<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
-------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ____________ to ______________
For Quarter Ended Commission File Number
March 31, 2000 1-7183
---------------- ------------------------
TEJON RANCH CO.
--------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 77-0196136
- --------------------------- ----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
P.O. Box 1000, Lebec, California 93243
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code...(661) 248-3000
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No____
---
Total Shares of Common Stock issued and outstanding on March 31, 2000, were
12,697,179.
<PAGE>
TEJON RANCH CO.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Condensed Statements of 1
Operations for the Three Months
Ended March 31, 2000 and March 31, 1999
Unaudited Consolidated Condensed Balance Sheets 2
As of December 31, 1999 and March 31, 2000
Unaudited Consolidated Condensed Statements of 3
Cash Flows for the Three Months Ended
March 31, 2000 and 1999
Consolidated Condensed Statements of Stockholders' 4
Equity
Notes to Unaudited Consolidated Financial 5
Statements
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 17
<PAGE>
PART I FINANCIAL INFORMATION
TEJON RANCH CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
-----------------------------------------------
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues:
Livestock $ 7,790 $ 9,407
Farming 170 276
Real Estate 1,046 2,343
Interest Income 158 151
-------- --------
9,164 12,177
Costs and Expenses:
Livestock 7,209 9,345
Farming 427 365
Real Estate 1,231 1,011
Corporate Expense 760 706
Interest Expense 458 155
-------- --------
10,085 11,582
-------- --------
Operating Income (Loss) (921) 595
Provision for Income Tax (350) 226
-------- --------
Net Income (Loss) $ (571) $ 369
======== ========
Net Income (Loss) Per Share, basic $ (0.04) $ 0.03
Net Income (Loss) Per Share, diluted $ (0.04) $ 0.03
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
1
<PAGE>
TEJON RANCH CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
(In Thousands)
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999*
--------------- -------------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 953 $ 423
Marketable Securities 10,342 9,942
Accounts & Notes Receivable 4,139 5,019
Inventories:
Cattle 24,785 21,172
Farming 2,369 1,077
Other 417 559
Prepaid Expenses and Other 1,846 1,101
--------- ---------
Total Current Assets 44,851 39,293
PROPERTY AND EQUIPMENT - NET 54,333 50,737
OTHER ASSETS 1,594 1,489
--------- ---------
TOTAL ASSETS 100,778 91,519
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade Accounts Payable $ 2,510 $ 3,315
Other Accrued Liabilities 153 97
Short-term Borrowings 22,624 19,486
Other Current Liabilities 89 117
--------- ---------
Total Current Liabilities 25,376 23,015
LONG-TERM DEBT 27,797 20,606
DEFERRED INCOME TAXES 5,004 4,738
--------- ---------
Total Liabilities 58,177 48,359
STOCKHOLDERS' EQUITY
Common Stock 6,349 6,349
Additional Paid-In Capital 379 379
Retained Earnings 36,130 36,701
Accumulated Other Comprehensive Income (257) (269)
--------- ---------
Total Stockholders' Equity 42,601 43,160
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 100,778 $ 91,519
========= =========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
* The Balance Sheet at December 31, 1999 has been derived from the audited
financial statements at that date.
2
<PAGE>
TEJON RANCH CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
----------------------------------------------
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------------
2000 1999
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) $ (571) $ 369
Items Not Affecting Cash:
Depreciation and Amortization 571 542
Deferred Income Taxes 259 (64)
Equity in loss from unconsolidated joint venture 1,050 --
Changes in Operating Assets and Liabilities:
Receivables, Inventories and other Assets, Net (5,544) 1,171
Current liabilities, Net (777) 1,089
-------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (5,012) 3,107
INVESTING ACTIVITIES
Cash in Escrow --- 4,200
Maturities and Sales of Marketable Securities 325 2,709
Funds Invested in Marketable Securities (706) (1,158)
Property and Equipment Expenditures (4,167) (12,063)
Change in Breeding Herds (239) (260)
Other --- (21)
-------- ---------
NET CASH USED IN INVESTING ACTIVITIES (4,787) (6,593)
-------- ---------
FINANCING ACTIVITIES
Proceeds From Revolving Line of Credit 11,628 5,698
Payments of Revolving Line of Credit (6,866) (7,502)
Borrowing of Long-term Debt 7,191 4,800
Payments of Long-term Debt (1,624) ---
-------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,329 2,996
-------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 530 (490)
Cash and Cash Equivalents at Beginning of Year 423 743
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 953 $ 253
======== =========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
3
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
---------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-In Comprehensive Retained
Stock Capital Income Earnings Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1999 $6,346 $382 $(179) $36,156 $42,705
Net Income --- --- --- 1,181 1,181
Defined Benefit Plan
Funding Adjustments,
Net of taxes of $133,000 --- --- 216 --- 216
Changes in Unrealized
Losses on Available-For-Sale
Securities, net of taxes
of $205,000 --- --- (306) --- (306)
-------
Comprehensive Income --- --- --- --- 1,091
-------
Exercise of Stock Options 3 (3) --- --- ---
Cash Dividends Paid -
$.05 per share --- --- --- (636) (636)
----------------------------------------------------------------------
Balance, December 31, 1999 $6,349 $379 $(269) $36,701 $43,160
Net Loss (571) (571)
Changes in Unrealized
Losses on Available-For-Sale
Securities, net of taxes of $7,000 12 12
-------
Comprehensive Income (559)
----------------------------------------------------------------------
Balance, March 31, 2000 $6,349 $379 $(257) $36,130 $42,601
======================================================================
</TABLE>
4
<PAGE>
TEJON RANCH CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
-------------------------------------------------------
(Unaudited)
March 31, 2000
NOTE A - BASIS OF PRESENTATION
- ------------------------------
The summarized information furnished by Registrant pursuant to the instructions
to part I of Form 10-Q is unaudited and reflects all adjustments which are, in
the opinion of Registrant's management, necessary for a fair statement of the
results for the interim period. All such adjustments are of a normal recurring
nature.
Certain amounts in the 1999 quarterly financial statements have been
reclassified to conform to the current year presentation.
The results of the period reported herein are not indicative of the results to
be expected for the full year due to the seasonal nature of Registrant's
agricultural activities. Historically, the largest percentages of revenues are
recognized during the third and fourth quarters.
For further information, refer to the Consolidated Financial Statements and
footnotes thereto included in Registrant's Annual Report on Form 10-K for the
year ended December 31, 1999.
NOTE B - NET INCOME PER SHARE
- -----------------------------
Basic net income per share is based upon the weighted average number of shares
of common stock outstanding during the year, which at March 31, 2000 was
12,697,179 and at March 31, 1999 was 12,691,253. Diluted net income per share is
based upon the weighted average number of shares of common stock outstanding,
and the weighted average number of shares outstanding assuming the issuance of
common stock for stock options using the treasury stock method (12,790,043 at
March 31, 2000 and 12,712,655 at March 31, 1999). The weighted average of
dilutive stock options were 92,864 in 2000 and 21,402 in 1999.
NOTE C - MARKETABLE SECURITIES
- ------------------------------
Statement of Financial Accounting Standard ("SFAS") No. 115, Accounting for
Certain Investments in Debt and Equity Securities, requires that an enterprise
classify all debt securities as either held-to-maturity, trading, or available-
for-sale. Registrant has elected to classify its securities as available-for-
sale and therefore is required to adjust securities to fair value at each
reporting date.
5
<PAGE>
The following is a summary of available-for-sale securities at December 31, 1999
and March 31, 2000:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------------------------------------------------
Estimated Estimated
Cost Fair Value Cost Fair Value
-------------------------------------------------------
<S> <C> <C> <C> <C>
Marketable Securities:
(in thousands)
U.S. Treasury and agency notes $ 5,289 $ 4,955 $ 5,191 $ 4,824
Corporate notes 5,484 5,387 5,201 5,118
------------------------------------------------------
$ 10,773 $ 10,342 $ 10,392 $ 9,942
======================================================
</TABLE>
As of March 31, 2000, the fair value adjustment is a $19,000 unrealized gain.
The fair value adjustment to stockholders' equity for the first quarter of 2000,
net of a deferred tax of $7,000, is an unrealized gain of $12,000. The
cumulative fair value adjustment in stockholder's equity, net of deferred taxes,
is a $257,000 unrealized loss. Registrant's gross unrealized holding losses
equal $431,000. On March 31, 2000, the average maturity of U.S. Treasury and
agency securities was 2.8 years and corporate notes was two years. Currently,
Registrant has no securities with a remaining term to maturity of greater than
five years.
Market value equals quoted market price, if available. If a quoted market price
is not available, market value is estimated using quoted market prices for
similar securities. Registrant's investments in corporate notes are with
companies with a credit rating of A or better.
NOTE D - COMMODITY CONTRACTS USED TO HEDGE PRICE FLUCTUATIONS
- -------------------------------------------------------------
Registrant uses commodity derivatives to manage its exposure to price
fluctuations on its purchased stocker cattle and its cattle feed costs. The
objective is to protect or create a future price for stocker cattle that will
protect a profit or minimize a loss once the cattle are sold and all costs are
deducted and protect Registrant against a disastrous cattle market decline or
feed cost increase. To help achieve this objective Registrant used both the
futures commodity markets and options commodity markets. A futures contract is
an obligation to make or take delivery at a specific future time of a
specifically defined, standardized unit of a commodity at a price determined
when the contract is executed. Options are contracts that give their owners the
right, but not the obligation, to buy or sell a specified item at a set price on
or before a specified date.
Registrant continually monitors any open futures and options contracts to
determine the appropriate risk exposure based on market movement of the
underlying asset. The options and futures contracts used typically expire on a
quarterly or semi-annual basis and are structured to expire close to or during
the month the stocker cattle and feed are scheduled to be sold or purchased. The
risk associated with hedging for Registrant is that hedging limits or caps the
potential profits if cattle or feed prices begin to increase dramatically or can
add additional costs if cattle or grain prices fall dramatically.
Realized gains, losses, and costs associated with both open and closed contracts
are recognized in costs of sales expense. At March 31, 2000 there were $128,000
of gains associated with futures and option contracts included in cost of sales.
6
<PAGE>
The following table identifies the cattle futures contract amounts outstanding
at March 31, 2000 (in thousands, except number of contracts):
<TABLE>
<CAPTION>
Original Estimated
No. Contract/Cost Fair Value
Cattle Future / Option Description Contracts (Bought) Sold (Bought) Sold
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corn futures bought, 50,000 lbs. per contract 250 $ (2,983) $ 3,073
Corn options sold, 40,000 lbs. per contract 50 $ 8 (8)
Corn options bought, 40,000 lbs. per contract 100 $ (21) $ 20
Cattle futures bought, 40,000 lbs. per contract 210 (5,917) 5,855
Cattle options sold, 40,000 lbs. per contract 110 22 (21)
Cattle options bought, 40,000 lbs. per contract 110 (29) 22
</TABLE>
The March31, 2000 futures contracts and options expire between April 2000 and
December 2000. Estimated fair value at settlement is based upon quoted market
prices at March 31, 2000.
NOTE E - CONTINGENCIES
- ----------------------
At March 3, 2000, Registrant was guaranteeing the repayment of $13.8 million of
debt of the Petro Travel Plaza L.L.C. Total debt at Petro Travel Plaza L.L.C. is
$13.0 million and is related to the construction of the travel plaza. Registrant
does not expect the guarantee to ever be used due to the cash flow provided by
the operations of the Petro Travel Plaza, L.L.C.
Registrant leases land to National Cement Company of California, Inc. (National)
for the purpose of manufacturing portland cement from limestone deposits on the
leased acreage. National, Lafarge Corporation (the parent company of the
previous operator) and Registrant have been ordered to cleanup or abate an old
industrial waste landfill site, a storage area for drums containing lubricants
and solvents, an underground storage tank for waste oil and solvents, an
underground plume of hydrocarbons, diesel fuel which leaked from a pipeline, and
the cement kiln dust piles on the leased premises. Lafarge has undertaken the
investigation and remediation of landfills and has completed the removal of
contaminated soils above the groundwater level from the landfills. Lafarge has
also completed a substantial amount of the site investigation with respect to
chlorinated hydrocarbons. The plume of chlorinated hydrocarbons covers an
extensive area and has migrated off of the leased premises in one direction
where it has been found to be leaking into a local creek. Lafarge is undertaking
additional investigation work as directed by the Regional Water Board and is
developing a feasibility study evaluating different remediation options. The
order for the kiln dust piles now requires only site stabilization measures of
the sort previously undertaken by National and does not call for transporting
the large piles offsite. Under the orders, Registrant is secondarily liable and
will be called upon to perform work only if National and Lafarge fail to do so,
although the relative priority of Lafarge and
7
<PAGE>
Registrant is being reconsidered by the Board in May 2000. Under the lease
agreements with National and Lafarge, each of the companies is required to
indemnify Registrant for its designated portion of any costs and liabilities
incurred in connection with the cleanup order. Due to the financial strength of
National and Lafarge, Registrant believes that a material effect on the company
is remote at this time.
For further discussion refer to Registrant's 1999 Form 10-K, Part I, Item 3, -
"Legal Proceedings". There have been no significant changes since the filing of
the 1999 Form 10-K.
NOTE F - INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
- ----------------------------------------------------
Registrant is as a member in a limited liability company, Petro Travel Plaza,
LLC, in which it has an ownership interest of 60%. Registrant accounts for its
investment in Petro Travel Plaza using the equity method of accounting. Petro
Travel Plaza owns and operates a travel plaza/commercial highway operation in
the Tejon Industrial Complex. Registrant's investment deficit in its
unconsolidated joint venture is $1,050,000 at March 31, 2000, which is included
in other assets in the accompanying consolidated balance sheets. The net loss in
earnings of its unconsolidated joint venture is $161,000, which is included in
Real Estate operations in the accompanying consolidated statements of income for
the quarter ended March 31, 2000.
Condensed financial information of Registrant's unconsolidated joint venture as
of and for the year ended March 31, 2000 is as follows (in thousands):
Condensed Combined Income Statement Information
Net Sales $7,405
------
Net Loss (268)
Partner's Share of net loss (107)
------
Equity in loss of unconsolidated joint venture $ (161)
======
Condensed Combined Balance Sheet Information
-------------------------------------------------------------
Current Assets $ 1,727
Property and equipment, net 17,041
Long-term Debt (13,000)
Other Liabilities (1,010)
--------
Net Assets $ 4,758
========
NOTE G - PAYMENT OF DIVIDEND
- ----------------------------
On May 2, 2000, the Board of Directors voted to eliminate Registrant's annual
dividend of $0.05 per share. The dividend was eliminated in order to reinvest
all internally generated cash flow to support Registrant's growth.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
Throughout "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Quantitative and Qualitative Disclosures About Market
Risk," and the narratives on the preceding pages of this report, Registrant has
made forward-looking statements regarding future developments in the cattle
industry, in Registrant's strategic alliances and the almond industry, future
yields, and prices, future development of Registrant's property, future revenue
and income of Registrant's jointly-owned travel plaza, potential losses to
Registrant as a result of pending environmental proceedings and market value
risks associated with investment and risk management activities and with respect
to inventory, accounts receivable and Registrant's own outstanding indebtedness.
These forward-looking statements are subject to factors beyond the control of
Registrant (such as weather, market and economic forces) and, with respect to
Registrant's future development of its land, the availability of financing and
the ability to obtain various governmental entitlements. No assurance can be
given that the actual future results will not differ materially from those in
the forward-looking statements.
Results on Operations
- ---------------------
Total revenues, including interest income for the first quarter of 2000 were
$9,164,000 compared to $12,177,000 for the first quarter of 1999. The decline in
revenues during the first quarter of 2000 is primarily attributable to decreases
in livestock division revenues of $1,617,000 and real estate division revenues
of $1,297,000. The decrease in real estate revenues when compared to 1999 is
primarily due to the sale of a fiber optic communications easement for
$1,750,000 that occurred in the first quarter of 1999. The decrease in real
estate revenues was partially offset by payments received from Enron in the
first quarter of 2000 totaling $300,000 related to an option to lease which did
not become effective until the second quarter of 1999. Additionally, there was
an increase in leasing income of $236,000 derived from the three industrial and
commercial buildings purchased during the second quarter of 1999. When compared
to the same period in 1999, livestock division revenues declined due to
decreases in livestock sales of $2,094,000, which were partially offset by
improved feedlot sales due to higher occupancy totals during the first quarter
of 2000. Livestock sales decreased due to 1,200 fewer head of cattle being sold
during the first quarter of 2000 when compared to the same period of 1999. This
decrease was primarily related to the timing of the sale of cattle in 2000.
Operating activities during the first quarter of 2000 resulted in a net loss of
$571,000, or $0.04 per share diluted, compared to a net income of $369,000, or
$0.03 per share diluted, for the same period of 1999. The decrease in earnings
when compared to 1999 is primarily attributable to the decrease in revenues
described above. In addition to decreases in revenues, there were higher real
estate division costs and interest expense in the first quarter of 2000 when
compared to the same period of 1999. Partially offsetting these unfavorable
variances was an increase in profit margins on cattle sold of approximately
$500,000 due to improved cattle prices and lower costs of sales. The increase in
real estate costs was primarily related to higher staffing costs that are
directly related to the increased real estate development activities of
Registrant. Depreciation expense increased due to increased development
activities and the purchase of the industrial and commercial buildings discussed
above.
9
<PAGE>
Registrant believes that overall for 2000, cattle prices should improve due to
the increases in demand for product and to increased export demand because of
the improving economies in Asia. Although cattle sales are lower for the first
quarter of 2000 when compared to 1999, net margins on 2000 cattle sales
increased approximately 22% over 1999. The higher margin is the result of
selling cattle raised on Registrant's property, which have lower costs than
purchased cattle. It is early in the year for Registrant to make accurate
production estimates for its grapes and nuts, however, California statewide
estimates are for almonds to have lower production than the prior year due to
storms and cold weather during the bloom period. This potential reduction in the
almond crop could improve prices for the 2000 almond crop. It is also being
estimated that grape production will be equal to or greater than 1999. This
level of production could put additional pricing pressure on grapes during 2000.
Registrant continues to be involved in various environmental proceedings related
to leased acreage. For a further discussion, refer to Note E - Contingencies.
Prices received by Registrant for many of its products are dependent upon
prevailing market conditions and commodity prices. Therefore, Registrant is
unable to accurately predict revenue, just as it cannot pass on any cost
increases caused by general inflation, except to the extent reflected in market
conditions and commodity prices. The operations of the Registrant are seasonal
and results of operations cannot be predicted based on quarterly results.
Liquidity and Capital Resources
- -------------------------------
Registrant's cash, cash equivalents and short-term investments totaled
approximately $11,295,000 at March 31, 2000, compared to $10,365,000 at December
31, 1999, an increase of 9%. Working capital as of March 31, 2000 was
$19,475,000 compared to $16,278,000 on December 31, 1999. The increase in
working capital during the first quarter of 2000 is due primarily to the growth
of cattle and farming inventories that were partially funded by an increase in
the use of short-term debt financing.
Registrant has a revolving line of credit of $25,000,000 that as of March 31,
2000 had a balance outstanding of $17,004,000 bearing interest at the rate of
8.50%, which floats with changes in the lending bank's prime interest rate. At
Registrant's option, the interest rate on this line of credit can be fixed at
1.50% over a selected LIBOR rate or float at .50% less than the bank's prime
lending rate. Registrant's feedlot also has a short-term revolving line of
credit for the feedlot with a local bank for $6,800,000 with an outstanding
balance at March 31, 2000 of $4,598,000 with an interest rate approximating the
bank's prime lending rate of 8.00%, which floats with changes in the lending
bank's prime interest rate. The revolving lines of credit are used as a short-
term cash management tool and for the financing of customer cattle and feed
receivables at the feedlot, respectively. The use of short-term credit has grown
due to increases in inventories because of the growth of the Registrant's core
business lines and to the funding of infrastructure construction costs on a
short-term basis until longer term sources of debt are used. Registrant's use of
long-term debt funding sources also increased due to financing land improvements
and infrastructure with term financing as opposed to using short-term lines of
credit. This allows for better matching of assets to the liabilities funding
those assets.
10
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ----------------------------------------------------------
Market risk represents the risk of loss that may impact the financial position,
results of operations, or cash flows of Registrant due to adverse changes in
financial or commodity market prices or rates. Registrant is exposed to market
risk in the areas of interest rates and commodity prices.
Financial Market Risks
- ----------------------
Registrant's exposure to financial market risks, includes changes to interest
rates and credit risk related to marketable securities, interest rate related to
its own outstanding indebtedness and trade receivables.
The primary objective of Registrant's investment activities is to preserve
principal while at the same time maximizing yields while prudently managing
risk. To achieve this objective and limit interest rate exposure, Registrant
limits its investments to securities with a maturity of less than five years to
limit interest rate exposure and with an investment grade of A or better from
Moody's or Standard and Poors to minimize risk. In addition, market value
changes due to interest rate changes are reduced because a large portion of the
portfolio has interest rates that float and are reset on a quarterly basis. See
Note C, Marketable Securities.
Registrant is exposed to interest rate exposure on its short-term working
capital line of credit and the long-term debt currently outstanding. The short-
term line of credit interest rate is tied to the lending bank's prime interest
rate, and changes when that rate changes. The long-term debt has a fixed
interest rate, and the fair value of the long-term debt will change based on
interest rate movements in the market. Registrant typically does not attempt to
reduce or eliminate its exposure on this debt through the use of any financial
instrument derivatives. Registrant manages its interest rate exposure through
negotiation of terms.
Registrant's credit and market risk related to its inventories and receivables
ultimately depends on the value of the cattle, almonds, grapes, pistachios, and
walnuts at the time of payment or sale. Based on historical experience with
current customers and periodic credit evaluations of its customers' financial
condition, Registrant believes its credit risk is minimal. Market risk is
discussed below in commodity price exposure.
The following table provides information about Registrant's financial
instruments that are sensitive to changes in interest rates. The tables
presents Registrant's debt obligations, principal cash flows and related
weighted-average interest rates by expected maturity dates as of March 31, 2000
and December 31, 1999.
11
<PAGE>
Interest Rate Sensitivity Financial Market Risks
Principal Amount by Expected Maturity
At March 31, 2000
(Dollars in thousands)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Fair
There Value
2000 2001 2002 2003 2004 -after Total 3/31/00
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Marketable
Securities 3,032 2,463 1,786 2,830 660 --- 10,771 10,342
Weighted Average
Interest Rate 6.31% 5.66% 6.00% 5.97% 6.83% 6.06%
Liabilities:
Short-term Debt 21,602 --- --- --- --- --- 21,602 21,602
Weighted Average
Interest Rate 8.43% --- --- --- --- --- 8.43%
Long-term Debt 1,022 1,793 1,797 2,675 9,803 11,729 28,819 28,819
Weighted Average
Interest Rate 8.26% 8.26% 8.26% 8.26% 8.21% 7.91% 8.16%
=====================================================================================================
</TABLE>
Interest Rate Sensitivity Financial Market Risks
Principal Amount by Expected Maturity
At December 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
There- Value
2000 2001 2002 2003 2004 after Total 12/31/99
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Marketable
Securities $ 3,303 $2,477 $1,915 $2,351 $ 346 --- $10,392 $ 9,942
Weighted Average
Interest Rate 6.31% 5.66% 6.49% 6.13% 6.70% 6.16%
Liabilities
Short-term Debt $18,447 --- --- --- --- --- $18,447 $ 18,447
Weighted Average
Interest Rate 8.00% --- --- --- --- --- 8.00%
Long-term Debt $ 1,039 $1,793 $1,797 $2,675 $9,803 $ 4,538 $21,645 $ 21,645
Weighted Average
Interest Rate 7.96% 7.96% 7.96% 7.96% 7.91% 7.61% 7.86%
=================================================================================================
</TABLE>
In comparison to the prior year Registrant's risk in regards to fluctuations in
interest rates has increased overall due to the growth in the use of short-term
lines of credit that fluctuate with the bank's prime lending rate.
12
<PAGE>
Commodity Price Exposure
- ------------------------
Registrant has exposure to adverse price fluctuations associated with certain
inventories, gross margins, accounts receivables and certain anticipated
transactions in its Livestock and Farming Divisions. Commodities such as corn
and cattle are purchased and sold at market prices that are subject to
volatility. In order to manage the risk of market price fluctuations, Registrant
enters into various exchange-traded futures and option contracts. Registrant
closely monitors and manages it exposure to market price risk on a daily basis
in accordance with formal policies established for this activity. These policies
limit the duration to maturity of contracts entered into as well as the level of
exposure to be hedged.
Registrant's goal in managing its cattle and feed costs is to protect or create
a range of selling prices and feed prices that allow Registrant to recognize a
profit or minimize a loss on the sale of cattle once all costs are deducted. See
Note D, Commodity Contracts Used to Manage Risk. Gains on future contracts and
options as of March 31, 2000 were $128,000 as compared to losses on future
contracts and options as of December 31, 1999 of $256,000. The gain thus far in
2000 is due to favorable pricing trends related to feed costs.
Inventories consist primarily of cattle for sale, and price fluctuations are
managed with futures and options contracts. See table below for contracts
outstanding at quarter-end. Registrant is at risk with respect to changes in
market prices with respect to cattle held for sale that are not protected by
futures and options contracts. At March 31, 2000 approximately 50% of the cattle
held in inventory or 26,657 head of cattle were not protected by futures and
options for price movement. This compares to 20,506 head of cattle at March 31,
1999. The 2000 number of head of cattle equates to approximately 29.3 million
pounds of beef. For each $.01 per pound change in price, Registrant has a
potential exposure of $293,000 in future value. Although the prices at which the
cattle will ultimately be sold is unknown, over the last three years the market
price has ranged from $.50 per pound to $.72 per pound and the current market
price is $.71 per pound.
With respect to accounts receivable, the amount at risk relates to almonds and
pistachios. These receivables are recorded at estimates of the prices that
ultimately will be received for the crops. The final price will not be known
until the third or fourth quarter of 2000. Of the accounts receivable
outstanding at March 31, 2000, only $890,000 is at risk to changing prices. Of
the amount at risk to changing prices, $452,000 is attributable to almonds,
$142,000 to pistachios, $208,000 to walnuts, and $88,000 to grapes. The
comparable amounts of accounts receivable at December 31, 1999 were $661,000
attributable to almonds, $430,000 to pistachios, $285,000 to walnuts, and
$424,000 to grapes. The price estimated for recording accounts receivable at
March 31, 2000 was $.89 per pound for almonds. For every $.01 change in the
price of almonds Registrant's receivable for almonds increases or decreases by
$24,000. Although the final price of almonds (and therefore the extent of the
risk) is not presently known, over the last three years the final prices have
ranged from $1.32 to $2.26. With respect to pistachios, the price estimated for
recording the receivable was $1.35 per pound, each $.01 change in the price
increases or decreased the receivable by $6,000 and the range of final prices
over the last three years has been $.92 to $1.17.
The price estimated for recording accounts receivable for walnuts was $.45 per
pound. For every $.01 change in the price of walnuts, Registrant's receivable
increases or decreases by $16,000. The final price for walnuts has averaged from
$.45 to $.60 over the last three years. The prices used to estimate
13
<PAGE>
accounts receivable related to grapes is based on the variety of wine grape and
the market for that grape. At year-end the average price used for recording the
accounts receivable was $292.00 per ton. For every $1.00 change in the price,
Registrant's receivables related to grapes can increase or decrease
approximately $14,000. The average price for grapes has averaged between $250.00
per ton to $375.00 per ton over the last three years.
The following tables identify the future contract amounts and options contract
costs outstanding at March 31, 2000 and December 1999.
<TABLE>
<CAPTION>
Original Estimated
No. Contract/Cost Fair Value
Cattle Future / Option Description Contracts (Bought) Sold (Bought) Sold
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corn futures bought, 50,000 lbs. per contract 250 $(2,983) $3,073
Corn options sold, 40,000 lbs. per contract 50 $ 8 (8)
Corn options bought, 40,000 lbs. per contract 100 $ (21) $ 20
Cattle futures bought, 40,000 lbs. per contract 210 (5,917) 5,855
Cattle options sold, 40,000 lbs. per contract 110 22 (21)
Cattle options bought, 40,000 lbs. per contract 110 (29) 22
</TABLE>
<TABLE>
<CAPTION>
Original Estimated
December 31, 1999 No. Contract/Cost Fair Value
Commodity Future / Option Description Contracts (Bought) Sold (Bought) Sold
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cattle futures sold 40,000 lbs. per contract 142 $ 3,897 $(3,985)
Cattle futures bought 50,000 lbs. per contract 280 $(3,035) $ 2,960
Cattle options bought, 40,000 lbs. per contract 50 $ (20) $ 8
Cattle options sold 40,000 lbs. per contract 50 $ 20 $ (18)
</TABLE>
The March 31, 2000 futures contracts and options expire between April 2000 and
December 2000. Estimated fair value at settlement is based upon quoted market
prices at March 31, 2000.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
The response to this Item is submitted in a separate section of this report.
14
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosure
- --------------------
Not applicable.
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
- -------------------------
Not applicable.
Item 2. Changes in Securities
- -----------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
- ---------------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
Not applicable.
Item 5. Other Information
- -------------------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits -
3.1 Restated Certificate of Incorporation *
3.2 Bylaws **
27.1 Financial Data Schedule (Edgar),
March 31, 2000
(b) Reports - on Form 8-K
None.
15
<PAGE>
* 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.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEJON RANCH CO.
-------------------------
(Registrant)
May 12, 2000 BY /s/ Allen E. Lyda
- ------------------ ----------------------
DATE Allen E. Lyda
Vice President, Chief
Financial Officer
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet, income statement, and footnotes and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-1-1999
<PERIOD-END> MAR-31-2000
<CASH> 953
<SECURITIES> 10,342
<RECEIVABLES> 4,139
<ALLOWANCES> 0
<INVENTORY> 27,571
<CURRENT-ASSETS> 44,851
<PP&E> 73,949
<DEPRECIATION> (19,616)
<TOTAL-ASSETS> 100,778
<CURRENT-LIABILITIES> 25,376
<BONDS> 0
6,349
0
<COMMON> 0
<OTHER-SE> 36,252
<TOTAL-LIABILITY-AND-EQUITY> 100,778
<SALES> 9,164
<TOTAL-REVENUES> 9,164
<CGS> 8,867
<TOTAL-COSTS> 8,867
<OTHER-EXPENSES> 760
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 458
<INCOME-PRETAX> (921)
<INCOME-TAX> (350)
<INCOME-CONTINUING> 571
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 571
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
