UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year Ended December 31, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from..to...
Commission File Number 0-12114
------------------------
CADIZ INC.
(Exact name of registrant specified in its charter)
DELAWARE 77-0313235
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Wilshire Boulevard, Suite 1600
Santa Monica, CA 90401-1111
(Address of principal executive offices) (Zip Code)
(310) 899-4700
(Registrant's telephone number, including area code)
-----------------------------
Securities Registered Pursuant to Section 12(b) of the Act: None
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Title of Each Class Name of Each Exchange on Which Registered
------------------- ----------------------------------------
None None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes /__X__/ No /__/
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 220.405 of this chapter) is not contained
herein, and will not be contained to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment of this Form 10-K. /_/
As of March 29, 2000, the registrant had 35,302,911 shares of Common Stock
outstanding. The aggregate market value of the Common Stock held by
nonaffiliates as of March 29, 2000 was approximately $300,345,000 based on
the closing price on this date.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of Registrant's proxy statement for the annual meeting to
be held on May 15, 2000, to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than 120 days after the
close of the Registrant's fiscal year, are incorporated by reference under
Part II of this Form 10-K.
PART I
ITEM 1. BUSINESS
Water is one of the world's most precious resources.
Considerable population increases are placing great demands on water
supplies and related infrastructure both in California and worldwide.
Compounding the issue in California, population centers are not
generally located where significant precipitation occurs. Management
therefore believes that a competitive advantage exists for those
companies that possess or can provide a high quality, reliable and
affordable water supply especially within California's multi-billion
dollar agricultural industry, one of the largest users of water in the
state. Accordingly, water resource management and agricultural
operations, two inter-dependent efforts, form the long-term business
strategy of Cadiz Inc. (the "Company"). The Company has created an
integrated and complementary portfolio of assets encompassing
landholdings with high-quality groundwater resources and/or storage
potential, prime agricultural properties located throughout central
and southern California with secure and reliable water rights, other
contractual water rights, and may include technologies for water
conservation, reclamation, production and conveyance. Management
believes that the Company's access to water will provide it
with a competitive edge both as a major agricultural concern and as a
supplier of water, leading to continued appreciation in the value of
the Company's portfolio.
The Company's wholly-owned subsidiary, Sun World International,
Inc. and its subsidiaries (collectively "Sun World"), is one of the
largest developers, growers, packers and marketers of proprietary
fruits and vegetables in California, specializing in high-value
permanent crops. Sun World's highly regarded brand name, product
innovation from its fruit breeding programs, international licensing
programs and global marketing reach have provided Sun World with a
strong position in the ongoing consolidation in the retail grocery
industry. Sun World also adds valuable water rights to the Company's
existing water resource management operations. Currently, Sun World
owns more than 19,200 acres of land primarily located in two major
growing areas of California: the San Joaquin Valley and the Coachella
Valley.
In addition to its Sun World properties, the Company holds
approximately 37,700 acres of land in eastern San Bernardino County
that are underlain by excellent groundwater resources with
demonstrated potential for various applications, including water
storage and supply programs, and agricultural, municipal, recreational
and industrial development. All of the Company's properties are
located in close proximity to California's major aqueduct systems.
The Company expects to utilize its resources to participate in a broad
variety of water storage and supply, transfer, exchange, and
conservation programs with public agencies and other parties.
In December 1997, the Company entered into an interim Agreement
with the Metropolitan Water District of Southern California
("Metropolitan") to develop principles and terms for a long-term
agreement at its Cadiz, California property. In July 1998, the
Company and Metropolitan approved the principles and terms for
agreement for the Cadiz Groundwater Storage and Dry-Year Supply
Program (the "Program"), authorized preparation of a final agreement
based on these principles and terms and initiated the environmental
review process for the Program. The Program will enhance Southern
California water supply reliability in two ways, providing a new dry-
year water supply and much-needed storage. During wet years or
periods of excess supply, Metropolitan will store surplus Colorado
River water in the aquifer system underlying the Company's Cadiz
property. During dry years, the previously imported water, together
with indigenous groundwater, will be extracted and delivered, via a
conveyance pipeline, to Metropolitan's service area during the 50-year
term of the agreement.
In 1999, the Company and Metropolitan completed several
significant milestones in the environmental review process. This process
must be completed before construction and operation of the Program
can commence. A draft Environmental Impact Report/Environmental Impact
Statement ("EIR/EIS") was issued in November 1999 for public review
and comment. The public comment period closed in March 2000. The
draft EIR/EIS incorporated a wide array of technical, environmental
and engineering analyses and studies completed during 1999, including
the operation of a pilot spreading basin project that serves as a
prototype for the full-scale program and optimization studies for
the design of the capital facilites. Also, see "Narrative Description
of Business - Water Resources Development - Cadiz Groundwater Storage
and Dry-Year Supply Program."
Based upon the Company's expertise in water and agricultural
resources, in June 1999, Sun World was appointed by Kingdom
Agricultural Development Company (KADCO), a company currently 100%
controlled by His Royal Highness Prince Alwaleed Bin Talal Bin
Abdulaziz Alsaud, to develop and manage up to 100,000 acres of
agricultural land in southern Egypt, called the Tushka Project. The
Tushka Project is the cornerstone in the Egyptian government's multi-
billion dollar South Valley Project, an immense infrastructure plan
designed to irrigate more than 500,000 acres of desert land to foster
urban and agricultural development. The South Valley Project involves
the construction of one of the world's largest pumping stations and a
43-mile (70 km) canal that diverts water from Egypt's Lake Nasser, the
reservoir formed on the Nile River by the Aswan High Dam, to four
separate parcels of land - the first being the Tushka site.
Construction is well underway with approximately 20 miles of canal
completed and the pumping station expected to be operational in 2001.
The initial commercial plantings for the Tushka Project will follow
completion of the canal construction which is anticipated to occur in
2002. In addition to Sun World's role in Tushka, Cadiz and KADCO also
agreed to form an entity to pursue the development and management of
water resources in the region.
The Company continually seeks to develop and manage its water and
agricultural resources for their highest and best uses. The Company
also continues to evaluate acquisition opportunities, which are
complementary to its current portfolio of water and agricultural
resources.
(a) General Development of Business
--------------------------------
As part of its current business plan, the Company's land
acquisition, development activities and agricultural operations are
conducted for the purpose of enhancing the long-term appreciation of
its properties. See "Narrative Description of Business," below.
As the most populous state in the nation, California's population
is projected to swell to nearly 50 million people by the year 2020.
This increasing population is placing great demands on California's
infrastructure, particularly its limited water resources. According
to the California Department of Water Resources, shortfalls of
approximately 7 million acre-feet are forecasted in a dry year by the
year 2020. Management therefore believes that, with both the
increasing scarcity of water supplies in California and the increasing
demand for water, the Company's access to water will provide it with a
competitive advantage both as a major agricultural concern and as a
supplier of water which will lead to continued appreciation in the
value of the Company's portfolio.
Sun World, which was acquired by the Company in September 1996,
owns approximately 19,200 acres of prime agricultural land primarily
in the San Joaquin and Coachella Valleys, giving the Company total
landholdings of approximately 56,900 acres. See Item 2, "Properties."
(b) Financial Information About Industry Segments
---------------------------------------------
During the year ended December 31, 1999, the Company operated its
agricultural resources segment and continues to develop its water
resource segment of the business. See Consolidated Financial
Statements. Also, see Item 7, "Management's Discussion and Analysis."
(c) Narrative Description of Business
---------------------------------
Pursuant to its business strategy, the Company continually seeks
to develop and manage its portfolio of water and agricultural
resources for their highest and best uses. The development and
management activities of the Company are currently focused on
agricultural operations (primarily through Sun World) and water
resource development. The Company also continues to evaluate
acquisition opportunities, which are complementary to its current
portfolio of water and agricultural resources.
WATER RESOURCE DEVELOPMENT
The Company's portfolio of water resources, located in close
proximity to the Colorado River or the major aqueduct systems of
central and southern California, such as the State Water Project and
the Colorado River Aqueduct, provides the Company with the opportunity
to participate in a variety of water storage and supply programs,
exchanges and transfers.
CADIZ GROUNDWATER STORAGE AND DRY-YEAR SUPPLY PROGRAM. The
Company's 27,400 acres in the Cadiz and Fenner Valleys of eastern
California (the "Cadiz/Fenner Property") are underlain by a
substantial high-quality groundwater basin. Rain and snowfall within
a catchment area of nearly 1,300 square miles recharge the basin. See
Item 2, "Properties - The Cadiz/Fenner Property."
In July 1998, the Company and Metropolitan entered into the
Principles for an Agreement (the "Principles") for the Cadiz
Groundwater Storage and Dry-Year Supply Program, one of the largest
public/private partnerships in California's water history. The
Principles provide that Metropolitan will, during wet years or periods
of excess supply, store surplus water from its Colorado River Aqueduct
in the groundwater basin underlying the Company's property. During
dry-years or times of reduced allocations from the Colorado River, the
stored water will be withdrawn and returned via conveyance facilities
to the aqueduct to meet Metropolitan's water supply needs. In
addition, indigenous groundwater would also be transferred utilizing
the same facilities. The Program will have the capacity to convey,
either for storage or transfer, up to 150,000 acre-feet in any given
year during the 50-year term of the Program.
Pursuant to the Principles, during storage operations,
Metropolitan will pay a $50 fee per acre-foot for put of water into
storage, a $40 fee per acre-foot for return of water from storage, and
a storage fee of $5 per acre-foot for every year that water is stored
in the groundwater basin for the first 5 million acre-feet of stored
water. On the transfer of indigenous water, Metropolitan will pay a
base rate of approximately $230 per acre-foot, which will be adjusted
according to a water price formula. Additionally, recognizing that
delivery of the Company's high-quality, indigenous groundwater to the
aqueduct provides a significant water quality benefit, Metropolitan
will pay the Company a water quality fee for both transferred and
returned water. Additionally, Metropolitan has committed to minimum
levels of utilization of the Program for both storage of Colorado
River aqueduct water and transfer of indigenous groundwater.
The Program facilities, including spreading basins, extraction
wells, conveyance pipeline and a pumping plant, are estimated to cost
between $125 and $150 million, and both parties will share these
costs. A pilot spreading basin project was constructed to model and
to analyze the storage and extraction of water. All operational costs
of the Program, including annual operations, maintenance and energy
costs, will be an obligation of Metropolitan.
The Principles call for the establishment of a comprehensive
groundwater monitoring and management plan to ensure long-term
protection of the groundwater basin. The final agreement may reflect
adjustments to these Principles in order to reflect information
identified during the ongoing environmental review process and will be
subject to approval by the respective Boards of both parties.
Before construction and operation of the Program can commence,
the environmental review process must be completed including the
certification and approval of a final EIR/EIS by the appropriate
regulatory agencies, Metropolitan for state law purposes and the
United States Bureau of Land Management ("BLM") for federal law purposes.
The process for obtaining these approvals is often difficult and
time-consuming as the process can be highly political and often draws
opposition from third parties. During 1999, the Company and
Metropolitan completed several significant milestones in the
environmental review process, entering its final stages with the
publication of a draft EIR/EIS in November 1999 for public review and
comment. The public comment period closed in March 2000. All of the
comments received will be considered and addressed by Metropolitan and
BLM as part of the environmental review process. The draft EIR/EIS
incorporated a wide array of technical, environmental and engineering
analyses and studies completed during 1999, including the operation of a
pilot spreading basin project that serves as a prototype for the full-
scale program, and optimization studies for the design of the capital
facilities. The Program is anticipated to be operational by the year
2001.
PIUTE. The Company's water development operations at its 6,000 acre
Piute property are located in eastern San Bernardino County approximately
15 miles from the resort community of Laughlin, Nevada and about 12 miles
from the Colorado River town of Needles, California. Hydrological studies
and testing of a full-scale production well have demonstrated that this
landholding is underlain by recharging groundwater of excellent quality and
additional technical and environmental investigations are ongoing regarding
the development of the property for a variety of uses. See Item 2,
"Properties - The Piute Property."
DANBY LAKE AND OTHER. The Company currently owns or controls
additional acreage located throughout other areas of the Mojave Desert,
such as Danby Lake. This area is located approximately 30 miles southeast
of the Company's Cadiz/Fenner Valley property and 10 miles north of the
Colorado River Aqueduct. The Company's initial hydrological studies
confirm that this property has excellent storage and supply capabilities.
SUN WORLD WATER RESOURCES. Sun World has valuable water rights in
various parts of central and southern California. The Company believes
that with increasing water shortages in California, land with prime water
rights will increase substantially in value.
Sun World's landholdings and associated water resources are located
adjacent to the major aqueduct systems of central and southern California,
and in close proximity to the Colorado River. These holdings complement
the Company's other groundwater resources and will enhance the Company's
opportunities to participate in a broad variety of water storage, supply,
exchange or banking programs. By way of example, the Company has identified
more than 10,000 acre-feet of excess water that the Company plans to
either transfer to other Company properties or exchange or transfer to other
water users without affecting current agricultural production.
AGRICULTURAL OPERATIONS
The Company is one of California's largest vertically integrated
agricultural companies combining an extensive research and development
program, year-round sourcing, farming and packing activities and strong
marketing capabilities. For the twelve months ended December 31, 1999, Sun
World recorded revenues of $115.2 million.
PRODUCT LINE. Sun World ships approximately 75 different varieties of
fresh fruits and vegetables to all 50 states and to more than 25 foreign
countries. Sun World is a leading grower and marketer of table grapes,
seedless watermelons, colored sweet peppers, citrus (oranges and lemons)
and stonefruit (plums, peaches, nectarines and apricots). It is also one
of California's largest independent marketers of grapefruit, tangerines,
mandarins, navel oranges and dates.
The breadth and diversity of the product line helps to minimize the
impact of individual crop earnings fluctuations. Further, the breadth and
diversity of its product offering provides Sun World with greater presence
and influence with its grocery and food service customers.
Although many fruits and vegetables are fungible commodities, Sun
World has adopted a strategy of developing and acquiring specialty produce
varieties with unique characteristics which differentiate them from
commodity produce varieties. Most of these varieties are harvested during
favorable marketing windows when available supply from competitors is
limited. These specialty varieties typically command a price premium and
are less subject to the same price volatility than the commodity varieties.
They also provide Sun World with a dominant position in a number of product
categories. Examples of the branded produce grown and marketed by Sun
World include Superior Seedless(R) table grapes, Midnight Beauty(R) table
grapes, Black Diamond(R) plums, Honeycot(R) apricots, and Amber Crest(R)
peaches. These products evolved through a combination of internal
development and acquisition. Sun World's research and development center
is dedicated to developing additional high value proprietary varieties.
See "Proprietary Product Development," below.
FARMING OPERATIONS. Sun World's farming operations produced
approximately 8 million units of fruits and vegetables during the year
ended December 31, 1999. Its principal agricultural lands are located in
the San Joaquin and Coachella Valleys of California. See Item 2,
"Properties."
Sun World properties are primarily dedicated to producing permanent
commercial crops and, to a lesser extent, annual (or row) crops.
Additionally, over 1,800 acres are currently utilized for developing crops
(e.g., vines and trees that have not yet reached a commercial maturity).
The Company has implemented a crop development plan, which has redeployed
marginally productive acreage to produce more varieties of crops, which
possess superior proprietary characteristics and/or are available for
delivery at peak pricing windows throughout the year.
Additionally, during 1998, the Company acquired two citrus ranches
totaling approximately 2,000 acres in the San Joaquin Valley. These
acquisitions reflect the Company's strategy of expanding its contra-
seasonal operations to complement the summer table grape and stonefruit
production.
PACKING AND MARKETING OPERATIONS. In addition to merchandising its
own products, Sun World provides marketing and packing services to third
party growers. For third party growers, Sun World provides three key
benefits: (i) Sun World's brand name, proprietary products and reputation
with wholesalers resulting in a significant pull through effect; (ii) a
full complement of handling services that include harvest, cooling, packing
and shipping; and (iii) an internal sales and marketing force servicing
over 650 customers throughout the world.
Sun World's packing facilities handled approximately 9 million units
of produce during the year ended December 31, 1999. These facilities
provide harvesting, packing, cooling and shipping services for Sun World
production, as well as for other commercial clients. Currently, Sun World
owns three facilities, two of which are located in the Coachella Valley and
one of which is located in the San Joaquin Valley. See Item 2,
"Properties."
Sun World's vertically integrated operations enable it to offer the
market a continuous stream of new specialty products, which receive a
market premium. As a large grower, Sun World is able to manage the quality
of its own product line, and as a significant packer/marketer, Sun World
works with other growers to ensure product quality through packing and
distribution. During fiscal 1999, the Company sold approximately 11
million units with wholesale value of approximately $118 million. This
amount includes sale proceeds received for units sold on behalf of third
party growers for which only the sales commission and packing revenues
received by Sun World are included in Sun World's reported revenues.
Sun World's sourcing, both external and internal, is diversified
geographically throughout California. Sun World's owned and leased farming
operations are located throughout California from the Coachella Valley in
the south to central California's San Joaquin Valley, as well as operations
near the coast. Sun World sources externally produced product from
throughout California, from other areas of the United States, and from
international sources. This geographic diversification not only reduces
the impact that unfavorable weather conditions and infestations could have
on Sun World's operations, but also provides Sun World with a longer
selling season for many crops since the harvests occur at different times.
In addition, geographic diversification also allows Sun World the ability
to provide the quality and breadth of product throughout the year which is
being demanded by retailers.
Sun World's customer base consists of more than 650 accounts including
supermarket retailers, food service entities, warehouse clubs, and
international trading companies located in approximately 25 countries.
Domestic customers include national retailers such as Safeway Stores and
Albertson's; club stores, including Costco and Sam's; and food service
distributors, including Sysco and Alliant. Approximately 10% of Sun
World's products were marketed outside of the United States in Canada,
Europe, Australia, Japan, Hong Kong, Singapore, Malaysia and Taiwan in
1999. Only one national retailer, Safeway Stores, (representing
approximately 13%) accounted for more than 10% of Sun World's revenues in
1999. As is consistent with industry practice, Sun World does not maintain
written agreements with this or its other significant customers.
PROPRIETARY PRODUCT DEVELOPMENT. Sun World has a long history of
product innovation, and its research and development center maintains a
fruit breeding program that has introduced dozens of proprietary fruit
varieties in the last six years. Recent product successes include the
Midnight Beauty(R) seedless black table grape, Black Diamond(R) plum, the
Amber Crest(R) peach and the Honeycot(R) apricot. Management believes that
there are several other promising grape and stonefruit varieties for
commercial planting and production in the near future both domestically
and internationally.
Sun World utilizes approximately 235 acres for its research and
development center and crop experimentation. The research and development
center facility houses tissue culture rooms, growth rooms, four
greenhouses, and over 200 acres of experimental growing crops. The amounts
expended by Sun World on its research and development activities totaled
$1,450,000 for the year ended December 31, 1999, $1,249,000 for the year
ended December 31, 1998 and $809,000 for the year ended December 31, 1997.
As a result of over 20 years of research and development, Sun World
holds rights to approximately 450 patents and trademarks around the world.
The patent registrations exist in most major fruit producing countries and
the trademarks are held in both fruit producing and consuming regions.
Sun World's patents have varying expiration dates occurring within the next
several years through 2024; however, the expiration of any individual
patent will not have a material effect upon Sun World's operations.
Enhancing the value of the proprietary product portfolio through
licensing is an integral part of Sun World's growth strategy. Sun World
continues to seek key licensing opportunities with key strategic partners
to introduce, trial and produce Sun World's proprietary products in major
production areas that do not have appropriate plant protection rights to
compete with Sun World's own domestic production. These licensing
agreements will provide Sun World with a long-term annual revenue
stream based upon a royalty fee for each box of proprietary fruit sold
over the lives of the licensed trees or vines approximating 25 to 40
years. Currently, Sun World has licensing agreements in place in the
United States, South Africa, Australia, Israel, Spain and Morocco and
expects additional licensing agreements to be signed in 2000. An example
of Sun World's licensing success is the definitive agreement entered into
with the South African fruit industry granting long-term license agreements
to South African fruit companies seeking to produce and export Sun World's
proprietary Sugraone grape variety (more commonly known as Sun World's
private Superior Seedless(R) grapes). These agreements also provided
Sun World compensation for past Sugraone grapevine plantings and fruit
sales and grant Sun World exclusive North American marketing rights for
these Sugraone grapes. The Company believes these licensing agreements
have established a precedent that will change the way new and improved
varieties of produce will be brought to market in the future.
The combination of the Company's innovative proprietary products and
expertise in desert farming and water resources management led to Sun
World's appointment by Kingdom Agricultural Development Company (KADCO), a
company currently 100% controlled by His Royal Highness Prince Alwaleed Bin
Talal Bin Abdulaziz Alsaud, to develop and manage up to 100,000 acres of
agricultural land in southern Egypt, called the Tushka Project. The Tushka
Project is the cornerstone in the Egyptian government's multi-billion
dollar South Valley Project, an immense infrastructure plan designed to
irrigate more than 500,000 acres of desert land to foster urban and
agricultural development. The South Valley Project involves the
construction of one of the world's largest pumping stations and a
43-mile (70 km) canal that diverts water from Egypt's Lake Nasser,
the reservoir formed on the Nile River by the Aswan High Dam, to four
separate parcels of land - the first being the Tushka site. Construction
is well underway with approximately 20 miles of the canal completed and
the pumping station expected to be operational in 2001. The
initial commercial plantings will follow completion of the canal construction
to the Tushka site, which is expected to occur in 2002. In addition to Sun
World's role in Tushka, Cadiz and KADCO also agreed to form an entity to
pursue the development and management of water resources in the region.
As compensation for project development and management of the
Tushka Project, Sun World will earn annually an equity interest in KADCO
and has been granted an option to purchase additional shares. The combined
equity interest will equate to approximately 10% ownership of KADCO. In
addition, Sun World will receive annual marketing and licensing fees equal
to the greater of 1.5% of gross revenues or 5% of EBITDA from the project.
No capital investment is required by Sun World, and KADCO will reimburse
Sun World for all expenses incurred. The first term of the management
agreement will be for four years with an option to extend for multiple
further terms. The Company and KADCO signed the final contract in October
1999.
SEASONALITY
In connection with the water resource development activities of the
Company, revenues are not expected to be seasonal in nature.
Sun World's agricultural operations are impacted by the general
seasonal trends that are characteristic of the agricultural industry. Sun
World has historically received the majority of its net income during the
months of June to October following the harvest and sale of its table grape
and stonefruit crops. Due to this concentrated activity, the Company has,
therefore, historically incurred a loss with respect to its agricultural
operations in the other months during the year.
COMPETITION
The Company faces competition for the acquisition, development and
sale of its properties from a number of competitors, some of which have
greater resources than the Company. The Company may also face competition
in the development of water resources associated with its properties.
Since California has scarce water resources and an increasing demand for
available water, the Company believes that location, price and reliability
of delivery are the principal competitive factors affecting transfers of
water in California.
The agricultural business is highly competitive. Sun World's
competitors include a limited number of large international food companies,
as well as a large number of smaller independent growers and grower
cooperatives. No single competitor has a dominant market share in this
industry due to the regionalized nature of these businesses. In addition
to drawing from its proprietary base of products, Sun World utilizes brand
recognition, product quality, harvesting in favorable production windows,
effective customer service and consumer marketing programs to enhance its
position within the highly competitive fresh food industry. Consumer and
institutional recognition of the Sun World trademark and related brands and
the association of these brands with high quality food products contribute
to Sun World's ability to compete in the market for fresh fruit and
vegetables.
EMPLOYEES
As of December 31, 1999, the Company employed a total of 965 full-time
employees. Sun World, throughout the year, engages various part-time and
seasonal employees, with a seasonal high of approximately 2,100 part-time
employees. Additionally, the Company contracts with outside labor
contractors for personnel used in the farming operations with a seasonal
high of approximately 6,000 people. Approximately 220 of the Company's
employees are represented by a labor union pursuant to contracts renewed in
1999 that expire in 2002. Generally, the Company believes that its employee
relations are good.
REGULATION
Certain areas of the Company's operations are subject to varying
degrees of federal, state and local law and regulations. The Company's
agricultural operations are subject to a broad range of evolving
environmental laws and regulations. These laws and regulations include the
Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery
Act, the Federal Insecticide, Fungicide and Rodenticide Act and the
Comprehensive Environmental Response, Compensation and Liability Act.
Compliance with these foreign and domestic laws and related regulations is
an ongoing process, which is not currently expected to have a material
effect on the Company's capital expenditures, earnings or competitive
position. Environmental concerns are, however, inherent in most major
agricultural operations, including those conducted by the Company, and
there can be no assurance that the cost of compliance with environmental
laws and regulations in the future will not be material. However, neither
the Company nor Sun World expects to incur any material capital
expenditures for environmental control facilities during 2000.
The Company's food operations are also subject to regulations enforced
by, among others, the U.S. Food and Drug Administration and state, local
and foreign equivalents and to inspection by the U.S. Department of
Agriculture and other federal, state, local and foreign environmental and
health authorities. Among other things, the U.S. Food and Drug
Administration enforces statutory standards regarding the safety of food
products, establishes ingredients and manufacturing procedures for certain
foods, establishes standards of identity for foods and determines the
safety of food substances in the United States. Similar functions are
performed by state, local and foreign governmental entities with respect to
food products produced or distributed in their respective jurisdictions.
Existing environmental regulations have not, in the past, had a materially
adverse effect upon the operations of the Company, and the Company believes
that existing environmental regulations will not, in the future, have a
materially adverse effect upon its operations. There can be no assurances,
however, as to the effect of any environmental regulations, which may be
adopted in the future.
As the Company proceeds with the development of its properties,
including the Program, the Company will be required to satisfy various
regulatory authorities that it is in compliance with the laws, regulations
and policies enforced by such authorities. Groundwater development, and
the export of surplus groundwater for sale to single entities such as
public water agencies, is not subject to regulation by existing statutes
other than general environmental statutes applicable to all development
projects. Additionally, the Company must obtain a variety of approvals and
permits from state and federal governments with respect to issues that may
include environmental issues, issues related to special status species,
issues related to the public trust, and others. Because of the
discretionary nature of these approvals and concerns which may be raised by
various governmental officials, public interest groups and other interested
parties during both the approval and development process, the Company's
ability to develop properties and realize income from its projects,
including the Program, could be delayed, reduced or eliminated.
ITEM 2. PROPERTIES
The Company currently leases its executive offices in Santa Monica,
California. The Company also maintains a development office in San
Bernardino, California. Sun World owns its main packing facility
(including sales and administrative offices) in Bakersfield, California and
owns two packing facilities (including sales offices) in Coachella,
California. The Company and each of its subsidiaries believe that their
property and equipment are generally well maintained, in good operating
condition and adequate for their present needs.
The following is a description of the Company's significant
properties.
THE CADIZ/FENNER PROPERTY
In 1984, the Company conducted an investigation of the feasibility of
the agricultural development of land located in the Mojave desert near
Cadiz, California, and confirmed the availability of prime quality water in
commercial quantities appropriate for agricultural development. Since
1985, the Company has acquired over 27,000 acres in the Cadiz and Fenner
Valleys of eastern San Bernardino County approximately 30 miles north of
the Colorado River Aqueduct.
Additional numerous independent geotechnical and engineering studies
conducted since 1985 have confirmed that the Cadiz/Fenner property overlies
a natural groundwater basin which is ideally suited for underground water
storage and dry-year transfers as contemplated in the Program. See Item 1,
"Business - Narrative Description of Business - Water Resource
Development."
In November 1993, the San Bernardino County Board of Supervisors
unanimously approved a General Plan Amendment establishing an agricultural
land use designation for 9,600 acres at Cadiz for which 1,600 acres have
been developed and are leased to Sun World. This Board action represented
the largest land use approval on behalf of a single property holder in the
County's known history. This action also approved permits to construct
infrastructure and facilities to house as many as 1,150 seasonal workers
and 170 permanent residents (employees and their families) and allows for
the withdrawal of more than 1,000,000 acre-feet of groundwater from the
groundwater basin underlying the Company's property.
Substantially all Cadiz/Fenner acreage is held in fee directly by the
Company.
THE SUN WORLD PROPERTIES
FARM PROPERTIES. Sun World owns approximately 19,200 acres and leases
approximately 3,000 acres of improved land in central and southern
California. The majority of this land is used for the cultivation of
permanent and annual crops and support activities, including packing
facilities.
Sun World-owned farming property is divided between six distinct
geographic regions: Madera, Bakersfield, Tulare and Arvin (located within
the San Joaquin Valley), Coachella (located in the state's southeastern
corner near Palm Springs) and Blythe (located approximately 100 miles east
of the Coachella Valley adjoining the Colorado River).
PACKING AND HANDLING FACILITIES. Sun World owns three packing and
handling facilities: one facility located in the San Joaquin Valley at
Kimberlina near Bakersfield, a facility in the Coachella Valley, and a
third facility also in the Coachella Valley that is leased to a third
party.
The Kimberlina facility, located on an 83 acre parcel owned by Sun
World, consists of two highly automated production lines for packing
stonefruit and citrus, cold storage areas, and office space.
Sun World's Coachella Valley facility consists of three independent
buildings located on 26 acres of industrial commercial zoned land in
Coachella, California. One building is used primarily for packing citrus,
receiving table grapes, cold storage and office space. A second building
is used primarily for receiving, cooling and storing table grapes and row
crops. The third building is used primarily for packing watermelons and
lemons and for storage.
THE PIUTE PROPERTY
The Piute property consists of approximately 6,000 acres and is
located approximately 60 miles northeast of Cadiz and approximately 15
miles west of the Colorado River and Laughlin, Nevada, a small, fast
growing town with hotels, casinos and water recreation facilities. The
Company identified the Piute property for acquisition by a combination of
satellite imaging and geological techniques, which were used by the Company
to identify water at Cadiz.
The Piute acreage adjoins Highway 95, which is a direct route to Las
Vegas, approximately 60 miles north. The Santa Fe Railroad passes through
the land and Interstate 40 is approximately 12 miles to the south. All of
the acreage is held in fee directly by the Company.
The Company has commenced the development of the water resources of
this property. See Item 1, "Business Narrative - Description of Business -
Water Resource Development."
OTHER PROPERTIES
In addition to the Cadiz and Piute properties, the Company owns
approximately 4,300 additional acres in the Mojave Desert, including the
Danby Lake property as to which development has not yet commenced.
The Company will continue to seek to acquire additional properties
both in southern California desert regions and elsewhere which are believed
to be suitable for development.
DEBT SECURED BY PROPERTIES
Of the Company's outstanding debt at December 31, 1999, $119.1 million
represents loans secured by substantially all of Sun World's properties and
$23.7 million represents loans secured by the majority of the Company's non-
Sun World properties. Information regarding interest rates and principal
maturities is provided in Note 9 to the consolidated financial statements.
ITEM 3. LEGAL PROCEEDINGS
In December 1995, an action styled CADIZ LAND COMPANY, INC. VS. COUNTY
OF SAN BERNARDINO, ET AL., CASE NO. BCV 02341 was filed by the Company in
Superior Court in San Bernardino County. The action challenges the various
decisions by the County relative to the proposed construction and operation
of a landfill (the "Rail-Cycle Project") near property owned by the Company
in Cadiz, California. The action seeks to set aside such decisions and to
obtain compensatory damages arising therefrom. Named in this action, in
addition to the County, were the County's Board of Supervisors, three
individual members of the Board of Supervisors, a County employee and Rail-
Cycle, L.P., whose general partner is controlled by Waste Management, Inc.
("WMI"). On or about September 30, 1998, the Court granted defendants'
motions for summary judgement, finding that the Company's procedural due
process claim is not ripe due to the fact that, as the Rail-Cycle Project
cannot proceed without voter approval of a business license tax, there is
no actual concrete injury to the Company at this point in time. The
Company has appealed this decision.
On October 24, 1997, the Company filed suit in the United States
District Court, Central District of California (CADIZ LAND COMPANY, INC. V.
WASTE MANAGEMENT, INC., ET AL., CASE NO. CV 97-7827 WMB (MANx) (the
"Federal Court Action") against WMI, certain key executives and consultants
of WMI, and certain other parties in interest as to the Rail-Cycle Project.
The Complaint as originally filed asserted claims arising under both
federal and state law from activities of defendants adverse to the Company
in connection with the Rail-Cycle Project. In December 1997, the federal
district judge, on his own motion, severed the state law claims from the
complaint and dismissed them without prejudice. Those claims were
reasserted in a state proceeding filed by the Company on January 8, 1998 in
Los Angeles Superior Court (West Division) (CADIZ LAND COMPANY, INC. V.
WASTE MANAGEMENT, INC., CIVIL ACTION NO. SC 050743 ("the State Court
Action").
In the Federal Court Action, appeals are pending with the Ninth
Circuit Court of Appeals of the trial court's dismissal of the Company's
claims which are not being pursued in the State Court Action including the
Company's claims for stock manipulation pursuant to Section 10(b) of the
Exchange Act. In the State Court Action, the Company filed its Second
Amended Complaint on or about February 22, 2000. The Company intends to
continue to vigorously prosecute its claims against WMI.
During 1998, felony complaints were filed by the San Bernardino
District Attorney charging a Waste Management employee and a consultant
with multiple felony counts based upon their activities in connection with
the Rail-Cycle Project. As a result thereof, the WMI consultant pleaded
nolo contendere to four felony counts, including stock fraud and conspiracy
to commit stock fraud and was sentenced to six years in prison.
Subsequently, during 1998, an indictment was handed down by a San
Bernardino Special Criminal Grand Jury, which charged WMI, certain
affiliates and employees with multiple felony counts, all arising from
WMI's scheme to sabotage the Company in retaliation for the Company's
opposition to the Rail-Cycle Project. In or about February 1999, a First
Amended Indictment was filed. The prosecution of WMI and the other
remaining defendants was set to commence on January 10, 2000, but the trial
date was continued. A new trial date has not yet been selected.
Prior to the acquisition of Sun World, the Internal Revenue Service
(IRS) had filed claims against Sun World and certain of its subsidiaries
(collectively "the Sun World Claimants") for taxes refunded for workers
that the IRS claims were employees. The Sun World Claimants contend that
the workers are excluded from the definition of employment under the
Internal Revenue Code. On January 21, 1998, the District Court ruled in
favor of one of the Sun World Claimants. The IRS has appealed this
decision. Management believes that the likelihood of an unfavorable future
outcome with regard to this matter is remote. Accordingly, the Company
released $3,780,000 of reserves related to this matter at December 31, 1997
which are reported on the Consolidated Statement of Operations as
Litigation Benefit.
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 financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The results of the Company's Annual Meeting of Stockholders held May
10, 1999 were reported in the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the Nasdaq National Stock
Market under the symbol "CLCI." The following table reflects actual sales
transactions. The high and low range of the sales price of the common
stock for the dates indicated have been provided by Nasdaq.
High Low
Quarter Ended Sales Price Sales Price
------------- ---------- -----------
1997:
March 31 $ 6.063 $ 4.838
June 30 $ 6.250 $ 4.813
September 30 $ 8.063 $ 5.000
December 31 $ 9.375 $ 6.125
1998:
March 31 $11.938 $ 7.875
June 30 $14.188 $10.625
September 30 $13.438 $ 7.750
December 31 $ 9.500 $ 5.875
1999:
March 31 $ 9.125 $ 7.000
June 30 $11.625 $ 7.250
September 30 $11.125 $ 8.688
December 31 $ 9.750 $ 7.875
On March 20, 2000, the high, low and last sales prices for the
shares, as reported by Nasdaq, were $8.50, $8.00, and $8.125, respectively.
Options in the Company's stock trade under the symbol "QAZ."
The Company also has an authorized class of 100,000 shares of
preferred stock ("Preferred Stock"). To date, the Board of Directors has
designated three series of Preferred Stock for issuance, including (i) up
to 60,000 shares of Series A Preferred, of which 27,631 shares have been
issued and no shares remain outstanding; (ii) up to 1,000 shares of Series
B Preferred, of which 1,000 shares have been issued and no shares remain
outstanding; and (iii) up to 365 shares of Series C Preferred, of which 340
shares have been issued and no shares remain outstanding. The Board of
Directors has no present plans or arrangements for the issuance of
additional shares of Preferred Stock.
On May 10, 1999 the Company adopted a Stockholders' Rights Plan. In
connection with the Rights Plan, and as further described in the Rights
Plan, the Company declared a dividend of one preferred share purchase right
for each outstanding share of the Company's common stock outstanding at the
close of business on June 1, 1999.
The estimated number of beneficial owners of the Company's Common
Stock is approximately 2,817, and the number of stockholders of record on
March 20, 2000 was 211.
To date, the Company has not paid a cash dividend on Common Stock.
The Company's ability to pay such dividends is subject to certain covenants
pursuant to agreements with the Company's lenders.
During the quarter ended December 31, 1999, the Company issued 150,000
warrants to its primary lender to purchase common stock at an exercise
price of $6.50 per share in connection with extending the senior term loan
facility. The issuance of the warrants was not registered under the
Securities Act of 1933, as amended (the "Securities Act"). The Company
believes that the transaction described is exempt from the registration
requirements of the Securities Act by virtue of Section 4(2), thereof as
transactions not involving any public offerings. All other securities sold
by the Company during the year ended December 31, 1999, which were not
registered under the Securities Act have previously been reported in the
Company's Quarterly Reports on Form 10-Q.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data insofar as it relates to the
years ended December 31, 1999, 1998, and 1997, the nine months ended
December 31, 1996, and to the year ended March 31, 1996 has been derived
from financial statements audited by PricewaterhouseCoopers LLP,
independent accountants. The information that follows should be read in
conjunction with the audited consolidated financial statements and notes
thereto for each of the three years in the period ended December 31,
1999 included elsewhere herein. See also Item 7, "Management's Discussion
and Analysis".
($ in thousands, except for per share data)
Nine
Months Year
Year Ended December 31, Ended Ended
--------------------------- December 31, March 31,
1999 1998 1997 1996(1) 1996
---- ---- ---- ---- ----
Statement of
Operations Data:
Total revenues $ 115,229 $ 106,544 $ 100,157 $ 23,780 $ 1,441
Net loss (8,594) (7,470) (8,538) (5,997) (8,487)
Less: Preferred stock
dividends - - (1,213) (674) -
Imputed dividend on
preferred stock - - - (2,451) -
------- ------- ------- -------- -------
Net loss applicable
to common stock $ (8,594) $ (7,470) $ (9,751) $ (9,122) $ (8,487)
======== ========= ========= ======== ========
Per share:
Net loss $ (.25) $ (.23) $ (.33) $ (.44) $ (.48)
======== ========= ========= ======== ========
Weighted-average common
shares outstanding 34,678 33,173 29,485 20,500 17,700
======== ========= ========= ======== ========
December 31,
----------------------------------- March 31,
1999 1998 1997 1996 1996
---- ---- ---- ---- ----
Balance Sheet Data:
Total assets $ 214,102 $ 214,359 $ 203,049 $ 230,790 $ 38,663
Long-term debt $ 142,089 $ 142,317 $ 131,689 $ 149,111 $ 68
Redeemable preferred
stock $ - $ - $ - $ 27,431 $ -
Preferred stock,
common stock
and additional
paid-in capital $ 136,552 $ 127,998 $ 121,199 $ 88,808 $ 73,149
Accumulated deficit $ (86,882) $ (78,288) $ (70,818) $ (61,067) $(54,396)
Stockholders' equity $ 49,670 $ 49,710 $ 50,381 $ 27,741 $ 18,753
(1) Subsequent to the Company's September 13, 1996 acquisition of Sun World,
the Company changed its fiscal year end from March 31 to December 31 in
order to align the Company's year end with that of Sun World. Additionally,
as a result of the Sun World acquisition, the operations for the nine
months ended December 31, 1996 include the results of operations of Sun
World for the period September 14, 1996 through December 31, 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The consolidated financial statements set forth herein for each of the
three years in the period ended December 31, 1999, reflect the results of
operations of the Company and its wholly-owned subsidiaries including Sun
World.
A summary of the Sun World elements which management of the Company
believes is essential to an analysis of the results of operations for such
periods is presented below. For purposes of this summary, the term Sun
World will be used, when the context so requires, with respect to the
operations and activities of the Company's Sun World subsidiary, and the
term Cadiz will be used, when the context so requires, with respect to
those operations and activities of the Company not involving Sun World.
The Company's net income or loss in future fiscal periods will be
largely reflective of (a) the operations of the Company's water development
activities including the Cadiz Groundwater Storage and Dry-Year Supply
Program (the "Program") and (b) the operations of Sun World. Sun World
conducts its operations through four operating divisions: farming, packing,
marketing and proprietary product development. Net income from farming
operations varies from year to year primarily due to yield and pricing
fluctuations which can be significantly influenced by weather conditions,
and are, therefore, generally subject to greater annual variation than Sun
World's other divisions. However, the geographic distribution of Sun
World's farming operations within California and the diversity of its crop
mix makes it unlikely that adverse weather conditions would affect all of
Sun World's properties or all of its crops in any single year.
Nevertheless, net profit from Sun World's packing, marketing and
proprietary product development operations tends to be more consistent from
year to year than net profit from Sun World's farming operations. As such,
Sun World continues to strategically add volume in the packing and
marketing areas that will complement Sun World's in-house production or
fill in contra-seasonal marketing windows. Packing and marketing
revenues from third-party growers currently represent less than
ten percent of total Company revenues. Sun World has entered into
agreements internationally to license selected proprietary fruit varieties
and continues to pursue additional domestic and international licensing
opportunities.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
- ---------------------------------------------------------------------------
The Company's agricultural operations are impacted by the general
seasonal trends that are characteristic of the agricultural industry. Sun
World has historically received the majority of its net income during the
months of June to October following the harvest and sale of its table grape
and stonefruit crops. Due to this concentrated activity, Sun World has,
therefore, historically incurred a loss with respect to its agricultural
operations in the other months during the year.
The table below sets forth, for the periods indicated, the results of
operations for the Company's four main divisions (before elimination of any
interdivisional charges), as well as the categories of costs and expenses
incurred by the Company which are not included within the divisional
results (in thousands):
Year Ended
December 31,
1999 1998
---- ----
Divisional net income
Farming $ 14,542 $ 7,547
Packing 7,656 7,320
Marketing 4,573 3,245
Proprietary product development 3,187 12,441
------- --------
29,958 30,553
General and administrative 10,913 10,487
Special litigation 937 1,308
Depreciation and amortization 8,891 8,688
Interest expense, net 17,811 17,540
------- --------
Net loss $ (8,594) $ (7,470)
======== ========
FARMING OPERATIONS. Net income from farming operations totaled $14.5
million for 1999 compared to $7.5 million in 1998. Farming revenues were
$94.9 million and farming expenses were $80.4 million for 1999. For 1998,
the Company had farming revenues of $78.1 million and farming expenses of
$70.6 million. Farming profits for the San Joaquin Valley increased by $5.5
million over 1998 profits while profits from the southern operations, which
include Coachella, Cadiz and Blythe, increased $0.5 million. The increased
profits were primarily attributable to increased yields and higher F.O.B.
prices for table grapes. Overall, F.O.B. prices for table grapes were up
10% compared to 1998 while yields increased by 29% as a result of improved
weather conditions coupled with increased acreage as certain developing
crops turned commercial in 1999. These improvements were partially offset
by soft market conditions for watermelons due to excess supplies and
reduced stonefruit yields on certain plum varieties due to the freezing
temperatures experienced during bloom.
PACKING OPERATIONS. During 1999, Sun World's packing and handling
facilities contributed $20.5 million in revenues offset by $12.8 million in
expenses resulting in $7.7 million in net income. In 1998, Sun World
generated revenues of $20.5 million and expenses of $13.2 million resulting
in net income of $7.3 million. The increase in net income from packing
operations is primarily attributable to the impact of (a) increased
handling income resulting from increased table grape yields noted above;
(b) a 14% increase in third-party citrus units packed resulting from
stronger demand due to reduced supplies from Florida and Texas offset by;
(c) reduced packing and handling income from stonefruit due to reduced
yields. During the year, Sun World packed 3.2 million units and moved an
additional 5.4 million units through the cold storage facilities for a
total of 8.6 million units processed through the packing operations. In
1998, Sun World packed 3.6 million units and moved an additional 4.0
million units through the cold storage facilities for a total of 7.6
million units. Products packed or handled during the year primarily
consisted of Sun World-grown table grapes, stonefruit, sweet red and yellow
peppers, seedless watermelons and lemons, as well as table grapes and
citrus products packed for third party growers.
MARKETING OPERATIONS. Sun World's marketing operations include
selling, merchandising and promoting Sun World-grown products, as well as
providing these services for third party growers. During 1999,
approximately 11.1 million units were sold primarily consisting of Sun
World-grown table grapes, stonefruit, sweet red and yellow peppers,
seedless watermelons and lemons; and table grapes, seedless watermelon, and
citrus from domestic third party growers. These unit sales resulted in
marketing revenue of $9.4 million while marketing expenses totaled $4.8
million for 1999 resulting in a net income from marketing operations of
$4.6 million. During 1998, Sun World marketed 9.9 million units and
generated revenues of $7.7 million offset by expenses of $4.5 million
resulting in net income of $3.2 million. The increase in units sold,
revenues and net income primarily resulted from increased table grape and
pepper production, and improved F.O.B. pricing for table grapes offset by
decreased stonefruit production.
PROPRIETARY PRODUCT DEVELOPMENT. Sun World has a long history of
product innovation, and its research and development center maintains a
fruit breeding program that has introduced dozens of proprietary fruit
varieties during the past five years. During the year ended December 31,
1999, net income from proprietary product development was $3.2 million
consisting of revenues of $4.6 million offset by expenses of $1.4 million.
For 1998, net income from Proprietary Product Development was $12.4 million
consisting of revenues of $13.6 million offset by expenses of $1.2 million.
The reduced revenues and net income in 1999 resulted from the sale in 1998
of substantially all of the assets of ASC/SWB Partnership formerly named
American SunMelon (the Partnership). Sun World has a 50% interest in the
partnership which contributed $0.3 million in net income during 1999
compared to $10.7 million in 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for
1999 totaled $10.9 million compared to $10.5 million in 1998. The increase
primarily resulted from additional administrative costs incurred due to
activity associated with the implementation of the Program.
SPECIAL LITIGATION. The Company is engaged in lawsuits seeking
monetary damages in connection with the prevention of a landfill, which was
proposed to be located adjacent to its Cadiz/Fenner Valley properties. See
"Item 3 - Legal Proceedings." During the year ended December 31, 1998,
expenses including litigation costs and professional fees and expenses
totaled $0.9 million as compared to $1.3 million during the year ended
December 31, 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
for the year ended December 31, 1999 totaled $8.9 million compared to $8.7
million for the year ended December 31, 1998. The increase is primarily
attributable to depreciation related to property, plant and equipment
additions made during the year.
INTEREST EXPENSE. Net interest expense totaled $17.8 million during
the year ended December 31, 1999 compared to $17.5 million during the year
ended December 31, 1998. The following table summarizes the components of
net interest expense for the two periods (in thousands):
Year Ended
December 31,
1999 1998
---- -----
Interest on outstanding debt - Sun World $ 14,204 $ 14,394
Interest on outstanding debt - Cadiz 1,785 1,511
Amortization of financing costs 2,176 1,914
Interest income (354) (279)
------- -------
$ 17,811 $ 17,540
======== =======
The increase in interest on outstanding debt during 1999 is primarily
due to (a) increased average outstanding balance on the $15.0 million Cadiz
Revolver (as defined below) compared to 1998 and (b) amortization of
warrants issued for the Cadiz Revolver and the Cadiz term loan facility
described below. Financing costs, which include legal fees, loan fees and
warrants, are amortized over the life of the debt agreements.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------
The table below sets forth, for the periods indicated, the results of
operations for the Company's four main divisions (before elimination of any
interdivisional charges) as well as the categories of costs and expenses
incurred by the Company which are not included within the divisional
results (in thousands):
Year Ended
December 31,
1998 1997
---- ----
Divisional net income
Farming $ 7,547 $ 7,596
Packing 7,320 8,017
Marketing 3,245 4,126
Proprietary product development 12,441 2,615
------- -------
30,553 22,354
General and administrative 10,487 10,636
Special litigation 1,308 683
Litigation benefit - (3,780)
Depreciation and amortization 8,688 7,745
Interest expense, net 17,540 15,608
------- -------
Net loss $ (7,470) $ (8,538)
======= =======
FARMING OPERATIONS. Net income from farming operations totaled $7.5
million for 1998 compared to $7.6 million in 1997. Farming revenues were
$78.1 million and farming expenses were $70.6 million for 1998. For 1997,
the Company had farming revenues of $77.9 million and farming expenses of
$70.3 million. Farming profits from the Coachella Valley operations
increased $1.7 million from 1997 due to strong F.O.B. prices for peppers
and watermelons and record table grape yields partially offset by lower
table grape F.O.B. prices due to downward pressure from the record yields
coupled with increased production from Mexico. Farming profits for the
desert lemon operations at Blythe and Cadiz increased $2.7 million from
1997 due to strong yields and strong F.O.B. pricing experienced in 1998.
Farming profits from the San Joaquin Valley operations decreased $4.1
million primarily due to reduced yields and higher harvest costs on the
early season table grapes in the San Joaquin Valley. These unfavorable
results were partially offset by improved F.O.B. pricing on plums and the
removal of certain underperforming peach and nectarine crops at the
conclusion of the 1997 season. Farming profits for coastal sweet peppers
were off $0.4 million from 1997 primarily attributable to increased
production costs.
PACKING OPERATIONS. During 1998, Sun World's four packing and
handling facilities contributed $20.5 million in revenues offset by $13.2
million in expenses resulting in $7.3 million in net income. In 1997, Sun
World generated revenues of $23.1 million and expenses of $15.1 million
resulting in net income of $8.0 million. The decrease in net income from
packing operations is primarily attributable to the impact of reduced
yields experienced in the farming operations during the year, particularly
for the early season table grapes in the San Joaquin Valley. During the
year, Sun World packed 3.6 million units and moved an additional 4.0
million units through the cold storage facilities for a total of 7.6
million units processed through the packing operations. In 1997, Sun World
packed 4.1 million units and moved an additional 5.1 million units through
the cold storage facilities for a total of 9.2 million units. Products
packed or handled during the year primarily consisted of Sun World-grown
table grapes, stonefruit, sweet red and yellow peppers, seedless
watermelons and lemons, as well as table grapes and citrus products packed
for third party growers.
MARKETING OPERATIONS. Sun World's marketing operations include
selling, merchandising and promoting Sun World-grown products, as well as
providing these services for third party growers. During 1998,
approximately 9.9 million units were sold primarily consisting of Sun World-
grown table grapes, stonefruit, sweet red and yellow peppers, seedless
watermelons and lemons; and table grapes, seedless watermelon, and citrus
from domestic third party growers. These unit sales resulted in marketing
revenue of $7.7 million while marketing expenses totaled $4.5 million for
1998 resulting in a net income from marketing operations of $3.2 million.
During 1997, Sun World marketed 12.2 million units and generated revenues
of $9.0 million offset by expenses of $4.9 million resulting in net income
of $4.1 million. The decrease in units sold, revenues and net income
primarily resulted from the decreased yields experienced in the farming
operations, particularly the early season table grapes in the San Joaquin
Valley.
PROPRIETARY PRODUCT DEVELOPMENT. Sun World has a long history of
product innovation, and its research and development center maintains a
fruit breeding program that has introduced dozens of proprietary fruit
varieties during the past five years. In addition, Sun World has a 50%
interest in ASC/SWB Partnership, formerly named American SunMelon (the
"Partnership"). During the year ended December 31, 1998, net income from
proprietary product development was $12.4 million consisting of revenues of
$13.6 million ($10.7 million from the Partnership) offset by expenses of
$1.2 million. The Partnership revenues relate to the operations of American
SunMelon for the period from January 1, 1998 to October 27, 1998 and the
revenues related to the distribution of proceeds from the Partnership from
the sale of substantially all of its assets to a third party on October 27,
1998. In addition, the increase in proprietary product development income
is also attributable to the licensing agreement for the Company's Sugraone
table grape variety entered into with the South African table grape
industry in December 1998. Revenues of $1.1 million were recognized in
1998 related to current and past royalties for fruit sales and for past
Sugraone grapevine plantings. Net income of $2.6 million for the year
ended December 31, 1997 related primarily to the operations of American
SunMelon and intercompany licensing royalties.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for
1998 totaled $10.5 million compared to $10.6 million in 1997.
SPECIAL LITIGATION. The Company is engaged in lawsuits seeking
monetary damages in connection with the prevention of a landfill, which was
proposed to be located adjacent to its Cadiz/Fenner Valley properties. See
"Item 3 - Legal Proceedings." During the year ended December 31, 1998,
expenses including litigation costs and professional fees and expenses
totaled $1.3 million as compared to $0.7 million during the year ended
December 31, 1997.
LITIGATION BENEFIT. Prior to the acquisition of Sun World by the
Company, the Internal Revenue Service (IRS) had filed claims against Sun
World and certain of its subsidiaries, (collectively "the Sun World
Claimants") for taxes refunded for workers that the IRS claims were
employees. Sun World Claimants contend that the workers are excluded from
the definition of employment under the Internal Revenue Code. On January
21, 1998, the District Court ruled in favor of the Sun World Claimant who
had the largest outstanding claim. The IRS has appealed this decision.
Management believes that the likelihood of an unfavorable future outcome
with regard to this matter is remote. Accordingly, Sun World released $3.8
million of reserves related to this matter at December 31, 1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
for the year ended December 31, 1998 totaled $8.7 million compared to $7.7
million for the year ended December 31, 1997. The increase is attributable
to depreciation related to property, plant and equipment additions made
during the year and the timing of relief of depreciation costs from
inventory due to the timing of the harvests.
INTEREST EXPENSE. As a result of the acquisition of Sun World, net
interest expense totaled $17.5 million during the year ended December 31,
1998 compared to $15.6 million during the year ended December 31, 1997.
The following table summarizes the components of net interest expense for
the two periods (in thousands):
Year Ended
December 31,
1998 1997
---- ----
Interest on outstanding debt - Sun World $ 14,394 $ 13,446
Interest on outstanding debt - Cadiz 1,511 875
Amortization of financing costs 1,914 1,879
Interest income (279) (592)
------- -------
$ 17,540 $ 15,608
======== ========
The increase in interest on outstanding debt during 1998 is primarily
attributable to the Company's debt refinancing in April 1997, whereby Sun
World issued $115 million of 11-1/4% First Mortgage Notes and used the
proceeds and existing cash balance to pay off approximately $130 million of
long-term debt. Interest expense is also higher due to (a) increased
borrowings for seasonal working capital needs primarily resulting from the
delay in harvest and sale of crops due to cooler weather conditions during
the growing season, (b) amortization of warrants issued on the $15.0
million Cadiz Revolver entered into during the fourth quarter of 1997 and
(c) reduced average cash balances in 1998 compared to 1997 prior to the
debt refinancing resulting in lower interest income. Financing costs,
which include legal fees, loan fees and warrants, are amortized over the
life of the debt agreements.
LIQUIDITY AND CAPITAL RESOURCES
General Discussion of Liquidity and Capital Resources
- ------------------------------------------------------
Based on the cash on hand at December 31, 1999 and the revolving
credit facility in place for Sun World and anticipated payments under the
Program, as further discussed below, the Company believes it will be able
to meet its working capital needs over the next year without looking to
additional outside funding sources, although no assurances can be made.
See "Current Financing Arrangements" below.
Under Sun World's historical working capital cycle, working capital is
required primarily to finance the costs of growing and harvesting crops,
which generally occur from January through September with a peak need in
June. Sun World harvests and sells the majority of its crops during the
period from June through October, when it receives the majority of its
revenues. In order to bridge the gap between incurrence of expenditures
and receipt of revenues, large cash outlays are required each year which
are financed through a $30 million revolving credit agreement (the "Sun
World Revolver"). See "Current Financing Arrangements - Sun World's
obligations" below.
Current Financing Arrangements
- -------------------------------
CADIZ OBLIGATIONS
As Cadiz has not received significant revenues from its water resource
activity to date, Cadiz has been required to obtain financing to bridge the
gap between the time water resource development expenses are incurred and
the time that revenue will commence. Historically, Cadiz has addressed
these needs primarily through secured debt financing arrangements with its
lenders, private equity placements and the exercise of outstanding stock
options.
As of December 31, 1999, Cadiz was obligated for approximately $10.3
million under a senior term loan facility. During 1999, the Company entered
into two extensions of the loan which extended the maturity date of the
obligation to January 31, 2001; and reduced the interest rate from LIBOR
plus 400 basis points to LIBOR plus 200 basis points, payable semi-
annually. In connection with obtaining the extensions, the Company issued
certain warrants to purchase shares of the Company's common stock and also
repriced certain warrants previously issued. Currently, the term lender
holds a senior deed of trust on substantially all of Cadiz' non-Sun World
related property.
Cadiz entered into a three year $15 million revolving credit facility
(the "Cadiz Revolver") in November 1997. The Cadiz Revolver is secured by
a second lien on substantially all of the non-Sun World assets of the
Company. Principal was originally due on December 31, 2000. In December
1999, the Company extended the loan maturity to January 31, 2001. In
connection with the extension, the interest rate was changed from a fixed
8% to LIBOR plus 200 basis points. The Company had $15 million outstanding
under the Cadiz Revolver at December 31, 1999.
As the Company continues to actively pursue its business strategy,
additional financing specifically in connection with the Company's water
programs may be required. Responsibility for funding the design,
construction and program implementation costs of the capital facilities for
the Cadiz Groundwater Storage and Dry-Year Supply Program will,
under currently developed principles and terms, be shared equally by the
Company and the Metropolitan Water District of Southern California
("Metropolitan"). The Company is analyzing various alternatives for
funding its share of the estimated $125 million to $150 million cost of the
program capital facilities. These funding alternatives include (a) long-
term financing arrangements; (b) utilization of monies to be received from
Metropolitan for its initial purchase of 400,000 acre-feet of indigenous
groundwater; and (c) financing through Metropolitan by offsetting Cadiz'
costs for capital facilities financing against payments due to Cadiz for
stored or transferred water. Based upon the results of analyses performed
by investment banking firms retained by the Company, management believes
that several alternative long-term financing arrangements are available to
the Company.
SUN WORLD OBLIGATIONS
Sun World has outstanding $115 million of First Mortgage Notes (the
"Sun World Notes") which will mature on April 15, 2004 and are publicly
traded and are registered under the Securities Act of 1933. The Sun World
Notes are redeemable at the option of Sun World, in whole or in part, at
any time on or after April 15, 2001. Interest accrues at the rate of 11-
1/4% per annum and is payable semi-annually on April 15 and October 15 of
each year. The Sun World Notes are secured by a first lien (subject to
certain permitted liens) on substantially all of the assets of Sun World
and its subsidiaries, other than growing crops, crop inventories and
accounts receivable and proceeds thereof, which secure the Sun World
Revolver, and certain real property pledged to third parties. The Sun
World Notes are also secured by the guarantee of Cadiz and the pledge by
Cadiz of all of the stock of Sun World.
In April 1998, Sun World entered into the Sun World Revolver which is
guaranteed by Cadiz. In order to meet its working capital needs, Sun World
increased the Revolver from $25 to $30 million in 1999. Sun World obtained
a one year extension of the revolver in February 2000. As of December 31,
1999, no amount was outstanding under the Sun World Revolver. Additionally,
Sun World has an intercompany revolving credit agreement with Cadiz for
seasonal working capital needs as needed. No amount was outstanding under
the intercompany revolver as of December 31, 1999.
CASH USED FOR OPERATING ACTIVITIES. Cash used for operating
activities totaled $2.6 million for the year ended December 31, 1999, as
compared to cash used for operating activities of $7.9 million for the year
ended December 31, 1998. The reduction in cash used for operating
activities is primarily due to improved farming results from Sun World
offset by increases in accounts receivable and inventory primarily
resulting from the increased farming operations at December 31, 1999
associated with Sun World's two new citrus ranches which were acquired
during the fourth quarter of 1998.
CASH USED FOR INVESTING ACTIVITIES. Cash used for investing
activities totaled $12.6 million for the year ended December 31, 1999, as
compared to cash provided by investing activities of $2.7 million for the
same period in 1998. In October 1998, Sun World received an initial
distribution of $15.2 million from a 50% owned partnership, American
SunMelon. This distribution resulted from the sale by the partnership of
substantially all of its assets to a third party for $35 million in cash.
During 1999, the Company invested $3.5 million in developing crops, $3.2
million in water programs, and $4.9 million for the purchase of property,
plant and equipment including $2.6 million spent by the Company to exercise
its option to purchase certain land in Piute, California.
CASH PROVIDED BY FINANCING ACTIVITIES. Cash provided by financing
activities totaled $6.1 million for the year ended December 31, 1999,
consisting primarily of $6.8 million generated from the exercise of stock
options offset by $0.7 million of repayments on long-term debt. Cash
provided by financing activities totaled $13.6 million for the year ended
December 31, 1998 resulting from $12.0 million of additional borrowings on
the Cadiz Revolver, $2.2 million from the exercise of stock options offset
by $0.6 million of principal payments on long-term debt.
OUTLOOK
The Company is actively pursuing the development of its water
resources. Specifically, in July 1998, the Company and Metropolitan
approved the principles and terms for agreement for the Cadiz Groundwater
Storage and Dry-Year Supply Program. The principles and terms for
agreement provide that Metropolitan will, during wet years or periods of
excess supply, store surplus water from its Colorado River Aqueduct in the
groundwater basin underlying the Company's property. During dry years or
times of reduced allocations from the Colorado River, the previously
imported water, together with additional existing groundwater, will be
extracted and delivered, via a conveyance pipeline, back to the aqueduct.
Based upon negotiations with Metropolitan, the terms of the agreement
are anticipated to be as follows:
* Over the 50 year term of the agreement, Metropolitan will
store a minimum of 700,000 acre-feet of Colorado River Aqueduct
water in the Company's groundwater basin and purchase up to a
minimum of 1,500,000 acre-feet of existing groundwater for transfer
during dry-years. The Program will have the capacity to convey,
either for storage or transfer, up to approximately 150,000 acre-
feet in any given year.
* During storage operations, Metropolitan will pay a $50 fee per
acre-foot for put of water into storage and a $40 fee per acre-foot
for return of water from storage, and a storage fee of $5 per acre-
foot every year that water is stored in the groundwater basin for
the first 5 million acre-feet of stored water. On the transfer of
water, Metropolitan will pay a base rate of approximately $230 per
acre-foot, which will be adjusted according to a water price
formula. Additionally, recognizing that delivery of the Company's
high-quality, indigenous groundwater to the aqueduct provides a
significant water quality benefit, Metropolitan will pay the
Company a water quality fee for both transferred and returned
water.
* Metropolitan will purchase the first 400,000 acre-feet in two
installments -- $44 million payable upon environmental
certification and the balance of $48 million, subject to adjustment
for the water price index, payable upon completion of construction.
Finally, Metropolitan will commit to purchase the additional
1,100,000 acre-feet at the earlier of delivery or in annual 40,000
acre-feet increments commencing at the start of operations.
* The Program facilities, including spreading basins, extraction
wells, conveyance pipeline and a pumping plant, are estimated to
cost between $125 and $150 million, and both parties will share
these costs.
* All operational costs of the Program, including annual operations,
maintenance and energy costs, will be the obligation of Metropolitan.
The principles and terms for agreement call for the establishment of a
comprehensive groundwater monitoring and management plan to ensure long-
term protection of the groundwater basin. The final agreement may reflect
adjustments to these principles and terms in order to reflect information
identified during the ongoing environmental review process and will be
subject to the approval of the respective Boards of both parties.
Also, see "Narrative Description of Business - Water Resource Development -
Cadiz Groundwater Storage and Dry-Year Supply Program."
In addition to the development of its water resources, the Company is
actively involved in further agricultural development and reinvestment in
its landholdings. Such development will be systematic and in furtherance
of the Company's business strategy to provide for maximization of the value
of its assets. The Company also continually evaluates acquisition
opportunities, which are complimentary to its current portfolio of water
and agricultural resources.
The Company believes that, based upon current levels of operations and
anticipated growth, Sun World can adequately service its indebtedness and
meet its seasonal working capital needs utilizing available internal cash,
the Sun World Revolver and, if necessary, through an intercompany revolver
with Cadiz. Cadiz expects to be able to meet its ordinary working capital
needs, in the short-term, through a combination of cash on hand, payments
under the Program, quarterly management fee payments from Sun World,
payments from Sun World under an agricultural lease whereby Sun World now
operates the Company's 1,600 acres of developed agricultural property at
Cadiz, California, and the possible exercise of outstanding stock options.
Except for the foregoing, additional intercompany cash payments between Sun
World and Cadiz are subject to certain restrictions under its current
lending arrangements.
YEAR 2000
To date, the Company has not experienced any problems related to year
2000 ("Y2K") within its own operations or with any significant customers or
vendors. As such, management does not anticipate any significant Y2K issues
will occur in the future.
CERTAIN TRENDS AND UNCERTAINTIES
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company is hereby filing
cautionary statements identifying important risk factors that could cause
the Company's actual results to differ materially from those projected in
forward-looking statements of the Company made by or on behalf of the
Company.
The Company wishes to caution readers that these factors, among
others, could cause the Company's actual results to differ materially from
those expressed in any projected, estimated or forward-looking statements
relating to the Company. The following factors should be considered in
conjunction with any discussion of operations or results by the Company or
its representatives, including any forward-looking discussion, as well as
comments contained in press releases, presentations to securities analysts
or investors, or other communications by the Company.
In making these statements, the Company is not undertaking to address
or update each factor in future filings or communications regarding the
Company's business or results, and is not undertaking to address how any of
these factors may have caused changes to discussions or information
contained in previous filings or communications. In addition, certain of
these matters may have affected the Company's past results and may affect
future results.
RISKS INHERENT IN AGRICULTURAL OPERATIONS. The Company is subject to
risks associated with its agricultural operations. Numerous factors can
affect the price, yield and marketability of the crops grown on the
Company's properties. Crop prices may vary greatly from year to year as a
result of the relationship between production and market demand. For
example, the production of a particular crop in excess of demand in any
particular year will depress market prices, and inflationary factors and
other unforeseeable economic changes may also, at the same time, increase
operating costs with respect to such crops. In addition, the agricultural
industry in the United States is highly competitive, and domestic growers
and produce marketers are facing increased competition from abroad,
particularly from Mexico. There are also a number of factors outside of
the Company's control that could, alone or in combination, materially
adversely affect the Company's agricultural operations, such as adverse
weather conditions, insects, blight or other diseases, labor problems such
as boycotts or strikes and shortages of competent laborers. The Company's
operations may also be adversely affected by changes in governmental
policies, social and economic conditions, and industry production levels.
RISKS OF WATER DEVELOPMENT PROJECTS. The Company anticipates that it
will continue to incur operating losses from its non-Sun World operations
until such time as it is able to receive significant revenues from the
development of its water development projects, including the Cadiz
Groundwater Storage and Dry-Year Supply Program. In addition to
the risks associated with receiving all necessary regulatory approvals and
permits with respect to the Company's water development projects, the
Company may also encounter unforeseen technical difficulties, which could
result in construction delays, and cost increases or determination that a
project is not feasible. The Company is continuing to negotiate the terms
and conditions of water storage and supply programs with various California
water agencies (including Metropolitan with respect to preparing the final
agreement for the Cadiz Groundwater Storage and Dry-Year Supply Program).
However, the outcome of these negotiations cannot be predicted with any
degree of certainty. The circumstances under which transfers or storage of
water can be made and the profitability of any transfers or storage are
subject to significant uncertainties, including hydrologic risks of
variable water supplies, risks presented by allocations of water under
existing and prospective priorities, and risks of adverse changes to or
interpretations of U.S. federal, state and local laws, regulations and
policies.
Other important risk factors that could cause the Company's actual
results to differ materially from those expressed or implied by the Company
or on behalf of the Company are discussed elsewhere within this Form 10-K
in the sections entitled: Seasonality, Regulation, Competition, and
Liquidity and Capital Resources.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates
on long-term debt obligations that impact the fair value of these
obligations. The Company's policy is to manage interest rates
through the use of a combination of fixed and variable rate debt. The
Company's interest rate risk management objective is to limit the impact of
interest rate changes on earnings and cash flows and to lower its overall
borrowing costs. Other instruments, such as interest rate swaps, options,
floors, caps or collars may also be used depending upon market conditions.
No such instruments were used in 1999.
The table below presents the principal amounts, weighted-average
interests rates, and fair values by year of scheduled maturities to
evaluate the expected cash flows and sensitivity to interest rate changes
(in thousands of dollars). Circumstances could arise which may cause
interest rates and the timing and amount of actual cash flows to differ
materially from the schedule below:
Long-Term Debt
-------------------------------------------
Average Variable Average
Expected Fixed Rate Interest Rate Interest
Maturity Maturities Rate Maturities Rate
- ---------- --------- ------------ -------- -----------
2000 $ 439 7.7% $ 286 8.8%
2001 452 7.7% 25,631 8.2%
2002 374 7.7% 286 8.8%
2003 292 7.8% 286 8.8%
2004 115,313 11.2% 286 8.8%
Thereafter 570 7.8% 284 8.8%
------- ----- ------- -----
Total $ 117,440 11.2% $ 27,059 8.2%
========= ===== ======== =====
Fair Value at
12/31/99 $ 120,315 $ 27,059
========= ========
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is submitted in response to Part
IV hereof. See the Index to Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item is incorporated herein by
reference to the definitive proxy statement involving the election of
directors which the Company intends to file with the Commission pursuant to
Regulation 14A under the Securities and Exchange Act of 1934 not later than
120 days after December 31, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is incorporated herein by
reference to the definitive proxy statement involving the election of
directors which the Company intends to file with the Commission pursuant to
Regulation 14A under the Securities and Exchange Act of 1934 not later than
120 days after December 31, 1999.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is incorporated herein by
reference to the definitive proxy statement involving the election of
directors which the Company intends to file with the Commission pursuant to
Regulation 14A under the Securities and Exchange Act of 1934 not later than
120 days after December 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is incorporated herein by
reference to the definitive proxy statement involving the election of
directors which the Company intends to file with the Commission pursuant to
Regulation 14A under the Securities and Exchange Act of 1934 not later than
120 days after December 31, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements. See Index to Consolidated Financial
Statements.
2. Financial Statement Schedules. See Index to Consolidated
Financial Statements.
3. Exhibits.
The following exhibits are filed or incorporated by reference as part
of this Annual Report.
3.1 Certificate of Incorporation of the Company, as amended(2)
3.2 Amendment to Certificate of Incorporation dated November
12, 1996(3)
3.3 Amendment to Certificate of Incorporation dated
September 1, 1998(12)
3.4 Amended and Restated Certificate of Incorporation of Sun
World, Inc.(9)
3.5 Certificate of Merger of Sun World International, Inc.
into Sun World, Inc.(9)
3.6 Agreement and Plan of Merger of Sun World, Inc. and Sun
World International, Inc.(9)
3.7 Amended and Restated Bylaws of Sun World International,
Inc.(9)
3.8 Bylaws of the Company, as amended (13)
4.1 Specimen Form of Stock Certificate for the Company's
registered stock(12)
4.2 Certificate of Designations of 6% Convertible Series A
Preferred Stock(1)
4.3 Certificate of Designations of 6% Convertible Series B
Preferred Stock(4)
4.4 Certificate of Designations of 6% Convertible Series C
Preferred Stock(1)
4.5 Indenture dated as of April 16, 1997 among Sun World as
issuer, Sun World and certain subsidiaries of Sun World as
guarantors, and IBJ Whitehall Bank & Trust Company as
trustee, for the benefit of holders of 11-1/4% First Mortgage
Notes due 2004 (including as Exhibit A to the Indenture, the
form of the Global Note and the form of each Guarantee)(7)
4.6 Form of Amendment to Indenture dated as of October 9, 1997(10)
4.7 Form of Amendment to Indenture dated as of January 23, 1998(11)
10.1 The Company's 1996 Stock Option Plan(5)
10.2 Form of Employment Agreement dated September 13, 1996
between Sun World, the Company and Timothy J. Shaheen(6)
10.3 Form of Employment Agreement dated September 13, 1996
between Sun World, the Company and Stanley E. Speer(6)
10.4 Form of Sun World Executive Officer Employment Agreement(8)
10.5 Credit Agreement between the Company and ING Baring
(U.S.) Capital Corporation dated November 25, 1997(11)
10.6 Revolving Credit Note between the Company and ING Baring
(U.S.) Capital Corporation dated November 25, 1997(11)
10.7 Employment Agreement between the Company and Keith
Brackpool dated February 1, 1998(11)
10.8 Principles for an Agreement between the Metropolitan
Water District of Southern California and the Company dated
August 14, 1998(12)
10.9 Amendment to the Company's 1996 Stock Option Plan(13)
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Accountants (included in Part IV
of the Form 10-K)
27.1 Financial Data Schedule
- -------------------------
(1) Previously filed as Exhibit to the Company's Report on Form
8-K dated September 13, 1996
(2) Previously filed as Exhibit to the Company's Registration
Statement of Form S-1 (Registration No. 33-75642) declared
effective May 16, 1994
(3) Previously filed as Exhibit to the Company's Report on Form
10-Q for the quarter ended September 30, 1996
(4) Previously filed as Exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1996
(5) Previously filed as Exhibit A to the Company's Proxy
Statement relating to the Annual Meeting of Stockholders
held on November 8, 1996
(6) Previously filed as Exhibit to the Company's Transition
Report on Form 10-K for the nine months ended December 31,
1996
(7) Previously filed as Exhibit to Amendment No. 1 to the
Company's Form S-1 Registration Statement No. 333-19109
(8) Previously filed as Exhibit to the Company's Report on Form
10-Q for the quarter ended March 31, 1997
(9) Previously filed as Exhibit to Sun World's Form S-4
Registration Statement No. 333-31103
(10) Previously filed as Exhibit to Amendment No. 2 to Sun
World's Form S-4 Registration Statement No. 333-31103
(11) Previously filed as Exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997
(12) Previously filed as Exhibit to the Company's Report on Form
10-Q for the quarter ended September 30, 1998
(13) Previously filed as Exhibit to the Company's Report on Form
10-Q for the quarter ended June 30, 1999
(b) Reports on Form 8-K
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereto duly authorized.
CADIZ INC.
By: /s/ Keith Brackpool By: /s/ Stanley E. Speer
-------------------------------- ----------------------------
Keith Brackpool, Stanley E. Speer,
Chief Executive Officer and Director Chief Financial Officer and Secretary
Date: March 28, 2000 Date: March 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on
the dates indicated.
Name and Position Date
------------------ -----
/s/ Dwight W. Makins March 28, 2000
- ----------------------------------------
Dwight Makins, Chairman of the Board
and Director
/s/ Keith Brackpool March 28, 2000
- -----------------------------------------
Keith Brackpool, Chief Executive Officer
and Director (Principal Executive Officer)
/s/ Stanley E. Speer March 28, 2000
- ---------------------------------------
Stanley E. Speer, Chief Financial Officer
and Secretary (Principal Financial and
Accounting Officer)
/s/ Murray H. Hutchison March 28, 2000
- ----------------------------------------
Murray H. Hutchison, Director
/s/ Mitt Parker March 28, 2000
- ----------------------------------------
Mitt Parker, Director
/s/ Timothy J. Shaheen March 28, 2000
- ---------------------------------------
Timothy J. Shaheen, Director
/s/ Anthony L. Coelho March 28, 2000
- ---------------------------------------
Anthony L. Coelho, Director
CADIZ INC.
INDEX TO FINANCIAL STATEMENTS
Page
FINANCIAL STATEMENTS
- ---------------------
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . .32
Consolidated Statement of Operations for the three years
ended December 31, 1999. . . . . . . . . . . . . . . . . . . . . . . .33
Consolidated Balance Sheet as of December 31, 1999 and 1998. . . . . . .34
Consolidated Statement of Cash Flows for the three years
ended December 31, 1999. . . . . . . . . . . . . . . . . . . . . . . .35
Consolidated Statement of Stockholders' Equity for the three years
ended December 31, 1999. . . . . . . . . . . . . . . . . . . . . . . .36
Notes to the Consolidated Financial Statements. . . . . . . . . . . . . 38
FINANCIAL STATEMENT SCHEDULES
- -----------------------------
Schedule I - Condensed Financial Information of Registrant
for the three years ended December 31, 1999. . . . . . . . . . . . . .53
Schedule II - Valuation and Qualifying Accounts for the
three years ended December 31, 1999. . . . . . . . . . . . . . . . . .56
(Schedules other than those listed above have been omitted since they are
either not required, inapplicable, or the required information is included
on the financial statements or notes thereto.)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Cadiz Inc.
In our opinion, the consolidated financial statements listed
in the accompanying index present fairly, in all material
respects, the financial position of Cadiz Inc. and its
subsidiaries at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years
in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States.
In addition, in our opinion, the financial statement schedules
listed in the accompanying index present fairly, in all material
respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
These financial statements and financial statement schedules are
the responsibility of the Company's management; our
responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.
We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, 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
audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers
- ---------------------------
PricewaterhouseCoopers LLP
Los Angeles, California
February 15, 2000
CADIZ INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31,
(In thousands except per share data) 1999 1998 1997
---- ---- ----
Revenues $ 114,901 $ 95,845 $ 98,769
Income from partnership 328 10,699 1,388
--------- -------- --------
Total revenues 115,229 106,544 100,157
--------- -------- --------
Costs and expenses:
Cost of sales 83,821 74,742 76,566
General and administrative 12,363 11,736 11,873
Special litigation 937 1,308 683
Litigation benefit - - (3,780)
Depreciation and amortization 8,891 8,688 7,745
--------- -------- --------
Total costs and expenses 106,012 96,474 93,087
--------- -------- --------
Operating profit 9,217 10,070 7,070
Interest expense, net 17,811 17,540 15,608
--------- -------- --------
Net loss (8,594) (7,470) (8,538)
Less: Preferred stock dividends - - (1,213)
--------- -------- --------
Net loss applicable to common stock $ (8,594) $ (7,470) $ (9,751)
========= ========= =========
Net loss per common share $ (.25) $ (.23) $ (.33)
========= ========= =========
Weighted average shares outstanding 34,678 33,173 29,485
========= ========= =========
See accompanying notes to the consolidated financial statements.
CADIZ INC.
CONSOLIDATED BALANCE SHEET
December 31,
($ in thousands) 1999 1998
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 4,537 $ 13,635
Accounts receivable, net 8,436 6,295
Inventories 18,423 15,019
Prepaid expenses and other 917 992
------- -------
Total current assets 32,313 35,941
Investment in partnership 1,497 1,169
Property, plant, equipment and
water programs, net 169,009 166,022
Other assets 11,283 11,227
-------- --------
$ 214,102 $ 214,359
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,110 $ 8,753
Accrued liabilities 7,686 6,846
Long-term debt, current portion 725 613
------- -------
Total current liabilities 16,521 16,212
Long-term debt 142,089 142,317
Deferred income taxes 5,447 5,447
Other liabilities 375 673
Commitments and contingencies
Stockholders' equity:
Common stock - $.01 par value;
45,000,000 shares authorized; shares
issued and outstanding 35,166,661
at December 31, 1999 and 33,592,261 at
December 31, 1998 352 336
Additional paid-in capital 136,200 127,662
Accumulated deficit (86,882) (78,288)
------- -------
Total stockholders' equity 49,670 49,710
------- -------
$ 214,102 $ 214,359
========= =========
See accompanying notes to the consolidated financial statements.
CADIZ INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31,
-------------------------
($ in thousands) 1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net loss $ (8,594) $ (7,470) $ (8,538)
Adjustments to reconcile net
loss to net cash
(used for) provided by
operating activities:
Depreciation and amortization 11,060 10,601 9,227
Litigation benefit - - (3,780)
Issuance of stock for services 28 374 470
Interest converted to principal - - 315
(Gain) loss on disposal of assets (104) (207) 99
Share of partnership operations (328) (10,699) (1,388)
Changes in operating assets
and liabilities:
(Increase) decrease in accounts
receivable (2,141) (414) 1,652
(Increase) decrease in inventories (3,318) (1,559) 570
Decrease in prepaid expenses and other 75 307 64
(Decrease) increase in accounts
payable (643) 236 672
Increase in accrued liabilities 1,668 916 1,332
Decrease in other current liabilities - - (591)
(Decrease) increase in other
liabilities (298) 18 54
------- ------- -------
Net cash (used for) provided by
operating activities (2,595) (7,897) 158
-------- ------- -------
Cash flows from investing activities:
Additions to property, plant and
equipment (4,835) (7,308) (2,114)
Additions to water programs (3,177) (856) (400)
Additions to developing crops (3,531) (3,396) (4,725)
Proceeds from disposal of property,
plant and equipment 233 388 2,817
Partnership distributions - 15,859 1,165
(Increase) decrease in other assets (1,311) (2,020) 358
------- ------- -------
Net cash (used for) provided by
investing activities (12,621) 2,667 (2,899)
------- ------- -------
Cash flows from financing activities:
Net proceeds from issuance of stock 6,803 2,154 1,690
Proceeds from issuance of
long-term debt - 12,000 120,089
Principal payments on long-term debt (685) (587) (141,248)
Debt issuance costs - - (5,799)
------- ------- -------
Net cash provided by (used for)
financing activities 6,118 13,567 (25,268)
------- ------- -------
Net (decrease) increase in cash
and cash equivalents (9,098) 8,337 (28,009)
Cash and cash equivalents, beginning
of period 13,635 5,298 33,307
------- ------- -------
Cash and cash equivalents, end
of period $ 4,537 $ 13,635 $ 5,298
========= ========= =========
See accompanying notes to the consolidated financial statements.
CADIZ INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1999, 1998 and 1997
($ in thousands)
Total
Additional Stock-
Preferred Stock Common Stock Paid-in Accumulated holders'
Shares Amount Shares Amount Capital Deficit Equity
------ ------- ------ ------ ------- --------- --------
Balance as
of December
31, 1996 340 $ - 23,445,868 $ 234 $ 88,574 $ (61,067) $ 27,741
Conversion of
redeemable
preferred
stock to
common
stock - - 7,314,917 73 27,358 - 27,431
Exercise of
stock options
and warrants - - 588,500 7 1,358 - 1,365
Common stock
issued to
satisfy
Sun World
purchase
liability - - 65,000 1 324 - 325
Preferred
dividends paid
with common
stock - - 361,251 3 1,714 - 1,717
Issuance of
warrants to
a lender - - - - 1,083 - 1,083
Stock issued
for services - - 75,000 1 329 - 330
Issuance of
stock for
refinancing - - 30,000 - 140 - 140
Conversion of
preferred
stock to
common stock (340) - 766,125 7 (7) - -
Accrued
dividends
on preferred
stock - - - - - (1,213) (1,213)
Net loss - - - - - (8,538) (8,538)
---- ----- ---------- ------ -------- --------- --------
Balance as
of December
31, 1997 - $ - 32,646,661 $ 326 $120,873 $ (70,818) $ 50,381
---- ----- ---------- ------ -------- --------- --------
See accompanying notes to the consolidated financial statements.
CADIZ INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Continued)
For the Years Ended December 31, 1999, 1998 and 1997
($ In thousands)
Total
Additional Stock-
Preferred Stock Common Stock Paid-in Accumulated holders'
Shares Amount Shares Amount Capital Deficit Equity
------ ------- ------ ------ ------- --------- --------
Balance
as of
December
31, 1997 - $ - 32,646,661 $ 326 $120,873 $ (70,818) $ 50,381
Exercise of
stock options - - 515,600 6 2,148 - 2,154
Issuance of
warrants to
lender - - - - 1,643 - 1,643
Stock
issued for
services - - 55,000 - 374 - 374
Acquisition
of hydrological
research
company - - 375,000 4 2,624 - 2,628
Net loss - - - - - (7,470) (7,470)
---- ----- ---------- ------ -------- --------- --------
Balance as
of December
31, 1998 - - 33,592,261 336 127,662 (78,288) 49,710
---- ----- ---------- ------ -------- --------- --------
Exercise of
stock options - - 1,513,150 15 6,788 - 6,803
Issuance of
warrants to
lender - - - - 1,335 - 1,335
Stock issued
for services - - 61,250 1 415 - 416
Net loss - - - - - (8,594) (8,594)
---- ----- ---------- ------ -------- --------- --------
Balance as
of December
31, 1999 - $ - 35,166,661 $ 352 $136,200 $ (86,882) $ 49,670
==== ===== ========== ====== ======== ========= ========
See accompanying notes to the consolidated financial statements.
CADIZ INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS
- --------------------------------
The Company currently has agricultural operations through
its wholly-owned subsidiary, Sun World International, Inc. and
its subsidiaries collectively referred to as "Sun World" and is
developing the water resource segment of its business. The
primary business of the Company is to acquire and develop water
and agricultural resources. The Company has created an
integrated and complementary portfolio of assets encompassing
undeveloped land with high-quality groundwater resources and/or
storage potential, prime agricultural properties located
throughout central and southern California with secure and
reliable water rights, and other contractual water rights.
Management believes that, with both the increasing scarcity of
water supplies in California and an increasing population, the
Company's access to water will provide it with a competitive
advantage both as a major agricultural concern and as a supplier
of water, which will lead to continued appreciation in the value
of the Company's portfolio.
Sun World is a large vertically integrated agricultural
company and farms more than 21,000 acres, primarily located in
two major growing areas of California: the San Joaquin Valley and
the Coachella Valley. Fresh produce, including table grapes,
stonefruit, citrus, peppers and watermelons, is marketed and
shipped to food wholesalers and retailers throughout the United
States and to more than 25 foreign countries. Sun World owns
three cold storage and/or packing facilities in California, of
which two are operated and one is leased to a third party.
Sun World provides the Company with valuable water rights
throughout central and southern California. The Company's
landholdings, which now total approximately 56,900 acres, are
located adjacent to the Colorado River and the major aqueduct
systems of central and southern California. The Company expects
to utilize its resources to participate in a broad variety of
water storage and supply projects, including the storage and
supply of surplus water for public agencies that require
supplemental sources of water for exchanges or transfers to third
parties.
In 1998, the Company and the Metropolitan Water District of
Southern California ("Metropolitan") verified the feasibility of
and approved principles and terms for a water storage and supply
program at its Cadiz, California property. The Cadiz Groundwater
Storage and Dry-Year Supply Program (the "Program") will enhance
southern California water supply reliability in two ways,
providing a new dry-year water supply and much-needed storage.
During wet years or periods of excess supply, Metropolitan will
store surplus Colorado River water in the aquifer system
underlying the Company's Cadiz property. During dry years, the
previously imported water, together with additional existing
groundwater, will be extracted and delivered, via a 35-mile
conveyance pipeline, to Metropolitan's service area. The Company
and Metropolitan are currently in the final stages of the
environmental review process.
Although the development and management activities of the
Company are currently focused on agricultural operations
(primarily through its wholly-owned subsidiary, Sun World) and
water resource development, the Company will continue to develop
and manage its land, water and agricultural resources for their
highest and best uses.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts
of the Company and Sun World. All material intercompany balances
and activity have been eliminated from the consolidated financial
statements.
RECLASSIFICATIONS
These financial statements reflect certain reclassifications
made to the prior period balances to conform with the current
year presentation.
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 reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes crop sale revenue, packing revenue
and marketing commissions upon shipment to customers.
RESEARCH AND DEVELOPMENT
Sun World incurs costs to research and develop new varieties
of proprietary products. Research and development costs are
expensed as incurred. Such costs were approximately $1,450,000
for the year ended December 31, 1999, $1,249,000 for the year
ended December 31, 1998, and $809,000 for the year ended December
31, 1997.
NET LOSS PER COMMON SHARE
Basic Earnings Per Share (EPS) is computed by dividing the
net loss, after deduction for preferred dividends either accrued
or imputed, if any, by the weighted average common shares
outstanding. Options and warrants to purchase certain shares of
the Company's common stock, as described in Note 13, were not
considered in the computation of diluted EPS because their
inclusion would have been antidilutive.
CASH AND CASH EQUIVALENTS
The Company considers all short-term deposits with an
original maturity of three months or less to be cash equivalents.
The Company invests its excess cash in deposits with major
international banks and short-term commercial paper and,
therefore, bears minimal risk. Such investments are stated at
cost, which approximates fair value, and are considered cash
equivalents for purposes of reporting cash flows.
INVENTORIES
Growing crops, pepper seed, and materials and supplies are
stated at the lower of cost or market, on a first-in, first-out
(FIFO) basis. Growing crops inventory includes direct costs and
an allocation of indirect costs.
INVESTMENT IN PARTNERSHIP
Sun World, through a wholly-owned subsidiary, owns a 50%
interest in ASC/SWB Partnership, formerly named American SunMelon
(the "Partnership"). In October 1998, the Partnership sold
substantially all of its assets to a third party for $35 million
in cash. In conjunction with the sale, Sun World received an
initial distribution of $15.2 million from the Partnership. The
Partnership was engaged in proprietary development, production,
and marketing of seedless watermelon seed. Sun World accounts
for its investment in the Partnership using the equity method.
PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS
Property, plant, equipment and water programs are stated at
cost.
The Company capitalizes direct and certain indirect costs of
planting and developing orchards and vineyards during the
development period, which varies by crop and generally ranges
from three to seven years. Depreciation commences in the year
commercial production is achieved.
Permanent land development costs, such as acquisition costs,
clearing, initial leveling and other costs required to bring the
land into a suitable condition for general agricultural use, are
capitalized and not depreciated since these costs have an
indeterminate useful life.
Depreciation is provided using the straight-line method over
the estimated useful lives of the assets, generally ten to forty-
five years for land improvements and buildings, three to twenty-
five years for machinery and equipment, and five to thirty years
for permanent crops.
Water rights and water storage and supply programs are
stated at cost. All costs directly attributable to the
development of such programs are being capitalized by the
Company. These costs, which are expected to be recovered through
future revenues, consist of direct labor, drilling costs,
consulting fees for various engineering, hydrological,
environmental and feasibility studies, and other professional and
legal fees.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company annually evaluates its long-lived assets,
including intangibles, for potential impairment. When
circumstances indicate that the carrying amount of the asset may
not be recoverable, as demonstrated by estimated future cash
flows, an impairment loss would be recorded based on estimated
fair value.
OTHER ASSETS
As a result of a merger in May 1988 between two companies,
which eventually became known as Cadiz Inc., an excess of
purchase price over net assets acquired in the amount of
$7,006,000 was recorded. This amount is being amortized on a
straight-line basis over thirty years. Accumulated amortization
was $2,726,000 and $2,493,000 at December 31, 1999 and December
31, 1998, respectively.
Capitalized loan fees represent costs incurred to obtain
debt financing. Such costs are amortized over the life of the
related loan. At December 31, 1999, the majority of capitalized
loan fees relate to the issuance of the First Mortgage Notes
described in Note 9.
Trademark development costs represent legal costs incurred
to obtain and defend patents and trademarks related to the
Company's proprietary products throughout the world. Such costs
are capitalized and amortized over their estimated useful life,
which range from 10 to 20 years.
INCOME TAXES
Income taxes are provided 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. A valuation allowance is provided when it is uncertain
that some portion or all of the deferred tax assets will be
realized.
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest during the years ended December 31,
1999, 1998 and 1997 was $15,988,000, $15,348,000, and $12,452,000,
respectively.
NOTE 3 - ACCOUNTS RECEIVABLE
- -----------------------------
Accounts receivable consist of the following (dollars in thousands):
December 31,
1999 1998
---- ----
Trade receivables $ 4,742 $ 4,092
Due from unaffiliated growers 582 231
Other 3,336 2,257
------- -------
8,660 6,580
Less allowance for doubtful accounts (224) (285)
------- -------
$ 8,436 $ 6,295
======= =======
Substantially all domestic receivables are from large
national and regional supermarket chain stores and produce
brokers and are unsecured. Amounts due from unaffiliated growers
represent receivables for harvest advances and for services
(harvest, haul and pack) provided on behalf of growers under
agreement with Sun World and are recovered from proceeds of
product sales. Other receivables primarily include wine grape
and raisin sales, proceeds due from third party marketers and
other miscellaneous receivables.
Revenues attributable to one national retailer totaled $14.4
million in 1999, $11.9 million 1998, and $13.6 million in 1997.
Export sales accounted for approximately 10.3%, 8.5% and 11.4% of
the Company's revenues for the years ended December 31, 1999,
1998 and 1997, respectively.
NOTE 4 - INVENTORIES
- --------------------
Inventories consist of the following (dollars in thousands):
December 31,
1999 1998
---- ----
Growing crops $ 14,297 $ 11,208
Pepper seed 1,028 1,344
Harvested product 98 360
Materials and supplies 3,000 2,107
------- -------
$ 18,423 $ 15,019
======== ========
NOTE 5 - PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS
- ------------------------------------------------------
Property, plant, equipment and water programs consist of the
following (dollars in thousands):
December 31,
1999 1998
---- ----
Land $ 69,377 $ 66,536
Permanent crops 66,546 67,286
Developing crops 8,862 5,192
Water programs 11,814 8,482
Buildings 21,832 21,397
Machinery and equipment 19,623 18,186
------- -------
198,054 187,079
Less accumulated depreciation (29,045) (21,057)
------- -------
$ 169,009 $ 166,022
======= =======
Depreciation expense during the years ended December 31, 1999,
1998 and 1997 was $8,460,000, $8,256,000 and $7,430,000, respectively.
NOTE 6 - OTHER ASSETS
- ---------------------
Other assets consist of the following (dollars in thousands):
December 31,
1999 1998
---- ----
Excess of purchase price over asset acquired, net $ 4,280 $ 4,514
Capitalized loan fees, net 3,331 4,159
Other receivables 1,849 1,498
Capitalized trademark development, net 1,323 989
Other 500 67
------- -------
$ 11,283 $ 11,227
======== ========
NOTE 7 - ACCRUED LIABILITIES
- ----------------------------
Accrued liabilities consist of the following (dollars in thousands):
December 31,
1999 1998
---- ----
Interest $ 3,129 $ 3,548
Payroll and benefits 3,031 2,049
Other 1,526 1,249
------- --------
$ 7,686 $ 6,846
======= =======
NOTE 8 - REVOLVING CREDIT FACILITY
- ----------------------------------
In February 2000, Sun World obtained a one year renewal of its
$30 million Revolving Credit Facility. The Revolving Credit
Facility is secured by eligible accounts receivable and
inventory, and is guaranteed by the Company. Amounts borrowed
under the facility will accrue interest at either prime plus 1.0%
or LIBOR plus 2.50% at the Company's election. No amounts were
outstanding under the Revolving Credit Facility at December 31,
1999 and 1998.
NOTE 9 - LONG-TERM DEBT
- -----------------------
Management estimates that the fair value of the Company's
long-term debt approximates the carrying value for all debt
instruments except for the Series B First Mortgage Notes ("First
Mortgage Notes"). The fair value of the First Mortgage Notes is
estimated to be approximately $117.9 million based on quoted
market prices as of December 31, 1999. At December 31, 1999 and
December 31, 1998, the carrying amount of the Company's
outstanding debt is summarized as follows (dollars in thousands):
December 31,
1999 1998
---- ----
Cadiz obligations:
Senior term bank loan, interest payable
semi-annually, variable interest rate
based upon LIBOR plus 2% (8.16% at
December 31, 1999) and LIBOR plus 4%
(9.97% at December 31, 1998),
due January 31, 2001. $ 10,345 $ 9,752
$15 million revolving line of credit,
interest payable semi-annually,
variable interest rate based upon LIBOR
plus 2% (8.16% at December 31, 1999),
due January 31, 2001. 15,000 15,000
Other 21 30
Debt discount (1,685) (1,628)
------- -------
23,681 23,154
------- -------
Sun World obligations:
Series B First Mortgage Notes,
interest payable semi-annually
with principal due in April 2004,
interest at 11.25% 115,000 115,000
Note payable to bank, quarterly
principal installments of $72 plus
interest payable monthly, due
December 31, 2003, interest at
prime (8.75% at December 31, 1999
and 7.75% at December 31, 1998) 1,714 2,000
Note payable to insurance company,
quarterly installments of $93
(including interest), due
September 13, 2006, interest at 7.75% 1,896 2,110
Note payable to finance company,
monthly installments of $18
(including interest) due July 1, 2002,
interest at 7.50% 492 666
Other 31 -
------- -------
119,133 119,776
------- -------
142,814 142,930
Less current portion (725) (613)
------- -------
$ 142,089 $ 142,317
========= =========
Annual maturities of long-term debt outstanding, excluding
$1,685 representing the unamortized portion of warrants, on
December 31, 1999 are as follows: 2000 - $725; 2001 - $26,083;
2002 - $660; 2003 - $578; 2004 - $115,599 and thereafter - $854.
CADIZ OBLIGATIONS
The senior term bank loan is secured by substantially all of
the Company's non-Sun World related property. During 1999, the
Company entered into two extensions of the loan which extended
the maturity date of the obligation to January 31, 2001, and
reduced the interest rate from LIBOR plus 400 basis points to
LIBOR plus 200 basis points, payable semi-annually. In
connection with obtaining the extensions, the Company issued
certain warrants to purchase shares of the Company's common stock
and also repriced certain warrants previously issued. The fair
value of the warrants was recorded as a debt discount and is
being amortized over the remaining term of the loan.
In November 1997, the Company entered into a three year $15
million revolving credit facility. In December 1999, the Company
extended the maturity date of the obligation to January 31, 2001.
With the extension, the interest rate was changed from 8% to
LIBOR plus 200 basis points. The facility is secured by a second
lien on substantially all of the non-Sun World assets of the
Company. The Company had $15 million outstanding under the
facility at December 31, 1999.
SUN WORLD OBLIGATIONS
In April 1997, Sun World issued $115 million of Series A
First Mortgage Notes through a private placement. The notes have
subsequently been exchanged for Series B First Mortgage Notes,
which are registered under the Securities Act of 1933 and are
publicly traded. The First Mortgage Notes are secured by a first
lien (subject to certain permitted liens) on substantially all of
the assets of Sun World and its subsidiaries other than growing
crops, crop inventories and accounts receivable and proceeds
thereof, which secure the Revolving Credit Facility. The First
Mortgage Notes are also guaranteed by certain subsidiaries and
the Company pledged all of the stock of Sun World. The First
Mortgage Notes mature April 15, 2004, but are redeemable at the
option of Sun World, in whole or in part, at any time on or after
April 15, 2001. The First Mortgage Notes include covenants which
restrict the Company's ability to receive distributions from Sun
World.
NOTE 10 - INCOME TAXES
- -----------------------
Deferred taxes are recorded based upon differences between
the financial statement and tax bases of assets and liabilities
and available carryforwards. Temporary differences and
carryforwards which gave rise to a significant portion of
deferred tax assets and liabilities as of December 31, 1999 and
1998 are as follows (in thousands):
December 31,
1999 1998
---- ----
Deferred tax liabilities:
Fixed asset basis difference $ 7,515 $ 5,618
Other 77 -
------- -------
Total deferred tax liabilities 7,592 5,618
------- -------
Deferred tax assets:
Net operating losses 31,421 25,813
Reserve for notes receivable 1,178 1,178
Fixed asset basis difference 6,300 6,300
State taxes 1,884 1,649
Other - 550
Total deferred tax assets 40,783 35,490
Valuation allowance for deferred
tax assets (38,638) (35,319)
------- -------
Net deferred tax assets 2,145 171
------- -------
Net deferred tax liability $ 5,447 $ 5,447
======= =======
As of December 31, 1999, the Company had net operating loss
(NOL) carryforwards of approximately $88.5 million for federal
income tax purposes. Such carryforwards expire in varying
amounts through the year 2019. At December 31, 1999, the Company
has state NOL carryforwards of $15.0 million. These NOL
carryforwards expire in varying amounts through the year 2004.
A reconciliation of the income tax benefit to the statutory
federal income tax rate is as follows (dollars in thousands):
Year Ended December 31,
---------------------------
1999 1998 1997
---- ---- ----
Expected federal income tax benefit at 34% $ (2,922) $ (2,540) $ (2,903)
Loss with no tax benefit provided 2,718 2,414 2,981
State income tax - 451 -
Amortization 79 79 79
Utilization of net operating losses - (601) -
Other non-deductible expenses 125 197 (157)
------- ------- -------
Income tax benefit $ - $ - $ -
======== ======== ========
NOTE 11 - EMPLOYEE BENEFIT PLANS
- ---------------------------------
The Company has a 401(k) Plan for its salaried employees.
Employees must work 1,000 hours and have completed one year of
service to be eligible to participate in this plan. Sun World
matches 75% of the first four percent deferred by an employee up
to $1,600 per year. In addition, Sun World maintains a defined
contribution pension plan covering substantially all of its
employees who (i) are not covered by a collective bargaining
agreement, (ii) have at least one year of service and (iii) have
worked at least 1,000 hours. Contributions are 2% of each
covered employee's salary. For those hourly employees covered
under a collective bargaining agreement, contributions are made
to a multi-employer pension plan in accordance with negotiated
labor contracts and are generally based on the number of hours
worked.
NOTE 12 - PREFERRED AND COMMON STOCK
- -----------------------------------
The Company has an authorized class of 100,000 shares of
preferred stock. All preferred stock issued was converted to
common stock as of December 31, 1997. During 1997, the Company
paid $1,717,000 of preferred stock dividends with common stock.
NOTE 13 - STOCK-BASED COMPENSATION PLANS AND WARRANTS
- ------------------------------------------------------
STOCK OPTIONS AND WARRANTS
The Company issues options pursuant to its 1996 Stock Option
Plan (the "1996 Plan") and the 1998 Non-Qualified Stock Option
Plan (the "1998 Plan") approved by the Board of Directors in
February 1998. The plans provide for the granting of up to
4,000,000 shares. At December 31, 1999, the Company has 626,000
options remaining that can be granted under the plans. All
options are granted at a price approximating fair market value at
the date of grant, have vesting periods ranging from issuance
date to five years, have maximum terms ranging from five to seven
years and are issued to directors, officers, consultants and
employees of the Company. During the year ended December 31,
1999, the Company granted options to purchase 800,000 shares of
the Company's common stock at a weighted average exercise price
of $7.58 per share.
Compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's stock
at the date of the grant over the amount an employee must pay to
acquire the stock. Had compensation cost for these plans been
determined using fair value, as explained below, the Company's
net loss and net loss per common share would have increased to
the following pro forma amounts (dollars in thousands):
Year Ended December 31,
---------------------------
1999 1998 1997
---- ---- ----
Net loss applicable to
common stock: As reported $ (8,594) $ (7,470) $ (9,751)
Pro forma $ (12,134) $ (8,833) $ (11,416)
Net loss per
common share: As reported $ (.25) $ (.23) $ (.33)
Pro forma $ (.35) $ (.27) $ (.39)
The fair value of each option granted during the periods
reported was estimated on the date of grant using the Black-
Scholes option pricing model based on the weighted-average
assumptions of: risk-free interest rate of 6.67% for 1999, 4.87%
for 1998 and 5.43% for 1997; expected volatility of 46.9% for
1999, 61.6% for 1998 and 44.4% for 1997; expected life of 5 years
for 1999 and 1998, and 4.8 years for 1997; and an expected
dividend yield of zero for all three years.
The following table summarizes stock option activity for the
periods noted. All options listed below were issued to officers,
directors, employees and consultants.
Weighted-
Average
Exercise
Amount Price
----------- -------
Outstanding at December 31, 1996 3,866,000 $ 4.44
Granted 527,500 $ 5.61
Expired or canceled (120,000) $ 4.80
Exercised (348,500) $ 4.17
--------
Outstanding at December 31, 1997 3,925,000 $ 4.61
Granted 525,000 $ 9.12
Expired or canceled (42,500) $ 6.44
Exercised (515,600) $ 4.18
--------
Outstanding at December 31, 1998 3,891,900 $ 5.26
Granted 800,000 $ 7.58
Expired or canceled (66,000) $ 7.20
Exercised (1,513,150) $ 4.50
---------
Outstanding at December 31, 1999 3,112,750(a) $ 6.21
=========
Options exercisable at December 31, 1997 2,297,500 $ 4.40
=========
Options exercisable at December 31, 1998 2,472,900 $ 4.50
========
Options exercisable at December 31, 1999 2,306,500 $ 5.64
========
Weighted-average remaining
contractual life of
options outstanding at
December 31, 1999 2.68
=========
(a) Exercise prices vary from $4.50 to $9.375 and
expiration dates vary from September 2001 to November 2004.
The weighted-average fair value of options granted during
the years 1999, 1998 and 1997 were $3.71, $3.60 and $2.55, respectively.
During the years ended December 31, 1999, 1998 and 1997, the
Company issued 250,000, 225,000, and 275,000 warrants with weighted-
average exercise prices of $6.50, $7.00 and $6.45, respectively.
During the year ended December 31, 1997, 240,000 warrants with a
weighted-average exercise price of $0.05 were exercised. No warrants
expired or were canceled during any of the three periods discussed.
At December 31, 1999 there were 750,000 warrants outstanding at a
weighted-average exercise price of $6.59 per share, which expire
through 2004. See Note 9 for further discussion of these warrants.
RESTRICTED STOCK AWARD
Following the acquisition of Sun World in 1996, the
Company's Chief Executive Officer was awarded a stock bonus of
125,000 shares of restricted common stock at no cost. The
Company issued 25,000, 25,000 and 75,000 of these shares during
the years ended December 31, 1999, 1998 and 1997, respectively.
Compensation expense was recognized as earned over the period of
service.
NOTE 14 - CONTINGENCIES
- -----------------------
In December 1995, the Company filed an action relative to the
proposed construction and operation of a landfill (the "Rail-
Cycle Project") which was to be located adjacent to the Company's
Cadiz property with the Superior Court in San Bernardino County,
California. The action challenges the various decisions by the
County of San Bernardino relative to the proposed Rail-Cycle
Project and seeks compensatory damages. On or about September
30, 1998, the Court granted defendants' motions for summary
judgement, finding that the Company's procedural due process
claim is not ripe due to the fact that, as the Rail-Cycle Project
cannot proceed without voter approval of a business license tax,
there is no actual concrete injury to the Company at this point
in time. The Company has appealed this decision.
Also pending are suits filed by the Company in the United
States District Court, Central District of California (the
"Federal Court Action") and in Los Angeles Superior Court (West
Division) ("the State Court Action") against Waste Management,
Inc. ("WMI"), certain key executives and consultants of WMI, and
certain other parties in interest as to the Rail-Cycle Project,
which suits assert claims arising from activities of defendants
adverse to the Company in connection with the Rail-Cycle Project.
In the Federal Court Action, appeals are currently pending
concerning the dismissal by the trial court of those of the
Company's claims which are not being pursued by the Company in
the State Court Action. These civil actions are based in part
upon evidence made available to the Company on account of a
pending criminal investigation into WMI's activities concerning
the Rail-Cycle Project, which has resulted in criminal
indictments against WMI and others. In the State Court Action,
the Company filed its Second Amended Complaint in February 2000.
The Company intends to continue to vigorously prosecute its
claims against WMI.
Prior to the acquisition of Sun World, the Internal Revenue
Service (IRS) had filed claims against Sun World and certain of
its subsidiaries (collectively "the Sun World Claimants"), for
taxes refunded for workers that the IRS claims were employees.
The Sun World Claimants contend that the workers are excluded
from the definition of employment under the Internal Revenue
Code. On January 21, 1998, the District Court ruled in favor of
one of the Sun World Claimants. The IRS has appealed this
decision. Management believes that the likelihood of an
unfavorable future outcome with regard to this matter is remote.
Accordingly, the Company released $3,780,000 of reserves related
to this matter at December 31, 1997 which are reported on the
Consolidated Statement of Operations as Litigation Benefit.
In the normal course of its agricultural operations, the
Company handles, stores, transports and dispenses products
identified as hazardous materials. Regulatory agencies
periodically conduct inspections and, currently, there are no
pending claims with respect to hazardous materials.
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.
NOTE 15 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- -----------------------------------------------------
(In thousands except per share data)
Quarter Ended
--------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
----- ----- ----- -----
Revenues $ 6,560 $ 26,193 $ 60,644 $ 21,832
Gross profit 911 7,628 15,976 6,893
Net income (loss) (7,421) (1,908) 2,993 (2,258)
Net income (loss)
per common share $ (.22) $ (.06) $ .09 $ (.06)
Quarter Ended
--------------------------------------------
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
----- ----- ----- -----
Revenues $ 5,484 $ 22,619 $ 45,596 $ 32,845
Gross profit 471 5,664 8,008 17,659
Net income (loss) (7,190) (3,065) (4,894) 7,679
Net income (loss)
per common share $ (.22) $ (.09) $ (.15) $ .23
CADIZ INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
December 31,
Balance Sheet ($ in thousands): 1999 1998
---- -----
ASSETS
Current assets:
Cash and cash equivalents $ 4,145 $ 7,493
Accounts receivable, net 16 77
Due from subsidiary - 71
Prepaid expenses and other 386 253
-------- -------
Total current assets 4,547 7,894
Investment in subsidiary 30,167 30,738
Property, plant, equipment
and water programs, net 36,710 32,174
Other assets 4,372 4,585
-------- --------
$ 75,796 $ 75,391
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 705 $ 701
Accrued liabilities 1,536 1,826
Due to subsidiary 203 -
Long-term debt, current portion 21 9
------- -------
Total current liabilities 2,465 2,536
Long-term debt 23,661 23,145
Commitments and contingencies
Stockholders' equity:
Common stock - $.01 par value;
45,000,000 shares authorized;
shares issued and outstanding 35,166,661
at December 31, 1999 and 33,592,261 at
December 31, 1998 352 336
Additional paid-in capital 136,200 127,662
Accumulated deficit (86,882) (78,288)
-------- --------
Total stockholders' equity 49,670 49,710
------- -------
$ 75,796 $ 75,391
========= =========
CADIZ INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Statement of Operations
($ in thousands except Year Ended December 31,
per share data) 1999 1998 1997
---- ---- ----
Revenues $1,829 $2,003 $ 1,968
-------- -------- -------
Costs and expenses:
Cost of sales 132 144 270
General and administrative 4,672 4,631 4,042
Special litigation 937 1,308 683
Depreciation and amortization 1,179 1,182 994
-------- ------- --------
Total costs and expenses 6,920 7,265 5,989
-------- -------- -------
Operating loss (5,091) (5,262) (4,021)
Profit (loss) from subsidiaries (571) 195 (2,817)
Interest expense, net 2,932 2,403 1,700
------- ------- -------
Net loss (8,594) (7,470) (8,538)
Less: Preferred stock dividends - - (1,213)
-------- -------- -------
Net loss applicable to common stock $(8,594) $(7,470) $(9,751)
======= ======== =======
Net loss per common share $ (.25) $ (.23) $ (.33)
======== ========= =======
Weighted-average shares outstanding 34,678 33,173 29,485
======== ======= =======
CADIZ INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Year Ended December 31,
Statement of Cash Flows -----------------------
($ in thousands) 1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net loss $ (8,594) $ (7,470) $ (8,538)
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation and amortization 2,498 2,230 1,462
Issuance of stock for services 28 374 470
Loss (profit) from subsidiaries 571 (195) 2,817
Interest converted to principal - - 315
(Gain) loss on disposal of assets 6 (17) 138
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 61 (59) 192
Decrease in inventories - - 7
Decrease (increase) in due from subsidiary 274 (107) 131
Increase in prepaid expenses and other (133) (123) (56)
Increase (decrease) in accounts payable 4 (9) (667)
Increase in accrued liabilities 539 1,007 506
Decrease in other liabilities - (47) (1,006)
-------- ------- -------
Net cash used for operating activities (4,746) (4,416) (4,229)
-------- -------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (3,645) (2,910) (638)
Additions to water programs (3,177) (856) (466)
Proceeds from disposal of property,
plant and equipment 1,490 27 33
(Increase) decrease in other assets (64) (71) 153
-------- -------- -------
Net cash used for investing activities (5,396) (3,810) (918)
-------- -------- -------
Cash flows from financing activities:
Net proceeds from issuance of stock 6,803 2,150 1,690
Proceeds from issuance of long-term debt - 10,000 5,084
Principal payments on long-term debt (9) (21) (9,231)
Debt issuance costs - - (38)
Return of capital from subsidiary - - 9,100
-------- -------- -------
Net cash provided by financing activities 6,794 12,129 6,605
-------- -------- -------
Net (decrease) increase in cash and
cash equivalents (3,348) 3,903 1,458
Cash and cash equivalents,
beginning of period 7,493 3,590 2,132
------- ------- -------
Cash and cash equivalents, end of period $ 4,145 $ 7,493 $ 3,590
======== ======== ========
CADIZ INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1999, 1998 and 1997 ($ in thousands)
Additions charged to
--------------------
Balance at Costs Balance
Year ended Beginning and Other at End
December 31, 1999 of Period Expenses Accounts Deductions of period
- ------------------ ---------- -------- -------- --------- --------
Allowance for
doubtful accounts $ 285 $ - $ - $ 61 $ 224
======== ======== ======= ======== ========
Tax valuation
allowance $ 35,319 $ - $ 3,319 $ - $ 38,638
======== ======== ======== ======== ========
Year ended
December 31, 1998
- -----------------
Allowance for
doubtful accounts $ 287 $ 130 $ - $ 132 $ 285
======== ======= ======== ======== =======
Tax valuation
allowance $ 25,321 $ - $ 9,998 $ - $ 35,319
======== ====== ======== ======== ========
Year ended
December 31, 1997
- ------------------
Allowance for
doubtful accounts $ 480 $ - $ - $ 193 $ 287
======== ======= ======== ======= ========
Tax valuation
allowance $ 20,935 $ - $ 4,386 $ - $ 25,321
======== ======= ======== ======= ========
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (Nos. 33-83360, 33-63065, 333-
35491, 333-41367, 333-74699 and 333-81805) and on Form S-3 (No.
333-53069) of Cadiz Inc. of our report dated February 15, 2000
relating to the financial statements and financial statement
schedules, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers
- ---------------------------------
PricewaterhouseCoopers LLP
Los Angeles, California
March 27, 2000
EXHIBIT 21.1
------------
CADIZ INC.
SUBSIDIARIES OF THE COMPANY
Rancho Cadiz Mutual Water Company
Sun World International, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,537
<SECURITIES> 0
<RECEIVABLES> 8,660
<ALLOWANCES> (224)
<INVENTORY> 18,243
<CURRENT-ASSETS> 32,313
<PP&E> 198,054
<DEPRECIATION> (29,045)
<TOTAL-ASSETS> 214,102
<CURRENT-LIABILITIES> 16,521
<BONDS> 142,089
0
0
<COMMON> 352
<OTHER-SE> 49,318
<TOTAL-LIABILITY-AND-EQUITY> 214,102
<SALES> 114,901
<TOTAL-REVENUES> 115,229
<CGS> 83,821
<TOTAL-COSTS> 106,012
<OTHER-EXPENSES> 22,191
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,811
<INCOME-PRETAX> (8,594)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,594)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,594)
<EPS-BASIC> (.25)
<EPS-DILUTED> 0
</TABLE>
