Tejon Ranch Co.
Annual Report 2011

Plain-text annual report

Tejon Ranch Company 2011 Annual Report T e j o n R a n c h C o 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. Th e B e a l e A d o b e , named for the founder of Tejon Ranch, Gen. Edward F. Beale, is located in the southern portion of the Ranch in the original La Liebre land grant. Built in the 1860s, it is the oldest building in the Antelope Valley. Tejon Ranch stretches from an elevation of 413 feet above sea level on the floor of the San Joaquin Valley to nearly 6,800 feet in the Tehachapi Mountains, and captures– in one location–much of the widely divergent beauty of California. Comprised of a region reaching eastward from the Temblor Range to the Sierra Nevada, northward from the Angeles National Forest to the Tehachapi Mountains, and across Cali- fornia’s great Central Valley, Tejon Ranch is the only place in California that encompass- es four major ecoregions. A trip through our property reveals a dramatic tapestry of rugged mountains, steep canyons, oak-covered rolling hills, wetlands, broad valleys, lakes and streams. Ancient blue oak woodlands can be found on Tejon Ranch land, as can conifer forests, Joshua trees, and spectacular spring displays of wildflowers as far as the eye can see. For those of you who are statistically- minded, you will be interest- ed to note that Tejon Ranch supports at least 23 vegetation communities and one-third To Our Shareholders S o m e o n e posed a challenging question the oth- er day. If we had to choose a single word to describe our life, what word would we select? That’s a hard one. Determining the one solitary word that captures all that we are – our values, motivations, priorities, accomplishments; how we view ourselves and how we believe we appear to others, is not an easy task. While difficult, it certainly is a worthwhile exercise, for it causes us to examine ourselves and the direction our life is taking. It makes us evaluate what’s really im- portant and whether our lives reflect a clear commitment to our highest priorities. The same exercise is also beneficial for a company or organization. It’s impor- tant to understand who we are—and who we are not. In our case, the exercise is two-fold, for Tejon Ranch is both an expanse of land and a company. If asked to come up with a single word to best describe Tejon Ranch–the land, there are many to choose from: large, historic, majestic, beautiful. Even though Tejon Ranch is all of these and more, I think perhaps the best and most descrip- tive word that captures the breadth and depth of our landholdings is diverse. Robert A. Stine President & Chief Executive Officer Tejon Ranch Co. Annual Report 2011 Shareholders Letter 3. Te j o n R a n c h features a diverse landscape, from conifer forests in the higher elevations to steep canyons with oak-studded hillsides. It’s only appropriate that Caterpillar heavy equipment is being used to prepare the site for the new Caterpillar parts distri- bution center at the Tejon Ranch Commerce Center. of California’s oak species can be found on the Ranch. Tejon Ranch is incredibly and undeniably diverse. The same word—“diverse,” is also an excellent descrip- tion of Tejon Ranch—the company. Not only do we employ a diverse workforce, we are also engaged in many different revenue generat- ing operations. In fact, our mission statement describes Tejon Ranch Company as “a diversified real estate develop- ment and agribusiness com- pany.” The diversified nature of our operation is very evident in our financial state- ment. In 2011, we generated $ 63 million in revenue from a wide variety of operations, ranging from real estate and agriculture to oil and film production. While one could make the case that virtually all of our business operations are connected in some way or another to our landholdings, these operations are nonethe- less very diverse. Perhaps the best way for me to describe the diverse nature of our operation would be to share with you a typi- cal day in the life of Tejon Ranch. So let’s take a look at March 1, 2012, and the variety of activities taking place in different areas of the Ranch that day. Tejon Ranch Commerce Center The Tejon Ranch Com- merce Center, our 1,450-acre master planned commercial/ industrial development, is alive with activity. Trucks are bringing product both in and out of IKEA and Famous Footwear’s distribu- tion centers. Next door to IKEA, workers are racing to complete extensive ten- ant improvements to the 606,000-square-foot building Dollar General Corpora- tion leased at the end of last year from our joint venture partnership with Rockefeller Group Development Corpo- ration. Meanwhile, Dollar General is busy conducting interviews with potential employees as it needs to hire some 200 people or more before beginning operations in April. Over on the east side of the Commerce Center, teams of construction workers are busy preparing the 46-acre site for Caterpillar Inc.’s new 400,000-square-foot parts distribution facility. The Commerce Center’s parking lots are also full as people stop for a break— and gas and food--before continuing north or south on Interstate 5. Research we conducted last year indicates that nearly a quarter of all residents in Southern The Tejon Ranch Commerce Center had a very successful year in 2011, with deals inked on the industrial side with Caterpillar and Dollar General. The center had several new retail offerings as well, including Del Taco, Yogurtland, and a new Microtel lodging facility. Tejon Ranch Co. Annual Report 2011 Shareholders Letter Calpine’s Pastoria Energy Facility continues to be a strong performer, generating much-needed electricity for California and more than 3.5 million dollars in annual revenue for Tejon Ranch. Tejon Ranch’s oil and gas revenue in 2011 was 1,574% higher than a decade ago. California make the Tejon Ranch Commerce Center a regular stop as they travel the state. It’s no wonder that many of the stores located here are top national performers. Energy Production Less than a half mile to the east of the Tejon Ranch Commerce Center, Vintage Petroleum, a subsidiary of Occidental Petroleum, is drilling another oil well—its fourth on a footprint of just 6.5 acres. Vintage is just one of many companies en- gaged in oil production and exploration on Tejon Ranch. In 2011, it drilled 14 wells on Tejon Ranch lands, all of which are in production. Oil production is nothing new to Tejon as it’s been an important part of our business since the Company incorporated back 1936, but we are seeing a significant increase in activity. The oil industry is much more advanced than it was in the days wells were first drilled in the Tejon fields. New seismic and imaging techniques are helping geologists better pinpoint potential reserves. In fact, Sojitz Corporation of America’s Energy and Mineral Resources Division has leased the balance of our oil and gas interests in the Southern San Joaquin Valley and is conducting tests and drilling operations to determine if there are any previously unknown reserves that could be developed. Advanced recovery meth- ods, including slant drilling, are enabling companies to economically recover reserves that were previously consid- ered infeasible, bringing new life and vitality to legacy oil fields such as those on Tejon. These new state-of-the-art techniques, combined with strong prices for Kern River Crude, helped the Company increase revenues from its oil and gas operations by 107 percent compared to 2010, and 1,574 percent compared to ten years ago. Nearby, Calpine’s Pastoria Energy Facility, a natural gas fueled power plant, is in full operation, generating hundreds of megawatts of electricity every day – and approximately $3.5 million in annual revenue for our Company. Over on the south side of the Ranch, just north of the fu- ture site of Centennial, tech- nicians with Aurora Solar, a subsidiary of international power producer Iberdrola, are conducting isolation tests to determine the rate of solar activity in preparation of a permit application it will submit to Kern County to build an industrial-sized photovoltaic solar facility on the 692 acres it’s leasing on Tejon. Agriculture The almond orchards on the Ranch are in full-bloom this March day. Last year, almonds led us to record another outstanding year of farming revenues as strong prices and excellent yields boosted our revenue by $21 million. Like oil production, Tejon Ranch Co. Annual Report 2011 Shareholders Letter 7. Th i s e n t r a n c e to Rising Canyon will be one of the entrances to Tejon Mountain Village.  Tejon Ranch’s almond orchards are in full bloom by early spring. end, we enjoy excellent relationships with premiere international companies who share our commitment to quality, companies such as Paramount, Gallo, and the Wine Group. Our vision is international, and you’ll find Tejon Ranch products being used throughout the world. Residential Community Development Though we are not currently under construction, every day we are actively involved in a number of efforts lead- ing toward the securing of entitlements for our planned residential communities— Tejon Mountain Village and Centennial. In the case of Centennial, our sustainable master planned new town in Los Angeles County, that involves working with the Department of Regional Planning, monitoring changes in laws and regional growth plans, updating scientific and technical reports in prepara- tion for the pending release of the draft environmental impact report, and engaging with the local community to continue building support for Centennial. Now that Tejon Mountain Village, our mountain resort/ residential community, has been approved by Kern County, much of the daily farming has historically been an important component of our business operations. And like the oil industry, ad- vances in technology and new state-of-the-art practices are producing greater yields per acre, are making fields more productive, and are improving the quality of the almonds, pistachios and wine grapes we grow on the Ranch. Many of our orchards and vineyards have been in production for more than forty years. Using advanced techniques in drip irrigation, integrated pest management, and fertilizer application, we’ve been able to improve the yields of these mature fields. And as we have opportunity, we plant new vineyards and orchards, as we’ve done recently with a new section of rubired grapes and a 300-acre pistachio orchard. We are able to use new hybrid root stock, can space the plants for optimal growth, and integrate a drip irrigation system into the field that supplies the exact amount of water needed— just when it’s needed. All of these practices combined produce significantly better yields. Our new vineyards, for example, are producing al- most twice as much fruit per acre as those they replaced. But having a successful and profitable farming opera- tion involves more than just growing the crops. They also must be sold. To that Tejon Ranch’s Farming Division achieved record revenues in 2011 of $21 million. Tejon Ranch Co. Annual Report 2011 Shareholders Letter Tejon Mountain Village, the excep- tional mountain resort community being developed by the partnership of Tejon Ranch Company and DMB Pacific Ventures, will feature some dramatic landscapes. on short, intermediate, and long-range horizons. The fact that Tejon Ranch has no appreciable debt affords us the opportunity to have this long range vision. I want to assure you the management of Tejon Ranch Company never loses sight of its stewardship responsibil- ity. We are both stewards of the remarkable landscape entrusted to our care, and stewards of your financial investment in the Company. We are committed to be- ing good stewards in both regards, and appreciate your continued confidence and support as we endeavor to grow the Company—and shareholder value. Robert A. Stine President & Chief Executive Officer activity involves preparing the detailed engineering needed to begin phase one of construction. We’re also pro- cessing the remaining state and federal permits we need to move forward. Meanwhile, attorneys for the partnership between Tejon Ranch Co. and DMB Pacific Ventures are monitoring the 5th District Court of Appeals awaiting word of the court’s decision regarding the continued legal challenge to the community’s environmental impact report. The Superior Court clearly affirmed the legality and sufficiency of the EIR and we are hopeful the appellate court will confirm the lower court’s decision. There’s much more I could point to in terms of the diversity of our business operations, but as you can see from this small slice of a typical day on Tejon Ranch, diversified is a very apt word to describe what and who we are as a company. I n c l o s i n g , you should also know that “diverse” also describes the manner in which we pursue our primary goal of building shareholder value. Not only do we use diverse means, but we also have a diverse timeframe when it comes to creating value. We have a long range vision and want to build en- during value in the land and in the Company. We are not interested in forfeiting long term growth for the sake of short term profit. Accord- ingly, as we analyze oppor- tunities and plans, we focus Tejon Ranch Co. Annual Report 2011 Shareholders Letter 11. Year Ended December 31 2010 2011 $ 18,372 68,566 7,832 3,587 4,317 1,099 103,773 128,430 53,893 28,336 6,845 699 $ 321,976 $ 2,447 3,074 2,484 2,125 37 10,167 253 2,664 5,474 2,979 $ 22,027 48,985 9,812 2,982 5,011 - 88,817 117,275 48,302 28,774 3,985 938 $ 288,091 $ 2,187 1,334 - 601 35 4,157 290 2,277 3,196 1,519 9,988 194,273 (4,756) 61,109 260,614 39,825 300,439 $ 321,976 9,874 183,816 ( 2,191) 45,215 236,714 39,938 276,652 $ 288,091 C o n s o l i d a t e d B a l a n c e S h e e t s ($ 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 Income taxes Deferred income 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. stockholders’equity Common stock, $.50 par value per share: Authorized shares - 30,000,000 Issued and outstanding shares - 19,975,706 in 2011 and 19,747,470 in 2010 Additional paid-in capital Accumulated other comprehensive loss Retained Earnings Tejon Ranch Co.’s stockholders’ equity Noncontrolling interest Total equity Total liabilities and equity Tejon Ranch Co. and Subsidiaries C o n s o l i d a t e d S t a t e m e n t s o f O p e r a t i o n s ($ 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 loss attributable to noncontrolling interests Net income (loss) attributable to common stockholders Net income (loss) attributable to common stockholders Basic Diluted 2011 25,952 16,134 21,012 63,098 13,430 3,942 12,575 12,277 42,224 20,874 1,260 98 - 1,358 22,232 916 23,148 7,367 15,781 (113) 15,894 0.80 0.80 $ $ $ $ C o n s o l i d a t e d S t a t e m e n t s o f C o m p r e h e n s i v e I n c o m e ( L o s s ) ($ in thousands) Net income (loss) Other comprehensive income (loss) : Unrealized gains (losses) on available for sale securities Benefit plan adjustments SERP liability adjustment Equity in other comprehensive income of unconsolidated joint venture Other comprehensive income (loss) before taxes Provisions for income taxes related to other comprehensive income (loss) items Other comprehensive income (loss) Comprehensive income (loss) Comprehensive income (loss) attributable to non-controlling interests Comprehensive income (loss) attributable to common stockholders 2011 15,781 $ (82) (2,574) (1,825) 217 (4,264) 1,699 (2,565) 13,216 113 $ $ $ $ $ Year Ended December 31 2009 2010 16,656 281 18,576 35,513 10,659 3,089 10,914 5,612 30,274 5,239 979 61 (9) 1,031 6,270 541 6,811 2,852 3,959 (216) 4,175 0.23 0.22 $ $ $ $ 14,996 272 12,983 28,251 12,469 4,443 11,804 7,311 36,027 (7,776) 1,640 45 (70) 1,615 (6,161) 374 (5,787) (2,354) (3,433) (56) (3,377) (0.19) (0.19) Year Ended December 31 2009 (3,433) 2010 3,959 $ (3) (505) 578 (108) (38) (2) (40) 3,919 216 1,874 (573) 110 (256) 1,155 (509) 646 (2,787) 56 $ 13,329 $ 4,135 $ $(2,731) Tejon Ranch Co. and Subsidiaries 13. C o n s o l i d a t e d S t a t e m e n t s o f E q u i t y Common Stock Shares Outstanding 16,986,770 - - - - - Common Stock - 8,493 - - - - - Additional Accumulated Other Paid-In Comprehensive Loss Capital Total Tejon Ranch Co.’s Retained Stockholders’ Equity Earnings Non- controlling Interest Total Equity - 123,193 - (2,797) - 44,417 (3,377) 173,306 (3,377) - (56) 173,306 (3,433) - - - 1,128 (394) 66 - - - 1,128 - 1,128 (394) - (394) 66 - 66 - (154) - (154) - (154) 11,858 26,636 - (5,836) - 17,019,428 - 6 13 - (3) - 8,509 - 235 (13) 3,557 (143) - 126,829 - - - - - - - - - - - 2,608,735 - 1,306 - 58,454 78,894 56,131 - (15,718) 19,747,470 - 39 28 - (8) 9,874 - 1,960 (28) (2,944) (455) 183,816 - - - - - - - - - - - - - 205,165 52,069 - (28,998) 19,975,706 103 26 - (15) 9,988 5,773 (26) 5,507 (797) 194,273 - - - - - (2,151) - (2) (299) 330 (69) - - - - - (2,191) - (49) (1,548) (1,098) 130 - - - - - (4,756) - - - - - 41,040 4,175 241 - 3,557 (146) - 174,227 4,175 - - - - 40,210 40,154 (216) 241 - 3,557 (146) 40,210 214,381 3,959 (2) (299) 330 (69) 59,760 1,999 - (2,944) (463) 236,714 15,894 (2) (299) 330 - - - - (69) 59,760 - - - - 39,938 (113) 1,999 - (2,944) (463) 276,652 15,781 - - - - - - - - 45,215 15,894 (49) (49) (1,548) - (1,548) (1,098) - (1,098) 130 - - - 130 - - - - - - - - - 61,109 5,876 - 5,507 (812) 260,614 - - - - 39,825 5,876 - 5,507 (812) 300,439 ($ in thousands, except share information) 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 Exercise of stock options and no related tax benefit Restricted stock issuance Stock compensation Shares withheld for taxes Noncontrolling interest Balance, December 31, 2009 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 Rights Offering, net expenses Exercise of stock options and related tax benefit of $204 Restricted stock issuance Stock compensation Shares withheld for taxes Balance, December 31, 2010 Net income Changes in unrealized losses on available-for-sale securities, net of taxes of $33 Benefit plan adjustments, net of taxes of $1,026 SERP liabiltity adjustment, net of taxes $727 Equity in other comprehensive income of unconsolidated joint venture, net of taxes of $87 Rights Offering, net expenses Exercise of stock options and related tax benefit of $634 Restricted stock issuance Stock compensation Shares withheld for taxes Balance, December 31, 2011 Tejon Ranch Co. and Subsidiaries C o n s o l i d a t e d S t a t e m e n t s o f C a s h F l o w s ($ in thousands) Operating Activities Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization Deferred income taxes Gain from sale of real estate Gain from sale of easements 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 Proceeds from sale of easements 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 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) 2011 Year Ended December 31 2009 2010 $ 15,781 $ 3,959 $ (3,433) 4,270 (162) (4,058) (15,750) 60 528 - - (916) 5,340 (634) - - 2,510 2,515 9,484 19,143 (39,448) - - 4,988 15,750 - (13,649) - (4,457) (495) (18,168) - - (35) - 5,876 (812) 5,029 (3,655) 22,027 18,372 - 5,002 $ $ $ $ $ $ 2,317 (1,351) (559) - 145 800 - - (541) (2,944) (227) - 1,440 (201) 361 3,199 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 9 875 3,122 (1,072) - - 153 900 (114) 113 (374) 3,557 - 662 - (135) (2,018) 1,361 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 70 (661) $ $ $ Tejon Ranch Co. and Subsidiaries 15. P e r f o r m a n c e G r a p h 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 12.31.06 12.31.07 12.31.08 12.31.09 12.31.10 12.31.11 tejon ranch dj equity mkt dj real estate - Assumes $100 invested on December 31, 2006 - Total return assumes reinvestment of dividends - Fiscal year ending December 31 tejon ranch dj equity mkt dj real estate 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% 2011 -11.14% 1.34% 6.05% 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. quarter First Second Third Fourth high $36.97 $37.70 $37.00 $27.47 2011 low $25.24 $32.31 $23.71 $22.80 high $33.30 $30.71 $24.40 $28.58 2010 low $29.06 $23.00 $21.15 $21.49 As of February 17, 2012, there were 380 owners of record of our Common Stock. directors executive officers Kent G. Snyder Chairman of the Board, Tejon Ranch Company; Real Estate Attorney John L. Goolsby Private Investments and Real Estate Norman Metcalfe Real Estate and Investments George G.C. Parker Dean Witter Distinguished Professor of Finance, Stanford Business School Geoffrey L. Stack Managing Director, SARES-REGIS Group, Real Estate Development and Management Robert A. Stine President and Chief Executive Officer, Tejon Ranch Company Daniel R. Tisch Managing Member, Tower View LLC, Investment Management Michael H. Winer Portfolio Manager, Third Avenue Management LLC, Investment Management 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 Gregory J. Tobias Vice President, General Counsel & Secretary corporate directory Corporate Office Stock Transfer Agent & Registrar Form 10-k Tejon Ranch Company Post Office Box 1000 4436 Lebec Road Tejon Ranch, 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 Computershare Shareowner Services LLC 480 Washington Boulevard Jersey City, NJ 07310-1900 Auditors Ernst & Young LLP A copy of this report and the Company’s Annual Report to the Securities and Ex- change 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 Tejon Ranch, California 93243 w w w. t e j o n r a n c h . c o m 

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