Tejon Ranch Co.
Annual Report 2017

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 10-K (Mark One)xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2017Or ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the transition period from to Commission File Number: 1-7183 TEJON RANCH CO. (Exact name of Registrant as specified in its charter) Delaware 77-0196136(State or other jurisdiction ofincorporation or organization) (IRS EmployerIdentification No.)P.O. Box 1000, Lebec, California 93243(Address of principal executive offices)Registrant’s telephone number, including area code: (661) 248-3000Securities registered pursuant to Section 12(b) of the Act:Title of Each Class Name of Exchange of Which RegisteredCommon Stock New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act:None____________________________________________________ Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web Site, if any, every Interactive Data File requiredto be submitted and posted pursuant to Rule 405 of Regulation S-T ((§232.405 of this chapter) during the preceding 12 months (or for shorter period that theregistrant was required to submit and post such files). Yes x No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, andwill not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer¨ Accelerated filerx Non-accelerated filer¨ Smaller reporting company¨ Emerging growth company¨If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any newor revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No xThe aggregate market value of registrant’s Common Stock, par value $.50 per share, held by persons other than those who may be deemed to be affiliates ofregistrant on June 30, 2017 was $422,344,798 based on the last reported sale price on the New York Stock Exchange as of the close of business on that date.The number of the Company’s outstanding shares of Common Stock on February 28, 2018 was 25,912,425.____________________________________________________ DOCUMENTS INCORPORATED BY REFERENCEPortions of the Proxy Statement for the Annual Meeting of Stockholders relating to the directors and executive officers of the Company are incorporated byreference into Part III.TABLE OF CONTENTS PART I3ITEM 1.BUSINESS4ITEM 1A.RISK FACTORS22ITEM 1B.UNRESOLVED STAFF COMMENTS27ITEM 2.PROPERTIES28ITEM 3.LEGAL PROCEEDINGS30ITEM 4.MINE SAFETY DISCLOSURES30 PART II31ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES31ITEM 6.SELECTED FINANCIAL DATA31ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS31ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK53ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA55ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE55ITEM 9A.CONTROLS AND PROCEDURES56ITEM 9B.OTHER INFORMATION56 PART III56ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE56ITEM 11.EXECUTIVE COMPENSATION56ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS56ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE57ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES57 PART IV58ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES58ITEM 16.FORM 10-K SUMMARY58 SIGNATURES63ITEM 15(a)(1) - FINANCIAL STATEMENTS66ITEM 15(a)(2) - FINANCIAL STATEMENT SCHEDULES662PART IForward-Looking StatementsThis annual report on Form 10-K contains forward-looking statements, including statements regarding strategic alliances, the almond, pistachio and grapeindustries, the future plantings of permanent crops, future yields and prices, water availability for our crops and real estate operations, future prices,production and demand for oil and other minerals, future development of our property, future revenue and income of our jointly-owned travel plaza andother joint venture operations, potential losses to the Company as a result of pending environmental proceedings, the adequacy of future cash flows to fundour operations, market value risks associated with investment and risk management activities and with respect to inventory, accounts receivable and ourown outstanding indebtedness and other future events and conditions. In some cases, these statements are identifiable through the use of words such as“anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “will,” “should,” “would,” and similarexpressions. We caution you not to place undue reliance on these forward-looking statements. These forward-looking statements are not a guarantee offuture performances and are subject to assumptions and involve known and unknown risks, uncertainties and other important factors that could cause theactual results, performance or achievements of the Company, or industry results, to differ materially from any future results, performance, or achievementimplied by such forward-looking statements. These risks, uncertainties and important factors include, but are not limited to, market and economic forces,availability of financing for land development activities, competition and success in obtaining various governmental approvals and entitlements for landdevelopment activities. No assurance can be given that the actual future results will not differ materially from the forward-looking statements that we makefor a number of reasons including those described above and in Part I, Item 1A, “Risk Factors” of this report.As used in this annual report on Form 10-K, references to the “Company,” “Tejon,” “TRC,” “we,” “us,” and “our” refer to Tejon Ranch Co. and itsconsolidated subsidiaries. The following discussion should be read in conjunction with the consolidated financial statements and the accompanying notesappearing elsewhere in this annual report on Form 10-K.3ITEM 1. BUSINESSCompany OverviewWe are a diversified real estate development and agribusiness company committed to responsibly using our land and resources to meet the housing,employment, and lifestyle needs of Californians and create value for our shareholders. Current operations consist of land planning and entitlement, landdevelopment, commercial sales and leasing, leasing of land for mineral royalties, water asset management and sales, grazing leases, income portfoliomanagement, farming, and ranch operations.These activities are performed through our five segments:Our prime asset is approximately 270,000 acres of contiguous, largely undeveloped land that, at its most southerly border, is 60 miles north of Los Angelesand, at its most northerly border, is 15 miles east of Bakersfield. We create value by securing entitlements for our land, facilitating infrastructuredevelopment, strategic land planning, monetization of land through development, and conservation, in order to maximize the highest and best use for ourland. We are involved in several joint ventures, which facilitate the development of portions of our land.4Business Objectives and StrategiesOur primary business objective is to maximize long-term shareholder value through the monetization of our land-based assets. A key element of our strategyis to entitle and then develop large-scale mixed use master planned residential and commercial/industrial real estate projects to serve the growingpopulations of Southern and Central California. Once all entitlements are approved, our mixed use master planned residential developments collectivelymay include up to 35,000 housing units, with 15,450 units currently approved, and more than 35 million square feet of commercial space, with 25 millionsquare feet currently approved. We have obtained entitlements on Mountain Village at Tejon Ranch, or MV, and Grapevine at Tejon Ranch, or Grapevine,and are currently in the entitlement process with Centennial at Tejon Ranch, or Centennial. We are currently engaged in entitlement, construction,commercial sales and leasing at our fully operational commercial/industrial center Tejon Ranch Commerce Center, or TRCC. All of these efforts aresupported by diverse revenue streams generated from other operations, including farming, mineral resources, and our various joint ventures.56 Percentage of Total Revenue1 and Other Income by Segment:1Real Estate includes equity in earnings of unconsolidated joint ventures. 78The following table shows the revenues from continuing operations, segment profits and identifiable assets of each of our continuing segments for the lastthree years:FINANCIAL INFORMATION ABOUT SEGMENTS(Amounts in thousands of dollars) Year Ended December 31, 2017 2016 2015Revenues and Other IncomeReal Estate—Commercial/Industrial (2)$9,403$9,438$8,272Mineral Resources 5,983 14,153 15,116Farming16,43418,64823,836Ranch operations (2)3,8373,3383,923Segment revenues35,65745,57751,147Gain on sale of real estate — 1,044 —Investment income462457 528Other income153158381Revenues and other income$36,272$47,236$52,056Equity in earnings of unconsolidated joint ventures 4,227 7,098 6,324Total revenues and other income (1) $40,499 $54,334 $58,380Segment Profits (Losses) and Net IncomeReal Estate—Commercial/Industrial (2)$2,874$2,338$1,578Real Estate—Resort/Residential (1,955) (1,630) (2,349)Mineral Resources 3,019 6,357 7,720Farming233(25)4,852Ranch operations (2)(1,574) (2,396)(2,189)Segment profits (3)2,5974,6449,612Gain on sale of real estate—1,044—Investment income462457528Other income153158381Corporate expenses(10,141)(12,550)(12,808)Operating (loss) income before equity in earnings of unconsolidated joint ventures(6,929)(6,247)(2,287)Equity in earnings of unconsolidated joint ventures4,2277,0986,324(Loss) income before income taxes(2,702)8514,037Income tax (benefit) provision (1,123) 336 1,125Net (loss) income (1,579)5152,912Net loss attributable to noncontrolling interest (24) (43) (38)Net (loss) income attributable to common stockholders $(1,555)$558$2,950Identifiable Assets by Segment (4) Real estate—commercial/industrial $63,065 $65,290 $67,550Real estate—resort/residential 258,697 243,963 228,064Mineral Resources 48,305 45,066 46,025Farming 36,317 36,895 32,542Ranch operations 3,625 3,893 4,313Corporate 108,190 44,594 53,425Total assets $518,199$439,701$431,919(1) Refer to Note 16, Reporting Segments and Related Information of the Notes to the Consolidated Financial Statements for additional detail related to segment revenues.(2) During the fourth quarter of 2015, the Company reclassified revenues and expenses previously classified as commercial/industrial into a new segment called Ranch Operations.Ranch operations comprise of grazing leases, game management and other ancillary services supporting the ranch.9(3) Segment profits are revenues less operating expenses, excluding investment income and expense, corporate expenses, equity in earnings of unconsolidated joint ventures, andincome taxes.(4) Total Assets by Segment include both assets directly identified with those operations and an allocable share of jointly used assets. Corporate assets consist of cash and cashequivalents, refundable and deferred income taxes, land, buildings and improvements.Real Estate Development OverviewOur real estate operations consist of the following activities: real estate development, commercial sales and leasing, land planning and entitlement, incomeportfolio management, and conservation.Interstate 5, one of the nation’s most heavily traveled freeways, brings in excess of 83,000 vehicles per day through our land, which includes 16 miles ofInterstate 5 frontage on each side of the freeway and the commercial land surrounding three interchanges. The strategic plan for real estate focuses ondevelopment opportunities along the Interstate 5 and Highway 138 corridors, which includes TRCC in Kern County, Centennial, a mixed use master plannedcommunity on our land in Los Angeles County, Mountain Village, a resort and residential community in Kern County, and Grapevine, a mixed use masterplanned community on our land in Kern County. TRCC includes developments east and west of Interstate 5 at TRCC-East and TRCC-West, respectively.The chart below is a continuum of the real estate development process highlighting each project's current status and key milestones to be met in movingthrough the real estate development process in California. During this process, we may experience delays arising from factors beyond our control. Suchfactors include litigation and a changing regulatory environment. Our real estate activities within our commercial/industrial segment include: entitling, planning, and permitting of land for development; construction ofinfrastructure; the construction of pre-leased buildings; the construction of buildings to be leased or sold; and the sale of land to third parties for their owndevelopment. The commercial/industrial segment also includes activities related to communications leases, and landscape maintenance fees. Our real estateoperations within our resort/residential segment at this time include costs for land entitlement, land planning and pre-construction engineering, and landstewardship and conservation activities.10Operating SegmentsReal Estate - Commercial/IndustrialConstruction:During 2017, our TRC-MRC 1 joint venture with Majestic Realty Co., or Majestic, completed the construction of a state-of-the-art, 480,480 square footdistribution facility.During 2016, our commercial retail activity continued to grow as new leases came on line with Habit Burger and Baja Fresh. In addition, our TA/Petro, orPetro, joint venture completed construction of a new Shell gas station and convenience store that commenced operations during the first quarter of 2016.Lastly, we have entered into two joint venture operating agreements with Majestic, a Los Angeles based commercial/industrial developer, to pursue thedevelopment, construction, leasing, and management of an approximately 480,480 square foot industrial building on the Company’s property at TRCC-Eastand to purchase, own, and manage a 652,000 square foot, fully leased, industrial building in TRCC-West.The following is a summary of the Company's commercial, retail and industrial real estate developments as of December 31, 2017:($ in thousands) ProjectCost to DateEstimated Cost toCompleteTotal Estimated Cost atCompletionEstimated CompletionDateTejon Ranch Commerce Center$83,582$71,909$155,491TBDLess: Reimbursements from TRPFFA164,86260,450125,312TBDTRCC Development Costs, net$18,720$11,459$30,179 1The Tejon Ranch Public Facilities Financing Authority, or TRPFFA, is a joint powers authority formed by Kern County and Tejon-Castac Water District, or TCWD, to finance public infrastructure within the Company’sKern County developments. TRPFFA, through bond sales, will reimburse the Company for qualifying infrastructure costs at TRCC. 11The following table summarizes total entitlements for TRCC as of December 31, 2017:(in square feet)IndustrialCommercial RetailTotal entitlements received19,300,941956,309Total entitlements used4,237,149632,795Entitlements available15,063,792323,5141213Leasing:Within our commercial/industrial segment, we lease land to various types of tenants. We currently lease land to two auto service stations with conveniencestores, 13 fast-food operations, two full-service restaurants, a motel, an antique shop, and a United States Postal Service facility.In addition, the Company leases several microwave repeater locations, radio and cellular transmitter sites, fiber optic cable routes, and 32 acres of land toPastoria Energy Facility, L.L.C., or PEF, for an electric power plant.The sale and leasing of commercial/industrial real estate is very competitive, with competition coming from numerous and varied sources around California.Our most direct regional competitors are in the Inland Empire, a large industrial area located east of Los Angeles which continues its expansion eastwardbeyond Riverside and San Bernardino including Perris, Moreno Valley, and Beaumont region of Southern California, Northern Los Angeles including boththe San Fernando Valley and Santa Clarita Valley, and areas north of us in the San Joaquin Valley of California. The principal factors of competition in thisindustry are price, availability of labor, proximity to the port complex of Los Angeles/Long Beach and customer base. A potential disadvantage to ourdevelopment strategy is our distance from the ports of Los Angeles and Long Beach in comparison to the warehouses and distribution centers located in theInland Empire. Strong demand for large distribution facilities is driving development farther east in a search for large entitled parcels.During 2017, vacancy rates in the Inland Empire approximated 3.7%, the lowest vacancy rate ever recorded in the Inland Empire. Vacancy is at an all-timelow and further declines will be hard to achieve. This is especially true given that 26.1 million square feet remains in the construction pipeline. The lowvacancy rates have also led to an increase in lease rates of 7.7% within the Inland Empire. As lease rates increase in the Inland Empire, we may begin to havegreater pricing advantages due to our lower land basis.During 2017, vacancy rates in the Northern Los Angeles industrial market, which includes the San Fernando Valley and Santa Clarita Valley, approximated1.7%. This industrial market continues to see available supply remain at extremely low levels, and while new construction has recently been at higher levels,it still has not been enough to keep pace with strong demand, resulting in vacancy remaining at all-time lows and rental rates still rising rapidly. Demand forindustrial space in this market will continue to be driven by domestic and global consumption levels. In 2017, the Los Angeles and Long Beach Portcontainer traffic recorded its highest container total ever with 16.89 million Twenty-Foot Equivalent Units, or TEU's, up 8% from 2016 and 7% higher thanits second highest year during 2006. TEU is a measure of a ship's cargo carrying capacity. The dimensions of one TEU are equal to that of a standard shippingcontainer measuring 20 feet long by 8 feet tall.The following table summarizes information with respect to lease expirations for our consolidated entities as of December 31, 2017.Year of Lease Expiration Number of Expiring Leases RSF of Expiring Leases Annualized Base Rent1 Percentage of Annual MinimumRent2018 3 55,321 $78 0.69%2019 1 — $24 0.21%2020 3 61,495 315 2.762021 6 60,722 $229 2.01%2022 5 46,414 $296 2.59%2023 2 4,640 213 1.86%2024 — — — —%2025 2 4,613 260 2.272026 3 4,645 $256 2.24%2027 1 1,801 $86 0.76%2028 — — — —%Thereafter2 6 1,589,905 $3,956 —%1 - Annualized base rent is calculated as monthly base rent (cash basis) per the lease, as of the reporting period, multiplied by 12. Annualized base rent shown in thousands. 2 - This amount includes 32 acres of the PEF ground lease. Eight leases expired during the year-ended December 31, 2017. The leases were renewed in 2017 and represented less than 5% of annualized base rent.14Please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information regarding our 2017commercial/industrial activity.Joint Ventures:During 2016, we entered into a joint venture operating agreement with Majestic to pursue the development, construction, leasing, and management of anapproximately 480,480 square foot industrial building on the Company’s property at Tejon Ranch Commerce Center East. In addition, we entered into asecond limited liability company agreement with Majestic Realty Co. for the purchase of, ownership of, and management of a fully leased, 651,909 squarefoot industrial building located at Tejon Ranch Commerce Center.We are also involved in multiple joint ventures with several partners. Our joint TA/Petro joint venture, owns and operates two travel and truck stop facilities,restaurants, and five separate gas stations with convenience stores within TRCC-West and TRCC-East. We are involved in three joint ventures withRockefeller Development Group which includes the following: Five West Parcel LLC, which owns a 606,000 square foot building in TRCC-West that is fullyleased to Dollar General, 18-19 West LLC, which owns 61.5 acres of land for future development within TRCC-West, and TRCC/Rock Outlet Center LLC,which operates the Outlets at Tejon.Real Estate - Resort/ResidentialOur resort/residential segment activities include land entitlement, land planning and pre-construction engineering, and land stewardship and conservationactivities. We have three major resort/residential communities within this segment: MV, which has entitlement approvals and approved tentative tract mapfor the first three phases of residential development; Centennial, which has zoning and land use designation within the Antelope Valley Area Plan, or AVAP,and the Los Angeles County General Plan, is completing the specific plan process in LA County; and Grapevine, which is on land owned within Kern Countythat has entitlement approvals and is in the litigation and permitting phase of the process. The entitlement process precedes the regulatory approvalsnecessary for land development and routinely takes several years to complete. The Conservation Agreement we entered into with five major environmentalorganizations in 2008 is designed to minimize opposition from environmental groups to these projects and eliminate or reduce the time spent in litigationonce governmental approvals are received. Litigation by environmental and other special interest groups have been a primary cause of delays and increasedcosts for real estate development projects in California.As we embark on our mixed use master planned communities, we understand that it can take up to 25 years, or longer, to complete from commencement ofconstruction. The entitlement process for development of property in California is complex, lengthy (spanning multiple years) and costly, involvingnumerous federal, state, and county regulatory approvals. We are unable to determine anticipated completion dates for our real estate development projectswith certainty because the time for completion is heavily dependent on the regulatory approvals necessary for land development. Also, as a real estatedeveloper, we are cognizant of the micro- and macro-economic factors that have a significant influence on the real estate sector. As a developer, one would beat an economic disadvantage to bring product to market with no willing or able buyers. This ebb and flow of the economy also plays into the timing of ourcompletion date. Costs will also fluctuate over the life of these projects as a result of the cost of labor and raw materials and the timing of approvals and otheractivity. The uncertainty of estimated costs to completion is compounded by the potential impact of inflation, which will fluctuate with the equally uncertaincompletion dates for our projects.1516Mountain Village at Tejon Ranch:MV is planned to be an exclusive, low-density, resort-based community that will provide owners and guests with a wide variety of recreational opportunities,lodging and spa facilities, putting greens, a range of housing options, and other exclusive services and amenities that are designed to distinguish MV as theresort community of choice for the Southern California market. MV is being developed by Tejon Mountain Village LLC, or TMV LLC, a wholly ownedsubsidiary of the Company. MV encompasses 5,082 acres for a mixed use development to include housing, retail, and commercial components. MV isentitled for 3,450 homes, 160,000 square feet of commercial development, 750 hotel keys, and more than 21,335 acres of open space.During December 2017, the Company received approval of Tentative Tract Maps for the first three phases of residential units of MV. We are working towarddelivering the first phase of the 160,000 square foot commercial center that we call Farm Village. Farm Village will serve as the “front door” to MV. FarmVillage will include fresh culinary offerings, artisan markets, boutique lodging, and an array of trails, gardens, and agriculture that will be intertwined tocreate the most unique, relaxing and “edu-taining” experience while fulfilling the needs of residents of Mountain Village. The Company has submitted plansfor the first phase of this commercial village to Kern County for review and approval.In 2014, the Company acquired full ownership of TMV LLC through the purchase of DMB TMV LLC's interest in the former joint venture for $70,000,000 incash.The Company's decision to obtain full ownership of MV reflects the Company's growth as a fully integrated real estate company and demonstrates our beliefin the future success of the development.MV is fully entitled and all necessary permits have been issued to begin development once the mapping process is complete. Timing of MV development inthe coming years will be dependent on the strength of both the economy and the residential real estate market. In moving the project forward we will focus onthe preparation of engineering leading to the final map for the first phases of MV, consumer and market research studies and fine tuning of developmentbusiness plans as well as defining the capital funding sources for this development.Centennial at Tejon Ranch:The Centennial development is a mixed use master planned community development encompassing 12,323 acres of our land within Los Angeles County.Upon completion of Centennial, it is estimated that the community will include 19,333 homes, and 10.1 million square feet of commercial development.Centennial will also incorporate business districts, schools, retail and entertainment centers, medical facilities and other commercial office and lightindustrial businesses that, when complete, will create a substantial number of jobs. Centennial is being developed by Centennial Founders, LLC, aconsolidated joint venture in which we have a 89.28% ownership interest as of December 31, 2017. In 2016, Lewis Investment Company withdrew from thejoint venture. The surviving members (TRC, TRI Pointe Homes and CalAtlantic) absorbed the equity of Lewis Investment Company based on their respectiveproportionate interest in the joint venture at the time of the withdrawal. The withdrawal was deemed an equity transaction between members and had noearnings impact to the Company. Centennial is envisioned to be an ecologically friendly and commercially viable development.Currently, the Los Angeles County Department of Regional Planning is finalizing responses to comments received during the public review of the DraftEnvironmental Impact Report for the Company’s Centennial master planned community. The responses will become part of the Final Environmental ImpactReport that will be considered first by the Los Angeles County Regional Planning Commission tentatively scheduled in April 2018 and later by the Board ofSupervisors.During 2014, the Los Angeles County Board of Supervisors approved the AVAP. The AVAP is designed to guide future development and conservation in thenorthern-most region of unincorporated Los Angeles County. Centennial is included in the AVAP as part of the west Economic Opportunity Area, or EOA,where future development would be directed. This particular EOA is located along Highway 138 and encompasses the vast majority of Centennial's proposedboundaries. In June 2015, the Los Angeles County Board of Supervisors gave final approval for the AVAP. The AVAP provides Centennial with land usedesignation and zoning for residential and commercial development.Grapevine at Tejon Ranch:Grapevine is a 15,315-acre potential development area located on the San Joaquin Valley floor area of our lands, adjacent to TRCC. The 2008 ConservationAgreement allows for the development of up to 12,400 acres in this area. We are currently focusing on 8,010 acres for a mixed use development to includehousing, retail, and commercial industrial components. Grapevine has received approval for 12,000 homes, 5.1 million square feet for commercialdevelopment, and more than 3,367 acres of open space and parks. On December 6, 2016, the Kern County Board of Supervisors unanimously approved thespecific plan and the Environmental Impact Report, or EIR, for the development of the Grapevine community, which included17approval for land use designation, zoning and a development agreement. Subsequently, Kern County was sued related to the approval and we are workingwith Kern County to defend the approved EIR. The entire litigation and permitting process will take several years and the investment of several milliondollars to successfully complete.The greatest competition for the Centennial and Grapevine communities will come from California developments in the Santa Clarita Valley, Lancaster,Palmdale, and Bakersfield. The developments in these areas will be providing similar housing product as our developments. The principal factors ofcompetition in this industry are pricing of product, amenities offered, and location. We will attempt to differentiate our developments through our uniquesetting, land planning and different product offerings. MV will compete generally for discretionary dollars that consumers will allocate to recreational andresidential homes.The following is a summary of the Company's residential real estate developments as of December 31, 2017:Community:Mountain VillageGrapevineCentennialResortLocation:Kern CountyKern CountyLos Angeles CountyResidentialEntitlement Status1:EntitledEntitled2In ProgressTotalEntitlement Area (acres):26,4178,01012,32346,750Housing Units:3,45012,00019,33334,783Commercial Development (sqft)3:160,0005,100,00010,100,00015,360,000Open Areas (acres):21,3353,3675,62430,326Costs to Date4:$132,034$28,139$94,271$254,444(1) Estimated completion anticipated to be 25 years, or longer, from commencement of construction. To-date construction has not begun.(2) Kern County was sued related to the approval of the EIR and we are working with Kern County to defend the approved EIR.(3) MV also has approval for up to 750 lodging units and 350,000 square feet of facilities in support of two 18-hole golf courses.(4) Total estimated project costs are difficult to accurately forecast with any certainty at this time due to finalization of entitlement and mapping processes, as well as final engineeringfor the developments, and capital funding structure selected. Dollars presented in thousands.Mineral ResourcesMineral resources consist of oil and gas royalties, rock and aggregate royalties, royalties from a cement operation leased to National Cement Company ofCalifornia, Inc., or National, and the management of water assets and water infrastructure. We continue to look for opportunities to grow our mineral resourcerevenues through expansion of leasing and encouraging new exploration. Within our water assets we are expanding our resources through new well drillingprograms, while at the same time looking for opportunities to continue to purchase water as we have in the past. We will look to sell excess water over ourinternal needs on a temporary basis until that water is needed by us in our real estate and agricultural operations.We are cautiously optimistic that we could see new production activity later in 2018 as oil prices in Kern County stabilize in the mid-$50 per barrel range orhigher. We expect the increased oil prices will provide some improvements to our 2018 royalty revenues as compared to 2017 royalty revenues. We areexpecting water sales for 2018 to improve when compared to the prior year due to a decline in rain and snow in California in late 2017 and early 2018, ascompared to the previous winter. Currently, the California State Water Project 2018 allocation is only at 20% of contract water amounts. This factor is alsosupportive of improved water sales.We lease certain portions of our land to oil companies for the exploration and production of oil and gas. We however do not engage in any oil exploration orextraction activities. As of December 31, 2017, 8,824 acres were committed to producing oil and gas leases from which the operators produced and soldapproximately 263,000 barrels of oil and 209,000 MCF (each MCF being 1,000 cubic feet) of dry gas during 2017. Our share of production, based uponaverage royalty rates during the last three years, has been 99, 114, and 149, barrels of oil per day for 2017, 2016, and 2015, respectively. There are 310 activeoil wells located on the leased land as of December 31, 2017. Royalty rates on our leases averaged approximately 13% of oil production in 2017.Estimates of oil and gas reserves on our properties are unknown to us. We do not make such estimates, and our lessees do not make information concerningreserves available to us.We have approximately 2,000 acres under lease to National, for the purpose of manufacturing Portland cement from limestone deposits found on the leasedacreage. National owns and operates a cement manufacturing plant on our property with a capacity of approximately 1,000,000 tons of cement per year. Theamount of payment that we receive under the lease is based upon18shipments from the cement plant, which increased during 2017 compared to 2016. The improvement in shipments is due to an increase in road constructionactivity as compared to the prior years. The term of this lease expires in 2026, but National has options to extend the term for successive periods of 20 and 19years. Proceedings under environmental laws relating to the cement plant are in process. The Company is indemnified by the current and former tenants andat this time we have no cost related to the issues at the cement plant. See Item 3, “Legal Proceedings,” for a further discussion.We also lease 521 acres to Granite Construction and Griffith Construction for the mining of rock and aggregate product that is used in construction of roadsand bridges. The royalty revenues we receive under these leases are based upon the amount of product produced at these sites.Our royalty interests are contractually defined and based on a percentage of production and are received in cash. Our royalty revenues fluctuate based onchanges in the market prices for oil, natural gas, and rock and aggregate product, the inevitable decline in production of existing wells and quarries, and otherfactors affecting the third-party oil and natural gas exploration and production companies that operate on our lands including the cost of development andproduction.In August 2015, we entered into a water sale agreement with PEF our current lessee under a power plant lease. Beginning in 2016, PEF may purchase from usup to 2,000 acre-feet of water and from January 2017 through July 2030, PEF may purchase from us up to 3,500 acre feet of water per year, with an option toextend the term. PEF is under no obligation to purchase water from us in any year, but is required to pay us an annual option payment equal to 30% of themaximum annual payment. The price of the water under the agreement is $1,088 per acre-foot of annual water in 2018, subject to 3% annual increases for theduration of the lease agreement. The Company's commitments to sell water can be met through current water assets.Farming OperationsIn the San Joaquin Valley, we farm permanent crops including the following acreage: wine grapes—1,186; almonds—1,983 (1,379 in production and 604 notin production); and pistachios—1,053. We manage the farming of alfalfa and forage mix on 775 acres in the Antelope Valley and we periodically lease 1,000acres of land that is used for the growing of vegetables but also can be used for the development of permanent crops such as almonds.We sell our farm commodities to several commercial buyers. As a producer of these commodities, we are in direct competition with other producers within theUnited States, or U.S., and throughout the world. Prices we receive for our commodities are determined by total industry production and demand levels. Weattempt to improve price margins by producing high quality crops through proven cultural practices and by obtaining better prices through marketingarrangements with handlers.Sales of our grape crop typically occur in the third and fourth quarters of the calendar year, while sales of our pistachio and almond crops also typically occurin the third and fourth quarter of the calendar year, but can occur up to a year or more after each crop is harvested.In 2017, we sold 51% of our grape crop to one winery, 21% to a second winery and the remainder to three other customers. These sales are under long-termcontracts ranging from one to 12 years. In 2017, our almonds were sold to various commercial buyers, with the largest buyer accounting for 50% of ouralmond revenues. We sold pistachios to two customers with the largest accounting for 74% of our pistachio revenues. We do not believe that we would beadversely affected by the loss of any or all of these large buyers because of the markets for these commodities, the large number of buyers that would beavailable to us, and the fact that the prices for these commodities do not vary based on the identity of the buyer or the size of the contract.Our almond, pistachio, and wine grape crop sales are highly seasonal with a majority of our sales occurring during the third and fourth quarters. Nut and grapecrop markets are particularly sensitive to the size of each year’s world crop and the demand for those crops. Large crops in California and abroad can rapidlydepress prices. Crop prices, especially almonds, are also adversely affected by a strong U.S. dollar which makes U.S. exports more expensive and decreasesdemand for the products we produce. The low value of the U.S. dollar in prior years has helped to maintain strong almond prices in overseas markets, but weare now seeing this change as the U.S. dollar has strengthened against the Euro. The full potential impact of an increasing U.S. dollar to our pricing andrevenue is not known at this time.Weather conditions, such as warmer than normal winter temperatures such as in 2018, could impact the number of tree and vine dormant hours, which areintegral to tree and vine growth. We will not know if there has been a negative impact on 2018 production until late spring or early summer of 2018. We havealso seen lighter rain fall during winter of 2017-2018, which could also negatively impact 2018 production.Many counties within California including Kern County are again considered to be in a drought condition based on the below average rainfall received thiswinter. The reduced amount of rain and snow pack has led the State Department of Water Resources, or DWR, to announce that its estimated water supplydelivery for 2018 will be at 20% of full entitlement. The19current 20% allocation of state SWP water alone is not enough for us to farm our crops, but our additional water resources, such as groundwater and surfacesources, and those of the water districts we are in, should allow us to have sufficient water for our farming needs. It is too early in the year to determine theimpact of the 2018 water supplies and its impact on 2018 California crop production for almonds, pistachios, and wine grapes. See discussion of watercontract entitlement and long-term outlook for water supply under Item 2, “Properties.” Also see Note 6, (Long-Term Water Assets) of the Notes toConsolidated Financial Statements for additional information regarding our water assets.Ranch OperationsDuring 2015, the Company reclassified certain revenues and expenses previously classified as commercial/industrial into a new segment called RanchOperations.Ranch operations consist of game management revenues and ancillary land uses such as grazing leases and filming. Within game management we operate ourHigh Desert Hunt Club, a premier upland bird hunting club. The High Desert Hunt Club offers over 6,400 acres and 35 hunting fields, each field providingdifferent terrain and challenges. The hunting season runs from mid-October through March. We sell individual hunting packages as well as memberships.Ranch operations also includes Hunt at Tejon, which offers a wide variety of guided big game hunts including trophy Rocky Mountain elk, deer, turkey andwild pig. We offer guided hunts and memberships for both the Spring and Fall hunting seasons. At December 31, 2017, game management accounts for 41%of the total revenue from ranch operations.In addition, the ranch operations segment is in charge of upkeep, maintenance, and security of all 270,000 acres of land.Approximately 256,000 acres are used for two grazing leases, which account for 42% of total revenues from ranch operations at December 31, 2017.General Environmental RegulationOur operations are subject to federal, state, and local environmental laws and regulations including laws relating to water, air, solid waste, and hazardoussubstances. Although we believe that we are in material compliance with these requirements, there can be no assurance that we will not incur costs, penalties,and liabilities, including those relating to claims for damages to property or natural resources, resulting from our operations. Environmental liabilities mayalso arise from claims asserted by adjacent landowners or other third parties. We also expect continued legislation and regulatory development in the area ofclimate change and greenhouse gases. It is unclear as of this date how any such developments will affect our business. Enactment of new environmental lawsor regulations, or changes in existing laws or regulations or the interpretation of these laws or regulations, might require expenditures in the future. Wehistorically have not had material environmental liabilities.CustomersDuring 2017, our PEF power plant lease accounted for 11% of total revenues. In 2016, and 2015 the PEF power plant lease generated 8%, and 7% of our totalrevenues, respectively. No other client tenant represents 5% or more of our revenues in 2017 and 2016.OrganizationTejon Ranch Co. is a Delaware corporation incorporated in 1987 to succeed the business operated as a California corporation since 1936.EmployeesAt December 31, 2017, we had 131 full-time employees. We believe that we have good relations with our employees. We have adopted a Compliance withState and Federal Statutes, Rules and Regulations Reporting Policy that applies to all of our employees. Its receipt and review by each employee isdocumented and verified quarterly. None of our employees are covered by a collective bargaining agreement.20ReportsWe make available free of charge through our Internet website, www.tejonranch.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, currentreports on Form 8-K and amendments to these reports filed or to be furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended,as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC. We also make available on our website our corporategovernance guidelines, charters of our key Board of Directors’ Committees (audit, compensation, nominating and corporate governance, and real estate), andour Code of Business Conduct and Ethics for Directors, Officers, and Employees. These items are also available in printed copy upon request. We intend todisclose in the future any amendments to our Code of Business Conduct and Ethics for Directors, Officers, and Employees, or waivers of such provisionsgranted to executive officers and directors, on the web site within four business days following the date of such amendment or waiver. Any document we filewith the Securities and Exchange Commission, or SEC, may be inspected, without charge, at the SEC’s public reference room at 100 F Street, N.E.Washington, D.C. 20549 or at the SEC’s internet site address at http://www.sec.gov. Information related to the operation of the SEC’s public reference roommay be obtained by calling the SEC at 1-800-SEC-0330.Executive Officers of the RegistrantThe following table shows each of our executive officers and the offices held as of March 1, 2018, the period the offices have been held, and the age of theexecutive officer.Name Office Held since AgeGregory S. Bielli President and Chief Executive Officer, Director 2013 57Allen E. Lyda Executive Vice President, Chief Financial Officer 1990 60Hugh McMahon Executive Vice President, Real Estate 2014 51Joseph N. Rentfro Executive Vice President, Real Estate 2015 49Robert D. Velasquez Senior Vice President, Finance and Chief Accounting Officer 2015 51Michael R.W. Houston Senior Vice President, General Counsel 2016 43A description of present and prior positions with us, and business experience for the past five years is given below.Mr. Bielli has been employed by the Company since September 2013. Mr. Bielli joined the Company as President and Chief Operating Officer and becamePresident and Chief Executive Officer on December 17, 2013. Prior to joining the Company Mr. Bielli was President of Newland Communities' WesternRegion and was responsible for overseeing management of all operational aspects of Newland's real estate projects in the region. Mr. Bielli worked withNewland Communities from 2006 through August 2013.Mr. Lyda has been employed by us since 1990, serving as Vice President, Finance and Treasurer. He was elected Assistant Secretary in 1995 and ChiefFinancial Officer in 1999. Mr. Lyda was promoted to Senior Vice President in 2008, and Executive Vice President in 2012. Mr. Lyda's title was subsequentlychanged to Executive Vice President and Chief Financial Officer to more accurately describe the responsibilities of his office.Mr. McMahon joined the Company in November 2001 as Director of Financial Analysis. In 2008, Mr. McMahon became Vice President ofCommercial/Industrial Development and in December of 2014, was promoted to Senior Vice President of Commercial/Industrial Development and elected asan officer of the Company. In 2015, he was promoted to Executive Vice President. Mr. McMahon's title was subsequently changed to Executive VicePresident, Real Estate.Mr. Rentfro joined the Company on February 27, 2015 and was elected Executive Vice President of Real Estate on March 9, 2015. Mr. Rentfro's priorexperiences involved development efforts for a number of major projects within the Emirate of Abu Dhabi in the United Arab Emirates. Notabledevelopments include the Westin Abu Dhabi Golf Resort & Spa, Monte Carlo Beach Club-Saadiyat, Eastern Mangroves Resort and Residences, St. RegisSaadiyat Island Residences, and the Al Yamm and Al Sahel Villas at the Desert Islands Resort & Spa by Anantara. Prior to his work in the Middle East, Mr.Rentfro held executive positions at The St. Joe Company (NYSE: JOE), ascending ultimately to Regional Vice President and General Manager. There he ledall efforts related to planning, design, entitlement, development, construction, asset management, marketing and sales for real estate operations within a330,000-acre region along the Gulf Coast of Northwest Florida.21Mr. Velasquez joined the Company as Vice President of Finance of Tejon Ranchcorp, or TRC, a subsidiary of the Company, in 2017. Mr. Velasquez's titlewas subsequently changed to Vice President of Finance and Chief Accounting Officer to more accurately describe the responsibilities of his office. Prior tojoining TRC, Mr. Velasquez served as an Executive Director at Ernst & Young in their audit and assurance practice section. Mr. Velasquez worked with Ernst& Young from 1999 through 2014. Mr. Velasquez holds a B.S. in Business Administration with an option in Accounting from California State University,Los Angeles. Mr. Velasquez is a Certified Public Accountant in the state of California. On January 1, 2018 he was promoted to Senior Vice President, Financeand Chief Accounting Officer.Mr. Houston joined the Company in May 2016 as the Senior Vice President, General Counsel. He previously worked for the City of Anaheim, where heserved as City Attorney from 2013 through 2016. His background involves extensive experience in corporate governance, municipal law, real estate, land useand environmental issues. Prior to working for the City of Anaheim, he served as a partner for a Newport Beach, CA-based law firm of Cummins & White from2011 to 2013, and prior to that, was a partner at Rutan & Tucker, LLP, Costa Mesa, CA.ITEM 1A. RISK FACTORSThe risks and uncertainties described below are not the only ones facing the Company. If any of the following risks occur, our business, financial condition,results of operations or future prospects could be materially adversely affected. Our strategy, focused on more aggressive development of our land, involvessignificant risk and could result in operating losses. The risks that we describe in our public filings are not the only risks that we face. Additional risks anduncertainties not presently known to us, or that we currently consider immaterial, also may materially adversely affect our business, financial condition, andresults of operations.STRATEGIC RISKSStrategic risk relates to the Company's future business plans and strategies, including the risks associated with the macro- and micro- environment in whichwe operate, including the demand for our products and services, the success of investments in our real estate development, technology and public policy.Adverse changes in economic conditions in markets where we conduct our operations and where prospective purchasers of our future homes andcommercial products live could reduce the demand for our products and, as a result, could adversely affect our business, results of operations, andfinancial condition. Adverse changes in economic conditions in markets where we conduct our operations and where prospective purchasers of our real estateproducts live have had and may in the future have a negative impact on our business. Adverse changes in employment levels, job growth, consumerconfidence, interest rates, and population growth, or an oversupply of product for sale or lease may reduce demand and depress prices and cause buyers tocancel their purchase agreements. This, in turn, could adversely affect our results of operations and financial condition.Higher interest rates and lack of available financing can have significant impacts on the real estate industry. Higher interest rates generally impact thereal estate industry by making it harder for buyers to qualify for financing, which can lead to a decrease in the demand for residential, commercial orindustrial sites. Any decrease in demand will negatively impact our proposed developments. Lack of available credit to finance real estate purchases can alsonegatively impact demand. Any downturn in the economy or consumer confidence can also be expected to result in reduced housing demand and slowerindustrial development, which would negatively impact the demand for land we are developing.We are subject to various land use regulations and require governmental approvals and permits for our developments that could be denied. In planningand developing our land, we are subject to various local, state, and federal statutes, ordinances, rules and regulations concerning zoning, infrastructuredesign, subdivision of land, and construction. All of our new developments require amending existing general plan and zoning designations, so it is possiblethat our entitlement applications could be denied. In addition, the zoning that ultimately is approved could include density provisions that would limit thenumber of homes and other structures that could be built within the boundaries of a particular area, which could adversely impact the financial returns from agiven project. Many states, cities and counties (including neighboring Ventura County) have in the past approved various “slow growth” or “urban limitline” measures. If that were to occur in the jurisdictions governing the Company’s land use, our future real estate development activities could besignificantly adversely affected.Third-party litigation could increase the time and cost of our development efforts. The land use approval processes we must follow to ultimately developour projects have become increasingly complex. Moreover, the statutes, regulations and ordinances governing the approval processes provide third partiesthe opportunity to challenge the proposed plans and approvals. As a result, the prospect of third-party challenges to planned real estate developmentsprovides additional uncertainties in real estate development planning and entitlements. Third-party challenges in the form of litigation could result in denialof the right to develop, or would, by their nature, adversely affect the length of time and the cost required to obtain the22necessary approvals. In addition, adverse decisions arising from any litigation would increase the costs and length of time to obtain ultimate approval of aproject and could adversely affect the design, scope, plans and profitability of a project.We are subject to environmental regulations and opposition from environmental groups that could cause delays and increase the costs of ourdevelopment efforts or preclude such development entirely. Environmental laws that apply to a given site can vary greatly according to the site’s locationand condition, present and former uses of the site, and the presence or absence of sensitive elements like wetlands and endangered species. Federal and stateenvironmental laws also govern the construction and operation of our projects and require compliance with various environmental regulations, includinganalysis of the environmental impact of our projects and evaluation of our reduction in the projects’ carbon footprint and greenhouse gas emissions.Environmental laws and conditions may result in delays, cause us to incur additional costs for compliance, mitigation and processing land use applications,or preclude development in specific areas. In addition, in California, third parties have the ability to file litigation challenging the approval of a projectwhich they usually do by alleging inadequate disclosure and mitigation of the environmental impacts of the project. Certain groups opposed to developmenthave made clear they intend to oppose our projects vigorously, so litigation challenging their approval is expected. Currently, the Grapevine entitlementapproval has been opposed and litigation has been filed against Kern County as the approving governmental entity. The issues most commonly cited inopponents’ public comments include the poor air quality of the San Joaquin Valley air basin, potential impacts of projects on the California condor and otherspecies of concern, the potential for our lands to function as wildlife movement corridors, potential impacts of our projects on traffic and air quality in LosAngeles County, emissions of greenhouse gases, water availability and criticism of proposed development in rural areas as being “sprawl”. In addition,California has a specific statutory and regulatory scheme intended to reduce greenhouse gas emissions in the state and efforts to enact federal legislation toaddress climate change concerns could require further reductions in our projects’ carbon footprint in the future.Until governmental entitlements are received, we will have a limited inventory of real estate. Each of our four current and planned real estate projects,TRCC, Centennial, MV, and Grapevine involve obtaining various governmental permits and/or entitlements. A delay in obtaining governmental approvalscould lead to additional costs related to these developments and potentially lost opportunities for the sale of lots to developers and land users.We are in competition with several other developments for customers and residents. Within our real estate activities, we are in direct competition forcustomers with other industrial sites in Northern, Central, and Southern California. We are also in competition with other highway interchange locationsusing Interstate 5 and State Route 99 for commercial leasing opportunities. Once they receive all necessary permits, approvals and entitlements, Centennialand Grapevine will ultimately compete with other residential housing options in the region, such as developments in the Santa Clarita Valley, Lancaster,Palmdale, and Bakersfield. MV will compete generally for discretionary dollars that consumers will allocate to recreation and second homes, so itscompetition will include a greater area and range of projects. Intense competition may decrease our sales and harm our results of operations.Increases in taxes or government fees could increase our cost, and adverse changes in tax laws could reduce demand for homes in our future residentialcommunities. Increases in real estate taxes and other local government fees, such as fees imposed on developers to fund schools, open space, and roadimprovements, could increase our costs and have an adverse effect on our operations. In addition, any changes to income tax laws that would reduce oreliminate tax deductions or incentives to homeowners, such as a change limiting the deductibility of real estate taxes or interest on home mortgages, couldmake housing less affordable or otherwise reduce the demand for housing, which in turn could reduce future sales.Our developable land is concentrated entirely in California. All of our developable land is in California and our business is especially sensitive to theeconomic conditions within California. Any adverse change in the economic climate of California, or our regions of that state, and any adverse change in thepolitical or regulatory climate of California, or the counties where our land is located could adversely affect our real estate development activities.Ultimately, our ability to sell or lease lots may decline as a result of weak economic conditions or restrictive regulations.We may encounter other risks that could impact our ability to develop our land. We may also encounter other difficulties in developing our land,including:•Difficulty in securing adequate water resources for future developments;•Natural risks, such as geological and soil problems, earthquakes, fire, heavy rains and flooding, and heavy winds;•Shortages of qualified trades people;•Reliance on local contractors, who may be inadequately capitalized;•Shortages of materials; and•Increases in the cost of materials.23A prolonged downturn in the real estate market or instability in the mortgage and commercial real estate financing industry, could have an adverseeffect on our real estate business. Our residential housing projects, Centennial, MV, and Grapevine, are currently in the entitlement phase, permitting phase,or are fully entitled and waiting for development to begin. If a downturn in the real estate market or an instability in the mortgage and commercial real estatefinancing industry exists at the time these projects move into their development and marketing phases, our resort/residential business could be adverselyaffected. An excess supply of homes available due to foreclosures or the expectation of deflation in housing prices could also have a negative impact on ourability to sell our inventory when it becomes available. The inability of potential commercial/industrial clients to get adequate financing for the expansionof their businesses could lead to reduced lease revenues and sales of land within our industrial development.OPERATIONAL RISKSOperational risk relates to risks arising from external market factors that affect the operation of our businesses. It includes weather and other naturalconditions; regulatory requirements; information management and data protection and security, including cybersecurity; supply chain and businessdisruption; and other risks, including human resources and reputation.We are involved in a cyclical industry and are affected by changes in general and local economic conditions. The real estate development industry iscyclical and is significantly affected by changes in general and local economic conditions, including:•Employment levels•Availability of financing•Interest rates•Consumer confidence•Demand for the developed product, whether residential or industrial•Supply of similar product, whether residential or industrialThe process of development of a project begins and financial and other resources are committed long before a real estate project comes to market, whichcould occur at a time when the real estate market is depressed. It is also possible in a rural area like ours that no market for the project will develop asprojected.The inability of a client tenant to pay us rent could adversely affect our business. Our commercial revenues are derived primarily from rental payments andreimbursement of operating expenses under our leases. If our client tenants fail to make rental payments under their leases, our financial condition and cashflows could be adversely affected.Our inability to renew leases or re-lease space on favorable terms as leases expire may significantly affect our business. Some of our revenues are derivedfrom rental payments and reimbursement of operating expenses under our leases. If a client tenant experiences a downturn in its business or other types offinancial distress, it may be unable to make timely payments under its lease. Also, if our client tenants terminate early or decide not to renew their leases, wemay not be able to re-lease the space. Even if client tenants decide to renew or lease space, the terms of renewals or new leases, including the cost of anytenant improvements, concessions, and lease commissions, may be less favorable to us than current lease terms. Consequently, we could generate less cashflow from the affected properties than expected, which could negatively impact our business. We may have to divert cash flow generated by other propertiesto meet our debt service payments, if any, or to pay other expenses related to owning the affected properties.We may experience increased operating costs, which may reduce profitability to the extent that we are unable to pass those costs on to client tenants. Ourproperties are subject to increases in operating expenses including insurance, property taxes, utilities, administrative costs, and other costs associated withsecurity, landscaping, and repairs and maintenance of our properties. Our leases allow us to pass along real estate taxes, insurance, utilities, common area, andother operating expenses (including increases thereto) in addition to base rent. However, we cannot be certain that our client tenants will be able to bear thefull burden of these higher costs, or that such increased costs will not lead them, or other prospective client tenants, to seek space elsewhere. If operatingexpenses increase, the availability of other comparable space in the markets we operate in may hinder or limit our ability to increase our rents; if operatingexpenses increase without a corresponding increase in revenues, our profitability could diminish.If we experience shortages or increased costs of labor and supplies or other circumstances beyond our control, there could be delays or increased costswithin our industrial development, which could adversely affect our operating results.24Our ability to develop our current industrial development may be adversely affected by circumstances beyond our control including: work stoppages, labordisputes and shortages of qualified trades people; changes in laws relating to union organizing activity; and shortages, delays in availability, or fluctuationsin prices of building materials. Any of these circumstances could give rise to delays in the start or completion of, or could increase the cost of, developinginfrastructure and buildings within our industrial development. If any of the above happens, our operating results could be harmed.We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects. Our futuresuccess depends, to a significant degree, on the efforts of our senior management. The loss of key personnel could materially and adversely affect our resultsof operations, financial condition, or our ability to pursue land development. Our success will also depend in part on our ability to attract and retainadditional qualified management personnel.Decreases in the market value of our investments in marketable securities could have an adverse impact on our results of operations. We have asignificant amount of funds invested in marketable securities, the market value of which is subject to changes from period to period. Decreases in the marketvalue of our marketable securities could have an adverse impact on our results of operations.Volatile oil and natural gas prices could adversely affect our cash flows and results of operations. Our cash flows and results of operations are dependentin part on oil and natural gas prices, which are volatile. Oil and natural gas prices also impact the amount we receive for our mineral leases. Moreover, oil andnatural gas prices depend on factors we cannot control, such as: changes in foreign and domestic supply and demand for oil and natural gas; actions by theOrganization of Petroleum Exporting Countries; weather; political conditions in other oil-producing countries, including the possibilities of insurgency orwar in such areas; prices of foreign exports; domestic and international drilling activity; price and availability of alternate fuel sources; the value of the U.S.dollar relative to other major currencies; the level and effect of trading in commodity markets; and the effect of worldwide energy conservation measures andgovernmental regulations. Any substantial or extended decline in the price of oil and gas could have a negative impact on our business, liquidity, financialcondition and results of operations. Substantial or extended declines in future natural gas or crude oil prices would have a material adverse effect on ourfuture business, financial condition, results of operations, cash flows, liquidity or ability to finance planned capital expenditures and commitments.Furthermore, substantial, extended decreases in natural gas and crude oil prices may cause us to delay development projects and could negatively impact ourability to borrow, our cost of capital and our ability to access capital markets, increase our costs under our revolving credit facility, and limit our ability toexecute aspects of our business plans.Our reserves and production will decline from their current levels. The rate of production from oil and natural gas properties generally decline as reservesare produced. Any decline in production or reserves could materially and adversely affect our future cash flow, liquidity and results of operations.Water delivery and water availability continues to be a long-term concern within California. Any limitation of delivery of SWP water, limitations on ourability to move our water resources, and the absence of available reliable alternatives during drought periods could potentially cause permanent damage toorchards and vineyards and possibly impact future development opportunities.Our future revenue and profitability related to our water resources will primarily be dependent on our ability to acquire and sell water assets. In light of thefact that our water resources represent a portion of our overall business at present, our long-term profitability will be affected by various factors, including theavailability and timing of water resource acquisitions, regulatory approvals and permits associated with such acquisitions, transportation arrangements, andchanging technology. We may also encounter unforeseen technical or other difficulties which could result in cost increases with respect to our waterresources. Moreover, our profitability is significantly affected by changes in the market price of water. Future sales and prices of water may fluctuate widelyas demand is affected by climatic, economic, demographic and technological factors as well as the relative strength of the residential, commercial, financial,and industrial real estate markets. The factors described above are not within our control.Terrorist attacks may have an adverse impact on our business and operating results and could decrease the value of our assets. Terrorist attacks,particularly those that may cause a decline in global economic activity could have a material adverse impact on our business, our operating results, and themarket price of our common stock. Future terrorist attacks may result in declining economic activity, which could reduce the demand for and the value of ourproperties. To the extent that future terrorist attacks impact our client tenants, their businesses similarly could be adversely affected, including their ability tocontinue to honor their lease obligations.Failure to maintain effective internal control over financial reporting could have a material adverse effect on our business, results of operations,financial condition, and stock price. Pursuant to the Sarbanes-Oxley Act of 2002, we are required to provide a report by management on internal control overfinancial reporting, including management’s assessment of25the effectiveness of internal control. Changes to our business will necessitate ongoing changes to our internal control systems and processes. Internal controlover financial reporting may not prevent or detect misstatement because of its inherent limitations, including the possibility of human error, thecircumvention or overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to thepreparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal controls, including any failure to implementrequired new or improved controls, or if we experience difficulties in their implementation, our business, results of operations, and financial condition couldbe materially harmed, and we could fail to meet our reporting obligations and there could be a material adverse effect on our stock price.Information technology failures and data security breaches could harm our business. We use information technology and other computer resources tocarry out important operational and marketing activities and to maintain our business records. These information technology systems are dependent uponglobal communications providers, web browsers, telephone systems and other aspects of the Internet infrastructure that have experienced security breaches,cyber-attacks, significant systems failures and electrical outages in the past. A material network breach in the security of our information technology systemscould include the theft of customer, employee or company data. The release of confidential information as a result of a security breach may also lead tolitigation or other proceedings against us by affected individuals or business partners, or by regulators, and the outcome of such proceedings, which couldinclude penalties or fines, could have a significant negative impact on our business. We may also be required to incur significant costs to protect againstdamages caused by these information technology failures or security breaches in the future. However, we cannot provide assurance that a security breach,cyber-attack, data theft or other significant systems failure will not occur in the future, and such occurrences could have a material and adverse effect on ourconsolidated results of operations or financial position.Increased cybersecurity requirements, vulnerabilities, threats and more sophisticated and targeted computer crime could pose a risk to our systems,networks, products, solutions, services and data. Increased global cybersecurity vulnerabilities, threats and more sophisticated and targeted cyber-relatedattacks pose a risk to the security of Tejon's and its customers', partners', suppliers' and third-party service providers' products, systems and networks and theconfidentiality, availability and integrity of Tejon's and its customers' data. While we attempt to mitigate these risks by employing a number of measures,including employee training, monitoring and testing, and maintenance of protective systems and contingency plans, we remain potentially vulnerable toadditional known or unknown threats. We also may have access to sensitive, confidential or personal data or information that is subject to privacy andsecurity laws, regulations or customer-imposed controls. Despite our efforts to protect sensitive, confidential or personal data or information, we may bevulnerable to material security breaches, theft, misplaced or lost data, programming errors, employee errors and/or malfeasance that could potentially lead tothe compromising of sensitive, confidential or personal data or information, improper use of our systems, software solutions or networks, unauthorizedaccess, use, disclosure, modification or destruction of information, production downtimes and operational disruptions. In addition, a cyber-related attackcould result in other negative consequences, including damage to our reputation or competitiveness, remediation or increased protection costs, litigation orregulatory action.Inflation can have a significant adverse effect on our operations. Inflation can have a major impact on our farming operations. The farming operations aremost affected by escalating costs, unpredictable revenues and very high irrigation water costs. High fixed water costs related to our farm lands will continueto adversely affect earnings. Prices received for many of our products are dependent upon prevailing market conditions and commodity prices. Therefore, it isdifficult for us to accurately predict revenue, just as we cannot pass on cost increases caused by general inflation, except to the extent reflected in marketconditions and commodity prices.Inflation can adversely impact our real estate operations, by increasing costs of material and labor as well as the cost of capital, which can impact operatingmargins. In an inflationary environment, we may not be able to increase prices at the same pace as the increase in inflation, which would further erodeoperating margins.FINANCIAL RISKSFinancial risk relates to our ability to meet financial obligations and mitigate exposure to broad market risks, including volatility in interest rates andcommodity prices; credit risk; and liquidity risk, including risk related to our credit ratings and our availability and cost of funding. Credit risk is the risk offinancial loss arising from a customer or counterparty failure to meet its contractual obligations. We face credit risk in our industrial businesses, as well as inour investing and leasing activities and derivative financial instruments activities. Liquidity risk refers to the potential inability to meet contractual orcontingent financial obligations (whether on- or off-balance sheet) as they arise, and could potentially impact an institution's financial condition or overallsafety and soundness.Constriction of the credit markets or other adverse changes in capital market conditions could limit our ability to access capital and increase our costof capital. During past economic downturns, we relied principally on positive operating cash26flow, cash and investments, and equity offerings to meet current working capital needs, entitlement investment, and investment within our developments.While the current economy is seen as strong, any slowdown in the economy could negatively impact our access to credit markets and may limit our sources ofliquidity in the future and potentially increase our costs of capital.We regularly assess our projected capital requirements to fund future growth in our business, repay our debt obligations, and support our other generalcorporate and operational needs, and we regularly evaluate our opportunities to raise additional capital. As market conditions permit, we may issue newequity securities through the public capital markets, enter new joint ventures, or obtain additional bank financing to fund our projected capital requirementsor provide additional liquidity. Adverse changes in economic, or capital market conditions could negatively affect our business, liquidity and financialresults.Our business model is very dependent on transactions with strategic partners. We may not be able to successfully (1) attract desirable strategicpartners; (2) complete agreements with strategic partners; and/or (3) manage relationships with strategic partners going forward, any of which couldadversely affect our business. A key to our development and value creation strategies has been the use of joint ventures and strategic relationships. Thesejoint venture partners bring development experience, industry expertise, financial resources, financing capabilities, brand recognition and credibility or othercompetitive assets.A complicating factor in any joint venture is that strategic partners may have economic or business interests or goals that are inconsistent with ours or that areinfluenced by factors related to our business. These competing interests lead to the difficult challenges of successfully managing the relationship andcommunication between strategic partners and monitoring the execution of the partnership plan. We may also be subject to adverse business consequences ifthe market reputation or financial position of the strategic partner deteriorates. If we cannot successfully execute transactions with strategic partners, ourbusiness could be adversely affected.Inability to comply with long-term debt covenants, restrictions or limitations could adversely affect our financial condition. Our ability to meet our debtservice and other obligations and the financial covenants under our credit facility will depend, in part, upon our future financial performance. Our futureresults are subject to the risks and uncertainties described in this report. Our revenues and earnings vary with the level of general economic activity in themarkets we serve and the level of commodity prices related to our farming and mineral resource activities. The factors that affect our ability to generate cashcan also affect our ability to raise additional funds for these purposes through the addition of debt, the sale of equity, refinancing existing debt, or the sale ofassets.Our credit facility contains financial covenants requiring the maintenance of a maximum total liabilities to tangible net worth not greater than .75 to 1 ateach quarter end, a debt service coverage ratio not less than 1.25 to 1.00, and a minimum level of liquidity of $20,000,000, including any unused portion ofour revolving credit facility. A failure to comply with these requirements could allow the lending bank to terminate the availability of funds under ourrevolving credit facility and/or cause any outstanding borrowings to become due and payable prior to maturity.MARKET RISKSMarket risk relates to the functioning of the marketplace. Many factors affect market function; investor anticipation, shocks in other markets, and anythingthat limits the efficient functioning of the marketplace. Market risks can affect the price of our Common Stock.Only a limited market exists for our Common Stock, which could lead to price volatility. The limited trading market for our Common Stock may causefluctuations in the market value of our Common Stock to be exaggerated, leading to price volatility in excess of that which would occur in a more activetrading market of our Common Stock.Concentrated ownership of our Common Stock creates a risk of sudden change in our share price. As of February 28, 2018, directors and members of ourexecutive management team beneficially owned or controlled approximately 30% of our Common Stock. Investors who purchase our Common Stock may besubject to certain risks due to the concentrated ownership of our Common Stock. The sale by any of our large shareholders of a significant portion of thatshareholder’s holdings could have a material adverse effect on the market price of our Common Stock. In addition, the registration and sale of any significantnumber of additional shares of our Common Stock will have the immediate effect of increasing the public float of our Common Stock and any such increasemay cause the market price of our Common Stock to decline or fluctuate significantly.ITEM 1B. UNRESOLVED STAFF COMMENTSNone.27ITEM 2. PROPERTIESLandOur approximate 270,000 acres include portions of the San Joaquin Valley, portions of the Tehachapi Mountains and portions of the western end of theAntelope Valley. Each of our five major segments use various portions of this land. A number of key transportation and utility facilities cross our land,including Interstate 5, California Highways 58, 138 and 223, the California Aqueduct (which brings water from Northern California), and varioustransmission lines for electricity, oil, natural gas and communication systems. Our corporate offices are located on our property.Approximately 247,000 acres of our land are located in Kern County, California. The Kern County general plan, or the “General Plan,” for this landcontemplates continued commercial, resource utilization, farming, grazing and other agricultural uses, as well as certain new developments and uses,including residential and recreational facilities. While the General Plan is intended to provide guidelines for land use and development, it is subject toamendment to accommodate changing circumstances and needs. We have three major master planned real estate projects in Kern County that have receivedentitlement approvals from Kern County: Mountain Village, TRCC and Grapevine.The remainder of our land, approximately 23,000 acres, is in Los Angeles County. This area is accessible from Interstate 5 via Highway 138. Los AngelesCounty has adopted general plan policies that contemplate future residential development of portions of this land, subject to further assessments ofenvironmental and infrastructure constraints. We are currently pursuing specific plan entitlement for Centennial on 12,323 acres of this land. See Item 1,“Business—Real Estate Development Overview.”Portions of our land consist of mountainous terrain, much of which is not presently served by paved roads or by utility or water lines. Much of this property isincluded within the Conservation Agreement we entered into with five of the major environmental organizations in June 2008. As we receive entitlementapprovals over the life span of our developments we will dedicate conservation easements on 145,000 acres of this land, which will preclude futuredevelopment of the land. This acreage includes many of the most environmentally sensitive areas of our property and is home to many plant and wildlifespecies whose environments will remain undisturbed.Any significant development on our currently undeveloped land would involve the construction of roads, utilities and other expensive infrastructure andwould have to be done in a manner that accommodates a number of environmental concerns, including endangered species, wetlands issues, and greenhousegas emissions. Accommodating these environmental concerns, could possibly limit development of portions of the land or result in substantial delays orcertain changes to the scope of development in order to obtain governmental approval.Water OperationsOur existing long-term water contracts with the Wheeler Ridge-Maricopa Water Storage District, or WRMWSD, provide for water entitlements and deliveriesfrom the SWP, to our agricultural and municipal/industrial operations in the San Joaquin Valley. The terms of these contracts extend to 2035. Under thecontracts, we are entitled to annual water for 5,496 acres of land, or 15,547 acre-feet of water subject to SWP allocations, which is adequate for our presentfarming operations. It is assumed, that at the end of the current contract period all water contracts will be extended for approximately the same amount ofannual water.In addition to the WRMWSD contract water entitlements, we have an additional water entitlement from the SWP sufficient to service a substantial amount offuture residential and/or commercial development in Kern County. The Tejon-Castac Water District, or TCWD, a local water district serving our land in thedistrict and land we have sold in TRCC, has 5,749 acre-feet of SWP entitlement (also called Table A amount), subject to SWP allocations. In addition, TCWDhas 49,184 acre-feet of water stored in Kern County water banks. Both the entitlement and the banked water are the subject of a long-term water supplycontract extending to 2035 between TCWD and our Company. TCWD is the water supplier to TRCC, and will be the principal water supplier for anysignificant mixed use development in MV. TCWD will also be the water district that provides services to Grapevine.We have a 150-acre water bank consisting of nine ponds on our land in southern Kern County. Water is pumped into these ponds and then percolates intounderground aquifers. Since 2006, we have banked 31,497 acre-feet of water from the Antelope Valley-East Kern Water Agency, or AVEK, which has beenpumped from the California aqueduct and is currently retained in this water bank. In 2007 and 2008 we contracted for 2,362 additional acre-feet of water fromAVEK, which was delivered in full in 2017. We anticipate adding additional water to the water bank in the future, as water is available. In 2010 we beganparticipating with AVEK in a water-banking program and we have 13,033 acre-feet of water to our credit in this program.28Over time we have also purchased water for our future use or sale. In 2008 we purchased 8,393 acre-feet of transferable water and in 2009 we purchased anadditional 6,393 acre-feet of transferable water, all of which is currently held on our behalf by AVEK or has been placed in our water bank. We also havesecured SWP entitlement under long-term SWP water contracts within the Tulare Lake Basin Water Storage District and the Dudley-Ridge Water District,totaling 3,444 acre-feet of SWP entitlement annually, subject to SWP allocations. These contracts extend through 2035. On November 6, 2013, the Companycompleted the acquisition of a water purchase agreement that will allow and require the Company to purchase 6,693 acre-feet of water each year from theNickel Family, LLC, or Nickel, through the Kern County Water Agency. The aggregate purchase price was $18,700,000 and was paid one-half in cash andone-half in shares of Company Common Stock. The number of shares of Common Stock delivered was determined based on the volume weighted averageprice of Common Stock for the ten trading days that ended two days prior to closing, which calculated to be 251,876 shares of Common Stock.The initial term of the water purchase agreement with Nickel runs through 2044 and includes a Company option to extend the contract for an additional 35years. This contract allows us to purchase water each year. The purchase cost of water in 2017 was $717 per acre-foot. Purchase costs are subject to annualcost increases based on the greater of the consumer price index and 3%, resulting in a 2018 purchase cost of $738 per acre-foot.The water purchased will ultimately be used in the development of the Company’s land for commercial/industrial development, residential development, andfarming. Interim uses may include the sale of portions of this water to third party users on an annual basis until the water is fully used for the Company’sinternal uses.During 2017, SWP allocations were 85% of contract levels, and WRMWSD was able to supply us with water from various sources that when combined withour water sources provided sufficient water to meet our farming and real estate demands. In some years, there is also sufficient runoff from local mountainstreams to allow us to capture some of this water in reservoirs and utilize it to offset some of the SWP water. In years where the supply of water is sufficient,both WRMWSD and TCWD are able to bank (percolate into underground aquifers) some of their excess supplies for future use. At this time, Wheeler Ridgeexpects to be able to deliver our entire contract water entitlement in any year that the SWP allocations exceed 30% by drawing on its ground water wells andwater banking assets. Based on historical records of water availability, we do not believe we have material problems with our water supply. However, if SWPallocations are less than 30% of our entitlement in any year, or if shortages continue for a sustained period of several years, then WRMWSD may not be ableto deliver 100% of our entitlement and we will have to rely on our own ground water sources, mountain stream runoff, water transfer from other sources, andwater banking assets to supply the needs of our farming and development activities. Water from these sources may be more expensive than SWP waterbecause of pumping costs and/or transfer costs. A 20% preliminary SWP water allocation has been made by the DWR for 2018. The current 20% allocation ofSWP water is not enough for us to farm our crops, but our additional water resources, such as groundwater and surface sources, and those of the water districtswe are in, should allow us to have sufficient water for our farming needs.All SWP water contracts require annual payments related to the fixed and variable costs of the SWP and each water district, whether or not water is used oravailable. WRMWSD and TCWD contracts also establish a lien on benefited land.Portions of our property also have available groundwater, which we believe would be sufficient to supply commercial development in the Interstate 5corridor and support current agricultural operations. Ground water in the Antelope Valley Basin is the subject of litigation. See Item 3, “Legal Proceedings”for additional information about this litigation. Please refer to "Note 14 (Commitments and Contingencies)" for further discussion.A new development with respect to groundwater is the Sustainable Groundwater Management Act, or SGMA, which became effective January 1, 2015. Forthe water districts in which the Company participates in the San Joaquin Valley, Groundwater Sustainability Plans are to be developed by 2020. Throughthese plans it will have to be demonstrated to the satisfaction of the Department of Water Resources, that the basins are "sustainable" and in balance by 2040,which could ultimately lead to restrictions on the use of groundwater. The Company's lands are located in the White Wolf Basin, which is a basin that iscurrently not over-drafted, so there is no anticipation at this time of any restriction related to manageable uses of ground water. However, the Company'slands are in relatively good condition because of the diverse inventory of surface water supplies and banked water that the Company has access to asmentioned above.There have been many environmental challenges regarding the movement of SWP water through the Sacramento Delta. Operation of the Delta pumps are ofprimary importance to the California water system because these pumps are part of the system that moves water from Northern California to SouthernCalifornia. Biological Opinions, or BOs, issued by the U.S. Fish and Wildlife Service and National Marine Fisheries Service in 2008 and 2009 containrestrictions on pumping from the Delta. These BOs are being challenged in the courts by both water agencies and environmental groups, which challengeswere for the most part unsuccessful. There are many groups, governmental and private, working together to develop a solution in the future to mitigate thecurtailment of water from the Delta.29Historic SWP restrictions on the right to use agricultural water entitlement for municipal purposes were removed in 1995. For this purpose, “municipal” useincludes residential and industrial use. Therefore, although only 2,000 of TCWD's 5,749 acre-feet of entitlement are labeled for municipal use, there is nopractical restriction on TCWD's ability to deliver the remaining water to residential or commercial/industrial developments.Other ActivitiesThe Tejon Ranch Public Facilities Financing Authority, or TRPFFA, is a joint powers authority formed by Kern County and TCWD to finance publicinfrastructure within the Company’s Kern County developments. TRPFFA has created two Community Facilities Districts, or CFDs, the West CFD and theEast CFD. The West CFD has placed liens on 420 acres of the Company’s land to secure payment of special taxes related to $28,620,000 of bond debt sold byTRPFFA for TRCC-West. The East CFD has placed liens on 1,931 acres of the Company’s land to secure payments of special taxes related to $55,000,000 ofbond debt sold by TRPFFA for TRCC-East. At TRCC-West, the West CFD has no additional bond debt approved for issuance. At TRCC-East, the East CFDhas $65,000,000 of additional bond debt authorized by TRPFFA. Proceeds from the sales of these bonds are to reimburse the Company for publicinfrastructure related to TRCC-East. During 2016, we received $6,155,000 in reimbursement from the East CFD bonds.In 2017 and 2016, we paid $2,578,000 and $2,585,000 in special taxes related to the CFDs. As development continues to occur at TRCC, new owners of landand new lease tenants, through triple net leases, will bear an increasing portion of the assessed special tax. It is expected that we will have special taxpayments in 2018 of $2,570,000, but this could change in the future based on the amount of bonds outstanding within each CFD and the amount of taxespaid by other owners and tenants. The assessment of each individual property sold or leased is not determinable at this time because it is based on the currenttax rate and the assessed value of the property at the time of sale or on its assessed value at the time it is leased to a third-party. Accordingly, the Company isnot required to recognize an obligation at December 31, 2017.ITEM 3. LEGAL PROCEEDINGSThe Company is involved in various legal matters arising out of its operations in the normal course of business. None of these matters are expected,individually or in the aggregate, to have a material adverse effect on the Company.For a discussion of legal proceedings, see Note 14 (Commitments and Contingencies) of the Notes to the Consolidated Financial Statements.ITEM 4. MINE SAFETY DISCLOSURESNot Applicable.30PART IIITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESThe following table shows the high and low sale prices for our Common Stock, which trades under the symbol TRC on the New York Stock Exchange, foreach calendar quarter during the last two years: 2017 2016Quarter High Low High LowFirst $26.04 $20.58 $21.58 $16.85Second $24.18 $19.90 $24.90 $19.50Third $21.94 $19.67 $26.99 $22.00Fourth $22.81 $18.59 $27.99 $21.13As of February 28, 2018, there were 374 registered owners of record of our Common Stock.No cash dividends were paid in 2017 or 2016 and at this time there is no intention of paying cash dividends in the future.On October 13, 2014, the Tejon Ranchcorp, a subsidiary of the Company, entered into an Amended and Restated Credit Agreement, a Term Note and aRevolving Line of Credit Note. This credit facility contains customary negative covenants that limit the ability of the Company to, among other things, paydividends or repurchase stock to the extent that immediately following any such dividend or repurchase of stock, total liabilities divided by tangible networth (Stockholders Equity) is not greater than 0.75 to 1.0.For information regarding equity compensation plans pursuant to Item 201(d) of Regulation S-K, please see Item 11, “Executive Compensation” and Item 12,“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Form 10-K, below.The annual stockholder performance graph will be provided separately in our annual report to stockholders.ITEM 6. SELECTED FINANCIAL DATA 2017 2016 2015 2014 2013Total revenues from operations, including interest and otherincome $36,272 $47,236 $52,056 $52,291 $46,345(Loss) income from operations before equity in earnings ofunconsolidated joint ventures $(6,929) $(6,247) $(2,287) $3,165 $2,183Equity in earnings of unconsolidated joint ventures $4,227 $7,098 $6,324 $5,294 $4,006Net (loss) income $(1,579) $515 $2,912 $5,762 $4,103Net (loss) income attributable to noncontrolling interests $(24) $(43) $(38) $107 $(62)Net (loss) income attributable to common stockholders $(1,555) $558 $2,950 $5,655 $4,165 Total assets $518,199 $439,701 $431,919 $431,923 $342,879Long-term debt $69,959 $73,867 $74,215 $74,459 $4,693Equity $426,810 $334,467 $331,308 $324,333 $320,187Net (loss) income attributable to common stockholders pershare, diluted $(0.07) $0.03 $0.14 $0.27 $0.20ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSee Part I, "Forward-Looking Statements" for our cautionary statement regarding forward-looking information.31This discussion and analysis is based on, should be read together with, and is qualified in its entirety by, the consolidated financial statements and notesthereto included in Item 15(a)1 of this Form 10-K, beginning at page F-1. It also should be read in conjunction with the disclosure under “Forward-LookingStatements” in Part 1 of this Form 10-K. When this report uses the words “we,” “us,” “our,” “Tejon,” “TRC,” and the “Company,” they refer to Tejon RanchCo. and its subsidiaries, unless the context otherwise requires. References herein to fiscal year refer to our fiscal years ended or ending December 31.OVERVIEWOur BusinessWe are a diversified real estate development and agribusiness company committed to responsibly using our land and resources to meet the housing,employment, and lifestyle needs of Californians and to create value for our shareholders. In support of these objectives, we have been investing in landplanning and entitlement activities for new industrial and residential land developments and in infrastructure improvements within our active industrialdevelopment. Our prime asset is approximately 270,000 acres of contiguous, largely undeveloped land that, at its most southerly border, is 60 miles north ofLos Angeles and, at its most northerly border, is 15 miles east of Bakersfield.Our business model is designed to create value through the entitlement and development of land for commercial/industrial and resort/residential uses while atthe same time protecting significant portions of our land for conservation purposes. We operate our business near one of the country’s largest populationcenters, which is expected to continue to grow well into the future.We currently operate in five operating segments: commercial/industrial real estate development; resort/residential real estate development; mineral resources;farming; and ranch operations.Our commercial/industrial real estate development segment generates revenues from building, land lease activities, and land and building sales. The primarycommercial/industrial development is TRCC. The resort/residential real estate development segment is actively involved in the land entitlement anddevelopment process internally and through joint venture entities. Within our resort/residential segment, the three active mixed use master plandevelopments are MV, Centennial, and Grapevine. Our mineral resources segment generates revenues from oil and gas royalty leases, rock and aggregatemining leases, a lease with National Cement and sales of water. The farming segment produces revenues from the sale of wine grapes, almonds, andpistachios. Lastly, the ranch operation segment consists of game management revenues and ancillary land uses such as grazing leases and filming.Financial HighlightsFor 2017, net loss attributable to common stockholders was $1,555,000 compared to net income attributed to common stockholders of $558,000 in 2016.Factors driving the change include: a decline in farming revenues of $2,214,000 resulting from a decline in pistachio production in excess of 2,200,000pounds, a decline in mineral resource revenues of $8,170,000 resulting from decreased sales opportunities for water in 2017 when compared to 2016, and adecrease in income from unconsolidated joint ventures of $2,871,000. From an expense perspective, expenses decreased $10,282,000 as a result of reducedwater sales and our staff rightsizing initiatives.For 2016, net income attributable to common stockholders was $558,000 compared to $2,950,000 in 2015. Factors driving the change include: a decline infarming revenues of $5,188,000 resulting from declines in commodity prices and a decline of mineral resource revenues of $963,000 resulting from falling oilprices in 2016. Offsetting the decline in net income were the following factors: an increase in commercial real estate revenues of $1,166,000 resulting from aland sale, and increased rents, a gain on sale of building and land located in Rancho Santa Fe, California of $1,044,000, an overall reduction in totalexpenses of $860,000, and an increase in income from unconsolidated joint ventures of $774,000.For the year ended December 31, 2017 we had no material lease renewals.During 2018, we will continue to invest funds toward the achievement of entitlements, permits, and maps for our land and for master project infrastructureand vertical development within our active commercial and industrial development. Securing entitlements for our land is a long, arduous process that cantake several years and often involves litigation. During the next few years, our net income will fluctuate from year-to-year based upon, among other factors,commodity prices, production within our farming segment, and the timing of sales of land and the leasing of land within our industrial developments.During the fourth quarter of 2015, the Company reclassified revenues and expenses previously classified as commercial/industrial into a new segment calledRanch Operations. Ranch Operations is comprised of grazing leases, game management, and other ancillary services supporting the ranch.32This Management’s Discussion and Analysis of Financial Condition and Results of Operations provides a narrative discussion of our results of operations. Itcontains the results of operations for each operating segment of the business and is followed by a discussion of our financial position. It is useful to read thebusiness segment information in conjunction with Note 16 (Operating Segments and Related Information) of the Notes to Consolidated Financial Statements.Critical Accounting PoliciesThe preparation of our consolidated financial statements in accordance with generally accepted accounting principles, or GAAP, requires us to makeestimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets andliabilities. We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highlyuncertain at the time the accounting estimate was made, and (2) changes in the estimates that are likely to occur from period to period, or use of differentestimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. On anon-going basis, we evaluate our estimates, including those related to revenue recognition, impairment of long-lived assets, capitalization of costs, allocationof costs related to land sales and leases, stock compensation, our future ability to utilize deferred tax assets, and defined benefit retirement plans. We base ourestimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form thebasis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ fromthese estimates under different assumptions or conditions.Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors and theAudit Committee has reviewed the foregoing disclosure. In addition, there are other items within our financial statements that require estimation, but are notdeemed critical as defined above. Changes in estimates used in these and other items could have a material impact on our financial statements. See also Note1 (Summary of Significant Accounting Policies) of the Notes to Consolidated Financial Statements, which discusses accounting policies that we haveselected from acceptable alternatives.We believe the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of the consolidatedfinancial statements:Revenue Recognition – The Company’s revenue is primarily derived from lease revenue from our rental portfolio, royalty revenue from mineral leases, salesof farm crops, sales of water, and land sales. Revenue from leases with rent concessions or fixed escalations is recognized on a straight-line basis over theinitial term of the related lease unless there is a considerable risk as to collectability. The financial terms of leases are contractually defined. Lease revenue isnot accrued when a tenant vacates the premises and ceases to make rent payments or files for bankruptcy. Royalty revenues are contractually defined as to thepercentage of royalty and are tied to production and market prices. Our royalty arrangements generally require payment on a monthly basis with the paymentbased on the previous month’s activity. We accrue monthly royalty revenues based upon estimates and adjust to actual as we receive payments.From time to time the Company sells easements over its land. The easements are either in the form of rights of access granted for such things as utilitycorridors or are in the form of conservation easements that generally require the Company to divest its rights to commercially develop a portion of its land,but do not result in a change in ownership of the land or restrict the Company from continuing other revenue generating activities on the land. Sales ofconservation easements are accounted for in accordance with Staff Accounting Bulletin Topic 13 - Revenue Recognition, or SAB Topic 13.Since conservation easements generally do not impose any significant continuing performance obligations on the Company, revenue from conservationeasement sales have been recognized when the four criteria outlined in SAB Topic 13 have been met, which generally occurs in the period the sale has closedand consideration has been received.In recognizing revenue from land sales, the Company follows the provisions in Accounting Standards Codification 976, or ASC 976, “Real Estate – RetailLand” to record these sales. ASC 976 provides specific sales recognition criteria to determine when land sales revenue can be recorded. For example, ASC976 requires a land sale to be consummated with a sufficient down payment of at least 20% to 25% of the sales price depending upon the type and timeframefor development of the property sold, and that any receivable from the sale cannot be subject to future subordination. In addition, the seller cannot retain anymaterial continuing involvement in the property sold or be required to develop the property in the future.At the time farm crops are harvested, contracted, and delivered to buyers and revenues can be estimated, revenues are recognized and any related inventoriedcosts are expensed, which traditionally occurs during the third and fourth quarters of each year. It is not unusual for portions of our almond or pistachio cropto be sold in the year following the harvest. Orchard (almond and pistachio) revenues are based upon the contract settlement price or estimated selling price,whereas vineyard revenues are typically recognized at the contracted selling price. Estimated prices for orchard crops are based upon the quoted33estimate of what the final market price will be by marketers and handlers of the orchard crops. These market price estimates are updated through the croppayment cycle as new information is received as to the final settlement price for the crop sold. These estimates are adjusted to actual upon receipt of finalpayment for the crop. This method of recognizing revenues on the sale of orchard crops is a standard practice within the agribusiness community.Actual final crop selling prices are not determined for several months following the close of our fiscal year due to supply and demand fluctuations within theorchard crop markets. Adjustments for differences between original estimates and actual revenues received are recorded during the period in which suchamounts become known.For a discussion of implementation of Accounting Standards Update (ASU) 2014-09 “Revenue with Contracts from Customers (Topic 606),” see Note 1(Summary of Significant Accounting Policies) of the Notes to the Consolidated Financial Statements.Capitalization of Costs - The Company capitalizes direct construction and development costs, including predevelopment costs, interest, property taxes,insurance, and indirect project costs that are clearly associated with the acquisition, development, or construction of a project. Costs currently capitalizedthat in the future would be related to any abandoned development opportunities will be written off if we determine such costs do not provide any futurebenefits. Should development activity decrease, a portion of interest, property taxes, and insurance costs would no longer be eligible for capitalization, andwould be expensed as incurred.Allocation of Costs Related to Land Sales and Leases – When we sell or lease land within one of our real estate developments, as we are currently doingwithin TRCC, and we have not completed all infrastructure development related to the total project, we follow ASC 976 to determine the appropriate costs ofsales for the sold land and the timing of recognition of the sale. In the calculation of cost of sales or allocations to leased land, we use estimates and forecaststo determine total costs at completion of the development project. These estimates of final development costs can change as conditions in the market andcosts of construction change.In preparing these estimates, we use internal budgets, forecasts, and engineering reports to help us estimate future costs related to infrastructure that has notbeen completed. These estimates become more accurate as the development proceeds forward, due to historical cost numbers and to the continued refinementof the development plan. These estimates are updated periodically throughout the year so that, at the ultimate completion of development, all costs havebeen allocated. Any increases to our estimates in future years will negatively impact net profits and liquidity due to an increased need for funds to completedevelopment. If, however, this estimate decreases, net profits as well as liquidity will improve.We believe that the estimates used related to cost of sales and allocations to leased land are critical accounting estimates and will become even moresignificant as we continue to move forward as a real estate development company. The estimates used are very susceptible to change from period to period,due to the fact that they require management to make assumptions about costs of construction, absorption of product, and timing of project completion, andchanges to these estimates could have a material impact on the recognition of profits from the sale of land within our developments.Impairment of Long-Lived Assets – We evaluate our property and equipment and development projects for impairment when events or changes incircumstances indicate that the carrying value of assets contained in our financial statements may not be recoverable. The impairment calculation comparesthe carrying value of the asset to the asset’s estimated future cash flows (undiscounted). If the estimated future cash flows are less than the carrying value ofthe asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to the asset’s estimated fair value, whichmay be based on estimated future cash flows (discounted). We recognize an impairment loss equal to the amount by which the asset’s carrying value exceedsthe asset’s estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset will be its new cost basis. For a depreciablelong-lived asset, the new cost basis will be depreciated (amortized) over the remaining useful life of that asset. Restoration of a previously recognizedimpairment loss is prohibited.We currently operate in five segments: commercial/industrial real estate development, resort/residential real estate development, mineral resources, farming,and ranch operations. At this time, there are no assets within any of our segments that we believe are in danger of being impaired due to market conditions.We believe that the accounting estimate related to asset impairment is a critical accounting estimate because it is very susceptible to change from period toperiod; it requires management to make assumptions about future prices, production, and costs, and the potential impact of a loss from impairment could bematerial to our earnings. Management’s assumptions regarding future cash flows from real estate developments and farming operations have fluctuated in thepast due to changes in prices, absorption, production and costs and are expected to continue to do so in the future as market conditions change.34In estimating future prices, absorption, production, and costs, we use our internal forecasts and business plans. We develop our forecasts based on recent salesdata, historical absorption and production data, input from marketing consultants, as well as discussions with commercial real estate brokers and potentialpurchasers of our farming products.If actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be exposed toimpairment losses that could be material to our results of operations.Defined Benefit Retirement Plans – The plan obligations and related assets of our defined benefit retirement plan are presented in Note 15 (Retirement Plans)of the Notes to Consolidated Financial Statements. Plan assets, which consist primarily of marketable equity and debt instruments, are valued using level oneand level two indicators, which are quoted prices in active markets and quoted prices for similar types of assets in active markets for the investments. Pensionbenefit obligations and the related effects on operations are calculated using actuarial models. The estimation of our pension obligations, costs and liabilitiesrequires that we make use of estimates of present value of the projected future payments to all participants, taking into consideration the likelihood ofpotential future events such as salary increases and demographic experience. These assumptions may have an effect on the amount and timing of futurecontributions.The assumptions used in developing the required estimates include the following key factors:•Discount rates;•Salary growth;•Retirement rates;•Expected contributions;•Inflation;•Expected return on plan assets; and•Mortality ratesThe discount rate enables us to state expected future cash flows at a present value on the measurement date. In determining the discount rate, the Companyutilizes the yield on high-quality, fixed-income investments currently available with maturities corresponding to the anticipated timing of the benefitpayments. Salary increase assumptions are based upon historical experience and anticipated future management actions. To determine the expected long-term rate of return on pension plan assets, we consider the current and expected asset allocations, as well as historical and expected returns on variouscategories of plan assets. At December 31, 2017, the weighted-average actuarial assumption of the Company’s defined benefit plan consisted of a discountrate of 3.7% and a long-term rate of return on plan assets of 7.5%. For the years beginning with 2017, there are no assumed salary increase factors included inthe plan assumptions due to the plan being amended to freeze future benefits. The effects of actual results differing from our assumptions and the effects ofchanging assumptions are recognized as a component of other comprehensive income, net of tax. Amounts recognized in accumulated other comprehensiveincome are adjusted as they are subsequently recognized as components of net periodic benefit cost. If we were to assume a 50-basis point change in thediscount rate used, our projected benefit obligation would change approximately $800,000.Stock-Based Compensation - We apply the recognition and measurement principles of ASC 718, “Compensation – Stock Compensation” in accounting forlong-term stock-based incentive plans. Our stock-based compensation plans include both restricted stock units and restricted stock grants. We have notissued any stock options to employees or directors since January 2003, and our 2017 financial statements do not reflect any compensation expenses for stockoptions. All stock options issued in the past have been exercised or forfeited.We make stock awards to employees based upon time-based criteria and through the achievement of performance-related objectives. Performance-relatedobjectives are either stratified into threshold, target, and maximum goals or based on the achievement of a milestone event. These stock awards are currentlybeing expensed over the expected vesting period based on each performance criterion. We make estimates as to the number of shares that will actually begranted based upon estimated ranges of success in meeting the defined performance measures. If our estimates of performance shares vesting were to changeby 25%, stock compensation expense would increase or decrease by approximately $400,000 depending on whether the change in estimate increased ordecreased shares vesting.See Note 11, (Stock Compensation - Restricted Stock and Performance Share Grants), of the Notes to Consolidated Financial Statement for total 2017 stockcompensation expense related to stock grants.35Fair Value Measurements – The Financial Accounting Standards Board's, or FASB, authoritative guidance for fair value measurements of certain financialinstruments defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Fair value is definedas the exchange (exit) price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset orliability in an orderly transaction between market participants on the measurement date. This guidance establishes a three-level hierarchy for fair valuemeasurements based upon the inputs to the valuation of an asset or liability. Observable inputs are those which can be easily seen by market participantswhile unobservable inputs are generally developed internally, utilizing management’s estimates and assumptions:•Level 1 – Valuation is based on quoted prices in active markets for identical assets and liabilities.•Level 2 – Valuation is determined from quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similarinstruments in markets that are not active, or by model-based techniques in which all significant inputs are observable in the market.•Level 3 – Valuation is derived from model-based techniques in which at least one significant input is unobservable and based on our own estimatesabout the assumptions that market participants would use to value the asset or liability.When available, we use quoted market prices in active markets to determine fair value. We consider the principal market and nonperformance risk associatedwith our counterparties when determining the fair value measurement. Fair value measurements are used for marketable securities, investments within thepension plan and hedging instruments.Recent Accounting PronouncementsFor discussion of recent accounting pronouncements, see Note 1 (Summary of Significant Accounting Policies) of the Notes to Consolidated FinancialStatements.36Results of Operations by SegmentWe evaluate the performance of our operating segments separately to monitor the different factors affecting financial results. Each segment is subject toreview and evaluation as we monitor current market conditions, market opportunities, and available resources. The performance of each segment is discussedbelow:Real Estate – Commercial/IndustrialDuring 2017, commercial/industrial segment revenues decreased $35,000, or 0%, when compared to 2016. The Pastoria lease revenues increased $242,000,or 7%, when compared to 2016, we also experienced an increase of $366,000, or 18%, in leasing revenues within TRCC. These increases were offset by adecrease in commercial lease revenues of $354,000, or 22%, as a result of the sale in 2016 of an investment asset. During 2017, we satisfied our performanceobligation relating to the land sale which occurred in 2016 and recognized the remaining deferred revenue in 2017.Commercial/industrial real estate segment expenses decreased $571,000, or 8%, from $7,100,000 in 2016 to $6,529,000 during 2017. During 2017, payroll,overhead, and bonuses decreased $269,000 as a result of our staff right sizing. Also contributing to the decrease were reductions in professional services andrepairs and maintenance costs of $149,000 and $153,000 respectively.During 2016, commercial/industrial segment revenues increased $1,166,000, or 14% when compared to 2015. In October 2016, we sold unimproved realproperty located at TRCC-East for $1,193,000. We recognized $710,000 of the revenues in 2016 and recognized the remainder during the first half of 2017upon completion of the performance obligations. Also in 2016, we placed into service a multi-tenant building leased to Baja Fresh and Habit Burgerincreasing lease revenue by $266,000. Lastly, we recognized additional leasing revenues of $48,000 from Starbucks and Pieology given that they were notplaced into service until the latter part of the second quarter of 2015.Commercial/industrial real estate segment expenses were $7,100,000 during 2016, an increase of $406,000, or 6%, compared to the same period in 2015.During 2016, there were increases in professional services and repairs and maintenance of $126,000 and $108,000, respectively. Additionally, the basis in theland sold was $95,000.37The logistics operators currently located within TRCC have demonstrated success in serving all of California and the western region of the United States, andwe are building from their success in our marketing efforts. We will continue to focus our marketing strategy for TRCC-East and TRCC-West on thesignificant labor and logistical benefits of our site, the pro-business approach of Kern County, and the demonstrated success of the current tenants and ownerswithin our development. Our strategy fits within the logistics model that many companies are using, which favors large, centralized distribution facilitieswhich have been strategically located to maximize the balance of inbound and outbound efficiencies, rather than a number of decentralized smallerdistribution centers. The world class logistics operators located within TRCC have demonstrated success through utilization of this model. With access tomarkets of over 40 million people for next-day delivery service, they are also demonstrating success with e-commerce fulfillment. We believe that our abilityto provide fully-entitled, shovel-ready land parcels to support buildings of any size, especially buildings 1.0 million square feet or larger, can provide us witha potential marketing advantage in the future. We are also expanding our marketing efforts to include industrial users in the Santa Clarita Valley of northernLos Angeles County, and the northern part of the San Fernando Valley due to the limited availability of new product and high real estate costs in theselocations. Tenants in these geographic areas are typically users of relatively smaller facilities. In pursuit of such opportunities, the Company, in 2017,completed development of a 480,480 square foot, state-of-the-art distribution facility with Majestic Realty Co. The Company and Majestic Realty Co. are inthe process of fully leasing this industrial building.A potential disadvantage to our development strategy is our distance from the ports of Los Angeles and Long Beach in comparison to thewarehouse/distribution centers located in the Inland Empire, a large industrial area located east of Los Angeles, which continues its expansion eastwardbeyond Riverside and San Bernardino, to include Perris, Moreno Valley, and Beaumont. As development in the Inland Empire continues to move east andfarther away from the ports, our potential disadvantage of our distance from the ports is being mitigated. Strong demand for large distribution facilities isdriving development farther east in a search for large entitled parcels.During 2017, vacancy rates in the Inland Empire approximated 3.7%, the lowest vacancy rate ever recorded in the Inland Empire. Vacancy is at an all-timelow and further declines will be hard to achieve. This is especially true given that 26.1 million square feet remains in the construction pipeline. The lowvacancy rates have also led to an increase in lease rates of 7.7% within the Inland Empire. As lease rates increase in the Inland Empire, we may begin to havegreater pricing advantages due to our lower land basis.During 2017, vacancy rates in the northern Los Angeles industrial market, which includes the San Fernando Valley and Santa Clarita Valley, approximated1.7%. This industrial market continues to see available supply remain at extremely low levels, and while new construction has recently been at higher levels,it still has not been enough to keep pace with strong demand, resulting in vacancy remaining at all-time lows and rental rates still rising rapidly. Demand forindustrial space in this market will continue to be driven by domestic and global consumption levels. In 2017, the Los Angeles and Long Beach Portcontainer traffic recorded its highest container total ever with 16.89 million Twenty-Foot Equivalent Units, or TEU's, up 8% from 2016 and 7% higher thanits second highest year during 2006. TEU is a measure of a ship's cargo carrying capacity. The dimensions of one TEU are equal to that of a standard shippingcontainer measuring 20 feet long by 8 feet tall.We expect the commercial/industrial segment to continue to experience costs, net of amounts capitalized, primarily related to professional service fees,marketing costs, commissions, planning costs, and staffing costs as we continue to pursue development opportunities. These costs are expected to remainconsistent with current levels of expense with any variability in the future tied to specific absorption transactions in any given year.The actual timing and completion of development is difficult to predict due to the uncertainties of the market. Infrastructure development and marketingactivities and costs could continue over several years as we develop our land holdings. We will also continue to evaluate land resources to determine thehighest and best uses for our land holdings. Future sales of land are dependent on market circumstances and specific opportunities. Our goal in the future is toincrease land value and create future revenue growth through planning and development of commercial and industrial properties.Real Estate – Resort/ResidentialIn 2017, resort/residential segment expenses increased $325,000 primarily due to reduced capitalization of payroll and overhead costs that in the prior yearswere identified to be incremental to our mixed use master plan development projects. We are in the preliminary stages of development, hence no revenues areattributed to this segment.In 2016, resort/residential segment expenses declined $719,000 primarily due to additional capitalization of payroll and overhead costs of $475,000 thatwere identified to be incremental to our master plan development projects. In addition, there were decreases in professional service and fees of $261,000.38Our resort/residential segment activities include land entitlement, land planning and pre-construction engineering and conservation activities. We have threemajor resort/residential communities within this segment: Centennial, Grapevine, and MV.•For Centennial, Los Angeles County is currently reviewing the EIR, the responses will become part of the Final Environmental Impact Report thatwill be considered first by the Los Angeles County Regional Planning Commission tentatively in April 2018 and later by the Board of Supervisors.•For Grapevine, we are working with Kern County to defend litigation related to the approved EIR. The entire litigation and permitting process willtake several years and the investment of several million dollars to successfully complete.•For MV, we have a fully permitted and entitled project and received approval of a Tentative Tract Map for our first phases of development inDecember 2017. The timing of MV development in the coming years will be dependent on the strength of both the economy and the second homereal estate market. In moving the project forward, we will focus on the preparation of engineering leading to the final map for the first phases of MV,consumer and market research studies and fine tuning of development business plans as well as defining the capital funding sources for thisdevelopment.The resort/residential segment will continue to incur costs in the future related to professional service fees, public relations costs, and staffing costs as wecontinue forward with entitlement and permitting activities for the above communities and continue to meet our obligations under the ConservationAgreement. We expect these expenses to remain consistent with current years cost in the near term and only begin to increase as we move into thedevelopment phase of each project in the future. The actual timing and completion of entitlement-related activities and the beginning of development isdifficult to predict due to the uncertainties of the approval process, the possibility of litigation upon approval of our entitlements in the future, and the statusof the economy. We will also continue to evaluate land resources to determine the highest and best use for our land holdings. Our long-term goal through thisprocess is to increase the value of our land and create future revenue opportunities through resort and residential development.We are continuously monitoring the markets in order to identify the appropriate time in the future to begin infrastructure improvements and lot sales. Ourlong-term business plan of developing the communities of MV, Centennial, and Grapevine remains unchanged. As the California economy continues toimprove we believe the perception of land values will also begin to improve and the long-term fundamentals that support housing demand in our region,primarily California population growth and household formation will also improve. California also has a significant documented housing shortage, which webelieve our communities will help ease as the population base within California continues to grow.See Item 1, “Business – Real Estate Development Overview” for a further discussion of real estate development activities.39Mineral Resources 2017 2016 2015Oil and gas Oil production (barrels) 263,000 301,000 445,000Average price per barrel $45.00 $37.00 $45.00Blended royalty rate 13.7% 13.7% 13.7%Natural gas production (millions of cubic feet) 209,000 238,000 315,000Average price per thousand cubic feet $0.74 $0.56 $1.58Blended royalty rate 14.5% 14.4% 14.1% Water Water sold in acre-feet 939 7,285 7,922Average price per acre-feet $1,181 $1,317 $1,284 Cement Tons sold 1,063,000 909,000 961,000Average price per ton $1.52 $1.41 $1.31 Rock/Aggregate Tons sold 1,222,000 1,397,000 1,181,000Average price per ton $0.88 $0.85 $0.732017 Operational Highlights:•Revenues from our mineral resources segment decreased $8,170,000, or 58%, to $5,983,000 in 2017 compared to $14,153,000 in 2016. During the2016/2017 winter, California experienced above normal rain fall and snow levels, resulting in a reduction in water market activity throughout thestate adversely impacting water sales opportunities.40This resulted in an $8,347,000 decline in water sales. The reduced water sales accordingly decreased mineral resources expenses associated with thecost of sales of water by $4,832,000. California has historically experienced decades-long droughts, the rain falls in 2017 do not appear to berepeating in 2018, which leads some to believe the drought may be returning, suggesting water opportunities in 2018 can see improvements. Thisalso lends itself to a volatile water market that can change from year-to-year based on rain and snow levels.•We experienced improvements in cement production as a result of increased demand and pricing during 2017 compared to 2016. The improvementin shipments is due to an increase in road construction activity as compared to the prior years.•Despite falling production, we experienced improvements for oil and gas royalties as a result of improved oil prices. Please refer to above table forcurrent and historical production volume and pricing.2016 Operational Highlights:•Revenues decreased $963,000, or 6%, to $14,153,000 in 2016 compared to $15,116,000 in 2015. The decrease is primarily due to a $1,112,000decrease in oil royalty revenues driven by lower average prices for a barrel of oil, which then led to declines in production.•Also in 2016, we sold 7,285 acre-feet of water compared to 7,922 acre-feet in 2015 reducing water revenues by $570,000. Offsetting those amountswere improvements in cement, sand, and rock royalties of $330,000 and reimbursable costs and other of $364,000.•Expenses during 2016 increased $400,000 compared to 2015, primarily due to increases in payroll and salaries of $125,000 and fuel costs of$94,000 related to transferring and banking water. The remainder of the increase can be attributed to increases in other expenses including propertytaxes, professional services, and fees.Please refer to Item 1, "Business - Mineral Resources" for additional information regarding oil barrels per day production.Although oil prices improved during the fourth quarter of 2017 and throughout the early part of 2018, we expect our largest tenant, California ResourcesCorporation, or CRC, to continue its program of producing from current active wells at lower levels with no near-term intent to begin new drilling programsuntil oil prices stabilize at the current higher levels. CRC has approved permits and drill sites on our land and has delayed the start of drilling as it evaluatesthe market. A positive aspect of our lease with CRC is that the approved drill sites are in an area of the ranch where the development and production costs aremoderate due to the depths being drilled. During 2017, CRC executed a new exploration lease with us covering 1,524 acres. With the overall improvement inprices, we could see an improvement in royalty revenue. Thus far in 2018, oil prices have improved and are within 5% of West Texas Intermediate pricing.Since we only receive royalties based on tenant production and market prices and do not produce oil, we do not have information as to the potential size ofoil reserves.Our royalty revenues are contractually defined and based on a percentage of production and are received in cash. Royalty revenues fluctuate based onchanges in market price for oil, gas, rock and aggregate, and Portland cement. In addition, royalty revenue is impacted by new production, the inevitabledecline in production in existing wells, and rock and limestone quarries, and the cost of development and production.41Farming December 31, 2017 December 31, 2016 Change($ in thousands) Revenue QuantitySold2 AveragePrice Revenue QuantitySold2 AveragePrice Revenue QuantitySold AveragePriceALMONDS (lbs.) Current year crop $5,221 2,033 $2.57 $5,282 2,106 $2.51 $(61) (73) $0.06Prior year crops 729 315 $2.31 1,363 454 3.00 (634) (139) (0.69)Prior crop price adjustment 352 653 (301) Signing bonus 25 75 (50) Subtotal Almonds1 $6,327 2,348 $2.53 $7,373 2,560 $2.60 $(1,046) (212) $(0.07)PISTACHIOS (lbs.) Current year crop $1,288 643 $2.00 $5,844 2,883 $2.03 $(4,556) (2,240) $(0.03)Prior year crops 1,007 247 4.08 274 47 5.83 733 200 (1.75)Prior crop price adjustment 1,452 81 1,371 Crop Insurance 776 — 776 Subtotal Pistachios1 $4,523 890 $2.58 $6,199 2,930 $2.09 $(1,676) (2,040) $0.49WINE GRAPES (tons) Current year crop $4,131 15 $275.40 $3,725 14 $266.07 $406 1 $9.33Crop Insurance — $19 (19) Subtotal Wine Grapes $4,131 15 $275.40 $3,744 14 $266.07 $387 1 $9.33Other Hay $456 $520 $(64) Other farming revenues 997 812 185 Total farming revenues $16,434 $18,648 $(2,214) 1 Average price calculation reflects sale of almond and pistachio crops during the calendar reported year exclusive of any price adjustments.2 Almond and pistachio units are presented in thousands of pounds while wine grapes are presented in thousands of tons.422017 Operational Highlights:•During 2017, farming revenues decreased $2,214,000 from $18,648,000 in 2016 to $16,434,000 in 2017. When compared to 2016, pistachiorevenues decreased $1,676,000. In comparison to 2016, which was a near record year in terms of yield, fiscal 2017 was an alternate down bearingyear for pistachios. Additionally, the warm winter reduced the number of hours the trees were dormant. We experienced similarly low yields in 2015as a result of the mild 2015 winter. The Company purchases crop insurance to mitigate weather-related reductions in crop production whichmitigated $776,000 of total crop costs.•Almond revenues decreased $1,046,000 as a result of both commodity pricing and overall units sold. Given the timing of 2017 crop salesmanagement will carryforward 472,541 pounds to sell in future periods. In comparison, the Company carried forward 338,845 pounds in 2017.•Farming expenses decreased $2,472,000, or 13% during 2017 compared to 2016. In 2017, we had reduced water costs of $1,584,000 when comparedto 2016. The decrease is attributed to heavy rains during the 2017 winter along with credits received from the local water district, through the StateWater Project. Despite the reduced revenues discussed above, reduced water and farming costs increased farm operating profits by $258,000 whencompared to 2016.•We experienced reduced cost of sales for our wine grapes and almonds of $342,000 and $751,000, respectively, as a result of reduced cultural costslargely tied to lower weed and pest control costs. December 31, 2016 December 31, 2015 Change($ in thousands) Revenue QuantitySold2 AveragePrice Revenue QuantitySold2 AveragePrice Revenue QuantitySold AveragePriceALMONDS (lbs.) Current year crop $5,282 2,106 $2.51 $7,377 2,210 $3.34 $(2,095) (104) $(0.83)Prior year crops 1,363 454 3.00 3,601 916 $3.93 (2,238) (462) (0.93)Prior crop priceadjustment 653 1,260 (607) Signing bonus 75 — 75 Subtotal Almonds1 $7,373 2,560 $2.60 $12,238 3,126 $3.51 $(4,865) (566) $(0.91)PISTACHIOS (lbs.) Current year crop $5,844 2,883 $2.03 $183 64 $2.86 $5,661 2,819 $(0.83)Prior year crops 274 47 5.83 1,271 214 5.94 (997) (167) (0.11)Prior crop priceadjustment 81 2,271 (2,190) Insurance — 2,700 (2,700) Subtotal Pistachios1 $6,199 2,930 $2.09 $6,425 278 $5.23 $(226) 2,652 $(3.14)WINE GRAPES (tons) Current year crop $3,725 14 $266.07 $4,338 16 $271.13 $(613) (2) $(5.06)Insurance 19 — 19 Subtotal WineGrapes $3,744 14 $266.07 $4,338 16 $271.13 $(594) (2) $(5.06)Other Hay $520 $749 $(229) Other farming revenues 812 86 726 Total farming revenues $18,648 $23,836 $(5,188) 1 Average price calculation reflects sale of almond and pistachio crops during the calendar reported year exclusive of any price adjustments.2 Almond and pistachio units are presented in thousands of pounds while wine grapes are presented in thousands of tons.2016 Operational Highlights:•During 2016, farming revenues decreased by $5,188,000 from $23,836,000 in 2015 to $18,648,000 in 2016.43•An overall reduction in market price for 2016-year almonds along with management's decision to sell more crops in 2015, taking advantage ofhigher prices, reduced almond revenues by $4,865,000. In 2016, the California almond industry had strong yields, driving prices downward.•We recovered from the mild winter of 2015 that adversely affected our 2015 pistachio crop yields. Total 2016 crop yield was at a recent historicalhigh of 3,200,000 pounds. Despite the robust 2016 yields, a decline in market prices lowered pistachio revenues by $226,000 when compared to2015 revenues, which were primarily generated through insurance proceeds and market price adjustments. In 2016, the California pistachio industryhad strong yields, driving prices downward.•Improvement in other revenues is driven by a new farm land lease and recoverable costs related to the lease.•Farming expenses decreased $311,000, or 2% during 2016 compared to 2015. In 2016, almond costs decreased $1,019,000 or 15% as we spent lesstime pruning trees, applying pesticides, and removing mummies, all of which are time and labor intensive. The decrease in almond costs were offsetby an increase in wine grape costs of $260,000 as a result of a 10% increase in the number of acres farmed and an increase in fixed water costs of$256,000 paid to WRMWSD.Thus far in 2018, the prices for our crops, especially almonds and pistachios, remain consistent with 2017 levels. All of our crops are sensitive to the size ofeach year’s world crop. Large crops in California and abroad can depress prices. Our long-term projection is that crop production, especially of almonds andpistachios will continue to increase on a statewide basis over time because of new plantings, which could negatively impact future prices if the growth indemand does not keep pace with production.An unknown factor related to future statewide production and the continuation of new plantings will be how new state ground water management lawsimpact the amount of farming land in production over the next five to ten years, which could eventually reduce production. The rains and snow of 2018 arenot expected to significantly impact the ground water basins within the Central Valley of California, and therefore could lead to a reduction in cropproduction. We are less impacted due to our water sources and the ground water basin we are in. We have had a relatively mild winter thus far, which couldpossibly impact our almond and pistachio production due to a low level of dormant hours. Dormant hours allow the trees to rest, which enhances the growthof the tree and production. It is too early to project 2018 crop yields and what impact that may have on prices later in 2018.Water delivery and water availability continues to be a long-term concern within California. Any limitation of delivery of SWP water and the absence ofavailable alternatives during drought periods could potentially cause permanent damage to orchards and vineyards throughout California. While this couldimpact us, we believe we have sufficient water resources available to meet our requirements in 2018. Please see our discussion on water in Item 2, "Properties -Water Operations."The DWR announced its 2018 estimated water supply delivery at 20% of full entitlement. The current 20% allocation of SWP water is not enough for us tofarm our crops, but our additional water resources, such as groundwater and surface sources, and those of the water districts we are in should allow us to havesufficient water for our farming needs. See Note 6 (Long-Term Water Assets) of the Notes to Consolidated Financial Statements for additional informationregarding our water assets.For further discussion of the farming operations, refer to Item 1 “Business—Farming Operations.”Ranch OperationsRevenues from ranch operations increased $499,000 from $3,338,000 in 2016 to $3,837,000 in 2017. When compared to 2016, we experienced an increasein grazing leases of $490,000 due to the fact that a drought clause was in effect during the 2016 drought.Ranch operations expenses decreased $323,000 to $5,411,000 in 2017 from $5,734,000 in 2016. The decrease is attributed to reduced payroll, overhead, andincentive based compensation of $119,000 primarily a result of a staff rightsizing. The segment also saw a decrease in repairs and maintenance costs of$106,000.Revenues from ranch operations decreased $585,000 from $3,923,000 in 2015 to $3,338,000 in 2016. The decline is attributed to a $362,000 decrease ingame management revenues. The on-going California drought has had an adverse effect on the quality and availability of harvestable game due to shortagesin food supplies. Also contributing to the decrease is a drought clause within our grazing leases taking effect amidst the California drought, which reducedrevenues by $297,000. Improvements from other revenue sources, such as filming location fees offset the declines noted by $67,000.44Ranch operations expenses decreased $378,000 to $5,734,000 in 2016 from $6,112,000 in 2015. The drought as discussed above, has reduced hunt volumein 2016, thus reducing related costs such as payroll, supplies, fuel, and other services.Other IncomeTotal other income decreased $1,044,000 to $615,000, or 63%, during 2017 from $1,659,000 in 2016. The change resulted from the fact that in November2016, we sold building and land located in Rancho Santa Fe, California for $4,700,000, recognizing a gain of $1,044,000.Total other income increased $750,000 to $1,659,000, or 83%, during 2016 from $909,000 in 2015, primarily as a result of the gain from the Rancho SantaFe sale of $1,044,000. Offsetting the gain from Rancho Santa Fe, California is a reduction of interest and other income of $294,000.Corporate ExpensesCorporate general and administrative costs decreased $2,409,000, or 19%, during 2017 when compared to 2016. In 2017, we had a reduction in payroll,overhead, and incentive based compensation (both share-based and cash bonus) of $1,603,000 which was primarily a result of a staff rightsizing that occurredduring the second quarter of 2017. We also benefited from savings of $924,000 as a result of reduced legal and information technology related professionalservices costs.Corporate general and administrative costs decreased $258,000, or 2%, during 2016 when compared to 2015. In 2016, we did not recognize a one-time-non-cash pension settlement charge of $536,000 as we did in 2015, as a result of lump sum payment to retired former employees. which is discussed below. Inaddition, personnel levels decreased resulting in decreased payroll and salaries of $415,000. Offsetting the decreases include an increase in stockcompensation of $532,000 resulting from meeting performance milestones and issuing new performance grants.Equity in Earnings of Unconsolidated Joint VenturesEquity in earnings of unconsolidated joint ventures is an important and growing component of our commercial/industrial activities and in the future, equityin earnings of unconsolidated joint ventures will become a significant part of our operational activity within the resort/residential segment. As we expand ourcurrent ventures and add new joint ventures, these investments will become a growing revenue source for the Company.During 2017, equity in earnings from unconsolidated joint ventures decreased $2,871,000 to $4,227,000 when compared to $7,098,000 in 2016.•There was a $995,000 decrease in our share of earnings from our TA/Petro joint venture. The decline was driven by increased operating costs anddepreciation associated with new offerings at TA/Petro, a one time charge of $200,000 related to a workers' compensation claim, and a decline in gasfuel margins.•There was a $989,000 decrease in our share of earnings from our TRCC/Rock Outlet joint venture. The decrease was attributable to write-off oftenant allowances and other leasing costs associated with lease terminations. The departing tenants have struggled nationally in recent years as aresult of the retail slump and do not represent the overall performance of The Outlets at Tejon.◦During 2017, sales per occupied square foot increased 13% as compared to 2016 as a result of increased tour bus traffic and improvedconversion rates from shoppers. The conversion rate is the percentage of users who take a desired action. Operationally, The Outlets atTejon is continually identifying new and desirable tenants to better serve its target demographic.◦During the second quarter, Express, a nationally recognized brand focusing on men's and women's fashion commenced operationsoccupying a space approximating 7,828 square feet. On July 14, 2017, TRCC/Rock Outlets executed a lease with Old Navy for a spaceapproximating 12,500 square feet. On July 21, 2017, Samsonite, a worldwide leader in superior travel bags and luggage, took possession ofa vacated unit and immediately commenced operations.•TRC-MRC 2, a joint venture which was formed during the third quarter of 2016, had an additional $839,000 loss as compared to 2016. The increasein loss was driven by non-cash GAAP losses stemming from purchase accounting adjustments, despite generating positive net operating income.Please refer to "Non-GAAP Measures" for further financial discussion on our joint ventures.45During 2016, equity in earnings from unconsolidated joint ventures grew to $7,098,000, or an increase of $774,000, compared to $6,324,000 in 2015.TA/Petro, when compared to 2015, contributed an additional $868,000 in earnings from unconsolidated joint ventures. The improvement in operationswithin the TA/Petro joint venture was driven by an increase in diesel volumes of 1.5 million gallons and gas volumes of 1.0 million gallons.Income TaxesOn December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as U.S. Tax Reform. U.S. Tax Reform makes broadand complex changes to the U.S. tax code, including, but not limited to, (i) reducing the U.S. federal statutory tax rate from 35% to 21%; (ii) requiringcompanies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (iii) generally eliminating U.S. federal income taxes ondividends from foreign subsidiaries; (iv) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (v)eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; (vi) creating the base erosion anti-abusetax (BEAT), a new minimum tax; (vii) creating a new limitation on deductible interest expense; (viii) changing rules related to uses and limitations of netoperating loss carryforwards created in tax years beginning after December 31, 2017, and (ix) modifying the officer’s compensation limitation.The provision for income taxes for fiscal year 2017 includes a $54,000 estimated tax expense as a result of the revaluation of U.S. federal net deferred taxassets from 34% to 21% due to the enactment of U.S. Tax Reform. The final impact of U.S. Tax Reform may differ from these estimates, due to, among otherthings, changes in interpretations, analysis and assumptions made by management, additional guidance that may be issued by the U.S. Department of theTreasury and the Internal Revenue Service, and any updates or changes to estimates we have utilized to calculate the transition impact. Therefore, ouraccounting for the elements of U.S. Tax Reform is incomplete. However, we were able to make reasonable estimates of the effects of U.S. Tax Reform.For the twelve months ended December 31, 2017, the Company incurred a net income tax benefit of $1,123,000 compared to a net income tax expense of$336,000 for the twelve months ended December 31, 2016. These represent effective income tax rates of approximately 42% and 39% for the twelve monthsended December 31, 2017 and, 2016, respectively. Our effective income tax rate for the year ended December 31, 2017 was higher than the federal statutoryrate in the United States primarily due to effects of recent tax law changes, state taxes, and other permanent differences. The effective tax rate was impacted bythe aforementioned revaluation of net deferred assets related to the U.S. Tax Reform. As of December 31, 2017 and 2016 we had an income tax receivable of$1,804,000 and $468,000, respectively. For more detail, see Note 5, Income Taxes, of the Notes to Consolidated Financial Statements, included this AnnualReport on Form 10-K.As of December 31, 2017 (and after the aforementioned revaluation), we had net deferred tax assets of $1,562,000. Our largest deferred tax assets were madeup of temporary differences related to the capitalization of costs, pension adjustments, and stock grant expense. Deferred tax liabilities consist ofdepreciation, deferred gains, cost of sale allocations, and straight-line rent. Due to the nature of most of our deferred tax assets, we believe they will be used infuture years and an allowance is not necessary.The Company classifies interest and penalties incurred on tax payments as income tax expenses. The Company made total income tax payments of $0 in2017 and $$1,750,000 during 2016. The Company received refunds of $124,000 in 2017 and $615,000 in 2016.Liquidity and Capital ResourcesCash Flow and LiquidityOur financial position allows us to pursue our strategies of land entitlement, development, and conservation. Accordingly, we have established well-definedpriorities for our available cash, including investing in core operating segments to achieve profitable future growth. We have historically funded ouroperations with cash flows from operating activities, investment proceeds, and short-term borrowings from our bank credit facilities. In the past, we have alsoissued common stock and used the proceeds for capital investment activities.To enhance shareholder value, we will continue to make investments in our real estate segments to secure land entitlement approvals, build infrastructure forour developments, ensure adequate future water supplies, and provide funds for general land development activities. Within our farming segment, we willmake investments as needed to improve efficiency and add capacity to its operations when it is profitable to do so.On October 4, 2017, the Company commenced a rights offering to common shareholders whereby proceeds will be used to provide additional workingcapital for general corporate purposes, including to fund general infrastructure costs and the development of buildings at TRCC, to continue forward withentitlement and permitting programs for the Centennial and46Grapevine communities and costs related to the preparation of the development of MV. The rights offering concluded on October 27, 2017, with theCompany raising $89,867,000, net of offering costs, from the sale of 5,000,000 shares at $18.00 per share.Our cash and cash equivalents and marketable securities totaled approximately $90,975,000 at December 31, 2017, an increase of $63,042,000, or 226%,from the corresponding amount at the end of 2016.The following table summarizes the cash flow activities for the following years ended December 31: ($ in thousands) 2017 2016 2015Operating activities $9,830 $5,585 $16,968Investing activities $(68,214) $(10,242) $(12,661)Financing activities $77,233 $3,985 $(8,015)Cash flows provided by operating activities are primarily dependent upon the rental rates of our leases, the collectability of rent and recovery of operatingexpenses from our tenants, distributions from joint ventures, the success of our crops and commodity prices within our mineral resource segment. During2017, our operations provided $9,830,000 of cash primarily attributable to operating results from mineral resources, and commercial real estate activities. Wealso received a $7,200,000 distribution from our TA/Petro joint venture. Please refer to "Results of Operations by Segment" for further discussion on ouroperating results.During 2016, our operations provided $5,585,000 of cash primarily attributable to operating results from mineral resources, and commercial real estateactivities. We also received a $4,500,000 distribution from our TA/Petro joint venture. Please refer to "Results of Operations by Segment" for furtherdiscussion on our operating results.During 2017, investing activities used $68,214,000. During 2017, we invested a portion of our proceeds from the rights offering, totaling $52,716,000, intomarketable securities. We also had $21,709,000 in capital expenditures associated with real estate and farm crop development. Of the $21,709,000 we spent$5,462,000 on tentative tract maps for MV, $4,831,000, on entitlement, and land planning activities for Centennial, and $3,938,000 on litigation defenseand permitting activities for the Grapevine project. At TRCC we used $4,638,000 on continued expansion and infrastructure related to Wheeler Ridge Roadand indirect costs supporting all ongoing infrastructure projects, such as expansion of water treatment facilities. Our farming segment had cash outlays of$2,129,000 for developing new almond orchards and purchase of replacement farm equipment. Lastly, we purchased water through our annual watercontracts, using $4,717,000. Offsetting our cash outlays were maturity of marketable securities of $8,126,000, and distributions from our joint venturepartners of $3,114,000.During 2016, investing activities used $10,242,000 of cash primarily as a result of $26,380,000 in real estate and equipment expenditures. Of the$26,380,000 we spent $5,253,000, $5,244,000, $5,516,000 on pre-development and entitlement costs on our Centennial, MV, and Grapevine projects,respectively. At TRCC we used $5,196,000 for supporting infrastructure projects. Our farming segment cash outlay was $2,006,000 for developing newalmond crops and acquiring farm equipment. We invested $2,161,000 into our mineral resources division primarily to develop two new water wells. Theremainder of the capital investments primarily relate to capital equipment used as part of our ranch operations and corporate segments. Outside of capitalprojects, we acquired $5,983,000 in marketable securities and contributed $2,000,000 to joint ventures with Majestic. Offsetting our cash outlays arematurities and sales of marketable securities of $11,750,000, distributions from our joint venture partners of $1,600,000, and reimbursements from TRPFFAfor qualifying infrastructure projects of $6,155,000,Our estimated capital investment for 2018 is primarily related to our real estate projects as it was in 2017. These estimated investments include approximately$8,110,000 of infrastructure development at TRCC-East and West to support continued commercial retail and industrial development and to expand waterfacilities to support future anticipated absorption. It is assumed we will invest up to $800,000 into the Majestic joint venture as equity for tenantimprovement and lease-up purposes. We are also investing approximately $3,624,000 to begin development of new almond orchards and acquiring newfarming equipment. The farm investments are part of a long-term farm management program to redevelop declining orchards and vineyards to maintain andimprove future farm revenues. We expect to possibly invest up to $18,462,000 for land planning, entitlement activities, litigation related to entitlementapprovals, federal and state agency permitting activities, and development activities at MV, Centennial, and Grapevine during 2018. The timing of theseinvestments is dependent on our coordination efforts with Los Angeles County regarding entitlement efforts for Centennial, litigation and permittingactivities for Grapevine, and final maps for MV. Our plans also include $6,224,000 for payment of annual water infrastructure and water related investments.We are also planning to potentially invest up to $300,000 in the normal replacement of operating equipment, such as ranch equipment, and updates to ourinformation technology systems.47We capitalize interest cost as a cost of the project only during the period for which activities necessary to prepare an asset for its intended use are ongoing,provided that expenditures for the asset have been made and interest cost has been incurred. Capitalized interest for the years ended December 31, 2017 and2016, of $3,478,000 and $3,381,000, respectively, is classified in real estate development. We also capitalized payroll costs related to development, pre-construction, and construction projects which aggregated $2,809,000 and $2,656,000 for the years ended December 31, 2017 and 2016, respectively.Expenditures for repairs and maintenance are expensed as incurred.During 2017, financing activities provided $77,233,000 through the rights offering discussed previously. A portion of the proceeds from the Rights Offeringwere used to payoff $17,000,0000 outstanding on our line-of-credit.During 2016, financing activities provided $3,985,000 through $20,700,000 in drawdowns from our line-of-credit offset by paydowns of $13,815,000 on ourline-of-credit and long-term borrowings.It is difficult to accurately predict cash flows due to the nature of our businesses and fluctuating economic conditions. Our earnings and cash flows will beaffected from period to period by the commodity nature of our farming and mineral operations, the timing of sales and leases of property within ourdevelopment projects, and the beginning of development within our residential projects. The timing of sales and leases within our development projects isdifficult to predict due to the time necessary to complete the development process and negotiate sales or lease contracts. Often, the timing aspect of landdevelopment can lead to particular years or periods having more or less earnings than comparable periods. Based on our experience, we believe we will haveadequate cash flows, cash balances, and availability on our line of credit over the next twelve months to fund internal operations. As we move forward withthe completion of the entitlement process for our master planned communities and prepare to move into the development stage, we will need to secureadditional funding through the issuance of equity and secure other forms of financing such as joint ventures and possibly debt financing.Capital Structure and Financial ConditionAt December 31, 2017, total capitalization at book value was $496,630,000 consisting of $69,820,000 of debt, net of deferred financing costs, and$426,810,000 of equity, resulting in a debt-to-total-capitalization ratio of approximately 14.0%, representing a decrease when compared to the debt-to-total-capitalization ratio of 19.6% at December 31, 2016.On October 13, 2014, the Company as borrower, entered into an Amended and Restated Credit Agreement, a Term Note and a Revolving Line of Credit Note,with Wells Fargo, or collectively the Credit Facility. The Credit Facility adds a $70,000,000 term loan, or Term Loan, to the existing $30,000,000 revolvingline of credit, or RLC. Funds from the Term Loan were used to finance the Company's purchase of DMB TMV LLC’s interest in MV as disclosed in theCurrent Report on Form 8-K filed on July 16, 2014. The Term Loan had a $66,046,000 balance as of December 31, 2017. Any future borrowings under theRLC will be used for ongoing working capital requirements and other general corporate purposes. To maintain availability of funds under the RLC, undrawnamounts under the RLC will accrue a commitment fee of 10 basis points per annum. The Company's ability to borrow additional funds in the future under theRLC is subject to compliance with certain financial covenants and making certain representations and warranties. At the Company’s option, the interest rateon the RLC can float at 1.50% over a selected LIBOR rate or can be fixed at 1.50% above LIBOR for a fixed rate term. During the term of this credit facility(which matures in September 2019), we can borrow at any time and partially or wholly repay any outstanding borrowings and then re-borrow, as necessary.The outstanding balance on the RLC was $0 and $7,700,000 as of December 31, 2017 and 2016, respectively.The interest rate per annum applicable to the Term Loan is LIBOR (as defined in the Term Note) plus a margin of 170 basis points. The interest rate for theterm of the note has been fixed through the use of an interest rate swap at a rate of 4.11%. We utilize an interest rate swap agreement to hedge our exposure tovariable interest rates associated with our term loan. The Term Loan required interest only payments for the first two years of the term and thereafter requiresmonthly amortization payments pursuant to a schedule set forth in the Term Note, with the final outstanding principal amount due October 5, 2024. TRCmay make voluntary prepayments on the Term Loan at any time without penalty (excluding any applicable LIBOR or interest rate swap breakage costs). Eachoptional prepayment will be applied to reduce the most remote principal payment then unpaid. The Credit Facility is secured by TRC’s farmland and farmassets, which include equipment, crops and crop receivables and the power plant lease and lease site, and related accounts and other rights to payment andinventory.The Credit Facility requires compliance with three financial covenants: (a) total liabilities divided by tangible net worth not greater than 0.75 to 1.0 at eachquarter end; (b) a debt service coverage ratio not less than 1.25 to 1.00 as of each quarter end on a rolling four quarter basis; and (c) maintain liquid assetsequal to or greater than $20,000,000. At December 31, 2017, we were in compliance with the financial covenants.The Credit Facility also contains customary negative covenants that limit the ability of TRC to, among other things, make capital expenditures, incurindebtedness and issue guaranties, consummate certain assets sales, acquisitions or mergers, make investments, pay dividends or repurchase stock, or incurliens on any assets.48The Credit Facility contains customary events of default, including: failure to make required payments; failure to comply with terms of the Credit Facility;bankruptcy and insolvency; and a change in control without consent of bank (which consent will not be unreasonably withheld). The Credit Facilitycontains other customary terms and conditions, including representations and warranties, which are typical for credit facilities of this type.We also have a $4,750,000 promissory note agreement with principal and interest due monthly starting on October 1, 2013. The interest rate on thispromissory note is 4.25% per annum, with principal and interest payments ending on September 1, 2028. The balance as of December 31, 2017 is $3,695,000.The proceeds from this promissory note were used to eliminate debt that had been previously used to provide long-term financing for a building being leasedto Starbucks and provide additional working capital for future investment.Our current and future capital resource requirements will be provided primarily from current cash and marketable securities, cash flow from on-goingoperations, distributions from joint ventures, proceeds from the sale of developed and undeveloped parcels, potential sales of assets, additional use of debt,proceeds from the reimbursement of public infrastructure costs through CFD bond debt (described below under “Off-Balance Sheet Arrangements”), and theissuance of common stock. In April 2016, we filed an updated shelf registration statement on Form S-3 that went effective in May 2016. Under the shelfregistration statement, we may offer and sell in the future one or more offerings, common stock, preferred stock, debt securities, warrants or any combinationof the foregoing. The shelf registration allows for efficient and timely access to capital markets and when combined with our other potential funding sourcesjust noted, provides us with a variety of capital funding options that can then be used and appropriately matched to the funding need.On August 7, 2013, the Company announced that its Board of Directors declared a dividend of 3,000,000 warrants to purchase shares of Company commonstock, par value $0.50 per share, or Warrants, to holders of record of Common Stock as of August 21, 2013, the Record Date. The Warrants were distributed toshareholders on August 28, 2013. Each Warrant entitled the holder to purchase one share of Common Stock at an initial exercise price of $40.00 per shareand expired unexercised on August 31, 2016.As noted above, at December 31, 2017, we had $90,975,000 in cash and securities and as of the filing date of this Form 10-K, we have $30,000,000 availableon credit lines to meet any short-term liquidity needs.We continue to expect that substantial investments will be required in order to develop our land assets. In order to meet these capital requirements, we mayneed to secure additional debt financing and continue to renew our existing credit facilities. In addition to debt financing, we will use other capitalalternatives such as joint ventures with financial partners, sales of assets, and the issuance of common stock. We will use a combination of the above fundingsources to properly match funding requirements with the assets or development project being funded. There is no assurance that we can obtain financing orthat we can obtain financing at favorable terms. We believe we have adequate capital resources to fund our cash needs and our capital investmentrequirements in the near-term as described earlier in the cash flow and liquidity discussions.49Contractual Cash ObligationsThe following table summarizes our contractual cash obligations and commercial commitments as of December 31, 2017, to be paid over the next five years: Payments Due by Period($ in thousands)Total Less than a year 1-3 years 3-5 years More than 5yearsContractual Obligations: Estimated water payments$261,992 $8,884 $18,218 $18,846 $216,044Long-term debt69,959 4,004 8,241 8,915 48,799Interest on long-term debt15,494 2,775 5,056 4,348 3,315Cash contract commitments7,500 5,291 1,138 — 1,071Defined Benefit Plan3,658 200 546 585 2,327SERP4,958 526 979 956 2,497Tejon Ranch Conservancy3,200 800 1,600 800 —Financing fees163 163 — — —Total contractual obligations$366,924 $22,643 $35,778 $34,450 $274,053The categories above include purchase obligations and other long-term liabilities reflected on our balance sheet under GAAP. A “purchase obligation” isdefined in Item 303(a)(5)(ii)(D) of Regulation S-K as “an agreement to purchase goods or services that is enforceable and legally binding the registrant thatspecifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximatetiming of the transaction.” Based on this definition, the table above includes only those contracts that include fixed or minimum obligations. It does notinclude normal purchases, which are made in the ordinary course of business.Our financial obligations to the Tejon Ranch Conservancy are prescribed in the Conservation Agreement. Our advances to the Tejon Ranch Conservancy aredependent on the occurrence of certain events and their timing, and are therefore subject to change in amount and period. The amounts included above arethe minimum amounts we anticipate contributing through the year 2021, at which time our current contractual obligation terminates.As discussed in Note 15 (Retirement Plans) of the Notes to Consolidated Financial Statements, we have long-term liabilities for deferred employeecompensation, including pension and supplemental retirement plans. Payments in the above table reflect estimates of future defined benefit plancontributions from the Company to the plan trust, estimates of payments to employees from the plan trust, and estimates of future payments to employeesfrom the Company that are in the SERP program. During 2017, we made pension contributions of $165,000 and it is projected that we will make a similarcontribution in 2018.Our cash contract commitments consist of contracts in various stages of completion related to infrastructure development within our industrial developmentsand entitlement costs related to our industrial and residential development projects. Also, included in the cash contract commitments are estimated feesearned during the second quarter of 2014 by a consultant, related to the entitlement of the Grapevine Development Area. The Company exited a consultingcontract during the second quarter of 2014 related to the Grapevine Development and is obligated to pay an earned incentive fee at the time of successfulreceipt of litigated project entitlements and at a value measurement date five-years after entitlements have been achieved for Grapevine. The final amount ofthe incentive fees will not be finalized until the future payment dates. The Company believes that net savings from exiting the contract over this future timeperiod will more than offset the incentive payment costs.Estimated water payments include the Nickel water contract, which obligates us to purchase 6,693 acre-feet of water annually through 2044 and SWPcontracts with Wheeler Ridge Maricopa Water Storage District, Tejon-Castac Water District, Tulare Lake Basin Water Storage District, and Dudley-RidgeWater Storage District. These contracts for the supply of future water run through 2035. Please refer to Note 6 (Long-Term Water Assets) of the Notes toConsolidated Financial Statements for additional information regarding water assets.Our operating lease obligations are for office equipment, several vehicles, and a temporary trailer providing office space and average approximately $25,000per month. At the present time, we do not have any capital lease obligations or purchase obligations outstanding.50Off-Balance Sheet ArrangementsThe following table shows contingent obligations we have with respect to the CFDs. Amount of Commitment Expiration Per Period($ in thousands) Total < 1 year 2 -3 Years 4 -5 Years After 5 YearsOther Commercial Commitments: Standby letter of credit $4,921 $— $4,921 $— $—Total other commercial commitments $4,921 $— $4,921 $— $—TRPFFA is a joint powers authority formed by Kern County and TCWD to finance public infrastructure within the Company’s Kern County developments.TRPFFA created two CFDs, the West CFD and the East CFD. The West CFD has placed liens on 420 acres of the Company’s land to secure payment of specialtaxes related to $28,620,000 of bond debt sold by TRPFFA for TRCC-West. The East CFD has placed liens on 1,931 acres of the Company’s land to securepayments of special taxes related to $55,000,000 of bond debt sold by TRPFFA for TRCC-East. At TRCC-West, the West CFD has no additional bond debtapproved for issuance. At TRCC-East, the East CFD has approximately $65,000,000 of additional bond debt authorized by TRPFFA.In connection with the sale of bonds there is a standby letter of credit for $4,921,000 related to the issuance of East CFD bonds. The standby letter of credit isin place to provide additional credit enhancement and cover approximately two year's worth of interest on the outstanding bonds. This letter of credit will notbe drawn upon unless the Company, as the largest landowner in the CFD, fails to make its property tax payments. As development occurs within TRCC-Eastthere is a mechanism in the bond documents to reduce the amount of the letter of credit. The Company believes that the letter of credit will never be drawnupon. This letter of credit is for a two-year period of time and will be renewed in two-year intervals as necessary. The annual cost related to the letter of creditis approximately $83,000. The assessment of each individual property sold or leased within each CFD is not determinable at this time because it is based onthe current tax rate and the assessed value of the property at the time of sale or on its assessed value at the time it is leased to a third-party. Accordingly, theCompany is not required to recognize an obligation at December 31, 2015.At December 31, 2017, aggregate outstanding debt of unconsolidated joint ventures was $114,272,000. We guarantee $98,993,000 of this debt, relating toour joint ventures with Rockefeller and Majestic. Because of positive cash flow generation within the Rockefeller and Majestic joint ventures, we do notexpect the guarantee to ever be called upon. We do not provide a guarantee on the $15,279,000 of debt related to our joint venture with TA/Petro.51Non-GAAP Financial MeasuresEBITDA represents earnings before interest, taxes, depreciation, and amortization, a non-GAAP financial measure, and is used by us and others as asupplemental measure of performance. We use Adjusted EBITDA to assess the performance of our core operations, for financial and operational decisionmaking, and as a supplemental or additional means of evaluating period-to-period comparisons on a consistent basis. Adjusted EBITDA is calculated asEBITDA, excluding stock compensation expense. We believe Adjusted EBITDA provides investors relevant and useful information because it permitsinvestors to view income from our operations on an unleveraged basis before the effects of taxes, depreciation and amortization, and stock compensationexpense. By excluding interest expense and income, EBITDA and Adjusted EBITDA allow investors to measure our performance independent of our capitalstructure and indebtedness and, therefore, allow for a more meaningful comparison of our performance to that of other companies, both in the real estateindustry and in other industries. We believe that excluding charges related to share-based compensation facilitates a comparison of our operations acrossperiods and among other companies without the variances caused by different valuation methodologies, the volatility of the expense (which depends onmarket forces outside our control), and the assumptions and the variety of award types that a company can use. EBITDA and Adjusted EBITDA havelimitations as measures of our performance. EBITDA and Adjusted EBITDA do not reflect our historical cash expenditures or future cash requirements forcapital expenditures or contractual commitments. While EBITDA and Adjusted EBITDA are relevant and widely used measures of performance, they do notrepresent net income or cash flows from operations as defined by GAAP. Further, our computation of EBITDA and Adjusted EBITDA may not be comparableto similar measures reported by other companies. Year-Ended December 31,($ in thousands)2017 2016 2015Net (loss) income$(1,579) $515 $2,912Net (loss) attributed to non-controlling interest(24) (43) (38)Interest, net Consolidated interest income(462) (457) (528)Our share of interest expense from unconsolidated joint ventures1,730 1,449 1,113Total interest, net1,268 992 585Income tax (benefit) expense(1,123) 336 1,125Depreciation and amortization: Consolidated4,551 4,549 5,090Our share of depreciation and amortization from unconsolidated joint ventures5,419 3,630 2,878Total depreciation and amortization9,970 8,179 7,968EBITDA8,560 10,065 12,628Stock compensation expense3,552 4,585 3,757Adjusted EBITDA$12,112 $14,650 $16,38552Net operating income (NOI) is a non-GAAP financial measure calculated as operating income, the most directly comparable financial measure calculated andpresented in accordance with GAAP, excluding general and administrative expenses, interest expense, depreciation and amortization, and gain or loss onsales of real estate. We believe NOI provides useful information to investors regarding our financial condition and results of operations because it primarilyreflects those income and expense items that are incurred at the property level. Therefore, we believe NOI is a useful measure for evaluating the operatingperformance of our real estate assets.($ in thousands)Year-Ended December 31,Net operating income2017 2016 2015Pastoria Energy Facility3,854 3,612 3,694TRCC1,447 1,327 1,346Communication leases799 795 788Other commercial leases618 817 758Total Commercial/Industrial net operating income6,718 6,551 6,586 Year-Ended December 31,($ in thousands)2017 2016 2015Commercial/Industrial operating income$2,874 $2,338 $1,578Plus: Commercial/Industrial depreciation and amortization615 585 552Plus: General, administrative and other expenses5,570 6,084 6,011Less: Other revenues including land sales(2,341) (2,456) (1,522)Total Commercial/Industrial net operating income$6,718 $6,551 $6,619The Company utilizes net operating income (NOI) of unconsolidated joint ventures as a measure of financial or operating performance that is not specificallydefined by GAAP in the United States. We believe net operating income of unconsolidated joint ventures provides investors with additional informationconcerning operating performance of our unconsolidated joint ventures. We also use this measure internally to monitor the operating performance of ourunconsolidated joint ventures. Our computation of this non-GAAP measure may not be the same as similar measures reported by other companies. This non-GAAP financial measure should not be considered as an alternative to net income as a measure of the operating performance of our unconsolidated jointventures or to cash flows computed in accordance with GAAP as a measure of liquidity nor are they indicative of cash flows from operating and financialactivities of our unconsolidated joint ventures.The following schedule reconciles net income from unconsolidated joint ventures to net operating income of unconsolidated joint ventures. Year-Ended December 31,($ in thousands)2017 2016 2015Net income of unconsolidated joint ventures$6,371 $11,782 $10,523Interest expense of unconsolidated joint ventures3,364 2,757 2,135Operating income of unconsolidated joint ventures9,735 14,539 12,658Depreciation and amortization of unconsolidated joint ventures10,361 6,832 5,425Net operating income of unconsolidated joint ventures$20,096 $21,371 $18,083ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKMarket risk represents the risk of loss that may impact the financial position, results of operations, or cash flows of the Company due to adverse changes infinancial or commodity market prices or rates. We are exposed to market risk in the areas of interest rates and commodity prices.Financial Market RisksOur exposure to financial market risks includes changes to interest rates and credit risks related to marketable securities, interest rates related to ouroutstanding indebtedness and trade receivables.53The primary objective of our investment activities is to preserve principal while at the same time maximizing yields and prudently managing risk. To achievethis objective and limit interest rate exposure, we limit our investments to securities with a maturity of less than five years and an investment grade ratingfrom Moody’s or Standard and Poor’s. See Note 3 (Marketable Securities) of the Notes to Consolidated Financial Statements.Our current RLC has no outstanding balance. The interest rate on the RLC can either float at 1.50% over a selected LIBOR rate or can be fixed at 1.50%above LIBOR for a fixed term for a limited period of time and change only at maturity of the fixed rate portion. The floating rate and fixed rate options withinour RLC help us manage our interest rate exposure on any outstanding balances.We are exposed to interest rate risk on our long-term debt. Long-term debt consists of two term loans, one for $66,046,000 that is tied to LIBOR plus a marginof 1.70%. The interest rate for the term of this loan has been fixed through the use of an interest rate swap that fixed the rate at 4.11%. The outstandingbalance on the second term loan is $3,695,000 and has a fixed rate of 4.25%. We believe it is prudent at times to limit the variability of floating-rate interestpayments and have from time-to-time entered into interest rate swap arrangements to manage those fluctuations, as we did with the new loan.Market risk related to our farming inventories ultimately depends on the value of almonds, grapes, and pistachios at the time of payment or sale. Credit riskrelated to our receivables depends upon the financial condition of our customers. Based on historical experience with our current customers and periodiccredit evaluations of our customers’ financial conditions, we believe our credit risk is minimal. Market risk related to our farming inventories is discussedbelow in the section pertaining to commodity price exposure.The following tables provide information about our financial instruments that are sensitive to changes in interest rates. The tables present our debtobligations and marketable securities and their related weighted-average interest rates by expected maturity dates.Interest Rate Sensitivity Financial Market RisksPrincipal Amount by Expected MaturityAt December 31, 2017(In thousands except percentage data) 2018 2019 2020 2021 2022 Thereafter Total Fair ValueAssets: Marketable securities$20,227 $30,315 $20,420 $36 $68 $— $71,066 $70,868Weighted average interest rate1.61% 1.83% 2.02% —% —% —% 1.83% Liabilities: Long-term debt ($4.75M note)$277 $289 $302 $315 $328 $2,184 $3,695 $3,695Weighted average interest rate4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% Long-term debt ($70.0M note)$3,563 $3,715 $3,881 $4,051 $4,221 $46,615 $66,046 $66,046Weighted average interest rate4.11% 4.11% 4.11% 4.11% 4.11% 4.11% 4.11% Long-term debt (other)$163 $55 $— $— $— $— $218 $218Weighted average interest rate3.35% 3.35% —% —% —% —% 3.35% 54Interest Rate Sensitivity Financial Market RisksPrincipal Amount by Expected MaturityAt December 31, 2016(In thousands except percentage data) 2017 2018 2019 2020 2021 Thereafter Total Fair ValueAssets: Marketable securities$6,979 $13,787 $6,007 $— $— $— $26,773 $26,675Weighted average interest rate1.32% 1.59% 1.73% —% —% —% 1.55% Liabilities: Revolving line of credit$7,700 $— $— $— $— $— $7,700 $7,700Weighted average interest rate2.26% —% —% —% —% —% —% Long-term debt ($4.75M note)$266 $277 $289 $302 $315 $2,512 $3,961 $3,961Weighted average interest rate4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% Long-term debt ($70.0M note)$3,393 $3,563 $3,715 $3,881 $4,051 $50,836 $69,439 $69,439Weighted average interest rate4.11% 4.11% 4.11% 4.11% 4.11% 4.11% 4.11% Long-term debt (other)$195 $218 $54 $— $— $— $467 $467Weighted average interest rate3.35% 3.35% 3.35% —% —% —% 3.35% Our risk with regard to fluctuations in interest rates has decreased slightly related to marketable securities since these balances have decreased compared tothe prior year.Commodity Price ExposureAs of December 31, 2017, we have exposure to adverse price fluctuations associated with certain inventories and accounts receivable. Farming inventoriesconsist of farming cultural and processing costs related to 2017 and 2016 crop production. The farming costs inventoried are recorded at actual costsincurred. Historically, these costs have been recovered each year when that year’s crop harvest has been sold.With respect to accounts receivable, the amount at risk relates primarily to farm crops. These receivables are recorded as estimates of the prices that ultimatelywill be received for the crops. The final price is generally not known for several months following the close of our fiscal year. Of the $7,608,000 of accountsreceivable outstanding at December 31, 2017, $3,670,000, or 48%, is at risk to changing prices. Of the amount at risk to changing prices, $747,000 isattributable to pistachios, and $2,716,000 is attributable to almonds.The price estimated for recording accounts receivable for pistachios recorded at December 31, 2017 was $2.00 per pound, as compared to $2.03 per pound atDecember 31, 2016. For each $0.01 change in the price of pistachios, our receivable for pistachios increases or decreases by $40.20. Although the final priceof pistachios (and therefore the extent of the risk) is not presently known, over the last three years prices have ranged from $2.88 to $4.25. With respect toalmonds, the price estimated for recording the receivable was $2.57 per pound, as compared to $2.51 per pound at December 31, 2016. For each $0.01 changein the price of almonds, our receivable for almonds increases or decreases by $54. The range of final prices over the last three years for almonds has rangedfrom $2.51 to $3.97 per pound.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe response to this Item is submitted in a separate section of this Form 10-K.ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.55ITEM 9A. CONTROLS AND PROCEDURES(a)Evaluation of Disclosure Controls and ProceduresAs of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management,including our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and Controller, of the effectiveness of the design and operation ofour disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Basedupon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuringthat all information required in the reports we file or submit under the Exchange Act was accumulated and communicated to our management, including ourChief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure and was recorded, processed,summarized and reported within the time period required by the rules and regulations of the SEC.(b)Changes in Internal Control Over Financial ReportingThere have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) ofRule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during our last fiscal quarter that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.See Management’s Report on Internal Control Over Financial Reporting and the Report of Independent Registered Public Accounting Firm On InternalControl over Financial Reporting following ITEM 15(a)(2) - FINANCIAL STATEMENT SCHEDULES of this Form 10-K.ITEM 9B. OTHER INFORMATIONNone.PART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEInformation as to our Executive Officers is set forth in Part I, Item 1 of this Form 10-K under “Executive Officers of the Registrant.” The other informationrequired by this Item is incorporated by reference from the definitive proxy statement to be filed by us with the SEC with respect to our 2018 Annual Meetingof Stockholders and will be found under the captions "The Election of Directors," "Section 16(a) Beneficial Ownership Reporting Compliance," "Code ofBusiness Conduct and Ethics and Corporate Governance Guidelines," and "Corporate Governance Matters."ITEM 11. EXECUTIVE COMPENSATIONInformation required by this Item is incorporated by reference from the definitive proxy statement to be filed by us with the SEC with respect to our 2018Annual Meeting of Stockholders and will be found under the captions "Compensation Discussion and Analysis," and "Compensation Committee Report."ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS(a)Security Ownership of Certain Beneficial Owners and Management.Information required by this Item with respect to security ownership of certain beneficial owners and management is incorporated by reference from thedefinitive proxy statement to be filed by us with the SEC with respect to our 2018 Annual Meeting of Stockholders and will be found under the caption"Stock Ownership of Certain Beneficial Owners and Management."(b)Securities Authorized for Issuance under Equity Compensation Plans.The following table shows aggregated information as of December 31, 2017 with respect to all of our compensation plans under which our equity securitieswere authorized for issuance. At December 31, 2017, we had, and we presently have, no other compensation contracts or arrangements for the issuance of anysuch equity securities and there were then, and continue to be, no compensation plans, contracts or arrangements which were not approved by ourstockholders. More detailed information56with respect to our compensation plans is included in Note 11 (Stock Compensation - Restricted Stock and Performance Share Grants) of the Notes toConsolidated Financial Statements.Equity Compensation Plans Approved by Security HoldersEquitycompensation plansapproved bysecurity holders * Number of securities to beissued upon exercise ofoutstanding grants Weighted-averageexercise price ofoutstanding grants Number of securities remainingavailable for future issuanceunder equity compensationplans (excluding securities)reflected in column (a) (a) (b) (c)Restricted stockgrants and restrictedstock units at targetgoal achievement 536,860 Final price determinedat time of vesting 826,886* The Company does not use equity compensation plans that have not been approved by the security holders.ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEInformation required by this Item is incorporated by reference from the definitive proxy statement to be filed by us with the SEC with respect to our 2018Annual Meeting of Stockholders and will be found under the captions "Related Person Transactions" and "Corporate Governance Matters."ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESInformation required by this Item is incorporated by reference from the definitive proxy statement to be filed by us with the SEC with respect to our 2018Annual Meeting of Stockholders and will be found under the caption "Independent Registered Public Accounting Firm."57PART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES(a) Documents filed as part of this report: Page Number1 Consolidated Financial Statements: 1.1 Management's Report on Internal Control Over Financial Reporting 67 Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting 68 Report of Independent Registered Public Accounting Firm 69 1.2 Consolidated Balance Sheets – Years Ended December 31, 2017 and 2016 70 1.3 Consolidated Statements of Operations - Years Ended December 31, 2017, 2016 and 2015 71 1.4 Consolidated Statement of Comprehensive (Loss) Income - Years Ended December 31, 2017, 2016 and 2015 72 1.5 Consolidated Statements of Equity - Years Ended December 31, 2017, 2016 and 2015 73 1.6 Consolidated Statements of Cash Flows - Years Ended December 31, 2017, 2016 and 2015 74 1.7 Notes to Consolidated Financial Statements 752 Supplemental Financial Statement Schedules: None. 3 Exhibits: 3.1 Restated Certificate of Incorporation FN 1 3.2 Amended and Restated Bylaws FN 2 4.1 Form of First Additional Investment Right FN 3 4.2 Form of Second Additional Investment Right FN 4 4.3 Registration and Reimbursement Agreement FN 5 10.1 Water Service Contract with Wheeler Ridge-Maricopa Water Storage District (without exhibits), amendmentsoriginally filed under Item 11 to Registrant's Annual Report on Form 10-K FN 6 10.7 *Severance Agreement FN 7 10.8 *Director Compensation Plan FN 7 10.9 *Amended and Restated Non-Employee Director Stock Incentive Plan FN 8 10.9(1) *Stock Option Agreement Pursuant to the Non-Employee Director Stock Incentive Plan FN 7 10.10 *Amended and Restated 1998 Stock Incentive Plan FN 9 10.10(1) *Stock Option Agreement Pursuant to the 1998 Stock Incentive Plan FN 758 10.12 Lease Agreement with Pastoria Energy Facility L.L.C. FN 10 10.15 Form of Securities Purchase Agreement FN 11 10.16 Form of Registration Rights Agreement FN 12 10.17 *2004 Stock Incentive Program FN 13 10.18 *Form of Restricted Stock Agreement for Directors FN 13 10.19 *Form of Restricted Stock Unit Agreement FN 13 10.23 Tejon Mountain Village LLC Operating Agreement FN 14 10.24 Tejon Ranch Conservation and Land Use Agreement FN 15 10.25 Second Amended and Restated Limited Liability Agreement of Centennial Founders, LLC FN 16 10.26 *Executive Employment Agreement - Allen E. Lyda FN 17 10.27 Limited Liability Company Agreement of TRCC/Rock Outlet Center LLC FN 18 10.28 Warrant Agreement FN 19 10.29 Amendments to Limited Liability Company Agreement of Tejon Mountain Village LLC FN 20 10.30 Membership Interest Purchase Agreement - TMV LLC FN 21 10.31 Amended and Restated Credit Agreement FN 22 10.32 Term Note FN 22 10.33 Revolving Line of Credit FN 22 10.34 Amendments to Lease Agreement with Pastoria Energy Facility L.L.C. FN 23 10.35 Water Supply Agreement with Pastoria Energy Facility L.L.C. FN 24 10.36 *Separation Agreement - Gregory J. Tobias FN 25 10.37 Limited Liability Agreement of TRC-MRC 2, LLC FN 26 10.38 Limited Liability Agreement of TRC-MRC 1, LLC FN 27 10.39 Centennial Redemption and Withdrawal Agreement FN 2859 10.40 First Amendment to Second Amended and Restated Limited Liability Company Agreement of CentennialFounders, LLC FN 29 10.41 Second Amendment to Second Amended and Restated Limited Liability Company Agreement of CentennialFounders, LLC FN 30 21 List of Subsidiaries of Registrant Filed herewith 23.1 Consent of Ernst & Young LLP, independent registered public accounting firm (Los Angeles, CA) Filed herewith 23.2 Consent of RSM US LLP, independent registered public accounting firm Filed herewith 31.1 Certification as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Filed herewith 31.2 Certification as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Filed herewith 31.3 Certification as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Filed herewith 32 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Actof 2002 Filed herewith 99.1 Financial Statements of Petro Travel Plaza Holdings LLC Filed herewith 101.INS XBRL Instance Document. Filed herewith 101.SCH XBRL Taxonomy Extension Schema Document. Filed herewith 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. Filed herewith 101.DEF XBRL Taxonomy Extension Definition Linkbase Document. Filed herewith 101.LAB XBRL Taxonomy Extension Label Linkbase Document. Filed herewith 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. Filed herewith * Management contract, compensatory plan or arrangement. FN 1 This document, filed with the Securities and Exchange Commission in Washington D.C. (file number 1-7183) under Item 14 to ourAnnual Report on Form 10-K for year ended December 31, 1987, is incorporated herein by reference. This Exhibit was not filed with theSecurities and Exchange Commission in an electronic format.FN 2 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 99.1 to ourCurrent Report on Form 8-K filed on September 20, 2017, is incorporated herein by reference.FN 3 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 4.3 to ourCurrent Report on Form 8-K filed on May 7, 2004, is incorporated herein by reference.60FN 4 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number I-7183) as Exhibit 4.4 to ourCurrent Report on Form 8-K filed on May 7, 2004, is incorporated herein by reference.FN 5 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 4.1 to ourCurrent Report on Form 8-K filed on December 20, 2005, is incorporated herein by reference.FN 6 This document, filed with the Securities and Exchange Commission in Washington D.C. (file number 1-7183) under Item 14 to ourAnnual Report on Form 10-K for year ended December 31, 1994, is incorporated herein by reference. This Exhibit was not filed with theSecurities and Exchange Commission in an electronic format.FN 7 This document, filed with the Securities and Exchange Commission in Washington D.C. (file number 1-7183) under Item 14 to ourAnnual Report on Form 10-K, for the period ending December 31, 1997, is incorporated herein by reference.FN 8 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.9 to ourAnnual Report on form 10-K for the year ended December 31, 2008, is incorporated herein by reference.FN 9 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.10 to ourAnnual Report on form 10-K for the year ended December 31, 2008, is incorporated herein by referenceFN 10 This document filed with the Securities and Exchange Commission in Washington D.C. (file number 1-7183) as Exhibit 10.16 to ourAnnual Report on Form 10-K for the year ended December 31, 2001, is incorporated herein by reference.FN 11 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 4.1 to ourCurrent Report on Form 8-K filed on May 7, 2004, is incorporated herein by reference.FN 12 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 4.2 to ourCurrent Report on Form 8-K filed on May 7, 2004, is incorporated herein by reference.FN 13 This document, filed with the Securities and Exchange Commission in Washington D.C. (file number 1-7183) as Exhibits 10.21-10.23 toour Annual Report on Form 10-K for the year ended December 31, 2004, is incorporated herein by reference.FN 14 This document, filed with the Securities and Exchange Commission in Washington D.C. (file number 1-7183) as Exhibit 10.24 to ourCurrent Report on Form 8-K filed on May 24, 2006, is incorporated herein by reference.FN 15 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.28 to ourCurrent Report on Form 8-K filed on June 23, 2008, is incorporated herein by reference.FN 16 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.25 to ourQuarterly Report on Form 10-Q for the period ending June 30, 2009, is incorporated herein by reference.FN 17 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.26 to ourQuarterly Report on Form 10-Q for the period ending March 31, 2013, is incorporated herein by reference.FN 18 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.27 to ourCurrent Report on Form 8-K filed on June 4, 2013, is incorporated herein by reference.FN 19 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.1 to ourCurrent Report on Form 8-K filed on August 8, 2013, is incorporated herein by reference.FN 20 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.29 to ourAmended Annual Report on Form 10-K/A for the year ended December 31, 2013, is incorporated herein by reference.FN 21 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.30 to ourCurrent Report on Form 8-K filed on July 16, 2014, is incorporated herein by reference.FN 22 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibits 10.31-10.33 toour Current Report on Form 8-K filed on October 17, 2014, is incorporated herein by reference.FN 23 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.34 to ourAnnual Report on Form 10-K for the year ended December 31, 2014, is incorporated herein by reference.61FN 24 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.35 to ourQuarterly Report on Form 10-Q for the period ending June 30, 2015, is incorporated herein by reference.FN 25 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.36 to ourQuarterly Report on Form 10-Q for the period ending September 30, 2015, is incorporated herein by reference.FN 26 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.37 to ourQuarterly Report on Form 10-Q for the period ending June 30, 2016, is incorporated herein by reference.FN 27 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.38 to ourQuarterly Report on Form 10-Q for the period ending September 30, 2016, is incorporated herein by reference.FN 28 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.39 to ourAnnual Report on Form 10-K for the year ended December 31, 2016, is incorporated herein by reference.FN 29 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.40 to ourAnnual Report on Form 10-K for the year ended December 31, 2016, is incorporated herein by reference.FN 30 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.41 to ourAnnual Report on Form 10-K for the year ended December 31, 2016, is incorporated herein by reference. (b) Exhibits. The exhibits being filed with this report are attached at the end of this report.(c) Financial Statement Schedules - The response to this portion of Item 15 is submitted as a separate section of this report.ITEM 16. FORM 10-K SUMMARYNot applicable.62SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to besigned on its behalf by the undersigned, thereunto duly authorized. TEJON RANCH CO. March 12, 2018 BY: /s/ Gregory S. Bielli Gregory S. Bielli President and Chief Executive Officer (Principal Executive Officer) March 12, 2018 BY: /s/ Allen E. Lyda Allen E. Lyda Executive Vice President and Chief Financial Officer (Principal Financial Officer) March 12, 2018 BY: /s/ Robert D. Velasquez Robert D. Velasquez Vice President of Finance and Chief Accounting Officer (Principal Accounting Officer)63Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the date indicated. Name Capacity Date /s/ Robert A. AlterRobert A. Alter Director March 12, 2018 /s/ Steven A. BettsSteven A. Betts Director March 12, 2018 /s/ Gregory S. BielliGregory S. Bielli Director March 12, 2018 /s/ Anthony L. LeggioAnthony L. Leggio Director March 12, 2018 /s/ Norman MetcalfeNorman Metcalfe Director March 12, 2018 /s/ Geoffrey StackGeoffrey Stack Director March 12, 2018 /s/ Daniel R. TischDaniel R. Tisch Director March 12, 2018 /s/ Frederick C.TuomiFrederick C. Tuomi Director March 12, 2018 /s/ Michael H. WinerMichael H. Winer Director March 12, 201864Annual Report on Form 10-KItem 8, Item 15(a) (1) and (2), (b) and (c)List of Financial Statements and Financial Statement SchedulesFinancial StatementsCertain ExhibitsYear Ended December 31, 2017Tejon Ranch Co.Lebec, California65Form 10-K - Item 15(a)(1) and (2)Tejon Ranch Co. and SubsidiariesIndex to Financial Statements and Financial Statement SchedulesITEM 15(a)(1) - FINANCIAL STATEMENTSThe following consolidated financial statements of Tejon Ranch Co. and subsidiaries are included in Item 8: PageManagement’s Report on Internal Control Over Financial Reporting67Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting68Report of Independent Registered Public Accounting Firm69Consolidated Balance Sheets - Years Ended December 31, 2017 and 201670Consolidated Statements of Operations - Years Ended December 31, 2017, 2016, and 201571Consolidated Statements of Comprehensive (Loss) Income - Years Ended December 31, 2017, 2016 and 201572Consolidated Statements of Equity - Years Ended December 31, 2017, 2016 and 201573Consolidated Statements of Cash Flows - Years Ended December 31, 2017, 2016 and 201574Notes to Consolidated Financial Statements75ITEM 15(a)(2) - FINANCIAL STATEMENT SCHEDULESAll schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under therelated instructions or are inapplicable, and therefore have been omitted.66Management’s Report on Internal Control Over Financial ReportingThe management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment ofthe effectiveness of internal control over financial reporting. As defined in Rule 13a-15(f) of the Exchange Act, internal control over financial reporting is aprocess designed by, or supervised by, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors,management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accounting principles.The Company’s internal control over financial reporting is supported by written policies and procedures, that (1) pertain to the maintenance of records that,in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactionsare recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts andexpenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (3) providereasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have amaterial effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.In connection with the preparation of the Company’s annual financial statements, under the supervision and with the participation of the Company’smanagement, including its Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer, management of the Company has undertaken anassessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017 based on criteria established in InternalControl – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), or COSO.Management’s assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the operationaleffectiveness of the Company’s internal control over financial reporting.Based on this assessment, management did not identify any material weakness in the Company’s internal control, and management has concluded that theCompany’s internal control over financial reporting was effective as of December 31, 2017.Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s financial statements included in this report, has issued areport on the effectiveness of internal control over financial reporting, a copy of which follows.67Report of Independent Registered Public Accounting FirmTo the Shareholders and the Board of Directors of Tejon Ranch Co. and SubsidiariesOpinion on Internal Control over Financial ReportingWe have audited Tejon Ranch Co. and subsidiaries’ internal control over financial reporting as of December 31, 2017, based on criteria established inInternal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSOcriteria). In our opinion, Tejon Ranch Co. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financialreporting as of December 31, 2017, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidatedbalance sheets of the Company as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, equity andcash flows for each of the three years in the period ended December 31, 2017, and the related notes and schedules and our report dated March 12, 2018expressed an unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the US federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing andevaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate./s/ Ernst & Young LLPLos Angeles, CaliforniaMarch 12, 201868Report of Independent Registered Public Accounting FirmTo the Shareholders and Board of Directors of Tejon Ranch Co. and SubsidiariesOpinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Tejon Ranch Co. and subsidiaries (the Company) as of December 31, 2017 and 2016, andthe related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31,2017, and the related notes and schedules (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financialstatements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations andits cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sinternal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated March 12, 2018, expressed an unqualifiedopinion thereon.Basis for OpinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financialstatements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Companyin accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing proceduresto assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also includedevaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financialstatements. We believe that our audits provide a reasonable basis for our opinion./s/ Ernst & Young LLPWe have served as the Company’s auditor since 1953Los Angeles, CaliforniaMarch 12, 201869Tejon Ranch Co. and SubsidiariesConsolidated Balance Sheets($ in thousands) December 31 2017 2016ASSETS Current Assets: Cash and cash equivalents$20,107 $1,258Marketable securities - available-for-sale70,868 26,675Accounts receivable7,608 8,740Inventories2,469 3,084Prepaid expenses and other current assets2,849 3,107Total current assets103,901 42,864Real estate and improvements - held for lease, net19,115 20,026Real estate development (includes $94,271 at December 31, 2017 and $89,381 at December 31, 2016,attributable to Centennial Founders, LLC, Note 17)267,336 248,265Property and equipment, net45,332 46,034Investments in unconsolidated joint ventures30,031 33,803Net investment in water assets47,130 43,764Deferred tax assets1,562 2,282Other assets3,792 2,663TOTAL ASSETS$518,199 $439,701LIABILITIES AND EQUITY Current Liabilities: Trade accounts payable$3,545 $2,415Accrued liabilities and other1,810 3,188Deferred income1,118 1,529Revolving line of credit— 7,700Current maturities of long-term debt4,004 3,853Total current liabilities10,477 18,685Long-term debt, less current portion65,816 69,853Long-term deferred gains3,405 3,662Other liabilities11,691 13,034Total liabilities91,389 105,234Commitments and contingencies Equity: Tejon Ranch Co. Stockholders’ Equity Common stock, $0.50 par value per share: Authorized shares - 30,000,000 Issued and outstanding shares - 25,894,773 at December 31, 2017 and 20,810,301 at December 31, 201612,947 10,405Additional paid-in capital320,167 229,762Accumulated other comprehensive loss(5,264) (6,239)Retained earnings70,392 71,947Total Tejon Ranch Co. Stockholders’ Equity398,242 305,875Non-controlling interest28,568 28,592Total equity426,810 334,467TOTAL LIABILITIES AND EQUITY$518,199 $439,701See accompanying notes.70Tejon Ranch Co. and SubsidiariesConsolidated Statements of Operations($ in thousands, except per share amounts) Year Ended December 31 201720162015Revenues:Real estate - commercial/industrial$9,403$9,438$8,272Mineral resources5,98314,15315,116Farming16,43418,64823,836Ranch operations3,8373,3383,923Total revenues 35,657 45,577 51,147Costs and Expenses: Real estate - commercial/industrial 6,529 7,100 6,694Real estate - resort/residential 1,955 1,630 2,349Mineral resources 2,964 7,796 7,396Farming 16,201 18,673 18,984Ranch operations 5,411 5,734 6,112Corporate expenses 10,141 12,550 12,808Total expenses 43,201 53,483 54,343Operating loss (7,544) (7,906) (3,196)Other Income: Gain on sale of real estate — 1,044 —Investment income 462 457 528Other income 153 158 381Total other income 615 1,659 909Loss from operations before equity in earnings of unconsolidated joint ventures (6,929) (6,247) (2,287)Equity in earnings of unconsolidated joint ventures, net 4,227 7,098 6,324(Loss) income before income taxes (2,702) 851 4,037Income tax (benefit) expense (1,123) 336 1,125Net (loss) income (1,579) 515 2,912Net loss attributable to non-controlling interest (24) (43) (38)Net (loss) income attributable to common stockholders $(1,555) $558 $2,950Net (loss) income per share attributable to common stockholders, basic $(0.07) $0.03 $0.14Net (loss) income per share attributable to common stockholders, diluted $(0.07) $0.03 $0.14See accompanying notes.71Tejon Ranch Co. and SubsidiariesConsolidated Statements of Comprehensive (Loss) Income($ in thousands) Year Ended December 31 2017 2016 2015Net (loss) income $(1,579) $515 $2,912Other comprehensive income/(loss): Unrealized (loss) gain on available-for-sale securities (100) 62 (188)Benefit plan adjustments 404 (371) (1,301)Benefit plan reclassification for losses included in net income — — 536SERP liability adjustments 328 214 234Unrealized interest rate swap gains/(losses) 970 1,040 678Other comprehensive income (loss) before taxes 1,602 945 (41)Benefit (provision) for income taxes related to other comprehensive (loss) income items (627) (282) 38Other comprehensive income (loss) 975 663 (3)Comprehensive (loss) income (604) 1,178 2,909Comprehensive (loss) income attributable to non-controlling interests (24) (43) (38)Comprehensive (loss) income attributable to common stockholders $(580) $1,221 $2,947See accompanying notes.72Tejon Ranch Co. and SubsidiariesConsolidated Statements of Equity($ in thousands, except share information) CommonStock SharesOutstanding CommonStock AdditionalPaid-InCapital AccumulatedOtherComprehensiveIncome (Loss) RetainedEarnings TotalStockholders'Equity NoncontrollingInterest Total EquityBalance, December 31, 201420,636,478 $10,318 $212,763 $(6,899) $68,439 $284,621 $39,712 $324,333Net income— — — — 2,950 2,950 (38) 2,912Other comprehensive income— — — (3) — (3) — (3)Restricted stock issuance85,584 43 (43) — — — — —Stock compensation— — 3,922 — — 3,922 — 3,922Shares withheld for taxes and tax benefit ofvested shares(33,908) (17) (904) — — (921) — (921)Warrants exercised— — 1,065 — — 1,065 — 1,065Balance, December 31, 201520,688,154 $10,344 $216,803 $(6,902) $71,389 $291,634 $39,674 $331,308Net income— — — — 558 558 (43) 515Other comprehensive loss— — — 663 — 663 — 663Restricted stock issuance200,240 100 (100) — — — — —Stock compensation— — 4,881 — — 4,881 — 4,881Shares withheld for taxes and tax benefit ofvested shares(78,093) (39) (2,861) — — (2,900) — (2,900)Centennial redemption of withdrawingmember interest— — 11,039 — — 11,039 (11,039) —Balance, December 31, 201620,810,301 $10,405 $229,762 $(6,239) $71,947 $305,875 $28,592 $334,467Net loss— — — — (1,555) (1,555) (24) (1,579)Other comprehensive income— — — 975 — 975 — 975Restricted stock issuance136,777 69 (70) — — (1) — (1)Stock compensation— — 4,107 — — 4,107 — 4,107Shares withheld for taxes and tax benefit forvested shares(52,901) (27) (999) — — (1,026) — (1,026)Rights offering, net5,000,596 2,500 87,367 — — 89,867 — 89,867Balance, December 31, 201725,894,773 $12,947 $320,167 $(5,264) $70,392 $398,242 $28,568 $426,810See accompanying notes.73Tejon Ranch Co. and SubsidiariesConsolidated Statements of Cash Flows(in thousands) Twelve Months Ended December 31, 2017 2016 2015Operating Activities Net (loss) income$(1,579) $515 $2,912Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization4,551 4,549 5,090Amortization of premium/discount of marketable securities298 434 555Equity in earnings of unconsolidated joint ventures, net(4,227) (7,098) (6,324)Non-cash retirement plan expense469 1,046 997Loss (gain) on sale of real estate/assets45 (1,183) (95)Deferred income taxes66 1,939 (120)Stock compensation expense3,552 4,585 3,757Excess tax benefit of stock-based compensation107 — —Distribution of earnings from unconsolidated joint ventures7,200 4,500 7,200Changes in operating assets and liabilities: Receivables, inventories, prepaids and other assets, net1,660 (1,603) 2,733Current liabilities, net(2,312) (2,099) 263Net cash provided by operating activities9,830 5,585 16,968Investing Activities Maturities and sales of marketable securities8,126 11,750 24,157Funds invested in marketable securities(52,716) (5,983) (15,574)Real estate and equipment expenditures(21,709) (26,380) (28,048)Reimbursement proceeds from Communities Facilities District— 6,155 4,971Proceeds from sale of real estate/assets— 4,616 796Investment in unconsolidated joint ventures(310) (2,000) (52)Distribution of equity from unconsolidated joint ventures3,114 1,600 1,100Investments in long-term water assets(4,717) — —Other(2) — (11)Net cash used in investing activities(68,214) (10,242) (12,661)Financing Activities Borrowings of line of credit13,300 20,700 17,540Repayments of line of credit(21,000) (13,000) (24,390)Repayments of long-term debt(3,908) (815) (244)Net proceeds from rights offering89,867 — —Taxes on vested stock grants(1,026) (2,900) (921)Net cash provided by (used in) provided by financing activities77,233 3,985 (8,015)Increase (decrease) in cash and cash equivalents18,849 (672) (3,708)Cash and cash equivalents at beginning of year1,258 1,930 5,638Cash and cash equivalents at end of year$20,107 $1,258 $1,930Supplemental cash flow information Non cash capital contribution to unconsolidated joint venture$1,339 $— $—Accrued capital expenditures included in current liabilities$814 $652 $329Capital expenditure financing arrangement$— $467 $—Taxes paid (net of refunds)$(124) $1,135 $1,817See accompanying notes.74Tejon Ranch Co. and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 20171. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe CompanyTejon Ranch Co. (the Company, Tejon, we, us and our) is a diversified real estate development and agribusiness company committed to responsibly usingour land and resources to meet the housing, employment, and lifestyle needs of Californians. Current operations consist of land planning and entitlement,land development, commercial sales and leasing, leasing of land for mineral royalties, water asset management and sales, grazing leases, income portfoliomanagement, and farming.These activities are performed through our five segments:•Real Estate - Commercial/Industrial•Real Estate - Resort/Residential•Mineral Resources•Farming•Ranch OperationsOur prime asset is approximately 270,000 acres of contiguous, largely undeveloped land that, at its most southerly border, is 60 miles north of Los Angelesand, at its most northerly border, is 15 miles east of Bakersfield. We create value by securing entitlements for our land, facilitating infrastructuredevelopment, strategic land planning, development, and conservation, in order to maximize the highest and best use for our land.We are involved in several joint ventures, which facilitate the development of portions of our land. We are also actively engaged in land planning, landentitlement, and conservation projects.Any references to the number of acres, number of buildings, square footage, number of leases, occupancy, and any amounts derived from these values in thenotes to the consolidated financial statements are unaudited.Principles of ConsolidationThe consolidated financial statements include the accounts of the Company, and the accounts of all subsidiaries and investments in which a controllinginterest is held by the Company. All intercompany transactions have been eliminated in consolidation. We have evaluated subsequent events through thedate of issuance of our consolidated financial statements.Cash EquivalentsThe Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The carrying amount forcash equivalents approximates fair value.Marketable SecuritiesThe Company considers those investments not qualifying as cash equivalents, but which are readily marketable, to be marketable securities. The Companyclassifies all marketable securities as available-for-sale. These are stated at fair value with the unrealized gains (losses), net of tax, reported as a component ofaccumulated other comprehensive income (loss) in the consolidated statements of equity.Investments in Unconsolidated Joint VenturesFor joint ventures that the Company does not control, but over which it exercises significant influence, the Company uses the equity method of accounting.The Company's judgment with regard to its level of influence or control of an entity involves consideration of various factors including the form of itsownership interest; its representation in the entity's governance; its ability to participate in policy-making decisions; and the rights of other investors toparticipate in the decision-making process, to replace the Company as manager, and/or to liquidate the venture. These ventures are recorded at cost andadjusted for equity in earnings (losses) and cash contributions and distributions. Any difference between the carrying amount of these investments on theCompany’s balance sheet and the underlying equity in net assets on the joint venture’s balance sheet is adjusted as the related underlying assets aredepreciated, amortized, or sold. The Company generally allocates income and loss from an75unconsolidated joint venture based on the venture's distribution priorities, which may be different from its stated ownership percentage.The Company evaluates the recoverability of its investment in unconsolidated joint ventures in accordance with accounting standards for equity investmentsby first reviewing each investment for any indicators of impairment. If indicators are present, the Company estimates the fair value of the investment. If thecarrying value of the investment is greater than the estimated fair value, management makes an assessment of whether the impairment is “temporary” or“other-than-temporary.” In making this assessment, management considers the following: (1) the length of time and the extent to which fair value has beenless than cost, (2) the financial condition and near-term prospects of the entity, and (3) the Company’s intent and ability to retain its interest long enough fora recovery in market value. If management concludes that the impairment is "other than temporary," the Company reduces the investment to its estimated fairvalue.Fair Values of Financial InstrumentsThe Company follows the Financial Accounting Standards Board's authoritative guidance for fair value measurements of certain financial instruments. Theguidance defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Fair value is defined asthe exchange (exit) price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset orliability in an orderly transaction between market participants on the measurement date. This guidance establishes a three-level hierarchy for fair valuemeasurements based upon the inputs to the valuation of an asset or liability. Observable inputs are those which can be easily seen by market participantswhile unobservable inputs are generally developed internally, utilizing management’s estimates and assumptions:•Level 1 – Valuation is based on quoted prices in active markets for identical assets and liabilities.•Level 2 – Valuation is determined from quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similarinstruments in markets that are not active, or by model-based techniques in which all significant inputs are observable in the market.•Level 3 – Valuation is derived from model-based techniques in which at least one significant input is unobservable and based on our own estimatesabout the assumptions that market participants would use to value the asset or liability.When available, we use quoted market prices in active markets to determine fair value. We consider the principal market and nonperformance risk associatedwith our counterparties when determining the fair value measurement. Fair value measurements are used on a recurring basis for marketable securities,investments within the pension plan and hedging instruments, if any.Interest Rate Swap AgreementsIn October 2014, we entered into an interest rate swap agreement with Wells Fargo. See Note 8 (Line of Credit and Long-Term Debt) of the Notes toConsolidated Financial Statements for further detail regarding this interest rate swap related to the Company's Credit Facility. We believe it is prudent attimes to limit the variability of floating-rate interest payments and in the past have entered into interest rate swaps to manage those fluctuations. We recognize interest rate swap agreements as either an asset or liability on the balance sheet at fair value. The accounting for changes in fair value (i.e., gainsor losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type ofhedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a Company must designate the hedginginstrument, based on the hedged exposure, as a fair value hedge, a cash flow hedge, or a hedge of a net investment in a foreign operation. Our interest rateswap agreement is considered a cash flow hedge because it was designed to match the terms of the Term Loan as a hedge of the exposure to variability inexpected future cash flows. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument withthe recognition of the changes in the earnings effect of the hedged transactions in a cash flow hedge. This interest rate swap agreement will be evaluatedbased on whether it is deemed “highly effective” in reducing our exposure to variable interest rates. We formally document all relationships between interestrate swap agreements and hedged items, including the method for evaluating effectiveness and the risk strategy. We make an assessment at the inception ofeach interest rate swap agreement and on a quarterly basis to determine whether these instruments are “highly effective” in offsetting changes in cash flowsassociated with the hedged items. The ineffective portion of each interest rate swap agreement is immediately recognized in earnings. While we intend tocontinue to meet the conditions for such hedge accounting, if swaps did not qualify as “highly effective,” the changes in the fair values of the derivativesused as hedges would be reflected in earnings.76The effective portion of changes in the fair value of our interest rate swap agreements that are designated and that qualify as cash flow hedges is recognized inaccumulated other comprehensive income. Amounts classified in accumulated other comprehensive income will be reclassified into earnings in the periodduring which the hedged transactions affect earnings. The fair value of each interest rate swap agreement is determined using widely accepted valuationtechniques including discounted cash flow analyses on the expected cash flows of each derivative. These analyses reflect the contractual terms of thederivatives, including the period to maturity, and use observable market-based inputs, including interest rate curves and implied volatilities (also referred toas “significant other observable inputs”). The fair values of our interest rate swap agreements are determined using the market standard methodology ofnetting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectationof future interest rates (forward curves) derived from observable market interest rate curves. The fair value calculation also includes an amount for risk of non-performance using “significant unobservable inputs” such as estimates of current credit spreads to evaluate the likelihood of default, which we havedetermined to be insignificant to the overall fair value of our interest rate swap agreements.Variable Interest EntityWe evaluate all of our interests in VIEs for consolidation. When our interests are determined to be variable interests, we assess whether we are deemed to bethe primary beneficiary of the VIE. The primary beneficiary of a VIE is required to consolidate the VIE. A primary beneficiary is defined as the party that hasboth (i) the power to direct the activities of the VIE that most significantly impact its economic performance, and (ii) the obligation to absorb losses and theright to receive benefits from the VIE which could be potentially significant. We consider our variable interests as well as any variable interests of our relatedparties in making this determination. Where both of these factors are present, we are deemed to be the primary beneficiary and we consolidate the VIE. Whereeither one of these factors is not present, we are not the primary beneficiary and do not consolidate the VIE.To assess whether we have the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, we consider all facts andcircumstances, including our role in establishing the VIE and our ongoing rights and responsibilities. This assessment includes first, identifying the activitiesthat most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power over those activities. In general, theparties that make the most significant decisions affecting the VIE or have the right to unilaterally remove those decision makers are deemed to have thepower to direct the activities of a VIE.Effective January 1, 2016, we implemented Accounting Standards Update (“ASU”) 2015-02, Consolidation (Topic 810) – Amendments to the ConsolidationAnalysis, which specifies that the right to remove the decision maker in a VIE must be exercisable without cause for the decision maker to not be deemed theparty that has the power to direct the activities of a VIE. The application of the ASU to our pre-existing entities did not change our respective conclusions asto whether or not they should be consolidated. To assess whether we have the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to theVIE, we consider all of our economic interests, including debt and equity investments, servicing fees, and other arrangements deemed to be variable interestsin the VIE. This assessment requires that we apply judgment in determining whether these interests, in the aggregate, are considered potentially significant tothe VIE. Factors considered in assessing significance include: the design of the VIE, including its capitalization structure; subordination of interests;payment priority; relative share of interests held across various classes within the VIE’s capital structure; and the reasons why the interests are held by us.As of December 31, 2017 and 2016, we had one VIE consolidated in our financial statements see Note 17 (Investment in Unconsolidated and ConsolidatedJoint Ventures) to the Notes to Consolidated Financial Statements for further discussion.Credit RiskThe Company grants credit in the course of operations to co-ops, wineries, nut marketing companies, and lessees of the Company’s facilities. The Companyperforms periodic credit evaluations of its customers’ financial condition and generally does not require collateral.Our commercial revenues are derived primarily from rental payments and reimbursement of operating expenses under our leases. If our client tenants fail tomake rental payments under their leases, our financial condition, and cash flows could be adversely affected. Please refer to Rental Income for process ofevaluating and monitoring credit quality of tenants.As of December 31, 2017 and 2016, the PEF power plant lease generated approximately 11% and 8% of our total revenues, respectively. We had nocustomers account for 5% or more of our revenues from operations in 2017.77The Company maintains its cash and cash equivalents in federally insured financial institutions. The account balances at these institutions periodicallyexceed FDIC insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage.The Company believes that the risk is not significant.Farm InventoriesCosts of bringing crops to harvest are inventoried when incurred. Such costs are expensed when the crops are sold. Expenses are computed and recognized onan average cost per pound or per ton basis, as appropriate. Costs during the current year related to the next year’s crop are inventoried and carried ininventory until the matching crop is harvested and sold. Farm inventories held for sale are valued at the lower of cost (first-in, first-out method) or market.Property and EquipmentProperty and equipment are stated on the basis of cost, except for land acquired upon organization in 1936, which is stated on the basis carried by theCompany’s predecessor. Depreciation is computed using the straight-line method over the estimated useful lives of the various assets. Our property andequipment and their respective estimated useful lives are as follow:($ in thousands) Useful Life December 31, 2017 December 31, 2016Vineyards and orchards 20 $52,667 $49,210Machinery, furniture fixtures and other equipment 3 - 10 21,320 19,807Buildings and improvements 10 - 27.5 8,850 8,828Land and land improvements 15 7,822 7,456Development in process 6,600 8,908 97,259 94,209Less: accumulated depreciation (51,927) (48,175) $45,332 $46,034Long-Term Water AssetsLong-term purchased water contracts are in place with the Tulare Lake Basin Water Storage District and the Dudley-Ridge Water Storage District. Thesecontracts provide the Company with the right to receive water over the term of the contracts that expire in 2035. The Company also purchased a contract thatallows and requires it to purchase 6,693 acre-feet of water each year from the Nickel Family LLC. The initial term of this contract runs through 2044. Thepurchase price of these contracts is being amortized on the straight-line basis over their contractual life. Water contracts with the Wheeler Ridge MaricopaWater Storage District and the Tejon-Castac Water District are also in place, but were entered into with each district at inception and not purchased later fromthird parties, and therefore do not have a related financial value on the books of the Company. As a result, there is no amortization expense related to thesecontracts.Vineyards and OrchardsCosts of planting and developing vineyards and orchards are capitalized until the crops become commercially productive. Interest costs and depreciation ofirrigation systems and trellis installations during the development stage are also capitalized. Revenues from crops earned during the development stage arenetted against development costs. Depreciation commences when the crops become commercially productive.At the time farm crops are harvested, contracted, and delivered to buyers and revenues can be estimated, revenues are recognized and any related inventoriedcosts are expensed, which traditionally occurs during the third and fourth quarters of each year. It is not unusual for portions of our almond or pistachio cropto be sold in the year following the harvest. Orchard (almond and pistachio) revenues are based upon the contract settlement price or estimated selling price,whereas vineyard revenues are typically recognized at the contracted selling price. Estimated prices for orchard crops are based upon the quoted estimate ofwhat the final market price will be by marketers and handlers of the orchard crops. These market price estimates are updated through the crop payment cycleas new information is received as to the final settlement price for the crop sold. These estimates are adjusted to actual upon receipt of final payment for thecrop. This method of recognizing revenues on the sale of orchard crops is a standard practice within the agribusiness community. Adjustments for differencesbetween original estimates and actual revenues received are recorded during the period in which such amounts become known. The net effect of theseadjustments increased farming revenue by $1,804,000 in 2017, $734,000 in 2016, and $3,531,000 in 2015. The adjustment for 2017 includes $352,000 foralmonds and $1,452,000 for pistachios. The adjustment for 2016 includes $653,000 for almonds and $81,000 for pistachios. The adjustment for 2015includes $1,260,000 for almonds and $2,271,000 for pistachios.78The Almond Board of California has the authority to require producers of almonds to withhold a portion of their annual production from the marketplacethrough a marketing order approved by the Secretary of Agriculture. At December 31, 2017, 2016, and 2015, no such withholding was mandated.Common Stock Options and GrantsThe Company accounts for stock incentive plans using the fair value method of accounting. The estimated fair value of the restricted stock grants andrestricted stock units are expensed over the expected vesting period. For performance based grants the Company makes estimates of the number of shares thatwill actually be granted based upon estimated ranges of success in meeting defined performance measures. Periodically, the Company updates its estimatesand reflects any changes to the estimate in the consolidated statements of operations.Long-Lived AssetsOn a quarterly basis, we review current activities and changes in the business conditions of all of our operating properties prior to and subsequent to the endof each quarter to determine the existence of any triggering events requiring an impairment analysis. If triggering events are identified, we review an estimateof the future undiscounted cash flows for the properties, including, if necessary, a probability-weighted approach if multiple outcomes are underconsideration.Long-lived assets to be held and used, including our rental properties, CIP, real estate held for development, are individually evaluated for impairment whenconditions exist that may indicate that the carrying amount of a long-lived asset may not be recoverable. The carrying amount of a long-lived asset to be heldand used is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.Impairment indicators or triggering events for long-lived assets to be held and used, including our rental properties, CIP, real estate held for development, andintangibles, are assessed by project and include significant fluctuations in estimated net operating income, occupancy changes, significant near-term leaseexpirations, current and historical operating and/or cash flow losses, rental rates, and other market factors. We assess the expected undiscounted cash flowsbased upon numerous factors, including, but not limited to, available market information, current and historical operating results, known trends, currentmarket/economic conditions that may affect the property, and our assumptions about the use of the asset, including, if necessary, a probability-weightedapproach if multiple outcomes are under consideration. Upon determination that an impairment has occurred, a write-down is recognized to reduce thecarrying amount to its estimated fair value.In addition, the Company accounts for long-lived assets to be disposed of at the lower of their carrying amounts or fair value less selling and disposal costs.At December 31, 2017 and 2016, management of the Company believes that none of its long-lived assets are impaired.Sales of Real EstateThe Company recognizes revenue on sale of land when the sale is consummated, the buyer’s initial and continuing investment is adequate to demonstratecommitment to pay, any receivable obtained is not subject to future subordination, the usual risks and rewards of ownership are transferred, and the Companyhas no substantial continuing involvement with the property. For example, a land sale is considered consummated with a sufficient down payment of at least20% to 25% of the sales price depending upon the type and timeframe for development of the property sold, and that any receivable from the sale cannot besubject to future subordination. If the Company has a commitment to the buyer and that commitment is a specific dollar amount, this commitment is accruedand the gain on sale that the Company recognizes is reduced. If the Company has a construction commitment to the buyer, management makes an estimate ofthis commitment, defers a portion of the profit from the sale, and recognizes the deferred profit as or when the commitment is fulfilled.Sales of EasementsFrom time to time the Company sells easements over its land and the easements are either in the form of rights of access granted for such things as utilitycorridors or are in the form of conservation easements that generally require the Company to divest its rights to commercially develop a portion of its land,but do not result in a change in ownership of the land or restrict the Company from continuing other revenue generating activities on the land.Since the conservation easements generally do not impose any significant continuing performance obligations on the Company, revenue from conservationeasement sales have been recognized when the following four criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or serviceshave been rendered; the seller’s price to the buyer is fixed or determinable; and collectability is reasonably assured, which generally occurs in the period thesale has closed and consideration has been received.79Allocation of Costs Related to Land Sales and LeasesWhen the Company sells land within one of its real estate developments and has not completed all infrastructure development related to the total project, theCompany estimates, at the time of sale, future costs of the development to determine the appropriate costs of sales for the sold land and the timing ofrecognition of the sale. In the calculation of cost of sales or allocations to leased land, the Company uses estimates and forecasts to determine total costs atcompletion of the development project. These estimates of final development costs can change as conditions in the market change and costs of constructionchange.Royalty IncomeRoyalty revenues are contractually defined as to the percentage of royalty and are tied to production and market prices. The Company’s royalty arrangementsgenerally require payment on a monthly basis with the payment based on the previous month’s activity. The Company accrues monthly royalty revenuesbased upon estimates and adjusts to actual as the Company receives payments.Rental IncomeRental income from leases is recognized on a straight-line basis over the respective lease terms. We classify amounts currently recognized as income, andamounts expected to be received in later years, as an asset in deferred rent in the accompanying consolidated balance sheets. Amounts received currently, butrecognized as income in future years, are classified in accounts payable, accrued expenses, and tenant security deposits in the accompanying consolidatedbalance sheets. We commence recognition of rental income at the date the property is ready for its intended use and the client tenant takes possession of orcontrols the physical use of the property.During the term of each lease, we monitor the credit quality of our tenants by (i) reviewing the credit rating of tenants that are rated by a nationallyrecognized credit rating agency, (ii) reviewing financial statements of the client tenants that are publicly available or that are required to be delivered to uspursuant to the applicable lease, (iii) monitoring news reports regarding our tenants and their respective businesses, and (iv) monitoring the timeliness oflease payments. We have employees who are assigned the responsibility for assessing and monitoring the credit quality of our tenants and any materialchanges in credit quality.Environmental ExpendituresEnvironmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing conditioncaused by past operations and which do not contribute to current or future revenue generation are expensed. Liabilities are recorded when environmentalassessments and/or remedial efforts are probable and the costs can be reasonably estimated. Generally, the timing of these accruals coincides with thecompletion of a feasibility study or the Company’s commitment to a formal plan of action. No liabilities for environmental costs have been recorded atDecember 31, 2017 and 2016.Use of EstimatesThe preparation of the Company’s consolidated financial statements in accordance with accounting principles generally accepted in the United Statesrequires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets andliabilities at the financial statement dates and the reported amounts of revenue and expenses during the reporting period. Due to uncertainties inherent in theestimation process, it is reasonably possible that actual results could differ from these estimates.Recent Accounting PronouncementsFinancial InstrumentsIn January 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2016-01, "Financial Statements - Overall(Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," which requires equity investments in unconsolidatedentities (other than those accounted for using the equity method of accounting) to be measured at fair value with changes in fair value recognized in netincome. There will no longer be an available-for-sale classification for equity securities with readily determinable fair values.The ASU became effective for us on January 1, 2018. The ASU requires the use of the modified retrospective transition method, under which cumulativeunrealized gains and losses related to equity investments with readily determinable fair values will be reclassified from accumulated other comprehensiveincome to retained earnings on January 1, 2018 upon adoption of80this ASU. The guidance related to equity investments without readily determinable fair values will be applied prospectively to all investments that exist as ofthe date of adoption. We do not expect the adoption of this new ASU to have a material impact on our net income due to the Company's investment portfoliopredominately being comprised of fixed income investments and not equity investments.Lease AccountingIn February 2016, the FASB issued ASU No. 2016-02, "Leases." From the lessee's perspective, the new standard establishes a right-of-use, or ROU, model thatrequires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified aseither finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessee. From the lessor's perspective,the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks andrewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as afinancing lease. If the lessor doesn’t convey risks and rewards or control, an operating lease results.The ASU is effective for us no later than January 1, 2019, with early adoption permitted. The ASU requires us to identify lease and non-lease components of alease agreement. This ASU will govern the recognition of revenue for lease components. Revenue related to non-lease components under our leaseagreements will be subject to the new revenue recognition standard effective upon adoption of the new lease accounting standard. We expect to adopt thenew lease accounting standard on January 1, 2019. The Company is currently in the process of evaluating the impact of the adoption of this ASU on theCompany’s consolidated financial statements.Revenue RecognitionIn May 2014, the FASB issued ASU 2014-09 “Revenue with Contracts from Customers (Topic 606).” ASU 2014-09 supersedes the current revenuerecognition guidance, including industry-specific guidance. The guidance introduces a five-step model to achieve its core principal of the entity recognizingrevenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled inexchange for those goods or services. The five-step model requires that we (i) identify the contract with the customer, (ii) identify the performance obligationsin the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will notoccur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) we satisfy theperformance obligation.In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Grossversus Net).” ASU 2016-08 provides specific guidance to determine whether an entity is providing a specified good or service itself or is arranging for thegood or service to be provided by another party. The revenue recognition ASU became effective for us on January 1, 2018. Entities can use either a full retrospective or modified retrospective method toadopt this ASU. Under the full retrospective method, all periods presented will be restated upon adoption to conform to the new standard and a cumulativeadjustment for effects on periods prior to 2016 will be recorded to retained earnings as of January 1, 2016. Under the modified retrospective approach, priorperiods are not restated to conform to the new standard. Instead, a cumulative adjustment for effects of applying the new standard to periods prior to 2018 isrecorded to retained earnings as of January 1, 2018. Additionally, incremental footnote disclosures are required to present the 2018 revenues under the priorstandard. Under the modified retrospective method, an entity may also elect to apply the standard to either (i) all contracts as of January 1, 2018, or (ii) onlyto contracts that are not completed as of January 1, 2018. We have elected to adopt the revenue recognition ASU using the full retrospective method.Based on our evaluation of all contracts within scope, under existing accounting standards, and under the new revenue recognition ASU, we expect nosignificant differences in the amounts recognized or the pattern of recognition. Management does, however, expects the adoption of Topic 606 to impact theaccounting for land sales in situations where the Company has continued involvement or performance obligations that are essential to the land sale. Currentguidance requires the Company to recognize revenue from land sales with continued involvement using a percentage completion method based on totalcosts of the performance obligations. Upon the adoption of Topic 606, any future land sales with multiple performance obligations, the standard generallyrequires the Company to allocate the transaction price to the performance obligations in proportion to their standalone selling prices (i.e., on a relativestandalone selling price basis) not total costs.During 2016, the Company sold a land parcel to a third party, under the terms of the purchase and sale agreement, the Company was obligated to completespecific infrastructure and landscaping adjacent to the land parcel, that were deemed essential to the81third party. When applying the guidance under Topic 606, the purchase price allocated to the multiple performance obligations yielded a different result thanwhen applying the current guidance.2016 Impact:Under the current guidance the Company recognized $710,000 and $615,000 of revenues and gain from sale of land, respectively. Under the Topic 606, theCompany expects to recognize $1,112,000 and $1,017,000 of revenues and gain from sale of land, respectively2017 Impact:Under the current guidance the Company recognized $475,000 and $411,000 of revenues and gain from sale of land, respectively. Under the Topic 606, theCompany will recognize $73,000 and $9,000 of revenues and gain from sale of land, respectively.No other differences were noted during our evaluation.Employee Share-Based PaymentsIn March 2016, the FASB issued ASU No. 2016-09, "Compensation—Stock Compensation (Topic 718) — Improvements to Employee Share-Based PaymentAccounting." The ASU is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2016. Stock-based compensationexcess tax benefits or deficiencies are now reflected in the Consolidated Statements of Operations as a component of the provision for income taxes, whereaspreviously they were recognized within additional paid-in-capital. On the Consolidated Statements of Cash Flows, excess tax benefits or deficienciesassociated with stock compensation should be classified as an operating activity. We applied both amendments prospectively within the ConsolidatedStatements of Operations and Consolidated Statements of Cash Flows recognizing excess tax deficiencies of $107,000. This change has no impact on totalshareholders’ equity. The amendment also clarifies that cash paid by an employer when directly withholding shares for tax withholding purposes should beclassified as a financing activity within the Consolidated Statements of Cash Flows. This approach is consistent with our existing policy and as such nochanges were made to the Consolidated Statements of Cash Flows. Lastly, the ASU also allows for forfeitures to be recorded when they occur rather thanestimated over the vesting period. However, we will continue to estimate forfeitures over the vesting period.Allowance for Credit LossesIn June 2016, the FASB issued an ASU No. 2016-13 "Financial Instruments—Credit Losses (Topic 326)" changing the impairment model for most financialinstruments by requiring companies to recognize an allowance for expected losses, rather than incurred losses as required currently by the other-than-temporary impairment model. The ASU will apply to most financial assets measured at amortized cost and certain other instruments, including trade and otherreceivables, loans, held-to-maturity debt securities, net investments in leases, and off-balance-sheet credit exposures (e.g., loan commitments). The ASU iseffective for reporting periods beginning after December 15, 2019, with early adoption permitted, and will be applied as a cumulative adjustment to retainedearnings as of the effective date. The Company is currently in the process of evaluating the impact of the adoption of this ASU on the Company’sconsolidated financial statements.Joint Venture DistributionsIn August 2016, the FASB issued an ASU that provides guidance on the classification in the statement of cash flows of cash distributions received fromequity method investments, including unconsolidated joint ventures. The ASU provides two approaches to determine the classification of cash distributionsreceived from equity method investees: (i) the “cumulative earnings” approach, under which distributions up to the amount of cumulative equity in earningsrecognized will be classified as cash inflows from operating activities, and those in excess of that amount will be classified as cash inflows from investingactivities, and (ii) the “nature of the distribution” approach, under which distributions will be classified based on the nature of the underlying activity thatgenerated cash distributions. An entity may elect either the “cumulative earnings” or the “nature of the distribution” approach. An entity that elects the“nature of the distribution” approach but lacks the information to apply it will apply the “cumulative earnings” approach as an accounting change on aretrospective basis. The ASU is effective for reporting periods beginning after December 15, 2017, with early adoption permitted, and will be appliedretrospectively (exceptions apply). We adopted this ASU on January 1, 2018, using the “cumulative earnings” approach. We previously presenteddistributions from our equity method investees utilizing the “cumulative earnings” approach; therefore, the adoption of this ASU will have no impact on ourconsolidated financial statements. During the year ended December 31, 2017, distributions received from our equity method investees aggregated$10,314,000, consisting of approximately $7,200,00082classified as a return on investment (cash flows from operating activities) and approximately $3,114,000 classified as a return of investment (cash flows frominvesting activities).During the year ended December 31, 2016, we received distributions of $4,500,000 and $1,600,000 classified as operating and investing activities,respectively, on our consolidated statements of cash flows. Classifications were determined using the cumulative earnings approach.2. EQUITYEarnings Per Share (EPS)Basic net income (loss) per share attributable to common stockholders is based upon the weighted-average number of shares of common stock outstandingduring the year. Diluted net income (loss) per share attributable to common stockholders is based upon the weighted-average number of shares of commonstock outstanding and the weighted-average number of shares outstanding assuming the issuance of common stock upon exercise of stock options, warrantsto purchase common stock, and the vesting of restricted stock grants per ASC 260, “Earnings Per Share.” Twelve Months Ended December 31, 2017 2016 2015Weighted average number of shares outstanding: Common stock 21,677,981 20,737,903 20,665,792Common stock equivalents-stock options, grants 40,409 46,839 71,879Diluted shares outstanding 21,718,390 20,784,742 20,737,671Rights OfferingOn October 4, 2017, the Company commenced a rights offering to common shareholders whereby proceeds will be used to provide additional workingcapital for general corporate purposes, including to fund general infrastructure costs and the development of buildings at TRCC, to continue forward withentitlement and permitting programs for the Centennial and Grapevine communities and costs related to the preparation of the development of MV. Therights offering concluded on October 27, 2017, with the Company raising $89,867,000, net of offering costs, from the sale of 5,000,000 shares at $18.00 pershare. For additional detail please refer to Form 8-K filed on October 30, 2017.833. MARKETABLE SECURITIESASC 320 “Investments – Debt and Equity Securities” requires that an enterprise classify all debt securities as either held-to-maturity, trading or available-for-sale. The Company has elected to classify its securities as available-for-sale and therefore is required to adjust securities to fair value at each reporting date.All costs and both realized and unrealized gains and losses on securities are determined on a specific identification basis. The following is a summary ofavailable-for-sale securities at December 31:($ in thousands) 2017 2016Marketable Securities:Fair ValueHierarchy Cost Estimated FairValue Cost Estimated FairValueCertificates of deposit with unrecognized losses for less than 12 months $6,238 $6,222 $1,868 $1,863with unrecognized losses for more than 12 months 102 100 — —with unrecognized gains 2,088 2,089 3,320 3,329Total Certificates of depositLevel 1 8,428 8,411 5,188 5,192U.S. Treasury and agency notes with unrecognized losses for less than 12 months 29,741 29,669 947 946with unrecognized losses for more than 12 months 137 135 — —with unrecognized gains 152 153 857 859Total U.S. Treasury and agency notesLevel 2 30,030 29,957 1,804 1,805Corporate notes with unrecognized losses for less than 12 months 18,230 18,159 11,658 11,592with unrecognized losses for more than 12 months 2,804 2,788 1,053 1,042with unrecognized gains — — 3,431 3,435Total Corporate notesLevel 2 21,034 20,947 16,142 16,069Municipal notes with unrecognized losses for less than 12 months 10,298 10,288 2,556 2,526with unrecognized losses for more than 12 months 999 987 271 269with unrecognized gains 277 278 812 814Total Municipal notesLevel 2 11,574 11,553 3,639 3,609 $71,066 $70,868 $26,773 $26,675We evaluate our securities for other-than-temporary impairment based on the specific facts and circumstances surrounding each security valued below itscost. Factors considered include the length of time the securities have been valued below cost, the financial condition of the issuer, industry reports related tothe issuer, the severity of any decline, our intention not to sell the security, and our assessment as to whether it is more likely than not that we will be requiredto sell the security before a recovery of its amortized cost basis. We then segregate the loss between the amounts representing a decrease in cash flowsexpected to be collected, or the credit loss, which is recognized through earnings, and the balance of the loss which is recognized through othercomprehensive income. At December 31, 2017, the fair market value of investment securities was $198,000 below the cost basis of securities. The Company’sgross unrealized holding gains equal $2,000 and gross unrealized holding losses equal $200,000. The Company has determined that any unrealized losses inthe portfolio are temporary as of December 31, 2017.As of December 31, 2017, the adjustment to accumulated other comprehensive loss in consolidated equity for the temporary change in the value of securitiesreflects a decline in the market value of available-for-sale securities of $100,000, which includes estimated taxes of $35,000.84The following tables summarize the maturities, at par, of marketable securities by year ($ in thousands):December 31, 20172018 2019 2020 2021 TotalCertificates of deposit$4,306 $2,311 $1,799 $— $8,416U.S. Treasury and agency notes6,399 14,599 9,171 — 30,169Corporate notes7,954 6,430 6,450 — 20,834Municipal notes1,568 6,957 3,003 — 11,528 $20,227 $30,297 $20,423 $— $70,947December 31, 2016 2017 2018 2019 2020 TotalCertificates of deposit $531 $4,306 $324 $— $5,161U.S. Treasury and agency notes 1,234 444 142 — 1,820Corporate notes 4,316 7,133 4,232 — 15,681Municipal notes 840 1,688 1,075 — 3,603 $6,921 $13,571 $5,773 $— $26,265The Company’s investments in corporate notes are with companies that have an investment grade rating from Standard & Poor’s.4. INVENTORIESInventories consist of the following at December 31:($ in thousands) 2017 2016Farming inventories $2,012 $2,709Other 457 375 $2,469 $3,084Farming inventories consist of costs incurred during the current year related to the next year’s crop, as well as any current year’s unsold product and farmingchemicals.5. REAL ESTATEReal estate consists of the following at December 31:($ in thousands) 2017 2016Real estate development Mountain Village $132,034 $126,096Centennial 94,271 89,381Grapevine 28,139 23,917Tejon Ranch Commerce Center 12,892 8,871Real estate development 267,336 248,265 Real estate and improvements - held for lease, net Tejon Ranch Commerce Center 21,123 21,643Real estate and improvements - held for lease 21,123 21,643Less accumulated depreciation (2,008) (1,617)Real estate and improvements - held for lease, net $19,115 $20,026In January 2016, we completed construction of a multi-tenant commercial building located at TRCC-East. The multi-tenant building has a gross leasable areaof 4,645 and is leased to Baja Fresh and Habit Burger.In October 2016, we sold unimproved real property located at TRCC-East for $1,193,000 at a gain of $1,437,000.In November 2016, we sold a building and land located in Rancho Santa Fe California for $4,700,000, recognizing a gain of $1,044,000.856. LONG-TERM WATER ASSETSLong-term assets consist of water and water contracts held for future use or sale. The water is held at cost which includes the price paid for the water and thecost to pump and deliver the water from the California aqueduct into the water bank. Water is currently held in a water bank on Company land in southernKern County. Company banked water costs also include costs related to the right to receive additional acre feet of water in the future from the AntelopeValley East Kern Water Agency, or AVEK. The Company has also banked water within an AVEK owned water bank.We have also been purchasing water for our future use or sale. In 2008 we purchased 8,393 acre-feet of transferable water and in 2009 we purchased anadditional 6,393 acre-feet of transferable water, all of which is currently held on our behalf by AVEK or has been placed in the Company's water bank. Wealso have secured State Water Project, or SWP, entitlement under long-term SWP water contracts within the Tulare Lake Basin Water Storage District and theDudley-Ridge Water District, totaling 3,444 acre-feet of SWP entitlement annually, subject to SWP allocations. These contracts extend through 2035 andhave been transferred to AVEK for our use in the Antelope Valley. In 2013, the Company acquired from DMB Pacific, or DMB, a contract to purchase waterthat obligates the Company to purchase 6,693 acre feet of water each year from the Nickel Family, LLC, or Nickel, a California limited liability company thatis located in Kern County.The initial term of the water purchase agreement with Nickel runs through 2044 and includes a Company option to extend the contract for an additional 35years. The purchase cost of water in 2017 was $717 per acre-foot. Purchase costs are subject to annual cost increases based on the greater of the consumerprice index and 3%, resulting in a 2018 purchase cost of $738 per acre-foot.The water contracts purchased above will ultimately be used in the development of the Company’s land for commercial/industrial development, residentialdevelopment, and farming. Interim uses may include the sale of portions of this water to third party users on an annual basis until this water is fully allocatedto Company uses, as just described.Annual amortization for these contracts is $1,351,000 per year.In 2017, we sold 939 acre-feet of water totaling $1,254,000 with a cost of $765,000, which cost is recorded in the mineral resources segment on theConsolidated Statements of Operations. In 2016, we sold 7,285 acre feet of water totaling $9,601,000 with a cost of $5,925,000, which cost is recorded in themineral resources segment on the Consolidated Statements of Operations. In 2015, we sold 7,922 acre feet of water totaling $10,165,000 with a costof $5,483,000, which cost is recorded in the mineral resources segment on the Consolidated Statements of Operations.Costs assigned to water assets held for future use were as follows ($ in thousands): December 31, 2017 December 31, 2016Banked water and water for future delivery$5,220 $4,779Transferable water13,351 9,075Total water held for future use at cost$18,571 $13,854Intangible Water AssetsThe Company's carrying amounts of its purchased water contracts were as follows: ($ in thousands): December 31, 2017 December 31, 2016 Costs Accumulated Depreciation Costs AccumulatedDepreciationDudley Ridge water rights$12,203 $(3,377) $12,203 $(2,895)Nickel water rights18,740 (2,678) 18,740 (2,218)Tulare Lake Basin water rights5,857 (2,186) 5,857 (1,777) $36,800 $(8,241) $36,800 $(6,890)Net cost of purchased water contracts28,559 29,910 Total cost water held for future use18,571 13,854 Net investments in water assets$47,130 $43,764 86Water contracts with the Wheeler Ridge Maricopa Water Storage District, or WRMWSD, and the Tejon-Castac Water District, or TCWD, are also in place, butwere entered into with each district at inception of the contract and not purchased later from third parties, and do not have a related financial value on thebooks of the Company. Therefore, there is no amortization expense related to these contracts. Total water resources both recurring and one-time usage:(in acre feet, unaudited)December 31, 2017 December 31, 2016Water held for future use AVEK water bank13,033 13,033 Company water bank31,497 17,287 AVEK water for future delivery— 2,362 Transferable water *6,169 9,062Total water held for future use50,699 41,744Purchased water contracts Water Contracts (Dudley-Ridge, Nickel and Tulare)10,137 10,137 WRMWSD - Contracts with Company15,547 15,547 TCWD - Contracts with Company5,749 5,749 TCWD - Banked water contracted to Company49,184 33,390Total purchased water contracts80,617 64,823Total water held for future use and purchased water contracts131,316 106,567*of the 6,169 acre-feet of transferable water, 1,452 acre-feet will be returned by AVEK to the Company at a 1.5 to 1 factor giving the Company use of a total of 2,137 (1,452 X 1.5)acre-feet as of December 31, 2017.On August 6, 2015, Tejon Ranchcorp, or Ranchcorp, a wholly-owned subsidiary of Tejon Ranch Co., entered into a Water Supply Agreement with PastoriaEnergy Facility, L.L.C., or PEF. PEF is the current lessee under the power plant lease. Pursuant to the Water Supply Agreement, on January 1, 2016, PEF maypurchase from Ranchcorp up to 2,000 acre-feet of water and from January 1, 2017 through July 31, 2030, PEF may purchase from Ranchcorp up to 3,500 acre-feet of water per year, with an option to extend the term. PEF is under no obligation to purchase water from Ranchcorp in any year, but is required to payRanchcorp an annual option payment equal to 30% of the maximum annual payment. The price of the water under the Water Supply Agreement is $1,025 peracre foot of annual water, subject to 3% annual increases commencing January 1, 2017. The Water Supply Agreement contains other customary terms andconditions, including representations and warranties, which are typical for agreements of this type. The Company's commitments to sell water can be metthrough current water assets.7. ACCRUED LIABILITIES AND OTHERAccrued liabilities and other consists of the following:($ in thousands)December 31, 2017 December 31, 2016Accrued vacation$824 $901Accrued paid personal leave494 590Accrued bonus126 1,346Other366 351 $1,810 $3,188878. LINE-OF-CREDIT AND LONG-TERM DEBTDebt consists of the following:($ in thousands)December 31, 2017 December 31, 2016Revolving line-of-credit$— $7,700Notes payable69,741 73,400Other borrowings218 467Total short-term and long-term debt69,959 81,567Less line-of-credit and current maturities of long-term debt(4,004) (11,553)Less deferred loan costs(139) (161)Long-term debt, less current portion$65,816 $69,853On October 13, 2014, the Company as borrower entered into an Amended and Restated Credit Agreement, a Term Note and a Revolving Line of Credit Note,with Wells Fargo, or collectively the Credit Facility. The Credit Facility adds a $70,000,000 term loan, or Term Loan to the existing $30,000,000 revolvingline of credit, or RLC. Funds from the Term Loan were used to finance the Company's purchase of DMB TMV LLC’s interest in TMV LLC as disclosed in theCurrent Report on Form 8-K filed on July 16, 2014. The Term Loan had a $66,046,000 balance as of December 31, 2017. Any future borrowings under theRLC will be used for ongoing working capital requirements and other general corporate purposes. To maintain availability of funds under the RLC, undrawnamounts under the RLC will accrue a commitment fee of 10 basis points per annum. The Company's ability to borrow additional funds in the future under theRLC is subject to compliance with certain financial covenants and making certain representations and warranties.The RLC had no outstanding balance at December 31, 2017 and an outstanding balance of $7,700,000 as of December 31, 2016. At the Company’s option,the interest rate on this line of credit can float at 1.50% over a selected LIBOR rate or can be fixed at 1.50% above LIBOR for a fixed rate term. During theterm of this credit facility (which matures in September 2019), we can borrow at any time and partially or wholly repay any outstanding borrowings and thenre-borrow, as necessary.The interest rate per annum applicable to the Term Loan is LIBOR (as defined in the Term Note) plus a margin of 170 basis points. The interest rate for theterm of the note has been fixed through the use of an interest rate swap at a rate of 4.11%. The Term Loan requires interest only payments for the first twoyears of the term and thereafter requires monthly amortization payments pursuant to a schedule set forth in the Term Note, with the final outstandingprincipal amount due October 5, 2024. The Company may make voluntary prepayments on the Term Loan at any time without penalty (excluding anyapplicable LIBOR or interest rate swap breakage costs). Each optional prepayment will be applied to reduce the most remote principal payment then unpaid.The Credit Facility is secured by the Company's farmland and farm assets, which include equipment, crops and crop receivables and the PEF power plantlease and lease site, and related accounts and other rights to payment and inventory.The Credit Facility requires compliance with three financial covenants: (a) total liabilities divided by tangible net worth not greater than 0.75 to 1.0 at eachquarter end; (b) a debt service coverage ratio not less than 1.25 to 1.00 as of each quarter end on a rolling four quarter basis; and (c) maintain liquid assetsequal to or greater than $20,000,000. At December 31, 2017 and 2016, we were in compliance with all financial covenants.The Credit Facility also contains customary negative covenants that limit the ability of the Company to, among other things, make capital expenditures,incur indebtedness and issue guaranties, consummate certain assets sales, acquisitions or mergers, make investments, pay dividends or repurchase stock, orincur liens on any assets.The Credit Facility contains customary events of default, including: failure to make required payments; failure to comply with terms of the Credit Facility;bankruptcy and insolvency; and a change in control without consent of the bank (which consent will not be unreasonably withheld). The Credit Facilitycontains other customary terms and conditions, including representations and warranties, which are typical for credit facilities of this type.The foregoing descriptions of the Credit Facility documents are qualified in their entirety by reference to each such material contract. Copies of the CreditFacility documents are filed as Exhibits 10.31 through 10.33 in the Current Report on Form 8-K filed October 17, 2014. The balance of the long-term debtinstruments listed above approximates the fair value of the instrument.During the third quarter of 2013, we entered into a promissory note agreement with CMFG Life Insurance Company, to pay a principal amountof $4,750,000 with principal and interest due monthly starting on October 1, 2013. The interest rate on this88promissory note is 4.25% per annum, with monthly principal and interest payments of $102,700 ending on September 1, 2028. The proceeds from thispromissory note were used to eliminate debt that had been previously used to provide long-term financing for a building being leased to Starbucks andprovide additional working capital for future investment. The current balance on the note is $3,695,000. The balance of this long-term debt instrument listedabove approximates the fair value of the instrument.The following table summarizes our outstanding indebtedness and respective principal maturities as of December 31,($ in thousands) 2018 2019 2020 2021 2022 Thereafter TotalTerm loan $3,563 $3,715 $3,881 $4,051 $4,221 $46,615 $66,046Promissory note 277 289 302 315 328 2,184 3,695Other borrowings 163 55 — — — — 218Total long-term debt $4,003 $4,059 $4,183 $4,366 $4,549 $48,799 $69,9599. OTHER LIABILITIESOther liabilities consist of the following:($ in thousands)December 31, 2017 December 31, 2016Pension liability (See Note 15)$2,280 $2,931Interest rate swap liability (See Note 10)894 1,865Supplemental executive retirement plan liability (See Note 15)7,759 8,015Other758 223 $11,691 $13,034For the captions presented in the table above, please refer to the respective Notes to Consolidated Financial Statements for further detail.10. INTEREST RATE SWAP LIABILITYDuring October 2014, the Company entered into an interest rate swap agreement to hedge cash flows tied to changes in the underlying floating interest ratetied to LIBOR for the Term Loan as discussed in Note 8 (Line of Credit and Long-Term Debt) of the Notes to Consolidated Financial Statements. Theineffective portion of the change in fair value of our interest rate swap agreement is required to be recognized directly in earnings. During the yearended December 31, 2017, our interest rate swap agreement was 100% effective; because of this, no hedge ineffectiveness was recognized inearnings. Changes in fair value, including accrued interest and adjustments for non-performance risk, on the effective portion of our interest rate swapagreements that are designated and that qualify as cash flow hedges are classified in accumulated other comprehensive loss. Amounts classified inaccumulated other comprehensive loss are subsequently reclassified into earnings in the period during which the hedged transactions affect earnings. As ofDecember 31, 2017, the fair values of our interest rate swap agreement aggregating a liability balance were classified in other liabilities based upon itsrespective fair value. We had the following outstanding interest rate swap agreement designated as cash flow hedges of interest rate risk as of December 31,2017 ($ in thousands):Effective Date Maturity Date Fair Value Hierarchy Weighted Average InterestPay Rate Fair Value as of12/31/2017 Notional Amount as of12/31/2017October 15, 2014 October 5, 2024 Level 2 4.11% $(894) $66,04611. STOCK COMPENSATION - RESTRICTED STOCK AND PERFORMANCE SHARE GRANTSThe Company’s stock incentive plans provide for the making of awards to employees based upon a service condition or through the achievement ofperformance-related objectives. The Company has issued three types of stock grant awards under these plans: restricted stock with service condition vesting;performance share grants that only vest upon the achievement of specified performance conditions, such as corporate cash flow goals, or PerformanceCondition Grants; and performance share grants that include threshold, target, and maximum achievement levels based on the achievement of specificperformance milestones, or Performance Milestone Grants. The Company has also granted performance share grants that contain both performance-based andmarket-based conditions. Compensation cost for these awards is recognized based on either the achievement of the performance-based conditions, if they areconsidered probable, or if they are not considered probable, on the achievement of the market-based condition. Failure to satisfy the threshold performanceconditions will result in the forfeiture of shares. Forfeiture of share awards with service conditions or performance-based restrictions results in a reversal of89previously recognized share-based compensation expense. Forfeiture of share awards with market-based restrictions does not result in a reversal of previouslyrecognized share-based compensation expense.The following is a summary of the Company's performance share grants with performance conditions for the year ended December 31, 2017:Performance Share Grants with Performance ConditionsBelow threshold performance —Threshold performance 169,178Target performance 387,886Maximum performance 589,415The following is a summary of the Company’s stock grant activity, both time and performance unit grants, assuming target achievement for outstandingperformance grants for the following twelve-month periods ended: December 31, 2017 December 31, 2016 December 31, 2015Stock Grants Outstanding Beginning of the Year at Target Achievement386,171 272,353 237,045New Stock Grants/Additional shares due to achievement in excess oftarget295,243 287,091 114,221Vested Grants(99,769) (172,749) (52,436)Expired/Forfeited Grants(44,785) (524) (26,477)Stock Grants Outstanding at Target Achievement536,860 386,171 272,353The unamortized cost associated with nonvested stock grants and the weighted-average period over which it is expected to be recognized as of December 31,2017 was $5,514,000 and 24 months, respectively. The fair value of restricted stock with time-based vesting features is based upon the Company’s shareprice on the date of grant and is expensed over the service period. Fair value of performance grants that cliff vest based on the achievement of performanceconditions is based on the share price of the Company’s stock on the day of grant once the Company determines that it is probable that the award will vest.This fair value is expensed over the service period applicable to these grants. For performance grants that contain a range of shares from zero to maximum wedetermine, based on historic and projected results, the probability of (1) achieving the performance objective, and (2) the level of achievement. Based on thisinformation, we determine the fair value of the award and measure the expense over the service period related to these grants. Because the ultimate vesting ofall performance grants is tied to the achievement of a performance condition, we estimate whether the performance condition will be met and over whatperiod of time. Ultimately, we adjust compensation cost according to the actual outcome of the performance condition. Under the Non-Employee DirectorStock Incentive Plan, or NDSI Plan, each non-employee director receives his or her annual compensation in stock.The performance share grant approved by the Board in March 2014, included the modification of existing performance milestone grants totaling 133,890restricted stock units and the issuance of new performance share grants totaling 89,837 restricted stock units. The restricted stock units of the modifiedexisting performance milestone grants have been accounted for as probable-to-probable modification since the Company has determined that achieving theexisting performance milestones was probable. The unamortized total cost relating to these probable-to-probable modified performance share grants is beingrecognized ratably over the new requisite service period. The impact of modifying the existing performance stock grants is an annual expense of $1,109,000over the service period. The values for the 2014 performance grants, including the new milestone grants, are fixed at threshold, target and maximumperformance values, meaning that the number of shares at vesting will vary depending on the stock price at that time. The total value for these grants atmaximum performance is $5,702,000. During the second quarter of 2015, the 2014 performance milestone grants were modified to fix the number of shares tobe received rather than have the number of shares to be issued at vesting float with the price of the stock, which converted the awards from liability awards toequity awards. As such, we reclassified $1,065,000 from other liabilities to equity. This resulted in a probable-to-probable modification and had no impact onearnings. In 2016, these milestone performance grants were met at levels above target and at target achievement levels.90The following table summarizes stock compensation costs for the Company's 1998 Stock Incentive Plan, or the Employee 1998 Plan, and NDSI Plan for thefollowing periods:Employee 1998 Plan ($ in thousands): December 31, 2017 December 31, 2016 December 31, 2015 Expensed $2,889 $3,847 $2,989 Capitalized 555 296 165 3,444 4,143 3,154NDSI Plan 663 738 768 $4,107 $4,881 $3,92212. INCOME TAXESThe Company accounts for income taxes using ASC 740, “Income Taxes” which is an asset and liability approach that requires the recognition of deferredtax assets and liabilities for the expected future tax consequences of events that have been recognized differently in the financial statements and the taxreturns. The provision for income taxes consists of the following at December 31:($ in thousands) 2017 2016 2015Total (benefit) provision: $(1,123) $336 $1,125Federal: Current (1,266) (758) 1,521Deferred 380 1,021 (682) (886) 263 839State: Current (120) (145) 585Deferred (117) 218 (299) (237) 73 286 $(1,123) $336 $1,125The provision for income taxes for fiscal year 2017 includes a $54,000 estimated tax expense as a result of the revaluation of federal net deferred tax assetsfrom 34% to 21% due to the impact of the enactment of U.S. Tax Reform. The final impact of U.S. Tax Reform may differ from these estimates, due to, amongother things, changes in interpretations, analysis and assumptions made by management, additional guidance that may be issued by the U.S. Department ofthe Treasury and the Internal Revenue Service, and any updates or changes to estimates we have utilized to calculate the transition impact. Therefore, ouraccounting for the elements of U.S. Tax Reform is incomplete. However, we were able to make reasonable estimates of the effects of U.S. Tax Reform on aprovisional basis.A reconciliation of the provision for income taxes, with the amount computed by applying the statutory Federal income tax rate of 34% to income beforeprovision for income taxes is as follows for the years ended December 31: ($ in thousands) 2017 2016 2015Income tax at statutory rate $(910) $304 $1,360State income taxes, net of Federal benefit (161) 42 213Oil and mineral depletion (180) (161) (213)Permanent differences 25 82 (92)Excess stock compensation expense 107 — —Tax Reform adjustment 54 — —Other (58) 69 (143)(Benefit) provision for income taxes $(1,123) $336 $1,125Effective tax rate 42.0% 37.6% 28.1%91Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows atDecember 31:($ in thousands) 2017 2016Deferred income tax assets: Accrued expenses $393 $561Deferred revenues 209 654Capitalization of costs 2,138 3,224Pension adjustment 2,996 4,690Stock grant expense 2,130 2,309State deferred taxes — 37Book deferred gains 941 1,912Joint venture allocations 1,025 932Provision for additional capitalized costs 699 1,003Interest rate swap 267 799Other 423 41Total deferred income tax assets $11,221 $16,162Deferred income tax liabilities: Deferred gains $32 $51Depreciation 3,563 5,279Cost of sales allocations 872 1,252Joint venture allocations 3,972 5,389Straight line rent 631 926Prepaid expenses 132 323State deferred taxes 322 470Other 135 190Total deferred income tax liabilities $9,659 $13,880Net deferred income tax asset $1,562 $2,282Allowance for deferred tax assets — —Net deferred taxes $1,562 $2,282Due to the nature of our deferred tax assets, the Company believes they will be used through operations in future years and a valuation allowance is notnecessary.The Company made total federal and state income tax payments of $0 in 2017 and $1,750,000 during 2016. The Company received refunds of $124,000 and$615,000 in 2017 and 2016, respectively.The Company evaluates its tax positions for all income tax items based on their technical merits to determine whether each position satisfies the “more likelythan not to be sustained upon examination” test. The tax benefits are then measured as the largest amount of benefit, determined on a cumulative basis, that is“more likely than not” to be realized upon ultimate settlement. As a result of this evaluation, the Company determined there were no uncertain tax positionsthat required recognition and measurement for the years ended December 31, 2017 and 2016 within the scope of ASC 740, "Income Taxes." Tax years from2014 to 2016 and 2013 to 2016 remain available for examination by the Federal and California State taxing authorities, respectively.13. LEASESThe Company is a lessor of certain property pursuant to various commercial lease agreements having terms ranging up to 60 years. The Company generatesincome from commercial rents. The following is a summary of income from commercial rents included in real estate revenue as of December 31: 2017 2016 2015Base rent $5,711,000 $5,613,000 $5,208,000Percentage rent $677,000 $495,000 $652,00092Future minimum rental income on commercial, communication and right-of-way on non-cancelable leases as of December 31, 2017:2018 2019 2020 2021 2022 Thereafter$5,715 $5,635 $5,555 $5,309 $5,113 $21,67914. COMMITMENTS AND CONTINGENCIESThe Company's land is subject to water contracts of which $8,884,000 is expected to be paid in 2018. These estimated water contract payments consist ofSWP, contracts with Wheeler Ridge Maricopa Water Storage District, Tejon-Castac Water District, or TCWD, Tulare Lake Basin Water Storage District,Dudley-Ridge Water Storage District and the Nickel water contract. The SWP contracts run through 2035 and the Nickel water contract runs through 2044,with an option to extend an additional 35 years. As discussed in Note 5 (Long-Term Water Assets), we purchased the assignment of a contract to purchasewater in late 2013. The assigned water contract is with Nickel Family, LLC, and obligates us to purchase 6,693 acre-feet of water annually through the term ofthe contract.The Company is obligated to make payments of approximately $800,000 per year through 2021 to the Tejon Ranch Conservancy as prescribed in theConservation Agreement we entered into with five major environmental organizations in 2008. Our advances to the Tejon Ranch Conservancy are dependenton the occurrence of certain events and their timing, and are therefore subject to change in amount and period. These amounts are recorded in real estatedevelopment for the Centennial, Grapevine and Mountain Village, or MV, projects.The Company exited a consulting contract during the second quarter of 2014 related to the Grapevine Development and is obligated to pay an earnedincentive fee at the time of successful receipt of project entitlements and at a value measurement date five-years after entitlements have been achieved forGrapevine. The final amount of the incentive fees will not be finalized until the future payment dates. The Company believes that net savings from exitingthe contract over this future time period will more than offset the incentive payment costs.The Tejon Ranch Public Facilities Financing Authority, or TRPFFA, is a joint powers authority formed by Kern County and TCWD to finance publicinfrastructure within the Company’s Kern County developments. For the development of the Tejon Ranch Commerce Center, or TRCC, TRPFFA has createdtwo Community Facilities Districts, or CFDs, the West CFD and the East CFD. The West CFD has placed liens on 420 acres of the Company’s land to securepayment of special taxes related to $28,620,000 of bond debt sold by TRPFFA for TRCC-West. The East CFD has placed liens on 1,931 acres of theCompany’s land to secure payments of special taxes related to $55,000,000 of bond debt sold by TRPFFA for TRCC-East. At TRCC-West, the West CFD hasno additional bond debt approved for issuance. At TRCC-East, the East CFD has approximately $65,000,000 of additional bond debt authorized by TRPFFAthat can be sold in the future.In connection with the sale of bonds there is a standby letter of credit for $4,921,000 related to the issuance of East CFD bonds. The standby letter of credit isin place to provide additional credit enhancement and cover approximately two years' worth of interest on the outstanding bonds. This letter of credit will notbe drawn upon unless the Company, as the largest landowner in the CFD, fails to make its property tax payments. The Company believes that the letter ofcredit will never be drawn upon. The letter of credit is for two years and will be renewed in two-year intervals as necessary. The annual cost related to theletter of credit is approximately $83,000.The Company is obligated, as a landowner in each CFD, to pay its share of the special taxes assessed each year. The secured lands include both the TRCC-West and TRCC-East developments. Proceeds from the sale of West CFD bonds went to reimburse the Company for public infrastructure related to the TRCC-West development. At December 31, 2017 there were no additional improvement funds remaining from the West CFD bonds and there are $7,768,000 inimprovement funds within the East CFD bonds for reimbursement of public infrastructure costs during 2017 and future years. During 2017, the Companypaid approximately $2,578,000 in special taxes. As development continues to occur at TRCC, new owners of land and new lease tenants, through triple netleases, will bear an increasing portion of the assessed special tax. This amount could change in the future based on the amount of bonds outstanding and theamount of taxes paid by others. The assessment of each individual property sold or leased is not determinable at this time because it is based on the currenttax rate and the assessed value of the property at the time of sale or on its assessed value at the time it is leased to a third-party. Accordingly, the Company isnot required to recognize an obligation at December 31, 2017.93In July 2014, the Company received a copy of a Notice of Intent to Sue, or Notice, dated July 17, 2014 indicating that the Center for Biological Diversity, theWishtoyo Foundation and Dee Dominguez intend to initiate a lawsuit against the U.S. Fish and Wildlife Service, or USFWS, under the federal EndangeredSpecies Act challenging USFWS's approval of Ranchcorp's Tehachapi Uplands Multiple Species Habitat Conservation Plan, or TUMSHCP, and USFWS'sissuance of an Incidental Take Permit, or ITP, to Ranchcorp for the take of federally listed species. The foregoing approvals authorize, among other things,removal of California condor habitat associated with Ranchcorp's potential future development of MV. No lawsuit has been filed at this time. It is notpossible to predict whether any lawsuit will actually be filed or whether the Company or Ranchcorp will incur any damages from such a lawsuit.National CementThe Company leases land to National Cement Company of California Inc., or National, for the purpose of manufacturing Portland cement from limestonedeposits on the leased acreage. The California Regional Water Quality Control Board, or RWQCB, for the Lahontan Region issued orders in the late 1990swith respect to environmental conditions on the property currently leased to National.The Company's former tenant Lafarge Corporation, or Lafarge, and current tenant National, continue to remediate these environmental conditions consistentwith the RWQCB orders.The Company is not aware of any failure by Lafarge or National to comply with directives of the RWQCB. Under current and prior leases, National andLafarge are obligated to indemnify the Company for costs and liabilities arising out of their use of the leased premises. The remediation of environmentalconditions is included within the scope of the National or Lafarge indemnity obligations. If the Company were required to remediate the environmentalconditions at its own cost, it is unlikely that the amount of any such expenditure by the Company would be material and there is no reasonable likelihood ofcontinuing risk from this matter.Antelope Valley Groundwater CasesOn November 29, 2004, a conglomerate of public water suppliers filed a cross-complaint in the Los Angeles Superior Court seeking a judicial determinationof the rights to groundwater within the Antelope Valley basin, including the groundwater underlying the Company’s land near the Centennial project. Fourphases of a multi-phase trial have been completed. Upon completion of the third phase, the court ruled that the groundwater basin is currently in overdraftand established a current total sustainable yield. The fourth phase of trial occurred in the first half of 2013 and resulted in confirmation of each party’sgroundwater pumping for 2011 and 2012. The fifth phase of the trial commenced in February 2014, and concerned 1) whether the United States has a federalreserved water right to basin groundwater, and 2) the rights to return flows from imported water. The court heard evidence on the federal reserved right butcontinued the trial on the return flow issues while most of the parties to the adjudication discussed a settlement, including rights to return flows. In February2015, more than 140 parties representing more than 99% of the current water use within the adjudication boundary agreed to a settlement. On March 4, 2015,the settling parties, including Tejon, submitted a Stipulation for Entry of Judgment and Physical Solution to the court for approval. On December 23, 2015,the court entered Judgment approving the Stipulation for Entry of Judgment and Physical Solution. The Company’s water supply plan for the Centennialproject anticipated reliance on, among other sources, a certain quantity of groundwater underlying the Company’s lands in the Antelope Valley. TheCompany’s allocation in the Judgment is consistent with that amount. Prior to the Judgment becoming final, on February 19 and 22, 2016, several parties,including the Willis Class and Phelan Pinon Hills Community Services District, filed notices of appeal from the Judgment. The Appeal has been transferredfrom the Fourth Appellate District to the Fifth Appellate District. Appellate briefing will likely occur during 2018. Notwithstanding the appeals, the partieswith assistance from the Court have begun establishment of the Watermaster and administration of the Physical Solution, consistent with the Judgment.Summary and Status of Kern Water Bank LawsuitsOn June 3, 2010, the Central Delta and South Delta Water Agencies and several environmental groups, including the Center for Biological Diversity(collectively, “Central Delta”), filed a complaint in the Sacramento County Superior Court against the California Department of Water Resources, or DWR,Kern County Water Agency and a number of “real parties in interest,” including the Company and TCWD. The lawsuit challenges certain amendments to theSWP contracts that were originally approved in 1995, known as the “Monterey Amendments.” Petitioners in this action sought to invalidate environmentaldocumentation prepared pursuant to the California Environmental Quality Act pertaining to the Kern Water Bank.94The original Environmental Impact Report, or EIR, for the Monterey Amendments was determined to be insufficient in an earlier lawsuit. The current lawsuitprincipally (i) challenges the adequacy of the remedial EIR that DWR prepared as a result of the original lawsuit and (ii) challenges the validity of theMonterey Amendments on various grounds, including the transfer of the Kern Water Bank, or KWB, lands, from DWR to the Kern County Water Agency andin turn to the Kern Water Bank Authority, or KWBA, whose members are various Kern and Kings County interests, including TCWD, which TCWD has a 2%interest in the KWBA. A parallel lawsuit was also filed by Central Delta in Kern County Superior Court on July 2, 2010, against Kern County Water Agency,also naming the Company and TCWD as real parties in interest, which has been stayed pending the outcome of the other action against DWR. The Companyis named on the ground that it “controls” TCWD. This lawsuit has since been moved to the Sacramento County Superior Court. Another lawsuit was filed inKern County Superior Court on June 3, 2010, by two districts adjacent to the KWB, namely Rosedale Rio Bravo and Buena Vista Water Storage Districts, orRosedale, asserting that the remedial EIR did not adequately evaluate potential impacts arising from operations of the KWB, but this lawsuit did not namethe Company, only TCWD. TCWD has a contract right for water stored in the KWB and rights to recharge and withdraw water. This lawsuit has since beenmoved to the Sacramento County Superior Court. In an initial favorable ruling on January 25, 2013, the court determined that the challenges to the validityof the Monterey Amendments, including the transfer of the KWB lands, were not timely and were barred by the statutes of limitation, the doctrine of laches,and by the annual validating statute. The substantive hearing on the challenges to the EIR was held on January 31, 2014. On March 5, 2014 the court issueda decision, rejecting all of Central Delta’s California Environmental Quality Act, or CEQA, claims, except the Rosedale claim, joined by Central Delta, thatthe EIR did not adequately evaluate future impacts from operation of the KWB, in particular potential impacts on groundwater and water quality.On November 24, 2014, the court issued a writ of mandate (the “2014 Writ”) that requires DWR to prepare a revised EIR regarding the MontereyAmendments evaluating the potential operational impacts of the KWB. The 2014 Writ authorizes the continued operation of the KWB pending completionof the revised EIR subject to certain conditions including those described in an interim operating plan negotiated between the KWBA and Rosedale. The2014 Writ, as revised by the court, requires DWR to certify the revised EIR and file the return to the 2014 Writ by September 28, 2016. On September 20,2016 the Director of DWR (a) certified the revised EIR prepared by DWR, or the Revised EIR, as in compliance with CEQA, (b) adopted findings, a statementof overriding considerations, and a mitigation, monitoring and reporting program as required by CEQA, (c) made a new finding pertaining to carrying out theMonterey Amendments through continued use and operation of the KWB by the KWBA, and (d) caused a notice of determination to be filed with the Officeof Planning and Resources of the State of California on September 22, 2016. On September 28, 2016, DWR filed with the Superior Court its return to the2014 Writ.On November 24, 2014, the court entered a judgment in the Central Delta case (1) dismissing the challenges to the validity of the Monterey Amendments andthe transfer of the KWB lands in their entirety and (2) granting in part, and denying, in part, the CEQA petition for writ of mandate. Central Delta hasappealed the judgment and the KWBA and certain other parties have filed a cross-appeal with regard to certain defenses to the CEQA cause of action. Theappeals are pending in the California Court of Appeal.On December 3, 2014, the court entered judgment in the Rosedale case (i) in favor of Rosedale in the CEQA cause of action, and (ii) dismissing thedeclaratory relief cause of action. No appeal of the Rosedale judgment has been filed. Rosedale has stipulated to the discharge of the 2014 Writ.On October 21, 2016, the Central Delta petitioners and a new party, the Center for Food Safety (“CFS Petitioners”), filed a new lawsuit (the "CFS Petition")against DWR and naming a number of real parties in interest, including KWBA and TCWD (but not including the Company). The new lawsuit challengesDWR’s (i) certification of the Revised EIR, (ii) compliance with the 2014 Writ and CEQA, and (iii) finding concerning the continued use and operation of theKWB by KWBA. In response to a motion filed by the CFS Petitioners, on April 7, 2017 the Superior Court denied the CFS Petitioners’ motion to stay theSuperior Court proceedings on the return to the 2014 Writ and CFS petition pending appeal. The Superior Court subsequently modified the 2014 Writ toauthorize the KWBA to construct an additional 190 acres of recharge ponds within the KWB pending the court's consideration of DWR's return to the 2014Writ and the petition in CFS vs DWR. On August 18, 2017 the Superior Court held a hearing on the return to the 2014 Writ and on the CFS Petition. OnOctober 2, 2017 the Superior Court issued a ruling that the court shall deny the CFS Petition and shall discharge the 2014 Writ. CFS has appealed theSuperior Court judgment denying the CFS Petition. DWR has moved the Court of Appeal to consolidate the CFS appeal with the pending appeals in theCentral Delta case.To the extent there may be an adverse outcome of the claims still pending as described above, the monetary value cannot be estimated at this time.GrapevineOn December 6, 2016 the Kern County Board of Supervisors granted entitlement approval for the Grapevine project (described below). On January 5, 2017the Center for Biological Diversity, or CBD, and the Center for Food Safety, or CFS, filed an action in Kern County Superior Court pursuant to CEQA, againstKern County and the Kern County Board of Supervisors95(collectively, the “County”) concerning the County’s granting of approvals for the Grapevine project, including certification of the final EIR and relatedfindings; approval of associated general plan amendments; adoption of associated zoning maps; adoption of Specific Plan Amendment No. 155, Map No.500; adoption of Special Plan No. 1, Map No. 202; exclusion from Agricultural Preserve No. 19; and adoption of a development agreement, among otherassociated approvals. The Company and its wholly-owned subsidiary, Tejon Ranchcorp, are named as real parties in interest in this action.The action alleges that the County failed to properly follow the procedures and requirements of CEQA including failure to identify, analyze and mitigateimpacts to air quality, greenhouse gas emissions, biological resources, traffic, water supply and hydrology, growth inducing impacts, failure to adequatelyconsider project alternatives and to provide support for the County’s findings and statement of overriding considerations in adopting the EIR and failure toadequately describe the environmental setting and project description. On December 6, 2017, the County served a responsive pleading answering petioners'allegations and denying that relief should be granted. Petitioners seek to invalidate the County's approval of the project, the environmental approvals andrequire the County to revise the environmental documentation. A case management conference was held on December 15, 2017, at which time the courtordered that the hearing on this matter be set for July 27, 2018.Proceedings Incidental to BusinessFrom time to time, we are involved in other proceedings incidental to our business, including actions relating to employee claims, real estate disputes,contractor disputes and grievance hearings before labor regulatory agencies.The outcome of these other proceedings is not predictable. However, based on current circumstances, we do not believe that the ultimate resolution of theseother proceedings, after considering available defenses and any insurance coverage or indemnification rights, will have a material adverse effect on ourfinancial position, results of operations or cash flows either individually or in the aggregate.15. RETIREMENT PLANSThe Company sponsors a defined benefit retirement plan that covers eligible employees hired prior to February 1, 2007. The benefits are based on years ofservice and the employee’s five-year final average salary. The accounting for the defined benefit plan requires the use of assumptions and estimates in orderto calculate periodic benefit cost and the value of the plan's assets and benefit obligation. These assumptions include discount rates, investment returns, andproject salary increases, amongst others. The discount rates used in valuing the plan's benefits obligations were determined with reference to high qualitycorporate and government bonds that are appropriately matched to the duration of the plan's obligation.Contributions are intended to provide for benefits attributable to service both to date and expected to be provided in the future. The Company funds the planin accordance with the Employee Retirement Income Security Act of 1974, or ERISA. The Company in April 2017, froze the Benefit Plan as it relates tofuture benefit accruals for participants. The benefit accrual freeze resulted in an adjustment to the Benefit Plan, improving our other comprehensive lossposition by $404,000.96The following table sets forth changes in the plan's net benefit obligation and accumulated benefit information as of December 31:($ in thousands) 2017 2016Change in benefit obligation - Pension Benefit obligation at beginning of year $9,905 $8,970Service cost 15 223Interest cost 386 406Actuarial gain/assumption changes 1,505 378Benefits paid (124) (50)Settlements paid (1,588) (22)Benefit obligation at end of year $10,099 $9,905Accumulated benefit obligation at end of year $10,099 $8,475Change in Plan Assets Fair value of plan assets at beginning of year $6,974 $6,707Actual return on plan assets 804 339Employer contribution 165 —Benefits/expenses paid (124) (50)Settlements paid — (22)Fair value of plan assets at end of year $7,819 $6,974Funded status - liability $(2,280) $(2,931) Amounts recorded in equity Net actuarial loss $2,973 $3,465Prior service cost — (61)Total amount recorded $2,973 $3,404Amount recorded, net taxes $1,784 $2,042Other changes in plan assets and benefit obligations recognized in other comprehensive income include the following as of December 31:($ in thousands) 2017 2016Net loss (gain) $(355) $556Recognition of net actuarial loss (137) (213)Recognized prior service cost 61 29Total changes $(431) $372Changes, net of taxes $(259) $188The Company expects to recognize the following amounts as a component of net periodic pension costs during the next fiscal year: Amortization net actuarial gain$64Amortization prior service cost$—At December 31, 2017 and 2016, the Company had a long-term pension liability. The Company has always valued its plan assets as of December 31 eachyear so there were no additional transition impacts upon implementation of a year-end measurement date for plan assets as required by ASC 715"Compensation - Retirement Benefits." For 2018, the Company is estimating that contributions to the pension plan will be approximately $165,000.97Based on actuarial estimates, it is expected that annual benefit payments from the pension trust will be as follows:2018 2019 2020 2021 2022 Thereafter$200 $268 $278 $291 $294 $2,327Plan assets consist of equity, debt and short-term money market investment funds. The plan’s current investment policy targets 65% equities, 25% debt and10% money market funds. Equity and debt investment percentages are allowed to fluctuate plus or minus 20% around the respective targets to takeadvantage of market conditions. As an example, equities can fluctuate from 78% to 52% of plan assets. At December 31, 2017, the investment mix wasapproximately 57% equity, 37% debt, and 6% money market funds. At December 31, 2016, the investment mix was approximately 60% equity, 29% debtand 11% money market funds. Equity investments consist of a combination of individual equity securities plus value funds, growth funds, large cap fundsand international stock funds. Debt investments consist of U.S. Treasury securities and investment grade corporate debt. The weighted-average discount rateused in determining the periodic pension cost is 3.65% in 2017 and 4.30% in 2016. The expected long-term rate of return on plan assets is 7.5% in 2017 and2016. The long-term rate of return on plan assets is based on the historical returns within the plan and expectations for future returns. See the following tablefor fair value hierarchy by investment type at December 31:($ in thousands) Fair Value Hierarchy 2017 2016Pension Plan Assets: Cash and Cash Equivalents Level 1 $455 $776Collective Funds Level 2 3,942 3,423Treasury/Corporate Notes Level 2 1,583 1,181Corporate Equities Level 1 1,839 1,594Fair value of plan assets $7,819 $6,974Total pension and retirement expense was as follows for each of the years ended December 31:($ in thousands) 2017 2016 2015Cost components: Service cost $(15) $(223) $(265)Interest cost (386) (406) (466)Expected return on plan assets 531 517 615Net amortization and deferral (122) (184) (284)Settlement recognition 47 — (536)Total net periodic pension cost $55 $(296) $(936)The Company has a Supplemental Executive Retirement Plan, or SERP, to restore to executives designated by the Compensation Committee of the Board ofDirectors the full benefits under the pension plan that would otherwise be restricted by certain limitations now imposed under the Internal Revenue Code.The SERP is currently unfunded. The Company in April 2017, froze the SERP plan as it relates to the accrual of additional benefits resulting in a SERPliability adjustment, improving our other comprehensive loss position by $328,000.The following SERP benefit information is as of December 31:($ in thousands) 2017 2016Change in benefit obligation - SERP Benefit obligation at beginning of year $8,015 $7,999Service cost — —Interest cost 287 323Actuarial gain/assumption changes 466 129Benefits paid (444) (436)Curtailments (565) —Benefit obligation at end of year $7,759 $8,015Accumulated benefit obligation at end of year $7,759 $7,482Funded status - liability $(7,759) $(8,015)98($ in thousands) 2017 2016Amounts recorded in stockholders’ equity Net actuarial loss (gain) $1,935 $2,248Prior service cost — —Total amount recorded $1,935 $2,248Amount recorded, net taxes $1,161 $1,349Other changes in benefit obligations recognized in other comprehensive income for 2017 and 2016 include the following components: ($ in thousands) 2017 2016Net (gain) loss $(101) $129Recognition of net actuarial gain or (loss) (212) (343)Total changes $(313) $(214)Changes, net of taxes $188 $638The Company expects to recognize the following amounts as a component of net periodic pension costs during the next fiscal year ($ in thousands):Amortization net actuarial gain or (loss)$63Based on actuarial estimates, it is expected that annual SERP benefit payments will be as follows ($ in thousands):2018 2019 2020 2021 2022 Thereafter$526 $492 $487 $481 $475 $2,497The weighted-average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of projected benefitsobligation was 3.40% and 0.0% for 2017, 3.90% and 3.5% for 2016, and 4.15% and 3.5% for 2015. Total pension and retirement expense was as follows foreach of the years ended December 31:($ in thousands) 2017 2016 2015Cost components: Service cost $— $— $—Interest cost 287 323 278Net amortization and deferral 211 343 337Total net periodic pension cost $498 $666 $6159916. REPORTING SEGMENTS AND RELATED INFORMATIONWe currently operate in five reporting segments: commercial/industrial real estate development, resort/residential real estate development, mineral resources,farming, and ranch operations.Information pertaining to operating results of the Company's reporting segments are as follows:($ in thousands) December 31, 2017 December 31, 2016 December 31, 2015Revenues Real estate—commercial/industrial (1) $9,403 $9,438 $8,272Mineral resources 5,983 14,153 15,116Farming (2) 16,434 18,648 23,836Ranch operations (1) 3,837 3,338 3,923Segment revenues 35,657 45,577 51,147Equity in unconsolidated joint ventures, net 4,227 7,098 6,324Gain on sale of real estate — 1,044 —Investment income 462 457 528Other income 153 158 381Total revenues and other income 40,499 54,334 58,380Segment Profits (Losses) Real estate—commercial/industrial (1) 2,874 2,338 1,578Real estate—resort/residential (2) (1,955) (1,630) (2,349)Mineral resources 3,019 6,357 7,720Farming 233 (25) 4,852Ranch operations (1) (1,574) (2,396) (2,189)Segment profits (2) 2,597 4,644 9,612Equity in unconsolidated joint ventures, net 4,227 7,098 6,324Gain on sale of real estate — 1,044 —Investment income 462 457 528Other income 153 158 381Corporate expenses (10,141) (12,550) (12,808)Income from operations before income taxes $(2,702) $851 $4,037 (1) During the fourth quarter of 2015, the Company reclassified revenues and expenses previously classified as commercial/industrial into a new segment called Ranch Operations.Ranch operations is comprised of grazing leases, game management and other ancillary services supporting the ranch.(2) Segment profits are revenues less operating expenses, excluding investment income and expense, corporate expenses, equity in earnings of unconsolidated joint ventures, andincome taxes.100The revenue components of the commercial/industrial real estate segment for the years ended December 31 are as follows:($ in thousands)2017 2016 2015Pastoria Energy Facility Lease$3,854 $3,612 $3,694TRCC Leasing1,748 1,647 1,421TRCC management fees and reimbursements1,083 955 786Commercial leases652 917 851Communication leases808 806 784Landscaping and other783 791 736Land Sale1475 710 —Total commercial revenues$9,403 $9,438 $8,272Equity in earnings of unconsolidated joint ventures4,227 7,098 6,324Commercial revenues & equity in earnings of unconsolidated joint ventures$13,630 $16,536 $14,596 (1) Revenue from land sale relates to a purchase and sale agreement entered into with a third party in 2016. Due to a performance obligation, the Company recognized a portion ofthe sale in 2016, with the remainder being recognized in 2017.Commercial lease revenue consists of land and building leases to tenants at our commercial retail and industrial developments, base and percentage rentsfrom our PEF power plant lease, communication tower rents, and payments from easement leases. On November 2016, we sold building and land, that waspart of our commercial segment, located in Rancho Santa Fe California for $4,700,000, recognizing a gain of $1,044,000, which is not included within theDecember 31, 2016 results above.The resort/residential real estate development segment is actively involved in the land entitlement and development process internally and through jointventure entities. The segment produced losses of $1,955,000, $1,630,000, and $2,349,000 during the years ended December 31, 2017, 2016, and 2015,respectively.The mineral resources segment receives oil and mineral royalties from the exploration and development companies that extract or mine the natural resourcesfrom our land and receives revenue from water sales. The following table summarizes these activities for each of the years ended December 31:($ in thousands) 2017 2016 2015Oil and gas $1,659 $1,549 $2,661Rock aggregate 1,072 1,164 870Cement 1,614 1,299 1,263Exploration leases 102 176 157Water sales 1,254 9,601 10,165Reimbursable 282 364 —Total mineral resources revenues $5,983 $14,153 $15,116The farming segment produces revenues from the sale of wine grapes, almonds, pistachios and hay. The revenue components of the farming segment were asfollows for each of the year ended December 31:($ in thousands) 2017 2016 2015Almonds $6,327 $7,373 $12,238Pistachios 4,523 6,199 6,425Wine grapes 4,131 3,744 4,338Hay 456 520 749Total crop proceeds 15,437 17,836 23,750Other farming revenues 997 812 86Total farming revenues $16,434 $18,648 $23,836101Ranch operations consists of game management revenues and ancillary land uses such as grazing leases and filming. Within game management we operateour High Desert Hunt Club, a premier upland bird hunting club. The High Desert Hunt Club offers over 6,400 acres and 35 hunting fields, each fieldproviding different terrain and challenges. The hunting season runs from mid-October through March. We sell individual hunting packages as well asmemberships. Ranch operations also includes Hunt at Tejon, which offers a wide variety of guided big game hunts including trophy Rocky Mountain elk,deer, turkey and wild pig. We offer guided hunts and memberships for both the Spring and Fall hunting seasons.($ in thousands) 2017 2016 2015Game management $1,291 $1,296 $1,658Grazing 1,677 1,187 1,484High Desert Hunt Club 351 334 351Filming and other 518 521 430Total ranch operations revenues $3,837 $3,338 $3,923Information pertaining to assets of the Company’s reporting segments is as follows for each of the years ended December 31: ($ in thousands) IdentifiableAssets Depreciation andAmortization CapitalExpenditures2017 Real estate - commercial/industrial $63,065 $615 $4,638Real estate - resort/residential 258,697 63 14,230Mineral resources 48,305 1,363 356Farming 36,317 996 2,129Ranch operations 3,625 601 220Corporate 108,190 913 136Total $518,199 $4,551 $21,7092016 Real estate - commercial/industrial $65,290 $585 $5,196Real estate - resort/residential 243,963 77 16,013Mineral resources 45,066 1,357 2,161Farming 36,895 1,150 2,006Ranch operations 3,893 607 523Corporate 44,594 773 481Total $439,701 $4,549 $26,3802015 Real estate - commercial/industrial $67,550 $552 $7,023Real estate - resort/residential 228,064 71 16,404Mineral resources 46,025 1,501 1,199Farming 32,542 929 2,583Ranch operations 4,313 377 299Corporate 53,425 1,660 540Total $431,919 $5,090 $28,048Segment profits (losses) are total revenues less operating expenses, excluding interest income, corporate expenses, equity in earnings of unconsolidated jointventures, and interest expense. Identifiable assets by segment include both assets directly identified with those operations and an allocable share of jointlyused assets. Corporate assets consist primarily of cash and cash equivalents, marketable securities, deferred income taxes, and land and buildings. Land isvalued at cost for acquisitions since 1936. Land acquired in 1936, upon organization of the Company, is stated on the basis carried by the Company’spredecessor.10217. INVESTMENT IN UNCONSOLIDATED AND CONSOLIDATED JOINT VENTURESThe Company maintains investments in joint ventures. The Company accounts for its investments in unconsolidated joint ventures using the equity methodof accounting unless the venture is a variable interest entity, or VIE, and meets the requirements for consolidation. The Company’s investment in itsunconsolidated joint ventures at December 31, 2017 was $30,031,000. The equity in the income of the unconsolidated joint ventures was $4,227,000 for thetwelve months ended December 31, 2017. The unconsolidated joint ventures have not been consolidated as of December 31, 2017, because theCompany does not control the investments. The Company’s current joint ventures are as follows:•Petro Travel Plaza Holdings LLC – TA/Petro is an unconsolidated joint venture with TravelCenters of America, LLC for the development andmanagement of travel plazas and convenience stores. The Company has 50% voting rights and shares 60% of profit and losses in this joint venture. Ithouses multiple commercial eating establishments as well as diesel and gasoline operations in TRCC. The Company does not control the investmentdue to its having only 50% voting rights, and because our partner in the joint venture is the managing partner and performs all of the day-to-dayoperations and has significant decision-making authority regarding key business components such as fuel inventory and pricing at the facility. AtDecember 31, 2017, the Company had an equity investment balance of $17,422,000 in this joint venture.•Majestic Realty Co. – Majestic Realty Co., or Majestic, is a privately-held developer and owner of master planned business parks in the United States.The Company partnered with Majestic to form two 50/50 joint ventures to acquire, develop, manage, and operate industrial real estate at TRCC. Thepartners have equal voting rights and equally share in the profit and loss of the joint venture. At December 31, 2017, the Company's investment inthese joint ventures was $0, which includes our outside basis.◦In August 2016, we partnered with Majestic to form TRC-MRC 2, LLC to acquire, lease, and maintain a fully occupied warehouse at TRCC-West. The partnership acquired the 651,909 square foot building for $24,773,000 and was largely financed through a $21,080,000 promissorynote guaranteed by both partners. The note matures in September 2020 and currently has an outstanding principal balance of $21,080,000.Since inception, we have received excess distributions resulting in a deficit balance of $496,000. In accordance with the applicable accountingguidance, these excess distributions are reclassified to the liabilities section of our consolidated balance sheet. We will continue to record ourequity in the net income as a debit to the investment account, and if it becomes positive, it will again be shown as an asset on our consolidatedbalance sheet. If it becomes obvious that any excess distribution may not be returned (upon joint venture liquidation or otherwise), we willrecognize any balance classified as a liability as income immediately.◦In September 2016, TRC-MRC 1, LLC was formed to develop and operate an approximately 480,480 square foot industrial building at TRCC-East. The joint venture completed construction of the building during the third quarter of 2017. Since inception of the joint venture, wereceived distributions of $1,952,000 representing excess distributions resulting in a deficit balance of $3,000. In accordance with the applicableaccounting guidance, these excess distributions are reclassified to the liabilities section of our consolidated balance sheet. We will continue torecord our equity in the net income as a debit to the investment account, and if it becomes positive, it will again be shown as an asset on ourconsolidated balance sheet. If it becomes obvious that any excess distribution may not be returned (upon joint venture liquidation orotherwise), we will recognize any balance classified as a liability as income immediately. The joint venture currently has borrowings under a$25,000,000 construction loan of which $19,433,000 has been drawn.•Rockefeller Joint Ventures – The Company has three joint ventures with Rockefeller Group Development Corporation or Rockefeller. At December 31,2017, the Company’s combined equity investment balance in these three joint ventures was $12,609,000.◦Two joint ventures are for the development of buildings on approximately 91 acres and are part of an agreement for the potential developmentof up to 500 acres of land in TRCC that are tied to Foreign Trade Zone designation. The Company owns a 50% interest in each of the jointventures. Currently the Five West Parcel LLC joint venture owns and leases a 606,000 square foot building to Dollar General which has nowbeen extended to April 2022, and includes an option to extend for an additional three years. For operating revenue, please see the followingtable. The Five West Parcel joint venture currently has an outstanding term loan with a balance of $9,711,000 that matures on May 5, 2022. TheCompany and Rockefeller guarantee the performance of the debt. The second of these joint ventures, 18-19 West LLC, was formed in August2009 through the contribution of 61.5 acres of land by the Company, which is being held for future development. Both of these joint venturesare being accounted for under the equity method due to both members having significant participating rights in the management of theventures.103◦The third joint venture is the TRCC/Rock Outlet Center LLC joint venture that was formed during the second quarter of 2013 to develop, own,and manage a net leasable 326,000 square foot outlet center on land at TRCC-East. The cost of the outlet center was approximately$87,000,000 and was funded through a construction loan for up to 60% of the costs and the remaining 40% was through equity contributionsfrom the two members. The Company controls 50% of the voting interests of TRCC/Rock Outlet Center LLC, thus it does not control by votinginterest alone. The Company is the named managing member, as such we considered the presumption that a managing member controls thelimited liability company. The managing member's responsibilities relate to the routine day-to-day activities of TRCC/Rock Outlet Center LLC.However, all operating decisions during development and operations, including the setting and monitoring of the budget, leasing, marketing,financing and selection of the contractor for any of the project's construction, are jointly made by both members of the joint venture. Therefore,the Company concluded that both members have significant participating rights that are sufficient to overcome the presumption of theCompany controlling the joint venture through it being named the managing member. Therefore, the investment in TRCC/Rock Outlet CenterLLC is being accounted for under the equity method. The TRCC/Rock Outlet Center LLC joint venture is separate from the aforementionedagreement to potentially develop up to 500 acres of land in TRCC. During the fourth quarter of 2013, the TRCC/Rock Outlet Center LLC jointventure entered into a construction line of credit agreement with a financial institution for $52,000,000 that, as of December 31, 2017, had anoutstanding balance of $48,769,000. The Company and Rockefeller guarantee the performance of the debt.•Centennial Founders, LLC – Centennial Founders, LLC, or CFL, is a joint venture with TRI Pointe Homes and CalAtlantic that was organized to pursuethe entitlement and development of land that the Company owns in Los Angeles County. Based on the Second Amended and Restated LimitedCompany Agreement of Centennial Founders, LLC and the change in control and funding that resulted from the amended agreement, CentennialFounders, LLC qualified as a VIE, beginning in the third quarter of 2009 and the Company was determined to be the primary beneficiary. As a result,Centennial Founders, LLC has been consolidated into our financial statements beginning in that quarter. Our partners retained a noncontrolling interestin the joint venture. On November 30, 2016, CFL and Lewis entered a Redemption and Withdrawal Agreement (the Agreement), whereby Lewisirrevocably and unconditionally withdrew as a member of CFL, CFL redeemed Lewis' entire interest for no consideration. As a result, our noncontrollinginterest balance was reduced by $11,039,000. At December 31, 2017, the Company owned 89.28% of Centennial Founders, LLC.The Company’s investment balance in its unconsolidated joint ventures differs from its respective capital accounts in the respective joint ventures. Thedifferential represents the difference between the cost basis of assets contributed by the Company and the agreed upon contribution value of the assetscontributed.Condensed balance sheet information and statement of operations of the Company’s unconsolidated joint ventures are as follows:Balance Sheet Information as of December 31: Joint Venture TRC Assets Borrowings Equity Investment In 2017 2016 2017 2016 2017 2016 2017 2016Petro Travel Plaza Holdings, LLC$67,435 $68,652 $(15,279) $(15,275) $49,705 $51,287 $17,422 $18,372Five West Parcel, LLC15,738 16,614 (9,711) (10,251) 5,972 6,043 2,802 2,83718-19 West, LLC4,704 4,623 — — 4,704 4,621 1,782 1,741TRCC/Rock Outlet Center, LLC81,610 86,056 (48,769) (50,712) 32,177 34,523 8,025 9,198TRC-MRC 1, LLC25,380 199 (19,433) — 4,541 199 — 224TRC-MRC 2, LLC20,336 23,965 (21,080) (21,080) (992) 2,592 — 1,431Total$215,203 $200,109 $(114,272) $(97,318) $96,107 $99,265 $30,031 $33,803 Centennial Founders, LLC$89,721 $86,099 $— $— $88,862 $85,281 Consolidated104Condensed Statement of Operations Information as of December 31: Joint Venture TRC Revenues Earnings(Loss) Equity in Earnings (Loss) 2017 2016 2015 2017 2016 2015 2017 2016 2015Petro Travel PlazaHoldings, LLC$119,463 $114,331 $115,313 $10,418 $12,077 $10,629 $6,251 $7,246 $6,377Five West Parcel, LLC2,824 2,887 3,408 905 1,029 1,084 452 $515 $54218-19 West, LLC11 10 20 (97) (129) (108) (48) $(65) $(54)TRCC/Rock OutletCenter, LLC19,615 9,542 8,988 (2,347) (367) (1,082) (1,173) $(184) $(541)TRC-MRC 1, LLC— — — (3) — — (2) $— $—TRC-MRC 2, LLC23,655 1,178 — (2,505) (828) — (1,253) (414) — $135,568 $127,948 $127,729 $6,371 $11,782 $10,523 $4,227 $7,098 $6,324 Centennial Founders,LLC$456 $520 $749 $(144) $(246) $(140) Consolidated (1) Revenues for TRCC/Rock Outlet Center are presented net of non-cash tenant allowance amortization of $1.8 million, $1.9 million, and $2.1 million as of December 31, 2017,2016, and 2015, respectively.(2)Earnings for TRC-MRC 2, LLC include non-cash amortization of purchase accounting adjustments related to in-place leases of $4.0 million and $1.2 million as of December 31,2017 and 2016, respectively, that will be amortized over the remaining lease period.18. RELATED PARTY TRANSACTIONSTCWD is a not-for-profit governmental entity, organized on December 28, 1965, pursuant to Division 13 of the Water Code, State of California. TCWD is alandowner voting district, which requires an elector, or voter, to be an owner of land located within the district. TCWD was organized to provide the waterneeds for future municipal and industrial development. The Company is the largest landowner and taxpayer within TCWD. The Company has a water servicecontract with TCWD that entitles us to receive all of TCWD’s State Water Project entitlement and all of TCWD’s banked water. TCWD is also entitled tomake assessments of all taxpayers within the district, to the extent funds are required to cover expenses and to charge water users within the district for the useof water. From time to time, we transact with TCWD in the ordinary course of business. We believe that the terms negotiated for all transactions are no lessfavorable than those that could be negotiated in arm’s length transactions.19. UNAUDITED QUARTERLY OPERATING RESULTSThe following is a tabulation of unaudited quarterly operating results for the years indicated: ($ in thousands, exceptper share) TotalRevenue1 SegmentProfit(Loss) Net (Loss)Income Net (Loss) Incomeattributable to CommonStockholders Net (Loss)Income Per Share Net (Loss) Income, Per Shareattributable to CommonStockholders22017 First Quarter $5,985 $(811) $(1,913) $(1,902) $(0.09) $(0.09)Second Quarter 6,311 715 (1) 26 — —Third Quarter 12,051 720 (26) (22) — —Fourth Quarter 11,925 1,973 361 343 0.01 0.01 $36,272 $2,597 $(1,579) $(1,555) 2016 First Quarter $13,122 $3,186 $1,195 $1,209$0.06 $0.06Second Quarter 7,006 56 (728) (688)(0.04) (0.03)Third Quarter 13,223 1,187 317 3240.02 0.02Fourth Quarter 12,841 215 (269) (287)(0.01) (0.01) $46,192 $4,644 $515 $558 (1) Includes investment income and other income.(2) Net income (loss) per share on a diluted basis. Quarterly rounding of per share amounts can result in a variance from the reported annual amount.105LIST OF SUBSIDIARIES OF REGISTRANTEXHIBIT 21 (21) Subsidiaries of Registrant A. Registrant: Tejon Ranch Co. B. Subsidiaries of Registranta.Tejon Ranchcorp, 100% owned by Registrant.b.Laval Agricultural Company, formerly Tejon Farming Company.c.Tejon Ranch Feedlot, Inc.d.White Wolf Corporation.e.Tejon Development Corporation.f.Tejon Industrial Corp.g.RSF 6051 LLC, a Delaware limited liability company.h.Tejon Energy LLC.i.NHSE CA Thrashers LLC.j.Centennial Founders LLC, Delaware limited liability company, 74% owned by Tejon Ranchcorp.k.Tejon Hounds, LLC.l.Tejon Mountain Village, LLC., Delaware limited liability company.m.Tejon Ranch Wine Company, LLC.n.TRCC - West One, LLC.C. Each of the aforesaid subsidiaries is included in Registrant's Consolidated Financial Statements, set forth in answer to Item 15(a)(1) hereof. D. Each of the aforesaid subsidiaries (a) is a corporation unless otherwise stated, (b) was organized and incorporated or filed under the laws of the State ofCalifornia unless otherwise stated, and (c) has 100% of its common stock (if a corporation) or membership interest (if a limited liability company) owned byTejon Ranchcorp unless otherwise stated. E. Each of the aforesaid subsidiaries does business under its name, as shown. Registrant also does business under the name Tejon Ranch Company. TejonRanchcorp also does business under the names Tejon Ranch Company, Tejon Ranch, Grapevine Center, Grapevine Press, High Desert Hunt Club and LavalFarms. Laval Agricultural Company does business also under the names Laval Farms and Tejon Ranch. Tejon Industrial Corp. also does business under thename Tejon Ranch Commerce Center and Tejon Industrial Complex.CONSENT OF ERNST & YOUNG LLPEXHIBIT 23.1Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the following Registration Statements:(1)Registration Statement (Form S-8 No. 333-152804) pertaining to the Tejon Ranch Co. Amended and Restated 1998 StockIncentive Plan;(2)Registration Statement (Form S-8 No. 333-68869) pertaining to the Tejon Ranch Co. 1998 Stock Incentive Plan and Non-Employee Director Stock Incentive Plan;(3)Registration Statement (Form S-8 No. 333-70128) pertaining to the Tejon Ranch Co. 1998 Stock Incentive Plan;(4)Registration Statement (Form S-8 No. 333-113887) pertaining to the Tejon Ranch Nonqualified Deferred Compensation Plan;(5)Registration Statement (Form S-3 No. 333-115946) and related Prospectus;(6)Registration Statement (Form S-3 No. 333-130482) and related Prospectus;(7)Registration Statement (Form S-3 No. 333-166167) and related Prospectus;(8)Registration Statement (Form S-3 No. 333-184367) and related Prospectus;(9)Registration Statement (Form S-3 No. 333-192824) and related Prospectus; and(10)Registration Statement (Form S-3 No. 333-210875) and related Prospectus;of our reports dated March 12, 2018, with respect to the consolidated financial statements of Tejon Ranch Co. and Subsidiaries, and theeffectiveness of internal control over financial reporting of Tejon Ranch Co. and Subsidiaries, included in this Annual Report (Form 10-K) for the year ended December 31, 2017./s/ Ernst & Young LLPLos Angeles, CaliforniaMarch 12, 2018CONSENT OF RSM US LLPEXHIBIT 23.2Consent of Independent Registered Public Accounting FirmWe hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-152804, 333-68869, 333-70128, 333-113887,333-210500) and the Registration Statements and related Prospectuses on Form S-3 (Nos. 333-115946, 333-130482, 333-166167, 333-184367, 333-192824,333-210875) of Tejon Ranch Co. of our report dated March 12, 2018, relating to our audit of the consolidated financial statements of Petro Travel PlazaHoldings LLC, included in this Annual Report on Form 10-K for the year ended December 31, 2017./s/ RSM US LLPCleveland, OhioMarch 12, 2018EXHIBIT 31.1Certification of Chief Executive Officer Pursuant toSecurities Exchange Act Rules 13a-14(a) and 15d-14(a)as Adopted Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002I, Gregory S. Bielli, certify that:1.I have reviewed this annual report on Form 10-K of Tejon Ranch Co.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for theregistrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Dated:March 12, 2018/s/ Gregory S. Bielli Gregory S. Bielli Chief Executive OfficerEXHIBIT 31.2Certification of Chief Financial Officer Pursuant toSecurities Exchange Act Rules 13a-14(a) and 15d-14(a)as Adopted Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002I, Allen E. Lyda, certify that:1.I have reviewed this annual report on Form 10-K of Tejon Ranch Co.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f))for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Dated:March 12, 2018/s/ Allen E. Lyda Allen E. Lyda Chief Financial OfficerEXHIBIT 31.3Certification of Chief Accounting Officer Pursuant toSecurities Exchange Act Rules 13a-14(a) and 15d-14(a)as Adopted Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002I, Robert D. Velasquez, certify that:1.I have reviewed this annual report on Form 10-K of Tejon Ranch Co.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f))for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Dated:March 12, 2018/s/ Robert D. Velasquez Robert D. Velasquez Vice President of Finance and Chief Accounting OfficerEXHIBIT 32CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002Each of the undersigned hereby certifies, in his capacity as an officer of Tejon Ranch Co. (the “Company”), for purposes of 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his own knowledge:•The Annual Report of the Company on Form 10-K for the period ended December 31, 2017 fully complies with the requirements of Section 13(a) ofthe Securities Exchange Act of 1934; and•The information contained in such report fairly presents, in all material respects, the financial condition and results of operation of the Company.A signed original of this written statement required by Section 906 has been provided to Tejon Ranch Co. and will be retained by Tejon Ranch Co., andfurnished to the Securities and Exchange Commission or its staff upon request. Dated:March 12, 2018 /s/ Gregory S. Bielli Gregory S. Bielli Chief Executive Officer /s/ Allen E. Lyda Allen E. Lyda Chief Financial Officer /s/ Robert D. Velasquez Robert D. Velasquez Vice President of Finance and Chief Accounting Officer Exhibit 99.1Petro Travel Plaza Holdings LLCConsolidated Financial StatementsFor the Years EndedDecember 31, 2017, 2016 and 2015REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMIndependent Auditor's ReportTo the MembersPetro Travel Plaza Holdings LLCOpinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Petro Travel Plaza Holdings LLC (the Company) as of December 31, 2017 and 2016, andthe related consolidated statements of income and comprehensive income, cash flows and changes in members’ capital for each of the three years in theperiod ended December 31, 2017, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, thefinancial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of itsoperations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally acceptedin the United States of America.Basis for OpinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financialstatements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of theSecurities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the auditing standards of the PCAOB and in accordance with auditing standards generally accepted in theUnited States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statementsare free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for thepurpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, andperforming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures inthe financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well asevaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ RSM US LLPWe have served as the Company's auditor since 2015.Cleveland, OhioMarch 12, 20181PETRO TRAVEL PLAZA HOLDINGS LLCCONSOLIDATED BALANCE SHEETS(in thousands) December 31, 2017 2016Assets Current assets: Cash$7,272 $9,015Inventory2,427 2,160Due from affiliate1,011 1,375Other current assets49 55Total current assets10,759 12,605 Property and equipment, net56,503 55,883Other noncurrent assets, net173 164 Total assets$67,435 $68,652 Liabilities and Members' Capital Current liabilities: Accrued expenses and other current liabilities$2,262 $1,909Total current liabilities2,262 1,909 Long term debt, net15,279 15,275Other noncurrent liabilities189 181 Total liabilities17,730 17,365 Members' capital49,705 51,287 Total liabilities and members' capital$67,435 $68,652The accompanying notes are an integral part of these consolidated financial statements.2PETRO TRAVEL PLAZA HOLDINGS LLCCONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(in thousands) Year Ended December 31, 2017 2016 2015Revenues: Fuel$87,696 $83,149 $86,692Nonfuel31,767 31,182 28,621Total revenues119,463 114,331 115,313 Costs and expenses: Cost of goods sold (excluding depreciation and amortization): Fuel73,413 68,465 73,281Nonfuel12,316 12,199 11,539 Total cost of goods sold85,729 80,664 84,820 Operating expenses20,458 18,743 17,757Depreciation and amortization2,380 2,140 1,653 Total costs and expenses108,567 101,547 104,230 Operating income10,896 12,784 11,083 Interest expense, net478 707 454 Net income and comprehensive income$10,418 $12,077 $10,629The accompanying notes are an integral part of these consolidated financial statements.3PETRO TRAVEL PLAZA HOLDINGS LLCCONSOLIDATED STATEMENTS OF CASH FLOW(in thousands) Year Ended December 31, 2017 2016 2015Cash flows from operating activities: Net income$10,418 $12,077 $10,629Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization2,380 2,140 1,653Debt financing costs— 138 —Decrease (increase) from changes in: Inventory(267) (193) 144Other current assets6 16 115Due to/from affiliate364 (1,422) (387)Accrued expenses and other current liabilities353 137 (108)Other, net(5) 30 (83)Net cash provided by operating activities13,249 12,923 11,963 Cash flows from investing activities: Purchases of property and equipment(2,992) (5,715) (5,930)Net cash used in investing activities(2,992) (5,715) (5,930) Cash flows from financing activities: Repayments of long term debt— (543) (794)Payment of debt issuance costs— (58) —Distributions to members(12,000) (7,500) (12,000)Net cash used in financing activities(12,000) (8,101) (12,794) Net decrease in cash(1,743) (893) (6,761)Cash, beginning of period9,015 9,908 16,669Cash, end of period$7,272 $9,015 $9,908 Supplemental cash flow information: Interest paid during the period$475 $573 $455The accompanying notes are an integral part of these consolidated financial statements.4PETRO TRAVEL PLAZA HOLDINGS LLCCONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' CAPITAL(in thousands) Members' CapitalBalance, December 31, 2014$48,081Net income10,629Distributions to members(12,000)Balance, December 31, 201546,710Net income12,077Distributions to members(7,500)Balance, December 31, 201651,287Net income10,418Distributions to members(12,000)Balance, December 31, 2017$49,705The accompanying notes are an integral part of these consolidated financial statements.5PETRO TRAVEL PLAZA HOLDINGS LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2017, 2016 AND 2015(in thousands)(1)Summary of Significant Accounting PoliciesGeneral Information and Basis of PresentationPetro Travel Plaza Holdings LLC (the "Company"), a Delaware limited liability company, was formed on October 8, 2008, by Tejon DevelopmentCorporation, a California corporation ("Tejon"), and TA Operating LLC, a Delaware limited liability company ("TA"). The Company has two wholly ownedsubsidiaries: Petro Travel Plaza LLC ("PTP"), and East Travel Plaza LLC ("ETP"), each of which is a California limited liability company. The Company'sLimited Liability Company Operating Agreement, as amended, ("the Operating Agreement") limits each members' liability to the fullest extent permitted bylaw. Pursuant to the terms of the Operating Agreement, TA manages the Company's operations and is responsible for the administrative, accounting and taxfunctions of the Company.The Company has two travel centers, three convenience stores with retail gasoline stations and one standalone restaurant in Southern California, whichwe refer to collectively as the locations. One travel center and two convenience stores, owned by PTP, operate under the Petro brand and Minit Mart brand,respectively, and one travel center and one convenience store owned by ETP, operate under the TravelCenters of America brand and Minit Mart brand,respectively. The one standalone restaurant, owned by ETP, operates under the Black Bear Diner brand. The travel centers offer a broad range of products andservices, including diesel fuel and gasoline, as well as nonfuel products and services such as truck repair and maintenance services, full service restaurants,quick service restaurants, or QSRs, and various customer amenities, such as showers, weigh scales, a truck wash and laundry facilities. The convenience storesoffer gasoline as well as a variety of nonfuel products and services, including coffee, groceries, some fresh foods, and, in many stores, a QSR.The members and their interests in the Company are as follows:Members Tejon60.0%TA40.0%In any fiscal year, the Company's profits or losses and distributions, if any, shall be allocated 60.0% to Tejon and 40.0% to TA pursuant to the terms ofthe Operating Agreement.The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, PTP and ETP, after eliminatingintercompany transactions, profits and balances. The preparation of financial statements in conformity with U.S. generally accepted accounting principles, orU.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual resultscould differ from those estimates.The Company has evaluated subsequent events through March 12, 2018, which date represents the date the financial statements were available to beissued.Significant Accounting PoliciesInventoryInventory is stated at the lower of cost or market value. The Company determines cost principally on the weighted average cost method.6PETRO TRAVEL PLAZA HOLDINGS LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2017, 2016 AND 2015(in thousands)Property and EquipmentProperty and equipment are recorded at historical cost. Depreciation and amortization are provided using the straight-line method over the estimateduseful lives of the respective assets. Repairs and maintenance are charged to expense as incurred and amounted to $843, $848 and $789 for the years endedDecember 31, 2017, 2016 and 2015, respectively. Renewals and betterments are capitalized. The cost and related accumulated depreciation of property andequipment sold, replaced or otherwise disposed is removed from the related accounts. Gains or losses on disposal of property and equipment are credited orcharged to depreciation and amortization in the accompanying consolidated statements of income and comprehensive income.Impairment of Long Lived AssetsThe Company reviews definite lived assets for indicators of impairment during each reporting period. The Company recognizes impairment chargeswhen (a) the carrying value of a long lived asset or asset group to be held and used in the business is not recoverable and exceeds its fair value and (b) whenthe carrying value of a long lived asset or asset group to be disposed of exceeds the estimated fair value of the asset less the estimated cost to sell the asset.The Company's estimates of fair value are based on its estimates of likely market participant assumptions, including projected operating results and thediscount rate used to measure the present value of projected future cash flows. The Company recognizes such impairment charges in the period during whichthe circumstances surrounding an asset or asset group to be held and used have changed such that the carrying value is no longer recoverable, or duringwhich a commitment to a plan to dispose of the asset or asset group is made. The Company performs an impairment analysis for substantially all of itsproperty and equipment at the individual site level because that is the lowest level of asset and liability groupings for which the cash flows are largelyindependent of the cash flows of other assets and liabilities.Environmental Liabilities and ExpendituresThe Company records the expense of remediation charges and penalties when the obligation to remediate is probable and the amount of associated costsis reasonably determinable. The Company includes remediation expenses within operating expenses in the accompanying consolidated statements of incomeand comprehensive income. Generally, the timing of remediation expense recognized coincides with the completion of a feasibility study or the commitmentto a formal plan of action. Accrued liabilities related to environmental matters are recorded on an undiscounted basis because of the uncertainty associatedwith the timing of the related future payments.Asset Retirement ObligationsAsset retirement costs are capitalized as part of the cost of the related long lived asset and such costs are allocated to expense using a systematic andrational method. To date, these costs relate to the Company's obligation to remove underground storage tanks used to store fuel and motor oil. The Companyrecords a liability for the fair value of an asset retirement obligation with a corresponding increase to the carrying value of the related long lived asset at thetime an underground storage tank is installed. The Company amortizes the amount added to property and equipment and recognizes accretion expense inconnection with the discounted liability over the remaining life of the respective underground storage tank. The Company bases the estimated liability on itshistorical experiences in removing these assets, estimated useful lives, external estimates as to the cost to remove the assets in the future and regulatory orcontractual requirements. Revisions to the liability could occur due to changes in estimated removal costs, or asset useful lives or if new regulationsregarding the removal of such tanks are enacted. An asset retirement obligation of $189 and $181 has been recorded as a noncurrent liability as ofDecember 31, 2017 and 2016, respectively.Revenue RecognitionThe Company recognizes revenue from the sale of fuel and nonfuel products and services at the time delivery has occurred and services have beenperformed. The estimated cost to the Company of the redemption by customers of loyalty program points is recorded as a discount against nonfuel revenuesin determining net sales presented in the consolidated statements of income and comprehensive income.7PETRO TRAVEL PLAZA HOLDINGS LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2017, 2016 AND 2015(in thousands)Motor Fuel TaxesThe Company collects the cost of certain motor fuel taxes from consumers and remits those amounts to the supplier or the appropriate governmentalagency. Such taxes were $13,956, $13,726 and $12,804, for the years ended December 31, 2017, 2016 and 2015, respectively, and are included in fuelrevenues and cost of sales in the accompanying consolidated statements of income and comprehensive income.Advertising and PromotionCosts incurred in connection with advertising and promotions are expensed as incurred. Advertising and promotion expenses, which are included inoperating expenses in the accompanying consolidated statements of income and comprehensive income, were $448, $516 and $463 for the years endedDecember 31, 2017, 2016 and 2015, respectively.Income TaxesThe Company is not subject to federal or state income taxes. Results of operations are allocated to the members in accordance with the provisions of theOperating Agreement and reported by each member on its federal and state income tax returns. The taxable income or loss allocated to the members in anyone year generally varies substantially from income or loss for financial reporting purposes due to differences between the periods in which such items arereported for financial reporting and income tax purposes.ReclassificationsCertain prior year amounts have been reclassified to be consistent with the current year presentation.Recently Issued Accounting PronouncementsIn May 2014, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update 2014-09, Revenue from Contracts withCustomers, or ASU 2014-09, which establishes a comprehensive revenue recognition standard under GAAP for almost all industries. This new standard willapply for annual periods beginning after December 15, 2017, including interim periods therein. To address implementation of ASU 2014-09 and evaluate itsimpact on the Company's consolidated financial statements, the Company developed a project plan in which it utilized a bottom up approach to evaluate itsrevenue streams and related internal controls. The Company has selected the full retrospective transition method for adoption, which requires that it restateprior comparative periods in the consolidated financial statements. Although many of the Company's revenue streams are initiated at the point of sale, theimplementation of this standard will have an impact on the presentation of loyalty awards, in which TA owns and operates and the Company participates, andthe presentation of motor fuel taxes in the accompanying consolidated statements of income and comprehensive income. Once implemented, loyalty awardswill be recognized against the revenue that earned the loyalty award, which will result in a reclassification in the consolidated statements of income andcomprehensive income of $121 and $138 from nonfuel revenue to fuel revenue. Motor fuel taxes will be presented net against fuel revenue in theaccompanying statements of income and comprehensive income which will result in a decrease in fuel revenues and fuel cost of goods sold of $13,956 and$13,726 for the years ended December 31, 2017 and 2016, respectively.In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases, which established a comprehensive lease standard under GAAP forvirtually all industries. The new standard will apply for annual periods beginning after December 15, 2018, including interim periods therein. Early adoptionis permitted. The implementation of this standard is not expected to cause any material changes to the Company's financial statements.In August 2016, the FASB issued Accounting Standards Update 2016-15, Statement of Cash Flows, which simplifies elements of cash flow classificationand reduces diversity in practice across all industries. The new standard will apply for annual periods beginning after December 15, 2017, including interimperiods therein, and requires retrospective application. Early adoption is permitted. The implementation of this standard is not expected to cause any materialchanges to the Company's consolidated statements of cash flows.8PETRO TRAVEL PLAZA HOLDINGS LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2017, 2016 AND 2015(in thousands)(2)InventoryInventory at December 31, 2017 and 2016, consisted of the following: 2017 2016Nonfuel products$1,958 $1,740Fuel products469 420Total inventory$2,427 $2,160(3)Property and EquipmentProperty and equipment, net, as of December 31, 2017 and 2016, consisted of the following: Estimated UsefulLives (years) 2017 2016Land and improvements $19,735 $19,068Buildings and improvements10-40 47,755 45,625Machinery, equipment and furniture3-10 13,429 12,352Construction in progress 1,006 1,893 81,925 78,938Less: accumulated depreciation and amortization 25,422 23,055Property and equipment, net $56,503 $55,883Depreciation expense for the years ended December 31, 2017, 2016 and 2015 was $2,372, $2,128 and $1,645, respectively.(4)Accrued expenses and other current liabilitiesAccrued expenses and other current liabilities as of December 31, 2017 and 2016, consisted of the following: 2017 2016Self insurance accrual$998 $692Taxes payable, other than income taxes785 726Environmental accrual15 167Other464 324Total accrued expenses and other current liabilities$2,262 $1,909(5)Long Term DebtLong term debt consisted of the following at December 31, 2017 and 2016: 2017 2016Note payable to a bank$15,331 $15,331Less: debt issuance costs52 56Total long term debt$15,279 $15,2759PETRO TRAVEL PLAZA HOLDINGS LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2017, 2016 AND 2015(in thousands)The Company has a credit agreement with a bank that was amended in July 2016 to, among other things, extend the maturity date, with the firstminimum principal payment of $447 due in 2021 and $767 due in 2022, and decrease the interest rate on the debt to LIBOR plus 1.95%, payable monthly.The credit agreement includes certain financial covenants, with which the Company was in compliance at December 31, 2017. At December 31, 2017, theinterest rate was 3.51%. The Company's weighted average interest rates for the years ended December 31, 2017, 2016 and 2015 were 3.10%, 2.78% and2.70%, respectively. The debt is secured by the Company's real property.Debt Issuance CostsIn amending the Company's debt agreement, we incurred $58 of debt issuance costs that have been capitalized and are being amortized to interestexpense over the term of the amended debt agreement using the effective interest method. The unamortized debt issuance costs that existed prior to amendingthe debt agreement were written off to interest expense for the year ended December 31, 2016. Debt issuance costs are presented on the consolidated balancesheets as a reduction of long term debt and for the years ended December 31, 2017 and 2016, were $52 and $56, net of accumulated amortization of debtissuance costs of $6 and $2, respectively.(6)Related Party TransactionsPursuant to the terms of the Operating Agreement, TA provides cash management services to PTP, including the collection of accounts receivable.Accounts receivable are periodically transferred to TA for collection and any amounts for which PTP has not received payment from TA are reflected as duefrom affiliate in the accompanying consolidated balance sheets. Amounts due from affiliate as of December 31, 2017 and 2016, were $1,011 and $1,375,respectively. Pursuant to the terms of the Operating Agreement, TA manages the locations and is responsible for the administrative, accounting, and taxfunctions of the Company. TA receives a management fee for providing these services, which may not be commensurate with the cost of these services werethe Company to perform these internally or obtain them from an unrelated third party. The Company paid management fees to TA in the amount of $1,540,$1,055 and $838 for the years ended December 31, 2017, 2016 and 2015, respectively, which fees are included in operating expenses in the accompanyingconsolidated statements of income and comprehensive income. In August 2016, the Company amended the Operating Agreement to include, among otherthings, construction of a QSR by TA on the property of an existing travel center. The Company has agreed to pay TA a construction management fee equal to2% of hard costs of the construction of the QSR. TA opened the QSR on February 13, 2017. In November 2016, the Company further amended the OperatingAgreement to, among other things, (a) increase the annual management fee to $1,300 effective January 1, 2017, with annual increases equal to the lesser of (i)the increase in the Customer Price Index, or (ii) 2.5% and (b) include any additional new builds or significant renovation projects in the constructionmanagement fee. In addition to management services and staffing provided by TA, the Operating Agreement grants the Company the right to use all of TA'snames, trade names, trademarks and logos to the extent required in the operation of the Company's travel centers and convenience stores.The employees operating the Company's travel centers, convenience stores and standalone restaurant are TA employees. In addition to the managementfees described above, the Company reimbursed TA for wages and benefits related to these employees that aggregated $10,356, $9,663 and $9,153 for theyears ended December 31, 2017, 2016 and 2015, respectively. These reimbursements were recorded in operating expenses in the accompanying consolidatedstatements of income and comprehensive income.10PETRO TRAVEL PLAZA HOLDINGS LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2017, 2016 AND 2015(in thousands)(7)Contingencies The Company is involved from time to time in various legal and administrative proceedings, including tax audits, and threatened legal andadministrative proceedings incidental to the ordinary course of business, none of which is expected, individually or in the aggregate, to have a materialadverse effect on the Company's business, financial condition, results of operations or cash flows.The Company's operations and properties are subject to extensive federal and state legislation, regulations, and requirements relating to environmentalmatters. The Company uses underground storage tanks ("USTs") to store petroleum products and motor oil. Statutory and regulatory requirements for USTsystems include requirements for tank construction, integrity testing, leak detection and monitoring, overfill and spill control and mandate corrective actionin case of a release from a UST into the environment. The Company is also subject to regulation relating to vapor recovery and discharges into the water.Management believes that the Company's USTs are currently in compliance in all material respects with applicable environmental legislation, regulationsand requirements.Accruals for environmental matters are recorded in operating expenses when it is probable that a liability has been incurred and the amount of theliability can be reasonably estimated. From time to time the Company has received, and in the future likely will receive, notices of alleged violations ofenvironmental laws or otherwise has become or will become aware of the need to undertake corrective actions to comply with environmental laws at itsproperties. Investigatory and remedial actions were, and regularly are, undertaken with respect to releases of hazardous substances. The Company had anaccrual for environmental matters of $15 and $167, at December 31, 2017 and 2016, respectively, which was presented in the Company's consolidatedbalance sheets in accrued expenses and other current liabilities. Accruals are periodically evaluated and updated as information regarding the nature of theclean up work is obtained. In light of the Company's business and the quantity of petroleum products that it handles, there can be no assurance that currentlyunidentified hazardous substance contamination does not exist or that liability will not be imposed in the future in materially different amounts than thosethe Company has recorded. See Note 1 for a discussion of its accounting policies relating to environmental matters.In February 2014, TA reached an agreement with the California State Water Resources Control Board, or the State Water Board, to settle certain claimsthe State Water Board had filed against TA in California Superior Court, or the Superior Court, in 2010 relating to alleged violations of underground storagetank laws and regulations including one of the travel centers owned by the Company. The settlement, which was approved by the Superior Court onFebruary 20, 2014, also included injunctive relief provisions requiring that TA comply with certain California environmental laws and regulations applicableto underground storage tank systems. In October 2015, the State Water Board issued a notice of alleged suspended penalty conduct claiming that TA is liablefor the full amount of the suspended penalties as a result of alleged violations of underground storage tank regulations and requesting further informationconcerning the alleged violations. In November 2015, TA filed its response to the State Water Board's notice and TA subsequently met with the State WaterBoard to attempt to respond to these matters without a court hearing. In 2016, the Company estimated an accrual of $167 related to this matter, which waspresented in the Company's consolidated balance sheets in accrued expenses and other current liabilities. On November 11, 2017, TA reached an agreementwith the State Water Board by agreeing to pay $143 on behalf of the Company to settle this matter. While the remaining balance of suspended penaltieswould become payable by TA in the future, if, prior to March 2019, TA fails to comply with specified underground storage tank laws and regulations, TAbelieves that the probability of triggering future suspended penalty violations is remote. It is possible that such events will occur and some portion or all ofthe remaining suspended penalties may become payable and would be charged to expense at the time of the future event.11

Continue reading text version or see original annual report in PDF format above