Tejon Ranch Co. Annual Report 2018

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, 2018OR ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the transition period from to Commission File Number: 1-07183 TEJON RANCH CO. (Exact name of registrant as specified in its charter) Delaware 77-0196136(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.)P.O. Box 1000, Lebec, California 93243(Address of principal executive offices) (Zip Code)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 on 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 every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T ((§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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, a smaller reporting company, or anemerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” “smaller reporting company”, and "emerging growth company"in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer¨ Accelerated filerx Non-accelerated filer¨ Smaller reporting companyx 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 29, 2018 was $517,801,604 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 19, 2019 was 25,982,337.____________________________________________________ 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 FACTORS23ITEM 1B.UNRESOLVED STAFF COMMENTS29ITEM 2.PROPERTIES30ITEM 3.LEGAL PROCEEDINGS32ITEM 4.MINE SAFETY DISCLOSURES32 PART II33ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES33ITEM 6.SELECTED FINANCIAL DATA33ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS34ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK55ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA57ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE57ITEM 9A.CONTROLS AND PROCEDURES58ITEM 9B.OTHER INFORMATION58 PART III58ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE58ITEM 11.EXECUTIVE COMPENSATION58ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS58ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE59ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES59 PART IV60ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES60ITEM 16.FORM 10-K SUMMARY60 SIGNATURES64ITEM 15(a)(1) - FINANCIAL STATEMENTS67ITEM 15(a)(2) - FINANCIAL STATEMENT SCHEDULES672PART 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, and 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,” “likely,” andsimilar expressions. In addition, any statements that refer to projections of our future financial performance, our anticipated growth, and trends in ourbusiness and other characterizations of future events or circumstances are forward-looking statements. We caution you not to place undue reliance on theseforward-looking statements. These forward-looking statements are not a guarantee of future performances and are subject to assumptions and involveknown and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company, orindustry results, to differ materially from any future results, performance, or achievement implied 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 land development activities. No assurance can be given that theactual future results will not differ materially from the forward-looking statements that we make for a number of reasons including those described aboveand 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.3ITEM 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 land sales and leasing, leasing of land for mineral royalties, water asset management and sales, grazing leases, farming, and ranchoperations.These activities are performed through our five reporting 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 downtown LosAngeles and, 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 sales, and conservation in order to maximize the highest and best usefor our land. We are involved in eight joint ventures, that either own, develop, and/or operate real estate properties. We enter into joint ventures as a means tofacilitate the development of portions of our land. 4Business 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. Our mixed use master planned residential developments have been, or are in the process of being, approvedor re-approved, to collectively include up to 34,783 housing units, and more than 35 million square feet of commercial space. We have obtainedentitlements on Mountain Village at Tejon Ranch, or MV, and in litigation regarding the entitlements for Grapevine at Tejon Ranch, or Grapevine. DuringDecember 2018, the Los Angeles County Board of Supervisor voted in favor of our plan to develop Centennial at Tejon Ranch, or Centennial, taking anadditional step toward approving the mixed use residential community. We are currently engaged in entitlement, construction, commercial sales and leasingat our fully operational commercial/industrial center Tejon Ranch Commerce Center, or TRCC. All of these efforts are supported by diverse revenue streamsgenerated from other operations, including commercial real estate, farming, mineral resources, and our various joint ventures.56 Percentage of Total Revenue1,2 by Segment:1. Real Estate includes equity in earnings of unconsolidated joint ventures. 2. Charts presented only include the segment revenues, other income components are excluded. 78The 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, 2018 2017 2016Revenues and Other IncomeReal Estate—Commercial/Industrial (1)$8,970$9,001$9,840Mineral Resources 14,395 5,983 14,153Farming18,56316,43418,648Ranch operations3,6913,8373,338Segment revenues45,61935,25545,979Gain on sale of real estate — — 1,044Investment income1,344462 457Other loss(59)(275)(581)Revenues and other income$46,904$35,442$46,899Equity in earnings of unconsolidated joint ventures 3,834 4,227 7,098Total revenues and other income (2) $50,738 $39,669 $53,997Segment Profits (Losses) and Net IncomeReal Estate—Commercial/Industrial (1)$2,724$2,472$2,740Real Estate—Resort/Residential (1,530) (1,955) (1,630)Mineral Resources 8,172 3,019 6,357Farming2,535233(25)Ranch operations(1,760) (1,574)(2,396)Segment profits (3)10,1412,1955,046Gain on sale of real estate——1,044Investment income1,344462457Other loss(59)(275)(581)Corporate expenses(9,705)(9,713)(11,811)Income (loss) from operations before equity in earnings of unconsolidated jointventures1,721(7,331)(5,845)Equity in earnings of unconsolidated joint ventures3,8344,2277,098Income (loss) before income taxes5,555(3,104)1,253Income tax expense (benefit) 1,320 (1,283) 496Net income (loss) 4,235(1,821)757Net loss attributable to non-controlling interest (20) (24) (43)Net income (loss) attributable to common stockholders $4,255$(1,797)$800Identifiable Assets by Segment (4) Real estate—commercial/industrial $65,929 $63,065 $65,290Real estate—resort/residential 273,620 258,697 243,963Mineral Resources 54,144 48,305 45,066Farming 40,835 36,317 36,895Ranch operations 2,973 3,625 3,893Corporate 91,547 108,190 44,434Total assets $529,048$518,199$439,541(1) Refer to Note 1, Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements for discussion on impact of the adoption of ASU 2014-09"Revenue with Contracts from Customers (Topic 606)" on the years ended December 31, 2017 and 2016.(2) Refer to Note 16, Reporting Segments and Related Information of the Notes to the Consolidated Financial Statements for additional detail related to segment revenues.(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.9Real Estate Development OverviewOur real estate operations consist of the following activities: real estate development, commercial land sales and leasing, land planning and entitlement, andconservation.Interstate 5, one of the nation’s most heavily traveled freeways, brings in excess of 88,000 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, MV, a resort and residential community in Kern County, and Grapevine, a mixed use master plannedcommunity 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.10Operating SegmentsReal Estate - Commercial/IndustrialDuring 2018, approval for expansion of the Foreign Trade Zone (FTZ) was granted by the U.S. Department of Commerce. The expanded FTZ now covers allthe industrial sites within TRCC, an area totaling 1,094 acres. The FTZ designation allows the user to secure the many benefits and cost reductions associatedwith streamlined movement of goods in and out of the zone. This FTZ designation is further supplemented by the Economic Development Incentive Policy,or EDIP, adopted by the Kern County Board of Supervisors. EDIP is aimed to expand and enhance the County's competitiveness by taking affirmative stepsto attract new businesses and to encourage the growth and resilience of existing businesses. The EDIP provides incentives such as assistance in obtainingstate tax incentives, building supporting infrastructure, and workforce development.Construction:During 2018, we formed TRC-MRC 3, a joint venture with Majestic Realty Co., or Majestic, a Los Angeles-based commercial/industrial developer, to pursuethe development, construction, leasing, and management of a 579,040 square foot industrial building at TRCC-East. We anticipate construction completionand delivery of the space in the fourth quarter of 2019 to a tenant that has entered into a lease agreement occupying 67% of the total rentable space.We also began development on a new 4,900 square foot multi-tenant retail building at TRCC-East to further expand our footprint at TRCC. We anticipatecompletion of a dark shell, a commercial building with an unfinished interior, in the third quarter of 2019.During 2017, our TRC-MRC 1 joint venture with Majestic completed the construction of a 480,480 square foot distribution facility. The facility was fullyleased in 2018, with half of the space leased to Dollar General and the other half to SalonCentric, L’Oréal USA’s professional salon distribution operation.11The following is a summary of the Company's commercial, retail and industrial real estate developments as of December 31, 2018:($ in thousands) ProjectCost to DateEstimated Cost toCompleteTotal Estimated Cost atCompletionEstimated CompletionDateTejon Ranch Commerce Center$82,778$74,358$157,136TBDLess: Reimbursements from TRPFFA168,45058,980127,430TBDTRCC Development Costs, net$14,328$15,378$29,706 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. The following table summarizes total entitlements for TRCC as of December 31, 2018:(in square feet)IndustrialCommercial RetailTotal entitlements received19,300,941956,309Total entitlements used4,717,6291632,7952Entitlements available14,004,272318,614 1With the start of a 579,040 square foot building during the first quarter of 2019, total entitlements used subsequently increased to 5,296,669. 2With the start of a 4,900 square foot multi-tenant during the first quarter of 2019, total entitlements used subsequently increased to 637,695. 1213Commercial/industrial real estate sales:The commercial/industrial real estate sales market is highly competitive, with competition throughout California. Our most direct regional competitors are inthe Inland Empire, a large industrial area located 60 miles east of Los Angeles, which continues its expansion eastward beyond Riverside and San Bernardinointo the Perris, Moreno Valley, and Beaumont regions of Southern California. We also face competition within Northern Los Angeles, which is comprised ofthe San Fernando Valley and Santa Clarita Valley along with areas north of us in the San Joaquin Valley of California. The principal factors of competition inthis industry are price, availability of labor, proximity to the port complexes of Los Angeles and Long Beach and customer base. A potential disadvantage toour development strategy is our distance from the ports of Los Angeles and Long Beach in comparison to the warehouses and distribution centers located inthe West Inland Empire. Strong demand for large distribution facilities is driving development farther east in a search for large entitled parcels.During 2018, vacancy rates in the Inland Empire stayed flat at 3.9% compared to 3.7% in 2017. This industrial market continues to see available supplyremain at historic low levels. Construction declined slightly during the fourth quarter with 20.5 million square feet under construction compared to 20.7million in 2017. This new supply is currently meeting growing industrial demand. The low vacancy rates have led to a year-over-year increase in lease ratesof 7.3% within the Inland Empire. As lease rates increase in the Inland Empire, we may begin to have greater pricing advantages due to our lower land basis.During 2018, vacancy rates in the northern Los Angeles industrial market, which includes the San Fernando Valley and Santa Clarita Valley, approximated1.6% compared to 1.7% in 2017. Rents have been increasing for the past six years and will likely continue to rise in future years as the vacancy rate is athistoric lows and quality industrial space remains hard to find. During 2018, average asking rents increased 8.5% compared with 2017, which have surpassedthe historical peak which was seen in late 2007. Industrial demand remains high and infill industrial demand remains higher still. Future quarters will likelysee greater construction activity as rents hit new highs and vacancy rates are at historic lows. Demand for industrial space in this market will also continue tobe driven by domestic and global consumption levels. As industrial vacancy rates are at historic lows, industrial users seeking larger spaces are having to gofurther north into neighboring Kern County and particularly, TRCC which has attracted increased attention as market conditions continue to tighten.In 2018, the Los Angeles and Long Beach Port container traffic recorded its highest container total ever with 17.54 million Twenty-Foot Equivalent Units, orTEU's, up 3.8% from 2017. 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.Joint Ventures:During 2018, we formed TRC-MRC 3, a joint venture with Majestic to pursue the development, construction, leasing, and management of a 579,040 squarefoot industrial building on the Company's property at TRCC-East. We anticipate construction completion in 2019, and plan to deliver the space in the fourthquarter of 2019 to a tenant that has entered into a lease agreement to occupy 67% of this rentable space.During 2016, we entered into a joint venture operating agreement with Majestic to pursue the development, construction, leasing, and management of a480,480 square foot industrial building on the Company’s property at TRCC-East. The facility was fully leased up in 2018, with half of the space leased toDollar General and the other half to SalonCentric, L’Oréal USA’s professional salon distribution operation. In addition, we entered into a second joint ventureoperating agreement with Majestic for the purchase of, ownership of, and management of a fully leased, 651,909 square foot industrial building located atTRCC-West.Our joint venture with TravelCenters of America, or TA/Petro, owns and operates two travel and truck stop facilities, restaurants, and five separate gas stationswith convenience stores within TRCC-West and TRCC-East.We are involved in three joint ventures with Rockefeller Development Group, which includes the following: Five West Parcel LLC, which owns a 606,000square foot building in TRCC-West that is fully leased to Dollar General, 18-19 West LLC, which owns 61.5 acres of land for future development withinTRCC-West, and TRCC/Rock Outlet Center LLC, which operates the Outlets at Tejon.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 post office.14In 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 following table summarizes information with respect to lease expirations for our consolidated entities as of December 31, 2018.Year of Lease Expiration Number of Expiring Leases RSF of Expiring Leases Annualized Base Rent1 Percentage of Annual MinimumRent2019 1 — $25 0.43%2020 3 8,788 $247 4.24%2021 6 60,722 $232 3.98%2022 4 46,414 $273 4.69%2023 5 4,640 $375 6.44%2024 — — $— —%2025 3 57,320 $300 5.15%2026 3 4,645 $257 4.41%2027 1 1,801 $62 1.06%2028 1 — $13 0.22%20292 1 1,394,000 $3,577 61.42%Thereafter 6 195,915 $463 7.95%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. Three leases expired during the year-ended December 31, 2018. The leases were renewed in 2018 and represented less than 5% of annualized base rent.Please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information regarding our 2018commercial/industrial activity.15Real 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 map for the first four 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,and is completing the specific plan process in LA County. The AVAP is designed to guide future development and conservation in the northern-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. In December 2018, the Los Angeles County Board of Supervisors' voted in favor of the LA CountySpecific Plan, taking an additional step toward approving the community; and•Grapevine, which is on land owned within Kern County received entitlement approvals in 2016. On December 11, 2018, the court ruled we have toamend our EIR by preparing supplemental environmental documentation to further analyze the Grapevine project’s internal capture rate (ICR),which is the percent of vehicle trips remaining within the project. The supplemental environmental documentation will include updated traffic, airquality, greenhouse gas emissions, noise, public health and growth inducing impact analyses. As a part of the process Kern County will work withus to correct the EIR and re-approve the project. See Note 14, (Commitments and Contingencies) for further discussion.The entitlement process precedes the regulatory approvals necessary for land development and routinely takes several years to complete. The ConservationAgreement we entered into with five major environmental organizations in 2008 is designed to minimize opposition from environmental groups to theseprojects and eliminate or reduce the time spent in litigation once governmental approvals are received. Litigation by environmental and other special interestgroups have been a primary cause of delays and increased costs 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.1617Mountain 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.We are working toward delivering the first phase of the 160,000 square foot commercial center that we call Farm Village. Farm Village will serve as thecommercial center and community gathering place for MV residents and visitors, as well as the gateway to MV. Farm Village will include fresh culinaryofferings, artisan markets, boutique lodging, and an array of trails, gardens, and agriculture that will be intertwined to create the most unique, relaxing and“edu-taining” experience while fulfilling the needs of residents of MV. In January 2018, we obtained approval from Kern County on the first phase of theFarm Village.During December 2017, the Company received approval of Tentative Tract Maps for the first four phases of residential units of MV.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 focuson the 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. Over the next several years, we expect to explore funding opportunitiesfor future development of MV. Such funding opportunities could come from a variety of sources, such as joint ventures with financial partners, debtfinancing, or the Company’s issuance of common stock.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 83.50% ownership interest as of December 31, 2018. Centennial is envisioned to be an ecologically friendlyand commercially viable development.In December 2018, the Los Angeles County Board of Supervisors took action to approve the specific plan and development agreement for Centennial by avote of 4-1. Upon final approval and finding of facts, the 19,333 residential units will be fully entitled and is expected to occur during the first half of 2019.In 2016, Lewis Investment Company withdrew from the joint venture. The surviving members (TRC, TRI Pointe Homes and CalAtlantic) absorbed the equityof Lewis Investment Company based on their respective proportionate interest in the joint venture at the time of the withdrawal. In 2018, CalAtlantic alsowithdrew from the joint venture. The surviving members (TRC and TRI Pointe Homes, Inc.) absorbed the equity of CalAtlantic based on their respectiveproportionate interest in the joint venture at the time of the withdrawal. Both withdrawals were deemed an equity transaction between members and had noearnings impact to the Company.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.18Grapevine at Tejon Ranch:Grapevine is a 15,315-acre 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 included approval for land usedesignation, zoning and a development agreement. On December 11, 2018 the court ruled that portions of the EIR required corrections and ordered that theCounty rescind the Grapevine project approvals until such supplemental environmental analysis was completed. The Company will file new applications tore-entitle the Grapevine project (“re-entitlement”) in 2019. See Note 14, (Commitments and Contingencies) for further discussion.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, 2018:Community:Mountain VillageGrapevineCentennialResortLocation:Kern CountyKern CountyLos Angeles CountyResidentialProject Status1:EntitledRe-EntitlementPending ApprovalTotalEntitlement Area (acres):26,4178,01012,32346,750Housing Units:3,45012,00019,33334,783Commercial Development (sqft)2:160,0005,100,00010,100,00015,360,000Open Areas (acres):21,3353,3675,62430,326Costs to Date3:$137,571$31,175$100,311$269,057(1) Estimated completion anticipated to be 25 years, or longer, from commencement of construction. To-date construction has not begun.(2) 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.(3) 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 look to sell excess water over our internalneeds on a temporary basis until that water is needed by us in our real estate and agricultural operations.We do not expect increased oil production in 2019 if prices remain at current levels. Water sales opportunities for 2019 will depend on rain and snowfallvolume along with California State Water Project, or SWP, allocations. As of February 20, 2019, the 2019 SWP allocation is at 35% of entitled amounts.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, 2018, 10,332 acres were committed to producing oil and gas leases from which the operators produced and soldapproximately 250,000 barrels of oil and 241,000 MCF (each MCF being 1,000 cubic feet) of dry gas during 2018. Our share of production, based uponaverage royalty rates during the last three years, has been 92, 99, and 114, barrels of oil per day for 2018, 2017, and 2016, respectively. There are 309 activeoil wells located on the leased land as of December 31, 2018. Royalty rates on our leases averaged approximately 13% of oil production in 2018.19Estimates 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 upon shipments from the cement plant, which increased during 2018 compared to 2017. Theimprovement in shipments is due to an increase in road construction activity as compared to the prior years. The term of this lease expires in 2026, butNational has options to extend the term for successive periods of 20 and 19 years. Proceedings under environmental laws relating to the cement plant are inprocess. The Company is indemnified by the current and former tenants, and at 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 $1,120 per acre-foot of annual water in 2019, subject to 3% annual increases for theduration of the lease agreement. The Company's commitments to sell this water can be met through current water sources.Farming OperationsIn the San Joaquin Valley, we farm permanent crops including the following acreage: wine grapes—1,197; almonds—1,966 (1,214 in production and 752 notin production); and pistachios—1,062. 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 2018, we sold 62% of our grape crop to one winery, 23% to a second winery and the remainder to two other customers. These sales are under long-termcontracts ranging from one to 12 years. In 2018, our almonds were sold to various commercial buyers, with the largest buyer accounting for 54% of ouralmond revenues. We sold pistachios to three customers with the largest accounting for 73% 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 and Chinese Yuan in 2018 and the beginning of 2019. The full potentialimpact of an increasing U.S. dollar to our pricing and revenue is not known at this time. Additionally, increased tariffs from China and India which are majorcustomers of almonds and pistachios, can make American products less competitive and push customers to switch to another producing country. In 2018,prices for almonds and pistachios have seen some decline due to the uncertainly surrounding trade tariffs.20Weather conditions could impact the number of tree and vine dormant hours, which are integral to tree and vine growth. We will not know the impact ofcurrent weather conditions on 2019 production until the early summer of 2019. Thus far, we have experienced heavier rain fall and colder temperaturesduring the 2018-2019 winter when compared to the 2017-2018 winter, which could positively impact 2019 production.At this time the State Department of Water Resources has announced that the estimated water supply for 2019 will be at 35% of full entitlement. Thisallocation is expected to change based upon winter storms. The current 35% allocation of SWP water alone is not enough for us to farm our crops, but ouradditional water resources, such as groundwater and surface sources, and those of the water districts we are in, should allow us to have sufficient water for ourfarming needs. It is too early in the year to determine the impact of the 2019 water supplies and its impact on 2019 California crop production for almonds,pistachios, and wine grapes. See discussion of water contract entitlement and long-term outlook for water supply under Item 2, “Properties.” Also see Note 6.(Long-Term Water Assets) of the Notes to Consolidated Financial Statements for additional information regarding our water assets.Ranch OperationsRanch operations consist 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.Approximately 256,000 acres are used for two grazing leases, which account for 41% of total revenues from ranch operations at December 31, 2018.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, 2018, game management accounts for 37%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.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 2018, our PEF power plant lease accounted for 9% of total revenues. In 2017 and 2016, the PEF power plant lease generated 11% and 8% of our totalrevenues, respectively. No other customer represents 5% or more of our revenues in 2018 and 2017.OrganizationTejon Ranch Co. is a Delaware corporation incorporated in 1987 to succeed the business operated as a California corporation since 1936.EmployeesAt December 31, 2018, we had 122 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.21ReportsWe 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 website: http://www.sec.gov.Executive Officers of the RegistrantThe following table shows each of our executive officers and the offices held as of March 1, 2019, 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 58Allen E. Lyda Executive Vice President and Chief Operating Officer and Corporate Treasurer 2019 61Hugh McMahon Executive Vice President, Real Estate 2014 52Joseph N. Rentfro Executive Vice President, Real Estate 2015 50Robert D. Velasquez Senior Vice President, Finance, and Chief Financial Officer 2019 52Michael R.W. Houston Senior Vice President, General Counsel 2016 44A 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, a diversified real estate company, and was responsible for overseeing management of all operational aspects of Newland's real estate projects in theregion. Mr. Bielli worked with Newland Communities from 2006 through August 2013.Mr. Lyda has been employed by us since 1990, initially serving as Vice President, Finance and Treasurer. He was elected Assistant Secretary in 1995 andChief Financial Officer in 1999. Mr. Lyda was promoted to Senior Vice President in 2008, and Executive Vice President in 2012. Mr. Lyda's title wassubsequently changed in 2013 to Executive Vice President and Chief Financial Officer to more accurately describe the responsibilities of his office. OnJanuary 1, 2019, he was appointed to the role of Chief Operating Officer and ceased serving as the Company's Chief Financial Officer.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.22Mr. Velasquez joined the Company as Vice President of Finance of TRC in 2014. Mr. Velasquez's title was subsequently changed, in 2015, to Vice Presidentof Finance and Chief Accounting Officer to more accurately describe the responsibilities of his office. Prior to joining TRC, Mr. Velasquez served as anExecutive 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 – Option: Accounting from California State University, Los Angeles. Mr. Velasquez is a Certified PublicAccountant in the state of California. On January 1, 2018 he was promoted to Senior Vice President, Finance and Chief Accounting Officer. On January 1,2019, he was appointed Chief Financial 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.23Third-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 the necessary approvals. In addition,adverse decisions arising from any litigation would increase the costs and length of time to obtain ultimate approval of a project and could adversely affectthe 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 the Company and Kern County, which is the approving governmental entity. The issues mostcommonly cited in opponents’ public comments include the poor air quality of the San Joaquin Valley air basin, potential impacts of projects on theCalifornia condor and other species of concern, the potential for our lands to function as wildlife movement corridors, potential impacts of our projects ontraffic and air quality in Los Angeles 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 enactfederal legislation to address 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.24We 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.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.25We 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. Our ability to develop our current industrial development may beadversely affected by circumstances beyond our control including: work stoppages, labor disputes and shortages of qualified trades people; changes in lawsrelating to union organizing activity; and shortages, delays in availability, or fluctuations in prices of building materials. Any of these circumstances couldgive rise to delays in the start or completion of, or could increase the cost of, developing infrastructure and buildings within our industrial development. Ifany 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.26Our 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 of the effectiveness of internal control. Changes to our business will necessitate ongoing changes toour internal control systems and processes. Internal control over financial reporting may not prevent or detect misstatement because of its inherentlimitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls canprovide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of ourinternal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business,results of operations, and financial condition could be materially harmed, and we could fail to meet our reporting obligations and there could be a materialadverse 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. We remain potentially vulnerable to additional known or unknown threatsdespite our attempts to mitigate these risks. 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. Our efforts to protect sensitive, confidential or personal data or information, may nonetheless leaveus vulnerable to material security breaches, theft, misplaced or lost data, programming errors, employee errors and/or malfeasance that could potentially leadto the 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.27Inflation 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.Government policies and regulations, particularly those affecting the agricultural sector and related industries, could adversely affect our operationsand profitability. Agricultural commodity production and trade flows are significantly affected by government policies and regulations. Governmentalpolicies affecting the agricultural industry, such as taxes, trade tariffs, duties, subsidies, import and export restrictions on commodities and commodityproducts, can influence industry profitability, the planting of certain crops, the location and size of crop production, whether unprocessed or processedcommodity products are traded, and the volume and types of imports and exports. In addition, international trade disputes can adversely affect trade flows bylimiting or disrupting trade between countries or regions. Future governmental policies, regulations or actions affecting our industry may adversely affect thesupply of, demand for and prices of our products, restrict our ability to do business and cause our financial results to suffer.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 cash flow, cash and investments, and equity offerings to meet currentworking capital needs, entitlement investment, and investment within our developments. Any slowdown in the economy could negatively impact our accessto credit markets and may limit our sources of liquidity 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.28Inability 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.Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR in the future may adversely affect the value of anyoutstanding debt instruments. National and international regulators and law enforcement agencies have conducted investigations into a number of rates orindices known as “reference rates.” Actions by such regulators and law enforcement agencies may result in changes to the manner in which certain referencerates are determined, their discontinuance, or the establishment of alternative reference rates. In particular, on July 27, 2017, the Chief Executive of the U.K.Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that the FCA will no longer persuade or compel banks to submit rates for thecalculation of LIBOR after 2021. Such announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after2021. As a result, it appears highly likely that LIBOR will be discontinued or modified by 2021. At this time, it is not possible to predict the effect that these developments, any discontinuance, modification or other reforms to LIBOR or any otherreference rate, or the establishment of alternative reference rates may have on LIBOR, other benchmarks, or LIBOR-based debt instruments. Uncertainty as tothe nature of such potential discontinuance, modification, alternative reference rates or other reforms may materially adversely affect the trading market forsecurities linked to such benchmarks. Furthermore, the use of alternative reference rates or other reforms could cause the interest rate calculated for theLIBOR-based debt instruments to be materially different than expected. Lastly, we may need to renegotiate any credit agreements extending beyond 2021that utilize LIBOR as a factor in determining the interest rate to replace LIBOR with the new standard that is established. There is currently no definitiveinformation regarding the future utilization of LIBOR or of any particular replacement rate. As such, potential effect of any such event on our business,financial condition and results of operations cannot yet be determined.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 March 1, 2019, directors and members of ourexecutive management team beneficially owned or controlled approximately 19.8% of our Common Stock. Investors who purchase our Common Stock maybe subject 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.29ITEM 2. PROPERTIESLandOur approximately 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 reporting 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: MV, TRCC andGrapevine.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. In December 2018, the Los Angeles County Board of Supervisors took action to approve the specific plan anddevelopment agreement for Centennial on 12,323 acres of this land by a vote of 4-1. Upon final approval and finding of facts, the 19,333 residential unitswill be fully entitled. This is expected to occur during the first half of 2019. 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. TCWD, a local water district serving our land in the district and land we have sold inTRCC, has 5,749 acre-feet of SWP entitlement (also called Table A amount), subject to SWP allocations. In addition, TCWD has 52,547 acre-feet of waterstored in Kern County water banks. Both the entitlement and the banked water are the subject of a long-term water supply contract extending to 2035between TCWD and the Company. TCWD is the water supplier to TRCC, and will be the principal water supplier for any significant mixed use developmentin 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 35,793 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. We anticipate adding additional water to the water bank in the future, aswater is available. In 2010 we began participating with AVEK in a water-banking program and we have 13,033 acre-feet of water to our credit in this program.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 has been placed in our water bank.30We also have secured SWP entitlement under long-term SWP water contracts within the Tulare Lake Basin Water Storage District and the Dudley-RidgeWater District, totaling 3,444 acre-feet of SWP entitlement annually, subject to SWP allocations. These contracts extend through 2035. On November 6,2013, the Company completed the acquisition of a water purchase agreement that will allow and require the Company to purchase 6,693 acre-feet of watereach year from the Nickel Family, LLC, or Nickel, through the Kern County Water Agency.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 2018 was $738 per acre-foot. Purchase costs are subject to annualcost increases based on the greater of the consumer price index and 3%, resulting in a 2019 purchase cost of $769 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 2018, SWP allocations were 30% 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 35% preliminary SWP water allocation has been made by the California Department of Water Resources, orDWR, for 2019. The current 35% allocation of SWP water is not enough for us to farm our crops, but our additional water resources, such as groundwater andsurface sources, and those of the water districts we are in, should allow us to have sufficient water for our farming needs for the next year.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 and 2022.Through these plans it will have to be demonstrated to the satisfaction of the Department of Water Resources, that the basins are "sustainable" and in balanceby 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 basinthat is currently not over-drafted, so there is no anticipation at this time of any restriction related to manageable uses of ground water. However, theCompany's lands are in relatively good condition because of the diverse inventory of surface water supplies and banked water that the Company has access toas mentioned 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 BO, 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.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.31Other ActivitiesTRPFFA is a joint powers authority formed by Kern County and TCWD to finance public infrastructure within the Company’s Kern County developments.TRPFFA has created two Community Facilities Districts, or CFDs, the West CFD and the East CFD. The West CFD has placed liens on 420 acres of theCompany’s land to secure payment of special taxes related to $28,620,000 of bond debt sold by TRPFFA for TRCC-West. The East CFD has placed liens on1,931 acres of the Company’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 has no additional bond debt approved for issuance. At TRCC-East, the East CFD has $65,000,000 of additional bond debt authorized byTRPFFA. Proceeds from the sales of these bonds are to reimburse the Company for public infrastructure related to TRCC-East. As of December 31, 2018,$4,180,000 is available under the currently issued East CFD bonds for reimbursement on qualifying infrastructure improvements.We paid $2,570,000 and $2,578,000 in special taxes related to the CFDs in 2018 and 2017, respectively. As development continues to occur at TRCC, newowners of land and new lease tenants, through triple net leases, will bear an increasing portion of the assessed special tax. It is expected that we will havespecial tax payments in 2019 of $2,570,000, but this could change in the future based on the amount of bonds outstanding within each CFD and the amountof taxes paid 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 thecurrent 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, 2018.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.32PART 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: 2018 2017Quarter High Low High LowFirst $24.58 $20.21 $26.04 $20.58Second $26.25 $22.43 $24.18 $19.90Third $24.57 $21.17 $21.94 $19.67Fourth $21.82 $16.04 $22.81 $18.59As of February 19, 2019, there were 292 registered owners of record of our Common Stock.No cash dividends were paid in 2018 or 2017 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 2018 2017 2016 2015 2014Total revenues, including investment and other income1 $46,904 $35,442 $46,899 $52,056 $52,291Income (loss) from operations before equity in earnings ofunconsolidated joint ventures $1,721 $(7,331) $(5,845) $(2,287) $3,165Equity in earnings of unconsolidated joint ventures $3,834 $4,227 $7,098 $6,324 $5,294Net income (loss) $4,235 $(1,821) $757 $2,912 $5,762Net (loss) income attributable to noncontrolling interests $(20) $(24) $(43) $(38) $107Net income (loss) attributable to common stockholders $4,255 $(1,797) $800 $2,950 $5,655 Total assets $529,048 $518,199 $439,541 $431,919 $431,923Long-term debt $65,915 $69,959 $73,867 $74,215 $74,459Equity $434,672 $426,810 $334,709 $331,308 $324,333Net income (loss) per share attributable to commonstockholders, diluted $0.16 $(0.08) $0.04 $0.14 $0.27 1Refer to Note 1, Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements for discussion on impact of the adoption of ASU 2014-09"Revenue with Contracts from Customers (Topic 606)" on the years ended December 31, 2017 and 2016.33ITEM 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.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 reporting 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 a joint venture. Within our resort/residential segment, the three active mixed use master plan developments areMV, Centennial, and Grapevine. Our mineral resources segment generates revenues from oil and gas royalty leases, rock and aggregate mining leases, a leasewith National Cement and sales of water. The farming segment produces revenues from the sale of wine grapes, almonds, and pistachios. Lastly, the ranchoperation segment consists of game management revenues and ancillary land uses such as grazing leases and filming.Financial HighlightsFor 2018, net income attributable to common stockholders was $4,255,000 compared to net loss attributed to common stockholders of $1,797,000 in 2017.Factors driving the change include an increase in mineral resource revenues of $8,412,000 resulting from more sales opportunities for water in 2018 whencompared to 2017, and an increase in farming revenues of $2,129,000 resulting from improved pistachio sales. From an expense perspective, expensesincreased $2,410,000 mainly as a result of an increase in costs of $3,100,000 stemming from increased water sales.For 2017, net loss attributable to common stockholders was $1,797,000 compared to net income attributed to common stockholders of $800,000 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. In addition, 2016 included a land sale to a third party of $1,039,000, whereas 2017 didnot have any land sales. From an expense perspective, expenses decreased $10,282,000 as a result of reduced water sales and our staff rightsizing initiatives.For the year ended December 31, 2018, we had no material lease renewals.34During 2019, 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, the timing of land sales and the leasing of land and/or industrial space within our industrialdevelopments, and equity in earnings realized from our unconsolidated joint ventures.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 (Reporting 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 in the United States, or GAAP, requiresus to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assetsand liabilities. We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that werehighly uncertain 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 ofdifferent estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.On an on-going basis, we evaluate our estimates, including those related to revenue recognition, impairment of long-lived assets, capitalization of costs,allocation of costs related to land sales and leases, stock compensation, our future ability to utilize deferred tax assets, and defined benefit retirement plans.We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results ofwhich form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual resultsmay differ from these 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 the five-step model under Accounting Standards Codification Topic 606, or ASC 606. The five-step model requires that we (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transactionprice, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to therespective performance obligations in the contract, and (v) recognize revenue when (or as) we satisfy the performance obligation. Since conservationeasements generally do not impose any significant continuing performance obligations on the Company, revenue from conservation easement sales aregenerally recognized in the period the sale has closed and consideration has been received.35In recognizing revenue from land sales, the Company follows ASC 606 to achieve the core principle that an entity recognizes revenue to depict the transfer ofgoods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.The adoption of ASC 606 on January 1, 2018 impacted our accounting for land sales. Upon the adoption of ASC 606, for any future land sales with multipleperformance obligations, the standard generally requires the Company to allocate the transaction price to the performance obligations in proportion to theirstandalone selling prices (i.e., on a relative standalone selling price basis) not total costs.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.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.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 determine the appropriate costs of sales for the soldland and the timing of recognition of the sale. In the calculation of cost of sales or allocations to leased land, we use estimates and forecasts to determine totalcosts at completion of the development project. These estimates of final development costs can change as conditions in the market and costs of constructionchange.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 reporting 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 reporting segments that we believe are at risk of being impaired due tomarket conditions nor have we identified any impairment indicators.36We 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.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;•Retirement rates;•Expected contributions;•Inflation;•Expected return on plan assets; and•Mortality rates.The 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. To determine the expected long-term rate of return on pension plan assets, we consider the current and expected asset allocations, as well ashistorical and expected returns on various categories of plan assets. At December 31, 2018, the weighted-average actuarial assumption of the Company’sdefined benefit plan consisted of a discount rate of 4.2% and a long-term rate of return on plan assets of 7.5%. For the years beginning with 2017, there are noassumed salary increase factors included in the plan assumptions due to the plan being amended to freeze future benefits. The effects of actual resultsdiffering from our assumptions and the effects of changing assumptions are recognized as a component of other comprehensive income, net of tax. Amountsrecognized in accumulated other comprehensive income are adjusted as they are subsequently recognized as components of net periodic benefit cost. If wewere to assume a 50-basis point change in the discount rate used, our projected benefit obligation would change approximately $700,000.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 2018 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 $725,000 depending on whether the change in estimate increased ordecreased shares vesting.37See Note 11. (Stock Compensation - Restricted Stock and Performance Share Grants), of the Notes to Consolidated Financial Statement for total 2018 stockcompensation expense related to stock grants.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.38Results of Operations by SegmentWe evaluate the performance of our reporting segments separately to monitor the different factors affecting financial results. Each reporting segment issubject to review and evaluation as we monitor current market conditions, market opportunities, and available resources. The performance of each reportingsegment is discussed below:Real Estate – Commercial/IndustrialDuring 2018, commercial/industrial segment revenues decreased $31,000, or 0.3%, from $9,001,000 in 2017 to $8,970,000. The reduction was primarilyattributable to land sale revenues of $73,000 in 2017, whereas we did not have any land sales in 2018.Commercial/industrial real estate segment expenses decreased $283,000, or 4.3%, from $6,529,000 in 2017 to $6,246,000 in 2018. During 2018, payroll,overhead, stock compensation and bonuses decreased $887,000, due to reassignment of resources within the Company, while professional services alsodecreased $194,000. The above reductions were partially offset by increases in TCWD fixed water assessments of $727,000 and fees of $107,000. TCWD'shigher water assessment taxes were a result of declining TCWD water sales to third parties outside of the district.During 2017, commercial/industrial segment revenues decreased $839,000, or 9%, from $9,840,000 in 2016 to $9,001,000 in 2017. The decrease was drivenby a land sale in 2016 of $1,039,000 versus land sales of $73,000 in 2017. The decline was offset by a $242,000 increase in lease revenues from the PastoriaEnergy Facility. Please refer to Note 1 (Summary of Significant Accounting Policies) of the Notes to the Consolidated Financial Statements for furtherdiscussion on adopting ASC 606, and its impact on the recognition of land sales revenue in 2017 and 2016.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 rightsizing. Also contributing to the decrease were reductions in professional services andrepairs and maintenance costs of $149,000 and $153,000 respectively.39The 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 is in process ofconstructing a 579,040 square foot distribution facility with Majestic. The Company and Majestic have successfully leased 67% of this distribution facilityprior to its completion, with the tenant taking occupancy in Q4 of 2019. This new construction is building on the success in 2018 of fully leasing a 480,000square foot building in a partnership with Majestic.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 2018, vacancy rates in the Inland Empire stayed flat at 3.9% compared to 3.7% in 2017. This industrial market continues to see available supplyremain at historic low levels. Construction declined slightly during the fourth quarter with 20.5 million square feet under construction compared to 20.7million in 2017. This new supply is currently meeting growing industrial demand. The low vacancy rates have led to a year-over-year increase in lease ratesof 7.3% within the Inland Empire. As lease rates increase in the Inland Empire, we may begin to have greater pricing advantages due to our lower land basis.During 2018, vacancy rates in the northern Los Angeles industrial market, which includes the San Fernando Valley and Santa Clarita Valley, approximated1.6%. Rents have been increasing for the past six years and will likely continue to rise in future years as the vacancy rate is at historic lows and qualityindustrial space remains hard to find. During 2018, average asking rents increased 8.5% compared with 2017, which have surpassed the historical peak whichwas seen in late 2007. Industrial demand remains high and infill industrial demand remains higher still. Future quarters will likely see greater constructionactivity as rents hit new highs and vacancy rates are at historic lows. Demand for industrial space in this market will also continue to be driven by domesticand global consumption levels. As industrial vacancy rates are at historic lows, industrial users seeking larger spaces are having to go further north intoneighboring Kern County and particularly, the TRCC which has attracted increased attention as market conditions continue to tighten.In 2018, the Los Angeles and Long Beach Port container traffic recorded its highest container total ever with 17.54 million Twenty-Foot Equivalent Units, orTEU's, up 3.8% from 2017. 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.40Real Estate – Resort/ResidentialWe are in the preliminary stages of development; hence, no revenues are attributed to this segment for these reporting periods.In 2018, resort/residential segment expenses decreased $425,000 to $1,530,000, or 22%, when compared to $1,955,000 in 2017. The reassignment ofresources within the Company translated to increases in qualifying costs, including payroll and overhead costs within resort/residential which in turntranslated to an increase in costs being capitalized into our real estate development projects by $250,000 when compared to 2017. In addition, weexperienced savings in professional services of $163,000 in 2018.In 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.Our resort/residential segment activities in include land entitlement, land planning and pre-construction engineering and conservation activities. We havethree major resort/residential communities within this segment: Centennial, Grapevine, and MV.•For Centennial, the Board of Supervisors in December 2018, by a vote of 4-1, affirmed the recommendation of the Los Angeles County RegionalPlanning Commission and Department of Regional Planning that Centennial be approved.•For Grapevine, we are currently working with Kern County to defend litigation related to the approved EIR. For a more complete discussion of thelitigation and approval process, please see Note 14 (Commitments and Contingencies) to the Notes to Consolidated Financial Statements.•For MV, we have a fully entitled project and received approval of Tentative Tract Map 1 for our first four phases of development. The timing of MVdevelopment in the coming years will be dependent on the strength of both the economy and the real estate market including both primary andsecond home markets. In moving the project forward, we will focus on the preparation of engineering leading to the final map for the first phases ofMV, consumer and market research studies and fine tuning of development business plans as well as defining the possible capital funding sourcesfor this development. We also obtained approval on the Farm Village commercial site plan from Kern County. Farm Village will serve as thecommercial center and community gathering place for MV residents and visitors as well as the gateway to MV.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.41Mineral Resources 2018 2017 2016Oil and gas Oil production (barrels) 250,000 263,000 301,000Average price per barrel $67.00 $45.00 $37.00Blended royalty rate 13.4% 13.7% 13.7%Natural gas production (millions of cubic feet) 241,000 209,000 238,000Average price per thousand cubic feet $0.76 $0.74 $0.56Blended royalty rate 13.4% 14.5% 14.4% Water Water sold in acre-feet 9,442 939 7,285Average price per acre-feet $968 $1,181 $1,317 Cement Tons sold 1,154,000 1,063,000 909,000Average price per ton $1.47 $1.52 $1.41 Rock/Aggregate Tons sold 1,168,000 1,222,000 1,397,000Average price per ton $0.98 $0.88 $0.85422018 Operational Highlights:•Revenues from our mineral resources segment increased $8,412,000, or 141%, to $14,395,000 in 2018 when compared to $5,983,000 in 2017. Thisincrease was primarily attributed to water sales of $9,142,000 in 2018, representing a $7,888,000 increase over last year, as a result of moderatedrought conditions in Kern County. The improved water sales accordingly increased mineral resources expenses largely due to the cost of sales ofwater by $3,259,000.•We experienced improvements for oil and gas royalties as a result of improved oil prices. Please refer to above table for current and historicalproduction volume and pricing.2017 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. This resulted in an $8,347,000 decline in water sales. The reduced water sales accordinglydecreased mineral resources expenses associated with the cost of sales of water by $4,832,000.•We experienced improvements in cement production as a result of increased demand and pricing during 2017 compared to 2016. The improvementin shipments was due to an increase in road construction activity as compared to the prior years.•Despite falling production, we experienced improvements for oil and gas royalties as a result of improved oil prices. Please refer to above table forcurrent and historical production volume and pricing.Although oil prices improved throughout 2018, we currently expect our largest tenant, California Resources Corporation, or CRC, to continue its program ofproducing from current active wells at lower levels with no near-term intent to begin new drilling programs until oil prices reach higher levels. CRC hasapproved permits and drill sites on our land and has delayed the start of drilling as it evaluates the market. A positive aspect of our lease with CRC is that theapproved drill sites are in an area of the ranch where the development and production costs are moderate due to the depths being drilled. During 2017, CRCexecuted a new exploration lease with us covering 1,524 acres. Thus far in 2019, oil prices are within 10% of West Texas Intermediate pricing.Since we only receive royalties based on tenant production and market prices and do not produce oil, we do not have information as to the potential size ofoil reserves.Our royalty revenues are contractually defined and based on a percentage of production and are received in cash. Royalty revenues fluctuate based onchanges in market price for oil, gas, rock and aggregate, and Portland cement. In addition, royalty revenue is impacted by new production, the inevitabledecline in production in existing wells, and rock and limestone quarries, and the cost of development and production.43Farming December 31, 2018 December 31, 2017 Change($ in thousands) Revenue QuantitySold2 AveragePrice Revenue QuantitySold2 AveragePrice Revenue QuantitySold2 AveragePriceALMONDS (lbs.) Current year crop $4,476 1,717 $2.61 $5,221 2,033 $2.57 $(745) (316) $0.04Prior crop years 1,234 412 $3.00 729 315 2.31 505 97 0.69Prior crop price adjustment — 352 (352) Signing bonus 34 25 9 Subtotal Almonds1 $5,744 2,129 $2.68 $6,327 2,348 $2.53 $(583) (219) $0.15PISTACHIOS (lbs.) Current year crop $7,251 3,615 $2.01 $1,288 643 $2.00 $5,963 2,972 $0.01Prior crop years 518 120 4.32 1,007 247 4.08 (489) (127) 0.24Prior crop price adjustment 111 1,452 (1,341) Crop Insurance — 776 (776) Subtotal Pistachios1 $7,880 3,735 $2.08 $4,523 890 $2.58 $3,357 2,845 $(0.50)WINE GRAPES (tons) Current year crop $3,683 14 $263.07 $4,131 15 $275.40 $(448) (1) $(12.33)Crop Insurance — $— — Subtotal Wine Grapes $3,683 14 $263.07 $4,131 15 $275.40 $(448) (1) $(12.33)Other Hay $297 $456 $(159) Other farming revenues $959 $997 $(38) Total farming revenues $18,563 $16,434 $2,129 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.442018 Operational Highlights:•During 2018, farming revenues increased $2,129,000, or 13%, from $16,434,000 in 2017 to $18,563,000 in 2018. When compared to 2017,pistachio revenues increased $3,357,000 resulting from record high pistachio yields.•Almond revenues decreased $583,000 due to lower almond crop yields that was driven by a combination of unfavorable weather conditions alongwith a 165 acres reduction in the number of acres in production. The reduction was the result of the Company's decision to redevelop existingalmond units.•Farming expenses decreased $173,000, or 1%, to $16,028,000 when compared to $16,201,000 in 2017. The decrease was primarily attributed toreduced cost allocations to all crops. December 31, 2017 December 31, 2016 Change($ in thousands) Revenue QuantitySold2 AveragePrice Revenue QuantitySold2 AveragePrice Revenue QuantitySold2 AveragePriceALMONDS (lbs.) Current year crop $5,221 2,033 $2.57 $5,282 2,106 $2.51 $(61) (73) $0.06Prior crop years 729 315 2.31 1,363 454 $3.00 (634) (139) (0.69)Prior crop priceadjustment 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 crop years 1,007 247 4.08 274 47 5.83 733 200 (1.75)Prior crop priceadjustment 1,452 81 1,371 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 $9.33Insurance — 19 (19) Subtotal WineGrapes $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.452017 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 sales,management carried forward 472,541 pounds to sell in future periods. In comparison, the Company carried forward 338,845 pounds in 2016.•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 SWP.Despite the reduced revenues discussed above, reduced water and farming costs increased farm operating profits by $258,000 when compared to2016.•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.Thus far in 2019, the prices for our crops, especially almonds and pistachios, remain consistent with 2018 levels. All of our crops are sensitive to global cropproduction levels. Large crops in California and abroad can depress prices. Our long-term projection is that crop production, especially for 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. It is too early to project 2019 crop yields and what impact that may have on prices later in 2019. Additionally,increased tariffs from China and India which are major customers of almonds and pistachios, can make American products less competitive and pushcustomers to switch to another producing country.The impact of new state ground water management laws on new plantings and continuing crop production is also currently unknown. Water delivery andwater availability continues to be a long-term concern within California. Any limitation of delivery of SWP water and the absence of available alternativesduring drought periods could potentially cause permanent damage to orchards and vineyards throughout California. While this could impact us, we believewe have sufficient water resources available to meet our requirements in 2019. Please see our discussion on water in Item 2, "Properties - Water Operations."The DWR announced its 2019 estimated water supply delivery at 35% of full entitlement. The current 35% 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 decreased $146,000, or 4%, from $3,837,000 in 2017 to $3,691,000 in 2018. The decrease is primarily attributed to reducedgrazing lease revenues of $157,000.Ranch operations expenses increased $40,000, or 1%, to $5,451,000 in 2018 from $5,411,000 in 2017. The increase was mainly attributed to an increase inproperty taxes of $34,000.Revenues 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$106,000.46Other IncomeTotal other income increased $1,098,000 to $1,285,000, or 587%, during 2018 from $187,000 in 2017. In October of 2017, the Company invested a majorityof its rights offering proceeds into marketable securities which contributed to an increase in interest income.Total other income decreased $733,000 to $187,000, or 80%, during 2017 from $920,000 in 2016. The change resulted from the fact that in November 2016,we sold building and land located in Rancho Santa Fe, California for $4,700,000, recognizing a gain of $1,044,000. The decrease was offset by reductions innon employee service related costs associated with our retirement plans of $311,000.Corporate ExpensesCorporate general and administrative costs decreased $8,000, or 0.1%, to $9,705,000 during 2018 when compared to $9,713,000 in 2017. We managed tomaintain cost savings during 2018 following the staff rightsizing that occurred during the second quarter of 2017.Corporate general and administrative costs decreased $2,098,000, or 18%, 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. We alsobenefited from savings of $924,000 as a result of reduced legal and information technology related professional services costs.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 2018, equity in earnings from unconsolidated joint ventures decreased $393,000 to $3,834,000 when compared to $4,227,000 in 2017.•Despite seeing a 3.7% increase in sales per occupied square foot and an 8.3% increase in monthly sales per vehicle, equity in earnings from ourTRCC/Rock Outlet joint venture decreased $1,150,000. The decrease was primarily attributed to accelerating amortization of lease intangiblesdriven by removing poor performing tenants along with modifying lease terms to reflect the current brick and mortar retail environment. The Outletsat Tejon is continually identifying new and desirable tenants to better serve a wider demographic. In 2018, the Outlets at Tejon attracted new tenantssuch as Kate Spade, Bath and Body Works, and Journeys.•There was a $448,000 decrease in our share of earnings from our TA/Petro joint venture. The decline was driven by lower fuel margins of 6.7% whencompared to the prior year. Comparative fuel sales data are as follow:◦Diesel sales volumes were 16.6 million and 16.4 million gallons, or 1.1% increase, as of December 31, 2018 and 2017, respectively.◦Gasoline sales volumes were 13.9 million and 13.7 million gallons, or 2.0% increase, as of December 31, 2018 and 2017, respectively.•We incurred a $250,000 loss on our TRC-MRC 1 joint venture due to the fact that it was not fully occupied until the fourth quarter.•The above decreases in equity in earnings were partially offset by an increase in equity in earnings of TRC-MRC 2, a joint venture formed withMajestic in 2016. Equity in earnings improved $1,518,000 in 2018 given that throughout 2017, TRC-MRC 2 incurred significant non-cash GAAPaccounting losses that did not reoccur in 2018.47During 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.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 made 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, a new minimum tax; (vii) creating a new limitation on deductible interest expense; (viii) changing rules related to uses and limitations of net operatingloss 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. During 2018, the Company completed its analysis of the impacts of the U.S. Tax Reformand no additional expense was warranted. Other provisions of the U.S. Tax Reform did not have a material effect on our effective tax rate for 2018.For the twelve months ended December 31, 2018, the Company's net income tax expense was $1,320,000 compared to a net income tax benefit of $1,283,000for the twelve months ended December 31, 2017. These represent effective income tax rates of approximately 24% and 41% for the twelve months endedDecember 31, 2018 and, 2017, respectively. Our effective income tax rate for the year ended December 31, 2018 was higher than the federal statutory rate inthe United States, a result of state taxes and other permanent differences. As of December 31, 2018 and 2017 we had an income tax receivable of $277,000and $1,804,000, respectively. For more detail, see Note 12. (Income Taxes), of the Notes to Consolidated Financial Statements, included this Annual Reporton Form 10-K.As of December 31, 2018 (and after the aforementioned revaluation), we had net deferred tax assets of $1,229,000. Our largest deferred tax assets were madeup of temporary differences related to the capitalization of costs, pension adjustments, and stock compensation. 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 did not make any income tax paymentsduring 2018 and 2017. The Company received refunds of $164,000 in 2018 and $124,000 in 2017.48Liquidity 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 for additional working capital for general corporate purposes,including to fund general infrastructure costs and the development of buildings at TRCC, to continue forward with entitlement and permitting programs forthe Centennial and Grapevine communities and costs related to the preparation of the development of MV. The rights offering concluded on October 27,2017, with the Company raising $89,701,000, 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 $79,657,000 at December 31, 2018, a decrease of $11,318,000, or 12%, fromthe corresponding amount at the end of 2017.The following table summarizes the cash flow activities for the following years ended December 31: ($ in thousands) 2018 2017 2016Operating activities $14,354 $9,830 $5,585Investing activities $(13,246) $(68,214) $(10,242)Financing activities $(5,307) $77,233 $3,985Cash 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. During2018, our operations provided $14,354,000 of cash primarily attributable to strong operating results from our farming and mineral resources segments. Wealso received a $4,800,000 distribution from our TA/Petro joint venture. Please refer to "Results of Operations by Segment" for further discussion on ouroperating results.During 2017, our operations provided $9,830,000 of cash primarily attributable to operating results from mineral resources, and commercial real estateactivities. We also received a $7,200,000 distribution from our TA/Petro joint venture.During 2018, investing activities used $13,246,000 which was partially attributed to reinvesting marketable security maturities of $28,392,000. We also had$22,580,000 in capital expenditures associated with real estate and farm crop development. Of the $22,580,000 we spent $5,204,000 on tentative tract maps,engineering and the design of Farm Village for MV, $5,295,000 on the approval of the specific plan for Centennial, and $2,960,000 on regulatory permitsand litigation for Grapevine. At TRCC we used $5,225,000 on continued expansion and infrastructure, and indirect costs supporting all ongoinginfrastructure projects, such as expansion of water treatment facilities and relocation of gas line. Our farming segment had cash outlays of $3,166,000 fordeveloping new almond orchards and replacing old farm equipment. Lastly, we purchased water through our annual water contracts, using $3,844,000.Offsetting our cash outlays were marketable securities maturities of $35,219,000 and distributions from our joint venture partners of $2,815,000.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 $3,114,000.49Our estimated capital investment for 2019 is primarily related to our real estate projects as it was in 2018. These estimated investments include approximately$10,724,000 of infrastructure development at TRCC-East to support continued commercial retail and industrial development and to expand water facilitiesto support future anticipated absorption. We are also investing approximately $3,216,000 to continue development of new almond orchards and replacingold farming equipment. The farm investments are part of a long-term farm management program to redevelop declining orchards and vineyards to maintainand improve future farm revenues. We expect to possibly invest up to $17,304,000 for land planning, entitlement activities, litigation related to entitlementapprovals, federal and state agency permitting activities, and development activities at MV, Centennial, and Grapevine during 2019. The timing of theseinvestments is dependent on our coordination efforts with Los Angeles County regarding litigation efforts for Centennial, litigation and permitting activitiesfor Grapevine, and final maps for MV. Our plans also include $3,230,000 for payment of annual water inventory and water related investments. We are alsoplanning to potentially invest up to $139,000 in the normal replacement of operating equipment, such as ranch equipment, and vehicles.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, 2018 and2017, of $2,954,000 and $3,478,000, respectively, is classified in real estate development. We also capitalized payroll costs related to development, pre-construction, and construction projects which aggregated $4,171,000 and $2,809,000 for the years ended December 31, 2018 and 2017, respectively.Expenditures for repairs and maintenance are expensed as incurred.During 2018, financing activities used $5,307,000 primarily through repayments of long-term debt of $4,046,000 and taxes on vested stock grants of$1,095,000.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 pay off $17,000,0000 outstanding on our line of credit.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 litigation, permitting and engineering design for our master planned communities and prepare to move into the development stage, wewill need to secure additional 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, 2018, total capitalization at book value was $500,470,000 consisting of $65,798,000 of debt, net of deferred financing costs, and$434,672,000 of equity, resulting in a debt-to-total-capitalization ratio of approximately 13.1%, representing a decrease when compared to the debt-to-total-capitalization ratio of 14.0% at December 31, 2017.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 $62,483,000 balance as of December 31, 2018. 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, which is typical for this type of instrument.At the Company’s option, the interest rate on the RLC can float at 1.50% over a selected LIBOR rate or can be fixed at 1.50% above LIBOR for a fixed rateterm. During the term of this credit facility (which matures in September 2019), we can borrow at any time and partially or wholly repay any outstandingborrowings and then re-borrow, as necessary. The Company expects to renew the RLC in September 2019 under similar terms. There were no outstandingbalances on the RLC as of December 31, 2018 and 2017.50The 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, 2018, 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.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, 2018 is $3,418,000.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 ordraw downs against our line-of-credit, proceeds from the reimbursement of public infrastructure costs through CFD bond debt (described below under “Off-Balance Sheet Arrangements”), and the issuance of common stock. In April 2016, we filed an updated shelf registration statement on Form S-3 that wenteffective in May 2016. Under the shelf registration statement, we may offer and sell in the future one or more offerings, common stock, preferred stock, debtsecurities, warrants or any combination of the foregoing. The shelf registration allows for efficient and timely access to capital markets and when combinedwith our other potential funding sources just noted, provides us with a variety of capital funding options that can then be used and appropriately matched tothe funding needs of the Company.As noted above, at December 31, 2018, we had $79,657,000 in cash and securities and as of the filing date of this Form 10-K, we had $30,000,000 availableon credit lines to meet any short-term liquidity needs.We continue to expect that substantial investments will be required in order to develop our land assets. In order to meet these capital requirements, we mayneed to secure additional debt financing and continue to renew our existing credit facilities. In addition to debt financing, we will use other capitalalternatives such as joint ventures with financial partners, sales of assets, and the issuance of common stock. We will use a combination of the above fundingsources to properly match funding requirements with the assets or development project being funded. There is no assurance that we can obtain financing orthat we can obtain financing at favorable terms. We believe we have adequate capital resources to fund our cash needs and our capital investmentrequirements in the near-term as described earlier in the cash flow and liquidity discussions.51Contractual Cash ObligationsThe following table summarizes our contractual cash obligations and commercial commitments as of December 31, 2018, to be paid over the next five years: Payments Due by Period($ in thousands)Total Less than a year 1-3 years 3-5 years More than 5yearsContractual Obligations: Estimated water payments$260,078 $10,156 $18,527 $19,175 $212,220Long-term debt65,915 4,018 8,549 9,321 44,027Interest on long-term debt12,719 2,613 4,710 3,971 1,425Cash contract commitments9,221 7,012 1,138 — 1,071Defined Benefit Plan3,981 274 567 646 2,494SERP5,329 527 1,042 1,022 2,738Tejon Ranch Conservancy2,400 800 1,600 — —Financing fees163 163 — — —Total contractual obligations$359,806 $25,563 $36,133 $34,135 $263,975The 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 2018, we made pension contributions of $165,000 and it is projected that we will make a similarcontribution in 2019.Our cash contract commitments consist of contracts in various stages of completion related to infrastructure development within our industrial developmentsand entitlement costs related to our industrial and residential development projects. Also, included in the cash contract commitments are estimated feesearned during the second quarter of 2014 by a consultant, related to the entitlement of the Grapevine Development Area. The Company exited a consultingcontract during the second quarter of 2014 related to the Grapevine Development and is obligated to pay an earned incentive fee at the time of successfulreceipt of litigated project entitlements and at a value measurement date five-years after entitlements have been achieved for Grapevine. The final amount ofthe incentive fees will not be finalized until the future payment dates. The Company believes that net savings from exiting the contract over this future timeperiod will more than offset the incentive payment costs.Estimated water payments include the Nickel water contract, which obligates us to purchase 6,693 acre-feet of water annually through 2044 and SWPcontracts with Wheeler Ridge Maricopa Water Storage District, Tejon-Castac Water District, Tulare Lake Basin Water Storage District, and Dudley-RidgeWater Storage District. These contracts for the supply of future water run through 2035. Please refer to Note 6 (Long-Term Water Assets) of the Notes toConsolidated Financial Statements for additional information regarding water assets.Our operating lease obligations are for office equipment. At the present time, we do not have any capital lease obligations or purchase obligationsoutstanding.52Off-Balance Sheet ArrangementsThe following table shows contingent obligations we have with respect to the CFDs. Amount of Commitment Expiration Per Period($ in thousands) Total < 1 year 2 -3 Years 4 -5 Years After 5 YearsOther Commercial Commitments: Standby letter of credit $4,468 $— $4,468 $— $—Total other commercial commitments $4,468 $— $4,468 $— $—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. TRPFFA created two CFD's, the West CFD and the East CFD. The West CFD has placedliens on 420 acres of the Company’s land to secure payment of special taxes related to $28,620,000 of bond debt sold by TRPFFA for TRCC-West. The EastCFD has placed liens on 1,931 acres of the Company’s land to secure payments of special taxes related to $55,000,000 of bond debt sold by TRPFFA forTRCC-East. At TRCC-West, the West CFD has no additional bond debt approved for issuance. At TRCC-East, the East CFD has approximately $65,000,000of additional bond debt authorized by TRPFFA.In connection with the sale of bonds there is a standby letter of credit for $4,468,000 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. 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 $68,000. 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, 2018.At December 31, 2018, aggregate outstanding debt of unconsolidated joint ventures was $121,326,000. We guarantee $106,043,000 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 $15,283,000 of debt related to our joint venture with TA/Petro.53Non-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)2018 2017 2016Net income (loss)$4,235 $(1,821) $757Net loss attributed to non-controlling interest(20) (24) (43)Interest, net Consolidated interest income(1,344) (462) (457)Our share of interest expense from unconsolidated joint ventures2,519 1,730 1,449Total interest, net1,175 1,268 992Income tax expense (benefit)1,320 (1,283) 496Depreciation and amortization: Consolidated5,424 5,689 5,657Our share of depreciation and amortization from unconsolidated joint ventures4,328 5,419 3,630Total depreciation and amortization9,752 11,108 9,287EBITDA16,502 9,296 11,575Stock compensation expense3,248 3,552 4,585Adjusted EBITDA$19,750 $12,848 $16,16054Net operating income (NOI) is a non-GAAP financial measure calculated as operating income, the most directly comparable financial measure calculated andpresented in accordance with GAAP, excluding general and administrative expenses, interest expense, depreciation and amortization, and gain or loss onsales of real estate. We believe NOI provides useful information to investors regarding our financial condition and results of operations because it primarilyreflects those income and expense items that are incurred at the property level. Therefore, we believe NOI is a useful measure for evaluating the operatingperformance of our real estate assets.($ in thousands)Year-Ended December 31,Net operating income2018 2017 2016Pastoria Energy Facility$4,056 $3,854 $3,612TRCC1,439 1,482 1,356Communication leases894 799 795Other commercial leases670 618 817Total Commercial/Industrial net operating income$7,059 $6,753 $6,580 Year-Ended December 31,($ in thousands)2018 2017 2016Commercial/Industrial operating income$2,724 $2,472 $2,740Plus: Commercial/Industrial depreciation and amortization651 650 614Plus: General, administrative and other expenses5,241 5,570 6,084Less: Other revenues including land sales(1,557) (1,939) (2,858)Total Commercial/Industrial net operating income$7,059 $6,753 $6,580The Company utilizes NOI of unconsolidated joint ventures as a measure of financial or operating performance that is not specifically defined by GAAP. Webelieve NOI of unconsolidated joint ventures provides investors with additional information concerning operating performance of our unconsolidated jointventures. We also use this measure internally to monitor the operating performance of our unconsolidated joint ventures. Our computation of this non-GAAPmeasure may not be the same as similar measures reported by other companies. This non-GAAP financial measure should not be considered as an alternativeto net income as a measure of the operating performance of our unconsolidated joint ventures or to cash flows computed in accordance with GAAP as ameasure of liquidity nor are they indicative of cash flows from operating and financial activities of our unconsolidated joint ventures.The following schedule reconciles net income from unconsolidated joint ventures to NOI of unconsolidated joint ventures. Year-Ended December 31,($ in thousands)2018 2017 2016Net income of unconsolidated joint ventures$5,734 $6,371 $11,782Interest expense of unconsolidated joint ventures4,912 3,364 2,757Operating income of unconsolidated joint ventures10,646 9,735 14,539Depreciation and amortization of unconsolidated joint ventures8,125 10,361 6,832Net operating income of unconsolidated joint ventures$18,771 $20,096 $21,371ITEM 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.55The 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 $62,483,000 and 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 $3,418,000 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 Term 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, 2018(In thousands except percentage data) 2019 2020 2021 2022 2023 Thereafter Total Fair ValueAssets: Marketable securities$43,627 $20,111 $400 $— $— $— $64,138 $63,749Weighted average interest rate2.02% 2.09% 2.51% —% —% —% 2.04% Liabilities: Long-term debt ($4.75M note)$289 $302 $315 $328 $343 $1,841 $3,418 $3,418Weighted average interest rate4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% Long-term debt ($70.0M note)$3,715 $3,881 $4,051 $4,221 $4,429 $42,186 $62,483 $62,483Weighted average interest rate4.11% 4.11% 4.11% 4.11% 4.11% 4.11% 4.11% Long-term debt (other)$14 $— $— $— $— $— $14 $14Weighted average interest rate3.35% —% —% —% —% —% 3.35% 56Interest 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% 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, 2018, we have exposure to adverse price fluctuations associated with certain inventories and accounts receivable. Farming inventoriesconsist of farming cultural and processing costs related to 2018 and 2017 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 $10,876,000 of accountsreceivable outstanding at December 31, 2018, $6,755,000 or 62%, is at risk to changing prices. Of the amount at risk to changing prices, $5,423,000 isattributable to pistachios, and $1,331,000 is attributable to almonds.The price estimated for recording accounts receivable for pistachios recorded at December 31, 2018 was $2.01 per pound, as compared to $2.00 per pound atDecember 31, 2017. For each $0.01 change in the price per pound of pistachios, our receivable for pistachios increases or decreases by $27,000. Although thefinal price per pound of pistachios (and therefore the extent of the risk) is not presently known, over the last three years prices have ranged from $2.00 to$4.25. With respect to almonds, the price estimated for recording the receivable was $2.62 per pound, as compared to $2.57 per pound at December 31, 2017.For each $0.01 change in the price per pound of almonds, our receivable for almonds increases or decreases by $5,000. The range of final prices over the lastthree years for almonds has ranged from $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.57ITEM 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 and Controller, of the effectiveness of the design and operation of our disclosure controls andprocedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based upon that evaluation, theChief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that all informationrequired in the reports we file or submit under the Exchange Act was accumulated and communicated to our management, including our Chief ExecutiveOfficer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure and was recorded, processed, summarized andreported 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 INFORMATIONTRC issued a press release on February 28, 2019 for the fourth-quarter and year-ended December 31, 2018 financial results. A copy of the Company’s pressrelease is attached as Exhibit 99.1 to this Annual Report on Form 10-K and is incorporated herein by reference.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 2019 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 2019Annual 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 2019 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, 2018 with respect to all of our compensation plans under which our equity securitieswere authorized for issuance. At December 31, 2018, 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 information with respect to our compensation plans is included in Note 11 (Stock Compensation - Restricted Stock andPerformance Share Grants) of the Notes to Consolidated Financial Statements.58Equity 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 538,599 Final price determinedat time of vesting 754,683* 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 2019Annual 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 2019Annual Meeting of Stockholders and will be found under the caption "Independent Registered Public Accounting Firm."59PART 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 68 Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting 69 Report of Independent Registered Public Accounting Firm 70 1.2 Consolidated Balance Sheets – Years Ended December 31, 2018 and 2017 71 1.3 Consolidated Statements of Operations - Years Ended December 31, 2018, 2017 and 2016 72 1.4 Consolidated Statements of Comprehensive Income (Loss) - Years Ended December 31, 2018, 2017 and 2016 73 1.5 Consolidated Statements of Equity - Years Ended December 31, 2018, 2017 and 2016 74 1.6 Consolidated Statements of Cash Flows - Years Ended December 31, 2018, 2017 and 2016 75 1.7 Notes to Consolidated Financial Statements 762 Supplemental Financial Statement Schedules: None. 3 Exhibits: 3.1 Restated Certificate of Incorporation FN 1 3.2 Amended and Restated Bylaws FN 2 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 7 10.12 Ground Lease 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 Limited Liability Company Agreement of Tejon Mountain Village LLC 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 1960 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 10.37 Limited Liability Company Agreement of TRC-MRC 2, LLC FN 26 10.38 Limited Liability Company Agreement of TRC-MRC 1, LLC FN 27 10.39 Centennial Redemption and Withdrawal Agreement FN 28 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 10.42 Limited Liability Company Agreement of TRC-MRC 3, LLC FN 31 10.43 Fourth Amendment to Second Amended and Restated Limited Liability Company Agreement of CentennialFounders, LLC Filed herewith 10.44 Centennial Redemption and Withdrawal Agreement - CalAtlantic Filed herewith 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 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 Fourth-Quarter and Year-Ended December 31, 2018 Earnings Release Filed herewith 99.2 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 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.61FN 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.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 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.62FN 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.FN 31 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.42 to ourQuarterly Report on Form 10-Q for the period ending September 30, 2018, 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.63SIGNATURESPursuant 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 1, 2019 BY: /s/ Gregory S. Bielli Gregory S. Bielli President and Chief Executive Officer (Principal Executive Officer) March 1, 2019 BY: /s/ Robert D. Velasquez Robert D. Velasquez Senior Vice President of Finance and Chief Financial Officer (Principal Financial and Accounting Officer)64Pursuant 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 1, 2019 /s/ Steven A. BettsSteven A. Betts Director March 1, 2019 /s/ Gregory S. BielliGregory S. Bielli Director March 1, 2019 /s/ Jean FullerJean Fuller Director March 1, 2019 /s/ Anthony L. LeggioAnthony L. Leggio Director March 1, 2019 /s/ Norman MetcalfeNorman Metcalfe Director March 1, 2019 /s/ Geoffrey StackGeoffrey Stack Director March 1, 2019 /s/ Daniel R. TischDaniel R. Tisch Director March 1, 2019 /s/ Michael H. WinerMichael H. Winer Director March 1, 201965Annual 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, 2018Tejon Ranch Co.Tejon Ranch, California66Form 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 Reporting68Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting69Report of Independent Registered Public Accounting Firm70Consolidated Balance Sheets - Years Ended December 31, 2018 and 201771Consolidated Statements of Operations - Years Ended December 31, 2018, 2017, and 201672Consolidated Statements of Comprehensive Income (Loss) - Years Ended December 31, 2018, 2017 and 201673Consolidated Statements of Equity - Years Ended December 31, 2018, 2017 and 201674Consolidated Statements of Cash Flows - Years Ended December 31, 2018, 2017 and 201675Notes to Consolidated Financial Statements76ITEM 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.67Management’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 and Chief Financial Officer, management of the Company has undertaken an assessment of theeffectiveness of the Company’s internal control over financial reporting as of December 31, 2018 based on criteria established in Internal Control –Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), or COSO. Management’sassessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the operational effectiveness of theCompany’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, 2018.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.68Report of Independent Registered Public Accounting FirmTo the Stockholders and the Board of Directors of Tejon Ranch Co.Opinion on Internal Control over Financial ReportingWe have audited Tejon Ranch Co. and subsidiaries’ internal control over financial reporting as of December 31, 2018, 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, 2018, 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, 2018 and 2017, and the related consolidated statements of operations, comprehensive income (loss),equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and our report dated March 1, 2019 expressedan 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 U.S. 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 1, 201969Report of Independent Registered Public Accounting FirmTo the Stockholders and the Board of Directors of Tejon Ranch Co.Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Tejon Ranch Co. and subsidiaries (the Company) as of December 31, 2018 and 2017, andthe related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the three years in the period endedDecember 31, 2018, and the related notes (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, 2018 and 2017, and the results of its operations andits cash flows for each of the three years in the period ended December 31, 2018, 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, 2018, 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 1, 2019, 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 1, 201970Tejon Ranch Co. and SubsidiariesConsolidated Balance Sheets($ in thousands) December 31 2018 2017ASSETS Current Assets: Cash and cash equivalents$15,908 $20,107Marketable securities - available-for-sale63,749 70,868Accounts receivable10,876 7,608Inventories2,618 2,469Prepaid expenses and other current assets3,348 2,849Total current assets96,499 103,901Real estate and improvements - held for lease, net18,953 19,115Real estate development (includes $100,311 at December 31, 2018 and $94,271 at December 31, 2017,attributable to Centennial Founders, LLC, Note 17)283,385 267,336Property and equipment, net46,086 45,332Investments in unconsolidated joint ventures28,602 30,031Net investment in water assets51,832 47,130Deferred tax assets1,229 1,562Other assets2,462 3,792TOTAL ASSETS$529,048 $518,199LIABILITIES AND EQUITY Current Liabilities: Trade accounts payable$6,037 $3,545Accrued liabilities and other3,575 1,810Deferred income2,863 1,118Current maturities of long-term debt4,018 4,004Total current liabilities16,493 10,477Long-term debt, less current portion61,780 65,816Long-term deferred gains3,405 3,405Other liabilities12,698 11,691Total liabilities94,376 91,389Commitments 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 - 25,972,080 at December 31, 2018 and 25,894,773 at December31, 201712,986 12,947Additional paid-in capital336,520 320,167Accumulated other comprehensive loss(4,857) (5,264)Retained earnings74,647 70,392Total Tejon Ranch Co. Stockholders’ Equity419,296 398,242Non-controlling interest15,376 28,568Total equity434,672 426,810TOTAL LIABILITIES AND EQUITY$529,048 $518,199See accompanying notes.71Tejon Ranch Co. and SubsidiariesConsolidated Statements of Operations($ in thousands, except per share amounts) Year Ended December 31 201820172016Revenues:Real estate - commercial/industrial$8,970$9,001$9,840Mineral resources14,3955,98314,153Farming18,56316,43418,648Ranch operations3,6913,8373,338Total revenues 45,619 35,255 45,979Costs and Expenses: Real estate - commercial/industrial 6,246 6,529 7,100Real estate - resort/residential 1,530 1,955 1,630Mineral resources 6,223 2,964 7,796Farming 16,028 16,201 18,673Ranch operations 5,451 5,411 5,734Corporate expenses 9,705 9,713 11,811Total expenses 45,183 42,773 52,744Operating income (loss) 436 (7,518) (6,765)Other Income: Gain on sale of real estate — — 1,044Investment income 1,344 462 457Other loss (59) (275) (581)Total other income 1,285 187 920Income (loss) from operations before equity in earnings of unconsolidated joint ventures 1,721 (7,331) (5,845)Equity in earnings of unconsolidated joint ventures, net 3,834 4,227 7,098Income (loss) before income taxes 5,555 (3,104) 1,253Income tax expense (benefit) 1,320 (1,283) 496Net income (loss) 4,235 (1,821) 757Net loss attributable to non-controlling interest (20) (24) (43)Net income (loss) attributable to common stockholders $4,255 $(1,797) $800Net income (loss) per share attributable to common stockholders, basic $0.16 $(0.08) $0.04Net income (loss) per share attributable to common stockholders, diluted $0.16 $(0.08) $0.04See accompanying notes.72Tejon Ranch Co. and SubsidiariesConsolidated Statements of Comprehensive Income (Loss)($ in thousands) Year Ended December 31 2018 2017 2016Net income (loss) $4,235 $(1,821) $757Other comprehensive income: Unrealized (loss) gain on available-for-sale securities (191) (100) 62Benefit plan adjustments (189) 404 (371)SERP liability adjustments (43) 328 214Unrealized interest rate swap gains 988 970 1,040Other comprehensive income before taxes 565 1,602 945Provision for income taxes related to other comprehensive income items (158) (627) (282)Other comprehensive income 407 975 663Comprehensive income (loss) 4,642 (846) 1,420Comprehensive (loss) income attributable to non-controlling interests (20) (24) (43)Comprehensive income (loss) attributable to common stockholders $4,662 $(822) $1,463See accompanying notes.73Tejon Ranch Co. and SubsidiariesConsolidated Statements of Equity($ in thousands, except share information) CommonStock SharesOutstanding CommonStock AdditionalPaid-InCapital AccumulatedOtherComprehensiveLoss RetainedEarnings TotalStockholders'Equity NoncontrollingInterest Total EquityBalance, December 31, 201520,688,154 $10,344 $216,803 $(6,902) $71,389 $291,634 $39,674 $331,308Net income— — — — 800 800 (43) 757Other comprehensive income— — — 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) $72,189 $306,117 $28,592 $334,709Net loss— — — — (1,797) (1,797) (24) (1,821)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 ofvested 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 $426,810Net income— — — — 4,255 4,255 (20) 4,235Other comprehensive income— — — 407 — 407 — 407Restricted stock issuance124,597 63 (62) — — 1 — 1Stock compensation— — 4,480 — — 4,480 — 4,480Shares withheld for taxes and tax benefit ofvested shares(47,290) (24) (1,071) — — (1,095) — (1,095)Rights offering, net— — (166) — (166) — (166)Centennial redemption of withdrawingmember interest 13,172 13,172 (13,172) —Balance, December 31, 201825,972,080 $12,986 $336,520 $(4,857) $74,647 $419,296 $15,376 $434,672See accompanying notes.74Tejon Ranch Co. and SubsidiariesConsolidated Statements of Cash Flows(in thousands) Twelve Months Ended December 31, 2018 2017 2016Operating Activities Net income (loss)$4,235 $(1,821) $757Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization5,424 5,689 5,657Amortization of premium/discount of marketable securities101 298 434Equity in earnings of unconsolidated joint ventures, net(3,834) (4,227) (7,098)Non-cash retirement plan expense335 469 1,046Loss (gain) on sale of real estate/assets94 45 (1,183)Deferred income taxes175 (94) 2,099Stock compensation expense3,248 3,552 4,585Excess tax benefit of stock-based compensation18 107 —Distribution of earnings from unconsolidated joint ventures4,800 7,200 4,500Changes in operating assets and liabilities: Receivables, inventories, prepaids and other assets, net(2,888) 522 (2,711)Current liabilities, net2,646 (1,910) (2,501)Net cash provided by operating activities14,354 9,830 5,585Investing Activities Maturities and sales of marketable securities35,219 8,126 11,750Purchases of marketable securities(28,392) (52,716) (5,983)Real estate and equipment expenditures(22,580) (21,709) (26,380)Reimbursement proceeds from Communities Facilities District3,588 — 6,155Proceeds from sale of real estate/assets— — 4,616Investment in unconsolidated joint ventures(52) (310) (2,000)Distribution of equity from unconsolidated joint ventures2,815 3,114 1,600Investments in long-term water assets(3,844) (4,717) —Other— (2) —Net cash used in investing activities(13,246) (68,214) (10,242)Financing Activities Borrowings of line of credit— 13,300 20,700Repayments of line of credit— (21,000) (13,000)Repayments of long-term debt(4,046) (3,908) (815)Net proceeds from rights offering(166) 89,867 —Taxes on vested stock grants(1,095) (1,026) (2,900)Net cash (used in)/provided by financing activities(5,307) 77,233 3,985(Decrease) increase in cash and cash equivalents(4,199) 18,849 (672)Cash and cash equivalents at beginning of year20,107 1,258 1,930Cash and cash equivalents at end of year$15,908 $20,107 $1,258Supplemental cash flow information Non cash capital contribution to unconsolidated joint venture$— $1,339 $—Accrued capital and water expenditures included in current liabilities$2,390 $814 $652Capital expenditure financing arrangement$— $— $467Taxes paid (net of refunds)$— $(124) $1,135See accompanying notes.75Tejon Ranch Co. and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 20181. 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 land sales and leasing, leasing of land for mineral royalties, water asset management and sales, grazing leases, and farming.These activities are performed through our five reporting 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 downtown LosAngeles and, 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 sales, and conservation, in order to maximize the highest and best usefor our land.We are involved in eight joint ventures, that own, develop, and operate real estate properties. We enter into joint ventures as a means to facilitate thedevelopment of portions of our land. We are also actively engaged in land planning, land entitlement, 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 Company'sinvestment portfolio is comprised of fixed income debt securities, which are classified as current assets on the consolidated balance sheets. 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.76Investments 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), contributions and distributions. Any difference between the carrying amount of these investments on the Company’sbalance sheet and the underlying equity in net assets on the joint venture’s balance sheet is adjusted as the related underlying assets are depreciated,amortized, or sold. In circumstances when we contribute land to a joint venture, we record our investment in the venture at fair value when the real estate isderecognized, regardless of whether the other investors in the venture contribute cash, property, or services.The Company generally allocates income and loss from an unconsolidated joint venture based on the venture's distribution priorities, which may be differentfrom its stated ownership percentage.The Company evaluates the recoverability of its investments in unconsolidated joint ventures in accordance with accounting standards for equityinvestments by first reviewing each investment for any indicators of impairment. If indicators are present, the Company estimates the fair value of theinvestment. If the carrying 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 fairvalue has been less than cost, (2) the financial condition and near-term prospects of the entity, and (3) the Company’s intent and ability to retain its interestlong enough for a recovery in market value. If management concludes that the impairment is "other than temporary," the Company reduces the investment toits estimated fair value.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 participants,while 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. 77We 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.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 potentially be 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. 78To 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, 2018 and 2017, we had two 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 lease rental payments and operating expense reimbursements. If our client tenants fail to make rentalpayments under their lease, our financial condition, and cash flows could be adversely affected. We record an allowance for doubtful accounts based on ourjudgment of a tenant’s creditworthiness, ability to pay and probability of collection. Accounts are written off when they are deemed to be no longercollectible.During the years ended December 31, 2018 and 2017, the Pastoria Energy Facility, L.L.C., or PEF power plant lease generated approximately 9% and 11% ofour total revenues, respectively. We had no other customers account for 5% or more of our revenues from operations in 2018.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 incurred 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, 2018 December 31, 2017Vineyards and orchards 20 $53,271 $52,667Machinery, furniture fixtures and other equipment 3 - 10 21,673 21,320Buildings and improvements 10 - 27.5 8,893 8,850Land and land improvements 15 7,848 7,822Development in process 7,001 6,600 98,686 97,259Less: accumulated depreciation (52,600) (51,927) $46,086 $45,33279Long-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 under the straight-line basis over their contractual lives. Water contracts with the Wheeler RidgeMaricopa Water Storage District and the Tejon-Castac Water District are also in place, but were entered into with each district at inception and not purchasedlater from third parties, and therefore do not have a related financial value on the books of the Company. As a result, there is no amortization expense relatedto these contracts.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 estimates and actual revenues received are recorded during the period in which such amounts become known. The net effect of these adjustmentsincreased farming revenue by $111,000 in 2018, $1,804,000 in 2017, and $734,000 in 2016. The adjustment for 2018 is entirely related to pistachios. Theadjustment for 2017 includes $352,000 for almonds and $1,452,000 for pistachios. The adjustment for 2016 includes $653,000 for almonds and $81,000 forpistachios.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, 2018, 2017, and 2016, 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.80Long-lived assets to be held and used, including our rental properties, CIP, real estate held for development and intangibles, are individually evaluated forimpairment when conditions 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 held and used is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventualdisposition of the asset. Impairment indicators or triggering events for long-lived assets to be held and used, including our rental properties, CIP, real estateheld for development, and intangibles, are assessed by project and include significant fluctuations in estimated net operating income, occupancy changes,significant near-term lease expirations, current and historical operating and/or cash flow losses, rental rates, and other market factors. We assess the expectedundiscounted cash flows based upon numerous factors, including, but not limited to, available market information, current and historical operating results,known trends, current market/economic conditions that may affect the property, and our assumptions about the use of the asset, including, if necessary, aprobability-weighted approach if multiple outcomes are under consideration. Upon determination that an impairment has occurred, a write-down isrecognized to reduce the carrying 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, 2018 and 2017, management of the Company believes that none of its long-lived assets were impaired.Revenue RecognitionThe Company’s revenue is primarily derived from lease revenue from our rental portfolio, royalty revenue from mineral leases, sales of farm crops, sales ofwater, and land sales. On January 1, 2018, the Company implemented ASU 2014-09 “Revenue with Contracts from Customers (Topic 606)" (ASC 606). ASU2014-09 supersedes all previous revenue recognition guidance, including industry-specific guidance. The Company recognizes revenue by following thefive-step model under ASC 606 to achieve the core principle that an entity recognizes revenue to depict the transfer of goods or services to customers at anamount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The five-step model requires that we(i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variableconsideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performanceobligations in the contract, and (v) recognize revenue when (or as) we satisfy the performance obligation.Sales of Real EstateUpon adoption of ASC 606, the Company is required to allocate the transaction price, on land sales with multiple performance obligations, to theperformance obligations in proportion to their standalone selling prices (i.e., on a relative standalone selling price basis) and not total costs.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. The Companyrecognizes easement sales revenue by following the five-step model under ASC 606.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. The accounting of royalty income remains largely unchanged uponimplementation of ASC 606.81Rental 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 deferred rent in prepaid expenses and other current assets in the accompanying consolidated balance sheets.Amounts received currently, but recognized as income in future years, are classified in trade accounts payable, accrued liabilities and other, and deferredincome in the accompanying consolidated balance 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 or controls 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 tenants that are publicly available or that are required to be delivered to us pursuantto the applicable lease, (iii) monitoring news reports regarding our tenants and their respective businesses, and (iv) monitoring the timeliness of leasepayments. We have employees who are assigned the responsibility for assessing and monitoring the credit quality of our tenants and any material changes incredit 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, 2018 and 2017.Use of EstimatesThe preparation of the Company’s consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the financial statement dates and the reportedamounts of revenue and expenses during the reporting period. Due to uncertainties inherent in the estimation process, it is reasonably possible that actualresults could differ from these estimates.Recent Accounting PronouncementsRevenue RecognitionIn May 2014, the FASB issued ASC 606, which supersedes the former revenue recognition guidance, including industry-specific guidance. The guidanceintroduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at anamount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The five-step model requires that we(i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variableconsideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performanceobligations in the contract, and (v) recognize revenue when (or as) we satisfy the performance 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.During the first quarter of 2018, we adopted the revenue recognition ASU using the full retrospective method.Based on our evaluation of all contracts within scope, under previous accounting standards, and under the new revenue recognition ASU, we noted nosignificant differences in the amounts recognized or the pattern of recognition. Management however noted that the application of ASC 606 impacts theaccounting for land sales. Previous guidance required the Company to recognize revenue from land sales with continued involvement using a percentagecompletion method based on the total cost of the performance obligations. After adopting ASC 606, the Company was required to allocate the transactionprice, on land sales with multiple performance obligations, to the performance obligations in proportion to their standalone selling prices (i.e., on a relativestandalone selling price basis) and not total costs.82During 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 the third party. When applying the guidance under ASC 606,the purchase price allocated to the multiple performance obligations yielded a different result than when applying the guidance in effect during that period.In applying the accounting principles under Topic 606, the Company appropriately applied the full retrospective method to this land sale during the twelve-months ended December 31, 2017 and December 31, 2016 results of operations, and recognized $73,000 and $1,112,000 of revenues and $9,000 and$1,017,000 of profit from the sale of land, respectively.No other material differences were noted during our evaluation.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. Entities are prohibited from using a full retrospective transitionapproach to adopt this guidance, and a modified retrospective approach is required to be used for all leases that exist at or commence after the beginning ofthe earliest comparative period presented. Entities are permitted to elect a package of expedients where an entity need not reassess (i) whether any expired orexisting contracts are or contain leases, (ii) lease classification for any expired or existing leases, or (iii) initial direct costs for any existing leases.In January 2018, the FASB issued ASU No. 2018-01, "Land Easement Practical Expedient for Transition to Topic 842", which permits entities to elect atransition practical expedient to not assess land easements that exist or expired before the adoption of the new standard in order to reduce costs andcomplexity of complying with the transition provisions. If this practical expedient is elected, entities are effectively allowed to grandfather the accountingfor easements entered into prior to the adoption of the new standards.In July 2018, the FASB issued ASU No. 2018-11, "Targeted Improvements to Leases (Topic 842)", which allows entities to not apply the new leases standardin the comparative periods they present in their financial statements. Under this transition option, entities can continue to apply the legacy guidance in thecomparative periods presented in the year they adopt the new standard. ASU 2018-11 also provides a practical expedient for lessors to combine the lease andnon-lease components under certain circumstances to simplify lessor's implementation of the new guidance.The Accounting Standards Codification Topic 842: Leases, or ASC 842, became effective on January 1, 2019. The Company adopted the new standardsusing the modified retrospective method on January 1, 2019. The optional transition method was elected during this transition, and comparative informationis not restated and will continue to be reported under the legacy guidance. The Company also elected the package of practical expedients, and will accountfor its existing leases under the new guidance without reassessing its prior conclusions of lease identification, lease classification and initial direct costs.Lessee Impact:The Company currently leases several office copiers under a 48-month lease terms. On January 1, 2019, an operating lease right-of-use asset and an operatinglease liability were recorded on the consolidated balance sheets, both in the amount of $52,000, as a result of adopting the new guidance. The $52,000 wasdetermined by calculating the present value of the future annual cash lease payments using a discount rate of 4.11%. The 4.11% discount rate represents theCompany's incremental borrowing rate as of January 1, 2019. The implementation of the new standards did not have any impact on the consolidatedstatements of operations or the opening balance of retained earnings on the consolidated statements of equity.Lessor Impact:The Company elected the land easement practical expedient upon adoption of the new guidance, and is thus permitted to continue its current accountingpolicy for land easements that exist or expired before the effective date of the adoption. The Company will evaluate new or modified land easements underASC 842 beginning on the adoption date of the new guidance.83Additionally, the Company elected the lessor's practical expedient and combined the lease and non-lease components due to the following criteria beingmet: (i) the timing and pattern of recognizing revenue for the lease component are the same as its associated non-lease components, (ii) the lease component,if accounted for separately, would be classified as an operating lease, and (iii) the lease component is the predominant component within the contract. TheCompany believes that combining the lease component, which is the lease revenue, and non-lease components such as common area maintenance revenueand provisions of real estate taxes and insurance, will provide more meaningful information as it is more reflective of the predominant component in the leasecontracts.We expect no significant differences in the timing and pattern of revenue recognition under the new lease guidance for all our existing leases from the lessor'sperspective. For new leases originated after the adoption date, we expect to capitalize less initial direct cost, as the definition of initial direct cost is narrowerunder the new guidance. Certain costs, such as legal costs incurred, were eligible for capitalization under the legacy guidance, but are no longer eligible forcapitalization under the new standards. The amounts capitalized as legal costs have been de minimis in the past and would not have a material impact to ourresults of operations.Postretirement BenefitsIn March 2017, the FASB issued ASU 2017-07 "Compensation - Retirement Benefits (Topic 715)", which requires employers who offer defined benefitpension plans or other post-retirement benefit plans to report the service cost component within the same income statement caption as other compensationcosts arising from services rendered by employees during the period. The ASU also requires the other components of net periodic benefit cost to be presentedseparately from the service cost component, in a caption outside of a subtotal of income from operations. Additionally, the ASU provides that only theservice cost component is eligible for capitalization. The Company adopted ASU 2017-07 on January 1, 2018. As a result of the adoption, the Companyreclassified $428,000 and $739,000 from Corporate expenses to Other loss, as of December 31, 2017 and 2016, respectively.Other IncomeIn February 2017, the FASB issued ASU 2017-05 "Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20)",effective for the annual reporting period beginning after the December 15, 2017, including the interim reporting period within that period. This updateprovides guidance on the recognition of gains and losses on transfers of nonfinancial assets and in substance nonfinancial assets to counterparties that are notcustomers.As of January 1, 2018, the Company began accounting for non-financial assets under Subtopic 610-20 which provides for revenue recognition based ontransfer of ownership.The new standard may be applied retrospectively to each prior period presented or prospectively with the cumulative effect, if any, recognized as of the dateof adoption. The Company selected the modified retrospective transition method. The adoption of the standard did not result in a cumulative adjustmentrecognized as of January 1, 2018, and the standard did not have any impact on the Company’s prior period financial statements. The Company had no salesor transfers of non-financial assets to counterparties that are not customers as of December 31, 2018.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.84Financial InstrumentsIn January 2016, the FASB issued ASU 2016-01, "Financial Statements - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets andFinancial Liabilities", which requires equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting)to be measured at fair value with changes in fair value recognized in net income. There will no longer be an available-for-sale classification for equitysecurities with readily determinable fair values. We adopted the new ASU on January 1, 2018. The ASU requires the use of the modified retrospectivetransition method, under which cumulative unrealized gains and losses related to equity investments with readily determinable fair values will be reclassifiedfrom accumulated other comprehensive income to retained earnings on January 1, 2018, upon adoption of this ASU. The guidance related to equityinvestments without readily determinable fair values will be applied prospectively to all investments that exist as of the date of adoption. The adoption ofthis new ASU did not impact the Company's investment portfolio as it is comprised of fixed income investments and not equity investments.In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements forFair Value Measurement". This ASU removes certain disclosure requirements related to the fair value hierarchy, such as disclosure of amounts and reasons fortransfers between Level 1 and Level 2, and adds new disclosure requirements, such as disclosure of the range and weighted average of significantunobservable inputs used to develop Level 3 fair value measurement. For the Company, the new standard will be effective on January 1, 2020. The Companydoes not expect this ASU to have any material impact on its consolidated financial statements, as the Company does not have financial instruments classifiedas level 3.2. 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, 2018 2017 2016Weighted average number of shares outstanding: Common stock 25,948,189 21,677,981 20,737,903Common stock equivalents: stock options, grants 27,715 40,409 46,839Diluted shares outstanding 25,975,904 21,718,390 20,784,742Rights OfferingOn October 4, 2017, the Company commenced a rights offering to common shareholders the proceeds of which have been used to provide additional workingcapital for general corporate purposes, including to fund general infrastructure costs and the development of buildings at Tejon Ranch Commerce Center, orTRCC, to continue forward with entitlement and permitting programs for the Centennial and Grapevine communities and costs related to the preparation ofthe development of MV. The rights offering concluded on October 27, 2017, with the Company raising $89,701,000, net of offering costs, from the saleof 5,000,596 shares at $18.00 per share.853. MARKETABLE SECURITIESASC 320 “Investments – Debt and Equity Securities” requires that an enterprise classify all debt securities as either held-to-maturity, trading or available-for-sale. The Company has elected to classify its securities as available-for-sale and therefore is required to adjust securities to fair value at each reporting date.All costs and both realized and unrealized gains and losses on securities are determined on a specific identification basis. The following is a summary ofavailable-for-sale securities at December 31:($ in thousands) 2018 2017Marketable Securities:Fair ValueHierarchy Cost Estimated FairValue Cost Estimated FairValueCertificates of deposit with unrecognized losses for less than 12 months $250 $248 $6,238 $6,222with unrecognized losses for more than 12 months 3,861 3,812 102 100with unrecognized gains — — 2,088 2,089Total Certificates of depositLevel 1 4,111 4,060 8,428 8,411U.S. Treasury and agency notes with unrecognized losses for less than 12 months 3,112 3,105 29,741 29,669with unrecognized losses for more than 12 months 23,564 23,415 137 135with unrecognized gains 3 4 152 153Total U.S. Treasury and agency notesLevel 2 26,679 26,524 30,030 29,957Corporate notes with unrecognized losses for less than 12 months 13,696 13,665 18,230 18,159with unrecognized losses for more than 12 months 12,542 12,431 2,804 2,788Total Corporate notesLevel 2 26,238 26,096 21,034 20,947Municipal notes with unrecognized losses for less than 12 months 2,994 2,982 10,298 10,288with unrecognized losses for more than 12 months 4,116 4,087 999 987with unrecognized gains — — 277 278Total Municipal notesLevel 2 7,110 7,069 11,574 11,553 $64,138 $63,749 $71,066 $70,868We 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, 2018, the fair market value of investment securities was $389,000 below the cost basis of securities. The Company’sgross unrealized holding gains equal $1,000 and gross unrealized holding losses equal $390,000. The Company has determined that any unrealized losses inthe portfolio are temporary as of December 31, 2018.As of December 31, 2018, 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 $191,000, which includes estimated taxes of $53,000.86The following tables summarize the maturities, at par, of marketable securities by year ($ in thousands):December 31, 20182019 2020 2021 2022 TotalCertificates of deposit$2,311 $1,799 $— $— $4,110U.S. Treasury and agency notes17,574 9,174 — — 26,748Corporate notes18,671 7,150 400 — 26,221Municipal notes5,111 2,000 — — 7,111 $43,667 $20,123 $400 $— $64,190December 31, 2017 2018 2019 2020 2021 TotalCertificates of deposit $4,306 $2,311 $1,799 $— $8,416U.S. Treasury and agency notes 6,399 14,599 9,171 — 30,169Corporate notes 7,954 6,430 6,450 — 20,834Municipal notes 1,568 6,957 3,003 — 11,528 $20,227 $30,297 $20,423 $— $70,947The Company’s investments in corporate notes are with companies that have an investment grade rating from Standard & Poor’s.4. INVENTORIESInventories consisted of the following at December 31:($ in thousands) 2018 2017Farming inventories $2,269 $2,012Other 349 457 $2,618 $2,469Farming inventories consist of costs incurred during the current year related to the next year’s crop, as well as any current year’s unsold product and farmingchemicals.5. REAL ESTATEReal estate consisted of the following as of December 31:($ in thousands) 2018 2017Real estate development Mountain Village $137,571 $132,034Centennial 100,311 94,271Grapevine 31,175 28,139Tejon Ranch Commerce Center 14,328 12,892Real estate development 283,385 267,336 Real estate and improvements - held for lease, net Tejon Ranch Commerce Center 21,327 21,123Real estate and improvements - held for lease, net 21,327 21,123Less accumulated depreciation (2,374) (2,008)Real estate and improvements - held for lease, net $18,953 $19,115876. LONG-TERM WATER ASSETSLong-term water 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 andthe cost 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 future use or sale. In 2008, we purchased 8,393 acre-feet of transferable water and in 2009 we purchased an additional6,393 acre-feet of transferable water, all of which is now stored in the Company's water bank. We also have secured State Water Project, or SWP, entitlementunder long-term SWP water contracts within the Tulare Lake Basin Water Storage District and the Dudley-Ridge Water District, totaling 3,444 acre-feet ofSWP entitlement annually, subject to SWP allocations. These contracts extend through 2035 and have been transferred to AVEK for our use in the AntelopeValley. In 2013, the Company acquired a contract to purchase water that obligates the Company to purchase 6,693 acre-feet of water each year from theNickel Family, LLC, or Nickel, a California limited liability company that is located in Kern County.The initial term of the water purchase agreement with Nickel runs to 2044 and includes a Company option to extend the contract for an additional 35 years.The purchase cost of water in 2018 is $738 per acre-foot. The purchase cost is subject to annual cost increases based on the greater of the consumer priceindex or 3%.The water purchased above will ultimately be used in the development of the Company’s land for commercial/industrial real estate development,resort/residential real estate development, and farming. Interim uses may include the sale of portions of this water to third party users on an annual basis untilthis water is fully allocated to Company uses, as just described.Water revenues and cost of sales were as follows as of December 31:($ in thousands)2018 2017 2016 Acre-Feet Sold9,442 939 7,285 Revenues$9,142 $1,254 $9,601Cost of sales3,864 765 5,925Profit$5,278 $489 $3,676Costs assigned to water assets held for future use were as follows ($ in thousands): December 31, 2018 December 31, 2017Banked water and water for future delivery$24,597 $5,220Transferable water36 13,351Total water held for future use at cost$24,633 $18,571Intangible Water AssetsThe Company's carrying amounts of its purchased water contracts were as follows ($ in thousands): December 31, 2018 December 31, 2017 Costs Accumulated Depreciation Costs AccumulatedDepreciationDudley-Ridge water rights$12,203 $(3,860) $12,203 $(3,377)Nickel water rights18,740 (3,320) 18,740 (2,678)Tulare Lake Basin water rights5,857 (2,421) 5,857 (2,186) $36,800 $(9,601) $36,800 $(8,241)Net cost of purchased water contracts27,199 28,559 Total cost water held for future use24,633 18,571 Net investments in water assets$51,832 $47,130 88Water 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, including both recurring and one-timeusage are:(in acre feet, unaudited)December 31, 2018 December 31, 2017Water held for future use AVEK water bank13,033 13,033 Company water bank35,793 31,497 Transferable water *500 6,169Total water held for future use49,326 50,699Purchased 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 Company52,547 49,184Total purchased water contracts83,980 80,617Total water held for future use and purchased water contracts133,306 131,316*of the 6,169 acre-feet of transferable water, 1,452 acre-feet was 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.Tejon Ranchcorp, or Ranchcorp, a wholly-owned subsidiary of Tejon Ranch Co., entered into a Water Supply Agreement with PEF in 2015. PEF is thecurrent lessee under the power plant lease. Pursuant to the Water Supply Agreement, PEF may purchase from Ranchcorp up to 3,500 acre-feet of water peryear from January 1, 2017 through July 31, 2030, with an option to extend the term. PEF is under no obligation to purchase water from Ranchcorp in anyyear, but is required to pay Ranchcorp an annual option payment equal to 30% of the maximum annual payment. The price of the water under the WaterSupply Agreement for 2018 is $1,088 per acre-foot of annual water, subject to 3% annual increases over the life of the contract. The Water Supply Agreementcontains other customary terms and conditions, including representations and warranties, which are typical for agreements of this type. The Company'scommitments to sell water can be met through current water assets.7. ACCRUED LIABILITIES AND OTHERAccrued liabilities and other consisted of the following:($ in thousands)December 31, 2018 December 31, 2017Accrued vacation$761 $824Accrued paid personal leave416 494Accrued bonus 12,071 126Other327 366 $3,575 $1,8101- A majority of the bonuses earned in 2017 were paid out prior to December 31, 2017.8. LINE OF CREDIT AND LONG-TERM DEBTDebt consisted of the following:($ in thousands)December 31, 2018 December 31, 2017Notes payable65,901 69,741Other borrowings14 218Total short-term and long-term debt65,915 69,959Less line-of-credit and current maturities of long-term debt(4,018) (4,004)Less deferred loan costs(117) (139)Long-term debt, less current portion$61,780 $65,81689On 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 $62,483,000 balance as of December 31, 2018. 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, which are typical in this type of borrowingarrangement.The RLC had no outstanding balance at December 31, 2018 and December 31, 2017. At the Company’s option, the interest rate on this line of credit can floatat 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 inSeptember 2019), we can borrow at any time and partially or wholly repay any outstanding borrowings and then re-borrow, as necessary. We anticipaterenewing the RLC in September 2019 at similar terms as the expiring terms.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 including availability on RLC. At December 31, 2018 and 2017, 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 this promissory note is 4.25% per annum, withmonthly principal and interest payments of $36,000 ending on September 1, 2028. The proceeds from this promissory note were used to eliminate debt thathad been previously used to provide long-term financing for a building being leased to Starbucks and provide additional working capital for futureinvestment. The current balance on the note was $3,418,000 on December 31, 2018. The balance of this long-term debt instrument listed above approximatesthe fair value of the instrument.The following table summarizes our outstanding indebtedness and respective principal maturities as of December 31,($ in thousands) 2019 2020 2021 2022 2023 Thereafter TotalTerm Loan $3,715 $3,881 $4,051 $4,221 $4,429 $42,186 $62,483Promissory note 289 302 315 328 343 1,841 3,418Other borrowings 14 — — — — — 14Total long-term debt $4,018 $4,183 $4,366 $4,549 $4,772 $44,027 $65,915909. OTHER LIABILITIESOther liabilities consist of the following:($ in thousands)December 31, 2018 December 31, 2017Pension liability (See Note 15)$2,148 $2,280Interest rate swap liability (See Note 10)1— 894Supplemental executive retirement plan liability (See Note 15)7,750 7,759Other2,800 758 $12,698 $11,6911The Company's interest rate swap had an asset balance of $93,000 as of December 31, 2018 and is presented under the caption Other Assets on the Consolidated Balance Sheets. TheCompany's interest rate swap had a liability balance as of December 31, 2017 as presented above.For the captions presented in the table above, please refer to the respective Notes to Consolidated Financial Statements for further detail.10. INTEREST RATE SWAPDuring October 2014, the Company entered into an interest rate swap agreement to hedge cash flows tied to changes in the underlying floating interest ratetied to LIBOR for the Term Loan as discussed in Note 8 (Line of Credit and Long-Term Debt) of the Notes to Consolidated Financial Statements. Theineffective portion of the change in fair value of our interest rate swap agreement is required to be recognized directly in earnings. During the yearended December 31, 2018, our interest rate swap agreement was 100% effective; because of this, no hedge ineffectiveness was recognized inearnings. Changes in fair value, including accrued interest and adjustments for non-performance risk, on the effective portion of our interest rate swapagreements that are designated and that qualify as cash flow hedges are classified in accumulated other comprehensive income. Amounts classified inaccumulated other comprehensive income are subsequently reclassified into earnings in the period during which the hedged transactions affect earnings. Asof December 31, 2018, the fair values of our interest rate swap agreement aggregating an asset balance were classified in other assets based upon its respectivefair value. We had the following outstanding interest rate swap agreement designated as cash flow hedges of interest rate risk as of December 31, 2018 ($ inthousands):Effective Date Maturity Date Fair Value Hierarchy Weighted AverageInterest Pay Rate Fair Value Notional AmountOctober 15, 2014 October 5, 2024 Level 2 4.11% $93 $62,48311. 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 ofpreviously 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 as of the year ended December 31, 2018:Performance Share Grants with Performance ConditionsBelow threshold performance —Threshold performance 179,211Target performance 407,950Maximum performance 619,51291The 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, 2018 December 31, 2017 December 31, 2016Stock Grants Outstanding Beginning of the Year at Target Achievement536,860 386,171 272,353New Stock Grants/Additional shares due to achievement in excess oftarget97,529 295,243 287,091Vested Grants(93,948) (99,769) (172,749)Expired/Forfeited Grants(1,842) (44,785) (524)Stock Grants Outstanding at Target Achievement538,599 536,860 386,171The unamortized cost associated with nonvested stock grants and the weighted-average period over which it is expected to be recognized as of December 31,2018 was $4,558,000 and 17 months, respectively. The fair value of restricted stock with time-based vesting features is based upon the Company’s shareprice on the date of grant and is expensed over the service period. Fair value of performance grants that cliff vest based on the achievement of performanceconditions is based on the share price of the Company’s stock on the day of grant once the Company determines that it is probable that the award will vest.This fair value is expensed over the service period applicable to these grants. For performance grants that contain a range of shares from zero to maximum wedetermine, based on historic and projected results, the probability of (1) achieving the performance objective, and (2) the level of achievement. Based on thisinformation, we determine the fair value of the award and measure the expense over the service period related to these grants. Because the ultimate vesting ofall performance grants is tied to the achievement of a performance condition, we estimate whether the performance condition will be met and over whatperiod of time. Ultimately, we adjust compensation cost according to the actual outcome of the performance condition. Under the Non-Employee DirectorStock Incentive Plan, or NDSI Plan, each non-employee director, during the years presented, received his or her annual compensation in stock.The following table summarizes stock compensation costs for the Company's 1998 Stock Incentive Plan, or the Employee 1998 Plan, and NDSI Plan for thefollowing periods:Employee 1998 Plan ($ in thousands): December 31, 2018 December 31, 2017 December 31, 2016 Expensed $2,564 $2,889 $3,847 Capitalized 1,232 555 296 3,796 3,444 4,143NDSI Plan 684 663 738 $4,480 $4,107 $4,88112. INCOME TAXESThe Company accounts for income taxes using ASC 740, “Income Taxes” which is an asset and liability approach that requires the recognition of deferredtax assets and liabilities for the expected future tax consequences of events that have been recognized differently in the financial statements and the taxreturns. The provision for income taxes consists of the following at December 31:($ in thousands) 2018 2017 2016Total (benefit) provision: $1,320 $(1,283) $496Federal: Current 862 (1,266) (758)Deferred 64 255 1,146 926 (1,011) 388State: Current 353 (120) (145)Deferred 41 (152) 253 394 (272) 108 $1,320 $(1,283) $49692The provision for income taxes for fiscal year 2017 included a $54,000 estimated tax expense as a result of the revaluation of federal net deferred tax assetsfrom 34% to 21% due to the impact of the enactment of U.S. Tax Reform. During 2018, the Company completed its analysis of the impacts of the U.S. TaxReform and no additional expense was warranted. Other provisions of the U.S. Tax Reform did not have a material effect on our effective tax rate for 2018.A reconciliation of the provision for income taxes, with the amount computed by applying the statutory Federal income tax rate of 21% in 2018 and 34% forperiods prior to income before provision for income taxes is as follows for the years ended December 31: ($ in thousands) 2018 2017 2016Income tax at statutory rate $1,171 $(1,046) $440State income taxes, net of Federal benefit 317 (185) 66Oil and mineral depletion (134) (180) (161)Permanent differences 19 25 82Excess stock compensation expense (20) 107 —U.S. Tax Reform adjustment — 54 —Other (33) (58) 69(Benefit) provision for income taxes $1,320 $(1,283) $496Effective tax rate 23.8% 41.3% 39.6%93Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities were as follows atDecember 31:($ in thousands) 2018 2017Deferred income tax assets: Accrued expenses $318 $393Deferred revenues 697 209Capitalization of costs 1,937 2,138Pension adjustment 2,937 2,996Stock grant expense 2,674 2,130State deferred taxes 25 —Book deferred gains 941 941Joint venture allocations 1,091 1,025Provision for additional capitalized costs 699 699Interest rate swap — 267Other 155 423Total deferred income tax assets $11,474 $11,221Deferred income tax liabilities: Deferred gains $32 $32Depreciation 3,100 3,563Cost of sales allocations 872 872Joint venture allocations 4,914 3,972Straight line rent 611 631Prepaid expenses 298 132State deferred taxes 256 322Interest rate swap 28 —Other 134 135Total deferred income tax liabilities $10,245 $9,659Net deferred income tax asset $1,229 $1,562Allowance for deferred tax assets — —Net deferred taxes $1,229 $1,562Due 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 did not make federal and state income tax payments in 2018 and 2017. The Company received refunds of $164,000 and $124,000 in 2018 and2017, 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, 2018 and 2017 within the scope of ASC 740, "Income Taxes." Tax years from2015 to 2017 and 2014 to 2017 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 31 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: 2018 2017 2016Base rent $5,924,000 $5,711,000 $5,613,000Percentage rent $621,000 $677,000 $495,00094Future minimum rental income on commercial, communication and right-of-way on non-cancelable leases as of December 31, 2018:2019 2020 2021 2022 2023 Thereafter$5,749 $5,664 $5,492 $5,305 $4,964 $26,00714. COMMITMENTS AND CONTINGENCIESThe Company's land is subject to water contracts of which $10,156,000 is expected to be paid in 2019. These estimated water contract payments consist ofSWP, contracts with Wheeler Ridge Maricopa Water Storage District, TCWD, Tulare Lake Basin Water Storage District, Dudley-Ridge Water Storage Districtand the Nickel water contract. The SWP contracts run through 2035 and the Nickel water contract runs through 2044, with an option to extend an additional35 years. As discussed in Note 6 (Long-Term Water Assets), we purchased the assignment of a contract to purchase water in late 2013. The assigned watercontract is with Nickel and obligates us to purchase 6,693 acre-feet of water annually through the term of the contract. Our contractual obligation for futurewater payments was $260,078,000 as of December 31, 2018 .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 paid will be capitalized in realestate development 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 litigated project entitlements and at a value measurement date five-years after litigated entitlements havebeen achieved for Grapevine. The final amount of the incentive fees will not be finalized until the future payment dates. The Company believes that netsavings from exiting the 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 TRCC, TRPFFA has created two Community Facilities Districts, orCFDs: 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 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 the Company’s land to secure payments ofspecial 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 debt approved forissuance. At TRCC-East, the East CFD has approximately $65,000,000 of additional bond debt authorized by TRPFFA that can be sold in the future.In connection with the sale of bonds, there is a standby letter of credit for $4,468,000 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 $68,000.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 costs related to theTRCC-West development. At December 31, 2018 there were no additional improvement funds remaining from the West CFD bonds and there were$4,180,000 in improvement funds within the East CFD bonds for reimbursement of public infrastructure costs during 2018 and future years. During 2018, theCompany paid approximately $2,570,000 in special taxes. As development continues to occur at TRCC, new owners of land and new lease tenants, throughtriple net leases, will bear an increasing portion of the assessed special tax. This amount could change in the future based on the amount of bonds outstandingand the amount 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 thecurrent 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, 2018.95Tehachapi Uplands Multiple Species Habitat Conservation Plan ApprovalIn July 2014, the Company received a copy of a Notice of Intent to Sue, dated July 17, 2014 indicating that the Center for Biological Diversity, or CBD, 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, and USFWS's issuance of anIncidental Take Permit, to Ranchcorp for the take of federally listed species. The foregoing approvals authorize, among other things, the removal ofCalifornia condor habitat associated with Ranchcorp's potential future development of MV. No lawsuit has been filed at this time. It is not possible to predictwhether 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 was in overdraft andestablished 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 (Judgment). The Company’s water supply plan for theCentennial project anticipated reliance on, among other sources, a certain quantity of groundwater underlying the Company’s lands in the Antelope Valley.The Company’s allocation in the Judgment is consistent with that amount. Prior to the Judgment becoming final, on February 19 and 22, 2016, severalparties, including the Willis Class and Phelan Pinon Hills Community Services District, filed notices of appeal from the Judgment. The Appeal has beentransferred from the Fourth Appellate District to the Fifth Appellate District.Appellate briefing is scheduled to occur in 2019. Notwithstanding the appeals, the parties with assistance from the Court, have established the WatermasterBoard, hired the Watermaster Engineer and Watermaster Legal Counsel, and begun administering 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 CBD (collectively, Central Delta), fileda complaint in the Sacramento County Superior Court against the California Department of Water Resources, or DWR, Kern County Water Agency and anumber of “real parties in interest,” including the Company and TCWD. The lawsuit challenges certain amendments to the SWP contracts that wereoriginally approved in 1995, known as the Monterey Amendments. Petitioners in this action also sought to invalidate the DWR's approval of the MontereyAmendments, and the 2010 environmental impact report (2010 EIR) regarding the Monterey Amendments prepared pursuant to the California EnvironmentalQuality Act, or CEQA, pertaining to the Kern Water Bank, or KWB.96The trial court concluded that the 2010 EIR for the Monterey Amendments was insufficient with regard to the EIR's evaluation of the potential impacts of theoperation of the KWB, particularly on groundwater and water quality, and issued a writ of mandate that required DWR to prepare a remedial EIR. DWRapproved a remedial EIR (the 2016 EIR). The trial court also concluded that the challenges to DWR’s 1995 approval of the Monterey Amendments werebarred by statutes of limitations and laches. Central Delta and some of the real parties in interest appealed the trial court’s judgment.On October 21, 2016, the Center for Food Safety (CFS) and some of the Central Delta petitioners filed a new lawsuit in Sacramento County Superior Courtchallenging the 2016 EIR. On October 2, 2017, the Sacramento County Superior Court dismissed the new lawsuit and discharged the writ of mandate relatingto the 2016 EIR. The CFS petitioners appealed the Sacramento County Superior Court’s 2017 judgment. The Central Delta, CFS and real party appeals areconsolidated for hearing and are pending before the Third Appellate District of the California Court of Appeal. The Central Delta and CFS lawsuitsprincipally challenge (i) the adequacy of the 2010 EIR and 2016 EIR, (ii) validity of DWR’s form of CEQA approval of the Monterey Amendments followingcertification of the 2010 EIR and the 2016 EIR, and (iii) the validity of the Monterey Amendments on various grounds, including the transfer of the KWBlands, from DWR to the Kern County Water Agency and in turn to the Kern Water Bank Authority, or KWBA, whose members are various Kern and KingsCounty interests, including TCWD, which has a 2% interest in the KWBA. A parallel lawsuit was also filed by Central Delta in Kern County Superior Courton July 2, 2010, against Kern County Water Agency, also naming the Company and TCWD as real parties in interest, which has been stayed pending theoutcome of the other action against DWR. The Company is named on the ground that it “controls” TCWD. This lawsuit has since been moved to theSacramento County Superior Court. Another lawsuit was filed in Kern County Superior Court on June 3, 2010, by two districts adjacent to the KWB, namelyRosedale Rio Bravo and Buena Vista Water Storage Districts, or Rosedale, asserting that the 2010 EIR did not adequately evaluate potential impacts arisingfrom operations of the KWB, but this lawsuit did not name the Company, only TCWD. TCWD has a contract right for water stored in the KWB and rights torecharge and withdraw water. This lawsuit has since been moved to the Sacramento County Superior Court. In a ruling on the Central Delta lawsuit onJanuary 25, 2013, the court, in the Central Delta lawsuit, determined that the challenges to the validity of the Monterey Amendments, including the transferof 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 substantivehearing on the challenges to the 2010 EIR was held on January 31, 2014. On March 5, 2014 the court issued a decision, rejecting all of Central Delta’sCEQA, claims, except the Rosedale claim, joined by Central Delta, that the 2010 EIR did not adequately evaluate future impacts from operation of the KWB,in particular the potential impacts on groundwater and water quality.On November 24, 2014, the court issued a writ of mandate (the 2014 Writ) that required DWR to prepare a revised EIR regarding the Monterey Amendmentsevaluating the potential operational impacts of the KWB. The 2014 Writ authorized the continued operation of the KWB pending completion of the 2016EIR subject to certain conditions, including those described in an interim operating plan negotiated between the KWBA and Rosedale. The 2014 Writ, asrevised by the court, required DWR to certify the 2016 EIR and file the return to the 2014 Writ by September 28, 2016. On September 20, 2016, the Directorof DWR (a) certified the 2016 EIR prepared by DWR, as in compliance with CEQA, (b) adopted findings, a statement of overriding considerations, and amitigation, monitoring and reporting program as required by CEQA, (c) made a new finding pertaining to carrying out the Monterey Amendments throughcontinued use and operation of the KWB by the KWBA, and (d) caused a notice of determination to be filed with the Office of Planning and Resources of theState of California on September 22, 2016. On September 28, 2016, DWR filed with the Sacramento Superior Court its return to the 2014 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 has appealedthe judgment and the KWBA and certain other parties have filed a cross-appeal with regard to certain defenses to the CEQA cause of action. The appeals arepending in the Third Appellate District of 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 stipulated to the discharge of the 2014 Writ.97On October 21, 2016, the Central Delta petitioners and a new party, the CFS (CFS Petitioners), filed a new lawsuit in Sacramento County Superior Court (theCFS Petition) against DWR and naming a number of real parties in interest, including KWBA and TCWD (but not including the Company) (CFS vs DWR).The new lawsuit challenges DWR’s (i) certification of the Revised EIR, (ii) compliance with the 2014 Writ and CEQA, and (iii) finding concerning thecontinued use and operation of the KWB by KWBA. In response to a motion filed by the CFS Petitioners, on April 7, 2017, the Superior Court denied theCFS Petitioners’ motion to stay the Superior Court proceedings on the return to the 2014 Writ and CFS Petition pending the appeal in the Central Delta case.The Superior Court subsequently modified the 2014 Writ to authorize the KWBA to construct an additional 190 acres of recharge ponds within the KWBpending the court's consideration of DWR's return to the 2014 Writ and the petition in CFS vs DWR. On August 18, 2017, the Superior Court held a hearingon the return to the 2014 Writ and on the CFS Petition. On October 2, 2017, the Superior Court issued a ruling that the court shall deny the CFS Petition andshall discharge the 2014 Writ. CFS has appealed the Superior Court judgment denying the CFS Petition. The Third Appellate District of the Court of Appealgranted DWR’s motion to consolidate the CFS appeal, for hearing, with the pending appeals in the Central Delta case. Briefing on all of the appeals iscomplete.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, 2017,the CBD, and the CFS, filed an action in Kern County Superior Court pursuant to CEQA, against Kern County and the Kern County Board of Supervisors(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, 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 answeringpetitioners' allegations and denying that relief should be granted. Petitioners seek to invalidate the County's approval of the project, the environmentalapprovals and require the County to revise the environmental documentation.On July 27, 2018, the court held a hearing on the petitioners’ claims. At that hearing, the court rejected all of petitioners’ claims raised in the litigation,except petitioners’ claims that (i) the project description was inadequate and (ii) such inadequacy resulted in aspects of certain environmental impacts beingimproperly analyzed. As to the claims described in “(i)” and “(ii)” in the foregoing sentence, the court determined that the EIR was inadequate. In that regard,the court determined the Grapevine project description contained in the EIR allowed development to occur in the time and manner determined by the realparties in interest and, as a consequence, such development flexibility could result in the project’s internal capture rate (ICR) - the percent of vehicle tripsremaining within the project - actually being lower than the projected ICR levels used in the EIR and that lower ICR levels warranted supplemental traffic, airquality, greenhouse gas emissions, noise, public health and growth inducing impact analyses.On December 11, 2018, the court ruled that portions of the EIR required corrections and ordered that the County rescind the Grapevine project approvalsuntil such supplemental environmental analysis was completed. We anticipate that the County will rescind the Grapevine project approvals described abovein the first or second quarter of 2019 (thereafter, any party may appeal the court's final judgment). Following the County’s anticipated rescission of theGrapevine project approvals, the Company will file new applications to re-entitle the Grapevine project (“re-entitlement”) in 2019. We expect that re-entitlement will involve processing project approvals that are substantively similar to the Grapevine project that was unanimously approved by the KernCounty Board of Supervisors in December of 2016. As part of the re-entitlement, supplemental environmental analysis would be prepared to address thecourt’s ruling. Following a public comment and review period, the Kern County Planning Commission would hold a hearing to make a recommendation tothe Kern County Board of Supervisors on the re-entitlement of the Grapevine project. Thereafter, the Kern County Board of Supervisors would hold a hearingto consider the supplemental environmental analysis and whether to take action to approve the re-entitlement of the Grapevine project, with possible KernCounty Board of Supervisors action occurring within the next twelve months. Following the Board of Supervisors’ action, further litigation could challengethe re-entitlement.98Proceedings 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 will have a material adverse effect on our financial position, results of operations or cash flows either individually or in the aggregate.15. RETIREMENT PLANSThe Company sponsors a defined benefit retirement plan, or Benefit Plan, that covers eligible employees hired prior to February 1, 2007. The benefits arebased on years of service and the employee’s five-year final average salary. The accounting for the defined benefit plan requires the use of assumptions andestimates in order to calculate periodic benefit cost and the value of the plan's assets and benefit obligation. These assumptions include discount rates,investment returns, and project salary increases, amongst others. The discount rates used in valuing the plan's benefits obligations were determined withreference to high quality corporate 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 $404,000.The following table sets forth changes in the plan's net benefit obligation and accumulated benefit information as of December 31:($ in thousands) 2018 2017Change in benefit obligation - Pension Benefit obligation at beginning of year $10,099 $9,905Service cost — 15Interest cost 365 386Actuarial (gain)/assumption changes (837) 1,505Benefits paid (221) (124)Settlements paid — (1,588)Benefit obligation at end of year $9,406 $10,099Accumulated benefit obligation at end of year $9,406 $10,099Change in Plan Assets Fair value of plan assets at beginning of year $7,819 $6,974Actual return on plan assets (505) 804Employer contribution 165 165Benefits/expenses paid (221) (124)Fair value of plan assets at end of year $7,258 $7,819Funded status - liability $(2,148) $(2,280) Amounts recorded in equity Net actuarial loss $3,162 $2,973Total amount recorded $3,162 $2,973Amount recorded, net taxes $2,277 $1,78499Other changes in plan assets and benefit obligations recognized in other comprehensive income include the following as of December 31:($ in thousands) 2018 2017Net loss (gain) $253 $(355)Recognition of net actuarial loss (64) (137)Recognized prior service cost — 61Total changes $189 $(431)Changes, net of taxes $136 $(259)The Company expects to recognize the following amounts as a component of net periodic pension costs during the next fiscal year: Expected return on plan assets$522Interest cost(389)Amortization of net gain/(loss)(75)Net periodic pension benefit/(cost)$58At December 31, 2018 and 2017, the Company had a long-term pension liability. For 2019, the Company is estimating that contributions to the pension planwill be approximately $165,000.Based on actuarial estimates, it is expected that annual benefit payments from the pension trust will be as follows:2019 2020 2021 2022 2023 Thereafter$274 $276 $291 $294 $352 $2,494Plan assets consist of equity, debt and short-term money market investment funds. The Benefit Plan’s current investment policy changed during the thirdquarter of 2018. The new policy is an investment strategy in which the primary focus is to minimize the volatility of the funding ratio. This objective willresult in a prescribed asset mix between "return seeking" assets (e.g. stocks) and a bond portfolio (e.g., long duration bonds) according to a pre-determinedcustomized investment strategy based on the Plan's Funded Status as the primary input. This path will be used as a reference point as to the mix of assets,which by design will de-emphasize the return seeking portion as funded status improves. At December 31, 2018, the investment mix was approximately 64%equity, 35% debt, and 1% money market funds. At December 31, 2017, the investment mix was approximately 57% equity, 37% debt and 6% money marketfunds. Equity investments consist of a combination of individual equity securities plus value funds, growth funds, large cap funds and international stockfunds. Debt investments consist of U.S. Treasury securities and investment grade corporate debt. The weighted-average discount rate used in determining theperiodic pension cost is 4.20% in 2018 and 3.65% in 2017. The expected long-term rate of return on plan assets is 7.5% in 2018 and 2017. The long-term rateof return on plan assets is based on the historical returns within the plan and expectations for future returns. See the following table for fair value hierarchy byinvestment type at December 31:($ in thousands) Fair Value Hierarchy 2018 2017Pension Plan Assets: Cash and Cash Equivalents Level 1 $95 $455Collective Funds Level 2 7,163 3,942Treasury/Corporate Notes Level 2 — 1,583Corporate Equities Level 1 — 1,839Fair value of plan assets $7,258 $7,819100Total pension and retirement expense was as follows for each of the years ended December 31:($ in thousands) 2018 2017 2016Cost components: Service cost $— $(15) $(223)Interest cost (365) (386) (406)Expected return on plan assets 585 531 517Net amortization and deferral (64) (122) (184)Settlement recognition — 47 —Total net periodic pension earnings/(cost) $156 $55 $(296)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 as it relates to the accrual of additional benefits resulting in a SERP liabilityadjustment, improving our other comprehensive loss position by $328,000.The following SERP benefit information is as of December 31:($ in thousands) 2018 2017Change in benefit obligation - SERP Benefit obligation at beginning of year $7,759 $8,015Interest cost 268 287Actuarial gain/assumption changes 267 466Benefits paid (544) (444)Curtailments — (565)Benefit obligation at end of year $7,750 $7,759Accumulated benefit obligation at end of year $7,750 $7,759Funded status - liability $(7,750) $(7,759)($ in thousands) 2018 2017Amounts recorded in stockholders’ equity Net actuarial loss (gain) $1,978 $1,935Total amount recorded $1,978 $1,935Amount recorded, net taxes $1,425 $1,161Other changes in benefit obligations recognized in other comprehensive income for 2018 and 2017 included the following components: ($ in thousands) 2018 2017Net (gain) loss $109 $(101)Recognition of net actuarial gain or (loss) (66) (212)Total changes $43 $(313)Changes, net of taxes $31 $188The Company expects to recognize the following amounts as a component of net periodic pension costs during the next fiscal year ($ in thousands):Interest cost$(304)Amortization of net (gain)/loss(62)Net periodic pension earnings/(cost)$(366)Based on actuarial estimates, it is expected that annual SERP benefit payments will be as follows ($ in thousands):2019 2020 2021 2022 2023 Thereafter$527 $523 $519 $514 $508 $2,738101The weighted-average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of projected benefitsobligation was 4.05% and 0.0% for 2018, 3.40% and 0.0% for 2017, and 3.90% and 3.50% for 2016. Total pension and retirement expense was as follows foreach of the years ended December 31:($ in thousands) 2018 2017 2016Cost components: Interest cost $(268) $(287) $(323)Net amortization and other (223) (211) (343)Total net periodic pension earnings/(cost) $(491) $(498) $(666)16. REPORTING SEGMENTS AND RELATED INFORMATIONWe currently operate in five reporting segments: commercial/industrial real estate development, resort/residential real estate development, mineral resources,farming, and ranch operations.Information pertaining to operating results of the Company's reporting segments are as follows:($ in thousands) December 31, 2018 December 31, 2017 December 31, 2016Revenues Real estate—commercial/industrial $8,970 $9,001 $9,840Mineral resources 14,395 5,983 14,153Farming 18,563 16,434 18,648Ranch operations 3,691 3,837 3,338Segment revenues 45,619 35,255 45,979Equity in unconsolidated joint ventures, net 3,834 4,227 7,098Gain on sale of real estate — — 1,044Investment income 1,344 462 457Other income (59) (275) (581)Total revenues and other income 50,738 39,669 53,997Segment Profits (Losses) Real estate—commercial/industrial 2,724 2,472 2,740Real estate—resort/residential (1,530) (1,955) (1,630)Mineral resources 8,172 3,019 6,357Farming 2,535 233 (25)Ranch operations (1,760) (1,574) (2,396)Segment profits (1) 10,141 2,195 5,046Equity in unconsolidated joint ventures, net 3,834 4,227 7,098Gain on sale of real estate — — 1,044Investment income 1,344 462 457Other income (59) (275) (581)Corporate expenses (9,705) (9,713) (11,811)Income from operations before income taxes $5,555 $(3,104) $1,253 (1) Segment profits are revenues less operating expenses, excluding investment income and expense, corporate expenses, equity in earnings of unconsolidated joint ventures, andincome taxes.102The revenue components of the commercial/industrial real estate segment for the years ended December 31 are as follows:($ in thousands)2018 2017 2016Pastoria Energy Facility Lease$4,056 $3,854 $3,612TRCC Leasing1,760 1,748 1,647TRCC management fees and reimbursements822 1,083 955Commercial leases692 652 917Communication leases904 808 806Landscaping and other736 783 791Land sale1— 73 1,112Total commercial revenues$8,970 $9,001 $9,840Equity in earnings of unconsolidated joint ventures3,834 4,227 7,098Commercial revenues & equity in earnings of unconsolidated joint ventures$12,804 $13,228 $16,938 (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 revenue consists of land and building leases to tenants at our commercial retail and industrial developments, base and percentage rents from ourPEF power plant lease, communication tower rents, and payments from easement leases. In November 2016, we sold a building and land, that was part of ourcommercial segment, located in Rancho Santa Fe California for $4,700,000, recognizing a gain of $1,044,000, which is not included within the December 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 $1,530,000, $1,955,000, and $1,630,000 during the years ended December 31, 2018, 2017, and 2016,respectively.The mineral resources segment receives oil and mineral royalties from the exploration and development companies that extract or mine the natural resourcesfrom our land and receives revenue from water sales. The following table summarizes these activities for each of the years ended December 31:($ in thousands) 2018 2017 2016Oil and gas $2,278 $1,659 $1,549Rock aggregate 1,143 1,072 1,164Cement 1,695 1,614 1,299Exploration leases 102 102 176Water sales 9,142 1,254 9,601Reimbursable 35 282 364Total mineral resources revenues $14,395 $5,983 $14,153The farming segment produces revenues from the sale of wine grapes, almonds, pistachios and hay. The revenue components of the farming segment were asfollows for each of the year ended December 31:($ in thousands) 2018 2017 2016Almonds $5,744 $6,327 $7,373Pistachios 7,880 4,523 6,199Wine grapes 3,683 4,131 3,744Hay 297 456 520Total crop proceeds 17,604 15,437 17,836Other farming revenues 959 997 812Total farming revenues $18,563 $16,434 $18,648103Ranch operations consists of game management revenues and ancillary land uses such as grazing leases and filming.($ in thousands) 2018 2017 2016Game management $1,382 $1,291 $1,296Grazing 1,520 1,677 1,187High Desert Hunt Club 305 351 334Filming and other 484 518 521Total ranch operations revenues $3,691 $3,837 $3,338Information pertaining to assets of the Company’s reporting segments is as follows for each of the years ended December 31: ($ in thousands) IdentifiableAssets Depreciation andAmortization CapitalExpenditures2018 Real estate - commercial/industrial $65,929 $651 $5,225Real estate - resort/residential 273,620 58 13,459Mineral resources 54,144 1,372 171Farming 40,835 1,897 3,166Ranch operations 2,973 536 102Corporate 91,547 910 457Total $529,048 $5,424 $22,5802017 Real estate - commercial/industrial $63,065 $650 $4,638Real estate - resort/residential 258,697 63 14,230Mineral resources 48,305 1,363 356Farming 36,317 2,080 2,129Ranch operations 3,625 601 220Corporate 108,190 932 136Total $518,199 $5,689 $21,7092016 Real estate - commercial/industrial $65,290 $614 $5,196Real estate - resort/residential 243,963 77 16,013Mineral resources 45,066 1,357 2,161Farming 36,895 2,146 2,006Ranch operations 3,893 614 523Corporate 44,434 849 481Total $439,541 $5,657 $26,380Segment 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.10417. 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, 2018 was $28,602,000. The equity in the income of the unconsolidated joint ventures was $3,834,000 for thetwelve months ended December 31, 2018. The unconsolidated joint ventures have not been consolidated as of December 31, 2018, because the Companydoes 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 it 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, 2018, the Company had an equity investment balance of $18,426,000 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 three 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. The Company and Majestic guarantee the performance ofall outstanding debt. At December 31, 2018, the Company's investment in these joint ventures was $0, which includes our outside basis.◦In November 2018, TRC-MRC 3, LLC was formed to pursue the development, construction, leasing, and management of a 579,040 square footindustrial building on the Company's property at TRCC-East. We anticipate construction completion in 2019, and plan to deliver the space inthe fourth quarter of 2019 to a tenant that has entered into a lease agreement to occupy 67% of this rentable space. At December 31, 2018, therewas no activity within this joint venture.◦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 promissory noteguaranteed by both partners. The promissory note was refinanced on June 1, 2018 with a $25,240,000 promissory note. The note matures onJuly 1, 2028, and currently has an outstanding principal balance of $25,014,000. Since inception, we have received excess distributionsresulting in a deficit balance of $2,526,000. In accordance with the applicable accounting guidance, these excess distributions are reclassifiedto the liabilities section of our consolidated balance sheet. We will continue to record our equity in the net income as a debit to the investmentaccount, and if it becomes positive, it will again be shown as an asset on our consolidated balance sheet. If it becomes obvious that any excessdistribution may not be returned (upon joint venture liquidation or otherwise), we will recognize any balance classified as a liability as incomeimmediately.◦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, we havereceived excess distributions resulting in a deficit balance of $264,000. In accordance with the applicable accounting guidance, these excessdistributions are reclassified to the liabilities section of our consolidated balance sheet. We will continue to record our equity in the net incomeas a debit to the investment account, and if it becomes positive, it will again be shown as an asset on our consolidated balance sheet. If itbecomes obvious that any excess distribution may not be returned (upon joint venture liquidation or otherwise), we will recognize any balanceclassified as a liability as income immediately. The joint venture refinanced its construction loan in December 2018 with a mortgage loan. Theoriginal principal balance of the mortgage loan was $25,030,000, of which $25,030,000 was outstanding at December 31, 2018. Half of thefacility is currently leased to Dollar General. In August of 2018, the joint venture agreed to terms on a lease for the other half of the facility withL’Oréal USA, the largest subsidiary of L’Oréal, that will bring SalonCentric, L’Oréal USA’s professional salon distribution operation, to TRCC.105•Rockefeller Joint Ventures – The Company has three joint ventures with Rockefeller Group Development Corporation or Rockefeller. At December 31,2018, the Company’s combined equity investment balance in these three joint ventures was $10,176,000.◦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 July 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 $9,173,000 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.◦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. The managing member's responsibilities relate to the routine day-to-day activitiesof TRCC/Rock Outlet Center LLC. However, all operating decisions during development and operations, including the setting and monitoringof the budget, leasing, marketing, financing and selection of the contractor for any of the project's construction, are jointly made by bothmembers of the joint venture. Therefore, the Company concluded that both members have significant participating rights that are sufficient toovercome the presumption of the Company controlling the joint venture through it being named the managing member. Therefore, theinvestment in TRCC/Rock Outlet Center LLC is being accounted for under the equity method. The TRCC/Rock Outlet Center LLC jointventure is separate from the aforementioned agreement to potentially develop up to 500 acres of land in TRCC. During the fourth quarter of2013, the TRCC/Rock Outlet Center LLC joint venture entered into a construction line of credit agreement with a financial institution for$52,000,000 that, as of December 31, 2018, had an outstanding balance of $46,826,000. The Company and Rockefeller guarantee theperformance of the debt.•Centennial Founders, LLC – Centennial Founders, LLC, or CFL, is a joint venture that was initially formed with TRI Pointe Homes, Lewis InvestmentCompany and CalAtlantic to pursue the entitlement and development of land that the Company owns in Los Angeles County. Based on the SecondAmended and Restated Limited Company Agreement of CFL and the change in control and funding that resulted from the amended agreement, CFLqualified as a VIE, beginning in the third quarter of 2009, and the Company was determined to be the primary beneficiary. As a result, CFL has beenconsolidated into our financial statements beginning in that quarter. Our partners retained a noncontrolling interest in the joint venture. On November30, 2016, CFL and Lewis entered a Redemption and Withdrawal Agreement, whereby Lewis irrevocably and unconditionally withdrew as a member ofCFL, and CFL redeemed Lewis' entire interest for no consideration. As a result, our noncontrolling interest balance was reduced by $11,039,000. OnDecember 31, 2018, CFL and CalAtlantic entered a Redemption and Withdrawal Agreement, whereby CalAtlantic irrevocably and unconditionallywithdrew as a member of CFL, and CFL redeemed CalAtlantic's entire interest for no consideration. As a result, our noncontrolling interest balance wasreduced by $13,172,000. At December 31, 2018, the Company owned 83.50% of CFL.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:106Balance Sheet Information as of December 31: Joint Venture TRC Assets Borrowings Equity Investment In 2018 2017 2018 2017 2018 2017 2018 2017Petro Travel Plaza Holdings, LLC$69,096 $67,435 $(15,283) $(15,279) $51,377 $49,705 $18,426 $17,422Five West Parcel, LLC15,157 15,738 (9,173) (9,711) 5,751 5,972 2,691 2,80218-19 West, LLC4,654 4,704 — — 4,654 4,704 1,783 1,782TRCC/Rock Outlet Center, LLC75,194 81,610 (46,826) (48,769) 27,531 32,177 5,702 8,025TRC-MRC 1, LLC29,692 25,380 (25,030) (19,433) 4,018 4,541 — —TRC-MRC 2, LLC20,362 20,336 (25,014) (21,080) (5,763) (992) — —Total$214,155 $215,203 $(121,326) $(114,272) $87,568 $96,107 $28,602 $30,031 Centennial Founders, LLC$93,840 $89,721 $— $— $93,188 $88,862 ConsolidatedCondensed Statement of Operations Information as of December 31: Joint Venture TRC Revenues Earnings(Loss) Equity in Earnings (Loss) 2018 2017 2016 2018 2017 2016 2018 2017 2016Petro Travel PlazaHoldings, LLC$119,083 $105,507 $100,605 $9,672 $10,418 $12,077 $5,803 $6,251 $7,246Five West Parcel, LLC2,731 2,824 2,887 778 905 1,029 389 452 51518-19 West, LLC13 11 10 (102) (97) (129) (51) (48) (65)TRCC/Rock OutletCenter, LLC16,418 9,615 9,542 (4,645) (2,347) (367) (2,323) (1,173) (184)TRC-MRC 1, LLC1,323 — — (498) (3) — (249) (2) —TRC-MRC 2, LLC23,981 3,655 1,178 529 (2,505) (828) 265 (1,253) (414) $133,549 $121,612 $114,222 $5,734 $6,371 $11,782 $3,834 $4,227 $7,098 Centennial Founders,LLC$297 $456 $520 $(249) $(144) $(246) Consolidated (1) Revenues for TRCC/Rock Outlet Center are presented net of non-cash tenant allowance amortization of $1.7 million, $1.8 million and $1.9 million for the years ended December31, 2018, 2017, and 2016, respectively.(2)Earnings for TRC-MRC 2, LLC include non-cash amortization of purchase accounting adjustments related to in-place leases of $0.8 million and $4.0 million for the years endedDecember 31, 2018 and 2017.18. RELATED PARTY TRANSACTIONSTCWD is a not-for-profit governmental entity, organized on December 28, 1965, pursuant to Division 13 of the Water Code, State of California. TCWD is alandowner voting district, which requires an elector, or voter, to be an owner of land located within the district. TCWD was organized to provide the waterneeds for future municipal and industrial development. The Company is the largest landowner and taxpayer within TCWD. The Company has a water servicecontract with TCWD that entitles us to receive all of TCWD’s State Water Project entitlement and all of TCWD’s banked water. TCWD is also entitled tomake assessments of all taxpayers within the district, to the extent funds are required to cover expenses and to charge water users within the district for the useof water. From time to time, we transact with TCWD in the ordinary course of business.10719. UNAUDITED QUARTERLY OPERATING RESULTSThe following is a tabulation of unaudited quarterly operating results for the years indicated: ($ 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 CommonStockholders22018 First Quarter $13,738 $4,277 $1,455 $1,457 $0.06 $0.06Second Quarter 5,406 115 (1,013) (997) (0.04) (0.04)Third Quarter 15,767 4,815 3,487 3,488 0.13 0.13Fourth Quarter 11,993 934 306 307 0.01 0.01 $46,904 $10,141 $4,235 $4,255 2017 First Quarter $5,791 $(811) $(1,913) $(1,902) $(0.09) $(0.09)Second Quarter 5,783 313 (203) (176) (0.01) (0.01)Third Quarter 11,997 720 (26) (22) — —Fourth Quarter 11,871 1,973 321 303 0.01 0.01 $35,442 $2,195 $(1,821) $(1,797) (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.NOTE: Refer to Note 1, Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements for discussion on impact of the adoption of ASU 2014-09"Revenue with Contracts from Customers (Topic 606)" on the results from those previously reported in our Form 10-Q.108Exhibit 10.43FOURTH AMENDMENTto SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT ofCENTENNIAL FOUNDERS, LLCThis Fourth Amendment to Second Amended and Restated Limited Liability Company Agreement of Centennial Founders,LLC (this “Fourth Amendment”) is made and effective as of December 31, 2018, by and among Tejon Ranchcorp, a Californiacorporation (“Tejon”), and Pardee Homes, a California corporation (“Pardee”; together with Tejon, the “Remaining Members” andeach a “Remaining Member”), and is acknowledged by Standard Pacific Investment Corp., a Delaware limited liability company(“SPIC”) and CalAtlantic Group, Inc., a Delaware corporation, as successor to the former CalAtlantic Group, Inc. (formerly known asStandard Pacific Corp., a Delaware corporation), which was successor by merger to The Ryland Group, Inc. (“Standard Pacific”) (onbehalf of itself and SPIC (unless otherwise noted), collectively, “CalAtlantic”). SPIC and CalAtlantic are each individually, as used inthis Fourth Amendment, a “CA Withdrawing Member” and, collectively, are the “CA Withdrawing Members.”RECITALSA.SPIC, Standard Pacific, Pardee, Tejon and Lewis Investment Company LLC, a California limited liability company (“Lewis”)entered into that certain Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC(formerly known as RM Development Associates, LLC) (the “Company”), dated as of July 31, 2009 (the “Second Amendedand Restated LLC Effective Date”) (such agreement, the “Second Amended and Restated LLC Agreement”), asamended by that certain First Amendment to Second Amended and Restated Limited Liability Company Agreement ofCentennial Founders, LLC dated as of November 30, 2016 (the “First Amendment”), as further amended by that certainSecond Amendment to Second Amended and Restated Limited Liability Company of Centennial Founders, LLC dated as ofNovember 30, 2016 (the “Second Amendment”), as further amended by that certain Third Amendment to Second Amendedand Restated Limited Liability Company Agreement of Centennial Founders, LLC dated as of February 1, 2018 (the “ThirdAmendment” and, as amended by this Fourth Amendment, collectively the “LLC Agreement”).B.Effective December 31, 2014, Lewis formed Lewis Tejon Member, LLC, a Delaware limited liability company (“LTM”), andcontributed and assigned all of its Interest as a member in the Company to LTM.C.As of the Second Amended and Restated LLC Effective Date, Lewis, Pardee, SPIC and Standard Pacific elected to becomeNon-Funding Members. Pursuant to that certain1205278.06/OC999903-14000/2-15-19/pdo/agt Redemption and Withdrawal Agreement entered into on November 30, 2016, by and between the Company and LTM (the“LTM Redemption Agreement”), LTM agreed to the redemption of its entire Interest in the Company and to withdraw as amember of the Company. The withdrawal of LTM as a member of the Company was memorialized pursuant to the FirstAmendment. Prior to the Fourth Amendment Effective Date (as hereinafter defined), Pardee and CalAtlantic (on behalf of itselfand SPIC) remain Non-Funding Members.D.As a result of the Non-Funding Members’ failure to fund any additional capital requested under the LLC Agreement, thePercentage Interests of the Members as of immediately prior to the Fourth Amendment Effective Date are as follows (the“Fourth Amendment Effective Date Percentage Interests”):Tejon 85.58% Pardee 7.21% CalAtlantic/SPIC 7.21%E.Pursuant to Section 13.1A of the LLC Agreement, a Non-Funding Member may elect to withdraw as a member of theCompany at any time by delivering written notice of such election to Tejon.F.Effective concurrently herewith, the CA Withdrawing Members have each elected to withdraw as members of the Companyand to accept a liquidation of their respective Interests therein (the “CA Withdrawal”) pursuant to that certain Redemption andWithdrawal Agreement dated as of the date hereof by and between the Company and the CA Withdrawing Members (the “CARedemption Agreement”).G.Effective upon the CA Withdrawal, the Percentage Interests of the Remaining Members shall be adjusted (by reallocating theCA Withdrawing Members’ Fourth Amendment Effective Date Percentage Interest to the Remaining Members in proportion tosuch Remaining Members’ relative Fourth Amendment Effective Date Percentage Interests) and the Percentage Interests of theRemaining Members immediately following such adjustment shall be as follows:Tejon 92.23% Pardee 7.77%Such reallocation of Percentage Interests shall be for all purposes used in the LLC Agreement, including, without limitation, theobligation to contribute Capital Contributions. Such Percentage Interests shall remain subject to further adjustment and dilutionas provided in the LLC Agreement.1205278.06/OC999903-14000/2-15-19/pdo/agt2 H.Pursuant to Section 10.1 of the LLC Agreement, the Eligible Developers (and their respective designated Affiliates) have theright to make offers to purchase and acquire Private Sale Lots and to use their respective Applicable Lot Credits for suchpurchases, subject to the terms and conditions contained in the LLC Agreement. If the Specific Plan Approval(s) are notobtained prior to the Specific Plan Approvals Deadline(s), then such rights automatically terminate, subject to the terms andconditions contained in the LLC Agreement. Further, and subject to the terms and conditions contained in the LLC Agreement,the Company has a right to call and redeem the Interest of any Non-Electing Developer pursuant to Section 13.1C of the LLCAgreement if the Company fails to obtain a Specific Plan Approval from the Los Angeles County Board of Supervisors by theSpecific Plan Approvals Deadline applicable thereto. The Third Amendment amended Section 10.1 of the LLC Agreement to,among other things, extend the Specific Plan Approvals Deadline to obtain final approval from the Los Angeles Board ofSupervisors of the Specific Plan from March 15, 2018 to September 30, 2018. Final approval from the Los Angeles Board ofSupervisors of the Specific Plan was not obtained by the September 30, 2018 Specific Plan Approvals Deadline.I.Although the Company did not obtain final approval from the Los Angeles Board of Supervisors of the Specific Plan bySeptember 30, 2018, in consideration of Pardee’s efforts toward assisting the Company achieve such Specific Plan Approval,the Remaining Members now desire to amend the LLC Agreement for the benefit of Pardee to extend (i) each Specific PlanApprovals Deadline only with respect to Pardee, and (ii) the date that Pardee may elect to withdraw as a member of theCompany and still be defined as a Subsequent Withdrawing Developer, in each case, as set forth herein, and the CAWithdrawing Members now desire to acknowledge the same and their withdrawal from the Company as provided in the CARedemption Agreement, all as set forth below.AGREEMENTFor good and valuable consideration, the receipt and sufficiency of which are acknowledged by the Remaining Members andthe CA Withdrawing Members, the Remaining Members and the CA Withdrawing Members agree and acknowledge as follows:1.Recitals. The parties confirm the accuracy of the foregoing Recitals, which are incorporated herein by reference.2. Withdrawal of the CA Withdrawing Members. Pursuant to the CA Redemption Agreement, the CA Withdrawing Members haveconcurrently herewith withdrawn as members of the Company. All of the CA Withdrawing Members’ Representatives and Alternateson the Executive Committee1205278.06/OC999903-14000/2-15-19/pdo/agt3 have concurrently herewith resigned. The Company has not dissolved or terminated as a result of this withdrawal of the CAWithdrawing Members as members of the Company; on the contrary, the Company's business has continued without interruption andwithout any breach in continuity.3. Definitions. Capitalized terms that are used but not otherwise defined in this Fourth Amendment are used as defined in the LLCAgreement.(a) The following definitions are added to Section 1.1A of the LLC Agreement in alphabetical order:“Fourth Amendment” shall have the meaning provided in the Preamble to the Fourth Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Fourth Amendment Effective Date” shall mean the effective date of the execution and delivery of the FourthAmendment to Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLCand the Redemption Agreement.“Fourth Amendment Effective Date Percentage Interests” shall have the meaning provided in the Recitals to theFourth Amendment to Second Amended and Restated Limited Liability Company Agreement of Centennial Founders,LLC.“LTM” shall have the meaning provided in the Recitals to the Fourth Amendment to Second Amended and RestatedLimited Liability Company Agreement of Centennial Founders, LLC.“LTM Redemption Agreement” shall have the meaning provided in the Recitals to the Fourth Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“CA Redemption Agreement” shall have the meaning provided in the Recitals to the Fourth Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“CA Withdrawal” shall have the meaning provided in the Recitals to the Fourth Amendment to Second Amended andRestated Limited Liability Company Agreement of Centennial Founders, LLC.“CA Withdrawing Member” shall have the meaning provided in the Preamble to the Fourth Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“CA Withdrawing Members” shall have the meaning provided in the Preamble to the Fourth Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.1205278.06/OC999903-14000/2-15-19/pdo/agt4 (b) The following definitions shall replace the existing definitions in Section 1.1A of the LLC Agreement as follows:“Company” shall have the meaning provided in the Recitals to the Fourth Amendment to Second Amended andRestated Limited Liability Company Agreement of Centennial Founders, LLC.“CalAtlantic” shall have the meaning provided in the Preamble to the Fourth Amendment to Second Amended andRestated Limited Liability Company Agreement of Centennial Founders, LLC.“Lewis” shall have the meaning provided in the Recitals to the Fourth Amendment to Second Amended and RestatedLimited Liability Company Agreement of Centennial Founders, LLC.“LLC Agreement” shall have the meaning provided in the Recitals to the Fourth Amendment to Second Amendedand Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Pardee” shall have the meaning provided in the Preamble to the Fourth Amendment to Second Amended andRestated Limited Liability Company Agreement of Centennial Founders, LLC.“Remaining Member” or “Remaining Members” shall have the meaning provided in the Preamble to the FourthAmendment to Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“SPIC” shall have the meaning provided in the Preamble to the Fourth Amendment to Second Amended and RestatedLimited Liability Company Agreement of Centennial Founders, LLC.“Standard Pacific” shall have the meaning provided in the Preamble to the Fourth Amendment to Second Amendedand Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Tejon” shall have the meaning provided in the Preamble to the Fourth Amendment to Second Amended and RestatedLimited Liability Company Agreement of Centennial Founders, LLC.4. Retention and Access to Books and Records. The CA Withdrawing Members and their respective representatives shall continue tohave access to the books and records of the Company that are retained by or on behalf of the Company for the period on or prior to theFourth Amendment Effective Date during normal business hours upon reasonable notice to Tejon. A CA Withdrawing Member maycopy all or any part of the books and records for any purpose at its own expense.5. Tax Allocation. Net Profits and Net Losses for the 2018 taxable year shall be allocated between the CA Withdrawing Membersand the Remaining Members pursuant to a computation1205278.06/OC999903-14000/2-15-19/pdo/agt5 method that is in conformity with the methods prescribed by Section 706 of the Code and Treasury Regulation Section 1.706‑1(c)(2)(ii) as reasonably determined by the Executive Committee and reasonably approved by each CA Withdrawing Member.6. Tax Returns. The Company shall deliver to each CA Withdrawing Member a copy of the Company's 2018 federal and state taxreturns on the same date that such tax returns are distributed to the Remaining Members.7. Revision to Specific Approvals Deadlines. Section 10.1 of the LLC Agreement is hereby amended to provide that (i) the SpecificPlan Approval Deadline to obtain final approval from the Los Angeles Board of Supervisors of the Specific Plan is hereby extendedfrom September 30, 2018 to August 1, 2019, and (ii) the Specific Plan Approvals Deadline to resolve favorably any litigationchallenging such approved Specific Plan is extended from June 30, 2020 to June 1, 2021. Although the Company did not obtain finalapproval from the Los Angeles Board of Supervisors of the Specific Plan by September 30, 2018, the Remaining Membersacknowledge and agree that the extension of such Specific Plan Approvals Deadline to the dates specifically provided in this FourthAmendment shall have the effect of reviving Pardee’s rights to make offers to purchase and acquire Private Sale Lots and to use itsApplicable Lot Credits for such purchases, in each case subject to, and to the extent permitted by, the terms and conditions contained inthe LLC Agreement.8. Extension of Date for Subsequent Withdrawing Developer. Section 13.1A of the LLC Agreement is amended to extend the dateby which any Developer may elect to withdraw as a member of the Company and be defined as a "Subsequent WithdrawingDeveloper" from December 31, 2018 to December 1, 2019.9. Composition of Executive Committee. Section 7.1C(1) is amended and restated in its entirety as follows:“The Representatives of the Represented Members are as follows:Tejon: Gregory S. Bielli Allen E. LydaPardee: Thomas Mitchell”10. Alternates. Section 7.1E is amended by deleting the last sentence thereof and replacing it as follows:“The Alternates of the Represented Members are as follows:Tejon: Hugh McMahonPardee: Mike McMillen”1205278.06/OC999903-14000/2-15-19/pdo/agt6 11. Full Force and Effect. The LLC Agreement as amended by this Fourth Amendment shall remain in full force and effect. In theevent of a conflict between this Fourth Amendment and the LLC Agreement, this Fourth Amendment shall govern.12. Multiple Counterparts and Electronic Signatures. This Fourth Amendment may be executed in multiple counterparts, each ofwhich will be considered an original and together will constitute one and the same agreement, binding upon all of the parties hereto.Signatures of the parties to this Fourth Amendment may be transmitted by facsimile or other electronic means and shall be treated asoriginals for all purposes.13. Joint and Several Liability. SPIC and CalAtlantic Group, Inc., each as a CA Withdrawing Member, shall be jointly and severallyliable for the obligations of the CA Withdrawing Members under this Amendment.[Signatures appear on next page]1205278.06/OC999903-14000/2-15-19/pdo/agt7 IN WITNESS WHEREOF, each of the undersigned has caused this Fourth Amendment to be executed by a duly authorizedofficer as of the date first set forth above. REMAINING MEMBERS:TEJON RANCHCORP, a California corporation/s/ Allen E. LydaBy: Allen E. LydaIts: Executive Vice President and Chief Operating Officer/s/ Gregory S. Bielli_ By: Gregory S. Bielli Its: President and Chief Executive OfficerPARDEE HOMES, a California corporation/s/ Thomas J. Mitchell By: Thomas J. Mitchell Its: President/s/ Michael A. McMillen By: Michael A. McMillen Its: Vice President[signatures continue on following page]1205278.06/OC999903-14000/2-15-19/pdo/agt8 ACKNOWLEDGED AND AGREED TO BY THE CA WITHDRAWING MEMBERS:STANDARD PACIFIC INVESTMENT CORP., a Delaware limited liability company/s/ Martin Langpap_ By: Martin Langpap Its: Regional Vice President, Land/s/ Greg McGuff_ By: Greg McGuff Its: Regional PresidentCALATLANTIC GROUP, INC., a Delaware corporation, as successor by merger to the former CalAtlantic Group, Inc. (formerly known as Standard Pacific Corp., a Delaware corporation), which was successor by merger to The Ryland Group, Inc./s/ Martin Langpap_ By: Martin Langpap Its: Regional Vice President, Land/s/ Greg McGuff_ By: Greg McGuff Its: Regional President[end of signatures]1205278.06/OC999903-14000/2-15-19/pdo/agt9 Exhibit 10.44REDEMPTION AND WITHDRAWAL AGREEMENTTHIS REDEMPTION AND WITHDRAWAL AGREEMENT (this "Agreement") is made and entered as of December31, 2018 (the "Effective Date"), by and among CENTENNIAL FOUNDERS, LLC, a Delaware limited liability company, formerlyknown as RM Development Associates, LLC (the "Company"), and STANDARD PACIFIC INVESTMENT CORP. a Delawarelimited liability company (“SPIC”) and CALATLANTIC GROUP, INC., a Delaware corporation, as successor to the formerCalAtlantic Group, Inc. (formerly known as Standard Pacific Corp., a Delaware corporation), which was successor by merger to TheRyland Group, Inc. (“Standard Pacific”) (on behalf of itself and SPIC, collectively “CalAtlantic Group”). SPIC and CalAtlanticGroup are each individually a “Withdrawing Member” and, collectively, are the “Withdrawing Members”. Capitalized terms usedherein and not otherwise defined herein shall have the meanings given to them in the LLC Agreement (as defined in Recital A below).This Agreement is entered into with reference to the following facts and circumstances:R E C I T A L SA. The Company is governed by that certain Second Amended and Restated Limited Liability Company Agreement ofCentennial Founders, LLC dated as of July 31, 2009 (the "Second Amended and Restated LLC Agreement"), entered into by andamong Tejon Ranchcorp, a California corporation ("Tejon"), Pardee Homes, a California corporation ("Pardee"), SPIC, and StandardPacific (which is now known as CalAtlantic Group), and Lewis Investment Company, LLC, a California limited liability company(“Lewis Investment Company”), as amended by that certain First Amendment to Second Amended and Restated Limited LiabilityCompany Agreement of Centennial Founders, LLC dated as of November 30, 2016 (the “First Amendment”), as further amended bythat certain Second Amendment to Second Amended and Restated Limited Liability Company of Centennial Founders, LLC dated asof November 30, 2016 (the “Second Amendment”), as further amended by that certain Third Amendment to Second Amended andRestated Limited Liability Company Agreement of Centennial Founders, LLC dated as of February 1, 2018 (the “ThirdAmendment”; together with the Second Amended and Restated LLC Agreement, the First Amendment and the Second Amendment,the “LLC Agreement”). Lewis Tejon Member, LLC, a Delaware limited liability company, succeeded to all of the Interest (as suchterm is defined herein) of Lewis Investment Company in the Company (on behalf of itself and Lewis Investment Company,collectively, “Lewis”), and subsequently withdrew as a Member of the Company as described in the First Amendment. CalAtlanticGroup succeeded to all of Standard Pacific's Interest in the Company.B. On and subject to the terms and conditions of the LLC Agreement, each Developer has the right to purchase Lots and toapply its Applicable Lot Credit (collectively, the “Article 10 Lot Purchase Rights”) from the Company for the development of for-sale single family attached and/or detached residences.C. As of July 31, 2009, each Withdrawing Member elected to become a Non-Funding Member (and each WithdrawingMember has remained a Non-Funding Member). Pursuant to Section 13.1A of the LLC Agreement, a Non-Funding Member mayelect to withdraw as a member of the Company at any time by delivering written notice of such election to Tejon. Effective1207186.02/OC373915-00006/pdo/agt concurrently herewith, each of the Withdrawing Members have elected to withdraw from the Company in accordance with the termsof this Agreement.D. Concurrently with the Withdrawing Members’ withdrawal, Tejon and Pardee ("Remaining Developer") have agreed toenter into an amendment to the LLC Agreement (the "Withdrawal Amendment"), which the Withdrawing Members have agreed toacknowledge. The Withdrawal Amendment shall include, without limitation, the provisions related to retention and access of theCompany’s books and records and receipt of the Company’s tax returns set forth in Sections 4 and 6, respectively, of the WithdrawalAmendment. The Remaining Developer and Tejon are sometimes hereinafter referred to individually, as a "Remaining Member" andcollectively, as the "Remaining Members."E. The Company and the Withdrawing Members now desire to enter into this Agreement, and the Remaining Members nowdesire to enter into the Consent, Ratification and Agreement of the Remaining Members in the form attached as Schedule 1 to thisAgreement (the "CRA"), to provide for (i) the full and complete redemption of each Withdrawing Member's Interest in the Company,and (ii) such other matters as are agreed to by the Company and the Withdrawing Members.A G R E E M E N TNOW THEREFORE, in consideration of the foregoing and of the mutual promises hereinafter set forth, the parties heretoagree as follows:1.Withdrawal/Redemption of the Interest. Pursuant to the terms and conditions set forth in this Agreement and theWithdrawal Amendment, each Withdrawing Member hereby irrevocably and unconditionally withdraws as a member of the Companyand the Company hereby redeems each Withdrawing Member's entire "Interest" (as defined in the LLC Agreement and as furtherdefined in this Section 1) in the Company provided the foregoing shall not limit or modify the rights of the Withdrawing Membersunder Section 2(c) below or under the Withdrawal Amendment. For purposes of this Agreement, each Withdrawing Member's"Interest" includes, without limitation, all of the Withdrawing Member's right, title and interest in and to and claims against theCompany (including, without limitation, any claims released under Section 7(a) below), any management, voting or other rights underany organizational and operational agreement (whether arising in connection with the Executive Committee, as a member, Developeror otherwise), any right to return of the Withdrawing Member's capital and any yield or return thereon, rights to distributions orallocations of income, profits, credits, losses or deductions, and claims for payment of any fees, debts (including, without limitation,any right to treat the Withdrawing Member's unreturned Capital Contribution as or receive payment of Subordinated Debt) orreimbursement or payment of any other amounts together with any interest thereon owing now or in the future by the Company to theWithdrawing Member and any right, title or interest in or to purchase or acquire any property of the Company, including, withoutlimitation, any right to (i) acquire or purchase Private Sale Lots and Private Sale Commercial Parcels or (ii) participate in the Article 10Lot Purchase Rights as a Subsequent Withdrawing Developer (or in any other capacity). On the Effective Date, the following actionsshall occur concurrently: (a) the Company will redeem in full each1207186.02/OC373915-00006/pdo/agt2 Withdrawing Member's Interest, and (b) each Withdrawing Member will irrevocably and unconditionally withdraw from the Company(collectively, the "Transaction").2.Consideration.(a)Adequacy of Consideration. Each Withdrawing Member acknowledges that the release from the Companyand Tejon and the indemnity from the Company under this Agreement for the benefit of the Withdrawing Member constitutes fair,adequate and sufficient consideration under this Agreement for the Transaction.(b) Non-Responsibility of the Remaining Members and the Company. For the avoidance of any doubt,(i) in no event shall (A) any Remaining Member or the Company be required to make any payment to aWithdrawing Member in consideration for the Withdrawing Member withdrawing as a member of the Company, (B) any RemainingMember be responsible for the breach of any obligation of any other Remaining Member under this Agreement, the CRA, theWithdrawal Amendment or any other agreement between any of the Remaining Members and a Withdrawing Member related to theTransaction or otherwise, or (C) the Company be responsible for the breach of any obligation of a Remaining Member under thisAgreement, the CRA, the Withdrawal Amendment or any other agreement between any of the Remaining Members and aWithdrawing Member related to the Transaction or otherwise; and(ii) the Transaction shall remain in full force and effect and shall not be subject to rescission, set aside, or anysimilar claim or remedy by a Withdrawing Member, all of which rights and remedies are hereby irrevocably and unconditionallywaived by each Withdrawing Member and shall be considered as having been released pursuant to each Withdrawing Member'sRelease (provided for in Section 7(a) below).(c) Survival of Indemnification Provisions. Notwithstanding the Transaction (or any other provision set forth in thisAgreement or the Withdrawal Amendment), the indemnification and other provisions set forth in Section 16.2 of the LLC Agreementfor the benefit of the Withdrawing Members and the other Indemnified Parties described therein shall survive each WithdrawingMember's withdrawal from the Company with respect to any claim that arises on or prior to the Effective Date which is covered underSection 16.2 of the LLC Agreement (an "Indemnifiable Claim"); provided however that such indemnification and other provisionsshall not cover any breach by a Withdrawing Member of this Agreement or the Withdrawal Amendment, and provided further thateach Withdrawing Member's rights under Section 16.2 of the LLC Agreement shall be subject to the express terms and limitationscontained therein and in Section 16.3 of the LLC Agreement. Except as provided above in this Section 2(c) or in the WithdrawalAmendment, a Withdrawing Member no longer possesses or retains its respective Interest or any other right, title or interest in or to orclaims against the Company. Except as otherwise provided in this Agreement or the Withdrawal Amendment, a Withdrawing Memberhas no further duties, liabilities and/or obligations to the Company or any of the Remaining Members with respect to its Interest and/orunder the LLC Agreement.1207186.02/OC373915-00006/pdo/agt3 3.Representations and Warranties.(a) Withdrawing Member's Representations and Warranties. Each Withdrawing Member makes the followingrepresentations and warranties to the Company as of the Effective Date:(i) As to SPIC, SPIC represents and warrants that it is a Delaware limited liability company, duly organizedand validly existing under the laws of the state of Delaware, with all requisite power to carry on its business as presently owned orconducted and to take any action contemplated by it pursuant to this Agreement.(ii) As to CalAtlantic Group, CalAtlantic Group represents and warrants that it is a Delaware corporation, dulyorganized and validly existing under the laws of the state of Delaware, with all requisite power to carry on its business as presentlyowned or conducted and to take any action contemplated by it pursuant to this Agreement.(iii) Each Withdrawing Member has full power and authority to enter into this Agreement and to consummatethe transactions contemplated hereby. This Agreement and the consummation of the transactions contemplated hereby have been dulyauthorized by all necessary action on the part of each Withdrawing Member, no further consent or approval is required, and thisAgreement constitutes the legal, valid and binding obligation of each Withdrawing Member, enforceable in accordance with its terms,except as enforcement may be limited by bankruptcy, insolvency or other laws relating to or affecting enforcement of creditor's rightsgenerally or by general equity principles.(iv) The execution, delivery and performance of this Agreement does not, and the performance of thisAgreement will not: (1) violate or result in a default under the organizational documents of a Withdrawing Member; or (2) violate anyexisting applicable law, rule, regulation, judgment, order or decree of any governmental instrumentality or court having jurisdictionover a Withdrawing Member.(v) The execution, delivery and performance of this Agreement, the Transaction and any other transactionscontemplated hereby do not conflict, and are not inconsistent, with and will not result (with or without the giving of notice or passageof time or both) in a breach of or creation of any lien, charge or encumbrance upon any of a Withdrawing Member's Interest pursuantto the terms of any credit agreement, indenture, lease, guarantee or other instrument to which a Withdrawing Member is a party or bywhich a Withdrawing Member may be bound or to which it may be subject.(vi) Each Withdrawing Member owns its Interest free and clear of all liens and encumbrances or otherrestrictions of any kind whatsoever of any person whether claiming through the Withdrawing Member or otherwise, except to theextent expressly set forth in the LLC Agreement. Each Withdrawing Member's Interest constitutes the entire right, title and interest inand to claims against the Company owned by such Withdrawing Member or any affiliates of such Withdrawing Member.1207186.02/OC373915-00006/pdo/agt4 (vii) Excepting Withdrawing Member Unreleased Claims (defined below), from and after the Effective Date,each Withdrawing Member shall not have any right, title or interest in or to or claim against the Company or under the LLCAgreement, including, without limitation, any right, title or interest in or to or against any cash flow or any other distributions, capital,profits and losses, management, voting or other rights under any organizational and operational agreement (whether arising inconnection with the Executive Committee, as a member, Developer or otherwise), or any rights to any receivables (including, withoutlimitation, any right to such Withdrawing Member's unreturned Capital Contribution and/or any right to treat such WithdrawingMember's unreturned Capital Contribution as or receive payment of Subordinated Debt) relating to the Company, including but notlimited to, member loans, voluntary loans, payment of fees, repayment of any loan or any other such receivables or any right, title orinterest in or to purchase or acquire any property of the Company, including, without limitation, any right to (i) acquire or purchasePrivate Sale Lots or (ii) participate in the Article 10 Lot Purchase Rights (provided the foregoing shall not limit or modify (A) the rightsof each Withdrawing Member under Section 2(c) above, or (B) each Withdrawing Member's rights under each WithdrawalAmendment).(viii) The Withdrawing Members hereby represent and warrant that they are the owners of the WithdrawingMember Claims and that neither Withdrawing Member has previously assigned or transferred any of the Withdrawing Member Claims.(ix) Each Withdrawing Member hereby acknowledges and understands that (i) the Company and theRemaining Members intend to carry on with the business of the Company, (ii) such Withdrawing Member has been provided with dueopportunity to inquire regarding the ongoing and future prospects of the business and affairs of the Company, and (iii) the Companyand its Remaining Members have no affirmative duty to disclose or other duty (including, without limitation, any fiduciary duty)regarding the ongoing and future business and affairs of the Company (including, without limitation, any potential opportunities, profitsor earnings which such Withdrawing Member may be foregoing by withdrawing from the Company pursuant to this Agreement) tosuch Withdrawing Member however such duty might arise by contract, law or otherwise. Each Withdrawing Member hereby waivesall rights it may have against the Company, its assets or the Remaining Members in connection with the duties and obligationsdescribed in the foregoing subsections (i) to (iii) (collectively, the "Partnership Opportunity Disclosure Obligations").(b) Company's Representations and Warranties. The Company hereby represents and warrants to each WithdrawingMember as of the Effective Date as follows:(i) The Company is a limited liability company duly organized and validly existing under the laws of the stateof Delaware, with all requisite power to carry on its business as presently owned or conducted and to take any action contemplated byit pursuant to this Agreement.(ii) The Company has full power and authority to enter into this Agreement and to consummate theTransaction and any other transactions contemplated hereby. This Agreement and the consummation of the Transaction and any othertransactions contemplated hereby have been duly authorized by all necessary action on the part of the Company, no further1207186.02/OC373915-00006/pdo/agt5 consent or approval is required from the Remaining Members or any other Person except for such consents or approval being obtainedprior to the Effective Date and all such consents and approvals have been obtained as of the Effective Date, and this Agreementconstitutes the legal, valid and binding obligation of the Company enforceable in accordance with its terms, except as enforcement maybe limited by bankruptcy, insolvency or other laws relating to or affecting enforcement of creditor's rights generally or by generalequity principles.(iii) The execution, delivery and performance of this Agreement does not, and the performance of thisAgreement as of the Effective Date will not: (1) violate the organizational documents of the Company; (2) violate any existingapplicable law, rule, regulation, judgment, order or decree of any governmental instrumentality or court having jurisdiction over theCompany, or (3) require the Company to obtain any authorization, consent, approval or waiver from, or to make any filing with, anygovernmental body or authority except for such consents or approval being obtained prior to the Effective Date and all such consentsand approvals have been obtained as of the Effective Date.(iv) The execution, delivery and performance of this Agreement, the Transaction and any other transactionscontemplated hereby as of the Effective Date do not conflict and are not inconsistent with, and will not result (with or without thegiving of notice or passage of time or both) in a breach of any credit agreement, indenture, lease, guarantee or other instrument towhich the Company is a party or by which the Company may be bound or to which it may be subject.(v) Any and all third party consents or approvals necessary for the performance of this Agreement and thetransactions contemplated hereby, including without limitation, the Approval from each of the Remaining Members, has been obtainedas of the Effective Date.(i) The Company hereby represents and warrants that it is the owner of the Company Claims and that it has notpreviously assigned or transferred any of the Company Claims.(c) Remaining Member Representations and Warranties. Each Remaining Member hereby represents and warrants toeach Withdrawing Member as of the Effective Date as follows:(i) As to Pardee, Pardee represents and warrants that it is a corporation duly organized and validly existingunder the laws of the state of its formation, with all requisite power to carry on its business as presently owned or conducted and totake any action contemplated by it pursuant to this Agreement.(ii) As to Tejon, Tejon represents and warrants that it is a corporation duly organized and validly existingunder the laws of the state of its formation, with all requisite power to carry on its business as presently owned or conducted and totake any action contemplated by it pursuant to this Agreement.1207186.02/OC373915-00006/pdo/agt6 (iii) Each Remaining Member has full power and authority to enter into the CRA and to consummate thetransactions contemplated hereby. The CRA and the consummation of the transactions contemplated thereby have been dulyauthorized by all necessary action on the part of such Remaining Member, no further consent or approval is required from theRemaining Member or any other Person except for such consents or approval being obtained prior to the Effective Date and all suchconsents and approvals have been obtained as of the Effective Date, and the CRA constitutes the legal, valid and binding obligation ofsuch Remaining Member enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency orother laws relating to or affecting enforcement of creditor's rights generally or by general equity principles.(iv) The execution, delivery and performance of the CRA does not, and the performance of the CRA and thetransactions contemplated thereby as of the Effective Date will not: (1) violate the organizational documents of any RemainingMember; (2) violate any existing applicable law, rule, regulation, judgment, order or decree of any governmental instrumentality orcourt having jurisdiction over such Remaining Member, or (3) require such Remaining Member to obtain any authorization, consent,approval or waiver from, or to make any filing with, any governmental body or authority except for such consents or approval beingobtained prior to the Effective Date and all such consents and approvals have been obtained as of the Effective Date.(v) The execution, delivery and performance of the CRA and the transactions contemplated thereby as of theEffective Date do not conflict and are not inconsistent with, and will not result (with or without the giving of notice or passage of timeor both) in a breach of any credit agreement, indenture, lease, guarantee or other instrument to which any Remaining Member is a partyor by which such Remaining Member may be bound or to which it may be subject.(d) Survival. Each of the representations and warranties of the Company, each Withdrawing Member and eachRemaining Member set forth in this Section 3 shall expire if a claim has not been commenced against the applicable party with respectto a breach of a representation or warranty within one (1) year from the Effective Date.4.Company Acknowledgment. As a material inducement to each Withdrawing Member to enter into this Agreement,the Company hereby acknowledges and agrees that:(a) AS-IS ACQUISITION. EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT AND THEWITHDRAWAL AMENDMENT, THE COMPANY IS REDEEMING AND ACQUIRING EACH WITHDRAWINGMEMBERS' INTEREST IN THE COMPANY ON AN "AS-IS/WHERE-IS" AND "WITH ALL FAULTS AND DEFECTS"BASIS WITHOUT ANY REPRESENTATION OR WARRANTY OF EITHER WITHDRAWING MEMBER (OR ANYAFFILIATE OR REPRESENTATIVE OF EITHER WITHDRAWING MEMBER), EXPRESS, IMPLIED OR STATUTORY,AS TO SUCH INTEREST, THE COMPANY, OR THE NATURE OR CONDITION OF OR TITLE TO ALL OR ANY OFTHE ASSETS OF THE COMPANY.(b) No Representations. Other than the express representations, warranties, agreements and covenants of theWithdrawing Members as set forth in this Agreement and the1207186.02/OC373915-00006/pdo/agt7 Withdrawal Amendment, neither the Withdrawing Members, nor any Person acting by or on behalf of either of such WithdrawingMembers, has made any representation, warranty, inducement, promise, agreement, assurance or statement, oral or written, of any kindto the Company or to any of the Remaining Members upon which the Company or any such Remaining Member is relying, or inconnection with which the Company or any such Remaining Member has made or will make any decision concerning eitherWithdrawing Member's Interest, the Company, the Agreement, the liabilities of the Company and/or the assets of the Company(including, without limitation, the Master Project).5.Management Rights. On the Effective Date, (i) each Withdrawing Member's management, voting, approval or othersimilar rights with respect to the Company (whether arising in connection with any Voting Interest, the Executive Committee, as amember, Developer or otherwise) shall have been irrevocably and unconditionally terminated, and (ii) all of each WithdrawingMember's appointed Representatives and Alternates to the Executive Committee shall be deemed to have irrevocably andunconditionally resigned from the Executive Committee and each Withdrawing Member shall have no further representation on theExecutive Committee of any kind or nature.6.Deliveries and Transaction Costs.(a) Withdrawing Members' Deliveries. At or before the Effective Date, each Withdrawing Member shall deliver to theCompany the following:(i) an executed acknowledgement to the Withdrawal Amendment, in such Withdrawing Member's capacity asa withdrawing member of the Company;(ii) the written resignation of its Representatives and Alternates from the Executive Committee; and(iii) such resolutions, authorizations, or other corporate and/or limited liability company documents or agreements relating tosuch Withdrawing Member and the Company's Members as shall be reasonably requested by the Company.(b) The Company's Deliveries. At or before the Effective Date, the Company shall deliver to each WithdrawingMember the following:(i) the Withdrawal Amendment, duly executed by the Company and the Remaining Members; and(ii) the CRA duly executed by the Remaining Members.(c) Transaction Costs. Each of the parties shall be responsible for the payment of its own out-of-pocket costs,including attorneys' fees, incurred in connection with this Agreement, whether consummated or not.1207186.02/OC373915-00006/pdo/agt8 7.Releases.(a) As of the Effective Date, each Withdrawing Member, for itself and its affiliates, partners, directors, members,owners, managers, officers, employees and agents (individually, a "Withdrawing Member Releasing Party" and collectively, the"Withdrawing Member Releasing Parties"), hereby releases and discharges (the "Withdrawing Member Release") the Company,the Executive Committee (and its appointed Representatives and Alternates), Tejon, each of their respective affiliates, and each of theirrespective partners, directors, members (excluding the Remaining Developer), owners, managers, officers, employees and agents(collectively, "Company Releasees") from all causes of action, actions, debts, sums of money, accounts, bonds, bills, covenants,contracts, controversies, promises, agreements, trespasses, variances, judgments, damages, executions, claims, demands, whatsoever, inlaw or equity, which any Withdrawing Member Releasing Party, individually or collectively, has, ever had or may have in the futureagainst any Company Releasee, by reason of any matter, cause or thing whatsoever accruing or arising from the beginning of time tothe Effective Date with respect to the LLC Agreement, the Withdrawal Amendment, the Partnership Opportunity DisclosureObligations, the Company, the Master Project or the Adjacent Property (collectively, the "Withdrawing Member Claims"); provided,however, that this Withdrawing Member Release shall not extend to any Withdrawing Member Claims against any Company Releaseearising out of any breach by any such Company Releasee of any of its obligations or representations and warranties expressly set forthin this Agreement, the Withdrawal Amendment and/or the CRA (or any dispute regarding the interpretation or enforceability of thisAgreement, the Withdrawal Amendment and/or the CRA) (collectively, the "Withdrawing Member Unreleased Claims").It is the intention of the Withdrawing Member Releasing Parties that the release under Section 7(a), with the exception of theWithdrawing Member Unreleased Claims, be effective as a bar to each of the Withdrawing Member Claims hereinabove specified.Each Withdrawing Member Releasing Party understands, acknowledges, and agrees that no Withdrawing Member Unknown Claims(as hereinafter defined), or any facts, events, circumstances, evidence or transactions which could now be asserted or which mayhereafter be discovered, shall affect the final, absolute and unconditional nature of the release under Section 7(a). For purposes of thisAgreement, "Withdrawing Member Unknown Claims" means any and all Withdrawing Member Claims (except for theWithdrawing Member Unreleased Claims) that a Withdrawing Member Releasing Party does not know or suspect to exist in his, her orits favor at the time of the effectiveness of the release under Section 7(a), which if known by such Withdrawing Member ReleasingParty would have affected his, her or its decision to give the Withdrawing Member Release provided for herein. With respect to anyand all Withdrawing Member Claims, except for Withdrawing Member Unreleased Claims, each of the Withdrawing MemberReleasing Parties agrees that upon the Effective Date, each Withdrawing Member Releasing Party shall be deemed to have, and shallhave, knowingly and expressly waived any and all provisions, rights and benefits conferred by any law of any state or territory of theUnited States, or any other state, sovereign or jurisdiction, or principle of common law which is similar, comparable, or equivalent toCalifornia Civil Code Section 1542 which provides:1207186.02/OC373915-00006/pdo/agt9 "A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor atthe time of executing the release, which if known by him or her must have materially affected his or her settlement withthe debtor."(b) As of the Effective Date, the Company, for itself and its affiliates, directors, members (exclusive of the RemainingMembers), owners, managers, officers, employees and agents (individually, a "Company Releasing Party" and collectively, the"Company Releasing Parties"), hereby releases and discharges (the "Company Release") each Withdrawing Member, its respectiveaffiliates, and their respective partners, directors, members, owners, managers, officers, employees and agents (collectively, as to eachWithdrawing Member, the "Withdrawing Member Releasees") from all causes of action, actions, debts, sums of money, accounts,bonds, bills, covenants, contracts, controversies, promises, agreements, trespasses, variances, judgments, damages, executions, claims,demands, whatsoever, in law or equity, which any Company Releasing Party, individually or collectively, has, ever had or may havein the future against any Withdrawing Member Releasee, by reason of any matter, cause or thing whatsoever accruing or arising fromthe beginning of time to the Effective Date with respect to the LLC Agreement, the Company, the Master Project or the AdjacentProperty (collectively, the "Company Claims"); provided, however, that this Company Release shall not extend to any CompanyClaims against a Withdrawing Member arising out of any breach by a Withdrawing Member of any of its obligations or representationsand warranties expressly set forth in this Agreement, the Withdrawal Amendment and/or the other documents delivered pursuant toSection 6(a) hereof (or any dispute regarding the interpretation or enforceability of this Agreement and/or the WithdrawalAmendment), or any Company Claims against a Withdrawing Member that the Company Releasing Parties may have in response to ordefending against an indemnification claim that is not an Indemnifiable Claim made by the Withdrawing Member Releasees pursuantto Section 16.2 of the LLC Agreement (collectively, the "Company Unreleased Claims").It is the intention of the Company Releasing Parties that the release under this Section 7(b), with the exception of the CompanyUnreleased Claims, be effective as a bar to each of the Company Claims hereinabove specified. Each Company Releasing Partyunderstands, acknowledges, and agrees that no Company Unknown Claims (as hereinafter defined), or any facts, events,circumstances, evidence or transactions which could now be asserted or which may hereafter be discovered, shall affect the final,absolute and unconditional nature of the release under this Section 7(b). For purposes of this Agreement, "Company UnknownClaims" means any and all Company Claims (except for the Company Unreleased Claims) that a Company Releasing Party does notknow or suspect to exist in his, her or its favor at the time of the effectiveness of the release under this Section 7(b), which if known bysuch Company Releasing Party would have affected his, her or its decision to give the Company Release provided for herein. Withrespect to any and all Company Claims, each of the Company Releasing Parties agrees that upon the Effective Date, each CompanyReleasing Party shall be deemed to have, and shall have, knowingly and expressly waived any and all provisions, rights and benefitsconferred by any law of any state or territory of the United States, or any other state, sovereign or jurisdiction, or principle of commonlaw which is similar, comparable, or equivalent to California Civil Code Section 1542 which provides:1207186.02/OC373915-00006/pdo/agt10 "A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor atthe time of executing the release, which if known by him or her must have materially affected his or her settlement withthe debtor."(c) EACH OF THE PARTIES HERETO SPECIFICALLY ACKNOWLEDGES THAT IT HAS CAREFULLYREVIEWED THIS SECTION AND DISCUSSED ITS IMPORT WITH LEGAL COUNSEL AND THAT THE PROVISIONSOF THIS SECTION ARE A MATERIAL PART OF THIS AGREEMENT.GSBMLCompany's InitialsWithdrawing Member's Initials (SPIC) ML Withdrawing Member's Initials (CalAtlanticGroup)8.Brokers And Finders. No party has had any contact or dealings regarding the Master Project, or any communicationin connection with the subject matter of this Agreement, through any real estate broker or other person who can claim a right to acommission or finder's fee in connection with the transactions contemplated herein. In the event that any broker or finder claims acommission or finder's fee based upon any contact, dealings or communication, the party through whom the broker or finder makes itsclaim shall hold harmless, indemnify and defend the other parties hereto, their successors and assigns, agents, employees, officers,trustees, members and managers from and against any and all obligations, liabilities, claims, demands, liens, encumbrances and losses(including reasonable attorneys' fees), whether direct, contingent or consequential, arising out of, based on, or incurred as a result ofsuch claim. The provisions of this paragraph shall survive the termination of this Agreement.9.Miscellaneous.(a) Successors and Assigns. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto andtheir respective successors, heirs, administrators and assigns. Neither the Company nor a Withdrawing Member shall assign any oftheir respective right, title or interest in or to this Agreement.(b) Amendments. This Agreement may be amended or modified only by a written instrument executed by eachWithdrawing Member and the Company.(c) Dispute Resolution. Notwithstanding anything to the contrary set forth in this Agreement, in the event of a claimby a party hereto or to the CRA against another party hereto or the CRA arising out of or otherwise relating to this Agreement or theCRA, the parties shall promptly and in good faith attempt to resolve such claim by mutual agreement. In the event the parties areunable to resolve such claim by mutual agreement, the matter shall be settled exclusively by a binding arbitration ("Arbitration"),conducted by a single arbitrator (the "Arbitrator") chosen1207186.02/OC373915-00006/pdo/agt11 by the parties as described below. Any party may initiate the Arbitration by written notice to the other party(ies) and to the ArbitrationTribunal.The date on which the notice is given is called the "Arbitration Initiation Date". The fees and expenses of theArbitration Tribunal and the Arbitrator shall be shared equally between (i) the Withdrawing Members and (2) the Company, andadvanced by them from time to time as required; provided, however, that at the conclusion of the Arbitration, the Arbitrator may awardcosts and expenses (including the costs of the Arbitration previously advanced and the fees and expenses of attorneys, accountants andother experts) to the prevailing party(ies).Except as expressly modified herein, the Arbitration shall be conducted in accordance with the provisions of Section1280 et seq. of the California Code of Civil Procedure or their successor sections ("CCP"), except that Section 1283.05 (discovery)shall not apply, and shall constitute the exclusive procedure and forum for the determination of any claim, including whether the claimis subject to arbitration. The Arbitration shall be conducted under the procedures of the Arbitration Tribunal, except as modified herein.The "Arbitration Tribunal" shall be the Los Angeles Office of JAMS/ENDISPUTE ("JAMS"), unless the parties to the disputecannot agree on a JAMS arbitrator, in which case the Arbitration Tribunal shall be the Los Angeles Office of the American ArbitrationAssociation ("AAA").The Arbitrator shall be a retired judge or other arbitrator employed by JAMS selected by mutual agreement of theparties to the dispute, and if they cannot so agree within thirty (30) days after the Arbitration Initiation Date, then the Arbitrator shall beselected from the Large and Complex Case Project ("LCCP") panel of the AAA, by mutual agreement of the parties to the dispute. Ifthe parties to the dispute cannot agree on an Arbitrator within sixty (60) days after the Arbitration Initiation Date, then the Arbitratorshall be selected by the AAA, from its LCCP panel, through such procedures as the AAA regularly follows. In all events, theArbitrator must have had not less than fifteen (15) years experience as a transactional or litigation lawyer), judge or arbitrator ofcomplex business transactions. If for any reason the AAA does not so act, then any party to the dispute may apply to the SuperiorCourt in and for Los Angeles County, California, for the appointment of a single arbitrator.No pre-arbitration discovery shall be permitted, except that the Arbitrator shall have the power in his or her solediscretion, on application by any party to the Arbitration, to order pre-arbitration examination solely of those witnesses and documentsthat the other party intends to introduce as its case-in-chief at the arbitration hearing. Prior to the commencement of arbitration hearings,the Arbitrator shall have the power, in his or her discretion, upon a Withdrawing Member's and/or the Company's motion but not theArbitrator's own initiative, to order the parties to engage in pre-arbitration mediation for a period not exceeding thirty (30) days before amediator mutually acceptable to the parties.The Arbitrator shall try any and all issues of law or fact and be prepared to make the award within ninety (90) days afterthe close of evidence in the Arbitration. When prepared to make the award, the Arbitrator shall first so inform the parties, who shallhave ten (10) days to attempt to resolve the matter by a binding agreement between them. If the parties so resolve the matter, then theArbitrator shall not make any award. If the parties do not so resolve the matter, the Arbitrator1207186.02/OC373915-00006/pdo/agt12 shall make the award on the eleventh day following his notice of being prepared to make the award. The Arbitrator's award shalldispose of all of the claims that are the subject of the Arbitration and shall follow Delaware law and precedent, and shall be a reasonedopinion. The Arbitrator shall be empowered to (i) enter equitable as well as legal relief, (ii) provide all temporary and/or provisionalremedies, and (iii) enter binding equitable orders. The award rendered by the Arbitrator shall be final and not subject to judicial review,and judgment thereon may be entered in any court of competent jurisdiction.(d) Governing Law; Choice of Forum.(i) Subject to Section 9(c) above, this Agreement and the rights of the parties hereunder shall be governed byand interpreted in accordance with the internal laws of the State of Delaware, without reference to the rules regarding conflict or choiceof laws of such State.(ii) Each Withdrawing Member and the Company each acknowledge and agree that, subject to Section 9(c)above, the Superior Court of the State of California in and for Los Angeles County, and the associated federal and appellate courts,shall have exclusive jurisdiction to hear and decide any dispute, controversy or litigation regarding this Agreement or any portionthereof.(e) Interpretation. The headings contained in this Agreement are for reference purposes only and shall not in any wayaffect the meaning or interpretation hereof. Whenever the context hereof shall so require, the singular shall include the plural, the malegender shall include the female gender and the neuter, and vice versa. This Agreement shall not be construed against the Company or aWithdrawing Member but shall be construed as a whole, in accordance with its fair meaning, and as if prepared by the Company andthe Withdrawing Members jointly.(f) No Obligation to Third Parties. Except as set forth in Section 7 and in the CRA, the execution and delivery of thisAgreement shall not be deemed to confer any rights upon, nor obligate either of the parties hereto to, any person or entity not a party tothis Agreement.(g) Further Assurances. Each of the parties shall execute such other and further documents and do such further acts asmay be reasonably required to effectuate the intent of the parties and carry out the terms of this Agreement. This provision shall survivethe Effective Date.(h) Merger of Prior Agreements. This Agreement, the Withdrawal Amendment and the CRA constitutes the entireagreement between the parties and supersedes all prior agreements and understandings between the parties relating to the subject matterhereof, including without limitation, any letter of intent or nonbinding proposal, which shall be of no further force or effect uponexecution of this Agreement by the Company and each Withdrawing Member.(i) Enforcement. The parties shall bear their own attorneys' fees and costs incurred in connection with the negotiationand execution of this Agreement. In the event a dispute arises concerning the performance, meaning or interpretation of any provisionof this Agreement or any document executed in connection with this Agreement (including, without limitation, any dispute as towhether a Claim is an Indemnifiable Claim under Section 16.2 of the LLC Agreement),1207186.02/OC373915-00006/pdo/agt13 the prevailing party in such dispute shall be awarded any and all costs and expenses incurred by the prevailing party in enforcing,defending or establishing its rights hereunder or thereunder, including, without limitation, court costs and reasonable attorneys andexpert witness fees. In addition to the foregoing award of costs and fees, the prevailing party shall also be entitled to recover itsreasonable attorneys' fees incurred in any post judgment proceedings to collect or enforce any judgment. This provision is separate andseveral and shall survive the Effective Date.(j) Time. Time is of the essence of this Agreement. For purposes of this Agreement "business day" shall mean any dayother than a Saturday and those days specified as a "holiday" in Section 7 of the California Civil Code. Unless otherwise specified, incomputing any period of time described in this Agreement, the day of the act or event after which the designated period of time beginsto run is not to be included and the last day of the period so computed is to be included, unless such last day is not a business day, inwhich event the period shall run to and include the next day which is a business day.(k) Severability. If any provision of this Agreement, or the application thereof to any person, place, or circumstance,shall be held by a court of competent jurisdiction to be invalid, unenforceable or void, then the remainder of this Agreement and suchprovisions as applied to other persons, places and circumstances shall remain in full force and effect.(l) No Waiver. No delay or failure on the part of any party hereto in exercising any right, power or privilege under thisAgreement or under any other instrument or document given in connection with or pursuant to this Agreement shall impair any suchright, power or privilege or be construed as a waiver of any default or any acquiescence therein. No single or partial exercise of anysuch right, power or privilege shall preclude the further exercise of such right, power or privilege. No waiver shall be valid against anyparty hereto unless made in writing and executed by the party against whom enforcement of such waiver is sought and then only to theextent expressly specified therein.(m) No Offer or Binding Contract. The parties hereto agree that the submission of an unexecuted copy or counterpartof this Agreement by one party to another is not intended by either party to be, or be deemed to be a legally binding contract or an offerto enter into a legally binding contract. The parties shall be legally bound pursuant to the terms of this Agreement only if and when theparties have been able to negotiate all of the terms and provisions of this Agreement in a manner acceptable to each of the parties intheir respective sole discretion, and (i) each of the Withdrawing Members and the Company have fully executed and delivered thisAgreement (and the Remaining Members have executed and delivered the Consent, Ratification and Agreement of the RemainingMembers attached to this Agreement), and (ii) the Remaining Members and the Withdrawing Members have fully executed anddelivered the Withdrawal Amendment.(n) Counterparts. This Agreement, and any document executed in connection with this Agreement, may be executedin any number of counterparts each of which shall be deemed an original and all of which shall constitute one and the same agreementwith the same effect as if all parties had signed the same signature page.1207186.02/OC373915-00006/pdo/agt14 (o) Notices. Notices or other communications shall be given only by the following methods: (i) hand delivered with areceipt of the addressee or the addressee's agent, (ii) deposited with the United States Post Office by registered or certified mail, returnreceipt requested, postage prepaid, (iii) deposited with a recognized global or national overnight delivery service, (iv) sent by facsimiletransmission, with a telephone or written receipt by the addressee or the addressee's agent, or (v) transmitted by e-mail, with atelephone or written receipt by the addressee or the addressee's agent. All notices and other communications shall be deemed receivedby the addressee for all purposes of this Agreement on the date of the receipt for delivery (as provided in each case above).To Withdrawing Member:Cal Atlantic Group, Inc. c/o Lennar 25 Enterprise, Suite 400 Aliso Viejo, CA 92656 Facsimile: (951) 372-8510 Attention: Martin LangpapWith a copy to:Allen Matkins Leck Gamble Mallory & Natsis LLP 1900 Main Street, 5th Floor Irvine, CA 92614 Facsimile: (949) 553-8354 Attention: Paul D. O'Connor, Esq.To the Company:Centennial Partners, LLC c/o Tejon Ranchcorp P.O. Box 1000 Lebec, CA 93243 Facsimile: (661) 248-3100 Attention: General CounselWith a copy to:Cox, Castle & Nicholson LLP 50 California Street, Suite 3200 San Francisco, CA 94111 Attention: Mathew A. Wyman, Esq. Facsimile: (415) 262-5166(p) Joint and Several Liability. To the extent applicable, the parties constituting a Withdrawing Member shall bejointly and severally liable for the obligations of the Withdrawing Member under this Agreement.[Signatures appear on next page]1207186.02/OC373915-00006/pdo/agt15 IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have caused this Agreement to be executed bytheir duly authorized representatives as of the day and year first above written.WITHDRAWING MEMBERS:STANDARD PACIFIC INVESTMENT CORP., a Delaware limited liability company/s/ Martin Langpap_ By: Martin Langpap Its: Regional Vice President, Land/s/ Greg McGuff_ By: Greg McGuff Its: Regional PresidentCALATLANTIC GROUP, INC., a Delaware corporation, as successor by merger to the former CalAtlantic Group, Inc. (formerly known as Standard Pacific Corp., a Delaware corporation), which was successor by merger to The Ryland Group, Inc./s/ Martin Langpap_ By: Martin Langpap Its: Regional Vice President, Land/s/ Greg McGuff_ By: Greg McGuff Its: Regional President16 COMPANY:CENTENNIAL FOUNDERS, LLC, a Delaware limited liability companyBy:Tejon Ranchcorp, a California corporation, its Development Manager /s/ Gregory S. BielliBy: Gregory S. Bielli Its: President & Chief Executive Officer/s/ Allen E. LydaBy: Allen E. Lyda Its: Executive Vice President and Chief Operating Officer17 SCHEDULE 1CONSENT, RATIFICATION AND AGREEMENT OF THE REMAINING MEMBERSEach of the undersigned hereby consents to all of the terms and conditions of the foregoing Redemption and WithdrawalAgreement (the "Agreement"). Without limiting the generality of the foregoing, (i) each Remaining Member hereby consents to theCompany's execution and delivery of the Agreement, and (ii) each Remaining Member hereby agrees to be bound by the provisions ofSections 3(c), 3(d), 4, 9(c) and 9(i) of the Agreement. Except where otherwise defined herein, the capitalized terms used herein shallhave the respective meanings assigned to such terms in the Agreement.In consideration for the release given by each Withdrawing Member Releasing Parties to Tejon pursuant to Section 7(a) above, Tejon,for itself and its affiliates, partners, directors, members, owners, managers, officers, employees and agents (individually, a "TejonReleasing Party" and collectively, the "Tejon Releasing Parties"), hereby releases and discharges (the "Tejon Release") theWithdrawing Member Releasees, from all claims each Tejon Releasing Party has, ever had or may have in the future against anyWithdrawing Member Releasee, by reason of any matter, cause or thing whatsoever accruing or arising from the beginning of time tothe Effective Date with respect to the LLC Agreement, the Company, the Master Project or the Adjacent Property (collectively, the"Tejon Claims"); provided, however, that this Tejon Release shall not extend to (i) any Tejon Claims against a Withdrawing Memberarising out of any breach by a Withdrawing Member of any of its obligations or representations and warranties expressly set forth inthe Agreement, the Withdrawal Amendment and/or the other documents delivered pursuant to Section 6(b) of the Agreement (or anydispute regarding the interpretation or enforceability of this Agreement and/or the Withdrawal Amendment), or (ii) Tejon Claimsagainst a Withdrawing Member that the Tejon Releasing Parties may have in response to or defending against an indemnification claimthat is not an Indemnifiable Claim made by a Withdrawing Member Releasees pursuant to Section 16.2 of the LLC Agreement.Tejon hereby represents and warrants that it is the owner of the Tejon Claims and that it has not previously assigned or transferred anyof the Tejon Claims. It is the intention of the Tejon Releasing Parties that the foregoing release with the exception of the CompanyUnreleased Claims, be effective as a bar to each of the Company Claims hereinabove specified. Each Tejon Releasing Partyunderstands, acknowledges, and agrees that no Company Unknown Claims, or any facts, events, circumstances, evidence ortransactions which could now be asserted or which may hereafter be discovered, shall affect the final, absolute and unconditionalnature of the release under this Consent, Ratification and Agreement of the Remaining Members.With respect to any and all Company Claims, each of the Tejon Releasing Parties agrees that upon the Effective Date, each TejonReleasing Party shall be deemed to have, and shall have, knowingly and expressly waived any and all provisions, rights and benefitsconferred by any law of any state or territory of the United States, or any other state, sovereign or jurisdiction, or principle of commonlaw which is similar, comparable, or equivalent to California Civil Code Section 1542 which provides:1207186.02/OC373915-00006/pdo/agt1 "A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor atthe time of executing the release, which if known by him or her must have materially affected his or her settlement withthe debtor."TEJON SPECIFICALLY ACKNOWLEDGES THAT IT HAS CAREFULLY REVIEWED THIS CONSENT, RATIFICATIONAND AGREEMENT OF THE REMAINING MEMBERS AND DISCUSSED ITS IMPORT WITH LEGAL COUNSEL ANDTHAT THE PROVISIONS OF THIS CONSENT, RATIFICATION AND AGREEMENT OF THE REMAINING MEMBERSARE A MATERIAL PART OF THE AGREEMENT.GSBTejon's InitialsREMAINING MEMBERS:PARDEE HOMES, a California corporation/s/Thomas J. Mitchell By: Thomas J. Mitchell Its: President/s/Michael A. McMillen By: Michael A. McMillen Its: Vice PresidentTEJON RANCHCORP, a California corporation/s/ Gregory S. Bielli By: Gregory S. Bielli Its: President & Chief Executive Officer/s/ Allen E. Lyda By: Allen E. Lyda Its: Executive Vice President and Chief Operating Officer1207186.02/OC373915-00006/pdo/agt2LIST 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.Tejon Energy LLC.h.Centennial Founders LLC, Delaware limited liability company, 84% owned by Tejon Ranchcorp.i.Tejon Hounds, LLC.j.Tejon Mountain Village, LLC., Delaware limited liability company.k.Tejon Ranch Wine Company, LLC.m.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.EXHIBIT 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. 333-210500) pertaining to the Amended and Restated 1998 Stock Incentive Plan andAmended and Restated Non-Employee Director Stock Incentive Plan of Tejon Ranch Co.,(2)Registration Statement (Form S-8 No. 333-152804) pertaining to the Amended and Restated 1998 Stock Incentive Plan ofTejon Ranch Co.,(3)Registration Statement (Form S-8 No. 333-68869) pertaining to the 1998 Stock Incentive Plan and Non-Employee DirectorStock Incentive Plan of Tejon Ranch Co.,(4)Registration Statement (Form S-8 No. 333-70128) pertaining to the 1998 Stock Incentive Plan of Tejon Ranch Co.,(5)Registration Statement (Form S-8 No. 333-113887) pertaining to the Tejon Ranch Nonqualified Deferred Compensation Planof Tejon Ranch Co.,(6)Registration Statement (Form S-3 No. 333-115946) of Tejon Ranch Co.,(7)Registration Statement (Form S-3 No. 333-130482) of Tejon Ranch Co.,(8)Registration Statement (Form S-3 No. 333-166167) of Tejon Ranch Co.,(9)Registration Statement (Form S-3 No. 333-184367) of Tejon Ranch Co.,(10)Registration Statement (Form S-3 No. 333-192824) of Tejon Ranch Co., and(11)Registration Statement (Form S-3 No. 333-210875) of Tejon Ranch Co.;of our reports dated March 1, 2019, 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, 2018./s/ Ernst & Young LLPLos Angeles, CaliforniaMarch 1, 2019EXHIBIT 23.2Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-152804, 333-68869, 333-70128, 333-113887) and theRegistration Statements and related Prospectuses on Form S-3 (Nos. 333-115946, 333-130482, 333-166167, 333-184367, 333-192824, 333-210875) ofTejon Ranch Co. of our report dated February 25, 2019, relating to the consolidated financial statements of Petro Travel Plaza Holdings LLC, appearing inthis Annual Report on Form 10-K for the year ended December 31, 2018./s/ RSM US LLPCleveland, OhioFebruary 28, 2019EXHIBIT 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 1, 2019/s/ Gregory S. Bielli Gregory S. Bielli Chief Executive OfficerEXHIBIT 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, 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 1, 2019/s/ Robert D. Velasquez Robert D. Velasquez Chief Financial OfficerEXHIBIT 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, 2018 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 1, 2019 /s/ Gregory S. Bielli Gregory S. Bielli Chief Executive Officer /s/ Robert D. Velasquez Robert D. Velasquez Chief Financial Officer Exhibit 99.1TEJON RANCH CO. ANNOUNCESFOURTH-QUARTER ANDYEAR-ENDED DECEMBER 31, 2018 FINANCIAL RESULTS--Company Continues Expansion of Tejon Ranch Commerce Center----Achieves Milestones for Master Planned Communities----Record High Pistachio Yields--TEJON RANCH, California - (BUSINESS WIRE) - February 28, 2019 - Tejon Ranch Co., or the Company, (NYSE:TRC), adiversified real estate development and agribusiness company, today announced financial results for the fourth quarter and year-endedDecember 31, 2018.The Company is in the process of entitling, planning and developing four master planned developments. Three of the developments aremixed-use residential communities and the fourth is a large commercial/industrial center currently in execution with more than 5.0million square feet already developed and an additional 14.8 million square feet available for development. When all entitlements areapproved, the Company's current and future master planned developments will be home to just under 35,000 housing units, more than35 million square feet of commercial/industrial space and 750 lodging units."In 2018, we saw continued expansion of the Tejon Ranch Commerce Center, or TRCC, and plan to carry this momentum into 2019.We have fully leased the 480,480 square foot industrial building that was completed in 2017 and have begun construction on anindustrial building through a joint venture with Majestic Realty Co. The new building contains 579,040 rentable square feet and iscurrently 67% leased. Leasing this amount of industrial space at TRCC prior to completing construction is a testament of the increasedattention and competitive advantage we have established." said Gregory S. Bielli, President and CEO."From a residential real estate standpoint, we achieved a pivotal milestone in our regional development efforts in the fourth quarter of2018: the Los Angeles County Board of Supervisors voted 4-1 in favor of our plan to develop Centennial at Tejon Ranch. This is astep in the right direction in addressing the housing crisis that exists not only in Los Angeles County, but California as a whole." Mr.Bielli continued."Lastly, our commodity driven segments, farming and mineral resources, showed strong performance in 2018, in part due to recordhigh pistachio yields in excess of four million pounds, along with water sales opportunities above our recurring contractualarrangements."Fourth-Quarter 2018 Financial Highlights•Net income attributable to common stockholders for the fourth quarter of 2018 was $0.3 million, or net income per shareattributable to common stockholders, basic and diluted, of $0.01, compared with a net income attributable to commonstockholders of $0.3 million, or net income per share attributable to common stockholders, basic and diluted, of $0.01, for thefourth quarter of fiscal 2017.•Revenues and other income, including equity in earnings of unconsolidated joint ventures, for the fourth quarter of 2018 were$13.4 million, a increase of $0.8 million, or 6.6%, compared with $12.6 million for the same period in 2017. Factors behindthis increase include:◦Revenues from mineral resources increased $1.1 million or 82.4% due to fourth quarter water sales, there were no watersales in the fourth quarter of 2017. This increase was offset by reduced farming revenues of $1.0 million or 14.9%resulting from lower 2018 almond crop yields.◦Improved equity in earnings from unconsolidated joint ventures of $0.7 million resulting from improved fuel revenuesand higher margins from the Company's TA/Petro joint venture with TravelCenters of America.Fiscal 2018 Financial Highlights•Net income attributable to common stockholders for fiscal 2018 was $4.3 million, or net income per share attributable tocommon stockholders, basic and diluted, of $0.16, compared with a net loss attributable to common stockholders of $1.8million, or a net loss per share attributable to common stockholders, basic and diluted, of $0.08, for fiscal 2017.•Revenues and other income, including equity in earnings of unconsolidated joint ventures, were $50.7 million in fiscal 2018, anincrease of $11.0 million, or 27.7%, compared with $39.7 million in 2017. Factors driving this increase include:◦An $8.4 million increase in mineral resources revenues due to significantly improved water sales in 2018 that wereaided by moderate drought conditions in Kern County.◦A $2.1 million increase in farming revenues driven by record high pistachio yields compared to the depressed 2017crop yields resulting from the alternate bearing nature of pistachios. Fiscal 2018 Operational Highlights•In January 2018, the Company obtained approval from Kern County on the first phase of Farm Village. Farm Village willserve as the commercial center and community gathering place for Mountain Village at Tejon Ranch, or MV, residents andvisitors, as well as the gateway to MV. •During 2018, the U.S. Department of Commerce re-approved and expanded the Foreign Trade Zone, or FTZ. The expandedFTZ now covers all the industrial sites within TRCC, an area totaling 1,094 acres. The FTZ designation allows a user to securemany benefits and cost reductions associated with streamlined movement of goods in and out of the zone. This FTZdesignation provides a marketingadvantage for TRCC, an advantage that is further enhanced by the Economic Development Incentive Policy adopted by theKern County Board of Supervisors in 2018.•The 480,480 square foot industrial building constructed in 2017, through a joint venture with Majestic Realty Co., a LosAngeles-based commercial/industrial developer, was fully-leased in 2018, with half the space leased to Dollar General and halfto L'Oréal USA.•In November 2018, the Company formed TRC-MRC 3, its third joint venture with Majestic Realty Co., to pursue thedevelopment, construction, leasing, and management of a 579,040 square foot industrial building at TRCC - East. Weanticipate construction completion and delivery of the space in the fourth quarter of 2019. Currently, a tenant has entered into alease agreement occupying 67% of total rentable space.•The Company began development on a new 4,900 square foot multi-tenant retail building at TRCC - East to further expandour footprint at TRCC. Completion is anticipated in the third quarter of 2019.•In December 2018, we achieved a pivotal milestone in our regional development efforts: The Los Angeles County Board ofSupervisors voted 4-1 in favor of our plan to develop Centennial at Tejon Ranch, taking the first step toward approving themixed-use residential community located in the northwest Los Angeles County section of Tejon Ranch.2019 Outlook:The Company believes its capital structure provides a solid foundation for continued investment in ongoing and future projects. As ofDecember 31, 2018, total capital and debt was approximately $500.5 million. The Company also had cash and securities totalingapproximately $79.7 million and $30.0 million available on its line of credit.The Company will continue to aggressively pursue development, leasing, and investment within TRCC and in its joint ventures. TheCompany will also continue to invest in its residential projects, including Mountain Village at Tejon Ranch, Centennial at Tejon Ranchand Grapevine at Tejon Ranch. This includes the re-entitlement effort of Grapevine at Tejon Ranch related to the court ruling inDecember 2018.During 2019, the Company will continue to invest funds in master project infrastructure, as well as vertical development within itsactive commercial and industrial development. California is one of the most highly regulated states in which to engage in real estatedevelopment and, as such, natural delays, including those resulting from litigation, can be reasonably anticipated. Accordingly,throughout the next few years, the Company expects net income to fluctuate from year-to-year based on commodity prices, productionwithin its farming segment and mineral resources segment, and the timing of sales of land and the leasing of land within its industrialdevelopments. About Tejon Ranch Co.Tejon Ranch Co. (NYSE: TRC) is a diversified real estate development and agribusiness company, whose principal asset is its270,000-acre land holding located approximately 60 miles north of Los Angeles and 30 miles south of Bakersfield.More information about Tejon Ranch Co. can be found online at http://www.tejonranch.com.Forward Looking Statements:The statements contained herein, which are not historical facts, are forward-looking statements based on economic forecasts, strategicplans and other factors, which by their nature involve risk and uncertainties. In particular, among the factors that could cause actualresults to differ materially are the following: business conditions and the general economy, future commodity prices and yields, marketforces, the ability to obtain various governmental entitlements and permits, interest rates and other risks inherent in real estate andagriculture businesses. For further information on factors that could affect the Company, the reader should refer to the Company’sfilings with the Securities and Exchange Commission.TEJON RANCH CO.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except earnings per share)(Unaudited) Three Months Ended December 31, Year Ended December 31, 2018 2017 2018 2017Revenues: Real estate - commercial/industrial$2,182 $2,297 $8,970 $9,001Mineral resources2,409 1,321 14,395 5,983Farming5,990 7,036 18,563 16,434Ranch operations1,067 1,028 3,691 3,837Total revenues from Operations11,648 11,682 45,619 35,255Operating Profits (Loss): Real estate - commercial/industrial321 728 2,724 2,472Real estate - resort/residential(211) (554) (1,530) (1,955)Mineral resources1,586 738 8,172 3,019Farming(468) 1,337 2,535 233Ranch operations(294) (276) (1,760) (1,574)Income (loss) from Operating Segments934 1,973 10,141 2,195Investment income364 173 1,344 462Other income(19) 16 (59) (275)Corporate expense(2,409) (2,371) (9,705) (9,713)(Loss) from operations before equity in earnings ofunconsolidated joint ventures(1,130) (209) 1,721 (7,331)Equity in earnings of unconsolidated joint ventures, net1,423 715 3,834 4,227Income (loss) before income tax expense293 506 5,555 (3,104)Income tax expense (benefit)(13) 185 1,320 (1,283)Net income (loss)306 321 4,235 (1,821)Net income (loss) attributable to non-controlling interest(1) 18 (20) (24)Net income (loss) attributable to common stockholders$307 $303 $4,255 $(1,797)Net income (loss) per share attributable to commonstockholders, basic$0.01 $0.01 $0.16 $(0.08)Net income (loss) per share attributable to commonstockholders, diluted$0.01 $0.01 $0.16 $(0.08)Weighted average number of shares outstanding: Common stock25,968,802 24,136,930 25,948,189 21,677,981Common stock equivalents – stock options14,758 30,003 27,715 40,409Diluted shares outstanding25,983,560 24,166,933 25,975,904 21,718,390Tejon Ranch Co.Robert D. Velasquez, 661-248-3000Chief Financial OfficerNon-GAAP Financial MeasureThis news release includes references to the Company’s non-GAAP financial measure “EBITDA.” EBITDA represents our share ofconsolidated net income in accordance with GAAP, before interest, taxes, depreciation, and amortization, plus the allocable portion ofEBITDA of unconsolidated joint ventures accounted for under the equity method of accounting based upon economic ownershipinterest, and all determined on a consistent basis in accordance with GAAP. EBITDA is a non-GAAP financial measure, and is usedby us and others as a supplemental measure of performance. We use Adjusted EBITDA to assess the performance of our coreoperations, for financial and operational decision making, and as a supplemental or additional means of evaluating period-to-periodcomparisons on a consistent basis. Adjusted EBITDA is calculated as EBITDA, excluding stock compensation expense. We believeAdjusted EBITDA provides investors relevant and useful information because it permits investors to view income from our operationson an unleveraged basis before the effects of taxes, depreciation and amortization, and stock compensation expense. By excludinginterest 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, bothin the real estate industry and in other industries. We believe that excluding charges related to share-based compensation facilitates acomparison of our operations across periods and among other companies without the variances caused by different valuationmethodologies, the volatility of the expense (which depends on market forces outside our control), and the assumptions and the varietyof award types that a company can use. EBITDA and Adjusted EBITDA have limitations as measures of our performance. EBITDAand Adjusted EBITDA do not reflect our historical cash expenditures or future cash requirements for capital expenditures orcontractual 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, and they should not be considered as alternatives to thoseindicators in evaluating performance or liquidity. Further, our computation of EBITDA and Adjusted EBITDA may not becomparable to similar measures reported by other companies.TEJON RANCH CO.Non-GAAP Financial Measures(Unaudited) Three Months Ended December31, Year EndedDecember 31, 2018 2017 2018 2017Net income (loss)$306 $321 $4,235 $(1,821)Net income (loss) attributed to non-controlling interest(1) 18 (20) (24)Interest, net: Consolidated(364) (173) (1,344) (462)Our share of interest expense from unconsolidated jointventures751 468 2,519 1,730Total interest, net387 295 1,175 1,268Income taxes (benefit)(13) 185 1,320 (1,283)Depreciation and amortization: Consolidated2,140 2,267 5,424 5,689Our share of depreciation and amortization fromunconsolidated joint ventures1,156 1,449 4,328 5,419Total depreciation and amortization3,296 3,716 9,752 11,108EBITDA3,977 4,499 16,502 9,296Stock compensation expense647 981 3,248 3,552Adjusted EBITDA$4,624 $5,480 $19,750 $12,848Exhibit 99.2Petro Travel Plaza Holdings LLCConsolidated Financial StatementsFor the Years Ended December 31, 2018, 2017 and 2016REPORT 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, 2018 and 2017, 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, 2018, 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, 2018 and 2017, and the results of itsoperations and its cash flows for each of the three years in the period ended December 31, 2018, 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, OhioFebruary 25, 20191PETRO TRAVEL PLAZA HOLDINGS LLCCONSOLIDATED BALANCE SHEETS(in thousands) December 31, 2018 2017Assets Current assets: Cash$7,489 $7,272Inventory2,409 2,427Due from affiliate, net1,968 1,011Other current assets43 49Total current assets11,909 10,759 Property and equipment, net57,029 56,503Other noncurrent assets, net158 173 Total assets$69,096 $67,435 Liabilities and Members' Capital Current liabilities: Accrued expenses and other current liabilities$2,258 $2,262Total current liabilities2,258 2,262 Long term debt, net15,283 15,279Other noncurrent liabilities178 189 Total liabilities17,719 17,730 Members' capital51,377 49,705 Total liabilities and members' capital$69,096 $67,435The accompanying notes are an integral part of these consolidated financial statements.2PETRO TRAVEL PLAZA HOLDINGS LLCCONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(in thousands) Year Ended December 31, 2018 2017 2016Revenues: Fuel$85,871 $73,505 $69,284Nonfuel33,212 32,002 31,321Total revenues119,083 105,507 100,605 Costs and expenses: Cost of goods sold (excluding depreciation and amortization): Fuel72,658 59,457 54,739Nonfuel12,703 12,316 12,199Total cost of goods sold85,361 71,773 66,938 Operating expenses20,870 20,458 18,743Depreciation and amortization2,562 2,380 2,140 Total costs and expenses108,793 94,611 87,821 Operating income10,290 10,896 12,784 Interest expense, net618 478 707 Net income and comprehensive income$9,672 $10,418 $12,077The accompanying notes are an integral part of these consolidated financial statements.3PETRO TRAVEL PLAZA HOLDINGS LLCCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year Ended December 31, 2018 2017 2016Cash flows from operating activities: Net income$9,672 $10,418 $12,077Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization2,562 2,380 2,140Debt issuance costs4 4 138Increase (decrease) from changes in: Inventory18 (267) (193)Other current assets6 6 16Due from affiliate, net(957) 364 (1,422)Accrued expenses and other current liabilities(4) 353 137Other, net15 (9) 30Net cash provided by operating activities11,316 13,249 12,923 Cash flows from investing activities: Purchases of property and equipment(3,099) (2,992) (5,715)Net cash used in investing activities(3,099) (2,992) (5,715) Cash flows from financing activities: Distributions to members(8,000) (12,000) (7,500)Repayments of long term debt— — (543)Payment of debt issuance costs— — (58)Net cash used in financing activities(8,000) (12,000) (8,101) Net increase (decrease) in cash217 (1,743) (893)Cash, beginning of period7,272 9,015 9,908Cash, end of period$7,489 $7,272 $9,015 Supplemental cash flow information: Interest paid during the period$615 $475 $573The accompanying notes are an integral part of these consolidated financial statements.4PETRO TRAVEL PLAZA HOLDINGS LLCCONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' CAPITAL(in thousands) Members' CapitalBalance, December 31, 2015$46,710Net income12,077Distributions to members(7,500)Balance, December 31, 201651,287Net income10,418Distributions to members(12,000)Balance, December 31, 201749,705Net income9,672Distributions to members(8,000)Balance, December 31, 2018$51,377The accompanying notes are an integral part of these consolidated financial statements.5PETRO TRAVEL PLAZA HOLDINGS LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2018, 2017 AND 2016(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 Goasis brand,respectively, and one travel center and one convenience store owned by ETP, operate under the TravelCenters of America brand and Goasis 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 ("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 February 25, 2019, which date represents the date the financial statements were available to beissued.Significant Accounting PoliciesInventoryInventory is stated at the lower of cost or net realizable value. The Company determines cost principally on the weighted average cost method.6PETRO TRAVEL PLAZA HOLDINGS LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2018, 2017 AND 2016(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 $853, $843 and $848 for the years endedDecember 31, 2018, 2017 and 2016, 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 $178 and $189 has been recorded as a noncurrent liability as ofDecember 31, 2018 and 2017, 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. See Note 2 for more information about our revenues.Advertising and Promotion CostsCosts 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 $400, $448 and $516 for the years endedDecember 31, 2018, 2017 and 2016, respectively.7PETRO TRAVEL PLAZA HOLDINGS LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2018, 2017 AND 2016(in thousands)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.Change in Accounting PrinciplesIn May 2014, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update, or ASU, 2014-09, Revenue from Contractswith Customers, or ASU 2014-09, which established a comprehensive revenue recognition standard under GAAP for almost all industries. The Companyadopted ASU 2014-09 on January 1, 2018, using the full retrospective method, which required that the Company restate its consolidated financial statementsfor prior year comparative periods. Although the majority of the Company's revenue is initiated at the point of sale and was unaffected by this ASU, theimplementation of this ASU affected the accounting for its motor fuel taxes and loyalty program.Motor Fuel Taxes. Prior to the adoption of ASU 2104-09, motor fuel taxes were included in fuel revenues and fuel cost of goods sold in the consolidatedstatements of income and comprehensive income. Motor fuel taxes are no longer included in fuel revenues or fuel cost of goods sold, resulting in a decreasein fuel revenues and fuel cost of goods sold of $13,956 and $13,726 for the years ended December 31, 2017 and 2016, respectively.Loyalty Program. Prior to the adoption of ASU 2014-09, the Company recognized the estimated cost of loyalty awards as a discount against the nonfuelrevenues from which the rewards were redeemed. Loyalty awards are now recognized against the revenue that earned the loyalty award, which resulted in areclassification between fuel and nonfuel revenue of $235 and $139 for the years ended December 31, 2017 and 2016, respectively.The following table presents the effect of the adoption of the new standard on the Company's consolidated statement of income and comprehensiveincome for the year ended December 31, 2017. As Reported Adoption ofASU 2014-09 As AdjustedRevenues: Fuel$87,696 $(14,191) $73,505Nonfuel31,767 235 32,002Total revenues119,463 (13,956) 105,507 Cost of goods sold (excluding depreciation and amortization): Fuel73,413 (13,956) 59,457Nonfuel12,316 — 12,316Total cost of goods sold85,729 (13,956) 71,773 Net income and comprehensive income10,418 — 10,4188PETRO TRAVEL PLAZA HOLDINGS LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2018, 2017 AND 2016(in thousands)The following table presents the effect of the adoption of the new standard on the Company's consolidated statement of income and comprehensiveincome for the year ended December 31, 2016. As Reported Adoption ofASU 2014-09 As AdjustedRevenues: Fuel$83,149 $(13,865) $69,284Nonfuel31,182 139 31,321Total revenues114,331 (13,726) 100,605 Cost of goods sold (excluding depreciation and amortization): Fuel68,465 (13,726) 54,739Nonfuel12,199 — 12,199Total cost of goods sold80,664 (13,726) 66,938 Net income and comprehensive income12,077 — 12,077Recently Issued Accounting PronouncementsIn 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.(2)RevenueThe Company recognizes revenue based on the consideration specified in the contract with the customer, excluding any sales incentives (such as loyaltyprograms and customer rebates) and amounts collected on behalf of third parties (such as sales and excise taxes). The majority of the Company's revenue isgenerated at the point of sale in its retail locations.Fuel Revenues. The Company recognizes fuel revenues and the related costs at the time of sale to customers at its locations. The Company sells dieselfuel and gasoline to its customers at prices that it establishes daily or are indexed to market prices and reset daily. The Company sells diesel fuel underpricing arrangements with certain customers.Nonfuel Revenues. The Company recognizes nonfuel revenues and the related costs at the time of sale to customers at its locations. The Company sells avariety of nonfuel products and services at stated retail prices in its travel centers and standalone restaurant, as well as through its RoadSquad® program.Truck repair and maintenance goods or services may be sold at discounted pricing under pricing arrangements with certain customers, some of which includerebates payable to the customer after the end of the period.9PETRO TRAVEL PLAZA HOLDINGS LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2018, 2017 AND 2016(in thousands)Other. Sales incentives and other promotional activities that the Company recognizes as a reduction to revenue include, but are not limited to, thefollowing:•Customer Loyalty Program. The Company offers travel center trucking customers the option to participate in TA's loyalty program. The loyaltyprogram provides customers with the right to earn loyalty awards on qualifying purchases that can be used for discounts on future purchases ofgoods or services. The Company applies a relative standalone selling price approach to its outstanding loyalty awards whereby a portion of eachsale attributable to the loyalty awards earned is deferred and will be recognized as revenue in the category in which the loyalty awards are redeemedupon the redemption or expiration of the loyalty awards. Significant judgment is required to determine the standalone selling price for loyaltyawards. Assumptions used in determining the standalone selling price include the historic redemption rate and the use of a weighted average sellingprice for fuel to calculate the revenue attributable to the loyalty awards.•Customer Discounts and Rebates. TA enters into agreements with certain customers on behalf of the Company in which it agrees to providediscounts on fuel and/or truck service purchases, some of which are structured as rebates payable to the customer after the end of the period. TheCompany recognizes the cost of discounts against, and in the same period as, the revenue that generated the discounts earned.Disaggregation of RevenueThe Company disaggregates its revenue based on the type of good or service provided to the customer, or by fuel revenues and nonfuel revenues, in itsconsolidated statements of income and comprehensive income. The Company's locations use similar processes to sell similar products and services.Contract LiabilitiesThe Company's contract liabilities, which are presented in its consolidated balance sheets in other current liabilities, primarily include deferred revenuerelated to TA's rebates payable to customers and other deferred revenues. Contract liabilities were $8 and $6 as of December 31, 2018 and 2017, respectively.(3)InventoryInventory at December 31, 2018 and 2017, consisted of the following: December 31, 2018 2017Nonfuel products$1,989 $1,958Fuel products420 469Total inventory$2,409 $2,42710PETRO TRAVEL PLAZA HOLDINGS LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2018, 2017 AND 2016(in thousands)(4)Property and EquipmentProperty and equipment, net, as of December 31, 2018 and 2017, consisted of the following: Estimated UsefulLives (years) December 31, 2018 2017Land and improvements $34,943 $34,056Buildings and improvements10-40 34,345 33,434Machinery, equipment and furniture3-10 14,295 13,429Construction in progress 959 1,006 84,542 81,925Less: accumulated depreciation and amortization 27,513 25,422Property and equipment, net $57,029 $56,503Depreciation expense for the years ended December 31, 2018, 2017 and 2016 was $2,573, $2,372 and $2,128, respectively.(5)Accrued Expenses and Other Current LiabilitiesAccrued expenses and other current liabilities as of December 31, 2018 and 2017, consisted of the following: December 31, 2018 2017Self insurance accrual$825 $998Taxes payable, other than income taxes765 785Accrued capital expenditures126 —Accrued utilities113 102Accrued interest29 26Environmental accrual21 15Other379 336Total accrued expenses and other current liabilities$2,258 $2,262(6)Long Term Debt, netLong term debt, net consisted of the following at December 31, 2018 and 2017: December 31, 2018 2017Note payable to a bank$15,331 $15,331Less: debt issuance costs48 52Total long term debt, net$15,283 $15,27911PETRO TRAVEL PLAZA HOLDINGS LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2018, 2017 AND 2016(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 2023, and decrease the interest rate on the debt to LIBOR plus 1.95%, payablemonthly. The credit agreement includes certain financial covenants, with which the Company was in compliance with at December 31, 2018. AtDecember 31, 2018, the interest rate was 4.45%. The Company's weighted average interest rates for the years ended December 31, 2018, 2017 and 2016 were3.97%, 3.10% and 2.78%, 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, net and for the years ended December 31, 2018 and 2017, were $48 and $52, net of accumulated amortization of debtissuance costs of $10 and $6, respectively.(7)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, net in the accompanying consolidated balance sheets. Amounts due from affiliate, net as of December 31, 2018 and 2017, were $1,968 and$1,011, respectively. Pursuant to the terms of the Operating Agreement, TA manages the locations and is responsible for the administrative, accounting, andtax functions of the Company. TA receives a management fee for providing these services, which may not be commensurate with the cost of these serviceswere the Company to perform these internally or obtain them from an unrelated third party. The Company paid management fees to TA in the amount of$1,562, $1,540 and $1,055 for the years ended December 31, 2018, 2017 and 2016, respectively, which fees are included in operating expenses in theaccompanying consolidated statements of income and comprehensive income. In August 2016, the Company amended the Operating Agreement to include,among other things, construction of a QSR by TA on the property of an existing travel center. The Company has agreed to pay TA a constructionmanagement fee equal to 2% of hard costs of the construction of the QSR. TA opened the QSR on February 13, 2017. In November 2016, the Companyfurther amended the Operating Agreement to, among other things, (a) increase the annual management fee to $1,300 effective January 1, 2017, with annualincreases 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 renovationprojects in the construction management fee. In addition to management services and staffing provided by TA, the Operating Agreement grants the Companythe right to use all of TA's names, trade names, trademarks and logos to the extent required in the operation of the Company's travel centers and conveniencestores.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 $10,198, $10,356 and $9,663 for theyears ended December 31, 2018, 2017 and 2016, respectively. These reimbursements were recorded in operating expenses in the accompanying consolidatedstatements of income and comprehensive income.12PETRO TRAVEL PLAZA HOLDINGS LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2018, 2017 AND 2016(in thousands)(8)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 $21 and $15, at December 31, 2018 and 2017, respectively, which was presented in the Company's consolidated balancesheets in accrued expenses and other current liabilities. Accruals are periodically evaluated and updated as information regarding the nature of the clean upwork 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.13

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