Tejon Ranch Co. — FY2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. Amounts are in U.S. dollars; financial figures below are in millions unless noted. The filing also reports unaudited fourth-quarter results.
Business context
Tejon Ranch is a California land, real estate development and agribusiness company with approximately 270,000 acres. Its three segments are commercial/industrial real estate, resort/residential development and farming. Major development projects include Tejon Ranch Commerce Center (TRCC), Tejon Mountain Village (TMV) and the Centennial community. Residential projects remain in entitlement or pre-development stages.
Financial performance and liquidity
| Metric | FY2011 | FY2010 |
|---|---|---|
| Total revenue, including investment and other income | $64.456 | $36.553 |
| Operating income | $20.874 | $5.239 |
| Income before tax | $23.148 | $6.811 |
| Net income attributable to common stockholders | $15.894 | $4.175 |
| Diluted earnings per share | $0.80 | $0.22 |
| Cash provided by operating activities | $9.484 | $3.199 |
| Cash and marketable securities at year-end | $86.938 | $71.012 |
| Total assets | $321.976 | $288.091 |
| Total equity | $300.439 | $276.652 |
- FY2011 revenue comprised $25.952 million commercial/industrial real estate, $16.134 million resort/residential and $21.012 million farming, plus $1.358 million investment and other income.
- Segment profits were $12.522 million commercial/industrial, $12.192 million resort/residential and $8.437 million farming. Resort/residential’s result included the $15.750 million conservation-easement sale.
- Operating margin was approximately 32% of total revenue, versus approximately 14% in FY2010. These calculated ratios include investment and other income in the revenue denominator.
- Investing activities used $18.168 million; financing activities provided $5.029 million. Capital expenditures were $13.649 million.
- Year-end current assets were $103.773 million and current liabilities $10.167 million. The $30 million revolving credit facility had no balance outstanding; total company debt was $290,000, with debt-to-total-capitalization below 1%.
- Fourth-quarter 2011 revenue was $20.169 million, segment profit $10.196 million, net income attributable to common stockholders $5.238 million and diluted EPS $0.26.
Material changes versus prior period
- Total revenue rose $27.903 million year over year; net income attributable to common stockholders increased $11.719 million.
- Key revenue drivers were the $15.750 million conservation-easement sale, a Caterpillar land sale (with $4.340 million recognized in 2011 and $648,000 deferred), higher oil royalties and increased farm revenue. The easement sale was a significant, non-recurring item; management did not expect additional easement sales in the near term.
- Commercial/industrial revenue increased chiefly as oil and gas revenue rose to $10.697 million from $5.156 million, reflecting higher oil prices and production. Farming revenue rose to $21.012 million from $18.576 million, although pistachio profits fell due to lower volume.
- Corporate expenses increased to $12.277 million from $5.612 million, mainly because of stock compensation. FY2010 included a $6.327 million reversal of stock-compensation expense; FY2011 recognized $5.507 million of stock-compensation expense.
- Cash and marketable securities increased by $15.926 million, principally following the easement proceeds. Operating cash flow improved, while investing outflows were lower than in 2010.
Outlook, risks and contingencies
- Management expected 2012 capital investment could reach $28 million, including development and infrastructure, joint-venture contributions and water assets. It stated that available cash and expected operating cash flows should fund operations and planned investment, while noting cash flows vary with crop markets and the timing of property sales and leases.
- Management anticipated the preliminary 60% State Water Project allocation for 2012 would meet farming needs. Water availability and costs remain long-term risks; fixed water-contract payments are due whether or not water is available or used.
- TMV entitlements were upheld by a trial court, but an environmental appeal remained pending, with argument scheduled for March 21, 2012. Management generally preferred to await final resolution before starting development. Centennial entitlement timing and approval remain uncertain.
- Other material uncertainties include Antelope Valley groundwater-rights litigation, challenges to State Water Project contract amendments and water-bank arrangements, and environmental remediation matters at the National Cement site. The company reported no recorded environmental liabilities at year-end and cited tenant indemnities; potential outcomes of certain water-related claims could not be estimated.
- Results are exposed to California economic and real estate conditions, entitlement and litigation delays, commodity prices and crop yields, water supply, interest rates and joint-venture execution. Management noted a stronger U.S. dollar or weak global growth could pressure crop demand and prices.
- No dividends were paid in 2011 or 2010, and the company stated it had no current intention to pay dividends. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management reported controls effective at year-end.
Most important facts for investors to verify
- How much of FY2011’s earnings and cash generation depends on non-recurring easement and land-sale proceeds, versus recurring royalties, leases and farming.
- Whether oil prices and production, crop volumes and prices, and the value of year-end crop receivables support continued segment performance.
- Progress and outcomes in TMV and Centennial approvals, related litigation, and the Antelope Valley and State Water Project water matters.
- Whether the planned 2012 development and joint-venture spending is achieved within the stated investment and liquidity assumptions.
- Exposure from community-facilities-district liens and special taxes, joint-venture debt and guarantees, and any liabilities arising from environmental or water-related proceedings.