10-Q 1 trc-20220331.htm 10-Q trc-20220331
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In determining the classification of cash inflows and outflows related to water asset activity, the Company’s practices are supported by Accounting Standards Codification (“ASC”) 230-10-45-22, which provides that “Certain cash receipts and payments have aspects of more than one class of cash flows…. If so, the appropriate classification shall depend on the activity that is likely to be the predominant source of cash flows for the item.” Also, at the 2006 American Institution of Certified Public Accountants Conference on Current SEC and PCAOB Developments, the Securities and Exchange Commission, or SEC staff discussed that an entity should be consistent in how it classifies cash outflows and inflows related to an asset’s purchase and sale and noted that when cash flow classification is unclear, registrants must use judgment and analysis that considers the nature of the activity and the predominant source of cash flow for these items.

Given the nature of our water assets and the aforementioned authoritative guidance, the Company estimates the appropriate classification of water assets purchased based on the timing of the sale of the water. Water purchased in prior periods that was classified as investing was sold for $1.7 million in 2022, this cash inflow is appropriately classified in the Company’s investing activities. The profit of $0.7 million related to the water purchased in prior periods is appropriately being deducted from operating activities for the current period. The Company has and will continue to apply this methodology to water asset transactions that meet this fact pattern.
In determining the classification of cash inflows and outflows related to land development costs, the Company’s practices are supported by Accounting Standards Codification (“ASC”) 230-10-45-22, which provides that “Certain cash receipts and payments have aspects of more than one class of cash flows…. If so, the appropriate classification shall depend on the activity that is likely to be the predominant source of cash flows for the item.” Also, at the 2006 American Institution of Certified Public Accountants Conference on Current SEC and PCAOB Developments, the Securities and Exchange Commission, or SEC staff discussed that an entity should be consistent in how it classifies cash outflows and inflows related to an asset’s purchase and sale and noted that when cash flow classification is unclear, registrants must use judgment and analysis that considers the nature of the activity and the predominant source of cash flow for these items.

Given the nature of our land development costs and the aforementioned authoritative guidance, the Company estimates the appropriate classification of land development costs based on the timing of the sale of land. Land development costs incurred during prior periods that were classified as investing were sold for $4.7 million in 2022, this cash inflow is appropriately classified in the Company’s investing activities. The profit of $3.6 million related to land development costs incurred in prior periods is appropriately being deducted from operating activities for the current period. The Company has and will continue to apply this methodology to land sale transactions that meet this fact pattern.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 (Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number: 1-07183
trc-20220331_g1.jpg
TEJON RANCH CO.
(Exact name of registrant as specified in its charter) 

Delaware
(State or other jurisdiction of incorporation or organization)
77-0196136
(I.R.S. Employer Identification No.)
P.O. Box 1000, Tejon Ranch, California 93243
(Address of principal executive offices) (Zip Code)
(661) 248-3000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, $0.50 par valueTRCNew York Stock Exchange
Indicate 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 1934 during 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 filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation 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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging 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.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or 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
The number of the Company’s outstanding shares of Common Stock on April 30, 2022 was 26,481,691.



TEJON RANCH CO. AND SUBSIDIARIES
TABLE OF CONTENTS
  Page
PART I.FINANCIAL INFORMATION
Item 1.Financial Statements
Unaudited Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2022 and 2021
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
`
2


PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TEJON RANCH CO. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

Three Months Ended March 31,
 20222021
Revenues:
Real estate - commercial/industrial$7,349 $2,228 
Mineral resources11,968 7,176 
Farming655 607 
Ranch operations1,048 1,043 
Total revenues21,020 11,054 
Costs and Expenses:
Real estate - commercial/industrial2,736 1,552 
Real estate - resort/residential423 553 
Mineral resources7,157 5,047 
Farming1,762 1,478 
Ranch operations1,315 1,187 
Corporate expenses2,415 2,291 
Total expenses15,808 12,108 
Operating income (loss)5,212 (1,054)
Other Income:
Investment income17 7 
Other income, net918 64 
Total other income935 71 
Income (loss) from operations before equity in earnings of unconsolidated joint ventures6,147 (983)
Equity in earnings (losses) of unconsolidated joint ventures, net1,213 (59)
Income (loss) before income tax expense 7,360 (1,042)
Income tax expense3,046 21 
Net income (loss)4,314 (1,063)
Net income (loss) attributable to non-controlling interest7 (8)
Net income (loss) attributable to common stockholders$4,307 $(1,055)
Net income (loss) per share attributable to common stockholders, basic$0.16 $(0.04)
Net income (loss) per share attributable to common stockholders, diluted$0.16 $(0.04)

See accompanying notes.

3


TEJON RANCH CO. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)

 Three Months Ended March 31,
 20222021
Net income (loss)$4,314 $(1,063)
Other comprehensive (loss) gain:
Unrealized loss on available-for-sale securities(68)(10)
Unrealized gain on interest rate swap 2,553 2,203 
Other comprehensive gain before taxes2,485 2,193 
Expense for income taxes related to other comprehensive income items(695)(613)
Other comprehensive gain1,790 1,580 
Comprehensive income6,104 517 
Comprehensive income (loss) attributable to non-controlling interests7 (8)
Comprehensive income attributable to common stockholders$6,097 $525 
See accompanying notes.
4


TEJON RANCH CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

March 31, 2022December 31, 2021
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents$36,705 $36,195 
Marketable securities - available-for-sale19,537 10,983 
Accounts receivable3,275 6,473 
Inventories8,270 5,702 
Prepaid expenses and other current assets4,235 3,619 
Total current assets72,022 62,972 
Real estate and improvements - held for lease, net17,207 17,301 
Real estate development (includes $113,014 at March 31, 2022 and $112,063 at December 31, 2021, attributable to Centennial Founders, LLC, Note 15)
321,449 319,030 
Property and equipment, net51,426 50,699 
Investments in unconsolidated joint ventures37,348 43,418 
Net investment in water assets50,982 50,997 
Other assets1,594 1,619 
TOTAL ASSETS$552,028 $546,036 
LIABILITIES AND EQUITY
Current Liabilities:
Trade accounts payable$4,271 $4,545 
Accrued liabilities and other3,047 3,451 
Deferred income2,543 1,907 
Income Taxes Payable4,591 1,217 
Current maturities of long-term debt4,531 4,475 
Total current liabilities18,983 15,595 
Long-term debt, less current portion47,001 48,155 
Long-term deferred gains7,839 8,409 
Deferred tax liability3,596 2,898 
Other liabilities11,727 14,468 
Total liabilities89,146 89,525 
Commitments 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 - 26,473,349 at March 31, 2022 and 26,400,921 at December 31, 2021
13,237 13,200 
Additional paid-in capital345,166 344,936 
Accumulated other comprehensive loss(5,032)(6,822)
Retained earnings94,142 89,835 
Total Tejon Ranch Co. Stockholders’ Equity447,513 441,149 
Non-controlling interest15,369 15,362 
Total equity462,882 456,511 
TOTAL LIABILITIES AND EQUITY$552,028 $546,036 
See accompanying notes.
5


TEJON RANCH CO. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended March 31,
 20222021
Operating Activities
Net income (loss)$4,314 $(1,063)
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Depreciation and amortization967 965 
Amortization of premium/discount of marketable securities40 11 
Equity in earnings of unconsolidated joint ventures, net(1,213)59 
Non-cash retirement plan (benefit) expense26 (25)
Profit from water sales1
(734) 
Profit from land sales2
(3,589) 
Gain on sale of property plant and equipment(925)(36)
Deferred income taxes  
Stock compensation expense 1,219 1,276 
Excess tax shortfall from stock-based compensation3 155 
Distribution of earnings from unconsolidated joint ventures4,931 163 
Changes in operating assets and liabilities:
Receivables, inventories, prepaids and other assets, net553 946 
Current liabilities2,392 1,263 
Net cash provided by operating activities7,984 3,714 
Investing Activities
Maturities and sales of marketable securities7,967 900 
Funds invested in marketable securities(16,629)(5,715)
Real estate and equipment expenditures(4,432)(5,218)
Proceeds from sale of real estate/assets 45 
Investment in unconsolidated joint ventures(500)
Distribution of equity from unconsolidated joint ventures2,631 462 
Proceeds from water sales1
1,723  
Investments in water assets(941)(1,653)
Net proceeds from land sales2
4,438  
Net cash used in investing activities(5,243)(11,679)
Financing Activities
Repayments of long-term debt(1,109)(1,066)
Taxes on vested stock grants(1,122)(966)
Net cash used in financing activities(2,231)(2,032)
Increase (decrease) in cash and cash equivalents510 (9,997)
Cash, cash equivalents, and restricted cash at beginning of period37,398 55,320 
Cash, cash equivalents, and restricted cash at end of period$37,908 $45,323 
Reconciliation to amounts on consolidated balance sheets:
Cash and cash equivalents$36,705 $45,323 
Restricted cash (Shown in Other Assets)1,203  
Total cash, cash equivalents, and restricted cash$37,908 $45,323 
6


Non-cash investing activities
Accrued capital expenditures included in current liabilities$(850)$(1,076)
Accrued long-term water assets included in current liabilities$(374)$262 
1In determining the classification of cash inflows and outflows related to water asset activity, the Company’s practices are supported by Accounting Standards Codification (“ASC”) 230-10-45-22, which provides that “Certain cash receipts and payments have aspects of more than one class of cash flows…. If so, the appropriate classification shall depend on the activity that is likely to be the predominant source of cash flows for the item.” Also, at the 2006 American Institution of Certified Public Accountants Conference on Current SEC and PCAOB Developments, the Securities and Exchange Commission, or SEC staff discussed that an entity should be consistent in how it classifies cash outflows and inflows related to an asset’s purchase and sale and noted that when cash flow classification is unclear, registrants must use judgment and analysis that considers the nature of the activity and the predominant source of cash flow for these items.

Given the nature of our water assets and the aforementioned authoritative guidance, the Company estimates the appropriate classification of water assets purchased based on the timing of the sale of the water. Water purchased in prior periods that was classified as investing was sold for $1.7 million in 2022, this cash inflow is appropriately classified in the Company’s investing activities. The profit of $0.7 million related to the water purchased in prior periods is appropriately being deducted from operating activities for the current period. The Company has and will continue to apply this methodology to water asset transactions that meet this fact pattern.

2In determining the classification of cash inflows and outflows related to land development costs, the Company’s practices are supported by Accounting Standards Codification (“ASC”) 230-10-45-22, which provides that “Certain cash receipts and payments have aspects of more than one class of cash flows…. If so, the appropriate classification shall depend on the activity that is likely to be the predominant source of cash flows for the item.” Also, at the 2006 American Institution of Certified Public Accountants Conference on Current SEC and PCAOB Developments, the Securities and Exchange Commission, or SEC staff discussed that an entity should be consistent in how it classifies cash outflows and inflows related to an asset’s purchase and sale and noted that when cash flow classification is unclear, registrants must use judgment and analysis that considers the nature of the activity and the predominant source of cash flow for these items.

Given the nature of our land development costs and the aforementioned authoritative guidance, the Company estimates the appropriate classification of land development costs based on the timing of the sale of land. Land development costs incurred during prior periods that were classified as investing were sold for $4.7 million in 2022, this cash inflow is appropriately classified in the Company’s investing activities. The profit of $3.6 million related to land development costs incurred in prior periods is appropriately being deducted from operating activities for the current period. The Company has and will continue to apply this methodology to land sale transactions that meet this fact pattern.

See accompanying notes.
7


TEJON RANCH CO. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AND NONCONTROLLING INTERESTS
(In thousands, except shares outstanding)

Common Stock Shares OutstandingCommon StockAdditional Paid-In CapitalAccumulated Other Comprehensive (Loss) IncomeRetained EarningsTotal Stockholders' EquityNoncontrolling InterestTotal Equity
Balance, December 31, 202126,400,921 $13,200 $344,936 $(6,822)$89,835 $441,149 $15,362 $456,511 
Net income— — — — 4,307 4,307 7 4,314 
Other comprehensive income— — — 1,790 1,790 — 1,790 
Restricted stock issuance136,288 68 (68)— — — —  
Stock compensation— — 1,389 — — 1,389 — 1,389 
Shares withheld for taxes and tax benefit of vested shares(63,860)(31)(1,091)— — (1,122)— (1,122)
Balance, March 31, 202226,473,349 $13,237 $345,166 $(5,032)$94,142 $447,513 $15,369 $462,882 
Balance, December 31, 202026,276,830 $13,137 $342,059 $(9,720)$84,487 $429,963 $15,368 $445,331 
Net loss— — — — (1,055)(1,055)(8)(1,063)
Other comprehensive income— — — 1,580 — 1,580 — 1,580 
Restricted stock issuance117,943 59 (59)— — — —  
Stock compensation— — 1,266 — — 1,266 — 1,266 
Shares withheld for taxes and tax benefit of vested shares(58,658)(29)(937)— — (966)— (966)
Balance, March 31, 202126,336,115 $13,167 $342,329 $(8,140)$83,432 $430,788 $15,360 $446,148 

See accompanying notes.

8



TEJON RANCH CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.    BASIS OF PRESENTATION
The summarized information of Tejon Ranch Co. and its subsidiaries (the Company or Tejon), provided pursuant to Part I, Item 1 of Form 10-Q, is unaudited and reflects all adjustments which are, in the opinion of the Company’s management, necessary for a fair statement of the results for the interim period. All such adjustments are of a normal recurring nature. The Company has evaluated subsequent events through the date of issuance of its consolidated financial statements.
The periods ended March 31, 2022 and December 31, 2021 include the consolidation of Centennial Founders, LLC’s statement of operations within the resort/residential real estate development segment and statements of cash flows. The Company’s March 31, 2022 and December 31, 2021 balance sheets and statements of changes in equity and noncontrolling interests are presented on a consolidated basis, including the consolidation of Centennial Founders, LLC.
The Company has identified five reportable segments: commercial/industrial real estate development, resort/residential real estate development, mineral resources, farming, and ranch operations. Information for the Company’s reportable segments are presented in its Consolidated Statements of Operations. The Company’s reportable segments follow the same accounting policies used for the Company’s consolidated financial statements. The Company uses segment profit or loss and equity in earnings of unconsolidated joint ventures as the primary measures of profitability to evaluate operating performance and to allocate capital resources.
The results of the period reported herein are not indicative of the results to be expected for the full year due to the seasonal nature of the Company’s agricultural activities, water activities, timing of real estate sales and leasing activities. Historically, the Company’s largest percentages of farming revenues are recognized during the third and fourth quarters of the fiscal year. Please refer to Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations for further discussion.
For further information and a summary of significant accounting policies, refer to the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Restricted Cash
Restricted cash is included in Prepaid expenses and other current assets within the Consolidated Balance Sheets and primarily relate to funds held in escrow. The Company had $1,203,000 of restricted cash as of March 31, 2022.
Recent Accounting Pronouncements
No new Accounting Standards Update, or ASU, is applicable to our consolidated financial statements as of March 31, 2022.
2.    EQUITY
Earnings 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 outstanding during the year. Diluted net income (loss) per share attributable to common stockholders is based upon the weighted average number of shares of common stock outstanding and the weighted average number of shares outstanding assuming the issuance of common stock upon exercise of stock options, warrants to purchase common stock, and the vesting of restricted stock grants per ASC Topic 260, “Earnings Per Share.”
Three Months Ended March 31,
 20222021
Weighted average number of shares outstanding:
Common stock26,431,989 26,313,722 
Common stock equivalents47,507 57,010 
Diluted shares outstanding26,479,496 26,370,732 
9


3.     MARKETABLE SECURITIES
ASC Topic 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 classifies 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 of available-for-sale securities at:
($ in thousands) March 31, 2022December 31, 2021
Marketable Securities:Fair Value
Hierarchy
CostFair ValueCostFair Value
Certificates of deposit
with unrealized losses for less than 12 months$ $ $401 $400 
with unrealized gains649 649   
Total Certificates of depositLevel 1649 649 401 400 
U.S. Treasury and agency notes
with unrealized losses for less than 12 months4,637 4,616 1,360 1,358 
Total U.S. Treasury and agency notesLevel 24,637 4,616 1,360 1,358 
Corporate notes
with unrealized losses for less than 12 months12,081 12,033 9,231 9,225 
with unrealized losses for more than 12 months595 589   
with unrealized gains1,500 1,500   
Total Corporate notesLevel 214,176 14,122 9,231 9,225 
Municipal notes
with unrealized losses for less than 12 months152 150   
Total Municipal notesLevel 2152 150   
$19,614 $19,537 $10,992 $10,983 
ASC Topic 326, "Financial Instruments - Credit Losses," requires the Company to use an allowance approach when recognizing credit loss for available-for-sale debt securities, measured as the difference between the security's amortized cost basis and the amount expected to be collected over the security's lifetime. Under this approach, at each reporting date, the Company records impairment related to credit losses through earnings offset with an allowance for credit losses, or ACL. At March 31, 2022, the Company has not recorded any credit losses.
At March 31, 2022, the fair market value of marketable securities was $77,000 below their cost basis. The Company’s gross unrealized holding gains equaled zero and gross unrealized holding losses equaled $77,000. As of March 31, 2022, the adjustment to accumulated other comprehensive loss reflected a decline in market value of $68,000, including estimated taxes of $19,000.
The Company elected to exclude applicable accrued interest from both the fair value and the amortized cost basis of the available-for-sale debt securities, and separately present the accrued interest receivable balance per ASC Topic 326. The accrued interest receivables balance totaled $71,000 as of March 31, 2022, and was included within the Prepaid expenses and other current assets line item of the Consolidated Balance Sheets. The Company elected not to measure an allowance for credit losses on accrued interest receivable as an allowance on possible uncollectible accrued interest is not warranted.
U.S. Treasury and agency notes
The unrealized losses on the Company's investments in U.S. Treasury and agency notes at March 31, 2022 and December 31, 2021 were caused by relative changes in interest rates since the time of purchase. The contractual cash flows for these securities are guaranteed by U.S. government agencies. The unrealized losses on these debt security holdings are a function of changes in investment spreads and interest rate movements and not changes in credit quality. As of March 31, 2022 and December 31, 2021, the Company did not intend to sell these securities and it is not more-likely-than-not that the Company would be required to sell these securities before recovery of their cost basis. Therefore, these investments did not require an ACL as of March 31, 2022 and December 31, 2021.
10


Corporate notes
The contractual terms of those investments do not permit the issuers to settle the securities at a price less than the amortized cost basis of the investments. The unrealized losses on corporate notes are a function of changes in investment spreads and interest rate movements and not changes in credit quality. The Company expects to recover the entire amortized cost basis of these securities. As of March 31, 2022 and December 31, 2021, the Company did not intend to sell these securities and it is not more-likely-than-not that the Company would be required to sell these securities before recovery of their cost basis. Therefore, these investments did not require an ACL as of March 31, 2022 and December 31, 2021.
The following tables summarize the maturities, at par, of marketable securities as of:
March 31, 2022
($ in thousands)20222023Total
Certificates of deposit$649 $ $649 
U.S. Treasury and agency notes3,618 1,000 4,618 
Corporate notes7,527 6,575 14,102 
$11,794 $7,575 $19,369 
 
December 31, 2021
($ in thousands)20222023Total
Certificates of deposit$400 $ $400 
U.S. Treasury and agency notes855 500 1,355 
Corporate notes8,925 250 9,175 
$10,180 $750 $10,930 
The Company’s investments in corporate notes are with companies that have an investment grade rating from Standard & Poor’s as of March 31, 2022.
4.     REAL ESTATE
Our accumulated real estate development costs by project consisted of the following:
($ in thousands)March 31, 2022December 31, 2021
Real estate development
Mountain Village$151,409 $150,668 
Centennial113,014 112,063 
Grapevine38,149 37,922 
Tejon Ranch Commerce Center18,877 18,377 
Real estate development$321,449 $319,030 
Real estate and improvements - held for lease
Tejon Ranch Commerce Center$20,590 $20,595 
Less accumulated depreciation(3,383)(3,294)
Real estate and improvements - held for lease, net$17,207 $17,301 
11



5.     LONG-TERM WATER ASSETS
Long-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 and the 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 southern Kern County and by the Tejon-Castac Water District (TCWD) in the Kern Water Banks.
The Company has secured State Water Project, or SWP, entitlements under long-term SWP water contracts within the Tulare Lake Basin Water Storage District, or Tulare Lake Basin, and the Dudley-Ridge Water District, or Dudley-Ridge, totaling 3,444 acre-feet of SWP entitlement annually, subject to SWP allocations. These contracts extend through 2035 and have been transferred to the Antelope Valley East Kern Water Agency, or AVEK, for the Company's use in the Antelope Valley. 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 Nickel 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 2022 is $861 per acre-foot. The purchase cost is subject to annual cost increases based on the greater of the consumer price index or 3%.
Water assets will ultimately be sold to water districts servicing the Company’s commercial/industrial and resort/residential real estate developments, and for the Company's own use in its agricultural operations. Interim uses may include the sale of the temporary “right-of-use” of portions of this water to third-party users on an annual basis until this water is fully allocated to Company uses, as previously described.
Water revenues and cost of sales were as follows ($ in thousands):
March 31, 2022March 31, 2021
Acre-Feet Sold6,970 5,881 
Revenues$10,157 $6,252 
Cost of sales6,345 4,351 
Profit$3,812 $1,901 

The costs assigned to water assets held for future use were as follows ($ in thousands):
March 31, 2022December 31, 2021
Banked water and water for future delivery$23,855 $25,020 
Transferable water4,370 2,879 
Total water held for future use at cost$28,225 $27,899 

Intangible Water Assets
The Company’s carrying amounts of its purchased water contracts were as follows ($ in thousands):
March 31, 2022December 31, 2021
CostsAccumulated DepreciationCostsAccumulated Depreciation
Dudley-Ridge water rights$11,581 $(5,428)$11,581 $(5,307)
Nickel water rights18,740 (5,408)18,740 (5,247)
Tulare Lake Basin water rights6,479 (3,207)6,479 (3,148)
$36,800 $(14,043)$36,800 $(13,702)
Net cost of purchased water contracts22,757 23,098 
Total cost water held for future use28,225 27,899 
Net investments in water assets$50,982 $50,997 

12


Water contracts with the Wheeler Ridge Maricopa Water Storage District, or WRMWSD, and TCWD are also in place, but were entered into with each district at the inception of the respective contracts, were not purchased later from third parties, and do not have a related financial value on the books of the Company. Therefore, there is no amortization expense related to these contracts. Total water resources, including both recurring and one-time usage, are:
(in acre-feet, unaudited)March 31, 2022December 31, 2021
Water held for future use
TCWD - Banked water owned by the Company55,227 56,189 
Company water bank50,349 50,349 
Water available for banking, sales, or internal use5,504 4,203 
Total water held for future use111,080 110,741 
Purchased water contracts
Water Contracts (Dudley-Ridge, Nickel and Tulare)10,137 10,137 
WRMWSD - Contracts with the Company15,547 15,547 
TCWD - Contracts with the Company5,749 5,749 
Total purchased water contracts31,433 31,433 
Total water held for future use and purchased water contracts142,513 142,174 
Tejon Ranchcorp, or Ranchcorp, a wholly-owned subsidiary of Tejon Ranch Co., entered into a Water Supply Agreement with Pastoria Energy Facility, L.L.C., or PEF, in 2015. PEF is a current lessee of the Company in a land lease for the operation of a power plant. Pursuant to the Water Supply Agreement, PEF may purchase from the Company up to 3,500 acre-feet of water per year until July 31, 2030, with an option to extend the term. PEF is under no obligation to purchase water from the Company in any year but is required to pay the Company an annual option payment equal to 30% of the maximum annual payment. The price of the water under the Water Supply Agreement for 2022 is $1,224 per acre-foot, subject to 3% annual increases over the life of the contract. The Water Supply Agreement contains other customary terms and conditions, including representations and warranties that are typical for agreements of this type. The Company's commitments to sell water can be met through current water assets.
6.     ACCRUED LIABILITIES AND OTHER
Accrued liabilities and other consisted of the following:
($ in thousands)March 31, 2022December 31, 2021
Accrued vacation$801 $782 
Accrued paid personal leave364 356 
Accrued bonus530 2,062 
Property tax payable1
1,317  
Other35 251 
$3,047 $3,451 
1 California property taxes are accrued throughout the year and are paid every April and December.
7.     LINE OF CREDIT AND LONG-TERM DEBT
Debt consisted of the following:
($ in thousands)March 31, 2022December 31, 2021
Notes payable$51,674 $52,784 
Less: line-of-credit and current maturities of long-term debt(4,531)(4,475)
Less: deferred loan costs(142)(154)
Long-term debt, less current portion$47,001 $48,155 


13


8.     OTHER LIABILITIES
Other liabilities consisted of the following:
($ in thousands)March 31, 2022December 31, 2021
Pension liability$136 $185 
Interest rate swap liability (Note 10)535 3,088 
Supplemental executive retirement plan liability7,789 7,847 
Excess joint venture distributions and other3,267 3,348 
Total$11,727 $14,468 
For the captions presented in the table above, please refer to the respective Notes to Unaudited Consolidated Financial Statements for further detail.
9.     STOCK COMPENSATION - RESTRICTED STOCK AND PERFORMANCE SHARE GRANTS
The Company’s stock incentive plans provide for the making of awards to employees based upon a service condition or through the achievement of performance-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 share price, or as Performance Condition Grants; and performance share grants that include threshold, target, and maximum achievement levels based on the achievement of specific performance measures, or Performance Milestone Grants. Performance Condition Grants with market-based conditions are based on the achievement of a target share price. The share price used to calculate vesting for market-based awards is determined using a Monte Carlo simulation. Failure to achieve the target share price will result in the forfeiture of shares. Forfeiture of share awards with service conditions or performance-based restrictions will result in a reversal of previously recognized share-based compensation expense. Forfeiture of share awards with market-based restrictions do not result in a reversal of previously recognized share-based compensation expense.

The following is a summary of the Company’s Performance Condition Grants as of the three months ended March 31, 2022:
Performance Condition Grants
Threshold performance 
Target performance453,747 
Maximum performance342,411 
The following is a summary of the Company’s stock grant activity, both time and performance share grants, assuming target achievement for outstanding performance grants for the three months ended March 31, 2022:
March 31, 2022
Stock Grants Outstanding Beginning of Period at Target Achievement683,645 
New Stock Grants/Additional Shares due to Achievement in Excess of Target60,078 
Vested Grants(128,893)
Expired/Forfeited Grants(14,291)
Stock Grants Outstanding End of Period at Target Achievement600,539 
14


The following is a summary of the assumptions used to determine the price for the Company’s market-based Performance Condition Grants for the three months ended March 31, 2022:
($ in thousands except for share prices)
Grant date12/12/201903/11/202012/11/202003/18/202112/16/202103/17/2022
Vesting end12/31/202212/31/202212/31/202303/18/202412/16/202403/17/2025
Share price at target achievement$18.80$16.36$17.07$20.02$21.58$20.43
Expected volatility17.28%18.21%29.25%30.30%31.29%31.54%
Risk-free interest rate1.69%0.58%0.19%0.33%0.92%2.13%
Simulated Monte Carlo share price$11.95$5.87$15.59$18.82$21.48$21.75
Shares granted6,32781,7163,62810,9053,53613,338
Total fair value of award$76$480$57$205$76$290
The unamortized cost associated with unvested stock grants and the weighted average period over which it is expected to be recognized as of March 31, 2022 were $3,031,000 and 12 months, respectively. The fair value of restricted stock with time-based vesting features is based upon the Company’s share price on the date of grant and is expensed over the service period. The fair value of performance grants that cliff vest based on the achievement of performance conditions is based on the share price of the Company’s stock on the day of grant once the Company determines that it is probable that the award will vest. This fair value is expensed over the service period applicable to these grants. For performance grants that contain a range of shares from zero to a maximum, the Company determined, based on historic and projected results, the probability of (1) achieving the performance objective and (2) the level of achievement. Based on this information, the Company determines the fair value of the award and measures the expense over the service period related to these grants. Because the ultimate vesting of all performance grants is tied to the achievement of a performance condition, the Company estimates whether the performance condition will be met and over what period of time. Ultimately, the Company will adjust stock compensation costs according to the actual outcome of the performance condition.
Under the Non-Employee Director Stock Incentive Plan, or NDSI Plan, each non-employee director receives a portion of his or her annual compensation in stock. The stock is granted at the end of each quarter based on the quarter-end stock price.
The following table summarizes stock compensation costs for the Company's 1998 Stock Incentive Plan, or the Employee Plan, and NDSI Plan for the following periods:
($ in thousands)Three Months Ended March 31,
Employee Plan:20222021
    Expensed$1,067 $1,146 
    Capitalized170 (10)
1,237 1,136 
NDSI Plan - Expensed152 130 
Total Stock Compensation Costs$1,389 $1,266 
10.     INTEREST RATE SWAP
In October 2014, the Company entered into an interest rate swap agreement to reduce its exposure to fluctuations in the floating interest rate tied to the London Inter-Bank Offered Rate, or LIBOR, under the term note with Wells Fargo, or the Term Note, as discussed within the Capital Structure and Financial Condition section of Management's Discussion and Analysis of Financial Condition and Results of Operations. On June 21, 2019, the Company amended the interest rate swap agreement to continue to hedge a portion of its exposure to interest rate risk from the Term Note, and, subsequently, the Amended Term Note. The original hedging relationship was de-designated, and the amended interest rate swap was re-designated simultaneously. The amended interest rate swap qualified as an effective cash flow hedge at the initial assessment, based upon a regression analysis, and is recorded at fair value.
During the quarter ended March 31, 2022, the interest rate swap agreement was deemed highly effective. Changes in fair value, including accrued interest and adjustments for non-performance risk, that qualify as cash flow hedges are classified in
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accumulated other comprehensive income, or AOCI. Amounts classified in AOCI are subsequently reclassified into earnings in the period during which the hedged transactions affect earnings. 
As of March 31, 2022, the fair value of the interest rate swap agreement was less than its cost basis and as such is recorded within Other Liabilities on the Consolidated Balance Sheets. The Company had the following outstanding interest rate swap agreement designated as an interest rate cash flow hedge as of March 31, 2022 and December 31, 2021 ($ in thousands):
March 31, 2022
Effective DateMaturity DateFair Value HierarchyWeighted Average Interest Pay RateFair ValueNotional Amount
July 5, 2019June 5, 2029Level 24.16%$(535)$49,790
December 31, 2021
Effective DateMaturity DateFair Value HierarchyWeighted Average Interest Pay RateFair ValueNotional Amount
July 5, 2019June 5, 2029Level 24.16%$(3,088)$50,837
11.     INCOME TAXES
The Company’s provision for income taxes as of March 31, 2022 has been calculated by applying an estimate of the annual effective tax rate for the full year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items). For the three months ended March 31, 2022, the Company’s income tax expense was $3,046,000 compared to $21,000 for the three months ended March 31, 2021. Effective tax rates were 41% and -2% for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, the Company had income tax payables of $4,591,000. The Company classifies interest and penalties incurred on tax payments as income tax expense.
For the three months ended March 31, 2022, the Company’s effective tax rate was above statutory tax rates as a result of permanent differences related to Section 162(m) limitations and discrete tax expense associated with stock compensation. The Section 162(m) compensation deduction limitations occurred as a result of changes in tax law arising from the 2017 Tax Cuts Jobs Act. The discrete item was triggered when stock grants were issued to participants at a price less than the original grant price, causing a deferred tax shortfall. The shortfall recognized represents the reversal of excess deferred tax assets recognized in prior periods. The recognition of the shortfall is not anticipated to have an impact on the Company's current income tax payable.
12.     COMMITMENTS AND CONTINGENCIES
Water Contracts
The Company has secured water contracts that are encumbered by the Company's land. These water contracts require minimum annual payments, for which $12,066,000 is expected to be paid in 2022. These estimated water contract payments consist of SWP contracts with WRMWSD, TCWD, Tulare Lake Basin, Dudley-Ridge, and the Nickel water contract. The SWP contracts run through 2035 and the Nickel water contract runs through 2044, with an option to extend an additional 35 years. Contractual obligations for future water payments were $277,288,000 as of March 31, 2022.
Conservancy Payments
As of March 31, 2022, the Company has fulfilled its financial obligations to the Tejon Ranch Conservancy as prescribed in the Conservation Agreement that was entered into with five major environmental organizations in 2008.
Contracts
The Company exited a consulting contract during the second quarter of 2014 related to the Grapevine Development, or Grapevine project, and is obligated to pay an earned incentive fee at the time of its successful receipt of litigated project entitlements and at a value measurement date five-years after litigated entitlements have been achieved for Grapevine. The final amount of the incentive fee will not be finalized until the future payment dates. The Company believes as of March 31, 2022, the net savings resulting from exiting the contract during this future time period will more than offset the incentive payment costs.
Community Facilities Districts
The Tejon Ranch Public Facilities Financing Authority, or TRPFFA, is a joint powers authority formed by Kern County and TCWD to finance public infrastructure within the Company’s Kern County developments. For the development of the Tejon Ranch Commerce Center, or TRCC, 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 the Company’s land to secure payment of special taxes related to
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$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 of special taxes related to $75,965,000 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 approximately $44,035,000 of additional bond debt authorized by TRPFFA that can be sold in the future.
In connection with the sale of the bonds, there is a standby letter of credit for $4,393,000 related to the issuance of East CFD bonds. The standby letter of credit is in place to provide additional credit enhancement and cover approximately two years of interest on the outstanding bonds. This letter of credit will not be 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 of credit 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 the letter 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 the TRCC-West development. As of March 31, 2022, there were no additional improvement funds remaining from the West CFD bonds. There are $15,647,940 of additional improvement funds remaining within the East CFD bonds for reimbursement of public infrastructure costs during future years. During fiscal 2022, the Company expects to pay approximately $3,247,000 in special taxes. As development continues to occur at TRCC, new owners of land and new lease tenants, through triple 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 outstanding and the amount of taxes paid by others. The tax assessment of each individual property sold or leased is not determinable at this time because it is based on the current tax rate of the property at the time of sale or at the time it is leased to a third-party. Accordingly, the Company was not required to recognize an obligation on March 31, 2022.
National Cement
The Company leases land to National Cement Company of California Inc., or National, for the purpose of manufacturing Portland cement from limestone deposits on the leased acreage. The California Regional Water Quality Control Board, or RWQCB, for the Lahontan Region issued orders in the late 1990s with respect to environmental conditions on the property currently leased to National.
The Company's former tenant Lafarge Corporation, or Lafarge, and current tenant National, remediated these environmental conditions consistent with the RWQCB orders and continue to maintain monitoring activities.
As of March 31, 2022, 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 and Lafarge are obligated to indemnify the Company for costs and liabilities arising out of their use of the leased premises. The remediation of environmental conditions is included within the scope of the National or Lafarge indemnity obligations. If the Company were required to remediate any environmental conditions at its own cost, it is unlikely that the amount of any such expenditure by the Company at this point in time would be material and there is no reasonable likelihood of continuing risk from this matter.
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Centennial
On April 30, 2019, the Los Angeles County Board of Supervisors granted final entitlement approval for the Centennial project. On May 15, 2019, Climate Resolve filed an action in Los Angeles Superior Court (the Climate Resolve Action), pursuant to CEQA and the California Planning and Zoning Law, against the County of Los Angeles and the Los Angeles County Board of Supervisors (collectively, LA County) concerning LA County’s granting of approvals for the Centennial project, including certification of the final environmental impact report and related findings (Centennial EIR); approval of associated general plan amendments; adoption of associated zoning; adoption of the Centennial Specific Plan; approval of a subdivision map for financing purposes; and adoption of a development agreement, among other approvals (collectively, the Centennial Approvals). Separately, on May 28, 2019, CBD and the California Native Plant Society (CNPS) filed an action in Los Angeles County Superior Court (the CBD/CNPS Action) against LA County; like the Climate Resolve Action, the CBD/CNPS Action also challenges the Centennial Approvals. The Company, its wholly owned subsidiary Tejon Ranchcorp, and Centennial Founders, LLC are named as real parties-in-interest in both the Climate Resolve Action and the CBD/CNPS Action.
The Climate Resolve Action and the CBD/CNPS Action collectively allege that LA County failed to properly follow the procedures and requirements of CEQA and the California Planning and Zoning Law. The Climate Resolve Action and the CBD/CNPS Action have been deemed “related” and have been consolidated for adjudication before the judge presiding over the Climate Resolve Action. The Climate Resolve Action and CBD/CNPS Action seek to invalidate the Centennial Approvals and require LA County to revise the environmental documentation related to the Centennial project. The court held three consolidated hearings for the CBD/CNPS Action and Climate Resolve Action on September 30, 2020, November 13, 2020, and January 8, 2021.
On April 5, 2021 the court issued its decision denying the petition for writ of mandate by CBD/CNPS and granting the petition for writ of mandate filed by Climate Resolve. In granting Climate Resolve’s petition, the court found three specific areas where the EIR for the project was lacking. The court ruled that California’s Cap-and-Trade Program cannot be used as a compliance pathway for mitigating greenhouse gas (GHG) impacts for the project and therefore further ruled that additional analysis will be required related to all feasible mitigation of GHG impacts. The court also found that the EIR must provide additional analysis and explanation of how wildland fire risk on lands outside of the project site, posed by on-site ignition sources, is mitigated to less than significant. On April 19, 2021 CBD filed a motion for reconsideration with the court on the denial of their petition for writ of mandate to be granted prevailing party status in the Climate Resolve Action (“Motion for Reconsideration”). The hearing on the Motion for Reconsideration originally scheduled for August 13, 2021, was rescheduled to December 1, 2021.

On November 30, 2021, the Company together with Ranchcorp and Centennial, entered into a Settlement Agreement with Climate Resolve. Pursuant to the Settlement Agreement, the Company has agreed: (1) to make Centennial a net zero greenhouse gas (“GHG”) emissions project through various on-site and off-site measures, including but not limited to installing electric vehicle chargers and establishing and funding incentive programs for the purchase of electric vehicles; (2) to fund certain on-site and off-site fire protection and prevention measures; and (3) to provide annual public reports and create an organization to monitor progress towards these commitments. The foregoing is only a summary of the material terms of the Settlement Agreement and does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to the Settlement Agreement, a full copy of which is attached hereto this Annual Report (10-K). In exchange, Climate Resolve filed a request for dismissal of the Climate Resolve Action with prejudice from the Los Angeles County Superior Court. On December 3, 2021, the Los Angeles Superior Court granted and entered Climate Resolve’s dismissal with prejudice concluding the Climate Resolve Action. On December 1, 2021, the Los Angeles Superior Court continued CBD/CNPS Motion for Reconsideration to January 14, 2022, directing CBD/CNPS to evaluate the Settlement Agreement reached in the Climate Resolve Action to address issues surrounding remedies should CBD be granted prevailing party status in the Climate Resolve Action, and to evaluate the potential to settle or otherwise address CBD’s objections to the Centennial project. To that end, the Company met and conferred twice on January 4, 2022 and January 20, 2022. On January 14, the Los Angeles County Superior Court heard CBD/CNPS Motion for Reconsideration and issued its decision granting CBD/CNPS prevailing party status in the Climate Resolve Action. The Los Angeles County Superior Court set a tentative hearing date of February 25, 2022 concerning the entry of final judgment and awarding of appropriate remedies. Upon mutual request of the parties and approval by the Court, the February 25, 2022 hearing date has been extended twice, originally to March 30, 2022, and then again to May 13, 2022. Prior to and subsequent of final judgment being entered, appellate litigation may follow. 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.
Proceedings Incidental to Business
From time to time, the Company is involved in other proceedings incidental to its 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, the Company does not believe that the ultimate resolution of these other proceedings will have a material adverse effect on the Company’s financial position, results of operations or cash flows, either individually or in the aggregate.
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13.    RETIREMENT PLANS
The Company sponsors a defined benefit retirement plan, or Benefit Plan, that covers eligible employees hired prior to February 1, 2007. The benefits are based on years of service and the employee’s five-year final average salary. 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 plan in accordance with the Employee Retirement Income Security Act of 1974 (ERISA). In April 2017, the Company froze the Benefit Plan as it relates to future benefit accruals for participants. The Company expects to contribute $165,000 to the Benefit Plan in 2022.
Benefit Plan assets consist of equity, debt and short-term money market investment funds. The Benefit Plan’s current investment policy changed during the third quarter of 2018. The policy's strategy seeks to minimize the volatility of the funding ratio. This objective will result in a prescribed asset mix between "return seeking" assets (e.g., stocks) and a bond portfolio (e.g., long duration bonds) according to a pre-determined customized investment strategy based on the Benefit Plan's funded status as the primary input. This path will be used as a reference point as to the mix of assets, which by design will de-emphasize the return seeking portion as the funded status improves. At March 31, 2022, the investment mix was approximately 20% equity, 79% debt, and 1% money market funds. At December 31, 2021, the investment mix was approximately 35% equity, 64% debt, and 1% money market funds. Equity investments comprise of value, growth, large cap, small cap and international stock funds. Debt investments consist of U.S. Treasury securities and investment grade corporate debt. A weighted average discount rate of 2.8% was used in determining the net periodic pension cost for fiscal 2022 and 2021. The assumed expected long-term rate of return on plan assets is 7.3% for both fiscal 2022 and 2021. The long-term rate of return on Benefit Plan assets is based on the historical returns within the plan and expectations for future returns.
Total pension and retirement earnings for the Benefit Plan was as follows:
Three Months Ended March 31,
($ in thousands)20222021
Earnings (cost) components:
Interest cost$(78)$(73)
Expected return on plan assets138 188 
Net amortization and deferral(12)(18)
Total net periodic pension earnings$48 $97 

The Company has a Supplemental Executive Retirement Plan, or SERP, to restore to executives designated by the Compensation Committee of the Board of Directors 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. In April 2017, the Company froze the SERP as it relates to the accrual of additional benefits.
The pension and retirement expense for the SERP was as follows:
Three Months Ended March 31,
($ in thousands)20222021
Cost components:
Interest cost$(46)$(41)
Net amortization and other(29)(31)
Total net periodic pension expense$(75)$(72)
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14.    REPORTING SEGMENTS AND RELATED INFORMATION