Tejon Ranch Co. — FY2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. This is an annual filing, not a standalone fourth-quarter report; quarterly figures are unaudited. Tejon is a diversified California land, real estate, farming, mineral resources, and ranch operations company, with approximately 270,000 acres and five reporting segments.
Financial performance and liquidity
| Metric | FY2016 | FY2015 |
|---|---|---|
| Segment revenues | $45.6 million | $51.1 million |
| Total revenues and other income, including equity in joint-venture earnings | $54.3 million | $58.4 million |
| Operating income (loss) | $(7.9) million | $(3.2) million |
| Income before tax | $0.9 million | $4.0 million |
| Net income attributable to common stockholders | $0.6 million; $0.03 diluted per share | $3.0 million; $0.14 diluted per share |
| Cash provided by operating activities | $5.6 million | $17.0 million |
| Cash and marketable securities at year-end | $27.9 million | $34.7 million |
| Total debt, before deferred financing costs | $81.6 million | $74.2 million |
Joint-venture earnings were $7.1 million, up from $6.3 million, and supported results despite a loss before joint-venture earnings and income taxes. Adjusted EBITDA, a non-GAAP measure, was $14.7 million versus $16.4 million. Total assets were $439.7 million and equity was $334.5 million at year-end. The filing reports no cash dividends in 2016 or 2015.
Fourth-quarter 2016 revenue was $12.8 million and net loss attributable to common stockholders was $0.3 million, compared with $15.9 million revenue and $1.7 million net income in fourth-quarter 2015.
Material changes versus prior year
- Farming revenue fell $5.2 million, mainly from lower almond prices and reduced sales of prior-year crops; farming segment profit declined from $4.9 million to a $25,000 loss.
- Mineral resources revenue declined $1.0 million. Oil royalty revenue was pressured by lower prices and production; average oil price was $37 per barrel versus $45 in 2015. Water sales were $9.6 million, down from $10.2 million.
- Commercial/industrial revenue rose $1.2 million to $9.4 million, reflecting new leases and a land sale. The company also recognized a $1.0 million gain on the sale of property in Rancho Santa Fe.
- Operating cash flow decreased $11.4 million. Capital expenditures were $26.4 million, partially offset by $6.2 million of infrastructure reimbursements and $4.5 million in operating distributions from the TA/Petro joint venture.
- The revolving credit line had $7.7 million outstanding at year-end, versus none in 2015. The company reported compliance with its credit covenants.
Outlook, risks, and unusual items
- Management expects 2017 water sales to be significantly lower than 2016 following heavy winter precipitation. It anticipated improved oil prices could support higher 2017 royalty revenue, but noted production depends on lessee activity.
- Management estimated 2017 capital investment could include up to $19.95 million for residential project planning, entitlement, and development; approximately $8.43 million for TRCC infrastructure; and additional farming, water, and equipment investments. These are estimates, not firm guidance.
- Grapevine received Kern County entitlement approval in December 2016, but opponents filed litigation in January 2017 challenging the environmental review. Centennial entitlement work continued, while Mountain Village mapping was expected to progress toward completion in late 2017.
- Key risks include California’s lengthy and litigable permitting process, real estate market and financing cycles, water availability and costs, crop prices and yields, commodity-price exposure, and dependence on joint-venture partners. The company disclosed $97.3 million of debt at unconsolidated joint ventures and guarantees of $82.0 million related to Rockefeller and Majestic ventures.
- Contractual obligations totaled $380.9 million, including estimated water payments of $271.1 million over contract terms. The company also disclosed a $4.9 million standby letter of credit tied to infrastructure bonds. Management said it believed near-term liquidity was adequate, while noting future development could require additional financing.
- The Grapevine lawsuit and appeals concerning groundwater and the Kern Water Bank remain unresolved. Management stated that potential monetary effects of certain water-related claims could not be estimated. No environmental liabilities were recorded at year-end; the cement-plant remediation is covered by tenant indemnities.
Important facts for investors to verify
- Review the audited statements and notes for debt maturities, credit covenants, cash availability, and the distinction between cash flow and joint-venture earnings.
- Track final almond and pistachio crop settlements, crop yields, water allocations, and the effect of water sales on future internal supply.
- Monitor the status, cost, and timing of Grapevine litigation, Centennial entitlements, and Mountain Village mapping and development financing.
- Assess the assumptions behind planned capital spending and the company’s capacity to fund long-duration projects without materially increasing debt or issuing equity.
- Reconcile reported segment revenue, joint-venture distributions, and non-GAAP Adjusted EBITDA with GAAP operating results and cash flows.