Company Quick10K Filing
Tejon Ranch
Price17.33 EPS0
Shares26 P/E383
MCap455 P/FCF819
Net Debt59 EBIT2
TEV513 TEV/EBIT341
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-04
10-K 2019-12-31 Filed 2020-03-10
10-Q 2019-09-30 Filed 2019-11-07
10-Q 2019-06-30 Filed 2019-08-01
10-Q 2019-03-31 Filed 2019-05-07
10-K 2018-12-31 Filed 2019-03-01
10-Q 2018-09-30 Filed 2018-11-06
10-Q 2018-06-30 Filed 2018-08-07
10-Q 2018-03-31 Filed 2018-05-07
10-K 2017-12-31 Filed 2018-03-12
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-08
10-Q 2017-03-31 Filed 2017-05-08
10-K 2016-12-31 Filed 2017-03-13
10-Q 2016-09-30 Filed 2016-11-08
10-Q 2016-06-30 Filed 2016-08-09
10-Q 2016-03-31 Filed 2016-05-06
10-K 2015-12-31 Filed 2016-03-08
10-Q 2015-09-30 Filed 2015-11-09
10-Q 2015-06-30 Filed 2015-08-10
10-Q 2015-03-31 Filed 2015-05-11
10-K 2014-12-31 Filed 2015-03-16
10-Q 2014-09-30 Filed 2014-11-07
10-Q 2014-06-30 Filed 2014-08-07
10-Q 2014-03-31 Filed 2014-05-12
10-K 2013-12-31 Filed 2014-03-17
10-Q 2013-09-30 Filed 2013-11-12
10-Q 2013-06-30 Filed 2013-08-08
10-Q 2013-03-31 Filed 2013-05-08
10-K 2012-12-31 Filed 2013-03-15
10-Q 2012-09-30 Filed 2012-11-07
10-Q 2012-06-30 Filed 2012-08-06
10-Q 2012-03-31 Filed 2012-05-04
10-K 2011-12-31 Filed 2012-03-12
10-Q 2011-09-30 Filed 2011-11-07
10-Q 2011-06-30 Filed 2011-08-05
10-Q 2011-03-31 Filed 2011-05-06
10-K 2010-12-31 Filed 2011-03-07
10-Q 2010-09-30 Filed 2010-11-09
10-Q 2010-06-30 Filed 2010-08-06
10-Q 2010-03-31 Filed 2010-05-10
10-K 2009-12-31 Filed 2010-03-01
8-K 2020-05-22
8-K 2020-05-20
8-K 2019-12-12
8-K 2019-12-10
8-K 2019-05-15
8-K 2019-04-30
8-K 2019-03-18
8-K 2019-03-13
8-K 2019-03-12
8-K 2019-03-04
8-K 2019-01-04
8-K 2019-01-03
8-K 2018-10-04
8-K 2018-05-08
8-K 2018-03-25
8-K 2018-03-22
8-K 2018-03-12

TRC 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
EX-31.1 ex311section302certceoq320.htm
EX-31.2 ex312section302cfoq320191.htm
EX-32 ex32section906ceocfoq320191.htm

Tejon Ranch Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
53542832121410702012201420172020
Assets, Equity
20151162-22012201420172020
Rev, G Profit, Net Income
754719-9-37-652012201420172020
Ops, Inv, Fin

10-Q 1 a3312020-form10xq.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 (Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
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
brandnoguides.jpg
TEJON RANCH CO.
(Exact name of registrant as specified in its charter) 
Delaware
 
77-0196136
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
P.O. Box 1000, Tejon Ranch, California 93243
 
(661) 248-3000
(Address of principal executive offices) (Zip Code)
 
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading symbol(s)
 
Name of each exchange on which registered
 
 
Common Stock, $0.50 par value
 
TRC
 
New 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  x    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  x    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 filer
¨
 
Accelerated filer
x
 
 
Non-accelerated filer
¨
 
Smaller reporting company
x
 
 
 
 
 
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  x                                                                                                                                                                                                       
The number of the Company’s outstanding shares of Common Stock on April 30, 2020 was 26,220,546.



TEJON RANCH CO. AND SUBSIDIARIES
TABLE OF CONTENTS
 
 
Page
PART I.
FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 3.
Defaults Upon Senior Securities
 
 
 
Item 4.
Mine Safety Disclosures
 
 
 
Item 5.
Other Information
 
 
 
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,
 
2020
 
2019
Revenues:
 
 
 
Real estate - commercial/industrial
$
2,320

 
$
2,826

Mineral resources
6,178

 
6,132

Farming
952

 
815

Ranch operations
863

 
889

Total revenues
10,313

 
10,662

Costs and Expenses:
 
 
 
Real estate - commercial/industrial
1,931

 
1,792

Real estate - resort/residential
626

 
648

Mineral resources
3,878

 
3,832

Farming
1,702

 
1,598

Ranch operations
1,406

 
1,350

Corporate expenses
2,533

 
2,474

Total expenses
12,076

 
11,694

Operating loss
(1,763
)
 
(1,032
)
Other Income:
 
 
 
Investment income
228

 
349

Other income, net
8

 
26

Total other income
236

 
375

Loss from operations before equity in earnings of unconsolidated joint ventures
(1,527
)
 
(657
)
Equity in earnings of unconsolidated joint ventures, net
1,355

 
876

(Loss) income before income tax expense
(172
)
 
219

Income tax expense
512

 
95

Net (loss) income
(684
)
 
124

Net (loss) income attributable to non-controlling interest
(2
)
 
5

Net (loss) income attributable to common stockholders
$
(682
)
 
$
119

Net (loss) income per share attributable to common stockholders, basic
$
(0.03
)
 
$

Net (loss) income per share attributable to common stockholders, diluted
$
(0.03
)
 
$


See accompanying notes.


3


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

 
Three Months Ended March 31,
 
2020
 
2019
Net (loss) income
$
(684
)
 
$
124

Other comprehensive loss:
 
 
 
Unrealized gain on available-for-sale securities
69

 
202

Unrealized loss on interest rate swap
(3,959
)
 
(733
)
Other comprehensive loss before taxes
(3,890
)
 
(531
)
Benefit for income taxes related to other comprehensive income items
1,060

 
112

Other comprehensive loss
(2,830
)
 
(419
)
Comprehensive loss
(3,514
)
 
(295
)
Comprehensive (loss) income attributable to non-controlling interests
(2
)
 
5

Comprehensive loss attributable to common stockholders
$
(3,512
)
 
$
(300
)
See accompanying notes.

4


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

 
March 31, 2020
 
December 31, 2019
 
(unaudited)
 
 
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
25,048

 
$
27,106

Marketable securities - available-for-sale
34,228

 
39,084

Accounts receivable
4,085

 
9,950

Inventories
5,227

 
2,792

Prepaid expenses and other current assets
3,685

 
3,252

Total current assets
72,273

 
82,184

Real estate and improvements - held for lease, net
18,578

 
18,674

Real estate development (includes $105,391 at March 31, 2020 and $104,491 at December 31, 2019, attributable to Centennial Founders, LLC, Note 15)
301,072

 
297,581

Property and equipment, net
45,150

 
45,072

Investments in unconsolidated joint ventures
39,554

 
38,240

Net investment in water assets
56,799

 
54,155

Deferred tax assets
1,251

 
713

Other assets
2,778

 
2,803

TOTAL ASSETS
$
537,455

 
$
539,422

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current Liabilities:
 
 
 
Trade accounts payable
$
4,875

 
$
6,145

Accrued liabilities and other
3,448

 
3,463

Deferred income
2,085

 
1,346

Current maturities of long-term debt
4,258

 
4,182

Total current liabilities
14,666

 
15,136

Long-term debt, less current portion
55,686

 
57,476

Long-term deferred gains
5,734

 
5,731

Other liabilities
19,236

 
15,455

Total liabilities
95,322

 
93,798

Commitments and contingencies

 

Equity:
 
 
 
Tejon Ranch Co. Stockholders’ Equity
 
 
 
Common stock, $.50 par value per share:
 
 
 
Authorized shares - 30,000,000
 
 
 
Issued and outstanding shares - 26,212,484 at March 31, 2020 and 26,096,797 at December 31, 2019
13,106

 
13,048

Additional paid-in capital
338,710

 
338,745

Accumulated other comprehensive loss
(9,601
)
 
(6,771
)
Retained earnings
84,545

 
85,227

Total Tejon Ranch Co. Stockholders’ Equity
426,760

 
430,249

Non-controlling interest
15,373

 
15,375

Total equity
442,133

 
445,624

TOTAL LIABILITIES AND EQUITY
$
537,455

 
$
539,422

See accompanying notes.

5



TEJON RANCH CO. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

 
Three Months Ended March 31,
 
2020
 
2019
Operating Activities
 
 
 
Net (loss) income
$
(684
)
 
$
124

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
1,164

 
1,089

Amortization of premium/discount of marketable securities
(6
)
 
(21
)
Equity in earnings of unconsolidated joint ventures, net
(1,355
)
 
(876
)
Non-cash retirement plan expense
20

 
77

Non-cash write-off of leasing assets
110

 

Loss on sale of property plant and equipment
10

 

Stock compensation expense
1,225

 
813

Excess tax benefit from stock-based compensation
523

 
46

Distribution of earnings from unconsolidated joint ventures
121

 

Changes in operating assets and liabilities:
 
 
 
Receivables, inventories, prepaids and other assets, net
3,048

 
(1,385
)
Current liabilities, net
(139
)
 
(1,078
)
Net cash provided by (used in) operating activities
4,037

 
(1,211
)
Investing Activities
 
 
 
Maturities and sales of marketable securities
8,956

 
14,567

Funds invested in marketable securities
(4,025
)
 
(10,865
)
Real estate and equipment expenditures
(4,948
)
 
(5,112
)
Investment in unconsolidated joint ventures
(250
)
 
(100
)
Distribution of equity from unconsolidated joint ventures
100

 
41

Investments in long-term water assets
(2,635
)
 
(3,502
)
Net cash used in investing activities
(2,802
)
 
(4,971
)
Financing Activities
 
 
 
Repayments of long-term debt
(1,725
)
 
(1,007
)
Taxes on vested stock grants
(1,568
)
 
(815
)
Net cash used in financing activities
(3,293
)
 
(1,822
)
Decrease in cash and cash equivalents
(2,058
)
 
(8,004
)
Cash and cash equivalents at beginning of period
27,106

 
15,908

Cash and cash equivalents at end of period
$
25,048

 
$
7,904

Supplemental cash flow information
 
 
 
Accrued capital expenditures included in current liabilities
$
(759
)
 
$
292

Accrued long-term water assets included in current liabilities
$
254

 
$

See accompanying notes.

6


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

 
Common Stock Shares Outstanding
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Loss
 
Retained Earnings
 
Total Stockholders' Equity
 
Noncontrolling Interest
 
Total Equity
Balance, December 31, 2019
26,096,797

 
$
13,048

 
$
338,745

 
$
(6,771
)
 
$
85,227

 
$
430,249

 
$
15,375

 
$
445,624

Net loss

 

 

 

 
(682
)
 
(682
)
 
(2
)
 
(684
)
Other comprehensive loss

 

 

 
(2,830
)
 

 
(2,830
)
 

 
(2,830
)
Restricted stock issuance
229,713

 
115

 
(115
)
 

 

 

 

 

Stock compensation

 

 
1,591

 

 

 
1,591

 

 
1,591

Shares withheld for taxes and tax benefit of vested shares
(114,026
)
 
(57
)
 
(1,511
)
 

 

 
(1,568
)
 

 
(1,568
)
Balance, March 31, 2020
26,212,484

 
$
13,106

 
$
338,710

 
$
(9,601
)
 
$
84,545

 
$
426,760

 
$
15,373

 
$
442,133

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2018
25,972,080

 
$
12,986

 
$
336,520

 
$
(4,857
)
 
$
74,647

 
$
419,296

 
$
15,376

 
$
434,672

Net income

 

 

 

 
119

 
119

 
5

 
124

Other comprehensive loss

 

 

 
(419
)
 

 
(419
)
 

 
(419
)
Restricted stock issuance
91,478

 
46

 
(46
)
 

 

 

 

 

Stock compensation

 

 
1,132

 

 

 
1,132

 

 
1,132

Shares withheld for taxes and tax benefit of vested shares
(42,605
)
 
(22
)
 
(793
)
 

 

 
(815
)
 

 
(815
)
Balance, March 31, 2019
26,020,953

 
$
13,010

 
$
336,813

 
$
(5,276
)
 
$
74,766

 
$
419,313

 
$
15,381

 
$
434,694

See accompanying notes.


7




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 the consolidated financial statements.
The periods ending March 31, 2020 and 2019 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, 2020 and December 31, 2019 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. The coronavirus, COVID-19, will also bring additional uncertainty previously unseen. Historically, the Company’s largest percentages of farming revenues are recognized during the third and fourth quarters of the fiscal year.
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, 2019.
Recent Accounting Pronouncements
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU No. 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting", for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The pronouncement provides optional expedients for a limited period of time to ease the potential burden of accounting for reference rate reform. Specifically, the ASU permits modification of contracts within Topic 470, Debt, to be accounted for by prospectively adjusting the effective interest rate when a contract is modified because of reference rate reform. It also provides exceptions to the guidance in Topic 815 related to changes to critical terms of a hedging relationship: the change in reference rate will not result in dedesignation of hedging relationship if certain criteria are met. This guidance is effective for all entities as of March 12, 2020 through December 31, 2022. We expect to utilize this optional guidance but do not expect it to have a material effect on our consolidated financial statements.

8



Newly Adopted Accounting Pronouncements
Allowance for Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments — Credit Losses (Topic 326)," changing the impairment model for most financial instruments 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 other receivables, loans, available-for-sale and held-to-maturity debt securities, net investments in leases, and off-balance-sheet credit exposures.
In November 2019, the FASB issued ASU No. 2019-10, changing effective dates for the new standards to give implementation relief to certain types of entities. The Company is required to adopt the new standards no later than January 1, 2023 according to ASU 2019-10, with early adoption allowed.
The Company adopted the new standards on January 1, 2020. The adoption did not have a material impact on the Company's consolidated financial statements. The Company's accounts receivable balance is primarily composed of crop receivables. Based on the short-term nature of these contracts, historical experience with current customers and periodic credit evaluations of the customers' financial conditions, the Company believes its credit risk is minimal. With regards to marketable securities, the Company limits its investment to securities with investment grade ratings from Moody's or Standard and Poor's. As the Company does not have a current intent to sell securities and it is more likely than not that the Company will not be required to sell securities before recovery of their amortized cost basis, no allowance for credit losses was recorded.
Fair Value of Financial Instruments
In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." This ASU removes certain disclosure requirements related to the fair value hierarchy, such as the disclosure of amounts and reasons for transfers between Level 1 and Level 2, and adds new disclosure requirements, such as the disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurement. The Company adopted the new standard on January 1, 2020, and the adoption did not have a material impact on its consolidated financial statements, as the Company does not have financial instruments classified as Level 3.
Retirement Benefits
In August 2018, the FASB issued ASU No. 2018-14, "Changes to the Disclosure Requirements for Defined Benefit Plans." This ASU removes certain disclosure requirements, including the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year and the amount and timing of plan assets expected to be returned to the employer. This ASU also requires additional disclosures for the weighted average interest crediting rates for cash balance plans and explanations for significant gains and losses related to changes in the benefit plan obligation. This ASU is effective for fiscal years ending after December 15, 2020. The Company adopted the new standard on January 1, 2020, and the adoption did not have a material impact on its consolidated financial statements and related disclosures.
Please also refer to Critical Accounting Policies in Part I, Item 2 of this report for a discussion of changes to critical accounting policies.
2.    EQUITY
Earnings Per Share (EPS)
Basic net (loss) income per share attributable to common stockholders is based upon the weighted average number of shares of common stock outstanding during the year. Diluted net (loss) income 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 vesting of restricted stock grants per Accounting Standards Codification (ASC) Topic 260, “Earnings Per Share.”
 
Three Months Ended March 31,
 
2020
 
2019
Weighted average number of shares outstanding:
 
 
 
Common stock
26,128,976

 
25,992,374

Common stock equivalents
133,951

 
17,707

Diluted shares outstanding
26,262,927

 
26,010,081


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, 2020
 
December 31, 2019
Marketable Securities:
Fair Value
Hierarchy
Cost
 
Fair Value
 
Cost
 
Fair Value
Certificates of deposit
 
 
 
 
 
 
 
 
with unrealized losses for less than 12 months
 
$
251

 
$
250

 
$
251

 
$
250

with unrealized losses for more than 12 months
 

 

 

 

with unrealized gains
 
1,799

 
1,812

 
1,799

 
1,806

Total Certificates of deposit
Level 1
2,050

 
2,062

 
2,050

 
2,056

U.S. Treasury and agency notes
 
 
 
 
 
 
 
 
with unrealized losses for less than 12 months
 

 

 
6,485

 
6,479

with unrealized losses for more than 12 months
 

 

 

 

with unrealized gains
 
18,252

 
18,365

 
14,413

 
14,434

Total U.S. Treasury and agency notes
Level 2
18,252

 
18,365

 
20,898

 
20,913

Corporate notes
 
 
 
 
 
 
 
 
with unrealized losses for less than 12 months
 
10,455

 
10,441

 
1,004

 
1,002

with unrealized losses for more than 12 months
 

 

 

 

with unrealized gains
 
1,350

 
1,353

 
13,082

 
13,106

Total Corporate notes
Level 2
11,805

 
11,794

 
14,086

 
14,108

Municipal notes
 
 
 
 
 
 
 
 
with unrealized losses for less than 12 months
 

 

 

 

with unrealized losses for more than 12 months
 

 

 

 

with unrealized gains
 
2,001

 
2,007

 
1,999

 
2,007

Total Municipal notes
Level 2
2,001

 
2,007

 
1,999

 
2,007

 
 
$
34,108

 
$
34,228

 
$
39,033

 
$
39,084

The Company adopted the ASU No. 2016-13, "Financial Instruments — Credit Losses (Topic 326)" on January 1, 2020 prospectively. Under ASC Topic 326-30, the Company is now required 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, 2020, the fair market value of marketable securities was $120,000 above their cost basis. The Company’s gross unrealized holding gains equaled $135,000 and gross unrealized holding losses equaled $15,000. As of March 31, 2020, the adjustment to accumulated other comprehensive loss reflected an improvement in market value of $69,000, 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 326-30-50-3A. The accrued interest receivables balance totaled $177,000 as of March 31, 2020, and was included within Other Assets line item of the Consolidated Balance Sheets. The Company elected not to measure an allowance for credit losses on accrued interest receivable as allowance on possible uncollectible accrued interest receivable is recorded in a timely manner.

10


U.S. Treasury and agency notes
The unrealized losses on the Company's investments in U.S. Treasury and agency notes at December 31, 2019 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 December 31, 2019, the Company did not intend to sell these securities and was 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 December 31, 2019.
Corporate notes
The unrealized losses on the Company's investments in Corporate notes were primarily caused by a recent change in profitability and near-term profit forecast of individual issuers. The contractual terms of those investments do not permit the issuers to settle the securities at a price less than the amortized cost bases of the investments. 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. The Company expects to recover the entire amortized cost basis of these securities. As of March 31, 2020, the Company did not intend to sell these securities and was 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, 2020.
The following tables summarize the maturities, at par, of marketable securities as of:
 
March 31, 2020
($ in thousands)
2020
 
2021
 
Total
Certificates of deposit
$
2,049

 
$

 
$
2,049

U.S. Treasury and agency notes
17,439

 
802

 
18,241

Corporate notes
11,400

 
400

 
11,800

Municipal notes
2,000

 

 
2,000

 
$
32,888

 
$
1,202

 
$
34,090

 
 
December 31, 2019
($ in thousands)
2020
 
2021
 
Total
Certificates of deposit
$
2,049

 
$

 
$
2,049

U.S. Treasury and agency notes
20,393

 
502

 
20,895

Corporate notes
13,685

 
400

 
14,085

Municipal notes
2,000

 

 
2,000

 
$
38,127

 
$
902

 
$
39,029

The Company’s investments in corporate notes are with companies that have an investment grade rating from Standard & Poor’s as of March 31, 2020.

11



4.     REAL ESTATE
($ in thousands)
March 31, 2020
 
December 31, 2019
Real estate development
 
 
 
Mountain Village
$
143,378

 
$
142,567

Centennial
105,391

 
104,491

Grapevine
35,520

 
34,813

Tejon Ranch Commerce Center
16,783

 
15,710

Real estate development
301,072

 
297,581

 
 
 
 
Real estate and improvements - held for lease
 
 
 
Tejon Ranch Commerce Center
21,436

 
21,435

Less accumulated depreciation
(2,858
)
 
(2,761
)
Real estate and improvements - held for lease, net
$
18,578

 
$
18,674


12



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, entitlement 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 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 2020 is $793 per acre-foot. The purchase cost is subject to annual cost increases based on the greater of the consumer price index or 3%.
Water purchases will ultimately be used in the development of the Company’s land for commercial/industrial real estate development, resort/residential real estate development, and farming. Interim uses may include the sale of portions of this water to third-party users on an annual basis until this water is fully allocated to Company uses, as just described.
Water revenues and cost of sales were as follows ($ in thousands):
 
March 31, 2020
 
March 31, 2019
Acre-Feet Sold
4,625

 
4,445

 
 
 
 
Revenues
$
5,121

 
$
5,026

Cost of sales
3,024

 
3,194

Profit
$
2,097

 
$
1,832

The costs assigned to water assets held for future use were as follows ($ in thousands):
 
March 31, 2020
 
December 31, 2019
Banked water and water for future delivery
$
28,091

 
$
25,265

Transferable water
3,212

 
3,054

Total water held for future use at cost
$
31,303

 
$
28,319


Intangible Water Assets
The Company's carrying amounts of its purchased water contracts were as follows ($ in thousands):
 
March 31, 2020
 
December 31, 2019
 
Costs
 
Accumulated Depreciation
 
Costs
 
Accumulated Depreciation
Dudley-Ridge water rights
$
11,581

 
$
(4,463
)
 
$
11,581

 
$
(4,342
)
Nickel water rights
18,740

 
(4,123
)
 
18,740

 
(3,962
)
Tulare Lake Basin water rights
6,479

 
(2,718
)
 
6,479

 
(2,660
)
 
$
36,800

 
$
(11,304
)
 
$
36,800

 
$
(10,964
)
Net cost of purchased water contracts
25,496

 
 
 
25,836

 
 
Total cost water held for future use
31,303

 
 
 
28,319

 
 
Net investments in water assets
$
56,799

 
 
 
$
54,155

 
 


13



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, 2020
 
December 31, 2019
Water held for future use
 
 
 
Company water bank
50,349

 
50,349

Transferable water
6,511

 
3,252

Total water held for future use
56,860

 
53,601

Purchased water contracts
 
 
 
Water Contracts (Dudley-Ridge, Nickel and Tulare)
10,137

 
10,137

WRMWSD - Contracts with the Company
15,547

 
15,547

TCWD - Contracts with the Company
5,749

 
5,749

TCWD - Banked water owned by the Company
61,054

 
60,555

Total purchased water contracts
92,487

 
91,988

Total water held for future use and purchased water contracts
149,347

 
145,589

The Company entered into a Water Supply Agreement with Pastoria Energy Facility, L.L.C. (PEF) in 2015. PEF is a current lessee of the Company under a power plant lease. 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 2020 is $1,154 per acre-foot, subject to 3% annual increases over the life of the contract. The Water Supply Agreement contains other customary terms and conditions, including representations and warranties, which are typical for agreements of this type. The Company's commitments to sell water can be met through current water assets.
6.     ACCRUED LIABILITIES AND OTHER
Accrued liabilities and other consists of the following:
($ in thousands)
March 31, 2020
 
December 31, 2019
Accrued vacation
$
842

 
$
799

Accrued paid personal leave
444

 
419

Accrued bonus
568

 
1,700

Property tax payable1
1,092

 

Other
502

 
545

 
$
3,448

 
$
3,463

 
 
 
 
1California property taxes are paid every April and December.

7.     LINE OF CREDIT AND LONG-TERM DEBT
Debt consists of the following:
($ in thousands)
March 31, 2020
 
December 31, 2019
Notes payable
$
60,172

 
$
61,897

Total short-term and long-term debt
60,172

 
61,897

Less: current maturities of long-term debt
(4,258
)
 
(4,182
)
Less: deferred loan costs
(228
)
 
(239
)
Long-term debt, less current portion
$
55,686

 
$
57,476


14



In August 2019, the Company amended the Term Note (Amended Term Note) with Wells Fargo and extended its maturity to June 5, 2029. The Amended Term Note had an outstanding balance of $57,805,000 as of March 31, 2020, whereas the Term Note had an outstanding balance of $58,768,000 as of December 31, 2019. The interest rate per annum applicable to the Amended Term Note is LIBOR (as defined in the Term Note) plus a margin of 170 basis points. The interest rate for the Amended Term Note has been fixed at 4.16% through the use of an interest rate swap agreement. The Amended Term Note requires monthly amortization payments, with the outstanding principal amount due June 5, 2029. The Amended Term Note is secured by the Company's farmland and farm assets, which include equipment, crops and crop receivables; the PEF power plant lease and lease site; and related accounts and other rights to payment and inventory.
In August 2019, the Company also increased the capacity of the Revolving Line of Credit, or RLC, with Wells Fargo to $35,000,000 from $30,000,000 and extended its maturity to October 5, 2024. The RLC had no outstanding balance as of March 31, 2020 and December 31, 2019. At the Company’s option, the interest rate on this line of credit can float at 1.50% over a selected LIBOR rate or can be fixed at 1.50% above LIBOR for a fixed rate term. During the term of this RLC, the Company can borrow at any time and partially or wholly repay any outstanding borrowings and then re-borrow, as necessary.
Any future borrowings under the RLC are expected to be used for ongoing working capital requirements and other general corporate purposes. To maintain availability of funds under the RLC, undrawn amounts 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 the RLC is subject to compliance with certain financial covenants and making certain representations and warranties, which are typical in this type of borrowing arrangement.
The Amended Term Note and RLC, collectively, the Amended Credit Facility, require compliance with three financial covenants: (i) total liabilities divided by tangible net worth not greater than 0.75 to 1.0 at each quarter end; (ii) 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 (iii) maintain liquid assets equal to or greater than $20,000,000, including availability on RLC. At March 31, 2020 and December 31, 2019, the Company was in compliance with these financial covenants.
The Amended 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, or incur liens on any assets.
The Amended Credit Facility also contains customary events of default, including: failure to make required payments; failure to comply with the terms of the Amended Credit Facility; bankruptcy and insolvency; and a change in control without consent of the bank (which consent will not be unreasonably withheld). The Amended Credit Facility contains other customary terms and conditions, including representations and warranties, which are typical for credit facilities of this type.
In 2013, Tejon entered into a promissory note agreement, secured by real estate, with CMFG Life Insurance Company to pay a principal amount of $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, with monthly principal and interest payments of $36,000. In March 2020, the Company made an additional payment of $687,000 that was applied to the principal of the note, with monthly principal and interest payments remaining unchanged, the loan will now mature on July 1, 2026. The additional principal payment was tied to the release of collateral, which in April 2020 was contributed to Petro Travel Plaza, LLC. See Note 17 (Subsequent Events) for further discussion. The current balance on the note was $2,367,000 on March 31, 2020. The balance of this long-term debt instrument included in "Notes payable" above approximates the fair value of the instrument.
8.     OTHER LIABILITIES
Other liabilities consist of the following:
($ in thousands)
March 31, 2020
 
December 31, 2019
Pension liability (Note 13)
$
1,730

 
$
1,790

Interest rate swap liability (Note 10)
6,675

 
2,716

Supplemental executive retirement plan liability (Note 13)
7,958

 
8,011

Excess joint venture distributions and other
2,873

 
2,938

Total
$
19,236

 
$
15,455

For the captions presented in the table above, please refer to the respective Notes to Unaudited Consolidated Financial Statements for further detail.

15


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 corporate cash flow goals or share price, or 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, 2020:
Performance Condition Grants
Below threshold performance

Threshold performance
67,713

Target performance
621,515

Maximum performance
1,063,367

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, 2020:
 
March 31, 2020
Stock Grants Outstanding Beginning of Period at Target Achievement
409,373

New Stock Grants/Additional Shares due to Achievement in Excess of Target
777,970

Vested Grants
(221,941
)
Expired/Forfeited Grants

Stock Grants Outstanding End of Period at Target Achievement
965,402

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, 2020:
($ in thousands except for share prices)
 
 
 
Grant date
December 12, 2019
 
March 11, 2020
Vesting end
December 31, 2022
 
December 31, 2022
Share price at target achievement
$18.80
 
$16.36
 
 
 
 
Expected volatility
17.28%
 
18.21%
Risk-free interest rate
1.69%
 
0.58%
 
 
 
 
Simulated Monte Carlo share price
$11.95
 
$5.87
Shares granted
6,327
 
81,716
Total fair value of award
$76
 
$480



16


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, 2020 were $12,151,000 and 28 months, respectively. The fair value of restricted stock with time-based vesting features is based upon the Company’s share price on the date of grant and is expensed over the service period. The fair value of performance grants that cliff vest based on the achievement of performance conditions is based on the share price of the Company’s stock on the day of grant once the Company determines that it is probable that the award will vest. This fair value is expensed over the service period applicable to these grants. For performance grants that contain a range of shares from zero to a maximum, the Company determined based on historic and projected results, the probability of (1) achieving the performance objective and (2) the level of achievement. Based on this information, the Company determines the fair value of the award and measures the expense over the service period related to these grants. Because the ultimate vesting of all performance grants is tied to the achievement of a performance condition, the Company estimates whether the performance condition will be met and over what period of time. Ultimately, the Company will adjust stock compensation costs according to the actual outcome of the performance condition.
Under the Non-Employee Director Stock Incentive Plan, or NDSI Plan, each non-employee director receives his or her annual compensation in stock. The stock is granted at the end of each quarter based on the quarter-end stock price.
The following table summarizes stock compensation costs for the Company's 1998 Stock Incentive Plan, or the Employee Plan, and NDSI Plan for the following periods:
($ in thousands)
Three Months Ended March 31,
Employee Plan:
2020
 
2019
    Expensed
$
1,111

 
$
666

    Capitalized
366

 
319

 
1,477

 
985

NDSI Plan - Expensed
114

 
147

Total Stock Compensation Costs
$
1,591

 
$
1,132



17


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 LIBOR under the Term Note, as discussed in Note 7 (Line of Credit and Long-Term Debt). 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, 2020, 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 AOCI. Amounts classified in AOCI are subsequently reclassified into earnings in the period during which the hedged transactions affect earnings. 
As of March 31, 2020, 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, 2020 and December 31, 2019 ($ in thousands):
March 31, 2020
Effective Date
 
Maturity Date
 
Fair Value Hierarchy
 
Weighted Average Interest Pay Rate
 
Fair Value
 
Notional Amount
July 5, 2019
 
June 5, 2029
 
Level 2
 
4.16%
 
$(6,675)
 
$57,805
December 31, 2019
Effective Date
 
Maturity Date
 
Fair Value Hierarchy
 
Weighted Average Interest Pay Rate
 
Fair Value
 
Notional Amount
July 5, 2019
 
June 5, 2029
 
Level 2
 
4.16%
 
$(2,716)
 
$58,768
11.     INCOME TAXES
For the three months ended March 31, 2020, the Company's income tax expense was $512,000 compared to $95,000 for the three months ended March 31, 2019. Effective tax rates were 298% and 43% for the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, the Company had income tax receivables of $867,000. The Company classifies interest and penalties incurred on tax payments as income tax expense.
Although the Company had a net loss for the three months ended March 31, 2020, the Company recognized income tax expense as a result of recognizing a $523,000 discrete tax item associated with stock compensation. 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 during the quarter 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.


18



12.     COMMITMENTS AND CONTINGENCIES
Water Contracts
The Company's land is subject to water contracts with minimum annual payments, for which $10,027,000 is expected to be paid in 2020. As of March 31, 2020, the Company has paid $6,666,000 for its water contracts. 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 $262,399,000 as of March 31, 2020.
Conservancy Payments
The Company is obligated to make payments of approximately $800,000 per year through 2021 to the Tejon Ranch Conservancy, as prescribed in the Conservation Agreement entered into with five major environmental organizations in 2008. Advances to the Tejon Ranch Conservancy are dependent on 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 real estate development for the Centennial, Grapevine and Mountain Village, or MV, projects.
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 fees will not be finalized until the future payment dates. The Company believes as of March 31, 2020 that net savings from exiting the contract over 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 $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 $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 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 is in place to provide additional credit enhancement and cover approximately two years' worth 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. At March 31, 2020, there were no additional improvement funds remaining from the West CFD bonds. There are no additional improvement funds remaining within the East CFD bonds for reimbursement of public infrastructure costs during future years. During 2020, the Company expects to pay approximately $2,598,000 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 assessment of each individual property sold or leased is not determinable at this time because it is based on the 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, the Company was not required to recognize an obligation at March 31, 2020.
Tehachapi Uplands Multiple Species Habitat Conservation Plan Litigation
In 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, the Wishtoyo Foundation and Dee Dominguez (collectively the TUMSHCP Plaintiffs) intended to initiate a lawsuit against the U.S. Fish and Wildlife Service, or USFWS, challenging USFWS's approval of the Company's Tehachapi Uplands Multiple Species Habitat Conservation Plan, or TUMSHCP, and USFWS's issuance of an Incidental Take Permit, or ITP, for the take of federally listed species. The TUMSHCP approval and ITP issuance by the USFWS occurred in 2013. These approvals authorize, among other things, the removal of California condor habitat associated with the Company's potential future development of MV.

19



On April 25, 2019, the TUMSHCP Plaintiffs filed suit against the USFWS in the U.S. District Court for the Central District of California in Los Angeles (Case No. 2:19-CV-3322) (the TUMSHCP Suit). The Company was not initially named as a party in the TUMSHCP Suit and brought a motion to intervene, which the court granted. The TUMSHCP Suit seeks to invalidate the TUMSHCP as it pertains to the protection of the California condor (an endangered species), as well as the ITP.
The primary allegations in the TUMSHCP Suit are that California condors or their habitat are “Traditional Cultural Properties” within the meaning of the National Historic Preservation Act (NHPA), that the USFWS failed to take into account the impact of the TUMSHCP and ITP on these “Traditional Cultural Properties” and failed to adequately consult with affected Native American tribes or their representatives with respect to these “Traditional Cultural Properties.”
Management considers the allegations in the TUMSHCP Suit to be beyond the scope of the law and regulations referenced in the TUMSHCP Suit, and believes that the issues raised by the TUMSHCP Plaintiffs were adequately addressed by USFWS during the consultation process with Native American tribes. The Company is supporting USFWS's efforts to vigorously defend this matter. On October 30, 2019, the TUMSCHCP Plaintiffs filed an amended complaint after the court previously granted the Company’s motion to dismiss the TUMSCHP Suit on the basis that the TUMSCHP Plaintiffs lacked standing. The Company brought a second motion to dismiss on the same basis, which the court denied on December 18, 2019. In its December 18, 2019 ruling, the court ordered that the parties proceed to bring motions for summary judgment on the question of whether the USFWS correctly determined that the California condor is not a “Traditional Cultural Property” under the NHPA. As of the date of this report, the USFWS is in the process of preparing the record of its decision in order to adjudicate that question. Once the record is complete the parties will comply with the court’s order by bringing one or more motions for summary judgment to adjudicate the question presented by the court.
The TUMSHCP Plaintiffs had previously raised essentially the same arguments regarding the Native American consultation process and the California condor in an earlier state court litigation. In that litigation, the California Court of Appeal rejected the TUMSHCP Plaintiffs’ arguments as lacking merit in a decision issued on April 25, 2012. See Center for Biological Diversity, et al. v. Kern County, 2012 WL 1417682 (Case No. F061908).
As of March 31, 2020, the Company believes the TUMSHCP Suit does not impede its the ability to start or complete the development of MV.
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, continue to remediate these environmental conditions consistent with 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 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 the environmental conditions 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 of continuing risk from this matter.

20



Antelope Valley Groundwater Cases
On November 29, 2004, a conglomerate of public water suppliers filed a cross-complaint in the Los Angeles Superior Court against landowners and others with interest in the groundwater basin within the Antelope Valley (including the Company) seeking a judicial determination of the rights to groundwater within the Antelope Valley basin, including the groundwater underlying the Company’s land near the Centennial project. Four phases of a multi-phase trial have been completed. Upon completion of the third phase, the court ruled that the groundwater basin was in overdraft and established a current total sustainable yield. The fourth phase of trial occurred in the first half of 2013 and resulted in confirmation of each party’s groundwater pumping for 2011 and 2012. The fifth phase of the trial commenced in February 2014, and concerned 1) whether the United States has a federal reserved water right to basin groundwater, and 2) the rights to return flows from imported water. The court heard evidence on the federal reserved right but continued the trial on the return flow issues while most of the parties to the adjudication discussed a settlement, including rights to return flows. In February 2015, 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, or the Judgment. The Company’s water supply plan for the Centennial 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, several parties, including the Willis Class and Phelan Pinon Hills Community Services District, filed notices of appeal from the Judgment. The Appeal has been transferred from the Fourth Appellate District of California to the Fifth Appellate District.
Appellate briefing began in 2019 and is scheduled to continue into the second quarter of 2020. Notwithstanding the appeals, the parties, with assistance from the court have established the Watermaster Board, 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 Lawsuits
On June 3, 2010, the Central Delta and South Delta Water Agencies and several environmental groups, including CBD, collectively, the Central Delta Petitioners, filed a complaint in the Sacramento County Superior Court, or the Central Delta Action, against the California Department of Water Resources, or DWR, Kern County Water Agency, or KCWA, and a number of “real parties in interest,” including the Company and TCWD.  The lawsuit challenges certain amendments to the SWP contracts that were originally approved in 1995, known as the Monterey Amendments. The Central Delta Petitioners sought to invalidate the DWR's approval of the Monterey Amendments and also the 2010 environmental impact report, or 2010 EIR, regarding the Monterey Amendments prepared pursuant to the California Environmental Quality Act, or CEQA, pertaining to the Kern Water Bank, or KWB. Pursuant to the Monterey Amendments, DWR transferred approximately 20,000 acres in Kern County owned by DWR, or KWB property, to the KCWA.
A separate but parallel lawsuit, or Central Delta II, was also filed by the Central Delta Petitioners in Kern County Superior Court on July 2, 2010, against KCWA, also naming the Company and TCWD as real parties in interest. Central Delta II challenged the validity of the transfer of the KWB property from the KCWA to the Kern Water Bank Authority, or KWBA. The petitioners in this case alleged that (i) the transfer of the KWB property by KCWA to the KWBA was an unconstitutional gift of public funds, and (ii) the consideration for the transfer of the KWB property to the KWBA was unconscionable and illusory. This case has been stayed pending the outcome of the Central Delta Action.
In addition, another lawsuit was filed in Kern County Superior Court on June 3, 2010, by two districts adjacent to the KWB, namely Rosedale Rio Bravo and Buena Vista Water Storage Districts (collectively, the Rosedale Petitioners), asserting that the 2010 EIR did not adequately evaluate potential impacts arising from operations of the KWB, or Rosedale Action, but this lawsuit did not name the Company it only named TCWD. TCWD has a contract right for water stored in the KWB and rights to recharge and withdraw water. This lawsuit was later moved to the Sacramento County Superior Court.
In the Central Delta Action and Rosedale Action, the trial courts concluded that the 2010 EIR for the Monterey Amendments was insufficient with regard to the EIR's evaluation of the potential impacts of the operation of the KWB, particularly on groundwater and water quality, and ruled that DWR was required to prepare a remedial EIR (which is further described below). In the Central Delta Action, the trial court also concluded that the challenges to DWR’s 1995 approval of the Monterey Amendments were barred by statutes of limitations and laches. The Central Delta Petitioners appealed the Sacramento County Superior Court Judgment, and certain real parties filed a cross-appeal. No party appealed the Kern County Superior Court Judgment in the Rosedale Action.

21



On November 24, 2014, the Sacramento County Superior Court in the Central Delta Action issued a writ of mandate, or 2014 Writ, that required DWR to prepare a revised EIR (described herein as the 2016 EIR because it was certified in 2016) regarding the Monterey Amendments evaluating the potential operational impacts of the KWB. The 2014 Writ, as revised by the court, required DWR to certify the 2016 EIR and file the response to the 2014 Writ by September 28, 2016. On September 20, 2016, the Director of DWR (a) certified the 2016 EIR prepared by DWR, as in compliance with CEQA, (b) adopted findings, a statement of overriding considerations, and a mitigation, monitoring and reporting program as required by CEQA, (c) made a new finding pertaining to carrying out the Monterey Amendments through continued 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 the State of California on September 22, 2016. On September 28, 2016, DWR filed with the Sacramento County Superior Court its return to the 2014 Writ in the Central Delta Action.
On October 21, 2016, the Central Delta Petitioners and a new party, the Center for Food Safety, (CFS), (collectively, the CFS Petitioners), filed a new lawsuit in Sacramento County Superior Court, (the CFS Action), against DWR and naming a number of real parties in interest, including KWBA and TCWD (but not including the Company). The CFS Action challenges DWR’s (i) certification of the 2016 EIR, (ii) compliance with the 2014 Writ and CEQA, and (iii) finding concerning the continued use and operation of the KWB by KWBA. On October 2, 2017, the Sacramento County Superior Court issued a ruling that the court shall deny the CFS petition and shall discharge the 2014 Writ. The CFS Petitioners appealed the Sacramento County Superior Court judgment denying the CFS petition. The Third Appellate District of the Court of Appeal granted DWR’s motion to consolidate the CFS Action appeal for hearing with the pending appeals in the Central Delta Action. Briefing on all of the appeals and cross-appeals is now complete. At this time, the Company anticipates having a ruling from the Court of Appeal on these consolidated appeals of the CFS Action and the Central Delta Action sometime in 2020, but there is a possibility that the court’s hearing and disposition could be delayed by the closure of the courts in response to the COVID-19 pandemic. 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.
Grapevine
On December 6, 2016, the Kern County Board of Supervisors unanimously granted entitlement approval for the Grapevine project. On January 5, 2017, the CBD and CFS, filed an action in Kern County Superior Court pursuant to CEQA, against Kern County and the Kern County Board of Supervisors, or collectively, the County, concerning the County’s granting of the 2016 approvals for the Grapevine project, including certification of the final EIR (the 2017 Action). The Company was named as a real party in interest in the 2017 Action. The 2017 Action alleged that the County failed to properly follow the procedures and requirements of CEQA, including failure to identify, analyze and mitigate impacts to air quality, greenhouse gas emissions, biological resources, traffic, water supply and hydrology, growth inducing impacts, failure to adequately consider project alternatives and to provide support for the County’s findings and statement of overriding considerations in adopting the EIR and failure to adequately describe the environmental setting and project description. Petitioners sought to invalidate the County’s approval of the project, the environmental approvals and require the Company and the County to revise the environmental documentation.
On July 27, 2018, the court held a hearing on the petitioners’ claims in the 2017 Action. 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 being improperly 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 real parties in interest and, as a consequence, such development flexibility could result in the project’s internal capture rate, or ICR, the percent of vehicle trips remaining within the project actually being lower than the projected ICR levels used in the EIR and that lower ICR levels warranted supplemental traffic, air quality, greenhouse gas emissions, noise, public health and growth inducing impact analyses.
On December 11, 2018, the court in the 2017 Action ruled that portions of the EIR required corrections and supplemental environmental analysis and ordered that the County rescind the Grapevine project approvals until such supplemental environmental analysis was completed. The court issued a final judgment consistent with its ruling on February 15, 2019 and, on March 12, 2019, the County rescinded the Grapevine project approvals.

22



Following the County’s rescission of the Grapevine project approvals, the Company filed new applications to re-entitle the Grapevine project (the re-entitlement). The re-entitlement application involves processing project approvals that are substantively similar to the Grapevine project that was unanimously approved by the Kern County Board of Supervisors in December 2016. As part of the re-entitlement, supplemental environmental analysis was prepared to address the court’s ruling in the 2017 Action. Following a public comment and review period, the Kern County Planning Commission held a hearing on November 14, 2019 and unanimously recommended to the Kern County Board of Supervisors that it approve the re-entitlement of the Grapevine project. On December 10, 2019, the Kern County Board of Supervisors held a hearing and after considering the supplemental environmental analysis and material presented at the hearing unanimously voted to approve the re-entitlement of the Grapevine project. On January 9, 2020, the County filed a Supplemental and Final Return to Preemptory Writ of Mandate to inform the court of the re-entitlement in a manner that the County and the Company believes is compliant with the court’s February 15, 2019 final judgment in the 2017 Action. Concurrently, the County and the Company filed a Motion for Order Discharging Writ of Mandate, which requests that the court determine that the re-entitlement complies with the court’s February 15, 2019 final judgment in the 2017 Action. A hearing was held on February 14, 2020 for this motion and is further summarized below.
On January 10, 2020, CBD filed a new and separate action in Kern County Superior Court pursuant to CEQA against the County, concerning the County’s approval of the December 2019 re-entitlement, including certification of the final EIR (the 2020 Action). The Company is named as real party in interest in the 2020 Action. The 2020 Action alleges that the County failed to properly follow the procedures and requirements of CEQA with respect to the re-entitlement of the Grapevine project, including failure to identify, analyze and mitigate impacts to air quality, greenhouse gas emissions, biological resources, public health, and traffic, and failed to provide support for the County’s findings and statement of overriding considerations in adopting the EIR. CBD seeks to invalidate the County’s approval of the re-entitlement, the environmental approvals for the re-entitlement and require the Company and the County to revise the environmental documentation. The Company intends to vigorously defend the re-entitlement of the Grapevine project against claims made in the 2020 Action. On January 22, 2020, the Company and County filed a demurrer and motion to strike the claims in the 2020 Action on the basis that the claims brought by CBD must be resolved by the court in the 2017 action, pursuant to the final judgment issued in the 2017 Action. The Company and County’s motion described in the previous sentence also includes an alternative request that the court consolidate CBD’s claims in the 2020 Action with its disposition of any remaining matters relating to the 2017 Action. A hearing on these motions filed in the 2020 Action and on the Motion for Order Discharging Writ of Mandate (described above and relating to the 2017 Action) was held on February 14, 2020. At the hearing, the court granted the Company and County’s request to consolidate the 2020 Action with its adjudication of the Company and County’s compliance with the writ of mandate issued by the Court in the 2017 Action. The court denied, without prejudice, the Company’s and County’s motion to discharge the writ in the 2017 Action and their demurrer and motion to strike the claims in the 2020 Action, but the court further ruled that the Company and County could re-assert these arguments at a later date once additional evidence was before the court.
As of the date of this filing, there are no further hearings scheduled; however, pursuant to stipulation of all parties, the County is preparing the administrative record for the 2020 Action. Once the record has been lodged with the court, a briefing scheduled and hearing date will be set. At this time, neither County nor Company has filed their responsive pleadings.

23



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 the 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. As of the date of this filing, there have been no substantive hearings on this matter, and neither LA County nor the real parties in interest have filed their responsive pleadings. However, on February 19, 2020, following a status conference, the court set September 30, 2020 as the hearing date for both the CBD/CNPS Action and 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.
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.
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 plans to contribute $165,000 to the Benefit Plan in 2020.
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, 2020, the investment mix was approximately 67% equity, 32% debt, and 1% money market funds. At December 31, 2019, the investment mix was approximately 66% equity, 33% 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 3.2% was used in determining the net periodic pension cost for 2020, along with the pension benefit obligation for 2019. The expected long-term rate of return on plan assets is 7.3% for both 2020 and 2019. The long-term rate of return on Benefit Plan assets is based on the historical returns within the plan and expectations for future returns.

24



Total pension and retirement earnings for the Benefit Plan was as follows:
 
Three Months Ended March 31,
($ in thousands)
2020
 
2019
Earnings (cost) components:
 
 
 
Interest cost
$
(85
)
 
$
(97
)
Expected return on plan assets
161

 
131

Net amortization and deferral
(17
)
 
(19
)
Total net periodic pension earnings
$
59

 
$
15

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)
2020
 
2019
Cost components:
 
 
 
Interest cost
$
(57
)
 
$
(76
)
Net amortization and other
(22
)
 
(16
)
Total net periodic pension expense
$
(79
)
 
$
(92
)
14.    REPORTING SEGMENTS AND RELATED INFORMATION
The Company currently operate in five reporting segments: commercial/industrial real estate development, resort/residential real estate development, mineral resources, farming, and ranch operations. For further details of the revenue components within each reporting segment, see Results of Operations by Segment in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations".

Real estate - Commercial/Industrial
Commercial/Industrial revenue consists of land sale revenues, land and building leases to tenants at the Company's commercial retail developments, base and percentage rents from the PEF power plant lease, communication tower leases, and easement leases. The following table summarizes revenues, expenses and operating income from this segment for the periods ended:
 
Three Months Ended March 31,
($ in thousands)
2020
 
2019
Commercial/industrial revenues
$
2,320

 
$
2,826

Equity in earnings of unconsolidated joint ventures
1,355

 
876

Commercial/industrial revenues and equity in earnings of unconsolidated joint ventures
3,675

 
3,702

Commercial/industrial expenses
1,931

 
1,792

Operating results from commercial/industrial and unconsolidated joint ventures
$
1,744

 
$
1,910


Real Estate - Resort/Residential
The Resort/Residential real estate development segment is actively involved in pursuing land entitlement and development process both internally and through joint ventures. The segment incurs costs and expenses related to land management activities on land held for future development, but currently generates no revenue. The segment generated losses of $626,000 and $648,000 for the three months ended March 31, 2020 and 2019.


25



Mineral Resources
The Mineral Resources segment receives oil and mineral royalties from the exploration and development companies that extract or mine the natural resources from the Company's land and receives revenue from water sales. The following table summarizes revenues, expenses and operating results from this segment for the periods ended:
 
Three Months Ended March 31,
($ in thousands)
2020
 
2019
Mineral resources revenues
$
6,178

 
$
6,132

Mineral resources expenses
3,878

 
3,832

Operating results from mineral resources
$
2,300

 
$
2,300


Farming
The Farming segment revenues include the sale of almonds, pistachios, wine grapes, and hay. The following table summarizes revenues, expenses and operating results from this segment for the periods ended:
 
Three Months Ended March 31,
($ in thousands)
2020

2019
Farming revenues
$
952

 
$
815

Farming expenses
1,702

 
1,598

Operating results from farming
$
(750
)
 
$
(783
)

Ranch Operations
The Ranch Operations segment consists of game management revenues and ancillary land uses such as grazing leases. The following table summarizes revenues, expenses and operating results from this segment for the periods ended:
 
Three Months Ended March 31,
($ in thousands)
2020
 
2019
Ranch operations revenues
$
863

 
$
889

Ranch operations expenses
1,406

 
1,350

Operating results from ranch operations
$
(543
)
 
$
(461
)

15.    INVESTMENT IN UNCONSOLIDATED AND CONSOLIDATED JOINT VENTURES
The Company maintains investments in joint ventures. The Company accounts for its investments in unconsolidated joint ventures using the equity method of accounting unless the venture is a variable interest entity, or VIE, and meets the requirements for consolidation. The Company’s investment in its unconsolidated joint ventures as of March 31, 2020 was $39,554,000. Equity in earnings from unconsolidated joint ventures was $1,355,000 for the three months ended March 31, 2020. The unconsolidated joint ventures have not been consolidated as of March 31, 2020, because the Company does not control the investments. The Company’s current joint ventures are as follows:
Petro Travel Plaza Holdings LLC – Petro Travel Plaza Holdings LLC is an unconsolidated joint venture with TravelCenters of America that develops and manages travel plazas, gas stations, convenience stores, and fast food restaurants throughout TRCC. The Company has 50% of the voting rights but participates in 60% of all profits and losses. The Company does not control the investment due to having only 50% of the voting rights. The Company's partner is the managing partner and performs all of the day-to-day operations and has significant decision-making authority over key business components such as fuel inventory and pricing at the facilities. The Company's investment in this joint venture was $25,159,000 as of March 31, 2020.

26



Majestic Realty Co. – Majestic Realty Co. (Majestic), is a privately-held developer and owner of master planned business parks throughout the United States. The Company has formed three 50/50 joint ventures with Majestic to acquire, develop, manage, and operate industrial real estate at TRCC. The partners have equal voting rights and equally share in the profit and loss of the joint ventures. The Company and Majestic guarantee the performance of all outstanding debt.
In November 2018, TRC-MRC 3, LLC was formed to pursue the development, construction, leasing, and management of a 579,040 square foot industrial building located within TRCC-East. TRC-MRC 3, LLC qualified as a VIE from inception, but the Company is not the primary beneficiary; therefore, it does not consolidate TRC-MRC 3, LLC in its financial statements. The construction of the building was completed in the fourth quarter of 2019, and the Company has delivered the space to a tenant that has leased 67% of the rentable space. In March 2019, the joint venture entered into a promissory note with a financial institution to finance the construction of the building. The note matures on May 1, 2030 and had an outstanding principal balance of $31,375,000 as of March 31, 2020. On April 1, 2019, the Company contributed land with a fair value of $5,854,000 to TRC-MRC 3, LLC in accordance with the limited liability agreement. The Company's investment in this joint venture was $6,016,000 as of March 31, 2020.
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 that was largely financed through a promissory note guaranteed by both partners. The promissory note was refinanced on June 1, 2018 with a $25,240,000 promissory note. The note matures on July 1, 2028 and has an outstanding principal balance of $24,311,000 as of March 31, 2020. Since its inception, the Company has received excess distributions resulting in a deficit balance of $2,374,000. In accordance with the applicable accounting guidance, the Company reclassified excess distributions to Other Liabilities within the Consolidated Balance Sheets. The Company will continue to record equity in earnings as a debit to the investment account and if it were to become positive, the Company will reclassify the liability to an asset. If it becomes obvious that any excess distribution may not be returned (upon joint venture liquidation or otherwise), the Company will immediately recognize the liability as income.
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 its inception, the Company has received excess distributions resulting in a deficit balance of $488,000. In accordance with the applicable accounting guidance, the Company reclassified excess distributions to Other Liabilities within the Consolidated Balance Sheets. The Company will continue to record equity in earnings as a debit to the investment account and if it were to become positive, the Company will reclassify the liability to an asset. If it becomes obvious that any excess distribution may not be returned (upon joint venture liquidation or otherwise), the Company will immediately recognize the liability as income. The joint venture refinanced its construction loan in December 2018 with a mortgage loan. The original balance of the mortgage loan was $25,030,000, of which $24,405,000 was outstanding as of March 31, 2020.

Rockefeller Joint Ventures – The Company has three joint ventures with Rockefeller Group Development Corporation, or Rockefeller. At March 31, 2020, the Company’s combined equity investment balance in these three joint ventures was $8,379,000.
Two joint ventures are for the development of buildings on approximately 91 acres of land and are part of an agreement for the potential development of up to 500 acres of land in TRCC that are tied to a Foreign Trade Zone designation. The Company owns a 50% interest in each of the joint ventures.
The Five West Parcel LLC joint venture owned and leased a 606,000 square foot building, the joint venture's primary asset, to Dollar General. The building was sold to a third party in November 2019 for a purchase price of $29,088,000, realizing a gain of $17,537,000. The outstanding term loan of the joint venture was paid off upon the sale.
The second of these joint ventures, 18-19 West LLC, was formed in August 2009 through the contribution of 61.5 acres of land by the Company, which is being held for future development. Both of these joint ventures are being accounted for under the equity method due to both members having significant participating rights in the management of the ventures.

27



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 contributions from the two members. The Company controls 50% of the voting interests of TRCC/Rock Outlet Center LLC; thus, it does not control the joint venture by voting interest alone. The Company is the named managing member. The managing member's responsibilities relate to the routine day-to-day activities of TRCC/Rock Outlet Center LLC. However, all operating decisions during the development period and ongoing operations, including the setting and monitoring of the budget, leasing, marketing, financing and selection of the contractor for any construction, are jointly made by both members of the joint venture. Therefore, the Company concluded that both members have significant participating rights that are sufficient to overcome the presumption of the Company controlling the joint venture through it being named the managing member. Therefore, the investment in TRCC/Rock Outlet Center LLC is being accounted for under the equity method. The TRCC/Rock Outlet Center LLC joint venture has a term note with a financial institution that matures on September 5, 2021. As of March 31, 2020, the outstanding balance of the term note was $38,468,000. The Company and Rockefeller guarantee the performance of the debt.
Centennial Founders, LLC – Centennial Founders, LLC, CFL, is a joint venture that was initially formed with TRI Pointe Homes, Lewis Investment Company, Lewis), and CalAtlantic to pursue the entitlement and development of land that the Company owns in Los Angeles County. Based on the Second Amended and Restated Limited Company Agreement of CFL and the change in control and funding that resulted from the amended agreement, CFL qualified as a VIE beginning in 2009, and the Company was determined to be the primary beneficiary. As a result, CFL is consolidated into the Company's financial statements. The Company's partners retained a noncontrolling interest in the joint venture. At March 31, 2020, the Company owned 92.63% of CFL.
The Company’s investment balance in its unconsolidated joint ventures differs from its respective capital accounts in the respective joint ventures. The difference represents the difference between the cost basis of assets contributed by the Company and the agreed upon fair value of the assets contributed.
Unaudited condensed statement of operations for the three months ended March 31, 2020 and condensed balance sheet information of the Company’s unconsolidated joint ventures as of March 31, 2020 and December 31, 2019 are as follows:
 
Three Months Ended March 31,
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
 
Joint Venture
 
TRC
($ in thousands)
Revenues
 
Earnings(Loss)
 
Equity in Earnings(Loss)
Petro Travel Plaza Holdings, LLC
$
23,213

 
$
25,406

 
$
2,539

 
$
1,870

 
$
1,523

 
$
1,122

Five West Parcel, LLC

 
684

 
(1
)
 
171

 
(1
)
 
86

18-19 West, LLC
3

 
3

 
(30
)
 
(28
)
 
(15
)
 
(14
)
TRCC/Rock Outlet Center, LLC1
1,863

 
1,898

 
(812
)
 
(785
)
 
(406
)
 
(393
)
TRC-MRC 1, LLC
787

 
736

 
40

 
(5
)
 
20

 
(2
)
TRC-MRC 2, LLC
1,020

 
984

 
343

 
154

 
172

 
77

TRC-MRC 3, LLC
625

 

 
125

 

 
62

 

Total
$
27,511

 
$
29,711

 
$
2,204

 
$
1,377

 
$
1,355

 
$
876

 
 
 
 
 
 
 
 
 
 
 
 
Centennial Founders, LLC
$
47

 
$
122

 
$
(27
)
 
$
64

 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
(1) Revenues for TRCC/Rock Outlet Center are presented net of non-cash tenant allowance amortization of $0.5 million as of both of March 31, 2020 and March 31, 2019.

28




 
March 31, 2020
 
December 31, 2019
 
Joint Venture
TRC
 
Joint Venture
TRC
($ in thousands)
Assets
Debt
Equity
Equity
 
Assets
Debt
Equity
Equity
Petro Travel Plaza Holdings, LLC
$
80,057

$
(15,288
)
$
62,600

$
25,159

 
$
77,835

$
(15,287
)
$
60,061

$
23,636

Five West Parcel, LLC
650


647

139

 
694


648

140

18-19 West, LLC
4,627


4,369

1,615

 
4,849


4,600

1,730

TRCC/Rock Outlet Center, LLC
68,650

(38,468
)
29,377

6,625

 
69,459

(38,909
)
29,688

6,781

TRC-MRC 1, LLC
28,761

(24,405
)
3,570


 
28,673

(24,542
)
3,623


TRC-MRC 2, LLC
20,101

(24,311
)
(8,938
)

 
20,026

(24,455
)
(7,094
)

TRC-MRC 3, LLC
38,046

(31,375
)
6,177

6,016

 
37,292

(28,061
)
6,052

5,953

Total
$
240,892

$
(133,847
)
$
97,802

$
39,554

 
$
238,828

$
(131,254
)
$
97,578

$
38,240

 
 
 
 
 
 
 
 
 
 
Centennial Founders, LLC
$
96,847

$

$
96,641

***

 
$
96,415

$

$
96,143

***

 
 
 
 
 
 
 
 
 
 
*** Centennial Founders, LLC is consolidated within the Company's financial statements.
16.    RELATED PARTY TRANSACTIONS
TCWD 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 a landowner voting district, which requires an elector, or voter, to be an owner of land located within the district. TCWD was organized to provide the water needs for future municipal and industrial development. The Company is the largest landowner and taxpayer within TCWD and currently has one member of the Company's management on the board of directors of TCWD. The Company has a water service contract with TCWD that entitles us to receive substantially all of TCWD’s State Water Project entitlement and all of TCWD’s banked water. TCWD is also entitled to make 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 use of water. From time to time, Tejon transacts with TCWD in the ordinary course of business.

The Company has water contracts with WRMWSD for SWP water deliveries to our agricultural and municipal/industrial operations in the San Joaquin Valley. The terms of these contracts extend to 2035. Under the contracts, we are entitled to annual water for 5,496 acres of land, or 15,547 acre-feet of water, subject to SWP allocations. The Company's Executive Vice President and Chief Operating Officer is one of nine directors at WRMWSD. As of March 31, 2020, the Company paid $1,157,000 for these water contracts and related costs.
17.    Subsequent Events
On April 17, 2020, the Company contributed building and land that was previously operated by a former fast casual tenant to its joint venture, Petro Travel Plaza, LLC. The contribution was valued at $2,000,000 and the total gain on the contribution approximates $1,338,000, of which $535,000 will be recognized during the second quarter. The remainder of the gain will be deferred based on the joint venture ownership percentages.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements, including without limitation statements regarding strategic alliances, the almond, pistachio and grape industries, the future plantings of permanent crops, future yields, 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 and other joint venture operations, potential losses to the Company as a result of pending environmental proceedings, the adequacy of future cash flows to fund our operations, market value risks associated with investment and risk management activities and with respect to inventory, accounts receivable and our own outstanding indebtedness, ongoing negotiations, the uncertainties regarding the expected impact of COVID-19, on the Company and global economic conditions and other future events and conditions. In some cases these statements are identifiable through the use of words such as “anticipate,” “believe,”

29



“estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “will,” “should,” “would,” “likely,” and similar expressions such as “in the process.” In addition, any statements that refer to projections of our future financial performance, our anticipated growth, and trends in our business and other characterizations of future events or circumstances are forward-looking statements. We caution you not to place undue reliance on these forward-looking statements. These forward-looking statements are not a guarantee of future performances and are subject to assumptions and involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company, or industry 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, the impacts of COVID-19 and the actions taken by governments, businesses, and individuals in response to it, weather, 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 the actual future results will not differ materially from the forward-looking statements that we make for a number of reasons, including those described above and in the section entitled “Risk Factors” in this report and our most recent Annual Report on Form 10-K.
OVERVIEW
We 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 land planning and entitlement activities for new industrial and residential land developments and in infrastructure improvements within our active industrial development. Our prime asset is approximately 270,000 acres of contiguous, largely undeveloped land that, at its most southerly border, is 60 miles north of Los Angeles and, at its most northerly border, is 15 miles east of Bakersfield.
Business Objectives and Strategies
Our primary business objective is to maximize long-term shareholder value through the monetization of our land-based assets. A key element of our strategy is to entitle and then develop large-scale mixed use master planned residential and commercial/industrial real estate development projects to serve the growing populations of Southern and Central California. Our mixed use master planned residential developments have been approved to collectively include up to 34,783 housing units, and more than 35 million square feet of commercial space. We have obtained entitlements on Mountain Village at Tejon Ranch (MV) and are pursuing final tract maps. Over the next few years, we will be defending our entitlements against litigation for our Grapevine at Tejon Ranch, or Grapevine, and Centennial at Tejon Ranch, or Centennial, projects.
We are currently engaged in construction, commercial sales and leasing at our fully operational commercial/industrial center Tejon Ranch Commerce Center, or TRCC. All of these efforts are supported by diverse revenue streams generated from other operations, including commercial real estate, farming, mineral resources, ranch operations, and our various joint ventures.
Our Business
We currently operate in five reporting segments: commercial/industrial real estate development; resort/residential real estate development; mineral resources; farming; and ranch operations.
Activities within the commercial/industrial real estate development segment include: planning, and permitting of land for development; construction of infrastructure; construction of pre-leased buildings; construction of buildings to be leased or sold; and the sale of land to third parties for their own development. The commercial/industrial real estate development segment also includes activities related to communications leases and landscape maintenance fees.
At the heart of commercial/industrial real estate development segment is TRCC, a 20 million square foot commercial/industrial development on Interstate 5 just north of the Los Angeles basin. Nearly six million square feet of industrial, commercial and retail space has already been developed, including distribution centers for IKEA, Caterpillar, Famous Footwear, L'Oreal, and Dollar General. TRCC sits on both sides of Interstate 5, giving distributors immediate access to the west coast’s principal north-south goods movement corridor.
We are also involved in multiple joint ventures with several partners that help us expand our commercial/industrial business activities within TRCC:
Our joint venture with TravelCenters of America, or TA/Petro, owns and operates two travel and truck stop facilities, and also operates five separate gas stations with convenience stores and fast food restaurants within TRCC-West and TRCC-East.
Three joint ventures with Rockefeller Development Group, or Rockefeller:
Five West Parcel LLC owned a 606,000 square foot building in TRCC-West that is fully leased. In 2019, Five West Parcel sold the building and land to a third party;

30


18-19 West LLC owns 63.5 acres of land for future development within TRCC-West. In 2019, our 18-19 West LLC joint venture entered into a land purchase option with the third-party who purchased the Five West building and land, to purchase lots 18 and 19 at a price of $13.8 million through the option period ending May 21, 2021. If the option is extended to November 21, 2021, the price increases to $15.2 million. The land option expires in the fourth quarter of 2021; and
TRCC/Rock Outlet Center LLC operates the Outlets at Tejon, a net leasable 326,000 square foot shopping experience in TRCC-East;
Three joint ventures with Majestic Realty Co., or Majestic, to develop, manage, and operate industrial buildings within TRCC:
TRC-MRC 1, LLC was formed to develop and operate a 480,480 square foot industrial building in TRCC-East, which was completed during 2017 and is fully leased;
TRC-MRC 2, LLC owns a 651,909 square foot building in TRCC-West that is fully leased; and
TRC-MRC 3, LLC was formed to pursue the development, construction, leasing and management of a 579,040 square foot industrial building in TRCC-East. During the first quarter of 2019, and prior to the completion of the building, the joint venture executed a lease for 67% of the building. The construction of the building was completed in the fourth quarter of 2019.
The resort/residential real estate development segment is actively involved in the land entitlement and development process internally and through a joint venture. Our active developments within this segment are MV, Centennial, and Grapevine.
MV encompasses a total of 26,417 acres, of which 5,082 acres will be used for the mixed-use development that will include housing, retail, and commercial components. MV is entitled for 3,450 homes, 160,000 square feet of commercial development, 750 hotel keys, and more than 21,335 acres of open space. The tentative tract map for the first four phases of residential development has been approved, as well as the commercial site plan for the first phase of commercial development;
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 approximately 19,333 homes and 10.1 million square feet of commercial development. Centennial has entitlements approved in December 2018, and received legislative approvals in April 2019 from the Los Angeles County Board of Supervisors.
Grapevine is an 8,010-acre potential development area located on the San Joaquin Valley floor area of our lands, adjacent to TRCC. Upon completion of Grapevine, the community will include 12,000 homes, 5.1 million square feet for commercial development, and more than 3,367 acres of open space and parks. On December 10, 2019, the Kern County Board of Supervisors adopted the supplemental re-circulated EIR prepared in response to a court ruling and reapproved the development of Grapevine unanimously.
Please refer to our Annual Report on Form 10-K for the year ended December 31, 2019, for a more detailed description of our active developments within the resort/residential real estate development segment.
Our mineral resources segment generates revenues from oil and gas royalty leases, rock and aggregate mining leases, a lease with National Cement Company of California Inc., and water sales.
The farming segment produces revenues from the sale of wine grapes, almonds, and pistachios.
Lastly, the ranch operations segment consists of game management revenues and ancillary land uses such as grazing leases and filming.
The COVID-19 Pandemic
The U.S. and global economies have been and continue to be dramatically affected by the COVID-19 pandemic. There are no reliable estimates of how long the pandemic will last or how many people are likely to be affected by it. For that reason, we are unable to predict the long-term impact of the pandemic on our business at this time. The pandemic and its adverse effects have become more prevalent in locations where we, our customers, suppliers or third-party business partners conduct business, such as Southern California. It is reasonably likely that we will experience constrained customer demand that could materially and adversely impact our business and overall financial performance during the foreseeable future. We do however, expect negative impacts to our leasing revenues and income from joint ventures as traffic is reduced and our tenants close and seek delays in rent payments. We operate in the State of California and our operations are subject to the "shelter-in-place" order issued by the California Governor in March 2020 (the Stay at Home Order). The broader implications of COVID-19 and actions taken by governments, businesses, and individuals in response to the pandemic on our results of operations and overall financial performance remain uncertain. As we manage through the pandemic, we will evaluate our operations for expense

31


reductions and cash savings. Measures that we are taking include renegotiating with vendors and possibly amending long-term contracts such as the Conservation Agreement, reductions in executive compensation, and right sizing on labor needs.
Our first priority with regard to the COVID-19 pandemic is to provide for the health and safety of our employees, customers, suppliers and others with whom we partner in our business activities. Where applicable, we are allowing employees to work from home to ensure proper social distancing while also minimizing disruption to operations. Subject to the use of appropriate risk mitigation and safety practices, we are continuing our business operations in this unprecedented business environment. See the Results of Operations by segment for further discussion on COVID-19 impact on our various reporting segments.
Summary of First Quarter Performance
For the first three months of 2020, we had a net loss attributable to common stockholders of $682,000 compared to net income of $119,000 during the first three months of 2019. The decline is attributed to recognizing a discrete tax item associated with deferred tax shortfalls generated after issuing stock compensation awards at a price lower than at grant date. The recognition of these shortfalls increased income tax expense by $417,000 and will not impact income tax payable. Also contributing to the decline in net income attributable to common stockholders was a 3% increase in operating expenses.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations provides a narrative discussion of our results of operations. It contains the results of operations for each reporting segment of the business and is followed by a discussion of our financial position. It is useful to read the reporting segment information in conjunction with Note 14 (Reporting Segments and Related Information) of the Notes to Unaudited Consolidated Financial Statements.
Critical Accounting Policies
The preparation of our interim financial statements in accordance with generally accepted accounting principles in the United States, or GAAP, requires us to make estimates and judgments that affect the reported amounts for assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highly 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 of different 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 ongoing 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 plan. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
During the three months ended March 31, 2020, our critical accounting policies have not changed since the filing of our Annual Report on Form 10-K for the year ended December 31, 2019. Please refer to that filing for a description of our critical accounting policies. Please also refer to Note 1 (Basis of Presentation) in the Notes to Unaudited Consolidated Financial Statements in this report for newly adopted accounting principles.

32


Results of Operations by Segment
We evaluate the performance of our reporting segments separately to monitor the different factors affecting financial results. Each reporting segment is subject to review and evaluation as we monitor current market conditions, market opportunities, and available resources. The performance of each reporting segment is discussed below:
Real Estate – Commercial/Industrial:
 
Three Months Ended March 31,
 
Change
($ in thousands)
2020
 
2019
 
$
 
%
Commercial/industrial revenues
 
 
 
 
 
 
 
Pastoria Energy Facility
$