Securities and Exchange Commission
Washington, D.C. 20549
Form 8-K/A
Amendment No. 1
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
September 13, 1996
Cadiz Land Company, Inc.
(Exact name of issuer as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-12114 77-0313235
(Commission File Number)(IRS Employer Identification No.)
10535 Foothill Boulevard, Suite 150, Rancho Cucamonga, CA 91730
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (909) 980-2738
Cadiz Land Company, Inc. (the "Company") previously reported on Form
8K that it had acquired all of the stock of Sun World International, Inc.
("Sun World") on September 13, 1996. This amendment to Form 8K
provides historical audited financial statements of Sun World and pro forma
financial information relative to the Sun World acquisition. This
amendment also reports the sale of equity securities pursuant to Regulation
S on November 26, 1996
ITEM 2. ACQUISITION OF ASSETS
On September 13, 1996, Cadiz Land Company, Inc. (the
"Company") acquired all of the stock of a reorganized Sun
World International., Inc. ("Sun World") pursuant to a
consensual plan of reorganization (Debtors' Modified Fourth
Amended Consolidated Plan of Reorganization dated June 3,
1996 (Modified) which was confirmed by the U.S. Bankruptcy
Court at a hearing on July 12, 1996 (the "Plan"). Total
consideration was approximately $179 million of which
approximately $150 million will be owed to Sun World's
existing secured lenders through a restructuring of previously
existing debt. In addition, the Company made a capital
contribution of $15 million to Sun World, with the intent of
eliminating the requirement for Sun World to have any
additional debt facilities beyond those owed to its existing
secured creditors.
The total cash requirements of the Company related to the
acquisition were funded from: (i) the issuance by the Company
of $27.631 million of newly authorized Convertible Series A
Preferred Stock; (ii) the issuance by the Company of $7.6 million
of newly authorized 6% Convertible Series B Preferred Stock;
(iii) the issuance by the Company of $2.6 million of newly
authorized 6% Convertible Series C Preferred Stock; and (iv) $1
million previously deposited by the Company from its working
capital in trust with the Official Committee Holding Unsecured
Claims. Of such funds, approximately $35 million was applied
to cash disbursements required at closing under the Plan,
including the $15 million capital contribution referred to above
and approximately $5.5 million of payments to secured lenders.
The remainder has been utilized by the Company substantially
for the payment of expenses relating to the acquisition.
The consideration paid by the Company was determined in arms
length negotiations between the Company and the various
constituents of the Sun World bankruptcy case. As required
under the Plan, a total of $3 million in cash and 829,090 shares
of newly issued common stock was delivered to the previous
holders of the stock of Sun World upon transfer of such stock to
the Company. These stockholders were Howard P. Marguleas,
Domenick T. Bianco, Martin S. Gans, James R. Greenbaum, Sr.,
Carl S. Maggio, Robert and Charlotte J. Nies Revocable Trust
dated June 15, 1988, the John and Shirley Thomas Family Trust
U/D/T/September 6, 1988, and Tostado Family Trust
U/D/T/September 29, 1983, as amended through September 20,
1992, Carl Sam Maggio, Trustee. None of such holders were
affiliates of the Company at the time of the transaction.
Sun World is one of California's leading fully integrated
agricultural companies with agricultural landholdings of
approximately 21,000 acres primarily in the Central Valley and
Coachella Valley of California. Sun World ships fresh produce
to nearly every state in the United States and exports fresh fruits
and vegetables to over thirty foreign countries. Sun World's
farming operations produce approximately 7 million units of
fruits and vegetables annually, while its packing facilities handle
approximately 9 million units of produce annually. Sun World's
marketing operations include selling, merchandising and
promoting Sun World grown products as well as providing such
services to a sizable and highly diverse world wide customer
base which domestically includes national retailers, club stores
and food service distributors. The Company intends to continue
operating Sun World within the same markets in which it has
been historically engaged and does not contemplate any
significant change in the use of Sun World's properties.
ITEM. 7 FINANCIAL STATEMENTS, PRO FORMA
FINANCIAL INFORMATION AND EXHIBITS
The following financial statements, pro forma financial
information and exhibits are filed as part of this report.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
This amendment includes audited financial statements of
Sun World for each of the years ended December 31, 1995
and 1994. The Company previously had determined that
it was impracticable to audit Sun World's 1993 fiscal year
and, accordingly, has omitted 1993 financial statements
from this amendment in reliance on a no action letter
received from the Commission's Office of Chief
Accountant in the Division of Corporation Finance.
However, in an effort to provide the most complete
financial information available under the circumstances,
the Company has also included in this amendment audited
financial statements of Sun World for the interim period
from January 1, 1996 to September 13, 1996.
The following audited financial statements are included
and prepared pursuant to Rule 3.05 of Regulation S X:
(i) Audited consolidated financial statements of Sun
World International, Inc. and Subsidiaries for the
years ended December 31, 1995 and 1994:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31,
1995 and 1994
Consolidated Statement of Operations and
Accumulated Deficit for the years ended
December 31, 1995 and 1994
Consolidated Statements of Cash Flows for the
years ended December 31, 1995 and 1994
Notes to Consolidated Financial Statements
(ii) Audited consolidated financial statements of Sun
World International, Inc. and Subsidiaries for the
interim period January 1, 1996 through September
13, 1996 (the date of acquisition):
Independent Auditors' Report
Consolidated Balance Sheet as of September 13, 1996
Consolidated Statement of Operations and
Accumulated Deficit for the period January 1,
1996 through September 13, 1996
Consolidated Statement of Cash Flows for the
period January 1, 1996 through September 13,
1996
Notes to Consolidated Financial Statements
(b) PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information
is provided:
(i) Cadiz Land Company, Inc. and Sun World
International, Inc. unaudited Pro Forma Combined
Financial Statements:
Pro Forma Combined Statement of Operations
for the year ended March 31, 1996
Pro Forma Combined Statement of Operations
for the six months ended September 30, 1996
Notes to Pro Forma Combined Financial
Statements
(c) EXHIBITS
The following exhibits are provided in accordance with the
provision of Item 601 of Regulation S K:
2.1 Debtors' Modified Fourth Amended Consolidated
Plan of Reorganization dated June 3, 1996 (as
Modified)(1)
2.2 Plan Implementation Agreement dated July 12,
1996(1)
2.3 Supplement to Plan Support Agreement dated June 3,
1996(1)
2.4 Stock Purchase Agreement with Howard Marguleas
dated September 13, 1996(2)
2.5 Form of Stock Purchase Agreement with Minority
Stockholders of Sun World dated September 13,
1996(2)
4.1 Certificate of Designations Series A Preferred
Stock(2)
4.2 Certificate of Designations Series C Preferred Stock (2)
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Price Waterhouse LLP
(1) Previously filed as Exhibit to the Registrant's Report on Form 10 Q for the
quarter ended June 30, 1996.
(2) Previously filed as Exhibit to the Registrant's Current Report on Form
8-K, dated September 13, 1996.
ITEM 9. SALE OF EQUITY SECURITIES PURSUANT TO
REGULATION S
Under the terms of the plan of reorganization in the Sun World
bankruptcy case, as originally approved, the total cash
requirements of the Company in order to close the acquisition
were approximately $39 million, with $15 million of this amount
to be deposited by the Company at closing into the trusteed
unsecured claims reserve account. However, in order to protect
shareholder dilution, shortly before completion of the Sun
World acquisition, the Company was able to successfully
negotiate a reduction in this required initial cash deposit to $11
million, thereby effectively reducing cash requirements at
closing to $35 million. As described in Item 2 above, this $35
million was raised by the Company primarily from the issuance
of Series A, Series B and Series C Preferred Stock.
As a condition to the reduction in the amount of the initial
deposit, the Company agreed to deposit an additional amount
into the unsecured claims reserve account subsequent to closing,
when the final claims amounts could more readily be determined.
In order to fund the remaining amounts necessary to complete its
requirements in this regard, on November 26, 1996, the
Company issued 240 shares of its 6% Convertible Series B
Preferred Stock and 40 shares of its 6% Convertible Series C
Preferred Stock (collectively, the "Shares") for total aggregate
consideration of $2,800,000, or $10,000 per share. The amount
of Shares so issued by the Company was less than the additional
amount which the Company would otherwise have needed to
issue prior to the Sun World acquisition if the amount of the
initial cash deposit had not been reduced. The Shares were sold
to a limited number of non U.S. accredited investors pursuant to
Regulation S. Hunter & Company has acted as placement agent
for the Company in connection with the sale of all Series B and
Series C Preferred Stock issued by the Company for the funding
of the Sun World acquisition in consideration of a commission
equal to five percent (5%) of the gross proceeds of the offerings.
Each share of Series B Preferred Stock and Series C Preferred
Stock is convertible into shares of common stock of the
Company ("Common Stock") at a conversion price per share of
Common Stock equal to the lesser of (i) $5.8125 or (ii) eighty
five percent (85%) of the average closing bid price of the
Common Stock over the ten trading day period ending on the day
prior to submission of notice of conversion.
Audited Consolidated Financial Statements
of
Sun World International, Inc.
and
Subsidiaries for the Years Ended December 31, 1995
and 1994
(Item 7(a)(1))
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Sun World International, Inc.
We have audited the accompanying consolidated balance sheets of Sun
World International, Inc. and subsidiaries (the Company") as of December
31, 1995 and 1994, and the related consolidated statements of operations and
accumulated deficit and of cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted accounting
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly in all
material respects the financial position of the Company as of December 31,
1995 and 1994, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the company
and certain of its subsidiaries filed voluntary petitions for relief under
Chapter 11 of the Bankruptcy Code on October 3, 1994. Since that date, the
companies had been operating under Bankruptcy protection and had been
negotiating with all parties to the Bankruptcy proceedings in an effort to
develop a Plan of Reorganization (the "Plan"). On July 12, 1996, the
Bankruptcy Court confirmed the Plan, which became effective on September
13, 1996. Under the Plan, the Company is required to comply with certain
terms and conditions as more fully described in Note 1.
/s/ Deloitte & Touche LLP
September 20, 1996
<TABLE>
SUN WORLD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
December 31,
---------------------------------------------------
1995 1994
ASSETS -------- ---------
<S> <C> <C>
Current assets:
Cash $ 23,333 $ 11,836
Accounts receivable, net 13,879 11,386
Inventories 12,710 13,875
Prepaid expenses and other 1,353 1,521
--------- -------
Total current assets 51,275 38,618
Investment in partnerships 1,948 2,220
Property, plant and equipment, net 81,680 112,088
Assets held for sale 17,969 0
Other assets 4,652 4,762
--------- -------
Total assets $ 157,524 $157,688
========= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 13,926 $ 10,566
Accrued liabilities 2,074 2,588
Long term debt due in one year 1,063 0
--------- --------
Total current liabilities 17,063 13,154
Long term debt 1,458 0
Deferred revenue and other 79 292
Deferred income taxes 7,500 7,500
Liabilities subject to compromise under
reorganization proceedings 177,455 174,036
Commitments and contingencies
Stockholders' deficit:
Convertible 10% preferred stock,
75,000 shares authorized;
38,501 shares issued and
outstanding (liquidation
preference $11,550,000) 11,550 11,550
Common stock, $1 par value,
300,000 shares authorized;
42,000 shares issued and outstanding 42 42
Additional paid-in capital 29,350 29,350
Accumulated deficit (86,973) (78,236)
--------- ---------
Total stockholders' deficit (46,031) (37,294)
---------- --------
Total liabilities and
stockholders' deficit $ 157,524 $157,688
========= ========
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
<TABLE>
SUN WORLD INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED
DEFICIT
(Dollars in thousands)
<CAPTION>
Years ended December 31,
-------------------------
1995 1994
----------- ---------
<S> <C> <C>
Revenues $117,623 $127,169
-------- --------
Costs and expenses:
Cost of sales 85,546 112,661
General and administrative 6,287 11,368
Permanent crop abandonments 1,560 1,312
-------- -------
Total operating costs 93,393 125,341
-------- --------
Operating profit 24,230 1,828
Provision for loss on asset disposals 4,868 2,136
Other expense/(income) 686 (178)
Interest expense 16,756 15,442
-------- --------
Income (loss) before reorganization
items 1,920 (15,572)
-------- --------
Reorganization items:
Professional fees 7,976 4,693
Adequate protection fees 3,214 2,259
Debt issuance costs 0 1,487
Interest income (533) (107)
-------- ----------
Total reorganization items 10,657 8,332
-------- ------------
Net loss (8,737) (23,904)
Accumulated deficit beginning of year (78,236) (54,332)
--------- -----------
Accumulated deficit end of year $(86,973) $(78,236)
========= =========
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
<TABLE>
SUN WORLD INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Years Ended December 31,
1995 1994
-----------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (8,737) $ (23,904)
Adjustments to reconcile net
loss to cash provided
by operating activities:
Depreciation and amortization 6,705 7,037
Loss on sale of property,
plant and equipment 605 162
Writeoff of debt issuance costs 0 1,487
Provision for loss on disposal
of assets 4,868 2,136
Permanent crop abandonments 1,560 1,312
Share of partnership operations (400) 738
Changes in operating assets and
liabilities:
(Increase)/decrease in
accounts receivable (2,493) 9,954
Decrease in inventories 1,165 7,588
Decrease in prepaid expenses
and other 168 104
Increase in accounts payable 3,360 10,565
(Decrease)/increase in accrued
liabilities (514) 2,588
(Decrease) in deferred revenue
and other (213) (62)
---------- -------
6,074 19,705
---------- ---------
Increase/(decrease) in liabilities
subject to compromise under
reorganization proceedings 6,038 (2)
---------- --------
Net cash provided by operating
activities 12,112 9,703
---------- ---------
Cash flows from investing activities:
Additions to property, plant
and equipment (929) (2,623)
Additions to developing crops (1,355) (2,341)
Partnership distributions 672 379
(Increase)/decrease in other assets (436) 13
Proceeds from disposal of property,
plant and equipment 1,530 75
---------- --------
Net cash used in investing activities (518) (4,497)
----------- ---------
Cash flows from financing activities:
Payments of long term debt
subject to compromise (97) (696)
Proceeds from short term borrowings 91,303 16,431
Payments on short term borrowings (91,303) (20,594)
----------- ----------
Net cash used in financing activities (97) (4,859)
------------ ----------
Net increase in cash 11,497 10,347
----------- ----------
Cash at beginning of year 11,836 1,489
----------- -----------
Cash at end of year $ 23,333 $ 11,836
======== ========
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
SUN WORLD INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND REORGANIZATION UNDER CHAPTER 11
Sun World International, Inc. ("SWII") and its subsidiaries
(collectively the "Company") own and farm approximately 21,000
acres in two major growing areas of California, the Southern San
Joaquin Valley and Coachella Valley. Fresh produce, including
table grapes, tree fruit, peppers and watermelon are marketed,
packed and shipped to food wholesalers and retailers located
throughout the United States and in certain foreign countries. Export
sales accounted for approximately 7% of the Company's sales for the
years ended December 31, 1995 and 1994. As of December 31,
1995, the Company owned and operated eight cold storage and/or
packing facilities located in California. In 1996, three of those
facilities were sold.
On October 3,1994, SWII and certain of its subsidiaries filed
voluntary petitions for relief under Chapter 11 of the Bankruptcy
Code. Since that date, the companies had been operating under
Bankruptcy protection and had been negotiating with all parties to
the bankruptcy proceedings in an effort to develop a Plan of
Reorganization (the "Plan"). On July 12, 1996, the Bankruptcy
Court confirmed the Plan, which became effective on September 13,
1996 (the"Effective Date"). Pursuant to the Plan, SWII, Sun World,
Inc., Coachella Growers and Sun Desert, Inc. (all wholly owned
subsidiaries of SWII) emerged from the Chapter 11 Bankruptcy
proceedings and 100% of SWII's stock (both preferred and common)
was acquired by Cadiz Land Company, Inc. ("Cadiz"). The Plan
also provided for, among other things, the cancellation of certain
indebtedness in exchange for cash, elimination of all intercompany
debts, new indebtedness, issuance of new equity securities, the
discharge of other prepetition claims, the cancellation of all
prepetition ownership interests in the Company, the settlement of
certain claims and mutual releases of certain claims of the Company
and other persons or entities (including certain affiliated persons or
entities), the assumption or rejection of executory contracts and
unexpired leases to which the Company was a party, and the
establishment of procedures for the selection of a Board of Directors
for the Company. The Plan did not provide for the reorganization of
the estate or the resolution of outstanding third party claims and
equity interests for AAI Services, Inc., a wholly owned subsidiary of
SWII.
Cadiz acquired all of the capital stock of the Company for total
consideration of approximately $179 million including
approximately $150 million which will be owed to the Company's
existing secured lenders through issuance of new notes. In addition,
Cadiz made a cash capital contribution of $15 million to the
Company to provide additional operating capital.
The following table summarizes the recoveries to the prepetition
creditors and equity holders pursuant to the Plan based upon the
Company's estimate of total claims to be allowed as of September
13, 1996 (dollars in thousands) (unaudited):
Recovery
-----------------------------------------
Estimated Cadiz
Allowed Claims Long-Term Common Total
Claims/Interest Amount (1) Cash Debt Stock Recovery
- - --------------------------------------------------------------------------
Administrative,
Tax and Priority $ 5,000 $ 5,000 $ 0 $ 0 $ 5,000
Credit Agricole
Secured Debt 58,621 3,500 55,121 0 58,621
John Hancock
Secured Debt 93,084 2,000 91,084 0 93,084
Zenith Secured
Debt 3,065 250 2,575 240 3,065
Other Secured
Debt 1,050 0 1,050 0 1,050
General Unsecured
Claims 20,800 12,500 0 0 12,500
Convertible
Preferred Stock
and Common Stock 11,592 3,000 0 2,487 5,487
-------- ---------- --------- -------- ---------
$193,212 $ 26,250 $149,830 $ 2,727 $178,807
======= == ====== ======= ====== =======
(1) Excludes any recovery to the Internal Revenue Service for claims
as further discussed by Note 14.
Management believes that the aggregate fair value of the Company's
long term debt issued pursuant to the Plan approximates the
aggregate book value.
The Plan provided for a consolidation of the assets and liabilities of
SWII and its subsidiaries and pursuant to the Plan, SWII was merged
into Sun World, Inc. with the surviving corporation retaining the
name of Sun World International, Inc. All payments and
distributions required by the Plan to be made by SWII or any of its
subsidiaries in respect of prepetition claims have been made or
provided for, and SWII and its subsidiaries expect to have no further
obligation with respect to any prepetition claims.
Cadiz intends to account for this acquisition using the purchase
method which will materially change the amounts reported in the
accompanying consolidated balance sheet as of December 31, 1995.
The consolidated financial statements do not give effect to
adjustments of assets or liabilities, or classifications of such
amounts, which may be necessary as a consequence of the Cadiz
acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING The consolidated financial statements
include the accounts of SWII and its subsidiaries, substantially all of
which are wholly owned. All significant intercompany transactions
have been eliminated.
The Company has accounted for all transactions related to the
Chapter 11 proceedings in accordance with Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code," issued by the American Institute of Certified
Public Accountants. Accordingly, liabilities subject to compromise
under reorganization proceedings have been segregated on the
consolidated balance sheets and are recorded at the amounts that
have been or are expected to be allowed based upon known claims.
INVENTORIES Growing crops, pepper seed, and materials and
supplies are stated at the lower of cost, on a first in, first out (FIFO)
basis, or market. Growing crops inventory includes direct costs and
an allocation of indirect costs.
INVESTMENT IN PARTNERSHIPS Wholly owned subsidiaries
of the Company have investments in various partnerships. The
Company's two principal partnerships are Sun Date and American
Sunmelon, both of which are 50% owned. American Sunmelon is
engaged in proprietary seed development, production, and marketing
of seedless watermelons. Sun Date is engaged in the marketing,
processing, and farming of dates. These partnership investments are
accounted for using the equity method.
PROPERTY, PLANT AND EQUIPMENT Property, plant and
equipment is stated at cost for all acquisitions subsequent to
September 30, 1983. All property, plant and equipment acquired
prior to September 30, 1983 was restated to estimated fair value at
that date in connection with the Company's quasi reorganization.
The Company capitalizes the direct and certain indirect costs of
planting and developing orchards and vineyards until they reach
maturity, which varies by crop and ranges from three to seven years.
Depreciation on trees and vines commences in the year commercial
production is achieved.
The Company computes depreciation applicable to property, plant
and equipment on the straight line method using the following
estimated useful lives:
Buildings and improvements 10-45 years
Machinery and equipment 3-25 years
Permanent crops 10-20 years
Upon the sale, retirement or abandonment of property, plant and
equipment, applicable gains or losses are recognized in income.
ASSETS HELD FOR SALE In conjunction with the Company's
1996 Business Plan, specific properties were identified to be sold.
These properties, which are included in the accompanying
consolidated balance sheet at the lower of cost or net realizable
value, consist of both farmland and facilities that were determined
not vital to the Company's on going operations. The Company
has sold certain facilities in 1996 including facilities located in
Reedley, Arvin and Thermal.
OTHER ASSETS Other assets include professional fees and
other costs to establish and defend trademark and patent rights.
These assets are amortized over a 10 year period on a straight line
basis. Also included in other assets are water rights that were
obtained in connection with a 1988 divestiture of the Company's
interest in a partnership. The Company is amortizing these water
rights over 97 years using the straight line method.
PROVISION FOR LOSS ON ASSET DISPOSALS In 1995 and
1994, the Company recorded provisions for loss on disposal of
assets totaling $4,868,000 and $2,136,000, respectively. Such
write downs represented amounts necessary to reduce the assets to
their expected net realizable value.
REVENUE RECOGNITION The Company recognizes crop
sale revenue after harvest and delivery to customers. Packing
revenues are recognized as units are packed. Marketing
commission revenues are recognized at the time of product
shipment.
REORGANIZATION ITEMS The net expenses incurred as a
result of the Chapter 11 filing and subsequent reorganization
proceedings have been segregated from recurring operations in the
consolidated statements of operations.
INCOME TAXES Deferred income taxes on the difference
between financial statement basis and tax basis of assets and
liabilities are provided for at the statutory rates.
SUPPLEMENTAL CASH FLOW INFORMATION Cash
payments for interest were $6,258,000 and $6,673,000 in the years
ended December 31, 1995 and 1994, respectively. In 1995 and
1994 the Company paid income tax, net of refunds, of $13,000
and $633,000, respectively.
RESEARCH AND DEVELOPMENT The Company incurs
costs to research and develop new varieties of proprietary
products. Research and development costs are expensed as
incurred. Such costs were approximately $393,000 and
$1,127,000 for the years ended December 31, 1995 and 1994,
respectively.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL
STATEMENTS The preparation of consolidated financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and related notes. Actual results could differ from
these estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS In March
1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long Lived Assets and for
Long Lived Assets to be Disposed of ("SFAS 121") was issued.
SFAS No. 121 establishes new guidelines in accounting for the
impairment of long lived assets, including identifiable intangibles.
When circumstances indicate that the carrying amount of an asset
may not be recoverable as demonstrated by estimated future cash
inflows, an impairment loss shall be recorded based on fair value.
The Company has not yet adopted SFAS No. 121 but believes that
its impact when adopted will not be material.
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (dollars
in thousands):
December 31,
1995 1994
---------- ---------
Trade receivables $ 6,791 $ 4,107
Due from unaffiliated
growers 1,962 903
Due from affiliated
growers 257 840
Other 5,051 5,904
--------- ---------
14,061 11,754
Less allowance for
doubtful accounts 182 368
--------- ---------
$13,879 $ 11,386
====== ==========
Substantially all domestic trade receivables are from large
national and regional supermarket chain stores and produce
brokers and are unsecured. The amounts due from growers
represent receivables for services (harvest, haul and pack)
provided on behalf of growers under agreement with the
Company and are recovered from proceeds of product sales.
Other receivables primarily include lemon crop sales, by product
sales, and amounts receivable from joint venture partners.
4. INVENTORIES
Inventories consisted of the following (dollars in thousands):
December 31,
-------------------
1995 1994
---------- --------
Growing crops $ 8,337 $ 9,103
Pepper seed 2,328 2,950
Materials and supplies 2,045 1,822
-------- -----------
$ 12,710 $ 13,875
======= ======
Pepper seed is net of valuation allowance of $395,000
and $375,000 at December 31, 1995 and 1994,
respectively, to reduce such inventories to their net
realizable value.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following
(dollars in thousands):
December 31,
----------------
1995 1994
----------- -----------
Land $ 27,446 $ 39,194
Permanent crops 42,837 49,217
Buildings and improvements 27,860 38,607
Machinery and equipment 19,485 29,562
----------- ----------
117,628 156,580
Less accumulated depreciation 35,948 44,492
----------- ----------
$ 81,680 $ 112,088
======== ============
6. INCOME TAXES
Significant components of the Company's deferred income tax
assets and liabilities as of December 31, 1995 and 1994 are as
follows (dollars in thousands):
1995 1994
---------- -------------
Deferred tax liabilities:
Net fixed asset basis
difference $ 23,630 $ 22,122
State taxes 181 181
------------ --------
Total deferred tax
liabilities 23,811 22,303
Deferred tax assets:
Net operating losses 29,779 28,655
Tax credit carryforwards 1,604 1,760
Reserve for notes
receivable 5,769 5,769
Capitalized legal fees 2,789 2,789
Basis difference in
water rights 1,198 1,198
Deferred crop costs 484 1,685
Allowance for doubtful
accounts 79 159
Basis difference in
partnership investments 40 12
State taxes 353 353
-------- --------
Total deferred tax
assets 42,095 42,380
Valuation allowance for
deferred
tax assets (25,784) (27,577)
Total deferred tax
assets, net 16,311 14,803
-------- -------------
Net deferred
tax liability $ 7,500 $ 7,500
========= ==========
The Company has provided a valuation allowance for the tax
benefits of deferred tax assets which may not be realizable.
Income tax expense (benefit) varies from the amount
computed by applying the statutory federal income tax rate to
the income (loss) before income taxes. The reasons for this
difference are as follows:
December 31,
-----------------
1995 1994
-------- ----------
Statutory federal rate (34.0)% (34.0)%
State taxes, less
federal benefit (6.2)% (6.2)%
Valuation allowance 40.2 % 40.2 %
----------- ----------
Effective rate 0 .0 % 0.0 %
========== ==========
At December 31, 1995, the Company had net operating loss
carryforwards for federal and state income tax purposes of
approximately $40,439,000 and $8,032,000, respectively, which
expires at various dates from 1997 through 2010. In addition, a
wholly owned subsidiary acquired in 1989 has net operating loss
carryforwards of approximately $44,950,000 for federal tax
purposes, which are subject to an annual limitation for a fifteen
year period. The federal loss carryforwards expire at various
dates from 2001 through 2004.
The Company had investment and research and experimental tax
credit carryforwards of approximately $747,000 which expire
from 1996 to 2007. The Company also had alternative minimum
tax carryforwards of approximately $857,000.
The utilization of the net operating loss and credit carryforwards
could be limited or eliminated by a reduction in liabilities as a
result of the Plan and/or by changes in the Company's stock
ownership resulting from the Cadiz acquisition.
7. FINANCING
Pursuant to the Plan, the Company issued new debt (along with
Cadiz common stock) to settle prepetition long term debt. The
following is a discussion of the Company's financing
arrangements prior to and as of the Effective Date.
Prepetition Financing:
Debt and other financing arrangements of the Company at
December 31, 1995 and 1994 were as follows, based on the
original contractual maturities:
December 31,
------------------
(in thousands)
1995 1994
------------ -------------
Secured Debt:
Revolving credit facility $ 34,277 $ 34,277
Note payable to an insurance
company, monthly
installments of $824,000
(includes interest), due
on November 1, 2000,
interest at 10.6%
(default interest at
12.6%) 77,234 77,234
Note payable to bank,
semi annual installments
of $750,000, due November
30, 1999, interest
at prime plus 1.25%
(9.75% at December 31,
1995), payable quarterly
(default interest at
prime plus 3.25%) 5,793 5,793
Note payable to bank,
annual installments of
$1,500,000 due November
30, 1996, interest
at prime plus 1.25%
(9.75% at December 31,
1995), payable quarterly
(default interest at
prime plus 3.25%) 10,500 10,500
Note payable to insurance
company, monthly
installments of $60,000
(includes interest),
interest at 12.9% 2,838 2,694
Unsecured Debt
Note payable to bank,
due July 1, 1995, interest
only at 10.0%, payable
quarterly 1,500 1,500
Note payable to partnership,
due September 1, 1994,
interest at 13.25% 1,150 1,150
------- -------
$133,292 $133,148
========= ========
All of this prepetition debt has been classified in the
accompanying consolidated balance sheets as "Liabilities
subject to compromise under reorganization proceedings." As
a result of the bankruptcy, all required principal payments on
prepetition debt were suspended. For the period subsequent to
the Petition Date, interest on the unsecured prepetition debt
was not paid or accrued. Interest on secured prepetition debt
continued to be accrued in the period subsequent to the
Petition Date at the default interest rates. Pursuant to
Bankruptcy Court order, adequate protection payments were
made on the secured debt amounting to $3,214,000 and
$2,259,000 for the years ended December 31, 1995 and 1994,
respectively. "Liabilities subject to compromise under
reorganization proceedings" included $19,248,000 and
$9,098,000 related to unpaid interest accrued on secured debt
for the years ended December 31, 1995 and 1994,
respectively.
These credit facilities described above were collateralized by
substantially all of the assets of the Company. The Company
was in default on substantially all of the covenants under these
credit facilities as of December 31, 1995 and 1994.
Debtor In Possession Financing:
The Bankruptcy Court entered an order on January 20, 1995
approving a debtor in possession (DIP) financing agreement
for the Company in an aggregate amount of $30,000,000. The
DIP financing granted to the DIP lender security interests in
all the real and personal property of the Company including all
contract accounts, contract rights, fixtures, copyrights, patents
and trademarks. Under the terms of the loan and the
Bankruptcy Code, the security interest of the DIP lender had
priority over virtually all prepetition claims and Chapter 11
administrative expense claims. The DIP financing also
contained a clause to provide adequate protection to certain
prepetition secured lenders in the form of (a) replacement liens
and (b) payment of specified amounts on the prepetition
secured debt to cover interest and professional fees incurred by
the lenders.
Interest on the DIP borrowings was prime plus 1.25%. During
1995, the Company borrowed and repaid up to $21,181,000
under this facility and had no balance outstanding at December
31, 1995. Total interest and fees paid during 1995 related to
the DIP facility was $681,000.
The DIP facility was amended and restated as of February 28,
1996 to extend the facility through the 1996 operating season
in an aggregate amount of $20,000,000. The DIP facility
expired when the Company emerged from bankruptcy on
September 13, 1996.
Post petition Financing:
On or about October 27, 1995, the Bankruptcy Court issued
the Weyerhaeuser Order pursuant to which the Company
assumed certain agreements with Weyerhaeuser for corrugated
shipping containers and related financing. Pursuant to the
Weyerhaeuser Order, the Company was required to make
certain adequate protection payments and entered into a
secured note which had an outstanding balance at December
31, 1995 as follows:
(in thousands)
Note payable to supplier,
monthly installments of $ 2,521
$104,000 (includes interest),
due March 1, 1998,
interest at 10.00%.
Less: current portion 1,063
----------
$ 1,458
===========
Plan Financing:
Pursuant to the Plan, the Company entered into new financing
agreements totaling approximately $150 million with its
existing secured lenders which are collateralized by
substantially all of the assets of the Company. Annual
maturities of the debt outstanding upon emergence from
bankruptcy on September 13, 1996 (including the post petition
financing) is as follows: 1996-$4,502,000; 1997-$8,789,000;
1998-$7,970,000; 1999-$9,369,000; 2000-$11,377,000; 2001
and thereafter - $110,322,000.
8. PREFERRED STOCK
In May 1985, the Board of Directors of the Company
designated 40,000 shares of Preferred Stock as Series I
Preferred Stock. Each share of Series I Preferred Stock was
convertible into one share of Common Stock and was entitled
to receive cash dividends of $30 per share for each of the fiscal
years ending on or after September 30, 1987. Such dividends
were cumulative under certain circumstances and included
other rights such as a liquidation preference per share equal to
the sum of $300, plus all accrued but unpaid dividends.
Pursuant to the Plan, all prepetition ownership interests of the
Company, including the Series I preferred stock, as of the
Effective Date were sold to Cadiz. At that time, accumulated
undeclared dividends on the preferred stock of $10,395,000
and $9,240,000 at December 31, 1995 and 1994 were released.
9. LEASING ARRANGEMENTS
The Company leases certain parcels of land, facilities,
machinery, and equipment under non cancelable operating
leases which expire in various years through 2000.
At December 31, 1995, future minimum lease commitments
under noncancellable leases (exclusive of property taxes and
insurance) consist of the following (dollars in thousands):
Facilities &
Land Equipment Total
-------- ----------- ---------
1996 $ 119 $ 1,543 $ 1,662
1997 114 348 462
1998 114 60 174
1999 0 9 9
2000 0 9 9
--------- --------- -------
$ 347 $ 1,969 $ 2,316
===== ====== ====== ========
Operating lease payments for the years ended December 31,
1995 and 1994 were $2,554,000 and $4,595,000, respectively.
10. LIABILITIES SUBJECT TO COMPROMISE UNDER REORGANIZATION PROCEEDINGS
Liabilities subject to compromise under reorganization
proceedings consisted of the following as of December 31
(dollars in thousands):
1995 1994
------------ -----------
Accounts payable $ 20,792 $ 27,667
Interest payable 19,248 9,098
Other accrued liabilities 4,123 4,123
Long term debt (see
Note 7) 133,292 133,148
----------- -----------
$ 177,455 $ 174,036
========= ==========
11. COMMITMENTS
DEBT GUARANTEE The Company was co guarantor with
its partner on a bank loan to the Sun Date partnership (see
Note 13). The loan totaled $1,150,000 at December 31, 1995
and 1994. In connection with the Sun Date settlement during
the bankruptcy proceeding, the Company will be released from
this bank guarantee and Cadiz has agreed to guarantee the
bank loan up to a maximum of $350,000.
PURCHASE AGREEMENT In 1995, the Company entered
into an agreement with its major corrugated container supplier
in connection with a prepetition liability settlement. The
settlement stipulated that the original agreement to purchase
containers from the supplier would remain in effect until
March 21, 1998 and required the Company to issue a secured
note payable to the supplier (see Note 7). Thereafter, the
original agreement will automatically renew unless either
party gives written notice ninety days prior to the end of the
renewal period.
12. RETIREMENT PLANS
The Company has a defined contribution pension plan
covering substantially all of its employees not covered by a
collective bargaining agreement, with at least one year of
service and who have worked at least 1,000 hours.
Contributions are 2% of each covered employee's salary and
totaled approximately $207,000 and $300,000 for the years
ended December 31, 1995 and 1994, respectively. For those
hourly employees covered under a collective bargaining
agreement, contributions are made to a multiemployer pension
plan in accordance with negotiated labor contracts, are
generally based on the number of hours worked, and totaled
approximately $11,000 and $25,000 for the years ended
December 31, 1995 and 1994, respectively.
13. RELATED PARTY TRANSACTIONS
AG ACCOUNTING, INC. The Company has entered into
agreements to market products obtained from growers in
which a former major stockholder/director of the Company
has financial interests and/or farm management contracts. Ag
Accounting, Inc. ("Ag Accounting"), which is wholly owned
by this former stockholder/director, provides accounting
services to these affiliated growers. The Company recognized
marketing commission revenues from these affiliated growers
of $104,000 and $436,000 for the years ended December 31,
1995 and 1994, respectively. The Company makes crop
advances and charges for some or all of harvesting, hauling,
packing and marketing services provided to these growers.
These charges are deducted from crop proceeds paid to
growers. As of December 31, 1994, the amount due Ag
Accounting from the Company was $404,000 (none in 1995).
Amounts due the Company from Ag Accounting totaled
$233,000 and $634,000 as of December 31, 1995 and 1994,
respectively. The Company bills the affiliated growers
monthly for services and remits net proceeds to each grower
for the crops marketed by the Company. In certain instances,
the Company has also obtained financing for these affiliated
growers.
Costs related to a product incentive program and certain
payroll and office expenses of $395,000 and $503,000 were
incurred on behalf of Ag Accounting for the years ended
December 31, 1995 and 1994, respectively.
In 1993, the Company determined that receivables due from
Ag Accounting and growers affiliated with Ag Accounting in
the amount of $8,652,000 were uncollectible. These amounts
which were written off represent advances made by the
Company to Ag Accounting for operating expenses and to Ag
Accounting ranches for growing and harvesting costs. Under
the Plan, Ag Accounting, the majority stockholder/director,
and the affiliated growers have been released from all claims
and liabilities related to the Company.
ANTHONY VINEYARDS, INC. Anthony Vineyards, Inc. is
a farming entity owned by a former officer and director of the
Company. The Company entered into marketing agreements
and provided packing and marketing services to this grower.
The Company makes grower advances for harvesting, hauling,
and packing materials which are recovered from the grower at
the time the Company receives the crop proceeds. The
Company recognized marketing commission revenues from
Anthony Vineyards of $1,277,000 and $980,000 for the years
ended December 31, 1995 and 1994, respectively. In addition,
at December 31, 1994, the Company had liabilities owed to
Anthony Vineyards, Inc. of $841,000 (none in 1995). The
amounts due the Company from Anthony Vineyards as of
December 31, 1995 and 1994 were $26,000 and $125,000,
respectively.
STOCKHOLDERS In 1993, the Company determined that
$3,771,000 in receivables due from stockholders were
uncollectible and were written off. As part of the Plan, all
liabilities and claims between the former stockholders and the
Company have been released.
LSL BIOTECHNOLOGIES, INC. LSL Biotechnologies,
Inc. (LSL) is an entity that develops, produces and markets
seed varieties in which former officers and/or directors of the
Company have or had ownership interests. The Company and
LSL entered into growing agreements and seed purchase
contracts related to peppers and tomatoes. For the year ended
December 31, 1994, the Company made royalty payments to
LSL of $1,339,000 (none in 1995). During the bankruptcy
proceeding, LSL made significant claims for prepetition and
postpetition amounts owed by the Company under the
agreements which the Company disputed. On September 9,
1996, an agreement between the Company and LSL was
reached that settled all LSL pre and postpetition claims against
the Company. The settlement included the allowance of the
prepetition unsecured claim for $900,000, and postpetition
administrative claim of $650,000 for postpetition royalties
owed to LSL for pepper and tomato sales. In addition, the
Company agreed to convey the trade name and trademark Le
Rouge Royale to LSL and obtained a license to utilize the
trademark until December 31, 1997 for an additional royalty
of $100,000.
THE IRVINE COMPANY The Company had orchard and
row crop farming, packing and marketing agreements with
The Irvine Company. A former major stockholder/director of
the Company owned stock in and was a director of The Irvine
Company, a large land owner and developer in Southern
California. In 1993, the orchard agreement was terminated
and in 1994 the row crop agreement was terminated. As of
December 31, 1995 and 1994, the Company had liabilities
owed to The Irvine Company, primarily for land rent and crop
proceeds, of $4,946,000 and $5,400,000, respectively. In
connection with the Plan, the Company agreed to allow a
claim of $5,000,000 in settlement of Irvine's prepetition
liability and claim against the Company.
AMERICAN SUNMELON For the years ended December
31, 1995 and 1994, the Company made payments to American
Sunmelon of $849,000 and $1,101,000, respectively, primarily
for royalty payments and seed purchases. As of December 31,
1995 and 1994, the Company had liabilities owed to American
Sunmelon of $128,000 and $210,000, respectively. The
Company's share of partnership income from American
Sunmelon was $1,111,000 and $480,000 for the years ended
December 31, 1995 and 1994, respectively.
SUN DATE On September 9, 1996, the Company and Sun
Date entered into an agreement that included a release or
settlement of all prepetition claims between Sun Date and the
Company, and included provisions for the Company to sell the
dates produced by Sun Date. A former major
stockholder/director of the Company, prior to September 13,
1996, had ownership interests in various date farming
partnerships that provided unprocessed dates to Sun Date. For
the years ended December 31, 1995 and 1994, the Company
recognized marketing commissions from date sales of
$116,000 and $68,000, respectively. In addition, as of
December 31, 1995 and 1994, the Company had liabilities
payable to Sun Date of $1,175,000 and $1,546,000,
respectively, including a $1,150,000 prepetition note payable
which was settled as described above. The Company's share
of the partnership loss from Sun Date was $677,000 and
$669,000 for the years ended December 31, 1995 and 1994,
respectively.
14. CONTINGENCIES
The Internal Revenue Service (IRS) has filed claims against
the Company, and certain subsidiaries, for taxes refunded to
the Company for certain workers that the IRS claims were
employees. The Company contends that the workers are
excluded from the definition of employment under the Internal
Revenue Code. A complaint has been filed by the Company
in the Bankruptcy Court seeking refunds of taxes paid on
account of agricultural workers for other years. The Company
intends to object to the claims asserted by the IRS. The total
amount of claims filed against the Company are approximately
$4,300,000 including tax deficiency, interest and penalties. At
December 31, 1995 and 1994, the Company has recorded a
reserve for these claims representing management's best
estimate of the ultimate amount that will be paid.
On January 3, 1996, the Company brought an action against
Corona College Heights Orange & Lemon Association (CCH)
alleging breach of contract, intentional interference with
economic advantage and unfair competition. On April 17,
1996, CCH counterclaimed against the Company, alleging
breach of contract, breach of fiduciary duty, negligence, fraud
and deceit, negligent misrepresentation, constructive fraud,
intentional interference with prospective economic advantage,
unjust enrichment and constructive trust and accounting. This
matter is in the early stages of discovery.
In the normal course of agricultural operations, the Company
handles, stores, transports and dispenses products identified as
hazardous materials. The Company has had regulatory
agencies conduct inspections and there has been a claim
asserted relating to these materials. Although the Company
does not believe remedial action, if any, will require the
expenditure of funds material to the Company's financial
condition, no assurance can be given regarding the outcome of
environmental claims, investigations or remedial actions in the
future.
The Company is involved in other legal and administrative
proceedings and claims. In the opinion of management, the
ultimate outcome of each proceeding or all such proceedings
combined will not have a material adverse impact on the
Company's financial statements.
* * * * * *
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
OF
SUN WORLD INTERNATIONAL, INC.
AND
SUBSIDIARIES FOR THE INTERIM PERIOD
JANUARY 1, 1996 THROUGH SEPTEMBER 13, 1996
REPORT OF INDEPENDENT ACCOUNTANTS
November 22, 1996
To the Board of Directors and
Shareholders of Sun World International, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and accumulated deficit and of cash
flows present fairly, in all material respects, the financial position of Sun
World International, Inc. and its subsidiaries (the Company) at September
13, 1996, and the results of their operations and their cash flows for the
period January 1, 1996 through September 13, 1996 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion
expressed above.
As discussed in Note 1, the Company and certain of its subsidiaries filed
voluntary petitions for relief under Chapter 11 of the Bankruptcy Code on
October 3, 1994. On July 12, 1996, the Bankruptcy Court confirmed the
Plan of Reorganization (the Plan) which became effective on September 13,
1996. Concurrent with the approval of the Plan, the Company was acquired
by Cadiz Land Company, Inc. The accompanying consolidated financial
statements do not include any adjustments for the forgiveness of
indebtedness or for the adjustment of assets and other liabilities which will
result from the Plan nor do they give effect to any adjustments which may
be necessary as a consequence of the acquisition.
/s/ Price Waterhouse LLP
<TABLE>
SUN WORLD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<CAPTION>
September 13,
1996
ASSETS ------------------
<S> <C>
Current assets:
Cash $ 17,113
Accounts receivable, net 18,347
Inventories 12,991
Assets held for sale 15,074
Prepaid expenses and other 1,241
--------------
Total current assets 64,766
Investment in partnerships 1,752
Property, plant and equipment, net 80,723
Other assets 5,425
---------------
$ 152,666
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 11,710
Accrued liabilities 1,878
Long term debt due within one year 1,269
---------------
Total current liabilities 14,857
Long term debt 1,484
Deferred revenue and other 59
Liabilities subject to compromise
under reorganization proceedings 180,249
Deferred income taxes 7,500
Commitments and contingencies
Stockholders' deficit:
Convertible 10% preferred stock,
75,000 shares authorized;
38,501 shares issued and
outstanding (liquidation
preference $11,550,000) 11,550
Common stock, $1 par value,
300,000 shares authorized;
42,000 shares issued and outstanding 42
Additional paid in capital 29,350
Accumulated deficit (92,425)
---------
Total stockholders' deficit (51,483)
---------
$ 152,666
=========
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
<TABLE>
SUN WORLD INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED
DEFICIT
(Dollars in thousands)
<CAPTION> January 1 to
September 13,
1996
--------------
<S> <C>
Revenues $77,938
---------
Costs and expenses:
Cost of sales 60,300
General and administrative 5,934
---------
66,234
--------
Operating income 11,704
Other income (242)
Interest expense 10,806
------------
Net income before reorganization items 1,140
------------
Reorganization items:
Professional fees 4,085
Adequate protection fees 3,007
Interest income (500)
------------
Total reorganization items 6,592
------------
Net loss (5,452)
Accumulated deficit beginning of year (86,973)
-------------
Accumulated deficit at September 13, 1996 $(92,425)
========
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
<TABLE>
SUN WORLD INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<CAPTION> January 1 to
September 13,
1996
---------------------
<S> <C>
Cash flows from operating activities:
Net loss $ (5,452)
Adjustments to reconcile
net loss to cash used in
operating activities:
Depreciation and amortization 4,085
Gain on sale of property,
plant and equipment (10)
Share of partnership operations (628)
Changes in operating assets
and liabilities:
Increase in accounts receivable,
net (4,468)
Increase in inventories (340)
Decrease in prepaid expenses
and other 112
Decrease in accounts payable (2,216)
Decrease in accrued liabilities (196)
Decrease in deferred revenue
and other (20)
-------------
(9,133)
-------------
Increase in liabilities subject to
compromise under
reorganized proceedings 2,794
------------
Net cash used in
operating activities (6,339)
-------------
Cash flows from investing activities:
Additions to property,
plant and equipment (2,321)
Additions to developing crops (462)
Partnership distributions 825
Increase in other assets (1,146)
Proceeds from disposal of
property, plant & equipment 2,991
------------
Net cash used in investing
activities (113)
-------------
Cash flows from financing activities:
Increase in long term debt 1,050
Payments of long term debt (818)
Proceeds from short term borrowings 46,711
Payments on short term borrowings (46,711)
------------
Net cash provided by
financing activities 232
------------
Net decrease in cash (6,220)
-------------
Cash at beginning of year 23,333
------------
Cash at September 13, 1996 $17,113
========
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
SUN WORLD INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
1. NATURE OF OPERATIONS AND REORGANIZATION UNDER CHAPTER 11
Sun World International, Inc. ("SWII") and its subsidiaries
(collectively the "Company") own and farm approximately 21,000
acres in two major growing areas of California, the Southern San
Joaquin Valley and Coachella Valley. Fresh produce, including
table grapes, tree fruit, peppers and watermelon are marketed,
packed and shipped to food wholesalers and retailers located
throughout the United States and in certain foreign countries. Export
sales accounted for approximately 7.5% of the Company's sales for
the period ended January 1, 1996 to September 13, 1996. As of
September 13, 1996, the Company owned and operated five cold
storage and/or packing facilities located in California.
On October 3, 1994, SWII and certain of its subsidiaries filed
voluntary petitions for relief under Chapter 11 of the Bankruptcy
Code. Since that date, the companies had been operating under
bankruptcy protection and had been negotiating with all parties to
the bankruptcy proceedings in an effort to develop a Plan of
Reorganization (the "Plan"). On July 12, 1996, the Bankruptcy
Court confirmed the Plan, which became effective on September 13,
1996 (the"Effective Date"). Pursuant to the Plan, SWII, Sun World,
Inc., Coachella Growers and Sun Desert, Inc. (all wholly owned
subsidiaries of SWII) emerged from the Chapter 11 Bankruptcy
proceedings and 100% of SWII's stock (both preferred and common)
was acquired by Cadiz Land Company, Inc. ("Cadiz"). The Plan
also provided for, among other things, the cancellation of certain
indebtedness in exchange for cash, elimination of all intercompany
debts, new indebtedness, issuance of new equity securities, the
discharge of other prepetition claims, the cancellation of all
prepetition ownership interests in the Company, the settlement of
certain claims and mutual releases of certain claims of the Company
and other persons or entities (including certain affiliated persons or
entities), the assumption or rejection of executory contracts and
unexpired leases to which the Company was a party, and the
establishment of procedures for the selection of a Board of Directors
for the Company. The Plan did not provide for the reorganization of
the estate or the resolution of outstanding third party claims and
equity interests for AAI Services, Inc., a wholly owned subsidiary of
SWII.
Cadiz acquired all of the capital stock of the Company for total
consideration of approximately $179 million including
approximately $150 million which will be owed to the Company's
existing secured lenders through issuance of new notes. In addition,
Cadiz made a cash capital contribution of $15 million to the
Company to provide additional operating capital.
The following table summarizes the recoveries to the prepetition
creditors and equity holders pursuant to the Plan based upon the
Company's estimate of total claims to be allowed as of September
13, 1996 (dollars in thousands) (unaudited):
Recovery
-----------------------------------------------------------------
Estimated Cadiz
Allowed Claims Long term Common Total
Claims/Interest Amount (1) Cash Debt Stock Recovery
- - ----------------------------------------------------------------------------
Administrative,
Tax and Priority $ 5,000 $ 5,000 $ 0 $ 0 $ 5,000
Credit Agricole
Secured Debt 58,621 3,500 55,121 0 58,621
John Hancock
Secured Debt 93,084 2,000 91,084 0 93,084
Zenith Secured
Debt 3,065 250 2,575 240 3,065
Other Secured
Debt 1,050 0 1,050 0 1,050
General Unsecured
Claims 20,800 12,500 0 0 12,500
Convertible
Preferred Stock
and Common Stock 11,592 3,000 0 2,487 5,487
-------- -------- --------- ---------- --------
$193,212 $ 26,250 $ 149,830 $ 2,727 $178,807
======== ======= ======== ======== ========
(1) Excludes any recovery to the Internal Revenue Service for claims as further
discussed by Note 14.
Management believes that the aggregate fair value of the Company's
long term debt issued pursuant to the Plan approximates the
aggregate book value.
The Plan provided for a consolidation of the assets and liabilities of
SWII and its subsidiaries and pursuant to the Plan, SWII was merged
into Sun World, Inc. with the surviving corporation retaining the
name of Sun World International, Inc. All payments and
distributions required by the Plan to be made by SWII or any of its
subsidiaries in respect of prepetition claims have been made or
provided for, and SWII and its subsidiaries expect to have no further
obligation with respect to any prepetition claims.
Cadiz intends to account for this acquisition using the purchase
method which will materially change the amounts reported in the
accompanying consolidated balance sheet as of September 13, 1996.
The consolidated financial statements do not give effect to
adjustments of assets or liabilities, or classifications of such
amounts, which may be necessary as a consequence of the Cadiz
acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING The consolidated financial statements
include the accounts of SWII and its subsidiaries, substantially all of
which are wholly owned. All significant intercompany transactions
have been eliminated.
The Company has accounted for all transactions related to the
Chapter 11 proceedings in accordance with Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code," issued by the American Institute of Certified
Public Accountants. Accordingly, liabilities subject to compromise
under reorganization proceedings have been segregated on the
consolidated balance sheet and are recorded at the amounts that have
been or are expected to be allowed based upon known claims. The
accompanying financial statements do not include any adjustments
for the forgiveness of indebtedness or for the adjustment of assets or
other liabilities which will result from the Plan.
INVENTORIES Growing crops, pepper seed, and materials and
supplies are stated at the lower of cost, on a first in, first out (FIFO)
basis, or net realizable value. Growing crops inventory includes
direct costs and an allocation of indirect costs.
INVESTMENT IN PARTNERSHIPS Wholly owned subsidiaries
of the Company have investments in various partnerships. The
Company's two principal partnerships are Sun Date and American
Sunmelon, both of which are 50% owned. American Sunmelon is
engaged in proprietary seed development, production, and marketing
of seedless watermelons. Sun Date is engaged in the marketing,
processing, and farming of dates. These partnership investments are
accounted for using the equity method.
PROPERTY, PLANT AND EQUIPMENT Property, plant and
equipment is stated at cost for all acquisitions subsequent to
September 30, 1983. All property, plant and equipment acquired
prior to September 30, 1983 was restated to estimated fair value at
that date in connection with the Company's quasi-reorganization.
The Company capitalizes the direct and certain indirect costs of
planting and developing orchards and vineyards until they reach
maturity, which varies by crop and ranges from three to seven years.
Depreciation on trees and vines commences in the year commercial
production is achieved.
The Company computes depreciation applicable to property, plant
and equipment on the straight line method using the following
estimated useful lives:
Buildings and improvements 10-45 years
Machinery and equipment 3-25 years
Permanent crops 10-20 years
Upon the sale, retirement or abandonment of property, plant and
equipment, applicable gains or losses are recognized in income.
ASSETS HELD FOR SALE In conjunction with the Company's
1996 Business Plan, specific properties were identified to be sold.
These properties, which are included in the accompanying
consolidated balance sheet at the lower of cost or fair value less
estimated costs to sell, consist of both farmland and facilities that
were determined not vital to the Company's on going operations. It
is expected that the assets will be sold within twelve months from
the balance sheet date.
OTHER ASSETS Other assets include professional fees and other
costs to establish and defend trademark and patent rights. These
assets are amortized over a 10 year period on a straight line basis.
Also included in other assets are water rights that were obtained in
connection with a 1988 divestiture of the Company's interest in a
partnership. The Company is amortizing these water rights over 97
years using the straight line method.
REVENUE RECOGNITION The Company recognizes crop sale
revenue after harvest and delivery to customers. Packing revenues
are recognized as units are packed. Marketing commission revenues
are recognized at the time of product shipment.
REORGANIZATION ITEMS The net expenses incurred as a
result of the Chapter 11 filing and subsequent reorganization
proceedings have been segregated from recurring operations in the
consolidated statement of operations.
INCOME TAXES Income taxes are accounted for using an asset
and liability approach which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of
temporary differences between the financial statement and tax bases
of assets and liabilities at the applicable enacted tax rates.
SUPPLEMENTAL CASH FLOW INFORMATION Cash
payments for interest were $9,308,000 for the period ended January
1, 1996 to September 13, 1996. In 1996 the Company paid income
tax, net of refunds, of $11,000.
RESEARCH AND DEVELOPMENT The Company incurs costs
to research and develop new varieties of proprietary products.
Research and development costs are expensed as incurred. Such
costs were approximately $296,000 for the period ended January 1,
1996 to September 13, 1996.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL
STATEMENTS The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in the financial statements and related notes.
Actual results could differ from these estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS In March
1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long Lived Assets and for Long
Lived Assets to be Disposed of ("SFAS 121") was issued. SFAS
No. 121 establishes new guidelines in accounting for the impairment
of long lived assets, including identifiable intangibles. When
circumstances indicate that the carrying amount of an asset may not
be recoverable as demonstrated by estimated future cash inflows, an
impairment loss shall be recorded based on fair value. The adoption
of SFAS No. 121 in 1996 resulted in no adjustments to the financial
statements.
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (dollars in
thousands):
September 13
1996
----------------
Trade receivables $14,178
Due from unaffiliated growers 709
Other 3,642
-------
18,529
Less allowance for doubtful
accounts 182
-----------
$18,347
=========
Substantially all domestic trade receivables are from large
national and regional supermarket chain stores and produce
brokers and are unsecured. The amounts due from growers
represent receivables for services (harvest, haul and pack)
provided on behalf of growers under agreement with the
Company and are recovered from proceeds of product sales.
Other receivables primarily include lemon crop sales, by product
sales, and amounts receivable from joint venture partners.
4. INVENTORIES
Inventories consisted of the following (dollars in thousands):
September 13,
1996
------------
Growing crops $ 6,732
Harvested product 1,912
Pepper seed 2,206
Materials and supplies 2,141
-----------
$12,991
=========
Pepper seed is net of a valuation allowance of $395,000 at
September 13, 1996, to reduce such inventories to their net
realizable value.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following
(dollars in thousands):
September 13,
1996
------------------
Land $ 27,446
Permanent crops 43,764
Buildings and improvements 27,236
Machinery and equipment 20,250
-------------
118,696
Less accumulated depreciation 37,973
-------------
$ 80,723
============
6. INCOME TAXES
Significant components of the Company's deferred income tax
assets and liabilities as of September 13, 1996, are as follows
(dollars in thousands):
Deferred tax liabilities:
Net fixed asset basis difference $23,078
State taxes 181
--------
Total deferred tax liabilities 23,259
Deferred tax assets:
Net operating losses 29,779
Tax credit carryforwards 1,549
Reserve for notes receivable 5,769
Capitalized legal fees 4,447
Basis difference in water rights 1,198
Allowance for doubtful accounts 79
Basis difference in partnership investments 290
Revolving funds reserve 114
State taxes 353
-------
Total deferred tax assets 43,578
Valuation allowance for deferred tax assets (27,819)
Total deferred tax assets, net 15,759
-----------
Net deferred tax liability $ 7,500
=======
The Company has provided a valuation allowance for the tax
benefits of deferred tax assets which may not be realizable.
Income tax expense (benefit) varies from the amount
computed by applying the statutory federal income tax rate to
the income (loss) before income taxes. The reasons for this
difference are as follows:
September 13,
1996
---------------
Statutory federal rate (34.0%)
State taxes, less federal benefit (6.2%)
Valuation allowance 40.2%
-----------
Effective rate 0.0%
========
At September 13, 1996, the Company had net operating loss
carryforwards for federal and state income tax purposes of
approximately $40,439,000 and $8,032,000, respectively,
which expire at various dates from 1997 through 2011. In
addition, a wholly owned subsidiary acquired in 1989 has net
operating loss carryforwards of approximately $44,950,000 for
federal tax purposes, which are subject to an annual limitation
for a fifteen year period. The federal loss carryforwards expire
at various dates from 2001 through 2004.
The Company had investment and research and experimental
tax credit carryforwards of approximately $692,000 which
expire from 1997 to 2007. The Company also had alternative
minimum tax carryforwards of approximately $857,000.
The utilization of the net operating loss and credit
carryforwards could be limited or eliminated by a reduction in
liabilities as a result of the Plan and/or by changes in the
Company's stock ownership resulting from the Cadiz
acquisition.
7. FINANCING
Pursuant to the Plan, the Company issued new debt (along
with Cadiz common stock) to settle prepetition long term debt.
The following is a discussion of the Company's financing
arrangements prior to and as of the Effective Date.
Prepetition Financing:
Debt and other financing arrangements of the Company at
September 13, 1996 were as follows, based on the original
contractual maturities:
September 13,
1996
--------------
(in thousands)
Secured Debt:
Revolving credit facility $ 34,277
Note payable to an insurance
company, monthly installments
of $824,000 (includes
interest), due on November
1, 2000, interest
at 10.6% (default interest
at 12.6%) 77,234
Note payable to bank, semi
annual installments
of $750,000, due November
30, 1999, interest
at prime plus 1.25%
(9.75% at December 31,
1995), payable quarterly
(default interest at
prime plus 3.25%) 5,793
Note payable to bank,
annual installments of
$1,500,000 due November 30,
1996, interest
at prime plus 1.25%
(9.75% at December 31,
1995), payable quarterly
(default interest at prime
plus 3.25%) 10,500
Note payable to insurance
company, monthly
installments of $60,000
(includes interest), interest
at 12.9% 2,838
Unsecured Debt:
Note payable to bank,
due July 1, 1995, interest
only at 10.0%, payable
quarterly 1,500
Note payable to partnership,
due September 1, 1994,
interest at 13.25% 1,150
--------
$ 133,292
==========
All of this prepetition debt has been classified in the
accompanying consolidated balance sheet as "Liabilities subject
to compromise under reorganization proceedings." As a result
of the bankruptcy, all required principal payments on prepetition
debt were suspended. For the period subsequent to the Petition
Date, interest on the unsecured prepetition debt was not paid or
accrued. Interest on secured prepetition debt continued to be
accrued in the period subsequent to the Petition Date at the
default interest rates. Pursuant to Bankruptcy Court order,
adequate protection payments (including $3,417,000 in asset sale
proceeds) were made on the secured debt amounting to
$11,650,000 for the period from January 1, 1996 to September
13, 1996. "Liabilities subject to compromise under
reorganization proceedings" included $18,486,000 related to
unpaid interest accrued on secured debt and $5,642,000 of
unpaid professional fees incurred by the secured lenders as of
September 13, 1996. Pursuant to the Plan, this accrued but
unpaid interest and unpaid professional fees have been included
as part of the principal balance of the respective new financing
agreements.
These credit facilities described above were collateralized by
substantially all of the assets of the Company. The Company
was in default on substantially all of the covenants under these
credit facilities as of September 13, 1996.
Debtor In Possession Financing:
The Bankruptcy Court entered an order on January 20, 1995
approving a debtor in possession (DIP) financing agreement for
the Company in an aggregate amount of $30,000,000. The DIP
facility was amended and restated as of February 28, 1996 to
extend the facility through the 1996 operating season in an
aggregate amount of $20,000,000. The DIP financing granted to
the DIP lender security interests in all the real and personal
property of the Company including all contract accounts,
contract rights, fixtures, copyrights, patents and trademarks.
Under the terms of the loan and the Bankruptcy Code, the
security interest of the DIP lender had priority over virtually all
prepetition claims and Chapter 11 administrative expense claims.
The DIP financing also contained a clause to provide adequate
protection to certain prepetition secured lenders in the form of (a)
replacement liens and (b) payment of specified amounts on the
prepetition secured debt to cover interest and professional fees
incurred by the lenders.
Interest on the DIP borrowings was prime plus 1.25%. During
1996, the Company borrowed and repaid up to $6,790,000 under
this facility and had no balance outstanding at September 13,
1996. Total interest and fees paid during 1996 related to the DIP
facility was $106,000.
The DIP facility expired when the Company emerged from
bankruptcy on September 13, 1996.
Postpetition Financing:
On or about October 27, 1995, the Bankruptcy Court issued the
Weyerhaeuser Order pursuant to which the Company assumed
certain agreements with Weyerhaeuser for corrugated shipping
containers and related financing. Pursuant to the Weyerhaeuser
Order, the Company was required to make certain adequate
protection payments and entered into a secured note. In addition,
during 1996, the Company, with Bankruptcy Court approval,
agreed to purchase certain equipment which had been under lease
and entered in a secured note. The outstanding balances at
September 13, 1996 for these notes were as follows:
(in thousands)
Note payable to supplier,
monthly installments of $ 1,728
$104,000 (includes interest),
due March 1, 1998,
interest at 10.00%.
Note payable to financing company,
monthly installments
of $18,155 (includes interest),
due July 1, 2002,
interest at 7.50% 1,025
----------
2,753
Less: current portion 1,269
-----------
$ 1,484
==========
Plan Financing:
Pursuant to the Plan, the Company entered into new financing
agreements totaling approximately $150 million with its
existing secured lenders which are collateralized by
substantially all of the assets of the Company. These
financing agreements require, among other terms, minimum
amounts, as defined, of working capital and tangible net worth
and minimum ratios of current assets to current liabilities and
indebtedness to net worth. Annual maturities of the debt
outstanding upon emergence from bankruptcy on September
13, 1996 is as follows: remainder of 1996-$3,705,000; 1997-$8,789,000;
1998-$7,970,000; 1999-$9,369,000; 2000-$11,377,000; 2001 and thereafter
- $110,322,000.
8. PREFERRED STOCK
In May 1985, the Board of Directors of the Company
designated 40,000 shares of Preferred Stock as Series I
Preferred Stock. Each share of Series I Preferred Stock was
convertible into one share of Common Stock and was entitled
to receive cash dividends of $30 per share for each of the fiscal
years ending on or after September 30, 1987. Such dividends
were cumulative under certain circumstances and included
other rights such as a liquidation preference per share equal to
the sum of $300, plus all accrued but unpaid dividends.
Pursuant to the Plan, all prepetition ownership interests of the
Company, including the Series I Preferred Stock, as of the
Effective Date were sold to Cadiz. At that time, accumulated
undeclared dividends on the preferred stock of $10,395,000 at
September 13, 1996 were released.
9. LEASING ARRANGEMENTS
The Company leases certain parcels of land, facilities,
machinery, and equipment under non cancelable operating
leases which expire in various years through 2000.
At September 13, 1996, future minimum lease commitments
under noncancellable leases (exclusive of property taxes and
insurance) consist of the following for each fiscal year ended
December 31 (dollars in thousands):
Facilities &
Land Equipment Total
------ ---------- -------
1996 $ 61 $ 344 $ 405
1997 117 351 468
1998 102 51 153
1999 3 0 3
2000 3 0 3
--------- --------- --------
$ 286 $ 746 $ 1,032
======= ======= =======
Total operating lease rental expense for the period ended
January 1, 1996 to September 13, 1996 was $862,000.
10. LIABILITIES SUBJECT TO COMPROMISE UNDER REORGANIZATION PROCEEDINGS
Liabilities subject to compromise under reorganization
proceedings consisted of the following as of September 13,
1996 (dollars in thousands):
Accounts payable $ 24,348
Interest payable 18,486
Other accrued liabilities 4,123
Long term debt (see Note 7) 133,292
-------------
$ 180,249
========
11. COMMITMENTS
DEBT GUARANTEE The Company was co guarantor with
its partner on a bank loan to the Sun Date partnership (see
Note 13). The loan totaled $1,150,000 at September 13, 1996.
In connection with the Sun Date settlement during the
bankruptcy proceeding, the Company will be released from
this bank guarantee and Cadiz has agreed to guarantee the
bank loan up to a maximum of $350,000.
PURCHASE AGREEMENT In 1995, the Company entered
into an agreement with its major corrugated container supplier
in connection with a prepetition liability settlement. The
settlement stipulated that the original agreement to purchase
containers from the supplier would remain in effect until
March 21, 1998 and required the Company to issue a secured
note payable to the supplier (see Note 7). Thereafter, the
original agreement will automatically renew unless either
party gives written notice ninety days prior to the end of the
renewal period.
12. RETIREMENT PLANS
The Company established on January 1, 1996 a 401(k) Plan
for salaried employees. Employees must work 1,000 hours
and have completed one year service to be eligible to
participate in this plan. The Company contributed $105,000 to
the plan for the period from January 1, 1996 to September 13,
1996.
The Company has a defined contribution pension plan
covering substantially all of its employees not covered by a
collective bargaining agreement, with at least one year of
service and who have worked at least 1,000 hours.
Contributions are 2% of each covered employee's salary.
There were no contributions made for the period from January
1, 1996 to September 13, 1996. For those hourly employees
covered under a collective bargaining agreement, contributions
are made to a multiemployer pension plan in accordance with
negotiated labor contracts and are generally based on the
number of hours worked. There were no contributions made
to these plans for the period from January 1, 1996 to
September 13, 1996.
13. RELATED PARTY TRANSACTIONS
AG ACCOUNTING, INC. The Company has entered into
agreements to market products obtained from growers in
which a former major stockholder/director of the Company
has financial interests and/or farm management contracts. Ag
Accounting, Inc. ("Ag Accounting"), which is wholly owned
by this former stockholder/director, provides accounting
services to these affiliated growers. The Company recognized
marketing commission revenues from these affiliated growers
of $151,000 for the period January 1, 1996 to September 13,
1996. The Company makes crop advances and charges for
some or all of harvesting, hauling, packing and marketing
services provided to these growers. These charges are
deducted from crop proceeds paid to growers. Amounts due
the Company from Ag Accounting totalled $84,000 as of
September 13, 1996. The Company bills the affiliated
growers monthly for services and remits net proceeds to each
grower for the crops marketed by the Company. In certain
instances, the Company has also obtained financing for these
affiliated growers. Costs related to a product incentive
program of $115,000 were incurred on behalf of Ag
Accounting for the period from January 1, 1996 to September
13, 1996.
ANTHONY VINEYARDS, INC. Anthony Vineyards, Inc. is
a farming entity owned by a former officer and director of the
Company. During 1996, the Company entered into marketing
agreements and provided packing and marketing services to
this grower. The Company makes grower advances for
harvesting, hauling, and packing materials which are
recovered from the grower at the time the Company receives
the crop proceeds. At September 13, 1996, the Company
owed Anthony Vineyards, Inc. $706,000 for net crop proceeds
received. The Company recognized marketing commission
revenues from Anthony Vineyards of $717,000 for the period
from January 1, 1996 to September 13, 1996.
LSL BIOTECHNOLOGIES, INC. LSL Biotechnologies,
Inc. (LSL) is an entity that develops, produces and markets
seed varieties in which former officers and/or directors of the
Company have or had ownership interests. The Company and
LSL entered into growing agreements and seed purchase
contracts related to peppers and tomatoes. During the
bankruptcy proceeding, LSL made claims for prepetition and
postpetition amounts owed by the Company under the
agreements which the Company disputed. On September 9,
1996, an agreement between the Company and LSL was
reached that settled all LSL pre and postpetition claims against
the Company. The settlement included the allowance of a
prepetition unsecured claim in the amount of $900,000 and a
postpetition administrative claim of $650,000 for postpetition
royalties owed to LSL for pepper and tomato sales. The
prepetition allowed claim of $900,000 is included in
"Liabilities subject to compromise under reorganization
proceedings" in the accompanying balance sheet. The
postpetition allowed claim of $650,000 is included in accounts
payable in the accompanying balance sheet. In addition, the
Company agreed to convey the trade name and trademark Le
Rouge Royale to LSL and obtained a license to utilize the
trademark until December 31, 1997 for an additional royalty
of $100,000.
THE IRVINE COMPANY In prior years, the Company had
orchard and row crop farming, packing and marketing
agreements with The Irvine Company. A former major
stockholder/director of the Company owned stock in and was
a director of The Irvine Company, a large land owner and
developer in Southern California. In 1993, the orchard
agreement was terminated and in 1994 the row crop agreement
was terminated. As of September 13, 1996, the Company had
liabilities owed to The Irvine Company, primarily for land rent
and crop proceeds, of $5,000,000, which will be settled for
sixty percent of the total amount pursuant to the Plan.
AMERICAN SUNMELON For the period from January 1,
1996 through September 13, 1996, the Company made
payments to American Sunmelon of $461,000 primarily for
royalty payments and seed purchases. As of September 13,
1996, the Company had liabilities owed to American
Sunmelon of $188,000.
SUN DATE Prior to September 13, 1996, a former major
stockholder/director of the Company had ownership interests
in various date farming partnerships that provided unprocessed
dates to Sun Date. For the period January 1, 1996 through
September 13, 1996, the Company recognized marketing
commissions from date sales of $37,000. In addition, as of
September 13, 1996, the Company had liabilities payable to
Sun Date of $1,163,00, including a $1,150,000 prepetition
note payable which will be settled for sixty percent of the total
outstanding balance pursuant to the Plan.
14. CONTINGENCIES
The Internal Revenue Service (IRS) has filed claims against
the Company, and certain subsidiaries, for taxes refunded to
the Company for certain workers that the IRS claims were
employees. The Company contends that the workers are
excluded from the definition of employment under the Internal
Revenue Code. A complaint has been filed by the Company
in the Bankruptcy Court seeking refunds of taxes paid on
account of agricultural workers for other years. The Company
intends to object to the claims asserted by the IRS. The total
amount of claims filed against the Company are approximately
$4,300,000 including tax deficiency, interest and penalties. At
September 13, 1996, the Company has recorded a reserve for
these claims representing management's best estimate of the
ultimate amount that will be paid.
On January 3, 1996, the Company brought an action against
Corona College Heights Orange & Lemon Association (CCH)
alleging breach of contract, intentional interference with
economic advantage and unfair competition. On April 17,
1996, CCH counterclaimed against the Company, alleging
breach of contract, breach of fiduciary duty, negligence, fraud
and deceit, negligent misrepresentation, constructive fraud,
intentional interference with prospective economic advantage,
unjust enrichment and constructive trust and accounting. This
matter is in the early stages of discovery.
In the normal course of agricultural operations, the Company
handles, stores, transports and dispenses products identified as
hazardous materials. The Company has had regulatory
agencies conduct inspections and there has been a claim
asserted relating to these materials. Although the Company
does not believe remedial action, if any, will require the
expenditure of funds material to the Company's financial
position, no assurance can be given regarding the outcome of
environmental claims, investigations or remedial actions in the
future.
The Company is involved in other legal and administrative
proceedings and claims. In the opinion of management, the
ultimate outcome of each proceeding or all such proceedings
combined will not have a material adverse impact on the
Company's financial statements.
* * * * * *
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
OF
CADIZ LAND COMPPANY, INC. AND SUN WORLD INTERNATIONAL, INC.
(ITEM 7(b))
On September 13, 1996, Cadiz Land Company, Inc. (the "Company")
acquired all of the stock of a reorganized Sun World International, Inc.
("Sun World") pursuant to a consensual plan of reorganization (Debtors'
Modified Fourth Amended Consolidated Plan of Reorganization dated June
3, 1996 (Modified) which was confirmed by the U.S. Bankruptcy Court at
a hearing on July 12, 1996 (the "Plan"). Total consideration was
approximately $179 million of which approximately $150 million will be
owed to Sun World's existing secured lenders through a restructuring of
previously existing debt. In addition, the Company made a capital
contribution of $15 million to Sun World, with the intent of eliminating the
requirement for Sun World to have any additional debt facilities beyond
those owed to its existing secured creditors.
The acquisition is accounted for by the purchase method of accounting for
business combinations and, accordingly, the cost to acquire the assets of Sun
World was allocated to the underlying net assets to the extent of their
respective fair values. The pro forma adjustments reflected in the pro forma
information have been based on an estimated purchase price allocation,
which management is currently in the process of finalizing.
The unaudited pro forma balance sheet reflecting this transaction is not
required and, accordingly is not included herewith, since this transaction was
reflected in the balance sheet filed with the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996.
The unaudited pro forma statement of operations for the year ended March
31, 1996 and the six months ended September 30, 1996 reflect combined
results of operations as if the acquisition had occurred at April 1, 1995.
Since the fiscal year ends of Cadiz and Sun World differ, for pro forma
purposes the results of operations for the year ended March 31, 1996 consist
of Cadiz operations for the twelve months ended March 31, 1996 combined
with Sun World operations utilizing the results of operations for the twelve
months ended December 31, 1995 less first quarter 1995 operations (January
1, 1995 through March 31, 1995) plus first quarter 1996 operations (January
1, 1996 through March 31, 1996). The results of operations for the interim
period April 1, 1996 through September 30, 1996 consist of Cadiz'
operations for the six months ended September 30, 1996 combined with Sun
World's operations for the six months ended September 30, 1996.
The pro forma combined financial information should be read in conjunction
with the historical financial statements of Cadiz, including the notes
thereto, which are contained in Cadiz' Quarterly Report on Form 10 Q for the
six months ended September 30, 1996 and Cadiz' Annual Report on Form 10-K
for the year ended March 31, 1996, as well as the historical financial
statements of Sun World from which the pro forma combined financial
statements of operations have been derived.
The following unaudited pro forma consolidated financial statements of
operations are presented for informational purposes only and are not
necessarily indicative of operating results that would have occurred if the
acquisition had been consummated as of April 1, 1995, nor are they
necessarily indicative of the future operating results of Cadiz.
In addition to the above, certain pro forma adjustments and assumptions
have been incorporated which are described more fully in the accompanying
notes to the pro forma financial information.
<TABLE>
CADIZ LAND COMPANY, INC. &
SUN WORLD INTERNATIONAL, INC.
Pro Forma Combined Statement of Operations
For the years ended March 31, 1996
($ in thousands except per share data)
(Unaudited)
<CAPTION>
Cadiz Land Sun World Pro Forma
Company, Inc. Intn'l Adjustments
(Audited) Inc. Increase Pro Forma
(Decrease) Combined
--------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Revenues $ 1,441 $ 116,487 $ 1,646<F8> $ 119,574
-------- --------- ------------ ----------
Costs and expenses:
Cost of sales 0 78,862 78,862
Resource development 3,329 0 3,329
Landfill prevention
activities 1,919 0 1,919
General and
administrative 1,826 17,347 (11,139)<F5> 8,034
Permanent crop
abandonments 0 1,560 (1,560)<F6> 0
Depreciation 833 5,747 (519)<F4> 6,061
Amortization 234 886 439 <F3> 1,559
------------- ------------ ------------ -------
Total costs and
expenses 8,141 104,402 (12,779) 99,764
Operating income (loss) (6,700) 12,085 14,425 19,810
Asset impairment 4,868 (4,868)<F7> 0
Interest expense, net 1,787 15,894 (2,882)<F1><F2> 14,799
------------- ------------ ------------ -------
Net income (loss) $ (8,487) $ (8,677) $ 22,175 $ 5,011
========= ========= ======== ========
Net income per common share: $ 0.27
========
Primary income per common share
Fully diluted income per
common share $ 0.16
========
Weighted average common shares outstanding:
Primary 18,777,000
========
Fully diluted <F9> 31,082,000
===========
<FN>
See accompanying notes to the pro forma combined statement of operations.
</TABLE>
<TABLE>
<CAPTION> Pro Forma
Cadiz Land Sun World Adjustments
Company, Intnt'l Increase Pro Forma
Inc. Inc. (Decrease) Combined
---------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Revenues $ 158 $ 78,739 $ $ 78,897
--------- ---------- ----------- --------
Costs and expenses:
Cost of sales 0 57,887 57,887
Resource development 1,445 1,445
Landfill prevention
activities 262 262
General and
administrative 1,602 8,613 (4,784)<F5> 5,431
Depreciation 428 2,566 972 <F4> 3,966
Amortization 117 206 201 <F3> 524
------- --------- ------------- --------
Total costs and expenses 3,854 69,272 (3,611) 69,515
Operating income (loss) (3,696) 9,467 3,611 9,382
Interest expense, net 843 7,924 1,778<F1><F2> 6,989
Litigation settlement 334 334
----------- ---------- -------------- -------
Net income (loss) $ (4,205) $ 1,543 $ 5,389 $2,727
======== ========== ========== ========
Net income per common share:
Primary income per common share $ 0.13
========
Fully diluted income per
common share $ 0.08
========
Weighted average common shares outstanding:
Primary 20,616,000
=========
Fully diluted <F9> 32,900,000
========
<FN>
See accompanying notes to the pro forma combined statement of operations.
(a) The unaudited pro forma combined statement of operations have been adjusted
by the following to reflect the acquisition of Sun World by Cadiz as if it
were effective at April 1, 1995:
Year Ended Six Months Ended
March 31, September 30,
1996 1996
---------- ----------------
(Increase(decrease) to Income)
<F1> Increase in interest income resulting from
the capital contribution at acquisition by
Cadiz of $15 million, net of principal and
interest payments related to the restructuring
of Sun World's debt obligations $ 828 $ 352
<F2> Decrease in interest expense and adequate
protection payments as a result of the
restructured debt obligations of Sun World 2,054 1,426
<F3>Increase in amortization as a result of the
acquisition cost of Sun World exceeding
the fair value of the net assets acquired (439) (201)
<F4> Change in depreciation resulting from
adjustments to reflect the fair value
carrying amounts of plant and equipment 519 (972)
<F5> The unaudited proforma combined
statement of operations have been
prepared on a continuing operations
basis and, therefore, do not give effect
to the reorganization costs incurred
as a result of Sun World emerging from
bankruptcy 11,139 4,784
<F6>Elimination of the provision for permanent
crop abandonments since assets were written
down to their fair value as part of the
purchase price allocation adjustment 1,560
<F7> Elimination of the provision for loss on
asset impairment since assets were written
down to their fair value as part of the
purchase price allocation adjustment 4,868
<F8> Eliminate loss on disposal of assets since
assets were written down to their fair value
as part of the purchase price allocation
adjustment 1,646
----------- -----------
Total adjustments $ 22,175 $ 5,389
======= =======
<F9> Includes outstanding unconditional stock options which, if assumed
exercised, would result in gross proceeds of approximately $12 million
to the Company.
</FN>
Cadiz Land Company, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Cadiz Land Company, Inc.
(Registrant)
By: /s/ Susan K. Chapman
---------------------------
Susan K. Chapman
Chief Financial Officer
Dated: November 27, 1996
</TABLE>
EXHIBIT 23.1
------------
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement on
Form S-8 of Cadiz Land Company, Inc. of our report dated September 20, 1996
with respect to the consolidated financial statements of Sun World
International, Inc. for the years ended December 31, 1995 and 1994, appearing
in the Cadiz Land Company, Inc. Current Report on Form 8-K dated September
13, 1996.
/s/ Deloitte & Touche LLP
Oakland, California
November 26, 1996
EXHIBIT 23.2
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 of Cadiz Land Company, Inc. of our report dated
November 22, 1996 relating to the consolidated financial statements of Sun
World International, Inc. at September 13, 1996, which appears in the Current
Report on Form 8-K of Cadiz Land Company, Inc.
/s/ Price Waterhouse LLP
Los Angeles, California
November 25, 1996
