Tejon Ranch Co. — Q3 2015 Form 10-Q
Business context and period. The unaudited quarter and nine months ended September 30, 2015. Tejon Ranch is a diversified land development and agribusiness company with commercial/industrial real estate, resort/residential development, mineral resources and farming segments.
Financial performance
| Metric | Three months 2015 | Nine months 2015 | Prior-year comparable |
|---|---|---|---|
| Revenue | $11.946 million | $35.579 million | $13.837 million; $36.510 million |
| Operating income (loss) | ($3.541 million) | ($3.823 million) | $0.372 million; $1.172 million |
| Net income (loss) attributable to common stockholders | ($0.788 million), or ($0.04) per share | $1.235 million, or $0.06 per share | $1.752 million, or $0.09 per share; $3.739 million, or $0.18 per share |
| Operating cash flow | Not reported separately | $1.541 million | $4.757 million |
Revenue fell 14% for the quarter and 3% for the nine-month period. The quarter’s net loss included a $2.055 million contribution from equity-method joint ventures; nine-month joint-venture earnings were $4.861 million. Nine-month comprehensive income attributable to common stockholders was $0.199 million, including after-tax other comprehensive losses of $1.036 million, principally reflecting the interest-rate swap.
Segment and cost developments. Nine-month commercial/industrial revenue rose 11% to $8.935 million, while the segment’s operating loss narrowed to $0.635 million. Mineral resources revenue decreased 4% to $14.174 million: lower oil royalties were partly offset by $10.165 million of water sales. Farming revenue declined 9% to $12.470 million and segment income fell to $0.760 million from $4.261 million. Corporate expenses rose 11% to $9.214 million. The filing does not provide consolidated gross margin as a separate metric.
Balance sheet, debt and liquidity
- At September 30, cash and cash equivalents were $3.512 million; available-for-sale securities were $33.706 million. Together they totaled $37.218 million, down $10.560 million from year-end 2014.
- Current assets were $58.210 million and current liabilities $18.578 million. The revolving credit balance was $8.940 million; long-term debt, excluding current maturities, was $74.025 million. Total debt was $83.217 million.
- Long-term debt consisted primarily of a $70 million term loan fixed at 4.11% through an interest-rate swap, plus a separate note with a $4.277 million balance at 4.25%. The term loan’s final principal payment is due in 2024; the credit facility matures in 2019.
- Management reported compliance with all credit covenants. The facility requires at least $20 million of liquid assets. The revolving line was fully paid down by November 6, 2015, after quarter-end.
- Investing activities used $5.038 million, including $18.968 million of capital expenditures, partly offset by security maturities and sales and $4.971 million of infrastructure reimbursement proceeds. Total equity was $328.035 million.
Outlook, risks and unusual items
- Farming: A mild winter severely affected pistachio pollination; the company reported blanks in 90% of the crop versus a typical 5%–10%. It filed an insurance claim expected to recover part of the loss, with the amount not yet determined. Management expected improved 2016 production with a more normal winter, but noted concern about limited tree growth in 2015. California’s drought remained a risk, although management said operations were not materially affected in the first nine months due to water contracts and internal sources.
- Commodities: Management expected lower oil prices than in 2014 to continue affecting results. Crop prices and yields depend on market conditions, weather and harvests; the company said it cannot reliably forecast revenue. Results are seasonal, and quarterly performance is not necessarily indicative of full-year results.
- Development: Management described continued TRCC leasing and logistics marketing, with new retail tenants expected to open in the first half of 2016 and a joint-venture convenience store and gas station expected later in 2015. The board authorized progression of TMV tentative tract maps, which were expected to take up to two years. Management estimated remaining-2015 capital investment across development, water and equipment projects, but gave no earnings guidance.
- Water and commitments: The filing lists $274.574 million of estimated water payments over time, including $8.040 million due within one year; these are contractual estimates, not current debt. Annual minimum water-contract payments for 2015 were approximately $7.9 million, most paid by September 30. A 2015 agreement gives Pastoria Energy Facility options to purchase water through 2030, without an annual purchase obligation.
- Legal and contingent matters: The Antelope Valley groundwater settlement and proposed physical solution remained subject to final judgment. A revised environmental review concerning Kern Water Bank operations was due by June 30, 2016; potential operational restrictions and financial impacts were uncertain. A petition challenging the Antelope Valley Area Plan could affect Centennial, but impact was undetermined. The $5.426 million East CFD standby letter of credit could be drawn if the company failed to pay property taxes; management believed a draw was unlikely. The Ninth Circuit affirmed dismissal of a land-title lawsuit, and panel rehearing was denied; a possible Supreme Court petition remained.
- Other: The interest-rate swap liability was $3.818 million at quarter-end. Management reported effective disclosure controls and no material change in internal control over financial reporting; no material changes to previously disclosed risk factors were reported.
Investor verification points
- Confirm the insurance recovery, final 2015 pistachio crop economics and subsequent crop outlook.
- Track oil royalty trends, water-sale volumes and whether water sales remain available after internal needs.
- Monitor development leasing, capital spending and entitlement progress, including Centennial, Grapevine and TMV.
- Review final rulings and outcomes in the groundwater and Kern Water Bank proceedings, and any resulting effects on water access or development.
- Reconcile liquidity and covenant headroom after the revolving line repayment, alongside substantial long-term water-payment commitments.