Tejon Ranch Co. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; unaudited. Tejon Ranch is a diversified land development and agribusiness company with commercial/industrial real estate, resort/residential real estate, mineral resources, and farming segments.
Financial results and liquidity
| Metric | Q1 2014 | Q1 2013 / prior period |
|---|---|---|
| Total revenue | $7.145 million | $9.760 million; down 27% |
| Operating income (loss) | $(1.993) million | $0.090 million |
| Net income attributable to common stockholders | $1.113 million; $0.05 per basic and diluted share | $0.615 million; $0.03 per share |
| Operating cash flow | $4.783 million | $3.567 million |
| Cash and cash equivalents | $4.176 million | $9.031 million at December 31, 2013 |
| Marketable securities | $52.919 million | $55.436 million at December 31, 2013 |
| Debt | $4.635 million total long-term debt, including current portion; $30 million revolver undrawn | Debt was $4.693 million at December 31, 2013 |
| Total assets / equity | $346.371 million / $321.583 million | $342.879 million / $320.187 million at December 31, 2013 |
Cash, cash equivalents, and marketable securities totaled $57.095 million, down $7.372 million from year-end. Current assets were $77.625 million and current liabilities $10.734 million. Management reported compliance with credit-facility covenants and said it believed available resources and expected cash flows were adequate for operations and capital needs over the next 12 months.
Changes versus Q1 2013
- Revenue declined mainly because farming revenue fell $2.355 million, principally from lower almond sales, and mineral resources revenue fell $0.602 million. Almond pounds sold fell 67%, partly offset by a 13% increase in price.
- Commercial/industrial real estate revenue rose $0.220 million; resort/residential revenue rose $0.122 million. Oil royalty revenue fell $0.514 million, reflecting lower production and a 4% lower oil price.
- Despite the operating loss, net income increased. The main contributor was $3.002 million of net income from water sales, reported as other income; water sales were $7.390 million with $4.388 million of cost. Lower operating expenses also helped.
- Equity earnings from unconsolidated joint ventures increased to $0.438 million from $0.409 million. Operating cash flow improved, while investing cash use increased to $9.065 million, including joint-venture investments and capital expenditures.
Outlook, risks, and unusual items
- No formal earnings guidance was provided. Results are seasonal: management said farming revenue is generally concentrated in the third and fourth quarters and that quarterly results are not indicative of full-year performance.
- Management anticipated higher 2014 investment, including approximately $10 million for TRCC-East infrastructure, up to $12 million for Grapevine planning and entitlement, up to $5.6 million for joint ventures, up to $2 million for water assets and infrastructure, and approximately $1.6 million for vineyard development. These are stated plans or estimates, not guarantees.
- Contractual obligations totaled $313.823 million, including estimated water payments of $286.248 million; the filing schedules most of these water payments beyond five years. Estimated water payments due within one year were $7.765 million. These are commitments, not reported debt balances.
- Water availability and water-related legal proceedings pose uncertainties. The Antelope Valley groundwater adjudication continued, with the effects on the Centennial project and other land not yet clear. A separate Kern Water Bank case required a supplemental environmental review on groundwater impacts; potential operational and monetary effects were uncertain.
- The Tejon Mountain Village title lawsuit had been dismissed with prejudice by the trial court, but an appeal remained pending; the company considered an adverse outcome remote. Environmental monitoring and cleanup matters at the National Cement-leased property continued, with tenant indemnities in place.
- An unusual pension settlement following annuity purchases for eligible retirees increased pension expense by $0.407 million in Q1. The 2014 income tax expense was $0.541 million, compared with $0.147 million in Q1 2013; the reported effective rates were approximately 32% and 19%, respectively.
- Other risks include commodity-price exposure in crop receivables, development and entitlement timing, financing availability, and market and weather conditions. The filing reported no material change to the risk factors in the latest Form 10-K.
Important facts for investors to verify
- Whether the $3.002 million water-sale profit is repeatable; the quarter’s reported net income depended materially on this sale.
- Progress and economics of the outlet center, Grapevine entitlement work, and other planned development spending, including funding needs and joint-venture contributions.
- Crop sales, prices, and production—especially almond inventory and the timing of farming revenue—as well as oil-well production ramp-up.
- Water-contract costs and the outcomes of the Antelope Valley groundwater and Kern Water Bank proceedings.
- Future liquidity and financing capacity as cash and marketable securities are used for development, and the potential impact of long-term water commitments and CFD-related obligations.