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 and other future events and conditions. In some cases these statements are identifiable through the use of words such as "anticipate", "believe", "estimate", "expect", "intend", "plan", "project", "target", "can", "could", "may", "will", "should", "would", and similar expressions. 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, weather, market and economic forces, availability of financing for land development activities, 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 in the section entitled, "Risk Factors" in this report and our 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 create value for our shareholders. Current operations consist of land planning and entitlement, land development, commercial sales and leasing, leasing of land for mineral royalties, grazing leases, income portfolio management, and farming. Our prime asset is approximately 270,000 acres of contiguous, largely undeveloped land that, at its most southerly border, is 60 miles north of the city of Los Angeles and, at its most northerly border, is 15 miles east of Bakersfield.
Our business model is designed to create value through the entitlement and development of land for commercial/industrial and resort/residential uses while at the same time protecting significant portions of our land for conservation purposes. We operate our business near one of the country's largest population centers, Los Angeles County, which is expected to continue to grow well into the future.
We currently operate in three business segments: commercial/industrial real estate development and services; resort/residential real estate development; and farming.
Commercial/industrial real estate development and services generates revenues from building, grazing and land lease activities, land and building sales, oil and mineral royalties and ancillary land management activities.
Resort/residential land development produces revenues from farming activities within the Centennial Founders LLC, but is primarily involved in the land entitlement process and conservation activities. Farming produces revenues from the sale of grapes, almonds, and pistachios.
For the first nine months of 2012 we had net income of $4,295,000 compared to net income of $10,579,000 for the first nine months of 2011. When comparing to the first nine months of 2011, the decrease is largely the result of the sale of conservation easements for $15,750,000 in 2011, which is partially offset by improved in oil royalties, farming revenues, and a lower tax provision. Critical Accounting Policies
The preparation of our interim financial statements in accordance with GAAP requires us to make estimates and judgments that affect the reported amounts of 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 on-going basis, we evaluate our estimates, including those related to revenue recognition, impairment of long-lived assets, capitalization of costs, profit recognition related to land sales, stock compensation, and our 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.

Our critical accounting policies have not changed since the filing of our Annual Report on Form 10 - K for the year ended December 31, 2011. Please refer to that filing for a description of our critical accounting policies.
Results of Operations
Comparison of nine months ended September 30, 2012 to nine months ended September 30, 2011
Total revenue from segment operations for the first nine months of 2012 was $33,542,000 compared to $43,283,000 for the first nine months of 2011, representing a decrease of $9,741,000, or 23%. The decrease is primarily due to the sale of easements, described below, for $15,750,000 in 2011. Excluding this sale, revenues increased $6,009,000 during the first nine months of 2012 compared to the same period in 2011.
Commercial/industrial segment revenues increased $3,589,000 in the first nine months of 2012 compared to the same period of 2011 primarily due to increased oil lease and royalty payments of $3,359,000. Additionally, we recognized $648,000 of revenue during the first nine months of 2012, which was deferred from the sale of land to Caterpillar that occurred in December 2011, as we completed the required infrastructure by June 30, 2012. Oil royalties improved as production increased 35% during the first nine months of 2012 compared to the same period in 2011. Royalty payments are tied directly to the market price of oil, which has increased 9% compared to the same period of 2011. Our power plant lease with Calpine produced an increase of $309,000 of percentage rent during the first nine months of 2012 compared to the same period in 2011. These increases were partially offset by a $1,309,000 decrease in hunting revenues resulting from the closure of our hunting program for the first eight months of 2012.
We continue to see increased interest in oil exploration activities on our lands. Since the fourth quarter of 2011 and through the third quarter of 2012, we have had 12 new wells drilled on our land, all of which are in production. These new wells have played a significant role in the increase in production thus far in 2012. We are continuing to see an increase in exploratory activity on our land as well as an increase in new drilling permit activity on our land. This new increase in activity does not mean there will be any new wells drilled or if drilled the wells will be producing wells.
The resort/residential segment reported revenues were $267,000 during the first nine months of 2012 compared to $15,966,000 during the first nine months of 2011. The 2011 period reflects the sale of five conservation easements totaling approximately 62,000 acres for $15,750,000 to the Tejon Ranch Conservancy, an independent non-profit organization set up as a part of the 2008 Conservation and Land Use Agreement by the conservation groups that signed the agreement. Farming revenues increased $2,369,000 in the first nine months of 2012 compared to the same period in 2011 primarily due to an increase of $1,955,000 in pistachio revenue. There was a carry-forward of the 2011 pistachio crop year inventory into 2012, the sale of which increased 2012 revenues, in contrast to no inventory carry-forward in 2011 from the 2010 pistachio crop. Price adjustments during 2012 for prior year pistachio crops resulted in $716,000 additional revenues. Almond revenues increased $881,000 compared to the prior year mainly due to a 12% increase in average price and an 11% increase in sales during the first nine months of 2012 compared to the same period in 2011. Wine grape revenue decreased $284,000 during the period compared to 2011 due to a 22% decrease in production as the number of acres of the French Columbard variety were reduced because of the age of the vines, while prices increased 9% over last year.
Expenses within our commercial/industrial segment decreased $251,000, or 3% during the first nine months of 2012 compared to the same period in 2011. Within the commercial expense category there was a $394,000 decrease related to assessments by the Tejon-Castac Water District, a $415,000 increase in capitalized indirect costs, partially offset by a $95,000 increase in stock compensation cost due the acceleration of the vesting of the TMV CEQA litigation-free performance grant milestone and a $385,000 increase in compensation and bonus accruals mainly due to the timing of hiring new employees in 2011 and early 2012.
Expenses within our resort/residential segment increased $707,000, or 25%, during the first nine months of 2012 compared to the same period in 2011. The increase is primarily due to a $234,000 increase in bonus accruals and compensation mainly due to changes in our employee benefits, a $209,000 increase in crop costs on Centennial land, and $129,000 increase in professional services mainly related to the implementation of the Conservation and Land Use Agreement. Farming expenses increased $209,000, or 3%, for the first nine months of 2012 compared to the same period in 2011, primarily due to a $367,000 net increase in crop cost of sales and a $135,000 decrease in water costs resulting from credits received for prior year usage.
Corporate general and administrative costs increased $1,184,000, or 14%, during the first nine months of 2012 compared to the same period in 2011, primarily due to a $546,000 increase in compensation expense because of a combination of the timing of hiring new employees, higher benefit costs, and bonus accruals. In addition, we had a $408,000 increase in stock compensation

due to the acceleration of the vesting of the TMV CEQA litigation-free performance grant milestones, and an $111,000 increase in licensing and fees mainly related to information management systems.
Equity in income of our unconsolidated joint ventures increased $1,065,000 in the first nine months of 2012 compared to the first nine months of 2011. Our TA/Petro joint venture generated $633,000 higher income mainly due to higher gasoline sales and improved margins. Our Rockefeller joint ventures generated $375,000 higher net income due to the occupancy of a building by Dollar General and rental payments beginning in April 2012.
Net income attributable to common stockholders for the first nine months of 2012 was $4,414,000, or $0.22 per share, compared to net income attributable to common stockholders of $10,656,000, or $0.54 per share, for the same period in 2011. The decline for the first nine months of 2012 is primarily due to the sale of the conservation easements during the first nine months of 2011, as described above, and increases in operating expenses. These items, which negatively impacted income, were partially offset by net increases in oil revenues and farming revenues during the first nine months of 2012. Excluding the easement sales in 2011, net income increased $3,938,000 during the first nine months of 2012 compared to the same period in 2011.
Comparison of three months ended September 30, 2012 to three months ended September 30, 2011
Total revenues for the third quarter of 2012, were $16,114,000 compared to $14,765,000 for the third quarter of 2011. This increase of $1,349,000, or 9%, in total revenues is primarily attributable to improved farming revenue and commercial/industrial revenue.
Commercial/industrial revenue improved $425,000 when compared to the third quarter of 2011. The improvement is largely due to a $306,000 increase in oil royalties, as production increased 20% while the average price of oil decreased 6% when compared to the third quarter of 2011. Hunting revenues increased $104,000 as a result of the re-opening of our hunting program in September 2012. Commercial/industrial expenses decreased by $160,000, or 5%, compared to the third quarter of 2011, primarily due to $162,000 lower professional services as a result of less legal fees incurred in 2012 as compared to 2011. Additional decreases in commercial/industrial expenses include $177,000 higher indirect costs capitalized to construction in progress projects. These decreases in expenses were partially offset by a $131,000 increase in compensation and bonus accruals mainly due to new employees and higher benefit costs as well as a $131,000 increase in marketing costs primarily related to the proposed outlet center project.
Resort residential expenses increased $429,000, or 43%, during the third quarter of 2012 compared to the third quarter of 2011, primarily due to a $177,000 increase in compensation and bonus accruals mainly due to higher benefit costs, a $217,000 increase in crop costs on Centennial land, and $147,000 of increases in professional services mainly related to the implementation of the Conservation and Land Use Agreement. These increased expenses were partially offset by a $110,000 decrease in stock compensation expense related to a change in estimate tied to Centennial performance milestones.
Farming revenues increased $880,000, or 10% during the third quarter of 2012 compared to the third quarter of 2011, primarily due to $748,000 higher pistachio sales as a result of a 22% increase in price and price adjustments, partially offset by an 8% decrease in pounds sold. Almond revenues increased $637,000, primarily due to a 69% increase in pounds sold and a 20% increase in price and price adjustments. Wine grape revenues decreased by $483,000 during the period compared to 2011 due to a 22% decrease in production as the number of acres of the French Columbard variety were reduced because of the age of vines, while prices increased 9% over the year.
Farming expenses increased $178,000, or 4%, during the third quarter of 2012 compared to the same period in 2011, primarily due to a $470,000 increase in crop cost of sales, partially offset by a $195,000 decrease in water costs from credits received for prior year usage.
Corporate expenses decreased $65,000, or 2%, during the third quarter of 2012 compared to the third quarter of 2011, primarily due to a $438,000 decrease in stock compensation due a change in estimate tied to Centennial performance milestones. This decrease was partially offset by a $338,000 increase in compensation and bonus accruals mainly due to higher benefit costs. Our share of earnings from our joint ventures increased $501,000 in the third quarter of 2012 compared to the third quarter of 2011, primarily due to $325,000 higher income from our TA/Petro joint venture mainly due to higher gasoline sales, improved margins and $182,000 higher income from our Rockefeller joint venture mainly due to the occupancy of the Five West Parcel building. Net income attributable to common stockholders during the quarter ended September 30, 2012 increased $1,463,000 to $4,021,000. The increase is tied to higher revenues and an increase in equity in earnings of unconsolidated joint ventures.

Future activities within the commercial/industrial segment continue to be focused on the marketing and development of commercial/industrial and retail product offerings within TRCC-East and completing the build-out of TRCC-West. These developments are being planned to coincide with what we anticipate to be future market demand, although the timing and extent of the future market demand is difficult for us to predict. We are currently evaluating and performing due diligence related to the viability of an outlet center within TRCC-East to expand our retail product offerings within TRCC-East. We began a new phase of master infrastructure development within TRCC-East during September of 2012. This new infrastructure will begin to open up retail and industrial sites in the southern section of the TRCC-East development. We estimate that this infrastructure can be completed by the end of the first quarter in 2013 at an investment of approximately $8,000,000.
We continue to focus our industrial development marketing efforts for TRCC-East and TRCC-West on the labor and logistical benefits of our site and the success that current tenants and owners within our development have experienced. Our development strategy fits within the logistics model that many companies are using, which favors larger single-site buildings rather than a number of decentralized smaller distribution centers. Buildings of 1.0 million square feet or larger are more difficult to build in Los Angeles due to the number of acres necessary for a building of that size. We believe that our ability to provide land parcels to support buildings of that size can provide us with a potential marketing advantage in the future. A potential disadvantage to our development strategy is our distance from the Port of Los Angeles in comparison to the traditional warehouse/distribution centers east of Los Angeles. Vacancy rates have declined in the Inland Empire region of Los Angeles, a large industrial area within Los Angeles that we compete with for customers. Lease rates in the Inland Empire area have also been improving during 2012, which could be helpful to us in our lease pricing in the future.
During the remainder of 2012, we anticipate that our commercial/industrial and resort/residential real estate segments will incur costs, net of amounts capitalized, related to professional service fees, marketing costs, commissions, planning costs, and staffing costs as we continue to pursue development opportunities. Infrastructure development and marketing activities and costs could continue over the next several years as we develop our land holdings.

Most of the expenses incurred within our resort/residential segment during 2012 will be focused on the ongoing implementation of the Conservation and Land Use Agreement and in coordinating efforts with our joint venture partners in the achievement of entitlement for Centennial Founders, LLC and completing the permitting process for TMV.
All of our crops are sensitive to the size of each year's world crop. Large crops in California and abroad can rapidly depress prices. Thus far during the 2012 harvest period our almond crop production is comparable to the prior year and sales of almonds in 2012 are 69% ahead of 2011. Our pistachio crop production for 2012 has improved slightly when compared to the prior year but 2012 sales are currently running about 8% behind 2011, due to the timing of sales in the third quarter of 2012. With demand remaining strong for almonds we expect pricing for 2012 to be comparable to and possibly better than 2011 and we expect pistachio pricing to be in line with 2011.
Prices received for many of our products are dependent upon prevailing market conditions and commodity prices. Therefore, we are unable to accurately predict revenue and we cannot pass on to our customers any cost increases caused by general inflation, except to the extent such inflation is reflected in market conditions and commodity prices. The operations of the Company are seasonal and future results of operations cannot be predicted based on quarterly results. Future real estate sales and leasing activity are dependent on market circumstances and specific opportunities and therefore are difficult to predict from period to period.
For further discussion of the risks and uncertainties that could potentially adversely affect us, please refer to Part I, Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, or Annual Report, and, to "Risk Factors" under Part II, Item 1A of this report and in Part I, Item 1A of our Annual Report.
We continue to be involved in various legal proceedings related to leased acreage. For a further discussion, please refer to "Note D - Commitments and Contingencies" in the Notes to Unaudited Consolidated Financial Statements in this report.
Income Taxes
For the nine months ended September 30, 2012, the Company incurred a net income tax expense of $1,461,000 compared to a net income tax expense of $5,710,000 for the nine months ended September 30, 2011. These represent effective income tax rates of approximately 25% and 35% for the nine months ended September 30, 2012 and, 2011, respectively. The effective tax rate is calculated based on forecasted net income for 2012 adjusted for estimated permanent tax differences such as depletion allowances. During 2012, depletion allowances have increased due to higher oil and gas revenues and are the primary driver of

the increase in permanent tax differences that is creating the favorable rate difference compared to 2011. As of September 30, 2012, our balance sheet reflects an income tax payable of $1,180,000.
The Company classifies interest and penalties incurred on tax payments as income tax expenses. During the first nine months ended September 30, 2012, the Company made income tax payments of $3,401,000 for the 2011 tax year and received $580,000 in tax refunds.
Cash Flow and Liquidity
Our cash, cash equivalents and marketable securities totaled approximately $75,044,000 at September 30, 2012, a decrease of $11,894,000, or 14%, from the corresponding amount at the end of 2011. Cash, cash equivalents and marketable securities decreased during the first nine months of 2012 due to property and equipment expenditures that included infrastructure development costs, investment in joint ventures, and payment of income taxes.
The following table shows our cash flow activities for the nine months ended September 30:

(In thousands)          2012          2011
Operating activities $  11,486     $   5,743
Investing activities $ (20,510 )   $ (16,029 )
Financing activities $  (2,140 )   $   4,402

During the first nine months of 2012, our operations provided $11,486,000 of cash primarily from $7,200,000 cash distributions from our TA/Petro joint venture and improved operating results mainly from oil royalties and crop revenues. These increases in cash were partially offset by income tax payments, net of refunds, totaling approximately $2,821,000 related to the 2011 tax year. During the first nine months of 2011, our operations provided $5,743,000 of cash primarily from the positive impact of operating activities, an oil exploration lease payment and the collection of farming receivables, partially offset by increased farming inventory costs.
During the first nine months of 2012, investing activities used $20,510,000 of cash primarily as a result of the $15,777,000 in capital expenditures, described below, $5,404,000 in contributions in our unconsolidated joint ventures of which $3,200,000 was contributed to TMV, partially offset by a $1,012,000 distribution from our Five West Parcel LLC joint venture. Included in the $15,777,000 of capital expenditures during the first nine months of 2012 was $3,585,000 related to Centennial Founders LLC. The remaining capital expenditures consisted of investments in TRCC infrastructure and ordinary capital expenditures such as farm equipment replacements and crop development.
During the first nine months of 2011, investing activities used $16,029,000 of cash primarily as a result of the $18,971,000 net investment in marketable securities, $9,509,000 in capital expenditures, described below, $2,282,000 in contributions in our unconsolidated joint ventures and $485,000 investment in Horizon Nut Company, a pistachio processing company. The above outflows are partially offset by proceeds from the sale of conservation easements for $15,750,000. Included in the $9,509,000 of capital expenditures during the first nine months of 2011 was $4,552,000 related to Centennial Founders LLC. The remaining capital expenditures consisted of investments in TRCC infrastructure and ordinary capital expenditures such as farm equipment replacements. It is anticipated that throughout the remainder of 2012 we will continue to invest funds in our real estate development projects and joint ventures. We estimate that our investment requirements over the remainder of 2012 could total approximately $8,000,000. These amounts include contributions to our joint ventures, primarily TMV and Centennial, investments in infrastructure within TRCC-East, and ordinary recurring capital investments within our operating segments. Throughout the remainder of 2012, contributions to joint ventures will be related to the entitlement process for Centennial Founders LLC and permitting, litigation costs, and water turnout development costs for TMV. During the first nine months of 2012, financing activities used $2,140,000 in cash, primarily as a result of payroll taxes on issuance of restricted stock grants. During the first nine months of 2011, financing activities provided $4,402,000 in cash, primarily as a result of proceeds from the exercise of stock options partially offset by payroll taxes on issuance of restricted stock grants. At September 30, 2012 and at the date of filing of this Form 10-Q there was no outstanding balance on our line of credit. Capital Structure and Financial Condition At September 30, 2012, total capitalization at book value was $307,647,000 consisting of $262,000 of debt and $307,385,000 of equity, resulting in a debt-to-total-capitalization ratio of less than one percent, which is unchanged when compared to the debt-to- total-capitalization ratio at December 31, 2011.

We have a long-term revolving line of credit of $30,000,000 that, as of September 30, 2012, had no outstanding balance. At the Company's option, the interest rate on this line of credit can float at 2.50% over a selected LIBOR rate or can be fixed at 2.25% above LIBOR for a fixed rate term. During the term of this credit facility (which matures in October 2013), we can borrow at any time and partially or wholly repay any outstanding borrowings and then re-borrow, as necessary. Under the terms of the line of credit, we must maintain . . .