
pollination activity. While the 1996 state almond crop was above
the 1995 crop, the second lowest crop since 1986, it was equal
to the average production for the last 10 years. However, due to
the two back-to-back short crops of 1995 and 1996 and low almond
inventories, prices increased to more than off-set the revenue
losses from the lower yields.
Grape yields in 1996 were 11% below 1995 production.
However, 1996 grape revenues were 12% above that of the 1995
crop due to improved prices. For 1996, almond yields were up 33%
from the previous year but below the 7-year average crop by 13%.
However, prices for the 1996 crop, although higher than in past
years were 19% below 1995. With these two back-to-back short
almond crops, the 1996 almond crop is expected to be sold out
well before the 1997 almond crop enters the market in late
August, which places the industry in a good position for the
possibility of strong prices for the 1997 crop. Pistachios were
in the "on year" of their alternate bearing cycle and, while the
yield was 68% above the 1995 crop, it was below the previous "on
year" (1994) yield by 29%. The number of chilling hours (low
winter temperatures) required by pistachio trees for adequate
dormancy was approximately 50% of normal requirements and
affected crop set and yield. Lack of chilling affected the
entire California pistachio industry. Pistachio revenue in 1996
was 84% above the 1995 Pistachio revenues. A lower than expected
state crop has increased prices and will deplete the handler
inventory going into the 1997 pistachio crop. Registrant's 1996
walnut crop yield was at budget and equal to the previous seven
years average. State-wide, the walnut crop during the 1996
harvest was below expectations, which caused prices to increase
during the year.
Overall 1996 crop revenues were higher than expected due
mainly to higher than expected almond and wine grape prices. See
"Management's Discussion and Analysis of Financial Statements and
Results of Operations". Almond, walnut and pistachio demand is
expected to remain good during 1997. In 1996, Registrant has 4
years remaining on a five year contract with a winery which
provides the better of a minimum price or market price for its
grape shipments. Registrant's nut crop markets are particularly
sensitive to the size of each year's world crop. Large crops in
California and abroad can rapidly depress prices.
1996 was an excellent water year with 100% of Registrant's
water entitlement being available from the State Water Project.
In addition, there was sufficient runoff from local mountain
streams throughout the year, allowing Registrant to capture and
utilize this water to offset some of the higher priced State
Water Project water. Because of the abundant water, Registrant
was able to bank (percolate into the underground) some of its
excess supply for future use. The State Department of Water
Resources has announced its initial 1997 water supply at 100% of
full entitlement. This is only a tentative commitment, however,
and is subject to change. This level of supply, if it ultimately
turns out to be available, will cover all of the Registrant's
farming needs.
See discussion of water contract entitlement and long-term
outlook for water supply under Part I, Item 2, "Properties-
Farmland".
Farm Management Services. Tejon Farming Company, a wholly-
owned subsidiary of Registrant, is currently managing the wind
down of the Laval Farms Limited Partnership ("Laval"), formerly
Tejon Agricultural Partners, under a Farm Management Agreement
with Laval, which is terminable on 30-days' notice by Laval.
Registrant is expected to continue to manage Laval and receive a
fee until the partnership is dissolved.
In 1993 Registrant entered into an Agreement with John
Hancock Mutual Life Insurance Company ("John Hancock"), Laval's
sole limited partner and secured lender, for an orderly sale of
Laval's farmland and eventual dissolution of the partnership.
Under the Agreement approximately 13,000 acres of farmland
located in the southern San Joaquin Valley and owned by Laval
were to be sold. As of March 8, 1996, all of the crop lands had
been sold.
No land or assets owned by Registrant have been involved in
the sales, and Registrant has not received any of the proceeds of
the sales program. In connection with the Agreement, however,
Registrant obtained an option to purchase approximately 900 acres
of Laval land around Registrant's commercial operations at the
Laval Road/Interstate 5 interchange in the southern San Joaquin
Valley. Registrant exercised the option and purchased the
acreage during February 1995 at a price of $1.5 million. The
900 acres includes approximately 300 acres of rubired wine
grapes.
Oil and Minerals
Registrant leases certain portions of its land to oil
companies for the exploration for, and production of, oil and
gas, but does not itself engage in any such exploratory or
extractive activities.
As of December 31, 1996, approximately 9,645 acres were
committed to producing oil and gas leases from which the
operators produced an average of approximately 524 barrels of
oil, 273 MCF of dry gas, and 11 gallons of wet gas per day during
1996. Approximately 1,600 acres were also held under exploratory
leases. Registrant's share of production based upon its average
royalty rate during the last three years has been 66, 62, and 131
barrels of oil per day for 1996, 1995, and 1994, respectively.
Approximately 264 producing oil wells were located on the leased
land as of December 31, 1996. An additional 78 wells have been
shut-in and non-productive. Shut-in wells occur as oil revenues
received by the operators lag behind the cost of keeping the
wells in production. Low prices in the oil market have been a
disincentive to exploratory leasing and drilling on Registrant's
lands. No new wells were drilled on Registrant's lands during
1996.
Prices for Kern County's heavy crude oil rose in 1996.
Registrant attempts to require lessees to honor their lease
obligations to legally and properly abandon non-producing wells
in an environmentally sound manner. Registrant believes that the
improved economic picture for local crude oil industry will
expedite this procedure because local independent producers are
expected to have more cash to complete the work.
Estimates of oil and gas reserves on Registrant's properties
are unknown to Registrant. Registrant does not make such
estimates and does not file reports as to reserve estimates with
governmental agencies. Registrant's lessees do not make
information concerning reserves available to Registrant.
Registrant has approximately 2,440 acres under lease to
National Cement Company of California, Inc. ("National") for the
purpose of manufacturing portland cement from limestone deposits
found on the leased acreage. National owns and operates on the
property a cement manufacturing plant having a design capacity of
600,000 tons of cement per year. The amount of payment which
Registrant receives under the lease is based upon shipments from
the cement plant. The term of this lease expires in 2007, but
National has remaining options to extend the term for two
additional successive increments of 20 years each and one final
increment of 19 years. For information as to proceedings under
environmental laws relating to the cement plant see Item 1-"Legal
Proceedings".
Approximately 433 acres of Registrant's land are leased to
owners and operators of sand and gravel screening and rock
crushing plants under two leases with rental payments based on
the amount of sand and gravel removed and sold. Registrant is
actively searching for a new lessee for a third area of the ranch
where rock aggregate deposits have been extracted in the past.
Commercial and Land Use
Registrant leases to various tenants lands which are used
for a full-service truckstop facility, a truck wash, four auto
service stations with convenience stores, four full-service
restaurants, four fast-food operations, a motel, two antique
shops, one industrial site, a United States Postal Service
facility, several microwave repeater locations and radio and
cellular transmitters/relay sites.
The Commercial and Land Use Division continues to focus
substantial attention on additional development along the
Interstate 5 corridor, where the Company owns approximately 16
miles of frontage, with commercial land around four separate
interchanges. The land planning process in previous years had
identified the Interstate 5 corridor as an area of focus in near
term planning and entitlement activities. (See Part I, Item 2,
"Properties-Land Use Planning".) In 1996, the Company entered
into an agreement for the construction of a new 78-unit motel at
Grapevine Center. Registrant will begin to receive revenues from
the motel during 1997. Also during 1996, the Company implemented
further landscaping and commercial signage improvements called
for by earlier planning studies.
With respect to additional development opportunities in the
Interstate 5 corridor, the Company retained in 1996 a team of
experts to begin evaluating the market demand and development
potential for a major truck and travel plaza at the Laval Road
interchange, as well as other highway-oriented uses.
Within the commercial leasing area, Registrant is in direct
competition with other landowners who have highway interchange
locations along Interstate 5 within California.
Customers
During 1996, 1995 and 1994 the following customers accounted
for more than 10% of Registrant's consolidated revenues: Golden
State Vintners, a purchaser of grapes (21% in 1996, 18% in 1995
and 13% in 1994), Harris Ranch (18% in 1996), Timmerman Cattle
(26% in 1995), and E.A. Miller Cattle Co. (22% in 1994).
Employees
At December 31, 1996, Registrant had 52 full-time employees.
Executive Officers of Registrant
The following table shows, as to each executive officer of
Registrant, the offices held as of March 20, 1997, the period
they have been held, and their age. All of such officers serve
at the pleasure of the board of directors.
Name Offices Held Since Age
Robert A. Stine President and Chief 1996 50
Executive Officer
Matt J. Echeverria Senior Vice President, 1987 46
Livestock
John A. Wood Vice President, Farming 1978 59
Dennis Mullins Vice President, Public 1993 44
Affairs, Secretary
and General Counsel
Allen E. Lyda Vice President, 1990 39
Finance, Treasurer
and Assistant Secretary
David Dmohowski Vice President, Land 1991 49
Planning
A description of present and prior positions with
Registrant, and business experience for the past five years is
given below.
Mr. Stine has been employed by Registrant since May 1996,
serving as President and Chief Executive Officer. Mr. Stine
served as the Chief Executive Officer of the Collins Companies
from 1986 to April 1995.
Mr. Echeverria has served as Vice President since 1987 and
was elected Senior Vice President in 1995. He also served as
acting Chief Executive Officer of Registrant from May 1995 to
April 10, 1996.
Mr. Wood has served Registrant as Vice President since 1978.
Mr. Mullins has been employed by Registrant since 1993,
serving as Vice President, Public Affairs, Secretary and General
Counsel. From January 1992 to January 1993 he served as General
Counsel of the United States General Services Administration in
Washington, D.C. From 1985 to January 1992, Mr. Mullins was an
attorney with the firm of Jones, Day, Reavis & Pogue in Los
Angeles.
Mr. Lyda has been employed by Registrant since 1990, serving
as Vice President, Finance and Treasurer. He was elected
Assistant Secretary in 1995.
Mr. Dmohowski has been employed by Registrant since January
1991, serving as Vice President, Land Planning.
Item 2. Properties
Registrant owns approximately 270,000 acres of contiguous
land located approximately 60 miles north of Los Angeles and
approximately 15 miles east of Bakersfield. The land is
undeveloped, except for certain limited farming and commercial
uses. Included in the land are portions of the San Joaquin
Valley, foothills, portions of the Tehachapi Mountains and
portions of the western end of the Antelope Valley. A number of
key transportation and utility facilities, including Interstate 5
(a major north-south federal highway in California), U.S. Highway
58, California Highways 138 and 223, the California Aqueduct, the
Southern Pacific-Santa Fe Railway Line and various transmission
lines for electricity, oil, natural gas and communication systems
cross Registrant's lands.
For information as to Registrant's livestock, farming, oil
and minerals and commercial land use operations on the land, see
Part I, Item 1 - "Livestock Operations," "Farming Operations,"
"Oil and Minerals," and "Commercial Land Use."
Land Use Planning
Registrant has continued to engage in planning activities
related to future uses of its lands. Over the last two years
Registrant initiated planning programs intended to guide decision
making relating to future development on the Ranch with special
focus on the important Interstate 5 corridor and potential
development opportunities available to Registrant in the next 20
to 25 years. In 1995 Registrant conducted studies related to
architectural standards, landscape design and sign criteria for
existing and future commercial uses along the Interstate 5
corridor. In late 1995, Registrant filed a General Plan
Amendment (GPA) with Kern County covering approximately 2,600
acres located around its existing truckstop lease just south of
the Interstate 5 and Highway 99 junction. This GPA includes a
mix of proposed commercial and light industrial uses. At
present, however, Registrant has not filed a specific plan with
any governmental jurisdiction for any additional substantial
commercial development of the property. The timing of any
extensive development of Registrant's property and its nature and
extent are expected to be dependent upon market demand, the
availability of adequate development capital and the obtaining of
appropriate governmental permits and approvals.
Approximately 250,000 acres of Registrant's land are located
in Kern County, California. The Kern County General Plan for this
land contemplates continued commercial, resource utilization,
farming, grazing and other agricultural uses, as well as certain
new developments and uses, including housing and recreational
facilities. While the County General Plan is intended to provide
general guidelines for land use and development, it is subject to
amendment to accommodate changing circumstances and needs. In
addition to the General Plan, ranch lands will require specific
zoning and site plan approvals prior to actual development.
Registrant has not yet made specific proposals to the County
to implement any part of its proposed land use concept, except at
the Grapevine and Laval Road Interchanges on Interstate 5. Along
the Interstate 5 corridor, Registrant is aggressively pursuing
new commercial activity in order to meet the needs of the 50,000
vehicles per day that travel through the ranch. To meet this
built-in customer base, Registrant is investigating several
potential opportunities that can expand current commercial
activities. The most current project undertaken will result in
the completion of a motel at the Grapevine Center Interchange
during March 1997. This facility will be owned and operated by
the developer under a percentage lease. Registrant is currently
evaluating the feasibility of expanding the retail services at
the Grapevine Interchange and adding additional services for the
trucking industry at the Laval Road Interchange.
Registrant has been evaluating the potential for a resort or
guest ranch concept and for a large residential estates project
in the mountain portions of the Ranch accessible from Interstate
5. Since the prospects and timing of residential and
recreational projects are dependent on market demand, no
significant residential development is contemplated in the near
term. Registrant is evaluating the environmental and regulatory
factors that might affect its ability to secure value-enhancing
entitlements for potential land development. The results of this
evaluation will help Registrant in formulating long-range
entitlement strategies.
The remainder of Registrant's land, approximately 20,000
acres, is in Los Angeles County. This area of the ranch is
accessible from Interstate 5 via Highway 138 and lies 30 miles
west of the Antelope Valley communities of Palmdale and
Lancaster. Los Angeles County has adopted general plan policies
which contemplate future limited residential development of
portions of this land, subject to further assessments of
environmental and infrastructure constraints. No specific land
proposals have been made by Registrant to the County. Registrant
continues to monitor regional planning issues and continues to
develop its liaison with Los Angeles County government and other
regulatory agencies needed to preserve future development
opportunities.
In addition to its agricultural contract water entitlements,
Registrant has an entitlement to obtain from the California State
Water Project sufficient water to service a substantial amount of
future residential and/or commercial development. In 1995,
Registrant effected the transfer of 4,021 acre feet of
entitlement from the agricultural water district that serves its
San Joaquin Valley farmlands to an urban water district
controlled by Registrant. This action was taken in an effort to
assure the availability of the water in the future and not
because of any immediate plans for the development of
Registrant's property. Portions of the property also have
available ground water sufficient to support low density
development.
Portions of Registrant's property consist of mountainous
terrain, and much of the property is not presently served by
developed roads or by utility or water lines. Any significant
development of the property would involve the construction of
roads, utilities and other expensive infrastructure and would
have to be done in a manner which accommodates a number of
environmental concerns, including endangered species issues, that
may limit development of portions of the property.
Due to the property's location and its undeveloped state,
from time to time unsolicited proposals are made for governmental
or quasi-public uses of portions of the property or neighboring
lands by entities, some of which may have the right of eminent
domain. For the most part Registrant opposes such uses because,
to the extent that any such proposals may be implemented through
the use of the power of eminent domain or otherwise, the
flexibility to develop some of Registrant's other lands could be
correspondingly limited. Registrant completed negotiations with
a company concerning the construction of a major oil pipeline
over the Ranch during December 1995. The pipeline will follow an
alignment of other oil pipelines which are along the Interstate 5
corridor. Final governmental approvals were received by the
pipeline company in 1996, but commencement of construction has
been delayed by a suit filed by the City of Los Angeles
challenging the accuracy of the pipeline's federal environmental
documentation. As a result the start of construction may not
begin until 1997 or later, if ever. Registrant's lands are also
being evaluated as a possible alignment for a high speed rail
system between Los Angeles and San Francisco.
Farmland
Although changing crop market conditions and the cost and
availability of irrigation water bear on the economic feasibility
of farming on Registrant's lands, portions of the land located in
the San Joaquin Valley are suitable for farming a wide variety of
tree, vine and row crops.
Existing long-term contracts with the Wheeler Ridge-Maricopa
Water Storage District ("Wheeler Ridge") provide for water
deliveries from the California State Water Project ("Project") to
certain farmland in the San Joaquin Valley belonging to
Registrant. The long-term water supply picture in the state is
uncertain, however, not only due to recurring droughts, but also
because of existing and likely additional restrictions placed on
exported water from the Sacramento-San Joaquin River Delta
("Delta") to protect allegedly endangered species and improve
water quality in the Delta. Reserving water flowing into the
Delta for environmental purposes (which water then flows into the
San Francisco Bay and is unavailable for beneficial use) has been
required. The impact of these regulations could be severe during
drought years when the supply of water for all uses is limited.
Pursuant to an interim three-year agreement that expires in late
1997 among the federal agencies, the concerned state agencies,
environmental groups, and water users, a maximum of 1.1 million
acre feet of water has been reserved for such environmental uses,
which water would otherwise be available for beneficial use by
state and federal water project participants. However, there is
no assurance that this interim agreement will be made permanent,
and it could be unwound before its term expires because of a suit
filed on a related matter.
Registrant's total water entitlement substantially exceed
its permanent crop needs. The 100% allocation made by the
Project to the Kern County Water Agency, of which Wheeler Ridge
is a sub-unit, should cause deliveries from Wheeler Ridge to be
sufficient for Registrant's 1997 crops. Longer term, however,
year-to-year uncertainty of the water supply and potentially
higher costs for water may jeopardize the financial viability of
Wheeler Ridge by forcing marginal operators out of business and
shifting a greater portion of the financial burden imposed by
long term fixed costs and defaulted water assessments upon the
remaining growers. High water costs prevent farmers from raising
annual crops. Farmers also may be unable to obtain conventional
financing for the higher value permanent crops because of the
unpredictability of a water supply to nourish the trees and
vines. These effects will be mitigated if the set of agreements
among the State and all Project water users known as the
"Monterey Agreement" become effective. The Monterey Agreement
has been signed but its effective date has been postponed by
litigation under the California Environmental Quality Act. The
Monterey Agreement would improve the reliability of water supply
to agricultural users in drought years, and would improve the
financial viability of Wheeler Ridge and similarly situated water
districts by allowing for the sale of substantial water
entitlement to urban users.
Registrant's contracts with Wheeler Ridge, as of December
31, 1996, provide for annual water entitlement to approximately
5,488 acres of Registrant's lands. Existing Wheeler Ridge water
delivery facilities are capable of delivering the contract water
entitlement amounts to all of that acreage. The water contracts
require annual payments related to the Project and Wheeler Ridge
fixed costs, whether or not water is used or available. Payments
made under these contracts in 1996 by Registrant totaled
approximately $1,277,000.
In 1995, Registrant transferred 4,021 acre feet of
entitlement from Wheeler Ridge to Tejon-Castac Water District
("TCWD"), which lies entirely within the boundaries of
Registrant's lands. TCWD contributed 900 acre feet of
entitlement to the newly formed Kern Water Bank Authority in
order to join the Authority and obtain water banking rights. The
Kern Water Bank provides Registrant with a supplemental source of
water for agricultural and development uses in drought years.
Registrant's investment in the Kern Water Bank could be unwound
if the Monterey Agreement, of which the formation of the water
bank is a part, fails to become effective due to pending
litigation. The remaining 3,121 acre feet retained by TCWD are
now more directly under the control of Registrant and would be
available for future development purposes in the San Joaquin
Valley or in other areas of the Ranch. This water could also be
used for farming purposes in the same manner it was used before
the transfer with the consent of Wheeler Ridge and the Kern
County Water Agency.
Lands benefiting from Wheeler Ridge are subject to
contingent assessment liens under the California Water Storage
District Law. These liens are senior in priority to any mortgages
on the property. The liens secure Wheeler Ridge bonds issued to
finance construction of water distribution facilities. Lien
enforcement can involve foreclosure of the lands subject to the
liens. These liens will be enforced only if Wheeler Ridge
revenues from water contracts and other regular revenue sources
are not sufficient to meet Wheeler Ridge obligations. Lien
assessments are levied by Wheeler Ridge based on estimated
benefits to each parcel of land from the water project serving
the land. Lands belonging to Registrant are presently subject to
such contingent liens totaling approximately $842,000. Since
commencement of operations in 1971, Wheeler Ridge has had
sufficient revenues from water contract payments and other
service charges to cover its obligations without calls on
assessment liens, and Wheeler Ridge has advised Registrant that
it does not anticipate the need to make any calls on assessment
liens.
Under California law, lands located in a water storage
district may be reassessed at the request of the district board
of directors or at the request of 10% or more of the district
landholders. As a result of any reassessment, which is based
upon relative benefits from district facilities to each land
parcel, the lien assessments may be redistributed and may
increase or decrease for any particular parcel. Additional
projects, if any, which might result in new assessment liens,
must be approved by landowners of more than one-half of the land
(based on valuation) in the district as well as by the California
Department of Water Resources.
Item 3. Legal Proceedings
Registrant leases land to National Cement Company of
California, Inc. ("National") for the purpose of manufacturing
Portland cement from limestone deposits found on the leased
acreage. See "Business-Oil and Minerals." National currently
burns hazardous waste as supplemental fuel in the cement plant
located on the land leased from Registrant. The fuel is
obtained, transported, stored and processed by National's
subtenant, Systech Environmental Corporation ("Systech"). While
the permits issued to National and Systech by the U.S.
Environmental Protection Agency ("USEPA") have expired, National
and Systech have been permitted to continue the handling and
burning of hazardous waste as fuel at the cement plant pending a
final decision on their permit renewal applications.
A number of contaminated sites have been discovered on the
land leased to National, including several landfills containing
industrial waste, a storage area for drums containing lubricants
and grease, an underground plume of chlorinated hydrocarbons, and
diesel fuel which leaked from a pipeline. Because the waste in
some or all of the sites has contaminated groundwater, the
California Regional Water Quality Control Board for the Lahontan
Region (the "Regional Water Board") has issued abatement orders
with respect to certain of the sites. The abatement orders,
which have different provisions depending on the site involved,
generally require National, Lafarge Corporation ("Lafarge"), the
predecessor in interest to National under the existing lease, and
the Registrant to clean up and abate soil and ground water
contamination in the vicinity of the sites. Although Registrant
did not deposit any of the contaminants, the orders state that
Registrant, as a landowner, will be responsible for complying
with the orders if Lafarge and National fail to perform the
necessary work. Civil fines for violations of a cleanup and
abatement order can be as high as $10,000 per day for each day
the violation occurs and as high as $15,000 per day for each day
a discharge of pollutants and a violation of the order occurs.
Lafarge has undertaken the investigation and remediation of
the landfills and has completed the removal of contaminated soils
from some of them. Additional work is required to remove
contaminated soils and to alleviate groundwater contamination
resulting from the landfills. The abatement order issued by the
Regional Water Board with respect to the drum storage area has
been dismissed because of the low level of petroleum
contamination. Lafarge has completed a substantial amount of the
site investigation with respect to the chlorinated hydrocarbons
and is developing a feasibility study evaluating different
remediation options. The plume of chlorinated hydrocarbons
covers an extensive area and appears to have migrated off of the
leased premises at one point. With respect to the diesel pipe
leak, Lafarge has performed some site investigation and requested
that the Regional Water Board approve closure of the site without
requiring any remediation. Registrant opposed the request, and
in December 1996, the Regional Water Board denied Lafarge's
request. Registrant believes that Lafarge will be ordered to
undertake further site investigation. There appears to be
significant contamination along the length of the pipeline, and
portions of the contamination appear to be located under the
cement plant itself, which means that remediation, if possible,
may be more difficult and expensive.
In 1991, the Regional Board adopted Waste Discharge
Requirements ("WDR's") concerning future kiln dust disposal and
the existing kiln dust piles stored on the leased premises. The
WDR's name National and Registrant as "dischargers" and state
that Registrant is responsible for ensuring compliance with the
WDR's if National fails to do so. Persons who violate WDR's are
also subject to the $10,000 per day and $15,000 per day civil
fines referenced above. The Regional Water Board has announced
that it is considering amending the WDR's for the cement kiln
dust piles, and possibly issuing a cleanup and abatement order
for the older piles that will no longer be used. The changes
that could be included in revised WDR's or a cleanup and
abatement order include permanent and/or improved capping of the
inactive piles, and the addition of Lafarge as a discharger
responsible for the long term management of the cement kiln dust
piles. Lafarge has argued that it should not be named as a
discharger respecting the cement kiln dust piles, and Registrant
has argued that Lafarge should be so named.
The USEPA has proposed to regulate all kiln dust nationwide
under the hazardous waste program, but with a tailored set of
standards. The proposed rules will mostly involve careful
groundwater monitoring and possibly covering dust piles so they
do not blow in the wind. Measures of this type are already being
taken by National on the cement plant site. Kiln dust from
cement plants using supplemental fuels will not be treated any
differently under this program. The cement industry filed
comments opposing the proposed rules for kiln dust and is engaged
in a legislative effort to secure the management of kiln dust as
a non-hazardous waste. The industry has also proposed an
enforceable agreement between the cement manufacturers and USEPA
with respect to the management of kiln dust in lieu of
regulations. USEPA is considering this approach. In 1995, the
California Legislature enacted legislation classifying kiln dust
as a non-hazardous waste if it is managed on-site under
regulations administered by a regional water quality control
board, and it would otherwise be classified as hazardous solely
because of its extreme pH content. Registrant believes this
legislative reclassification will apply to the kiln dust pile
currently used by National but not to older piles created by
Lafarge and its predecessors, which are believed to contain
chromium bricks. If the chromium bricks are present, that could
provide an independent basis for classifying the kiln dust as a
hazardous waste
Under the lease between Registrant and National, the tenant
is obligated to indemnify Registrant for costs and liabilities
arising directly or indirectly out of the use of the leased
premises by the tenant. All obligations under this indemnity
provision arising after the assignment of the lease to National
(which occurred in November 1987) were assumed by National, and
Lafarge has liability for all obligations under the indemnity
provisions arising before the assignment. National's obligation
is guaranteed by its parent, National Cement Company, Inc.
Registrant believes that all of the matters described above in
this Item 3 are included within the scope of the National and
Lafarge indemnity obligations. While National has to date
honored its indemnity obligations by reimbursing Registrant for
all costs and expenses for which National has been invoiced,
Lafarge recently appears to have repudiated its indemnity
obligations. Registrant is currently evaluating whether it needs
to file suit against Lafarge in order to enforce its rights under
the indemnity.
Registrant has been advised that National and Lafarge have
reached an agreement to share cleanup responsibilities. This
agreement settled a lawsuit between National and Lafarge.
Registrant believes that under this agreement National is
responsible for management of the cement kiln dust piles, and
Lafarge is responsible for cleanup of the industrial waste
landfills, the diesel release and the chlorinated hydrocarbon
plume.
To date Registrant is not aware of any failure by Lafarge or
National to comply with the orders of the Regional Water Board or
to pursue the cleanup of the Additional Landfills as instructed
by Regional Water Board staff. Registrant has not been ordered
by the Regional Water Board to perform any of the investigative,
characterization or remediation or removal activities. However,
Registrant has been compelled to become involved in reviewing the
investigative reports and cleanup recommendations made by Lafarge
and its consultants in monitoring the Regional Water Board
proceedings and Lafarge's activities.
Registrant believes that Lafarge and National have
sufficient resources to perform any reasonably possible or
reasonably likely obligations relating to these matters.
Publicly available financial information with respect to Lafarge
indicates that it had a net worth of approximately $1.07 billion
as of September 30, 1996. National and its parent/guarantor are
subsidiaries of a large French company, and so far as Registrant
is aware, no separate financial statements are publicly available
with respect to either company. However, Registrant has held
discussions with National which indicate sufficient resources are
available to satisfy any reasonably likely obligations relating
to the above matters. Thus Lafarge and National appear not to
have violated any Regional Water Board orders and appear to have
the financial strength to carry out any future orders whereby to
be improved by the Regional Water Board. Therefore, Registrant
believes that it is remote that any cleanup orders issued by the
Board will have a material effect on Registrant. If, however,
National and Lafarge do not fulfill their cleanup
responsibilities and Registrant is required at its own cost to
perform the landfill, kiln dust, diesel release and underground
plume remedial work likely to be mandated by the regulatory
agencies, the amount of any such expenditure by Registrant could
be material.
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 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, the company that owns all
Truckstops of America truck stops nationally, the former 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, all potential defendants,
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.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
Registrant's Common Stock is traded on the American Stock
Exchange. The following table shows the high and low sale prices
for Registrant's Common Stock on the American Stock Exchange for
each period during the last two years, as reported by the
American Stock Exchange.
<TABLE>
1996 1995
<S> <C> <C> <C> <C>
Quarter High Low High Low
First 16-7/8 14-1/4 13-1/4 11-5/8
Second 19-1/4 15-3/8 14-3/8 12-3/4
Third 18 15-1/4 17-3/4 13-1/4
Fourth 17 14 16-1/8 13-5/8
</TABLE>
As of March 11, 1997, there were 716 owners of record of
Registrant's Common Stock.
Registrant paid cash dividends of $.05 per share in each of
the years 1996 and 1995. Two and one-half cents per share was
paid in June and December of each year.
Item 6. Selected Financial Data.
<TABLE>
Years Ended December 31
(In thousands of dollars, except per share amounts)
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Operating Revenues,
Including Interest
Income $18,895 $19,490 $16,882 $19,469 $16,563
Net Income 1,685 434 (1) 1,527 2,972 (2) 1,492
Total Assets 47,369 45,203 44,920 47,111 45,729
Long-term Debt 1,800 1,800 1,950 3,550 5,150
Income Per Share .13 .03 (1) 0.12 .23 (2) 0.12
Cash Dividends
Declared and Paid
Per Share 0.05 0.05 0.05 0.05 0.05
(1) Net income from continuing operations was reduced by
$400,000 ($240,000 after tax or $.02 per share) due to the
charge-off of almond trees destroyed by 1995 winter storms.
(2) Net income from continuing operations was enhanced by
the recognition of a $1,054,000 ($632,000 after tax or $.05 per
share) refund from a local water district.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
This Management's Discussion and Analysis of Financial
Condition and Results of Operations includes a number of forward-
looking statements that are subject to many uncertainties and may
turn out not to be accurate. See "Business" for a discussion of
factors which could cause actual results to differ materially
from those in the forward-looking statements.
Results of Operations
As reflected in the accompanying financial statements, net
income was $1,685,000 in 1996, $434,000 in 1995, and $1,527,000
in 1994.
Net income for 1996 increased when compared to 1995 due to
higher operating profits within the Livestock, Farming and
Commercial and Land Use divisions.
Net income for 1995 decreased when compared to 1994 due
primarily to lower operating profits within the Livestock and
Commercial and Land Use divisions. Also affecting 1995 net
income was the $400,000 ($240,000, or .02 per share, after tax)
charge-off of producing almond trees destroyed by winter storms
during January 1995. Changes in revenues and expenses of
Registrant's industry segments for the years 1996 and 1995 are
summarized below.
Livestock. Livestock operating profits of $453,000 in 1996, grew
$451,000 when compared to 1995 operating profits. The growth in
net operating income is due to a decrease in cost of sales
($2,553,000) which was partially offset by reduced cattle sales
revenue ($2,091,000). Cost of sales declined during 1996 due to
cattle not being placed in feedlots for the same period of time
as was done in 1995 and to better grazing conditions during 1996.
During 1995, Registrant delayed the sale of approximately 7,000
head of cattle from May 1995 to October 1995 and placed these
cattle in feedlots during the summer months of 1995. The expense
associated with four extra months of feedlot costs during 1995 is
the primary reason for the favorable 1996 cost of sales variance.
The reduction in cattle sales revenue is due primarily to fewer
pounds of cattle being sold in 1996 than in 1995. During 1996,
more head of cattle were sold, 10,527 head of cattle compared to
9,551 head of cattle in 1995, but at weights which were
approximately 370 pounds per cow less than in 1995 when cattle
were held in feedlots for four extra months. As in 1995 cattle
prices per pound continued to be depressed throughout 1996.
During 1996, Registrant continued to use the futures and
options market to protect the future selling price of cattle.
Without the ability to hedge cattle and feed positions,
Registrant would have sustained a net loss on the sale of its
cattle during 1996. Gains on hedge positions totalled
approximately $578,000. Many of these gains were due to the
continuing decline of cattle prices during 1996, especially
during the first half of 1996. Registrant's goal in hedging its
cattle is to protect or create a range of selling prices that in
years like 1996 and 1995, allow Registrant to recognize a profit
on the sale of cattle once all costs are deducted. The risk in
hedging cattle prices is that in those years that prices increase
the hedge may limit or cap potential gains from the increase in
price.
Due to the cyclical nature of beef production, the National
Cattlemen's Association (NCA) has estimated that consumption per
capita in the U.S. could decline over the next six years due to
increases in price. However, based on studies by the NCA total
demand for beef products should continue to grow due to
population growth and further growth in beef exports. The cattle
industry has just gone through the low price segment of the
current cattle inventory cycle and some producers have been
forced out of the business. Feeder cattle and calf supplies
appear to have just passed peak levels for this cycle. The
supply of feeder cattle and calves outside of feedlots is still
large, but should decline significantly during the next several
years. Exports of beef are likely to exceed total imports,
making the U.S. a net exporter of beef on a volume basis for the
first time in history.
On, March 10, 1997, Registrant purchased the assets of a
feedlot that is located in western Texas. Registrant will
operate this feedlot for its use as well as that of other
customers who want to feed cattle. The feedlot was purchased for
$3.5 million, has a cattle head capacity of 35,000 and covers
approximately 650 acres.. Registrant believes that by
controlling the feeding phase of its cattle before sending them
to packing houses that a better quality product will be produced
providing higher margins to Registrant. Registrant believes that
the revenues generated by the new feedlot operation will be
material to future earnings. See Note 15 to the Audited
Consolidated Financial Statements for the pro forma effect of the
asset purchase. In connection with the purchase of the feedlot
Registrant is beginning a program in 1997 and 1998 to expand the
cattle herd to approximately 22,000 head. This will allow
Registrant to potentially increase the earnings from its cattle
operations and provide additional cattle for the feedlot
operation,
Livestock operating profits of $2,000 in 1995 decreased
$547,000 or almost 100%, when compared to 1994 operating results.
The decrease in operating profits is due primarily to increases
in cost of sales ($2,070,000) and the continuing decline of
cattle prices during 1995. Cattle sales revenue increased
($1,493,000) during 1995, which partially offset the increase in
cost of sales. Cost of sales increased during 1995 due to
Registrant delaying the sale of approximately 7,000 head of
cattle from May 1995 to October 1995 and placing the cattle in
feedlots during the summer months. The extra four months of
feedlot costs and an increase in the number of head sold during
1995 were primary factors in the increase in cost of sales.
Registrant delayed the sale of cattle during 1995 due to the low
cattle prices during May 1995. By delaying the sale, these
cattle increased in weight from approximately 750 pounds to
approximately 1,150 pounds at the time of sale in October. The
increase in weight of cattle sold and the increase in number of
cattle sold led to the increase in cattle sales revenue during
1995. Total cattle sold during 1995 were 9,551 compared to 8,474
during 1994. Prices received during 1995 were approximately 15%
per pound less than received during 1994. By extending the
cattle feeding phase, Registrant realized net profits from the
sale of those cattle of approximately $125,000 more than if the
cattle had been sold during May as is normally the case.
See Part I, Item 1 -"Business-Livestock Operations" for a
further discussion of Registrant's livestock operations for 1996
and future expectations.
Farming. Farming operating profits increased $1,323,000 to
$3,134,000, which is a 73% increase over 1995 operating profits.
In comparison to 1995, net operating income increased due to
higher pistachio revenues ($608,000), higher grape revenues
($434,000), higher almond revenues ($127,000), and the charge-off
of destroyed almond trees of $400,000, which occurred during
1995. Partially offsetting these favorable variances was an
increase in fixed water costs of $168,000 and in cultural costs
of $152,000. The increase in cultural costs is primarily due to
higher harvesting costs.
The increase in grape revenues grew $434,000 due to
increases in prices during 1996. On average the price received
by Registrant increased approximately $61.00 per ton of grapes.
The almond revenue increase during 1996 was due to a 13% increase
in production. The increase in production was partially offset
by almond prices falling 7% when compared to 1995 prices.
Pistachio revenues were $608,000 higher in 1996 due to an
increase in production. Pistachio production increased
approximately 157% because 1996 was the "on" production year in
the alternate year bearing cycle. Walnut revenues increased
$51,000 during 1996 due to prices rising approximately 8% during
1996.
Overall 1996 crop revenues were higher than expected due
mainly to higher almond and wine grape prices. Almond, walnut,
and pistachio demand is expected to remain good during 1997 and
the near future. Industry expectations are that state wide nut
crop yields could improve when compared to 1996, which may
negatively impact prices. In addition, industry projections show
a continuation of new almond and pistachio plantings that could
impact prices once full production begins. In 1996 Registrant
signed a five year contract with a winery that provides the
better of a minimum price or market price for grapes each year.
This contract is beneficial to the Registrant because it helps
minimize future price fluctuations. Within the grape industry
there continues to be new land developed, which could depress
prices in the future once all new developments are in full
production. However, in the near term grape prices should
continue to be favorable due to the growth in wine consumption
and grape shortages over the last two years. All of Registrant's
crops are particularly sensitive to the size of each year's world
crop. Large crops in California and abroad can rapidly depress
prices. For a further discussion of the 1996 farming year refer
to Part I, Item 1 - "Business - Farming Operations".
Farming operating profits of $1,811,000 during 1995 were
$114,000 or 6% less than 1994 operating profits. The decrease in
net earnings is due to the $400,000 ($240,000 after tax) charge-
off of destroyed almond trees, lower almond production, reduced
pistachio production due to 1995 being the alternate bearing
year, and to higher cultural costs and water costs ($125,000).
Partially offsetting these unfavorable variances was an increase
in almond prices during 1995, the release of the 1994 almond
reserve ($200,000) during 1995, and higher grape revenues.
Cultural costs increased approximately $650,000 due to
unfavorable weather conditions, storm cleanup costs, and the
addition of 304 acres of rubired grapes.
Changes in individual crop revenues in 1995 compared to 1994
were significant. Grape revenues increased $1,275,000 due to
increases in production and prices during 1995. Of the
$1,275,000 favorable variance in grape revenues, $1,038,000 is
related to the addition of 304 acres of rubired grapes that were
purchased during February 1995. Almond revenues increased
$347,000 during 1995 in spite of lower production due to a 65%
increase in prices and to the release of the 1994 almond reserve.
Walnut revenues increased $194,000 due to improved production and
a 24% increase in prices during 1995. Pistachio revenues fell
approximately $695,000 due to lower production. Pistachio
volumes decreased because 1995 was the "off" production year in
the alternate year bearing cycle.
During January 1995, a portion of Registrant's farming
operations suffered damages as a result of high winds that were
associated with a series of winter storms. Nearly all of the
loss occurred in Registrant's producing almond orchards.
Approximately 200 acres of trees were uprooted by a combination
of high winds and saturated soil conditions due to heavy
rainfall. The lost trees represented 23% of Registrant's mature,
almond producing orchards. As a result of the storm damage,
Registrant recorded a charge to earnings as described above.
Registrant completed replanting the damaged acreage with almond
trees during February 1996. The loss of mature trees will affect
future revenues until the replanted crops begin full production,
which could take three to five years from date of planting.
Oil and Minerals. Oil and Mineral operating profits of
$1,156,000 in 1996 was $35,000, or 3% below 1995 operating
profits. The decrease in net operating income during 1996 was
due to lower sand/rock aggregate royalties, reduced land lease
income, and increased professional service fees and staffing
costs. Partially offsetting these unfavorable variances were
increases in oil and gas royalties and cement royalties.
Sand/rock aggregate royalties declined due to winter weather
during early 1996 which delayed the start of several construction
projects. Land lease revenue continues to decline due to the
economics of exploring for oil within California. Professional
service fees and staffing costs increased due to the ongoing
management of and monitoring of the activities of oil and gas
lessees and monitoring of environmental activities at the
National Cement lease site. Oil and gas royalties increased due
to an increase in oil prices throughout 1996, and cement
royalties were higher due to increases in production because of
the growth in construction within Southern California. The Oil
and Mineral Division has been very profitable over the last
several years. However, this is an area of operating revenues
that is expected to be adversely affected over the next few years
by the fact little or no new oil and gas exploration activity is
being undertaken by lessees on Registrant's lands. See Part I,
Item 1 - "Business - Oil and Minerals", for a further discussion
of 1996 activities and future expectations.
Oil and Mineral operating profits of $1,191,000 during 1995
were $17,000, or 1% less than 1994 operating profits. The
decrease in operating profits during 1995 were due primarily to
lower land lease income and to increased professional service
fees. An increase in cement royalties during 1995 partially
offset the above unfavorable variances. Professional service
fees increased due to Registrant spending considerable time
negotiating with lessees to perform the required field
development or abandonment of idle wells. Enforcement of lease
requirements increased the number of operating wells in operation
during 1995. Land lease revenues declined and are expected to
continue to decline due to the economics of exploring for oil
within California. Cement royalties increased approximately 9.4%
during 1995 due to increases in production.
Commercial and Land Use. The 1996 operating loss of $358,000 is
a $472,000 improvement over 1995's operating loss of $830,000.
The improvement in 1996 is due to a decrease in professional
service fees ($573,000), an increase in film location fees
($95,000), and a gain from the sale of land ($184,000).
Partially offsetting the above favorable variances was an
increase in fixed water costs of $325,000. Registrant's
commercial lease revenue during 1996 was flat when compared to
1995 lease revenues. Professional service fees declined due to
the timing of planning activities on Registrant's lands related
to the I-5 corridor and the absence of any costs during 1996
related to the proposed major crude oil pipeline through
Registrant's land. The costs associated with the pipeline were
incurred during 1995 and are discussed below. Film location fees
increased due to the continued growth of the Southern California
entertainment industry, which resulted in more opportunities for
advertisement, television, and motion picture location filming.
Fixed water costs grew due to the transfer of additional state
water project water that can be used in the future for municipal
and industrial uses. In addition to the cost of this additional
water, a local water district charged Registrant for costs
related to a water banking program. As to future activities
Registrant is currently evaluating the feasibility of expanding
retail services at the Grapevine Interchange and adding
additional services for the trucking industry at the Laval Road
Interchange. See Part I, Item 2, "Properties - Land Planning for
a further discussion of planning activities.
An operating loss of $830,000 during 1995 compares to a 1994
operating loss of $285,000 for the Commercial and Land Use
Division. The decrease when compared to 1994 is due to an
increase in professional service fees ($367,000) and an increase
in staffing costs ($170,000) during 1995. Partially offsetting
these negative variances was an increase in commercial rents and
right of way income of $57,000. Commercial rents increased due
to improved traffic flows and to the addition of another fast
food outlet at the Laval Road Interchange. Professional service
costs increased due primarily to legal, legislative, and public
affairs activity Registrant was involved in related to a proposed
major crude oil pipeline through the ranch. During December 1995
Registrant completed negotiations with respect to an easement for
the crude oil pipeline. The actual date of start of
construction on the pipeline is not known at this time. Upon the
start of construction Registrant will receive a substantial
payment that will be recorded as right of way and easement
revenues. This potential revenue will not be received until
construction of the pipeline begins.
Interest. Interest income fell $66,000, or 5%, when compared to
1995 interest income. The reduction during 1996 is due primarily
to lower average invested dollars throughout 1996 when compared
to 1995. On average $20.3 million was invested during 1996 while
$21.3 million was invested during 1995. Investment funds
declined due to capital expenditures and the payment of
dividends.
Interest income of $1,374,000 during 1995 was $65,000, or
4.5%, less than 1994 interest income. The decrease when compared
to 1994 is due to lower gains on the sale of securities, lower
interest rates during 1995 and to lower outstanding investment
balances. Investment funds continued to decline during 1995 due
to the purchase of land, the payment of dividends, and to capital
expenditures.
Interest expense declined in 1996 to $295,000 from $436,000
in 1995. Interest expense during 1996 was attributable to the
remaining balance of long-term debt used to finance Registrant's
758 acre almond and 897 acre wine grape developments, which were
developed in 1981, and use of Registrant's working capital line
of credit. The increase in expense during 1995 was due to
Registrant increasing the usage of short-term lines of credit
which became necessary because of delays in the sale of cattle
and the timing of 1995 crop proceeds.
Corporate Expenses. Corporate expenses for 1996 were $201,000,
or 8%, higher than corporate expenses for 1995. The increase in
costs is primarily due an increase in staffing costs ($122,000)
and employee relocation costs ($108,000). These variances were
partially offset by a reduction in professional service fees
($85,000). The increase in staffing costs and relocation costs
was primarily related to the hiring of a new Chief Executive
Officer in May 1996.
Corporate expenses during 1995 increased $177,000, or 8%,
when compared to 1994 expenses. The increase was due primarily
to higher professional service fees ($157,000) and maintenance
fees ($80,000). Partially offsetting these unfavorable variances
was a decrease in staff costs of $100,000. Professional service
costs were higher because of fees related to the Chief Executive
Officer search. Staffing costs fell due to the President
resigning during the middle of 1995.
Inflation. Inflation can have a major impact on Registrant's
operations. The farming operations are most affected by
escalating costs and unpredictable revenues (due to an oversupply
of certain crops) and very high irrigation water costs. High
fixed water costs related to Registrant's farm lands will
continue to adversely affect earnings.
Prices received by Registrant for many of its products are
dependent upon prevailing market conditions and commodity prices.
Therefore, it is difficult for Registrant to accurately predict
revenue, just as it cannot pass on cost increases caused by
general inflation, except to the extent reflected in market
conditions and commodity prices.
Impact of Accounting Change. Registrant adopted Statement of
Financial Accounting Standard (SFAS) No. 123, Accounting and
Disclosure of Stock-Based Compensation, at year-end December 31,
1996. Registrant will continue to apply APB 25, Accounting for
Stock Issued to Employees, for the accounting of stock options
and provide the appropriate disclosures and pro forma information
as described in SFAS No. 123.
Financial Condition. Registrant's cash, cash equivalents and
short-term investments totaled approximately $20,820,000 at
December 31, 1996, an increase of 3% from the corresponding
amount at the end of 1995. Working capital at the end of 1996
was $24,686,000, which is comparable to 1995's working capital.
Working capital uses during the year were for capital
expenditures and the payment of dividends. Registrant has a
revolving line of credit of $5,000,000 that as of December 31,
1996 had a balance of $2,846,000 at an interest rate of 8.25%.
The outstanding balance on Registrant's revolving credit line was
paid down during January 1997. The revolving line of credit is
used as a short-term cash management tool.
The principal uses of cash and cash equivalents during 1996,
1995, and 1994 consisted of capital expenditures, purchase of
land, payments of long-term debt and the payment of dividends.
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.
During 1997, $1,283,000 has been budgeted for capital
expenditures, which includes new equipment and improvements to
existing facilities. As mentioned above, Registrant purchased
the assets of a feedlot, this purchase was done with cash which
will lower the outstanding balance of short-term investments by
approximately $3.5 million. In the future, Registrant may
leverage these new assets and use the funds for other
investments. Registrant is evaluating the possibility of new
farming developments and expansion of the cattle herd. These
potential new projects will be funded from current cash resources
and Registrant's excess borrowing capacity.
Registrant has traditionally funded its growth and capital
additions from internally generated funds. Management believes
that the combination of short-term investments, excess borrowing
capacity, and capital presently available to it 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.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information as to the directors of Registrant is
incorporated by reference from the definitive proxy statement to
be filed by Registrant with the Securities and Exchange
Commission with respect to its 1997 Annual Meeting of
Stockholders. Information as to the Executive Officers of
Registrant is set forth in Part I, Item 1 under "Executive
Officers of Registrant."
Item 11. Executive Compensation.
Information required by this Item is incorporated by
reference from the definitive proxy statement to be filed by
Registrant with the Securities and Exchange Commission with
respect to its 1997 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Information required by this Item is incorporated by
reference from the definitive proxy statement to be filed by
Registrant with the Securities and Exchange Commission with
respect to its 1997 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions.
Information required by this Item is incorporated by
reference from the definitive proxy statement to be filed by
Registrant with the Securities and Exchange Commission with
respect to its 1997 Annual Meeting of Stockholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.
(a) Documents filed as part of this report: Page Number
1. Consolidated Financial Statements:
1.1 Report of Independent Auditors 36
1.2 Consolidated Statements of Financial
Position - December 31, 1996 and 1995 37
1.3 Consolidated Statements of Income -
Years Ended December 31, 1996, 1995
and 1994 39
1.4 Consolidated Statements of Stockholders'
Equity - Three Years Ended
December 31, 1996 40
1.5 Consolidated Statements of Cash Flows -
Years Ended December 31, 1996, 1995
and 1994 41
1.6 Notes to Consolidated Financial
Statements 42
2. Supplemental Financial Statement Schedules:
NONE
3. Exhibits:
3.1 Restated Certificate of Incorporation *
3.2 By-Laws *
10.1 Water Service Contract with Wheeler
Ridge-Maricopa Water Storage District
(without exhibits), amendments originally
filed under Item 11 to Registrant's
Annual Report on Form 10K **
10.2 Tejon Ranch Co. Stock Option Plan **
10.3 Lease agreement for Mr. San Olen **
10.4 Asset Purchase Agreement dated
March 10, 1997 for purchase of feedlot
assets 58
22 List of subsidiaries of Registrant 91
27 Financial Data Schedule (Edgar) 92
(b) Report on Form 8-K filed during the last quarter of the
period covered by this report:
None.
(c) Exhibits
* 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.
(d) Financial Statement Schedules -- The response to this
portion of Item 14 is submitted as a separate section
of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TEJON RANCH CO.
DATED: March 20, 1997 BY:
Robert A. Stine
President and
Chief Executive Officer
(Principal Executive
Officer)
DATED: March 20, 1997 BY:
Allen E. Lyda
Vice President, Finance &
Treasurer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the date indicated.
Name Capacity Date
____________________ Director March 20, 1997
Otis Booth, Jr.
____________________ Director March 20, 1997
Craig Cadwalader
____________________ Director March 20, 1997
Dan T. Daniels
____________________ Director March 20, 1997
Rayburn S. Dezember
____________________ Director March 20, 1997
Robert F. Erburu
____________________ Director March 20, 1997
Clayton W. Frye, Jr.
____________________ Director March 20, 1997
Donald Haskell
____________________ Director March 20, 1997
Raymond L. Watson
____________________ Director March 20, 1997
Phillip L. Williams
____________________ Director March 20, 1997
Robert A. Stine
Annual Report on Form 10-K
Item 8, Item 14(a)(1) and (2),(c) and (d)
List of Financial Statements and Financial Statement Schedules
Financial Statements
Certain Exhibits
Year Ended December 31, 1996
Tejon Ranch Co.
Lebec, California
Form 10-K - Item 14(a)(1) and (2)
Tejon Ranch Co. and Subsidiaries
Index to Financial Statements and Financial Statement Schedules
ITEM 14(a)(1) - FINANCIAL STATEMENTS
The following consolidated financial statements of Tejon Ranch
Co. and subsidiaries are included in Item 8:
Page
Report of Independent Auditors 36
Consolidated Statements of Financial Position -
December 31, 1996 and 1995 37
Consolidated Statements of Income -
Years Ended December 31, 1996, 1995 and 1994 39
Consolidated Statements of Stockholders' Equity -
Three Years Ended December 31, 1996 40
Consolidated Statements of Cash Flows -
Years Ended December 31, 1996, 1995 and 1994 41
Notes to Consolidated Financial Statements 42
ITEMS 14(a)(2) - FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable, and therefore have been omitted.
Report of Independent Auditors
Stockholders and Board of Directors
Tejon Ranch Co.
We have audited the accompanying consolidated balance sheets of
Tejon Ranch Co. and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Tejon Ranch Co. and subsidiaries at
December 31, 1996 and 1995, and the consolidated results of their
operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
March 10, 1997
<TABLE>
Tejon Ranch Co. and Subsidiaries
Consolidated Statements of Financial Position
December 31
1996 1995
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 693,000 $ 44,000
Marketable securities 20,127,000 20,257,000
Accounts receivable 4,303,000 4,487,000
Inventories 3,430,000 2,827,000
Prepaid expenses and other
current assets 1,319,000 1,063,000
Total current assets 29,872,000 28,678,000
Property and equipment, net 16,270,000 15,073,000
Other assets:
Breeding herd, net of accumulated
depreciation of $133,000 in 1996
and $112,000 in 1995 1,054,000 961,000
Other assets 173,000 491,000
1,227,000 1,452,000
Total assets $47,369,000 $45,203,000
See accompanying notes.
</TABLE>
<TABLE>
December 31
1996 1995
<S> <C> <C>
Liabilities and Stockholders' equity
Current liabilities:
Trade accounts payable $ 488,000 $ 932,000
Other accrued liabilities 569,000 343,000
Current deferred income 265,000 473,000
Income taxes payable 856,000 264,000
Short-term note 2,808,000 1,682,000
Current portion of long-term debt 200,000 200,000
Total current liabilities 5,186,000 3,894,000 <PAGE>
Long-term debt, less current portion 1,800,000 1,800,000
Deferred income taxes 2,651,000 2,540,000
Commitments and contingencies
Stockholders' equity:
Common Stock, $.50 par value per share:
Authorized shares - 30,000,000
Issued and outstanding shares - 6,341,000 6,341,000
Additional paid-in capital 387,000 387,000
Unrealized gains on available-for-sale
securities, net of taxes 7,000 39,000
Defined benefit plan-funding adjustment,
net of taxes (256,000) ---
Retained earnings 31,253,000 30,202,000
Total stockholders' equity 37,732,000 36,969,000
Total liabilities and stockholders' equity $47,369,000 $45,203,000
See accompanying notes
</TABLE>
<TABLE>
Tejon Ranch Co. and Subsidiaries
Consolidated Statements of Income
Year Ended December 31
1996 1995 1994
<S> <C> <C> <C>
Revenues:
Livestock $ 5,481,000 $ 7,492,000 $ 6,030,000
Farming 9,107,000 7,973,000 6,880,000
Oil and minerals 1,356,000 1,295,000 1,296,000
Commercial and land use 1,643,000 1,356,000 1,237,000
Interest income 1,308,000 1,374,000 1,439,000
18,895,000 19,490,000 16,882,000
Costs and expenses:
Livestock 5,028,000 7,490,000 5,481,000
Farming 5,973,000 6,162,000 4,955,000
Oil and minerals 200,000 104,000 88,000
Commercial and land use 2,001,000 2,186,000 1,522,000
Corporate expenses 2,590,000 2,389,000 2,212,000
Interest expense 295,000 436,000 287,000
16,087,000 18,767,000 14,545,000
Income before income tax 2,808,000 723,000 2,337,000
Income taxes 1,123,000 289,000 810,000
Net income $ 1,685,000 $ 434,000 $ 1,527,000
Net income per share $0.13 $0.03 $0.12
See accompanying notes.
</TABLE>
<TABLE>
Tejon Ranch Co. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Three years ended December 31, 1996
Benefit
AdditionalUnrealized Plan
Common Paid-In Gains Funding Retained
Stock Capital (Losses) Adjustment Earnings Total
<S> <C> <C> <C> <C> <C> <C>
Balance,
January 1,
1994 $6,341,000 $387,000 $122,000 $ --- $29,509,000 $36,359,000
Net income --- --- --- --- 1,527,000 1,527,000
Cash
Dividends
paid-
$.05 (634,000)
per share --- --- --- --- (634,000)
Change in
unrealized
gains
(losses) on
available-
for-sale
securities,
net of a
tax benefit
of $254,000 --- --- (494,000) --- --- (494,000)
Balance 36,758,000
December
31, 1994 6,341,000 387,000 (372,000) --- 30,402,000
Net income --- --- ---- --- 434,000 434,000
Cash
dividends
paid-
$.05
per share --- --- --- --- (634,000) (634,000) <PAGE>
Changes in
unrealized
gains
(losses) on
available-
for-sale
securities,
net of
taxes of
$164,000 --- ---- 411,000 --- --- 411,000
Balance 36,969,000
December
31, 1995 6,341,000 387,000 39,000 --- 30,202,000
Net Income --- --- --- --- 1,685,000 1,685,000
Cash
dividends
paid-
$.05 (634,000)
per share --- --- --- --- (634,000)
Defined
benefit
plan
funding
adjustments
net of
taxes of
$170,000 --- --- --- (256,000) --- (256,000)
Changes in
unrealized
gains
(losses) on
available-
for-sale
securities,
net of
taxes of
$21,000 --- --- (32,000) --- --- (32,000)
Balance,
December
31,1996 $6,341,000 $ 387,000 $ 7,000 $(256,000) $31,253,000 $37,732,000
See Accompanying Notes
</TABLE>
<TABLE>
Tejon Ranch Co. and Subsidiaries
Consolidated Statements of Cash Flows
Year ended December 31
1996 1995 1994
<S> <C> <C> <C>
Operating activities
Net income $ 1,685,000 $ 434,000 $1,527,000
Items not affecting cash:
Depreciation and amortization 1,221,000 1,017,000 906,000
Deferred income taxes 134,000 (196,000) (23,000)
Recognition of deferred gains
on assets sold --- --- (29,000)
Gains on sales of investments --- (7,000) (52,000)
Current deferred income (208,000) 71,000 (38,000)
Changes in certain current assets
and current liabilities:
Accounts receivable 184,000 (2,362,000) 980,000
Inventories (603,000) 301,000 (268,000)
Prepaid expenses and other
current assets (93,000) 57,000 (15,000)
Trade accounts payable and
other accrued liabilities (355,000) (251,000) ---
Income taxes payable 592,000 (292,000) (1,077,000)
Net cash provided by (used in)
operating activities 2,557,000 (1,228,000) 1,911,000
Investing activities
Maturities of marketable
securities 9,859,000 8,754,000 14,224,000
Funds invested in marketable
securities (9,784,000)(4,657,000) (11,620,000)
Net change in breeding herd (168,000) (125,000) (194,000)
Property and equipment
expenditures (2,343,000)(3,263,000) (2,179,000)
Net book value of property and
equipment disposals --- 528,000 49,000
Other 36,000 (24,000) (43,000)
Net cash provided by (used in)
investing (2,400,000) 1,213,000 237,000
Financing activities
Proceeds from revolving line of
credit 15,824,000 9,792,000 7,094,000
Payments on revolving line of
credit (14,698,000)(9,017,000) (7,187,000)
Borrowing of long-term debt --- 2,000,000 ---
Repayments of long-term debt --- (2,150,000) (1,600,000) <PAGE>
Cash dividends paid (634,000) (634,000) (634,000)
Net cash provided by (used in)
financing activities 492,000 (9,000) (2,327,000)
Increase (decrease) in cash and
cash equivalents 649,000 (24,000) (179,000)
Cash and cash equivalents at
beginning of year 44,000 68,000 247,000
Cash and cash equivalents at end
of year $ 693,000 44,000 $ 68,000
See Accompanying Notes
</TABLE>
Tejon Ranch Co. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All intercompany
transactions have been eliminated in consolidation.
Cash Equivalents
The Company considers all highly liquid investments, with a
maturity of three months or less when purchased, to be cash
equivalents. The carrying amount for cash equivalents
approximates fair value.
Marketable Securities
The Company considers those investments not qualifying as cash
equivalents, but which are readily marketable, to be marketable
securities. The Company classifies all marketable securities as
available-for-sale, which are stated at fair value with the
unrealized gains (losses), net of tax, reported in a separate
component of stockholders' equity.
Credit Risk
The Company grants credit to customers, principally large cattle
purchasers, co-ops, wineries, nut marketing companies, and
lessees of Company facilities, all of which are located in
California. The Company performs periodic credit evaluations of
its customer's financial condition and generally does not require
collateral.
During 1996, 1995 and 1994 the following customers accounted for
more than 10% of the Company's consolidated revenues, Golden
State Vintners (21% in 1996, 18% in 1995 and 13% in 1994), Harris
Ranch (18% in 1996), Timmerman Cattle (26% in 1995), and E.A.
Miller Cattle Company (22% in 1994).
Farm Inventories
Costs of bringing crops to harvest are capitalized when incurred.
Such costs are expensed when the crops are sold. Farm
inventories held for sale are valued at the lower of cost (first-
in, first-out method) or market.
Cattle Inventories and Breeding Herd
Cattle raised on the Ranch are stated at the accumulated cost of
developing such animals for sale or transfer to a productive
function and purchased cattle are stated at cost plus development
costs. All cattle held for sale are valued at the lower of cost
(first-in, first-out method) or market and are included in the
caption inventories. Purchased bulls and cows, included in the
breeding herd and used for breeding, are depreciated using the
straight-line method over five to seven years.
Commodity Contracts Used to Hedge Price Fluctuations
The Company enters into cattle futures and option contracts to
hedge its exposure to price fluctuations on its stocker cattle.
The goal of the Company is to protect or create a future price
for its cattle that will provide a profit once the cattle are
sold and all costs are deducted. Realized gains, losses, and
costs associated with closed contracts are included in cattle
inventory and recognized in cost of sales expense at the time the
hedged cattle are sold.
Property and Equipment
Property and equipment accounts are stated on the basis of cost,
except for land acquired upon organization in 1936 which is
stated on the basis (presumed to be at cost) carried by the
Company's predecessor. Depreciation is computed using the
straight-line method over the estimated useful lives of the
various assets. Buildings and improvements are depreciated over
a 10 year to 27.5 year life. Machinery and equipment is
depreciated over a 3 year to 10 year life depending on the type
of equipment. Vineyards and orchards are generally depreciated
over a 20 year life with irrigation systems over a 10 year life.
Oil, gas and mineral reserves have not been appraised, as no
value has been assigned to them.
Vineyards and Orchards
Costs of planting and developing vineyards and orchards are
capitalized until the crops become commercially productive.
Interest costs and depreciation of irrigation systems and trellis
installations during the development stage are also capitalized.
Revenue from crops earned during the development stage are
credited against development costs. Depreciation commences when
the crops become commercially productive.
At the time crops are harvested, delivered to buyers and revenues
are estimatable, revenues and related costs are recognized, which
traditionally occurs during the third and fourth quarters of each
year. Orchard revenues are based upon estimated selling prices,
whereas vineyard revenues are recognized at the contracted
selling price. Estimated prices for orchard crops are based upon
the quoted estimate of what the final market price will be by
marketers and handlers of the orchard crops. Actual final
orchard crop selling prices are not determined for several months
following the close of the Company's fiscal year due to supply
and demand fluctuations within the orchard crops markets.
Adjustments for differences between original estimates and actual
revenues received are recorded during the period in which such
amounts become known. The net effect of these adjustments
decreased farming revenue $129,000 in 1996 and increased farming
revenue $124,000 in 1995 and $97,000 in 1994.
The California Almond Board has the authority to require
producers of almonds to withhold a portion of their annual
production from the marketplace. During 1994 the California
Almond Board required the Company to hold back 10% of almond
production which amounted to 163,000 pounds. The almond withhold
was due to the record almond production within California during
1994. During 1995, the reserved almonds were released for sale
and the Company recorded $236,000 in revenues upon the sale of
those almonds. At December 31, 1996 and 1995, no such
withholding was mandated.
Net Income Per Share
Net income per share is based upon the weighted average number of
shares of common stock and common stock equivalents outstanding
during the year (12,683,760 in 1996, 12,684,105 in 1995 and
12,682,244 in 1994). Fully diluted earnings per share are the
same as primary earnings per share.
In March 1992, the Company's Board of Directors adopted the 1992
Stock Option Plan providing for the granting of options to
purchase a maximum of 230,000 shares of the Company's common
stock to employees, advisors, and consultants of the Company.
Since the adoption of the Plan, the Company has granted options
to purchase 179,000 shares at a price equal to fair market value
at date of grant. Stock options granted have been treated as
common stock equivalents per the treasury method when such
amounts would be dilutive.
Long Lived Assets
The Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" effective January 1, 1996. In accordance with this
pronouncement, the Company records impairment losses on long-
lived assets held and used in operations when indicators of
impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than their related
carrying amounts. The adoption of SFAS No. 121 had no impact on
the Company's consolidated financial position and results of
operations in the current year.
Environmental
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate
to an existing condition caused by past operations and which do
not contribute to current or future revenue generation are
expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable and the costs
can be reasonably estimated. Generally, the timing of these
accruals coincides with the completion of a feasibility study or
the Company's commitment to a formal plan of action. No
liabilities for environmental costs have been recorded at
December 31, 1996, 1995 or 1994.
2. Laval Farms Limited Partnership
The Laval Farms Limited Partnership (Laval), formerly Tejon
Agricultural Partners, is a limited partnership, formed in 1972,
to develop and farm land in Kern County, California. Laval Farms
Corporation, formerly Tejon Agricultural Corporation , a wholly-
owned subsidiary of Tejon Ranchcorp, is the general partner of
the partnership.
Due to significant losses in Laval, the Company wrote-off its
investment in Laval in 1976 and provided for all commitments at
that time.
The Company entered into an Agreement with John Hancock Mutual
Life Insurance Company, Laval's sole limited partner and secured
lender during 1993, for the sale of Laval's farmland and the
eventual dissolution of the partnership. Under the Agreement,
approximately 13,000 acres of farmland located in the southern
San Joaquin Valley, were divided into smaller farming parcels and
as of April 20, 1995, all of the farmland had been sold. In
connection with the sale of this farmland, the Company purchased
900 acres, which includes 300 acres of rubired grapes, for a
price of $1.5 million.
Tejon Farming Company (TFC), a wholly-owned subsidiary of the
Company, performs services for Laval under a farm management
agreement, which is terminable on 30 days' notice by Laval. TFC
was paid $95,000 during 1996, $200,000 in 1995 and $240,000 under
the management agreement in 1994.
3. 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 securities as
either held-to-maturity, trading, or available-for-sale. The
Company has elected to classify its securities as available-for-
sale and therefore, is required to adjust securities to fair
value at each reporting date.
The following is a summary of available-for-sale securities at
December 31:
<TABLE>
1996 1995
Estimated Estimated
Cost Fair Value Cost Fair Value
<S> <C> <C> <C> <C>
Marketable
securities:
U.S. Treasury
and agency
notes $13,156,000 $13,158,000 $14,868,000 $14,869,000
Corporate notes 6,960,000 6,969,000 5,323,000 5,388,000
$20,116,000 $20,127,000 $20,191,000 $20,257,000
</TABLE>
As of December 31, 1996, the cumulative fair value adjustment to
stockholders' equity is an unrealized gain of $7,000, net of a
tax credit of $4,000. The Company's gross unrealized holding
gains equals $126,000, while gross unrealized holding losses
equals $115,000. On December 31, 1996, the average maturity of
U.S. Treasury and agency securities was 1.2 years and corporate
notes was 1.7 years. Currently, the Company has no securities
with a weighted average life of greater than five years. There
were no sales of securities during 1996. During 1995, the
Company recognized gains of $7,000 on the sale of $5.1 million of
securities, carried at historical cost adjusted for amortization
and accretion.
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. The Company's
investments in Corporate notes are with companies with a credit
rating of A or better.
4. Inventories
Inventories at December 31, 1996 and 1995 consist principally of
cattle held for sale.
5. Property and Equipment
Property and equipment consists of the following at December 31:
<TABLE>
1996 1995
<S> <C> <C>
Land and land improvements $ 3,877,000 $ 3,541,000
Buildings and improvements 7,639,000 7,260,000
Machinery, water pipelines,
furniture and fixtures and other
equipment 4,254,000 4,331,000
Vineyards and orchards 15,068,000 13,543,000
30,838,000 28,675,000
Less allowance for depreciation (14,568,000) (13,602,000)
$ 16,270,000 $ 15,073,000
</TABLE>
6. Line of Credit and Long-Term Debt
The Company may borrow up to $5,000,000 on a short-term unsecured
revolving line of credit at interest rates approximating the
bank's prime rate (8.25% at December 31, 1996). The revolving
line expires in September 1997. At December 31, 1996, there was
$2,808,000 of outstanding debt under the line of credit
agreement.
At December 31, 1995, the Company had outstanding a short-term
borrowing under a line of credit with a banking company. The
short-term borrowing was in the amount of $1,682,000 at an
interest rate of 8.50%.
Long-term debt consists of the following at December 31:
<TABLE>
1996 1995
<S> <C> <C>
Note payable to a bank $2,000,000 $2,000,000
Less current portion (200,000) (200,000)
$1,800,000 $1,800,000
</TABLE>
The note payable to a bank provides for interest at an average
rate of 7.91% per annum, payable quarterly , on amounts
outstanding. Principal is payable in semi-annual installments of
$100,000, with the remaining balance due December 31, 1999.
Amounts borrowed under the agreement are unsecured.
Interest paid approximated interest expense incurred for each of
the three years in the period ended December 31, 1996.
Maturities of long-term debt at December 31, 1996 are $200,000
per year for 1997 and 1998, and $1,600,000 in 1999.
7. Common Stock and Stock Option Information
The Company has elected to follow Accounting Principles Board
Opinion No 25, "Accounting for Stock Issued to Employees" (APB
25) and related interpretations in accounting for its employees,
advisors, and consultants stock options because, as discussed
below, the alternative fair value accounting provided for under
FASB No. 123, "Accounting for Stock-Based Compensation," requires
use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the
exercise price of stock options granted by the Company equals the
market price of the underlying stock on the date of grant, no
compensation expense is recognized.
The 1992 Stock Option Plan provides for the granting of options
to purchase a maximum of 230,000 shares of the Company's common
stock at 100% of the fair market value as of the date of grant.
The compensation committee of the board of directors administers
the plan. There are currently 179,000 options granted under the
1992 Stock Option Plan with 59,000 options at a grant price of
$20 per share, 20,000 options at a grant price of $15 per share,
and 100,000 options at a grant price of $17.88 per share.
During 1995, 14,000 shares were granted at an exercise price of
$11.88, which was the market price at the date of grant. These
options have a ten year period to exercise and all options vest
at the end of the ninth year. These options were subsequently
cancelled in 1996. On May 1, 1996 100,000 shares were granted at
an exercise price of $17.88, which was the market price at the
date of grant. These options have a ten year period to exercise
and vest over five years from the respective grant date.
As of December 31, 1996 and 1995, there were 100,000 and 14,000
options outstanding, respectively, that are subject to SFAS 123
disclosure requirements. The fair value of these options was
estimated utilizing the Black-Scholes option valuation model and
assumptions as of each respective grant date. Based on the
results of such estimates, management determined that there was
no material effect on net income or earnings per share for the
years ended December 31, 1996 and 1995. The weighted average
exercise price of all options was $17.84 and $17.70 for 1996 and
1995 and the weighted average remaining contractual lives of the
options are approximately 6 years as of December 31, 1996.
8. Commodity Contracts Used to Hedge Price Fluctuations
The Company uses commodity derivatives to hedge 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 provide a profit once the cattle are
sold and all costs are deducted and protect the Company against a
disastrous cattle market decline. To help achieve this objective
the Company uses the cattle futures and cattle options markets.
The Company continually monitors any open futures and options
contracts to determine the appropriate hedge based on market
movement of the underlying asset, stocker cattle. The option and
futures contracts used typically expire on a quarterly or semi-
annual basis and are structured to expire close to or during the
month the stocker cattle are scheduled to be sold. The risk
associated with hedging for the Company is that hedging limits or
caps the potential profits if cattle prices begin to increase
dramatically. Payments received and paid related to outstanding
options contracts are deferred in prepaid and other current
assets and were approximately $22,000 at December 31, 1996.
Futures contracts are carried off-balance sheet until the
contracts are settled because there is no exchange of cash until
settlement. Realized gains, losses, and costs associated with
closed contracts is included in cattle inventory and will be
recognized in cost of sales expense at the time the hedged
stocker cattle are sold. During 1996 and 1995, the Company
recognized approximately $577,000 and $215,000, respectively, in
net gains from hedging activity as a reduction in cost of sales.
The following table identifies the futures contract amounts and
options contract costs outstanding at December 31, 1996:
<TABLE>
Estimated
Cattle Hedging Fair Value Estimated
Activity Commodity Original at Gain (Loss)
Future/Option No. Contract/Cost Settlement at
Description Contracts (Bought) Sold (Buy) Sell Settlement
<S> <C> <C> <C> <C>
Corn futures bought 30 $ (82,000) $ 78,000 $ (4,000)
10,000 Bushels per
contract
Cattle futures sold 80 2,600,000 (2,744,000) (144,000)
50,000 lbs. per
contract
Estimated fair value at settlement is based upon quoted market
prices at December 31, 1996.
</TABLE>
9. Income Taxes
The Company accounts for income taxes using SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109 is an asset and
liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences
of events that have been recognized in the Company's financial
statements or tax returns.
The provision for income taxes consists of the following at
December 31:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Federal:
Current $ 746,000 $ 176,000 $ 627,000
Deferred 106,000 70,000 (12,000)
852,000 246,000 615,000
State:
Current 248,000 65,000 205,000
Deferred 23,000 (21,000) (10,000)
271,000 44,000 195,000
$1,123,000 $ 289,000 $ 810,000
</TABLE>
The reasons for the difference between total income tax expense
and the amount computed by applying the statutory Federal income
tax rate (34%) to income before taxes are as follows at December
31:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Income tax at the statutory rate $ 955,000 $246,000$ 795,000
State income taxes, net of 179,000 29,000 129,000
Federal benefit
Other, net (11,000) 14,000 (114,000)
$1,123,000 $289,00 $ 810,000
</TABLE>
Deferred income taxes result from temporary differences in the
financial and tax bases of assets and liabilities. The net
current deferred asset is included with prepaid expenses and
other assets on the statement of financial position. Significant
components of the Company's deferred tax liabilities and assets
are as follows at December 31:
<TABLE>
Deferred tax assets: 1996 1995
<S> <C> <C>
Unrealized gain (loss) on
available-for-sale securities $ --- $ ---
Accrued expense 147,000 117,000
Prepaid revenues 147,000 140,000
Other 50,000 87,000
Total deferred tax assets 344,000 344,000
Deferred tax liabilities:
Depreciation and amortization 1,460,000 1,387,000
Involuntary conversion-land 363,000 412,000
Other 828,000 741,000
Total deferred tax liabilities 2,651,000 2,540,000
Net deferred tax liabilities $2,307,000 $2,196,000
The Company made net payments of income taxes of $531,000,
$721,000 and $2,004,000 during 1996, 1995 and 1994, respectively.
</TABLE>
10. Operating Leases
The Company is lessor of certain property pursuant to various
commercial lease agreements having terms ranging up to 30 years.
The cost and accumulated depreciation of buildings and
improvements subject to such leases was $3,067,000 and
$1,054,000, respectively, at December 31, 1996. Income from
commercial rents, included in commercial and land use revenue was
$928,000 in 1996, $936,000 in 1995 and $905,000 in 1994. Future
minimum rental income on noncancelable operating leases as of
December 31, 1996 is: $950,000 in 1997, $891,000 in 1998,
$889,000 in 1999, $802,000 in 2000, $797,000 in 2001, and
$6,512,000 for years thereafter.
11. Commitments and Contingencies
A total of 6,200 acres of the Company's land is subject to water
contracts requiring minimum future annual payments for as long as
the Company owns such land. The estimated minimum payments for
1997 are $1,299,000, whether water is available or is used.
Minimum payments made under these contracts were approximately
$1,277,000 in 1996, $1,109,000 in 1995 and $985,000 in 1994.
Approximately 4,600 acres of these lands are subject to
contingent assessments of approximately $842,000 to service water
district bonded indebtedness, if water district revenues are
insufficient to cover bond interest and redemptions when due.
The Company 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 the
Company have been ordered to cleanup and abate an old industrial
waste landfill site on the leased premises. Under the lease
agreements with National and Lafarge, both companies are required
to indemnify the Company for any costs and liabilities incurred
in connection with the cleanup order. Due to the financial
strength of National and Lafarge, the Company believes that a
material effect to the Company is remote at this time.
12. Retirement Plan
The Company has a retirement plan which covers substantially all
employees. The benefits are based on years of service and the
employee's five year final average salary. Contributions are
intended to provide for benefits attributable to service both to
date and expected to be provided in the future. The Company
funds the plan in accordance with the Employee Retirement Income
Security Act of 1974 (ERISA).
The following accumulated benefit information is as of December
31:
<TABLE>
1996 1995
<S> <C> <C>
Accumulated actuarial present value of
benefit obligation, including vested
benefits of $2,060,000 in 1996 and
$1,542,000 in 1995 $2,084,000 $ 1,560,000
Projected benefit obligation for service
rendered to date 2,466,000 1,893,000
Plan assets at fair value 1,947,000 1,795,000
Projected benefit obligation in excess of
Plan assets (519,000) (98,000)
Items not yet recognized in earnings:
Unrecognized net gain from past experience
different from that assumed and effects of
changes in assumptions 1,084,000 671,000
Unrecognized net transition asset being
amortized over approximately 17 years (138,000) (158,000)
Adjustment required to recognize minimum
liability (564,000) ---
Prepaid (accrued) pension cost (137,000) $ 415,000
</TABLE>
In accordance with the provisions of Financial Accounting
Standard No. 87, the Company recorded a minimum pension liability
representing the excess of the accumulated benefit obligation
over the fair value of plan assets and accrued pension
liabilities. The liability has been offset by intangible assets
to the extent possible. Because the asset recognized may not
exceed the amount of unrecognized past service cost, the balance
of the liability at the end of 1996 is reported as a separate
reduction of stockholder's equity, net of applicable deferred
income taxes.
Plan assets consist of equity, debt, and short-term money market
investment funds. The weighted-average discount rate and rate of
increase in future compensation levels used in determining the
actuarial present value of projected benefits obligation was 6.5%
in 1996 and 1995. The expected long-term rate of return on plan
assets was 7.5% in 1996 and 1995.
Total pension and retirement expense was as follows for each of
the years ended December 31:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Cost components:
Service cost-benefits earned
during the period $ (74,000) $ (80,000) $ (80,000)
Interest cost on projected
benefit obligation (136,000) (136,000) (126,000)
Actual return on plan assets (89,000) 305,000 (87,000)
Net amortization and deferral 214,000 (209,000) 173,000
Total net periodic pension cost (85,000) (120,000) (128,000)
</TABLE>
13. Business Segments
The Company operates principally in four industries: livestock,
farming, oil and minerals, and commercial and land use. The
livestock segment includes the production and sale of beef
cattle. The farming segment involves those operations related to
permanent crops and the supervision of farming activities for
Laval (see Note 2). The oil and minerals and the commercial and
land use operations collect rents and royalties from lessees of
Company-owned properties.
Information pertaining to the Company's business segments follows
for each of the years ended December 31:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Segment profits:
Livestock $ 453,000 $ 2,00 $ 549,000
Farming 3,134,000 1,811,000 1,925,000
Oil and minerals 1,156,000 1,191,000 1,208,000
Commercial and land use (358,000) (830,000) (285,000)
Segment profits 4,385,000 2,174,000 3,397,000
Interest income 1,308,000 1,374,000 1,439,000
Corporate expenses (2,590,000) (2,389,000) (2,212,000)
Interest expense (295,000) (436,000) (287,000)
Operating profit $ 2,808,000 $ 723,000 $ 2,337,000
</TABLE>
<TABLE>
Depreciation
Identifiable and Capital
Assets Amortization Expenditures
<S> <C> <C> <C>
1996
Livestock $ 5,554,000 $ 307,000 $ 98,000
Farming 10,545,000 626,000 1,051,000
Oil and minerals 259,000 1,000 ---
Commercial and land use 2,874,000 183,000 901,000
Corporate 28,137,000 104,000 293,000
Total $47,369,000 $1,221,000 $2,343,000
1995
Livestock $ 5,533,000 $ 303,000 $ 270,000
Farming 10,370,000 477,000 2,287,000
Oil and minerals 258,000 1,000 ---
Commercial and land use 2,713,000 133,000 557,000
Corporate 26,329,000 103,000 149,000
Total $45,203,000 $1,017,000 $3,263,000
1994
Livestock $ 5,310,000 $276,000 $ 336,000
Farming 7,347,000 395,000 993,000
Oil and minerals 179,000 3,000 ---
Commercial and land use 2,226,000 132,000 801,000
Corporate 29,858,000 100,000 49,000
$44,920,000 $906,000 $2,179,000
</TABLE>
Intersegment sales are not significant. Segment profits are
total revenues less operating expenses, excluding interest and
corporate expenses. Identifiable assets by segment include both
assets directly identified with those operations and an allocable
share of jointly used assets. Corporate assets consist primarily
of cash and cash equivalents, refundable and deferred income
taxes, land and buildings. Land is valued at cost for
acquisitions since 1936. Land acquired in 1936, upon
organization of the Company, is stated on the basis (presumed to
be at cost) carried by the Company's predecessor.
14. Unaudited Quarterly Operating Results
The following is a tabulation of unaudited quarterly operating
results for the years indicated (in thousands of dollars, except
per share amounts):
<TABLE>
Segment Net Earnings
Total Profit Income (Loss)
Revenue(1) (Loss) (Loss) Per Share
<S> <C> <C> <C> <C>
1996
First quarter $ 1,518 $ (408) $ (364) $ (0.03)
Second quarter 4,312 416 57 0.01
Third quarter 5,824 1,982 918 0.07
Fourth quarter 7,241 2,395 1,074 0.08
$18,895 $4,385 $1,685 $ 0.13
1995
First quarter $ 1,409 $(818) (2) $(661) (2) $(0.05) (2)
Second quarter 1,792 (355) (409) (0.03)
Third quarter 8,716 2,012 970 0.08
Fourth quarter 7,573 1,335 534 0.04
$19,490$2,174 $ 434 $ 0.03
(1) Includes interest income.
(2) Includes recognition of a $400,000 ($240,000 after tax, or
$.02 per share) charge-off of destroyed almond trees.
</TABLE>
15. Subsequent Event
Acquisition of Assets
On March 10, 1997, the Company 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, and all rolling stock.
No debt or liabilities of Champion Feeders, Inc. were assumed in
the purchase of these assets. The purchase price for these
assets is $3.5 million and will be accounted for as a purchase.
The purchase price of assets was based upon a dollar value per
head of capacity at the feedyard and the fair market value of
assets purchased. The Company believes the purchase price
approximates the fair value of assets being purchased.
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 the Company
to own and operate a cattle feedyard operation in western Texas.
The following unaudited pro forma condensed combined statement of
income presents the results of operations as if the acquisition
of assets had occurred at the beginning of the periods presented
and does not purport to be indicative of what would have occurred
had the acquisition actually been made as of such date or of
results that may occur in the future. The pro forma information
provided is for the year ended December 31, 1996.
Pro forma Statement of Income
Revenues $ 34,059,000
Costs and Expenses 30,831,000
Income before income taxes 3,228,000
Income Tax 1,291,000
Net Income $ 1,937,000
Earnings Per Share $ 0.15
EXHIBIT INDEX
3. Exhibits:
3.1 Restated Certificate of Incorporation *
3.2 By-Laws *
10.1 Water Service Contract with Wheeler
Ridge-Maricopa Water Storage District
(without exhibits),amendments originally
filed under Item 11 Registrant's Annual
Reporton Form 10K **
10.2 Tejon Ranch Co. Stock Option Agreement **
10.3 Lease agreement for Mr. San Olen **
10.4 Asset Purchase Agreement dated
March 10, 1997 for purchase of feedlot
assets 58
22 List of subsidiaries of Registrant 91
27 Financial Data Schedule (Edgar) 92
(b) Report on Form 8-K filed during the last quarter of
the period covered by this report:
None.
(c) Exhibits
* 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.
(d) Financial Statement Schedules -- The response to this
portion of Item 14 is submitted as a separate section
of this report.
Asset Purchase Agreement
This Asset Purchase Agreement dated as of the 28th day of
February, 1997, (this "Agreement"), between CHAMPION FEEDERS,
INC., a Texas corporation ("Seller"), and for certain purposes,
three of its shareholders, Dave Hopper, Gordon Dutterer and Joe
Mendiburu ("individually, a "Shareholder" and collectively, the
"Shareholders"), on the one hand, and TEJON RANCH FEEDLOT, INC.,
a California corporation ("Buyer"), on the other hand.
W I T N E S S E T H:
WHEREAS, Seller is engaged in, among other things, the
cattle feeding business known as Champion Feeders located near
Hereford, Texas (the "Business");
WHEREAS, Buyer desires to acquire, and Seller desires to
sell, substantially all of the assets and business of the
Business as a going concern, upon the terms and conditions
hereinafter set forth;
WHEREAS, the parties hereto desire to set forth certain
representations, warranties and covenants made by each to the
other as an inducement to the execution, delivery and performance
of this Agreement and certain additional agreements related to
the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein
contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby expressly
acknowledged, the parties hereto agree as follows:
1. Sale of Assets and Business by Seller.
1.1 Sale of Assets. Pursuant to the terms and
conditions of this Agreement, Seller agrees to sell to Buyer, and
Buyer agrees to purchase, all of the assets, properties, rights
and interests (other than those assets described in Section 1.3
below) of Seller, wherever located, of every type and
description, whether real, personal or mixed, and whether
tangible or intangible, which, as of the Closing (as defined in
Article 4 hereof), are used or held for use in connection with,
which are generated by, derived from or attributable to, or which
otherwise relate to, the business of the Business (collectively,
the "Assets"), including, but not limited to:
(a) all accounts receivable (except as noted in
Section 2.3 below) and general intangibles of a similar nature
arising after the Closing;
(b) all prepaid expenses and similar items, the
benefit of which may be effectively transferred to Buyer,
including, without limitation, advance payments, security
deposits and other prepaid items, to be apportioned pursuant to
Section 7.3 below;
(c) all inventories wherever located, including,
without limitation, all grain and feed stocks, livestock
medicines, raw materials, work-in-progress, finished goods,
office and operating supplies, and packaging materials and
supplies;
(d) the real property described on Annex A
hereto (the "Properties"), and all right, title and interest in
and to all buildings, structures, other improvements, fixtures
and appurtenances thereon and thereto, whether currently in
existence or under construction (the "Facilities");
(e) the name "Champion Feeders" and any
variations thereof;
(f) any copyrights, trademarks, trade names and
service marks of Seller;
(g) all owned personal property, including,
without limitation, all equipment, computer equipment,
machinery, office equipment, furniture, cars, trucks and other
vehicles, including, without limitation, those described on Annex
B hereto;
(h) to the extent assignable, all rights under
contracts, agreements or commitments, including, without
limitation, any existing insurance policies Buyer elects to have
assigned to it, natural gas supply contract with Enermart Trust,
contracts providing for the lease by the Business of equipment,
machinery, office equipment, furniture, cars, trucks and other
vehicles, sales representative agreements, consignment agreements
and other similar agreements, whether as principal or agent, and
under any license agreement (collectively, the "Contracts"),
including, without limitation, those described on Annex C hereto;
(i) all rights under orders, bids and
quotations, and similar arrangements relating to the purchase or
sale of goods or services (collectively, the "Service
Contracts"), including, without limitation, those so described on
Annex C hereto;
(j) all right, title and interest in and to all
patents, patent applications, trade secrets and secret processes
and similar items pertaining to the Business;
(k) to the extent transferable, all permits,
approvals, qualifications, licenses and the like issued by a
Governmental Authority (as defined in Section 5.6 hereof) or any
third party and any pending applications therefor (collectively,
the "Permits"), including, without limitation, those described on
Annex D hereto; and
(l) subject to the provisions of Section 12.2
hereof, all books and records of account and other records,
whether written or in machine-readable form (including, without
limitation, operating systems and application software, and
computerized records maintained on tapes, disks and other
electronic or optical storage media), generated in connection
with or otherwise related to the conduct of the business of the
Business, relating to operating, inventory, legal, personnel,
payroll, supplier/vendor rights, interests and customer records
and all sales and promotional literature, correspondence and
files.
1.2 Pre-Closing Disposition of Assets. Without
limiting the generality of the foregoing, the parties agree that
the Assets shall include the assets, properties and rights
described or listed in Section 1.1 hereof, except such assets,
properties and rights as may have been disposed of by Seller
prior to the Closing in the ordinary course of business of the
Business.
1.3 Exclusions from Assets. The parties agree that
the Assets shall not include the following:
(a) cash, investment securities and related bank
and brokerage accounts of Seller;
(b) all notes receivable, accounts receivable
(except as noted in Section 2.3 below), employee advances, trade
acceptances receivable and general intangibles of a similar
nature arising prior to the Closing;
(c) the corporate minute books and stock
transfer records of Seller and, subject to Section 12.3 hereof,
any books and records of account relating to any financial and
tax records of Seller;
(d) a 1979 Ford diesel tractor (Model 2W30,
Serial No. C615041) owned by a third party;
(e) feedlot supply purchase rebates;
(f) utility cooperative credits and/or dividends
attributable to periods prior to Closing and utility cooperative
capital stock; and
(g) income tax credits and/or refunds due in
connection with diesel fuel or gasoline used in the Business for
periods prior to Closing.
1.4 Independent Contract Consideration. On the date
hereof Buyer shall deliver to Seller a check in the amount of
$50.00 (the "Independent Contract Consideration"), which amount
Seller and Buyer hereby acknowledge and agree has been bargained
for and agreed to as consideration for Seller's execution and
delivery of this Agreement. The Independent Contract
Consideration is in addition to and independent of any other
consideration or payment provided for herein, and is
nonrefundable in all events.
1.5 Condition of Assets. It is understood and agreed
that Buyer has had adequate opportunity to inspect the condition
of the Assets and to observe the operation of the Business, and
that Buyer has determined that the condition of the Assets and
Business are suitable for Purchaser's intended use thereof. The
Properties and Facilities shall be conveyed and transferred to
Buyer on the Closing Date in "as is", "where is" condition and
with all faults, and, and except as set forth in Article 5 below,
Seller makes no representations and/or warranties of any kind
whatsoever relating to the condition of the Assets and Seller
specifically makes no representations and/or warranties as to the
merchantability and/or fitness for a particular purpose of any of
the Properties or the Facilities.
2. Buyer's Obligations With Respect to Purchase of Assets
and Related Matters.
2.1 Purchase Price.
(a) Subject to the terms and conditions of this
Agreement and in full consideration for the sale, conveyance,
transfer, assignment and delivery of the Assets and for the
Shareholder Covenants Not To Compete (as defined in Section
11.2), Buyer shall:
(i) at the Closing pay $3,500,000 (the
"Purchase Price") to Seller by delivery of a check payable to
Seller in such amount less the Deposit (hereinafter defined);
(ii) at the Closing pay to Seller by
delivery of a check payable to Seller in the amount of the fair
market value of Seller's grain and livestock feed inventories and
medicine inventories as of February 28, 1997 less the sum of
$2,362.50 representing the estimated cost of disposing of the
manure pile located in southeast portion of the feedyard; and
(iii) assume the obligations described in
Section 2.2 below (the "Assumed Liabilities").
At the Closing, appropriate adjustments will be made in the
Purchase Price to reflect amounts prepaid or deposits by or to
Seller under the Service Contracts and not fully used or earned
by Seller as of the Closing Date and prepaid premiums on any
existing insurance policies assigned to Buyer at Closing.
2.2 Assumption of Certain Obligations. On the
Closing Date, Buyer shall assume, and on and after the Closing
Date, Buyer agrees to pay, observe, perform and otherwise
discharge all liabilities and obligations of the Business arising
after the Closing and all liabilities and obligations of the
Business under all Permits, Service Contracts and Contracts in
respect of periods after the Closing Date. Other than the
liabilities and obligations described in the first sentence of
this Section 2.2, Buyer expressly does not assume any other
liabilities and obligations of Seller or of the Business, and
Seller and the Shareholders shall pay, observe, perform and
otherwise discharge all such liabilities and obligations not
assumed by Buyer hereunder. Buyer is not assuming any
liabilities or obligations set forth in Article 14 below.
2.3 Receivables. Buyer agrees that it shall, as soon
as reasonably practicable after receipt thereof, remit and
forward to Seller any payments or other items received in respect
of the assets described in Section 1.3(b). Buyer will make a
good faith effort to collect any sums due to Seller in respect of
the assets described in Section 1.3(b). It is understood and
agreed that all expenses owing to Seller for each lot of cattle
for which Seller has provided financing, feed, rations, medicine,
and services and accrued interest thereon (the "Expenses") shall
be computed as of February 28, 1997, and that interest on the
Expenses shall continue to accrue and be owing to Seller until
the sale of the cattle, and that as each lot of cattle is sold,
Buyer shall promptly remit and forward the proceeds of the sale
of each such lot of cattle in the following order:
(1) to Seller, the Expenses owing to Seller as
of February 28, 1997;
(2) to Seller, all accrued interest on the
Expenses owing to Seller from February 28, 1997 to date of sale
of the cattle.
(3) to Buyer, all Expenses owing to Buyer for
periods after February 28, 1997 and interest to accrue thereon;
and
(4) to the owner of the cattle, the remaining
proceeds.
2.4 Shareholder Covenants Not To Compete. On the
Closing Date, Buyer shall pay $1,000 to each of the Shareholders
in respect of each Shareholder's Covenant Not To Compete by
delivery of a check payable to each Shareholder in such amount.
Such payments are to be made pursuant to the understandings set
forth in Article 11 of this Agreement.
2.5 Allocation of Purchase Price, Assumed Liabilities
and Covenants Not To Compete. The aggregate amount of the
Purchase Price and the Assumed Liabilities shall be allocated
among the Assets and the Covenants Not To Compete as set forth on
Annex F attached hereto. Seller and Buyer shall duly prepare and
timely file such returns, reports and information returns as may
be required under section 1060 of the Internal Revenue Code of
1986, as amended (the "Code"), and any regulations thereunder and
any corresponding or comparable provisions of applicable state
and local tax laws to report the allocation of the Purchase Price
and the Assumed Liabilities among the Assets and the Covenants
Not to Compete as set forth in Annex F attached hereto.
2.6 Deposit. Within one (1) business day after
Buyer's execution of this Agreement, Buyer shall deposit with
Title Company (hereinafter defined), the sum of $50,000 in cash
("Deposit") to be held by the Title Company as earnest money in
accordance with the terms and provisions of this Agreement. The
Title Company is hereby instructed to hold the Deposit in an
interest bearing account with a federally insured bank. All
interest accruing on the Deposit shall belong to Buyer. Except
as provided in this Agreement to the contrary, the Deposit is
non-refundable. If Buyer terminates this Agreement pursuant to
an express right granted to Buyer pursuant to this Agreement, the
Title Company shall and is hereby instructed to immediately
return the Deposit to Buyer. Upon the Closing of the
transactions contemplated hereby, the Deposit will be delivered
to the Seller as part of the Purchase Price. Should Buyer
default in the performance of its obligations under this
Agreement when Seller is not in default under this Agreement,
Seller shall be entitled to receive the Deposit as liquidated
damages for such default by Buyer, and the Title Company is
directed to deliver the Deposit to Seller upon notice of a
default by Buyer hereunder.
3. Seller's Obligations; Further Assurances.
3.1 Title. Promptly after the date hereof, Seller
shall cause A. O. Thompson Abstract Co., Inc., 242 E. 3rd St.,
Hereford, Texas (the "Title Company"), as agent for Stewart Title
Company, to issue to Buyer a title commitment (the "Title
Commitment") covering the Properties and the Facilities, showing
all matters affecting title thereto and binding the Title Company
to issue to Buyer at the Closing an Owner Policy of Title
Insurance (the "Title Policy") in the form prescribed by the
Texas Department of Insurance in the amount of $3,176,100.
3.2 Title Review Period. Buyer shall have fifteen
(15) business days (the "Title Review Period") after the receipt
of the (i) Title Commitment and (ii) legible copies of all
instruments referred to in Schedules B and C of the Title
Commitment to notify Seller, in writing, of such objections as
Buyer may have to anything contained in the Title Commitment.
Liens for ad valorem taxes not then due and payable and any item
contained in the Title Commitment to which Buyer does not object
during the Title Review Period shall be deemed a "Permitted
Exception". In the event Buyer shall notify Seller of an
objection to anything contained in the Title Commitment prior to
the expiration of the Title Review Period, Seller shall have
twenty (20) business days, or such greater period of time as may
be mutually acceptable to Buyer and Seller (the "Cure Period"),
within which Seller may (but shall in no event be required to)
cure or remove such objection. If Seller fails to either cure or
remove such objection to the reasonable satisfaction of Buyer and
the Title Company prior to the expiration of the Cure Period, and
if by reason of such objection the Title Company refuses to issue
the Title Policy in the form provided for in Section 3.3 of this
Agreement, Buyer may either waive such objection and accept such
title as Seller is able to convey without any reduction in the
Purchase Price or, as its sole and exclusive remedy, terminate
this Agreement by written notice to Seller given within five (5)
days following the expiration of the Cure Period, except that
Buyer shall be entitled to a reduction in the Purchase Price in
the amount of any valid mortgage liens or valid tax liens
actually filed of record against the Assets to the extent such
liens are not paid at or before the Closing. Failure of the
Buyer to send written notice of the election available to it
pursuant to the preceding sentence within five (5) days after the
expiration of the Cure Period shall be deemed an election by
Buyer to waive its objection and accept such title as Seller is
able to convey without any reduction in the Purchase Price.
3.3 Title Policy of Title Insurance. At Closing, the
Title Company shall issue to Buyer, at Seller's sole cost and
expense, the Title Policy covering the Properties (excluding the
appurtenant easements created by instruments recorded in Volume
237, Page 288, and Volume 256, Page 445, both in the Deed Records
of Deaf Smith County, Texas)and the Facilities, in the full
amount of $3,176,100. Such policy may contain as exceptions the
standard printed policy exceptions (modified, if applicable, but
at Buyer's expense) (the "Standard Exceptions") and the Permitted
Exceptions. The Standard Exceptions shall be modified as
follows:
(a) the Standard Exception with regard to
restrictive covenants shall either be deleted or shall list those
restrictions that constitute Permitted Exceptions;
(b) the Standard Exception with regard to real
estate taxes shall except taxes for 1997 and subsequent years;
and,
(c) the Standard Exception with regard to
parties in possession shall be deleted, except as to cattle being
fed at the feedyard at the time of the Title Company's
inspection.
3.4 Conveyance Documents. The sale, assignment,
transfer, conveyance and delivery of the Assets (other than real
property) shall be made by such bills of sale and other
recordable instruments of assignment, transfer and conveyance as
Buyer shall reasonably request, provided that the warranties of
title contained in all such instruments shall be consistent with
the provisions of this Agreement, including Section 5.4 hereof.
The sale and conveyance of any real property constituting a
portion of the Assets shall be made by special warranty deeds in
form and substance satisfactory to Buyer and its counsel and
subject only to Permitted Exceptions. To the extent Seller holds
perfected security interests in any cattle being fed on the
Properties at Closing, Seller agrees that it retains such
security interests in such cattle for the benefit of Seller and
Buyer in proportion to the rights each have in the proceeds of
the sale of such cattle, which proportion is to be determined
pursuant to Section 2.3 above.
3.5 Further Assurances.
(a) At the Closing and at any time and from time
to time thereafter, Seller shall at the reasonable request of
Buyer take all reasonable action necessary to put Buyer in actual
possession and operating control of the Assets, and shall
execute, acknowledge and deliver such further instruments of
conveyance, sale, transfer and assignment, and take such other
action as Buyer may reasonably request in order more fully and
effectively to convey, sell, transfer and assign to Buyer all of
Seller's right, title and interest in and to the Assets.
(b) The parties recognize that a separate
instrument or instruments of assignment and assumption may be
necessary or proper with respect to certain of the Contracts,
Service Contracts and Permits to be transferred hereunder, and,
accordingly, the parties shall duly execute and deliver at or
prior to the Closing or thereafter, as required or reasonably
requested by Buyer, such separate instrument or instruments as
may be reasonably required to effect the assignment or transfer
thereof to the Buyer.
(c) Each party shall use all commercially
reasonable efforts to assist the other in obtaining any consents,
approvals and releases required for the assignment of all
Contracts, Service Contracts and Permits. If any material
consents or releases cannot be obtained prior to Closing with
respect to any Contract, Service Contract or Permit included in
the Assets and the Closing is nevertheless consummated, Seller
and Buyer shall fully cooperate in any arrangement reasonably
satisfactory to the parties designed to fulfill the obligations
under, and to afford Buyer the benefits of, such Contract,
Service Contract or Permit. Should the consent required for the
transfer of any Contract, Service Contract or Permit not be
received until after Closing, the parties will cooperate as
provided in this Agreement to cause thereafter the assignment
thereof or the assumption thereof by the Buyer without further
consideration.
3.6 Shareholder Feeding Agreement. At the Closing,
the Shareholders shall execute and deliver to Buyer the best
efforts feeding agreement attached hereto as Annex E (the
"Feeding Agreement").
3.7 FIRPTA Certificate. At the Closing, Seller shall
furnish to Buyer a certificate of Seller, as transferor, to
Buyer, as transferee, stating that Seller is not a foreign entity
in accordance with the Foreign Investment in Real Property Tax
Act of 1980 in the form promulgated by the Treasury Regulations
thereunder.
3.8 Release of Realty Liens. On or prior to Closing,
Seller, at its sole cost and expense, shall cause to be fully
released and discharged of record in Deaf Smith County, Texas,
any and all mortgage, deed of trust or other liens affecting the
Properties or the Facilities.
3.9 Insurance. Until Closing, Seller shall maintain
in full force and effect the insurance coverages specified in
Annex H hereto, and Seller shall not make any changes in such
insurance coverages or in the insurers issuing the same prior to
Closing without Buyer's prior written consent. Should Buyer
elect to have the benefit of any of such insurance after Closing,
Seller shall cooperate with Buyer in effecting appropriate policy
assignments at Closing.
4. Closing.
The sale and purchase of the Assets (herein called the
"Closing") shall take place at 9:00 a.m., Central Standard time,
on March 10, 1997, at the offices of The Title Company. At
Closing and upon Buyer's payment of the Purchase Price, Seller
shall take all steps necessary to cause title to and possession
of all Assets to be given to Buyer in satisfaction of this
Agreement, which obligation of Seller shall be continuing until
the same is fully performed.
5. Representations and Warranties by Seller and
Shareholders.
Each of Seller and the Shareholders severally represents
and warrants to Buyer as follows:
5.1 Incorporation. Seller is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Texas, with full corporate power and authority to
execute and deliver this Agreement and the other agreements and
instruments contemplated hereby to which it is or is to become a
party (the "Seller Documents", which term shall also include the
Shareholder Covenants Not To Compete and the Feeding Agreement)
and to perform its obligations hereunder and thereunder and to
own, lease and operate the Assets and to conduct the business of
the Business as the same is currently being conducted.
5.2 Authorization.
(a) The execution and delivery by Seller of this
Agreement and the Seller Documents, and its performance of its
obligations hereunder and thereunder, have been duly and validly
authorized by its Board of Directors and by all necessary
corporate action of it and by the affirmative vote of not less
than the owners and holders of two-thirds of the issued and
outstanding capital stock of Seller.
(b) This Agreement has been duly executed and
validly delivered by Seller and constitutes its legal, valid and
binding obligations enforceable against it in accordance with its
terms, except as such enforcement may be limited by (i) any
applicable bankruptcy, insolvency, reorganization, receivership,
moratorium, fraudulent transfer and conveyance laws and other
similar laws of general application relating to or affecting the
rights and remedies of creditors or (ii) general principles of
equity, whether applied by a court of law or equity.
(c) The Seller Documents, when executed and
delivered by Seller at Closing, will have been duly executed and
validly delivered by it and will constitute its legal, valid and
binding obligations enforceable against it in accordance with
their respective terms, except as such enforcement may be limited
by (i) any applicable bankruptcy, insolvency, reorganization,
receivership, moratorium, fraudulent transfer and conveyance laws
and other similar laws of general application relating to or
affecting the rights and remedies of creditors or (ii) general
principles of equity, whether applied by a court of law or
equity.
5.3 No Conflict. Except for any Contract, Service
Contract or Permit terms requiring consent to assignment,
neither the execution and delivery by Seller of this Agreement
and the Seller Documents, nor its performance of its obligations
hereunder and thereunder, will (a) conflict with its articles of
incorporation or by-laws, (b) result in any breach of any of the
provisions of, or constitute a default under, any judgment,
order, decree or writ to which it is a party or by which it is
bound, which breach or default would have a material adverse
effect upon the Assets taken as a whole or the business,
financial condition or results of operations of the Business (a
"Material Adverse Effect"), (c) violate any provision of law
applicable to it or (d) breach or constitute a default (or an
event that, with notice or lapse of time or both, would
constitute a default) under, or permit the termination of any
provision of, or result in the creation or imposition of any lien
upon any Asset under, any note, bond, indenture, mortgage, deed
of trust, lease, franchise, permit, authorization, license,
contract, instrument or other agreement or commitment to which it
is a party or by which it or any Asset is bound or encumbered,
except for such breaches, defaults or liens that would not have a
Material Adverse Effect.
5.4 Title; Absence of Adverse Claims. Seller has and
will transfer to Buyer at Closing good title to the Assets free
and clear of all liens and encumbrances whatsoever, with the
following exceptions:
(a) liens for ad valorem taxes not yet due and
payable; and
(b) Permitted Exceptions relating to Assets
constituting real property.
None of the Assets is leased by Seller.
5.5 Financial Statements.
(a) Seller has delivered to Buyer the balance
sheet of Seller at December 31, 1996, and the income statement of
Seller for the year ended December 31, 1996 (collectively, the
"Seller Financial Statements"), together with a report of
Seller's certified public accountant thereon. Other than as
disclosed in such report, the Seller Financial Statements present
fairly, in all material respects, the financial position of
Seller as at December 31, 1996, and the results of its operations
for the year ended December 31, 1996.
(b) Since December 31, 1996, there has not been
any material change in Seller's accounting methods, principles or
practices.
5.6 Litigation and Claims. There are no claims,
actions, suits or proceedings pending or, to its or his
knowledge, threatened, against Seller or any of the Assets,
before or by any Governmental Authority, or before any
arbitration board or panel, wherever located. For the purposes
of this Agreement, "Governmental Authority" means the government
of the United States of America, any state of the United States
of America, any foreign country, or any political subdivision of
any of the foregoing, or any agency, board, bureau, court,
department or commission of any of the foregoing.
5.7 Labor and Employment. There are no (a)
collective bargaining or other agreements with labor unions
covering any Business employee or (b) written employment
agreements with any Business employee. There is no labor strike,
dispute, work slowdown, work stoppage or other job action pending
or, to its or his knowledge, threatened, against Seller or the
Business, which would have a Material Adverse Effect. To its or
his knowledge, the Business is in material compliance with all
applicable laws, rules or regulations respecting employment and
employment practices, terms and conditions of employment and
wages and hours, and has not engaged in any unfair or illegal
labor practice which has not been remedied as of the date hereof.
There is no unfair labor practice complaint or charge, or charge
of employment discrimination, pending or, to its, his knowledge,
threatened against Seller.
5.8 Employee Benefit Matters.
Neither Seller nor any Shareholder has incurred any
unsatisfied liability under ERISA or to any Governmental
Authority in respect of any employ benefit or similar plan, and
to its or his knowledge no such liability is threatened or
claimed. The consummation of the transactions contemplated by
this Agreement (and the employment by Buyer of former employees
of Seller) will not result in any liability to Buyer for taxes,
penalties, interest or any other claims resulting from any
employee benefit plan as defined in the Employment Retirement
Income Security Act of 1974, as amended ("ERISA"). Seller shall
be and remain solely responsible for the fulfillment of all
obligations under any employee benefit plan currently maintained
by the Seller and shall comply with all requirements of ERISA,
and Buyer shall have no liability in respect of any such employee
benefit plan of Seller or any other benefit plan now or formerly
maintained by Seller or any of the Shareholders. None of the
persons employed by Seller are subject to, or employed under any
written contract of employment, but all such persons are or were
at-will employees of Seller.
5.9 Assets. The Assets constitute the material
properties, rights, interests and other assets, of every type and
description, whether real, personal or mixed and whether tangible
or intangible, used by Seller in connection with the conduct of
the business of the Business.
5.10 Compliance with Laws. Except with respect to
Environmental Laws (as defined in and the representations and
warranties in respect of which are set forth in Section 5.13), to
its or his knowledge, Seller is in compliance with all laws,
ordinances, codes, restrictions, judgments, orders, rules,
regulations and other legal requirements, domestic or foreign,
applicable to the Assets or the conduct of the business of the
Business, other than where the noncompliance therewith would not
have a Material Adverse Effect.
5.11 [Intentionally left blank]
5.12 [Intentionally left blank.]
5.13 Environmental Matters.
(a) The business of the Business, the
Properties, the Facilities, and buildings, structures, other
improvements, fixtures and appurtenances thereon and thereto are
in substantial compliance with all Environmental Laws, except as
disclosed in the Phase I Environmental Site Assessment dated
January 27, 1997 prepared by Enviro-Ag Engineering Inc. with
respect to the Properties and the Facilities (the "Enviro
Report"), a copy of which has been reviewed by Seller.
(b) To its knowledge, Seller has no liability
for remediation actions (including removal, response, cleanup,
investigation and monitoring of contaminants or pollutants)
resulting from any release, discharge, placement, migration or
movement of contaminants, pollutants or other substances that are
listed, regulated or designated as toxic or hazardous under any
Environmental Laws into the environment from any of the
Facilities or the Properties, except as indicated in the Enviro
Report.
(c) There are no claims, actions, suits or
proceedings, judgments, orders, writs or injunctions of any court
or Governmental Authority pending or presently in effect or, to
its or his knowledge, threatened, against Seller relating to
Environmental Laws.
(d) The Seller has never been the subject of any
order, schedule, decree or agreement issued or entered into under
any Environmental Law.
(e) Except as indicated in the Enviro Report, to
Seller's knowledge, there are no underground storage tanks
located on or under any of the Facilities or the Properties and
any underground storage tank previously removed was removed in
accordance with applicable Environmental Laws. To Seller's
knowledge there are no friable asbestos containing materials
present on or at any of the Facilities or the Properties.
(f) For the purposes of this Agreement,
"Environmental Laws" means any law, regulation, rule, ordinance,
by-law or order of any Governmental Authority, in effect on the
Closing Date, which relates to or otherwise imposes liability,
obligations or standards with respect to (i) the control of any
potential pollutant or the protection of the environment, (ii)
solid waste, gaseous waste or liquid waste generation, handling,
treatment, storage, disposal or transportation, and (iii)
exposure to hazardous, toxic or other substances alleged to be
harmful, but in each case excluding the Occupational Safety and
Health Act of 1970, as amended, and any regulation issued
thereunder.
5.14 Broker's Fees. No broker, finder, agent or
similar intermediary has acted on behalf of Seller, any affiliate
of Seller or any Shareholder in conjunction with this Agreement
or the transactions contemplated hereby. Bill Helming of Bill
Helming Consulting Services, located at 10640 South Glenview
Lane, Olathe, Kansas 66061, represents the Seller in a
professional consulting and financial capacity, and Seller shall
be solely responsible for payment of consulting and financial
advisory fees owing to Bill Helming at Closing.
5.15 Contracts and Service Contracts. Each of the
Contracts and the Service Contracts is a valid and binding
obligation of Seller and, to its knowledge, a valid and binding
obligation of the other party or parties thereto, except, in each
case, as may be limited by (a) the course of conduct of the
parties to the Contracts and the Service Contracts, (b) any
applicable bankruptcy, insolvency, reorganization, receivership,
moratorium, fraudulent transfer and conveyance laws and other
similar laws of general application relating to or affecting the
rights and remedies of creditors or (c) general principles of
equity, whether applied by a court of law or equity. Neither
Seller nor, to its or his knowledge, any other party has
terminated or canceled any of the Contracts or the Service
Contracts. Neither Seller nor, to its or his knowledge, any
other party is in breach of, or default under, any provision of
such Contract or Service Contract, which default or breach, in
each case, could have a Material Adverse Effect.
5.16 Permits. The Permits constitute the permits and
licenses necessary for the conduct of the business of the
Business as it is now being conducted and necessary to own,
operate, maintain and use the Assets in the manner in which they
are now being operated, maintained and used.
5.17 Tax Matters. Seller has timely filed with all
appropriate governmental and taxing authorities all tax or
information returns and tax reports that are required to be filed
by Seller. All taxes of Seller and all interest, penalties,
assessments, deficiencies, charges, fees or other government
impositions or charges claimed to be due by any governmental or
taxing authority with respect to taxes have been fully paid or
adequately reserved for, and Seller has collected and paid all
sales taxes with respect to the sale of any of its assets
required to be so collected and paid on or before the Closing
Date. Seller has made adequate accruals on its financial
statements for the payment of all taxes, and those accruals have
been made on a basis consistent with past practices. Seller has
no liability for any taxes or other governmental charges in
excess of the amounts so paid or accruals so made and required to
be accrued. Seller is not a party to any pending audit, action
or proceeding with respect to taxes or any other governmental
charges and has not waived any statute of limitations in respect
of taxes or agreed to any extension of time with respect to any
tax assessment or deficiency.
5.18 Restatement; Survival. All representations and
warranties by Seller and the Shareholders herein shall be
restated in writing at the Closing, but such representations and
warranties shall be of no force and effect after August 31, 1998.
5.19 Several Liability. The liabilities of the
Shareholders under this Article 5 are several, not joint, with
each Shareholder's liability being limited to one-third (1/3rd)
of the liability of all Shareholders.
6. Representations and Warranties by Buyer.
Buyer hereby represents and warrants to Seller as follows:
6.1 Incorporation. It is a corporation duly
organized, validly existing and in good standing under the laws
of the State of California, with full corporate power and
authority to execute and deliver this Agreement and the other
agreements and instruments contemplated hereby to which it is or
is to become a party (the "Buyer Documents") and to perform its
obligations hereunder and thereunder. Buyer will be qualified to
do business in the State of Texas prior to the Closing Date.
6.2 Authorization.
(a) The execution and delivery by it of this
Agreement and the Buyer Documents, and its performance of its
obligations hereunder and thereunder, have been duly and validly
authorized by all necessary corporate action of it.
(b) This Agreement has been duly executed and
validly delivered by it and constitutes its legal, valid and
binding obligations enforceable against it in accordance with its
terms, except as such enforcement may be limited by (i) any
applicable bankruptcy, insolvency, reorganization, receivership,
moratorium, fraudulent transfer and conveyance laws and other
similar laws of general application relating to or affecting the
rights and remedies of creditors or (ii) general principles of
equity, whether applied by a court of law or equity.
(c) The Buyer Documents, when executed and
delivered by it at the Closing, will have been duly executed and
validly delivered by it and will constitute its legal, valid and
binding obligations enforceable against it in accordance with
their respective terms, except as such enforcement may be limited
by (i) any applicable bankruptcy, insolvency, reorganization,
receivership, moratorium, fraudulent transfer and conveyance laws
and other similar laws of general application relating to or
affecting the rights and remedies of creditors or (ii) general
principles of equity, whether applied by a court of law or
equity.
6.3 No Conflict. Neither the execution and delivery
by it of this Agreement and the Buyer Documents, nor the
performance by it of its obligations hereunder and thereunder,
will (a) conflict with its articles of incorporation or by-laws,
(b) result in the breach of any of the provisions of, or
constitute a default under, any judgment, writ, order or decree
to which it is a party or by which it is bound, which breach or
default would have a material adverse effect upon the business,
financial condition or results of operations of it and its
subsidiaries, taken as a whole, (c) violate any provision of law
applicable to it, or (d) breach or constitute a default (or an
event that, with notice or lapse of time or both, would
constitute a default) under, or permit the termination of any
provision of, or result in the creation or imposition of any lien
upon any of its properties, assets or business under, any note,
bond, indenture, mortgage, deed of trust, lease, franchise,
permit, authorization, license, contract, instrument or other
agreement or commitment to which it is a party or by which it or
any of its assets or properties is bound or encumbered, except in
any of the cases enumerated in clause (d), those which breach or
default would not adversely affect its ability to execute and
deliver this Agreement or any Buyer Document or perform its
obligations hereunder or thereunder.
6.4 Broker's Fees. No broker, finder, agent or
similar intermediary has acted on behalf of the Buyer or its
affiliates in conjunction with this Agreement or the transaction
contemplated hereby, and there are no brokerage commissions,
finder's fees, or similar fees or commissions payable by or on
behalf of the Buyer in connection with the transactions
contemplated by this Agreement.
6.5 Restatement. All representations and warranties
of Buyer shall be restated in writing at the Closing.
7. Covenants of Seller and Buyer.
7.1 Notices; Consents; Reasonable Efforts. Subject
to the terms and conditions of this Agreement, Seller and Buyer
shall cooperate to (a) give notice to all third parties and
obtain all consents, waivers, approvals, authorizations and
orders required in connection with the authorization, execution
and delivery of this Agreement and the consummation of the
transactions contemplated hereby and (b) take, or cause to be
taken, all reasonable action, and do, or cause to be done, all
reasonable things to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement.
7.2 Transfer Taxes; Governmental Fees and Charges; Ad
Valorem Taxes.
(a) Notwithstanding any provision of law
imposing the burden of Transfer Taxes (as hereinafter defined) on
Seller or Buyer, as the case may be, any sales (except as
provided below), use, franchise and other transfer taxes imposed
in connection with the consummation of the transactions
contemplated by this Agreement (collectively, "Transfer Taxes")
shall paid by Seller.
(b) Seller and Buyer agree to cooperate in good
faith with each other, and to use their commercially reasonable
efforts, to minimize Transfer Taxes. Without limiting the
generality of the preceding sentence, (i) the appropriate party
hereto shall promptly and properly complete, execute and deliver
to the other resale, exemption, and/or similar certificates or
other documentation necessary or appropriate under any applicable
law to claim and/or evidence that all or any portion of the sale
or transfer of the Assets under this Agreement is exempt from or
otherwise not subject to Transfer Taxes imposed under such
applicable law, and (ii) each of the parties hereto shall consult
and cooperate in good faith with each other on a timely basis in
order to effectively handle and contest any audit, examination,
investigation, or administrative, court, or other proceeding
relating to Transfer Taxes.
(c) Buyer shall pay and be responsible for all
filing and recordation of vehicle license transfers and the
license fees related thereto and the sales taxes on non-exempt
farm/agricultural vehicles referred to in Annex B,
notwithstanding any provision of law imposing the burden of such
fees or charges on Seller or Buyer, as the case may be.
(d) (i) Ad valorem and similar taxes relating to
the Assets or any portion thereof for any taxable period that
includes the Closing Date shall be prorated between Seller and
Buyer as of February 28, 1997 based upon such taxes in the
taxable period immediately preceding such taxable period that
includes the Closing Date (in which case such taxes shall be
readjusted as provided in the next sentence), and Buyer shall
receive a credit against the Purchase Price at the Closing for
Seller's pro rata portion of such taxes. As soon as the amount
of such taxes is known for such taxable period that includes the
Closing Date, Seller and Buyer shall readjust the amount of such
taxes to be paid by each party (by means of a payment from Seller
to Buyer or from Buyer to Seller, as the case may be) with the
result that Seller shall pay for such taxes attributable to the
portion of such taxable period prior to February 28, 1997 and
Buyer shall pay for such taxes attributable to the portion of
such taxable period from and after February 28, 1997. Each of
the Shareholders severally agree (each to the extent of one-third
(1/3rd) of the applicable amount) to cause Seller to timely
perform its obligations under this subsection.
(ii) For purposes of calculating any
proration required by Section 7.2(d)(i), (A) Seller's pro rata
portion shall be 59/365ths of the total amount of taxes being
prorated; and (B) Buyer's pro rata portion shall be 306/365ths of
such taxes.
(e) If a party hereto shall fail to pay on a
timely basis any amount such party is responsible for under this
Section 7.2, the other party may pay such amount to the
appropriate governmental authority or authorities or other
appropriate third party or parties, and the party responsible for
payment of such amount shall promptly reimburse the other party
for such amount so paid.
(f) The respective rights and obligations of the
parties hereto under this Section 7.2 shall survive the Closing
without limitation.
7.3 Apportionments. Except as otherwise specifically
provided below, all expenses and obligations relating to the
operation of the Business (including, without limitation, the
unpaid monetary obligations of Seller under the Contracts,
Service Contracts and the Assumed Liabilities; payroll and
employee benefits; and insurance premiums prepaid on policies
assumed by Buyer at Closing) and unearned income or other
payments or prepayments to Seller (including, without limitation,
payments received by reason of participation in the Conservation
Reserve Program) shall be pro rated between Buyer and Seller as
of February 28, 1997. The foregoing obligations shall survive
Closing. Deposits held by Seller with respect to Service
Contracts for feeding after the Closing shall be delivered to
Buyer on the Closing Date.
7.4 Utilities. Charges for water, electricity, sewer
service, gas, telephone and all other utilities shall be pro
rated on a per diem basis as of February 28, 1997, disregarding
any discount or penalty, with such proration to be made after
Closing when the bills for the current period are issued. The
foregoing obligations shall survive Closing. Seller and Buyer
shall cooperate to cause the transfer of the Property's utility
accounts and telephone numbers from Seller to Buyer.
8. Conditions Precedent to the Obligations of Buyer.
All obligations of Buyer under this Agreement are subject,
at Buyer's option, to the fulfillment or waiver prior to or at
the Closing, of each of the following conditions:
8.1 Litigation. No action, suit, proceeding,
investigation, inquiry or request for information by any third
person (including but not limited to any Governmental Authority)
shall have been instituted or threatened against Seller or Buyer
or any of their respective affiliates that questions, or
reasonably could be expected to lead to subsequent questioning
of, the validity or legality of this Agreement or the
transactions contemplated hereby or thereby which, if successful,
would adversely affect the right of Buyer to consummate the
transactions contemplated hereby or to continue the business of
the Business substantially as currently conducted.
8.2 Permits, Consents, etc. There shall be no
material permit, consent, approval or authorization of, or
declaration to or filing with, any Governmental Authority
required in connection with the transactions contemplated by this
Agreement or material consent of a third party which has not been
accomplished or obtained and which may not be accomplished or
obtained after the Closing.
8.3 Contracts. All consents required for the
assignment of any Contracts, Service Contracts or Permits to
Buyer shall have been obtained or the requirement therefor
waived.
8.4 Intentionally left blank.
8.5 Environmental. At its expense, Seller shall
cause the site of the former Centergas II of Amarillo leaking
underground storage tank to be excavated to a depth of 15 feet
and then have the excavated earth disposed of off the Properties
in accordance with any requirements of a Governmental Authority
and the excavated area refilled with clean soil compacted to
leave the excavated area level with the surrounding area.
8.6 Waiver. Buyer shall have waived any rights it
may have to terminate this Agreement pursuant to other Sections
of this Agreement.
8.7 Adverse Event. No condition or circumstance
shall exist or be reasonably threatened which Buyer reasonably
believes will cause or result in a Material Adverse Effect.
9. Condition Precedent to the Obligations of Seller.
All obligations of Seller under this Agreement are subject,
at Seller's option, to the fulfillment or waiver prior to or at
the Closing, of the condition that no action, suit, proceeding,
investigation, inquiry or request for information by any third
person (including but not limited to any Governmental Authority)
shall have been instituted or threatened against any of Seller or
Buyer or any of their respective affiliates that questions, or
reasonably could be expected to lead to subsequent questioning
of, the validity or legality of this Agreement or the
transactions contemplated hereby or thereby which, if successful,
would adversely affect the right of Seller to consummate the
transactions contemplated hereby.
10. Indemnification.
10.1 Definitions. As used in this Article:
(a) "Damages" means any and all penalties,
judgments, fines, damages, liabilities, losses, expenses or costs
(including, without limitation, Litigation Expenses).
(b) "Litigation Expenses" means reasonable
attorneys' fees and other costs and expenses incident to
proceedings or investigations respecting, or the prosecution or
defense of, a claim.
(c) "Third Party Claims" means any and all
claims, demands, suits, actions or proceedings by any person or
entity, other than Buyer or Seller or their respective
affiliates, relating to the Assets or the Business.
10.3 Indemnification by Buyer.
(a) Subject to the terms, conditions and
limitations of this Article, Buyer shall defend, indemnify and
hold Seller and the Shareholders, and their respective affiliates
and controlling persons, officers, directors and employees
harmless from and against any Damages caused by or arising out of
(i) the failure of Buyer to perform or fulfill any agreement or
covenant to be performed or fulfilled by it under this Agreement,
including without limitation thereto those agreements set forth
in Section 2.2 hereof, or under any Buyer Document, or (ii) any
inaccuracy in any representation or breach of any warranty of
Buyer set forth in Article 6 or any Buyer Document and any Third
Party Claims attributable to periods after the Closing Date. The
foregoing indemnity shall not extend to any matters for which
Seller is to indemnify Buyer pursuant to the Section 14.2 below.
(b) Notwithstanding the foregoing provisions of
this Section 10.2, Buyer shall not be obligated to indemnify
Seller and the Shareholders until the aggregate amount of any
Damages and Third Party Claims sustained by Seller and the
Shareholders exceeds on a cumulative basis $10,000, and then only
to the extent of any such Damages and Third Party Claims
sustained by Seller and the Shareholders in excess of such
$10,000. The amounts stated in the immediately preceding
sentence shall be exclusive of any Damages and Third Party Claims
sustained by Seller and the Shareholders by reason of their
respective obligations under Article 14 hereof.
(c) The representations and warranties of Buyer
set forth in Article 6 shall survive the Closing.
10.3 Indemnification by Seller and the Shareholders.
(a) Subject to the terms, conditions and
limitations of this Article, each of Seller and the Shareholders
(each to the extent of one-third of the applicable liability)
shall severally defend, indemnify and hold harmless Buyer, and
its affiliates and controlling persons, officers, directors and
employees from and against any Damages caused by or arising out
of:
(i) the failure of Seller or any Shareholder
to perform or fulfill any agreement or covenant to be performed
and fulfilled by it or him under this Agreement or under any
Seller Document;
(ii) any inaccuracy in any representation
or breach of any warranty of Seller or any Shareholder set forth
in Article 5 or in any Seller Document; or
(iii) Third Party Claims related to periods
prior to the Closing Date.
(b) Notwithstanding the foregoing provisions of
this Section 10.3, Seller and the Shareholders shall not be
obligated to indemnify Buyer until the aggregate amount of any
Damages and Third Party Claims sustained by Buyer exceeds on a
cumulative basis $10,000, and then only to the extent of any such
Damages and Third Party Claims sustained by Buyer in excess of
such $10,000. The immediately preceding sentence shall not be
applicable to limit the liability of Seller and the Shareholders
under Article 14 below. The amounts stated in the first sentence
of this subsection shall be exclusive of any Damages and Third
Party Claims sustained by Buyer by reason of Environmental
Liabilities (hereinafter defined).
(c) The representations and warranties of Seller
and the Shareholders set forth in Article 5 shall survive the
Closing until August 31, 1998, but no longer.
(d) The indemnity obligations of Seller and the
Shareholders under this Section 10.3 shall terminate August 31,
1998, except for Damages and claims asserted and not resolved by
said date. After August 31, 1998, Seller and Shareholders shall
have no further indemnity obligations to Buyer under this Section
except as to Damages and claims asserted and not resolved by said
date.
10.4 Procedure for Claims. If any party indemnified
under Section 10.2 or 10.3 (the "Claimant") desires to make a
claim against any party obligated to provide indemnification
under Section 10.2 or 10.3 (the "Indemnitor"), with respect to
any matter covered by such indemnification obligation, the
procedures for making such claim shall be as follows: (subject
to the limitation of Section 10.3(d) above).
(a) Third Party Claims. If the claim is for
indemnification with respect to any Third Party Claim, the
Claimant will give prompt written notice to the Indemnitor of the
institution, assertion or making of such Third Party Claim, and
the nature thereof. Upon delivery of such notice, the claim
specified therein shall be deemed to have been made for purposes
of this Agreement. If the Claimant fails to give such notice and
Indemnitor is precluded from asserting a defense, Claimant shall
be deemed to have waived rights to indemnification or payment
with respect to such Third Party Claim but only to the extent the
Indemnitor suffers actual loss as a result of such failure. Upon
prior written notice to Claimant, Indemnitor may, within 30 days
after receipt of Claimant's notice, proceed, at the Indemnitor's
sole expense, to cure, defend, compromise or settle the Third
Party Claim, in the name of the Claimant or otherwise. If
Indemnitor undertakes defense of any Third Party Claim, Claimant
shall cooperate with Indemnitor and its counsel in the
investigation and defense thereof, and may participate in such
investigation and defense, at its own expense, but Indemnitor
shall control the negotiation, tactics, trial, appeals and other
matters and proceedings related thereto, except that Indemnitor
shall not, without the prior written consent of Claimant, in
connection with such Third Party Claim, require Claimant to take
or refrain from taking any action, or make any public statement,
which Claimant reasonably considers to be against its interest,
or consent to any settlement that requires Claimant to make any
payment that is not fully indemnified hereunder. If the
Indemnitor notifies Claimant that it does not wish to assume the
defense of such Third Party Claim, or if the Indemnitor fails to
respond to the Claimant's notice of the Third Party Claim within
30 days after receipt of such notice or fails to proceed in a
diligent and timely manner to cure, defend, compromise or settle
a Third Party Claim for which it has assumed the defense pursuant
to the foregoing provisions, the Claimant may proceed to cure,
defend, compromise or settle the Third Party Claim as it shall in
its sole discretion deem to be advisable, without prejudice to
any right to indemnification the Claimant may have against the
Indemnitor with respect thereto, whether pursuant to this
Agreement or otherwise, and in such event any liability of the
Indemnitor to the Claimant for indemnification with respect to
such Third Party Claim shall be determined by a final and
nonappealable judgment entered by a court of competent
jurisdiction, or by written consent of the Indemnitor.
(b) Non-Third Party Claims. If the claim is for
indemnification with respect to a matter other than a Third Party
Claim, the Claimant will give prompt written notice to the
Indemnitor of such claim, setting forth with reasonable
particularity the basis, nature and dollar amount thereof. Upon
delivery of such notice the claim specified therein shall be
deemed to have been made for purposes of this Agreement. The
Indemnitor shall, within 30 days after receipt of such notice,
give written notice to the Claimant as to whether or not the
Indemnitor accepts the responsibility to indemnify the Claimant
with respect to such claim. If the Indemnitor fails to respond
to notice of such claim within 30 days after receipt of such
notice or denies responsibility therefor, the liability of the
Indemnitor to the Claimant for indemnification with respect to
such claim shall be determined by a final and nonappealable
judgment entered by a court of competent jurisdiction, or by
written consent of the Indemnitor.
(c) Feeding Contracts. If a Third Party Claim
is made in respect of a Service Contract for cattle feeding that
began before Closing and ended after the Assets were acquired by
Buyer (a "Feeding Claim"), the party hereto having notice of a
Feeding Claim shall give the initial notice required of a
Claimant by Section 10.4(a). Thereafter, Buyer will cure,
defend, compromise or settle (collectively, "Defense") the
Feeding Claim on behalf of Seller and Buyer. Any monetary
judgment or settlement resulting from the Defense and due in
response to a Feeding Claim, plus the court costs and reasonable
fees and expenses of Buyer's attorneys engaged in the Defense,
shall be promptly paid by Seller and Buyer in proportion to the
number of days each provided services during the entire term of
the Service Contract out of which the Feeding Claim arose.
However, should a final judgment in litigation over a Feeding
Claim establish that either Seller or Buyer is solely liable for
a Feeding Claim or jointly liable in proportions other than as
determined under the immediately preceding sentence, such
judgment shall control over this subsection on the question of
responsibility for payment of such judgment. This subsection
shall control over any conflicting provisions of Article 10
hereof. Nothing herein shall be deemed to affect, release or
waive any party's indemnity obligations to the opposite party if
a party pays all of a Feeding Claim when such party only has the
obligation hereunder to pay a proportionate part of such Feeding
Claim.
11. Noncompetition.
11.1 Agreement. Seller and each Shareholder agrees
that during the five-year period following the Closing Date (the
"Term"), and anywhere within a radius of 300 miles of the
Facilities neither Seller, nor any Shareholder nor any respective
affiliate of any thereof shall, directly or indirectly, engage in
or manage a cattle feeding business, or any phase or aspect
thereof, in any manner or form, including by or through
ownership, individually or in conjunction with others, of a
controlling interest of any kind in any corporation, partnership
or other business entity of any nature or by or through the
solicitation of employees or customers of the Business. It is
specifically agreed that this Section does not restrict the
activities of Shareholder, Dave Hopper, relative to his farming
interests and cattle grazing interests on his farm property in
Deaf Smith County, Texas, and further does not restrict the
activities of Shareholder, Joe Mendiburu, relative to his
ranching and cattle gazing interests on his property situated in
El Paso, Texas and Bingham, New Mexico. Each Shareholder is
willing to enter into the foregoing covenant in consideration of
his or her receipt of a material portion of the Purchase Price
from Seller.
11.2 Interpretation of Covenant. The parties hereto
acknowledge and agree that the duration and area for which the
covenants not to compete set forth in this Article 11 (the
"Covenants Not to Compete") is to be effective are fair and
reasonable and are reasonably required for the protection of
Buyer, and Seller and each Shareholder hereby waives any
objections to or defenses in respect thereof. In the event that
any court determines that the time period or the area, or both of
them, are unreasonable and that the Covenants Not to Compete are
to some extent unenforceable, the parties hereto agree that this
Article 11 shall be deemed amended to delete therefrom such
provisions or portions adjudicated to be unenforceable so that
the Covenants Not to Compete shall remain in full force and
effect for the greatest time period and in the greatest area that
would not render it unenforceable. The parties intend that the
Covenants Not to Compete shall be deemed to be a series of
separate covenants, one for each and every county of each and
every state of the United States of America where the Covenants
Not to Compete are intended to be effective and is not proscribed
by law.
11.3 Equitable Relief. Seller and each Shareholder
hereby acknowledges and agrees that its, his or her obligations
contained in this Article 11 are of special, unique and personal
character which gives them a peculiar value to Buyer, and Buyer
cannot be reasonably or adequately compensated in money damages
in an action at law in the event Seller or any Shareholder
breaches such obligations. Seller and each Shareholder therefore
expressly agrees that, in addition to any other rights or
remedies which the Buyer may have at law or in equity or by
reason of any other agreement, Buyer shall be entitled to
injunctive and other equitable relief in the form of preliminary
and permanent injunctions without bond or other security in the
event of any actual or threatened breach of such obligations by
Seller or any Shareholder and without the necessity of proving
actual damages.
12. Cooperation in Various Matters.
12.1 Mutual Cooperation. After the Closing, each
party to this Agreement shall cooperate with each other party and
its affiliates, which cooperation shall include the furnishing of
testimony and other evidence, permitting access to employees and
providing information regarding the whereabouts of former
employees, as reasonably requested by such other party in
connection with the prosecution or defense of any claims or other
matters relating to the Assets or the business of the Business.
12.2 Preservation of Buyer's Files and Records. For a
period of two years after the Closing, Buyer shall preserve all
files and records relating to the Business that are in existence
as of the Closing Date and that are less than five years old as
of the Closing Date, shall allow Seller and any Shareholder
access to such files and records and the right to make copies and
extracts therefrom at any time during normal business hours, and
shall not dispose of any thereof, provided that at any time after
the Closing, Buyer may give Seller and the Shareholders written
notice of its intention to dispose of any part thereof,
specifying the items to be disposed of in reasonable detail.
Seller and any Shareholder may, within a period of 60 days after
receipt of any such notice, notify Buyer of its, his or her
desire to retain one or more of the items to be disposed of.
Buyer shall, upon receipt of such a notice from Seller or any
Shareholder, deliver to such person, at such person's expense,
the items specified in Buyer's notice to such person which such
person has elected to retain.
12.3 Preservation of Seller's Files and Records. For
a period of two years after the Closing, Seller and the
Shareholders shall preserve in a location on the Properties,
those existing Business files and records relating to periods not
more than 5 years prior to Closing and designated by Buyer
for retention by notice given within 90 days after the Closing
Date. Buyer shall have access to such files and records and the
right to make copies and extracts therefrom at any time during
normal business hours, and shall not dispose of any thereof,
provided that at any time after the Closing, Seller and any
Shareholder may give Buyer written notice of its or his intention
to dispose of any part thereof, specifying the items to be
disposed of in reasonable detail. Buyer may, within a period of
60 days after receipt of any such notice, notify Seller or such
Shareholder of Buyer's desire to retain one or more of the items
to be disposed of. Seller or such Shareholder, as applicable,
shall, upon receipt of such a notice from Buyer, deliver to
Buyer, at Buyer's expense, the items specified in such person's
notice to Buyer which Buyer has elected to retain.
12.4 Preparation of Reports, etc. Each of Buyer on
the one hand, and Seller and each Shareholder, on the other hand,
shall cooperate and cause its respective employees to cooperate
with the other in the preparation of financial and other reports
and statements relating to the Business, for periods ending on or
prior to the Closing.
13. Expenses; Termination of Services.
13.1 Expenses. Each party to this Agreement shall pay
all expenses incurred by it or him or on its or his behalf in
connection with the preparation, authorization, execution and
performance of this Agreement, the Seller Documents and the Buyer
Documents, including, but not limited to, all fees and expenses
of agents, representatives, counsel and accountants engaged by
such party. Seller shall be solely responsible for the cost of
obtaining the Title Policy. Buyer shall be solely responsible
for the costs and expenses incurred in connection with obtaining
new Permits required by Buyer to operate the business of the
Business, the Properties, and the Facilities after the Closing.
13.2 Broker's Fees. Each party to this Agreement
shall indemnify and hold harmless the other parties with respect
to any broker's, finder's or other similar agent's fee with
respect to the transactions contemplated hereby claimed by any
broker, finder or similar agent engaged, employed by or otherwise
acting on behalf of the indemnifying party.
14. Environmental Indemnification.
14.1 Environmental Liabilities. For purposes of this
Section 14.1, "Environmental Liabilities" means any and all
liabilities, responsibilities, claims, suits, losses, costs
(including remedial, removal, response, abatement, cleanup,
investigative, and/or monitoring costs and any other related
costs and expenses) related to contamination and violations of
Environmental Laws at the sites described in the Enviro Report
and elsewhere on or within the Properties and the Facilities,
other causes of action recognized now or in the future, damages,
settlements, expenses, charges, assessments, liens, penalties,
fines, prejudgment and post-judgment interest, attorneys' fees
and other legal costs incurred or imposed (a) pursuant to any
agreement, order, notice of responsibility, directive (including
requirements embodied in Environmental Laws), injunction,
judgment or similar documents (including settlements) arising out
of, in connection with or under Environmental Laws, (b) pursuant
to any claim by a Governmental Authority or other entity or
person for personal injury, property damage, damage to natural
resources, remediation, or payment or reimbursement of response
costs incurred or expended by such Governmental Authority or
other entity or pursuant to common law or statute, or (c) as a
result of any act, omission, event, circumstance or condition on
or in connection with the business of the Business or the Assets
prior to the Closing, including, but not limited to, any course
of conduct or operating practice which existed or commenced prior
to the Closing and any pollution, contamination, degradation,
damage or injury caused by, arising from or in connection with
the generation, use, handling, treatment, storage, disposal,
discharge, emission or release of contaminants or pollutants
prior to the Closing.
14.2 Indemnification. Subject to the terms,
conditions and limitations of this Article 14, each of Seller and
the Shareholders (each to the extent of one-third (1/3rd) of the
applicable liability) shall severally defend, indemnify and hold
harmless Buyer and its affiliates and controlling persons,
officers, directors and employees from and against and in respect
of any and all Environmental Liabilities that may be imposed
upon, asserted against or incurred by Buyer arising out of or
resulting from (i) the presence or existence, as disclosed by the
Enviro Report, of any contaminant, pollutant or other toxic or
hazardous substance on, in, under or affecting all or any portion
of the Business or the Assets, (ii) the warranties and
representations contained in Section 5.13 being false or
misleading, or (iii) a violation of Environmental Laws (excluding
any such violations disclosed by the Enviro Report) existing or
occurring on or before the Closing Date and asserted on or before
August 31, 1998. After August 31, 1998, Seller and Shareholders
shall have no further indemnity obligation under clause (iii)
next above, except as to Environmental Liabilities arising or
existing and not resolved by said date. Seller and the
Shareholders waive any common law or statutory right of
contribution from Buyer in respect of any Environmental
Liabilities.
14.3 Actions. With respect to the Environmental
Liabilities for which Buyer may be entitled to indemnification
under Section 14.2, Buyer shall have the right to perform and
complete all actions required by a Governmental Authority.
14.4 Continuing Obligations. In the event Buyer sells
any of the Facilities or Properties, to one or more third
parties, any of Seller's and any Shareholder's continuing
indemnification obligations under this Article 14 for
Environmental Liabilities relating to the ownership or operation
of such Facilities or Properties, shall remain owing to Buyer,
to the extent Buyer may continue to have liability in respect
thereof, whether pursuant to a claim by a Governmental Authority
or any third parties (including any party that purchases such
Facilities or the Properties from Buyer), and so long as Buyer
continues to fulfill its obligations under this Article 14.
15. Notices.
15.1 Procedure and Addresses. All notices, requests,
demands and other communications required or permitted to be
given hereunder shall be deemed to have been duly given if in
writing and delivered personally or delivered by facsimile
transmission or delivered by courier service or delivered by
registered or certified U.S. mail, return receipt requested, at
the following addresses:
(a) If to Buyer:
P. O. Box 1000
Lebec, California 93243
Attention: Matt Echeverria
Facsimile number: (805) 858-2553
With a copy to:
J. S. Hollyfield
Fulbright & Jaworski L.L.P.
1301 McKinney Street, Suite 5100
Houston, Texas 77010-3095
Facsimile number: (713) 651-5246
(b) If to Seller or any Shareholder:
P. O. Box 150
Hereford, Texas 79045
Facsimile number: (806) 258-7252
With a copy to:
Terry D. Langehennig
Cowsert, Line & Langehennig
P. O. Box 1655
Hereford, Texas 79045
Facsimile number: (806) 364-9368 <PAGE>
15.2 Notice of Change of Address. Any party may
change the address to which such communications are to be
directed to it by giving written notice to the other parties in
the manner provided in Section 15.1.
16. General.
16.1 Entire Agreement. This Agreement, including the
Annexes hereto, the Seller Documents and the Buyer Documents set
forth the entire agreement and understanding of the parties with
respect to the transactions contemplated hereby and supersede all
prior agreements, arrangements and understandings, whether
written or oral, among the parties or any of them, relating to
the subject matter hereof.
16.2 Headings. The Article and Section headings
contained in this Agreement are for convenient reference only,
and shall not in any way affect the meaning or interpretation of
this Agreement.
16.3 Governing Law; Venue. This Agreement shall be
governed by and construed and enforced in accordance with the
laws of the State of Texas, excluding the conflict of laws
provisions thereof that would otherwise require the application
of the law of any other jurisdiction. Venue for any proceeding
brought by any party to this Agreement against another party
hereto and related to or arising out of this Agreement shall lie
exclusively in Deaf Smith County, Texas.
16.4 Counterparts. This Agreement may be executed in
multiple counterparts (including counterparts executed by one
party), each of which shall be an original, but all of which
shall constitute a single agreement.
16.5 Binding Agreement; Assignment. This Agreement
shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but
this Agreement shall not be assignable by any party without the
prior written consent of the other parties. Subject to any
hereinabove stated expiration dates applicable thereto, Sections
2.3, 3.5, 7.2, 7.3 and 7.4 of this Agreement and Articles 5, 6,
10, 11, 12, 13 and 14 of this Agreement shall survive the
Closing.
16.6 Amendment. This Agreement may be amended only in
a writing executed by the parties hereto which specifically
states that it amends this Agreement.
16.7 No Waiver. Failure of any party to insist upon
strict observance of or compliance with any term of this
Agreement in one or more instances shall not be deemed to be a
waiver of its rights to insist upon such observance or compliance
with the other terms hereof, or in the future.
16.8 Third Party Beneficiaries. Neither this
Agreement nor any document delivered in connection with this
Agreement confers upon any person not a party hereto any rights
or remedies thereunder.
16.9 Severability. Any provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall be
ineffective to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining
provisions of this Agreement, and, to the extent permitted by
law, any determination of invalidity or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
16.10 Annexes. Each of the Annexes hereto
constitutes part of this Agreement and by this reference are
incorporated herein for all purposes hereof.
16.11 Risk of Loss. Title to, and risk of loss or
destruction of or damage to, the Assets shall remain in and upon
Seller until completion of the Closing, at which time they shall
pass to Buyer.
16.12 Right of Inspection. Until the Closing,
Buyer shall have the right to inspect the tangible Assets and
make such non-destructive tests and evaluations of the same as it
chooses, including, without limitation, environmental tests, and
to examine all books and records maintained with respect to the
same. All such inspections shall be conducted at reasonable
times and conducted so as not to unreasonably interfere with the
Business.
16.13 Substantial Casualty or Condemnation. If at
any time prior to the Closing Date all or any portion of the
Facilities is destroyed or damaged as a result of fire or any
other casualty whatsoever and the cost of restoring such damage
exceeds $10,000, or if all or any portion of the Properties or
Facilities material for the operation of the Business is
condemned or taken by eminent domain proceedings by any
Governmental Authority or if a notice of any such prospective
condemnation or taking is given by any Governmental Authority,
then at the option of Buyer (exercised by written notice to
Seller within fifteen (15) days after receipt of notice of such
occurrence from Seller, this Agreement shall terminate and shall
be canceled with no further liability of either party to the
other (except for such obligations which expressly survive
termination hereof). Seller shall give Buyer prompt written
notice of any casualty or any actual or threatened taking of
which Seller has actual knowledge.
16.14 Seller's and Buyer's Rights. If there is
any partial or total damage or destruction or condemnation or
taking, as set forth in Section 16.13, and if Buyer elects not to
terminate (or is not permitted to terminate) this Agreement as
herein provided, then (1) in the case of a taking, there shall be
no adjustment to the Purchase Price but all condemnation proceeds
paid or payable to Seller shall belong to Buyer and shall be paid
over and assigned to Buyer at Closing, and Seller shall further
execute all assignments and any other documents or instruments as
Buyer may reasonably request or as may be necessary to transfer
all interest in all such proceeds to Buyer or to whomever Buyer
shall direct, free and clear of any claims or encumbrances and
(2) in the case of a casualty, there shall be no adjustment to
the Purchase Price and Seller shall (i) assign to Buyer Seller's
valid and unencumbered right, title and interest in and to all
insurance proceeds paid or payable under all insurance policies
required to be maintained by Seller hereunder (and to Seller's
interest in such policies to the extent necessary to enforce
Buyer's right to any proceeds thereunder), free and clear of any
claims or defenses of the insurer and (ii) pay to Buyer the
amount of any deductible under such policies (not to exceed the
amount of the actual loss); provided that in the event Buyer
determines prior to Closing that the amount collectible under
such insurance policies together with the amount of the
deductible is or will likely be less than the actual cost to
restore the Facilities either because the same were underinsured
by Seller or the insurer denies coverage for any reason, Buyer
shall have the right to terminate this Agreement at or prior to
Closing, unless Seller agrees to pay the uninsured deficiency.
16.15 Default. Should either party hereto fail to
consummate the sale and purchase of the Assets in accordance with
this Agreement, the party so failing shall be liable to the other
party hereto for all losses and damages suffered by the other
party, together with reasonable attorneys' fees and litigation
expenses. Additionally, the non-defaulting party shall have all
remedies available to it at law or in equity for the enforcement
of this Agreement, including, without limitation, specific
performance.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date and year first above written.
Seller: CHAMPION FEEDERS, INC.
By:________________________________
Name:______________________________
Title:_____________________________
Buyer: TEJON RANCH FEEDLOT, INC.
By:________________________________
Name:______________________________
Title:_____________________________
FOR THE SPECIFIC PURPOSES INDICATED
HEREIN:
Shareholders: ________________________
Dave Hopper
________________________
Gordon Dutterer
________________________
Joe Mendiburu
ANNEX A
Tract 1: All of the South 1/2 of section 39, block K-3, Deaf
Smith County, Texas; Save and except a tract out of the southwest
portion thereof, more particularly described by metes and bounds
as follows, to-wit:
Beginning at a point which is the southwest corner of section 39;
Thence north along the west line of said section 39, 150 feet to
a point in said west line;
Thence east in a line parallel with the south line of said
section 39 for a distance of 750 feet to a point;
Thence south parallel with the west line of said section 150 feet
to a point in the south line of said section 39;
Thence west along the south line of said section 39, a distance
of 750 feet to the place of beginning.
Tract 2: The west one-half (W/2) of the northeast one-forth
(NE/4) of section no. 39, Block K-3, Deaf Smith County, Texas.
Tract 3: The east 235.6 acres of section 40, Block K-3, S. K. &
K. survey, Deaf Smith County Texas.
Tract 4: 1.51 acres, 0.15 thereof being in a public road, out
of the northeast part of the northwest 1/4 of section 10, Block
K-3, cert no. 334, S. K. & K. survey, in Deaf Smith County,
Texas, described by metes and bounds as follows, to-wit:
Beginning at a point in the north line of section 40, 1983.33
feet east of a stone and iron pipe set at its northwest corner;
Thence south 0 degrees 36 minutes 25 seconds west at 30 feet pass
a 3/4 inch iron pipe in the south line of a public road, and at
311.2 feet a 3/4 inch iron pipe by a corner post;
Thence north 0 degrees 39 minutes east, at 277.3 feet pass a 3/4
inch iron pipe in the south line of a public road, and at 307.3
feet a point in the north line of said section; thence west with
the north line of said section, 213.89 feet to the place of
beginning.
Tract 5: Easements created by instruments recorded in volume
237, page 288 and volume 256, page 445, deed records of Deaf
Smith County, Texas.
ANNEX B
1997 Chevrolet Tahoe
1989 Chevrolet 1/2 ton 4-T70
1981 GMC 1/2 Ton
1988 Ford 1/2 Ton
1995 GMC 1/2 Ton
1988 Chevrolet
1994 GMC 3/4 ton (utility)
1985 1 ton (stk. bed)
1995 Ford 1/2 Ton
1986 Ford 1/2 Ton Van
1972 Ford 1/2 Ton
1996 Livestock Trailer
1991 J.D. 544-E loader
1988 CAT 950 c loader
1968 Chevrolet 2 Ton (hay)
1975 International manure spreader
1972 GMC 2 Ton (hay)
1973 Ford 2 Ton Tank
1973 GMC 2 Ton Tank
I.H. 1086 Tractor
1995 J.D. 5400 Tractor
1976 Chevrolet BJM
1984 Chevrolet BJM
1997 Chevrolet Oswalt
1990 Chevrolet Oswalt
1991 Chevrolet BJM
JD AMT 626
1972 Wabco maintainer
1993 Bush Hog Shredder
Hay Piler
2 Lincoln welders
1993 Heston Hay Grinder
Case Bobcat Loader
1951 CAT D-7 Bulldozer
Overhead Gas Tank
2 Butane Tanks
3 Plows and Scrapers
8 Chutes
7 Horses
Office Equipment
Miscellaneous Small Tools, Equipment & Supplies
ANNEX E
TWO YEAR BEST EFFORTS CATTLE FEEDING AGREEMENT
The undersigned individuals shall, on a best efforts basis
only, feed and market at rates and prices prevailing from time to
time at the Champion Feeders feedlot located in Hereford, Texas,
a combined total of approximately 7,000 head of finished cattle
per year during the two years of (a) March 1, 1997 through
February 28, 1998 (first year) and (b) March 1, 1998 through
February 28, 1999 (second year). Therefore, this tow year best
efforts cattle feeding agreement results in a targeted total
number of cattle fed and marketed of 14,000 head over said two
year period. It is further anticipated and understood that the
targeted number of cattle fed and marketed in each of year one
and in year tow may be above or below the 7,000 head targeted
number per year, but the total cattle fed and marketed within
said tow year period will be, on a best efforts basis, close to
14,000 head. It is anticipated and estimated that the
approximate annual numbers fed and marketed by the undersigned
individuals, on a best effort basis, will be as follows, with the
understanding that each of the individuals listed below shall be
focused on a responsible for his individual specific annual
targeted number as shown below:
Names Targeted Number of Cattle
Fed and Marketed per year
1. Joe Mendiburu 2,000
2. Gordon Dutterer 4,000
3. Dave Hopper 1,000
_________________________________________________________________
TOTAL 7,000
_________________________________________________________________
Executed this ___ day of February, 1997
______________________________________
Joe Mendiburu, Individually
______________________________________
Gordon Dutterer, Individually
______________________________________
Dave Hopper, Individually
ANNEX F
ITEM AMOUNT
1. Real property as described in Exhibit A:
a. 399 acres upon which is situated
the feedyard facility and operations
thereof, at $300.00 per acre. $119,700
b. 237 acres in Conservation Reserve
Program, at $200.00 per acre. 47,400
c. Total fixed plant and improvements
situated upon the real property including
but not limited to feed mill building,
feeding pens, water system and all other
feed yard fixed assets improvements. 3,009,000
2. Rolling stock equipment and machinery as
described in Exhibit B. 300,000
3. Goodwill 23,900
_________
$3,500,000
ANNEX H
COMPANY DATES OF COVERAGE COVERAGE ORIGINAL
COVERAGE AMOUNT PREMIUM
Hartford Steam 1/20/97-1/20/98 $1,500,000 $2,323.00
Boiler Boiler Machinery
BMI-HN- Deductible $1,500
7314207-25 Business
Interruption
$225,000 included
The Hartford 4/1/95-4/1/98 $50,000 $249.00
Blanket Bond Employee
CBBLV4968 dishonesty profit
sharing plan
trustees
Lawyers Surety 1/22/97-1/22/98 $50.00
Corp LSC474086 Outside
advertising bond
Lexington Feedlot Cattle Deposit $2,800.00
Insurance deductible $1,000 $10,000,000
IF8790000015 Occurrence
.08HD + $4.95%
Tax
Texas Cattle Group Health Monthly $4,697.54
Feeders Assn. Insurance $2,000,000
Group #0033164 Deductible $500 Maximum
Individual Lifetime
Generally 80% Benefit
Coinsurance
Ranger 6/1/96-5/31/97 $1,000,000 $4,711.00
Insurance Commercial Liability,
TBA 0453380 Automobile $5,000
Deductible $250 Personal
Injury,
$1,000,000
Uninsured
Motorist
Ranger 6/1/97-5/31/97 $1,053,800 $6,789.00
Insurance Commercial Property
TXG 033331400 Property/Liability General
Deductible $1,000 Liability &
90% Coinsurance Inland Marine
Frontier 10/1/96-10/1/97 $500,000 $39,465.00
Insurance Co. Worker's Bodily injury
of NY TWC 2770 Compensation by accident,
Deductible $25,000 each accident
$500,000
Bodily injury
by disease-
policy limit:
$500,000
bodily injury
by disease by
employee
EXHIBIT 22
(22) Subsidiaries of Registrant
A. Registrant: Tejon Ranch Co.
B. Subsidiaries of Registrant
a. Tejon Ranchcorp (100% of whose Common Stock
is owned by Registrant);
b. Laval Farms Corporation, formerly Tejon
Agricultural Corporation (100% of whose
Common Stock is owned by Tejon Ranchcorp);
c. Tejon Farming Company (100% of whose Common
Stock is owned by Tejon Ranchcorp);
d. Tejon Marketing Company; (100% of whose
Common Stock is owned by Tejon Ranchcorp);
e. Tejon Ranch Feedlot, In. (100% of whose
Common Stock is owned by Tejon Ranchcorp);
f. White Wolf Corporation (100% of whose Common
Stock is owned by Tejon Ranchcorp);
g. Tejon Development Company; (100% of whose
Common Stock is owned by Tejon Ranchcorp).
C. Each of the aforesaid subsidiaries is included in
Registrant's Consolidated Financial Statement set forth in answer
to Item 14(a)(1) hereof.
D. Each of the aforesaid subsidiaries was organized and
incorporated under the laws of the State of California.
E. Each of the aforesaid subsidiaries does business under
its name, as shown. Tejon Ranchcorp also does business under the
names Tejon Ranch, Fireside Oak Co. and Grapevine Center.
In addition to the foregoing, Laval Farms Limited
Partnership, formerly Tejon Agricultural Partners, a California
limited partnership, may be deemed to be a "subsidiary" of
Registrant within the meaning of the Rules under the Securities
Exchange Act of 1934 by reason of the fact that the sole general
partner of said partnership is Laval Farms Corporation, a wholly-
owned subsidiary of Registrant.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FIANANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET, INCOME STATEMENT, AND FOOTNOTES AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 693
<SECURITIES> 20,127
<RECEIVABLES> 4,303
<ALLOWANCES> 0
<INVENTORY> 3,430
<CURRENT-ASSETS> 29,872
<PP&E> 30,838
<DEPRECIATION> (14,568)
<TOTAL-ASSETS> 47,369
<CURRENT-LIABILITIES> 5,186
<BONDS> 0
0
0
<COMMON> 6,341
<OTHER-SE> 31,391
<TOTAL-LIABILITY-AND-EQUITY> 47,369
<SALES> 18,895
<TOTAL-REVENUES> 18,895
<CGS> 13,202
<TOTAL-COSTS> 13,202
<OTHER-EXPENSES> 2,590
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 295
<INCOME-PRETAX> 2,808
<INCOME-TAX> 1,123
<INCOME-CONTINUING> 1,685
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,685
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
