Tejon Ranch Co.
Annual Report 2010

Plain-text annual report

Tejon Ranch Company 2010 Annual Report Our Vision for the Fu ture T e j o n Ra n c h Co m p a n y is a diversified real estate development and agribusiness company committed to responsibly using its land and resources to meet the housing, employment and lifestyle needs of Californians and to create value for its shareholders. The Company’s Vision is guided by the Ranch’s historic core values of conservation and good stewardship. 2 0 0 1 : I K E A IKEA is the largest home furnishings and accessory retailer in the world and its decision to purchase 80 acres at the Tejon Ranch Commerce Center helped put our industrial/commercial center on the map. Opened in 2001, its Western North American Distribution Center covers nearly 1.8 million square feet, making it one of the largest buildings in California. With the ability to serve 97% of the California population within a one-day round trip, it is a living example of the real and proven advantages of the Tejon Ranch Commerce Center for retail and industrial companies of every size. Soon the IKEA distribution center will serve as an example of renewable energy as the company plans to install a photovoltaic solar power system on its roof. tejon ranch company 2010 annual report 3 Letter to Shareholders T raditionally, an annual report is a review of a company’s performance and operations over the previous year. It contains both a numeric review goal of building shareholder value over time. A major catalyst behind this move was the decision by IKEA to acquire land at our master planned commercial/industrial focusing on the company’s financial position and development, now called the Tejon Ranch Commerce performance as well as a narrative reflection of the Center, to build its Western North American Distribution company’s operations – past, present and future. The Center. Land development, however, is not for the faint 2010 Annual Report of Tejon Ranch Company will not hearted. It is very capital intensive. Significant sums would differ from this norm. But this year, we also have the be needed to develop the necessary infrastructure at the unique opportunity to cast our gaze a little further back, Commerce Center to build more distribution centers, and to reflect not only on the previous year, but on the past to invest in feasibility and scientific studies for our planned ten years as we have just concluded the first decade of the residential communities. In 2001, the number of planned 21st century. As we look back, it’s interesting to note the residential communities expanded as we began sharing our parallels and similarities between the beginning and end concept of a mountain resort community called Tejon of the decade. Mountain Village. However, knowing that excess debt is often the death of many companies, especially those that Back in 2001, I wrote that Tejon Ranch was on the brink are land-based, we were, and are still committed to of a new era. That was the year we began taking bolder maintaining a healthy balance sheet to ensure that the value steps to transition Tejon Ranch Company from primarily we build for shareholders is real and enduring. an agribusiness into a land development company with the 2 0 0 3 : Te j o n R a n c h V i s i o n Preserving California’s Legacy & Providing for California’s Future These two phrases encapsulate the core of the Tejon Ranch Vision that we unveiled in 2003… a vision for the future that includes extensive conservation; continuing the Ranch’s historic farming, ranching and hunting operations; and using a small portion of our land to build high-quality, environmentally sensitive communities. 2 0 0 4 : Pa s t o r i a E n e r g y F a c i l i t y The Pastoria Energy Facility, owned by Calpine, sits on a 31-acre site located just east of the base of the Grapevine. The natural gas-powered electrical generating facility became operational in 2004 and is among the cleanest and most efficient power plants in California. It can generate enough electricity to power 750,000 households. It also produces a significant amount of revenue for the Ranch each year. On average, lease payments and royalties from the Pastoria Facility have totaled about $3.5 million per year. tejon ranch company 2010 annual report 5 As a result of this commitment, we took two significant increase their ownership of our stock, demonstrating their steps to raise the capital we would need without raising continued confidence in Tejon Ranch Company and its our level of debt. The first was to issue a Common Stock future. Not only did they acquire the 2,173,946 shares Rights Offering which would give all stockholders the initially offered, we issued an additional 434,789 shares right to purchase new shares in proportion to their existing to honor over-subscription requests, and even that wasn’t holdings, ensuring that no stockholder’s interest in the enough to satisfy all the requests. Company would be involuntarily diluted. At its conclusion, we generated $30 million in new equity through the Ten years ago, Tejon Mountain Village was a concept. Rights Offering. Today, it is a fully entitled community that has passed a significant legal hurdle. Last November, Kern County In 2001, we also made the strategic decision to sell the Superior Court Judge Kenneth Twisselman ruled in favor assets in our livestock division in order to free up capital of Kern County, Tejon Ranch Company, and its to be used towards our real estate efforts. Leasing grazing development partner DMB Associates, Inc., when he land as opposed to owning and running a cattle operation found that the County had properly analyzed and substantially lowered our risk and capital requirements evaluated the environmental effects of Tejon Mountain without reducing our average earnings. Village. The Kern County Board of Supervisors had unanimously approved the mountain resort community The events of 2010 had a remarkable similarity to 2001. in October 2009. In an extremely detailed and thorough Last year we conducted our second Rights Offering of ruling, Judge Twisselman rejected claims made by the the decade, this time raising $60 million. Shareholders Arizona-based Center for Biological Diversity (CBD) that responded enthusiastically to this new opportunity to the environmental impact report for Tejon Mountain 2 0 0 5 : R o c k e f e l l e r P a r t n e r s h i p This partnership, formed in 2005 as a joint venture agreement, is a marriage of two names that exemplify quality and history – Rockefeller Group on the East Coast and Tejon Ranch on the West. The Rockefeller Group Development Corporation has been involved in the development, management and ownership of some of the most prestigious and well-known properties in the United States, most notably Rockefeller Center in New York City. For the last 20 years it has also been a leader in Foreign Trade Zone development and management, and that experience and expertise is central to the partnership.  6 tejon ranch company 2010 annual report Village was inadequate. CBD has appealed his ruling, in Centennial. We are continuing to make good progress but we are extremely confident that it will be upheld upon and hope to begin the Public Review process very soon, review by the 5th District Court of Appeals in Fresno. but eight years is still a long time to process an applica- Meanwhile, we are diligently working on the tion. However, in retrospect, that slow progress has detailed plans for the first phase of the community, proved to be to a benefit. We would not have wanted to while at the same time filing for all the necessary state have hundreds of millions of dollars invested in infra- and federal permits to ensure that we are ready to go structure in the midst of one of the worst and longest once market conditions indicate it is time to commence real estate recessions in most of our memories. with construction. Even though we began the decade transitioning into Real estate development may be an arduous process a land development company, we are still very much involving many different regulatory approvals, but it is involved in agribusiness and 2010 was a record year for one that will provide considerable benefits to the region our farming division. High crop yields and high prices, and our shareholders over time. It is often frustrating especially for pistachios, led to the greatest level of farm and hard to be patient when dealing with the slow pace revenue we’ve ever experienced. of entitling land in California, especially when that pace is controlled by multiple governmental agencies. We As a diversified company, we also want to explore the filed our land use application in Los Angeles County for potential opportunities we have to realize the economic our master planned new town of Centennial in 2002. value associated with the Tejon Ranch brand – a brand We, along with our partners, Pardee Homes, the Lewis that’s derived from our land and heritage – and that also Companies and Standard Pacific, remain very confident represents the Company’s high corporate standards in how 2 0 0 6 : D M B Pa r t n e r s h i p In 2006, Tejon Ranch Company signed a partnership agreement with DMB Associates, Inc. to jointly plan and develop Tejon Mountain Village. We began sharing the concept of a premier mountain resort community back in 2001, but we knew we needed an ideal partner to turn that concept into reality. DMB Associates is such a partner. It is the leading developer of planned resort communities in the West, with a proven track record of building exceptional, environmentally sensitive communities in California, Arizona, Utah and Hawaii. DMB Associates brings to the partnership the shared vision of developing Tejon Mountain Village into one of America’s great places, and the experience, expertise and equity needed to make that happen. 2 0 0 7 : E x p a n s i o n o f Te j o n R a n c h C o m m e r c e C e n t e r The Tejon Ranch Commerce Center saw significant growth over the decade. Initially approved for development only on the west side of Interstate 5, we sought to expand the center east of I-5 to a total of 1,450 acres. The expansion was approved by Kern County, only to be challenged in court. After making a few minor changes to the Environmental Impact Report, the project was again approved, a decision upheld by the Superior and Appellate Courts. The Commerce Center has proven to be a top location for retail and industrial companies, including IKEA, Famous Footwear, Starbucks, McDonalds, Panda Express, In-N-Out Burger, Chipotle Mexican Grill, and the Petro and TA Travel Centers.  8 tejon ranch company 2010 annual report it operates. What does the Tejon Ranch brand mean? It means high quality, an enduring connection to California’s heritage, a strong stewardship ethic, and visionary thinking. We continue to explore ways we can monetize the Tejon Ranch brand and all of its attributes both on and off our land. Any look back over the last decade should include a look at some of the events that shaped our world and our business than making decisions based on factors like debt-service requirements, economic cycles or world events. Overall, 2010 and the entire decade that preceded it, was a good one for Tejon Ranch climate, for no company operates in a vacuum. The first de- Company. Throughout these pages, we’ve tried to high- cade of the 21st century saw its share of challenges. It began light some of the more significant events and milestones with the terrorist attacks on September 11, 2001, and the that made up this first ten years of the 21st century. uncertainty that followed, and ended with what we now refer Space doesn’t permit us to focus on every event, but we to as “The Great Recession.” In between, we experienced an trust the ones we’ve chosen are a good representation of energy crisis in California and have seen our country involved our efforts to build shareholder value through our Vision in two wars. For some shareholders, such economic and geo- of Preserving California’s Legacy and Providing for political upheaval is a reason to own stock in Tejon Ranch. California’s Future. They value owning a tangible asset like land; “something they’re not making any more of,” is the often-heard refrain. Fortunately, the absence of debt on our land allows us to pursue our goal of maximizing long-term value enhancement Rob e rt A. S ti ne for our shareholders, even if that takes some time, rather President and Chief Executive Officer 2 0 0 8 : C o n s e r v a t i o n & L a n d U s e A g r e e m e n t The Tejon Ranch Conservation and Land Use Agreement is the largest and most significant private conservation agreement in California history. Our accord with five respected environmental organizations, Audubon California, Endangered Habitats League, Natural Resources Defense Council, Planning and Conservation League and the Sierra Club, will result in the permanent conservation of 240,000 of the Ranch’s 270,000 acres – 90% of our property. Under the Agreement, we will also be able to pursue, without opposition from the environmental groups, the creation of high-quality environmentally sensitive communities on the remaining ten percent of our land. In 2009, the Agreement received California’s most prestigious environmental honor, the Governor’s Environmental and Economic Leadership Award. 2 0 0 9 - 2 0 1 0 : Te j o n M o u n t a i n V i l l a g e A p p r o v e d Certainly a key highlight of the decade was the Kern County Board of Supervisors’ unanimous approval of Tejon Mountain Village in 2009, and our mutual victory in court a year later. During the approval hearing, the Supervisors were effusive in their praise for the community, noting its environmental sensitivity, the care and planning that went into its design, and the role Tejon Mountain Village will play as a prestigious new gateway to Kern County. Tejon Mountain Village will feature resort and recreational facilities, up to 750 hotel rooms, golf and equestrian opportunities with extensive trails; up to 3,450 new homes (ranging from resort condominiums to multi-acre custom lots); and 160,000 square feet of publicly accessible commercial space. A high-quality mountain resort community located just a short drive from both Bakersfield and the large and affluent Los Angeles market should be a natural draw for people who want to live in a beautiful natural setting where 80 percent of the land is preserved as open space.  10 tejon ranch company 2010 annual report Tejon Ranch Company Timeline A Decade in Review 20 01 20 02 2 003 2 004 2 005 $30 million Rights Offering IKEA opens Construction begins on power plant Sale of livestock DP Partners JV spec building finished Tejon Ranch Vision unveiled Pastoria Energy Facility operational Application filed in LA County for Centennial Expansion of Tejon Ranch Commerce Center initially approved by Kern County $55 million equity raised in private placement Application filed in Kern County for Tejon Mountain Village Partnership formed with Rockefeller Kern County approves amended EIR for expan- sion of Tejon Ranch Commerce Center 11 2006 20 07 2 008 2 009 2010 Partnership formed with DMB Associates to develop Tejon Mountain Village Commerce Center expansion approval upheld in Superior Court Sold DP Partners JV building to ProLogis Commerce Center expansion upheld by Appellate Court Conservation & Land Use Agreement signed Groundbreaking ceremony and dedica- tion of Bakersfield National Cemetery Kern County approves Tejon Mountain Village Bakersfield National Cemetery opens Famous Footwear opens distribution center at Tejon Ranch Commerce Center TA Partnership opens new Travel Center on east side of I-5 Tejon Mountain Village approval upheld in Superior Court $60 million Rights Offering California’s Wildlife Conservation Board authorizes funding of $15.8 million to purchase Conservation Easements on 62,000 acres  12 tejon ranch company 2010 annual report consolidated balance sheets ($ in thousands) assets Current assets: Cash and cash equivalents Marketable securities Accounts receivable Inventories Prepaid expenses and other current assets Deferred tax assets Total current assets Property and equipment, net Investments in unconsolidated joint ventures Long-term water assets Long-term deferred tax assets Other assets Total assets liabilities and stockholders’ equity Current liabilities: Trade accounts payable Other accrued liabilities Deferred income Short-term line of credit Current portion of long-term debt Total current liabilities Long-term debt, less current portion Long-term deferred gains Other liabilities Pension liability Commitments and contingencies equity Tejon Ranch Co.’s stockholders’ equity Common stock, $.50 par value per share: Authorized shares - 30,000,000 Issued and outstanding shares 19,747,470 in 2010 and 17,019,428 in 2009 Additional paid-in capital Accumulated other comprehensive loss Retained earnings Tejon Ranch Co.’s stockholders’ equity Noncontrolling interest Total Equity Total liabilities and equity December 31 2009 2010 $ 22,027 48,985 9,812 2,982 5,011 - 88,817 683 $ 30,156 7,117 1,766 3,929 691 44,342 117,275 48,302 28,774 3,985 938 $288,091 120,461 46,337 17,018 5,798 788 $234,744 $ 2,187 1,334 601 - 35 4,157 $ 1,363 560 1,478 9,550 33 12,984 290 2,277 3,196 1,519 325 2,277 3,323 1,454 9,874 183,816 (2,191) 45,215 236,714 39,938 276,652 $ 288,091 8,509 126,829 (2,151) 41,040 174,227 40,154 214,381 $ 234,744 tejon ranch company 2010 annual report 13 consolidated statements of operations ($ in thousands, except per share amounts) revenues Real estate - commercial/industrial Real estate - resort/residential Farming Total revenues costs and expenses: Real estate - commercial/industrial Real estate - resort/residential Farming Corporate expenses Total expenses Operating income (loss) other income (expense): Investment income Other Interest expense Total other income Income (loss) from operations before equity in earnings of unconsolidated joint ventures Equity in earnings of unconsolidated joint ventures, net Income (loss) before income taxes Income tax provision (benefit) Net income (loss) Net income (loss) attributable to noncontrolling interests Net income (loss) attributable to common stockholders Net income (loss) attributable to common stockholders Basic Diluted Year Ended December 31 2008 2009 2010 $ 16,656 281 18,576 35,513 $ 14,996 272 12,983 28,251 $ 27,234 - 12,887 40,121 10,659 3,089 10,914 5,612 30,274 5,239 12,469 4,443 11,804 7,311 36,027 (7,776) 13,846 4,563 11,692 8,539 38,640 1,481 979 61 (9) 1,031 1,640 45 (70) 1,615 2,169 349 (70) 2,448 6,270 (6,161) 3,929 541 6,811 2,852 3,959 (216) $ 4,175 374 (5,787) (2,354) (3,433) (56) $ (3,377) 2,227 6,156 2,044 4,112 - $ 4,112 $ $ 0.23 0.22 $ (0.19) $ (0.19) $ $ 0.24 0.24  14 tejon ranch company 2010 annual report consolidated statements of stockholders’ equity ($ in thousands, except share information) Common Stock Shares Outstanding Common Stock Additional Accumulated Other Paid-In Comprehensive Loss Capital Total Tejon Ranch Co.’s Stockholder Equity Retained Earnings Non- controlling Interest Total Equity Balance, December 31, 2007 16,899,982 8,450 118,370 (2,071) - - - - 40,305 4,112 165,054 4,112 - - 165,054 4,112 Net income Changes in unrealized losses on available-for-sale securities, net of taxes of $506 Benefit plan adjustments, net of taxes of $77 SERP liabiltity adjustment, net of taxes $109 Equity in other comprehensive income of unconsolidated joint venture, net of taxes of $37 Comprehensive income Exercise of stock options and related tax benefit of $227 Restricted stock issuance Stock compensation Balance, December 31, 2008 Net loss Changes in unrealized losses on available-for-sale securities, net of taxes of $746 Benefit plan adjustments, net of taxes of $179 SERP liabiltity adjustment, net of taxes $44 Equity in other comprehensive income of unconsolidated joint venture, net of taxes of $102 Comprehensive loss Exercise of stock options and no related tax benefit Restricted stock issuance Stock compensation Shares withheld for taxes Noncontrolling interest Net income Changes in unrealized losses on available-for-sale securities, net of taxes of $1 Benefit plan adjustments, net of taxes of $206 SERP liabiltity adjustment, net of taxes $248 Equity in other comprehensive income of unconsolidated joint venture, net of taxes of $39 Comprehensive income Rights Offering, net expenses Exercise of stock options and related tax benefit of $204 Restricted stock issuance Stock compensation Shares withheld for taxes - - - - - - - (765) - (765) - (765) - (154) - (154) - (154) - 165 - 165 - 165 - - - 28 - 56,064 30,724 - 28 15 - 1,425 (15) 3,413 - - - 16,986,770 8,493 123,193 (2,797) - - - - - - - 44,417 (3,377) 28 - - 1,453 - 3,413 173,306 (3,377) - - - - 28 3,386 - 1,453 - 3,413 - 173,306 (56) (3,433) - - - - - - - 1,128 - 1,128 - 1,128 - (394) - (394) - (394) - 66 - 66 - 66 - - - (154) - (154) - 11,858 26,636 - (5,836) - 6 13 - (3) - 235 (13) 3,557 (143) - - - - - - - - - - - - - 241 - 3,557 (146) - - - - (154) (2,787) - 241 - 3,557 (146) - - - - - - - (2) (2) (2) - (299) - (299) - (299) - 330 - 330 - 330 - - - (69) - (69) - 2,608,735 1,306 58,454 78,894 56,131 39 28 1,960 (28) - - (2,944) (15,718) (8) (455) - - - - - - 59,760 - 1,999 - (2,944) (463) - - - - - - - - - - (69) 3,919 59,760 - 1,999 - (2,944) (463) Balance, December 31, 2009 17,019,428 8,509 126,829 (2,151) - - - - - 40,210 40,210 41,040 4,175 174,227 40,154 214,381 4,175 (216) 3,959 Balance, December 31, 2010 19,747,470 9,874 183,816 (2,191) 45,215 236,714 39,938 276,652 tejon ranch company 2010 annual report 15 consolidated statements of cash flows ($ in thousands) operating activities Net income (loss) Adjustments to reconlcile net income (loss) to net cash provided by operating activities: Depreciation and amortization Deferred income taxes Gain from sale of real estate Non-cash straight line rent income Non-cash expense of retirement plans (Gain) loss on sales of assets/investments Fair market value adjustments Equity in (earnings) losses of unconsolidated joint ventures, net Amortization of stock compensation expense (reversal) Excess tax benefit from stock-based compensation Abandonment expense Distribution of earnings from joint ventures Changes in current assets and current liabilities: Receivable, inventories,and other current assets Current Liabilities, net Net cash provided by operating activities investing activities Maturities of marketable securities Funds invested in marketable securities Reimbursement proceeds Kern County - Laval Interchange Reimbursement proceeds from community facilities district Proceeds from sale of real estate Distribution of equity from joint ventures Property and equipment expenditures Investments in long-term water assets Investment in unconsolidated joint ventures Other Net cash used in investing activities financing activities Payments on short-term debt Borrowing of short-term debt Repayment of long-term debt Net proceeds from rights offering Excess tax benefit from stock-based compensation Exercise of stock options Taxes on vested stock grant Net cash provided by financing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year supplemental cash flow information Interest paid (net of amounts capitalized) Taxes paid (net of refunds) Year Ended December 31 2008 2009 2010 $ 3,959 $(3,433) $ 4,112 2,317 (1,351) (559) 145 800 - - (541) (2,944) (227) - 1,440 3,122 (1,072) - 153 900 (114) 113 (374) 3,557 - 662 - 2,885 (314) (6,219) (151) 791 225 304 (2,227) 3,413 (227) - - (201) 361 3,199 (135) (2,018) 1,361 1,377 2,379 4,313 15,720 (34,751) 1,613 10,860 604 4,100 (14,196) (11,981) (4,594) (943) (33,568) (16,400) 6,850 (33) 59,760 - 1,999 (463) 51,713 21,344 683 $ 22,027 38,400 (14,876) - 2,007 - 1,866 (20,925) (3,899) (12,837) (1,159) (11,423) (10,500) 17,300 (30) - - 241 (146) 6,865 (3,197) 3,880 683 $ 42,438 (28,904) - - 7,376 55 (20,366) (11,376) (3,828) (304) (14,909) (5,000) 7,750 (29) - 227 1,226 - 4,174 (6,422) 9,454 $ 3,032 $ $ 9 875 $ $ 70 (661) $ 70 $ 3,430  16 tejon ranch company 2010 annual report performance graph The following graph is a comparison of cumulative total shareowner returns for the Company, the Dow Jones Equity Market Index, and the Dow Jones Real Estate Index for the period shown. comparison of five year cumulative total returns s r a l l o d 160.00 120.00 80.00 40.00 0.00 12.31.05 12.31.06 12.31.07 12.31.08 12.31.09 12.31.10 tejon ranch dj equity mkt dj real estate - Assumes $100 invested on December 31, 2005 - Total return assumes reinvestment of dividends - Fiscal year ending December 31 tejon ranch dj equity mkt dj real estate 2006 39.88% 15.57% 35.50% 2007 -26.84% 6.01% -18.15% 2008 -39.44% -37.16% -40.07% 2009 18.11% 28.79% 30.81% 2010 -5.72% 16.65% 26.93% The stock price performance depicted in the above graph is not necessarily indicative of future price performance. The Performance Graph will not be deemed to be incorporated by reference in any filing by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, except where the Company specifically incorporates the Performance Graph by reference. The Dow Jones Real Estate Index, for the most part, includes companies which have revenues substantially greater than those of the Company. The Company is unaware of any industry or line-of-business index that is more nearly comparable. common stock information quarter First Second Third Fourth high $33.30 $30.71 $24.40 $28.58 2009 low $29.06 $23.00 $21.15 $21.49 high $25.69 $28.92 $28.18 $30.78 2010 low $18.40 $20.29 $24.55 $24.76 As of February 17, 2011, there were 402 owners of record of our Common Stock. directors and executive officers board of directors Kent G. Snyder Chairman of the Board, Tejon Ranch Company; Real Estate Attorney John L. Goolsby Private Investments and Real Estate Barbara Grimm-Marshall Co-owner Grimmway Farms Norman Metcalfe Real Estate and Investments George G.C. Parker Dean Witter Distinguished Professor of Finance, Stanford Business School corporate directory corporate office Tejon Ranch Company Post Office Box 1000 4436 Lebec Road Lebec, California 93243 Telephone: (661) 248-3000 securities listing Tejon Ranch Company Common Stock is listed on the New York Stock Exchange under the ticker symbol: TRC Geoffrey L. Stack Managing Director, SARES-REGIS Group, Real Estate Development and Management Robert A. Stine President and Chief Executive Officer, Tejon Ranch Company Michael H. Winer Portfolio Manager, Third Avenue Management LLC, Investment Management executive officers Robert A. Stine President and Chief Executive Officer Dennis J. Atkinson Senior Vice President – Agriculture Joseph E. Drew Senior Vice President – Real Estate Allen E. Lyda Senior Vice President, Chief Financial Officer and Assistant Secretary Kathleen J. Perkinson Senior Vice President, Natural Resources and Stewardship stock transfer agent and registrar BNY Mellon Shareowner Services 480 Washington Boulevard Jersey City, NJ 07310-1900 auditors Ernst & Young LLP form 10-k A copy of this report and the Company’s Annual Report to the Securities and Exchange Commission on Form 10-k, without exhibits, will be provided without charge to any stockholder submitting a written request to the Corporate Secretary: tejon ranch company Post Office Box 1000 4436 Lebec Road Lebec, California 93243 

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