Securities and Exchange Commission
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
January 16, 2001
Cadiz Inc.
(Exact name of issuer as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-12114 77-0313235
(Commission File Number) (IRS Employer Identification No.)
100 Wilshire Boulevard, Suite 1600, Santa Monica, CA 90401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 899-4700
ITEM 5. OTHER EVENTS.
Historical financial statements of Cadiz Inc. ("Cadiz") and its wholly-
owned subsidiary, Sun World International, Inc. ("Sun World"), are being
provided herein to ensure technical compliance with the requirements
of Financial Reporting Release No. 55 ("FRR-55"), which became effective
September 25, 2000.
The financial statements of Cadiz provided herein are in all respects
identical to the financial statements previously filed in the Cadiz Inc.
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and
the Cadiz Inc. Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2000, except for the expansion of Note 9 - Long Term Debt in
the statements which appeared in the 10-K and the addition of Note 4 - Long
Term Debt to the statements which appeared in the 10-Q.
The financial statements of Sun World provided herein are identical in
all respects to those which were previously distributed by Sun World to
holders of Sun World Series B First Mortgage Notes and which were utilized
by Cadiz in the preparation by Cadiz of its previously filed financial
statements on a consolidated basis.
CADIZ INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For the Nine Months Ended September 30, 2000 1999
---- ----
($ in thousands except per share data)
Revenues $ 90,240 $ 93,397
______ ______
Costs and expenses:
Cost of sales 75,064 68,882
General and administrative 9,066 9,348
Special litigation 360 817
Depreciation and amortization 6,815 7,229
______ ______
Total costs and expenses 91,305 86,276
______ ______
Operating profit (loss) (1,065) 7,121
Interest expense, net 14,401 13,457
______ ______
Net loss $ (15,466) $ (6,336)
========== ========
Basic and diluted loss per
common share $ (.44) $ (.18)
========= ========
Basic and diluted weighted
average shares outstanding 35,290 34,528
======= =======
See accompanying notes to the consolidated financial statements.
CADIZ INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, December 31,
($ in thousands) 2000 1999
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 548 $ 4,537
Accounts receivable, net 14,569 8,436
Inventories 14,596 18,423
Prepaid expenses and other 711 917
------ ------
Total current assets 30,424 32,313
Investment in partnership 1,528 1,497
Property, plant, equipment and
water programs, net 168,690 169,009
Other assets 11,641 11,283
------ ------
$212,283 $214,102
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $12,248 8,110
Accrued liabilities 9,738 7,686
Revolving credit facility 4,600 -
Long-term debt, current portion 25,451 725
------ ------
Total current liabilities 52,037 16,521
Long-term debt 117,999 142,089
Deferred income taxes 5,447 5,447
Other liabilities 672 375
Commitments and contingencies
Stockholders' equity:
Common stock - $.01 par value;
70,000,000 shares
authorized; shares issued
and outstanding -
35,432,910 at September 30,
2000 and 35,166,661 354 352
at December 31, 1999
Additional paid-in capital 138,122 136,200
Accumulated deficit (102,348) (86,882)
------- -------
Total stockholders' equity 36,128 49,670
------ ------
$212,283 $214,102
======== ========
See accompanying notes to the consolidated financial statements
CADIZ INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended September 30, 2000 1999
---- ----
($ in thousands)
Cash flows from operating activities:
Net loss $(15,466) $(6,336)
Adjustments to reconcile net
loss from operations
to net cash used for operating
activities:
Depreciation and amortization 8,768 8,824
Issuance of shares for compensation - 28
Gain on disposal of assets (3) (73)
Share of partnership operations (31) (318)
Stock earned for services (938) -
Changes in operating assets
and liabilities:
Increase in accounts receivable (6,133) (7,928)
Decrease (increase) in inventories 3,438 (3,860)
Decrease in prepaid expenses
and other 206 394
Increase in accounts payable 4,138 3,067
Increase in accrued liabilities 2,052 4,319
Increase (decrease) in other
liabilities 297 (241)
------ -------
Net cash used for operating
activities (3,672) (2,124)
------ ------
Cash flows from investing activities:
Additions to property, plant
and equipment (900) (4,629)
Proceeds from disposal of property,
plant and equipment 436 185
Additions to water programs (1,248) (2,023)
Additions to developing crops (3,066) (2,865)
Increase in other assets (371) (819)
------ ------
Net cash used for investing
activities (5,149) (10,151)
------ -------
Cash flows from financing activities:
Net proceeds from issuance of stock 652 6,438
Proceeds from issuance of long-term debt - 32
Principal payments on long-term debt (420) (281)
Net proceeds from short-term debt 4,600 -
------ -------
Net cash provided by financing
activities 4,832 6,189
------ ------
Net decrease in cash and cash
equivalents (3,989) (6,086)
Cash and cash equivalents,
beginning of period 4,537 13,635
------ ------
Cash and cash equivalents,
end of period $ 548 $ 7,549
======== =======
See accompanying notes to the consolidated financial statements
CADIZ INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
For the Nine Months Ended September 30, 2000
($ in thousands)
Additional Total
Common Stock Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
-------- ----- -------- --------- ----------
Balance as of
December 31, 1999 35,166,661 $ 352 $ 136,200 $ (86,882) $ 49,670
Exercise of stock
options and
warrants 166,249 1 651 - 652
Issuance of
warrants
to a lender - - 247 - 247
Stock issued for
services 100,000 1 1,024 - 1,025
Net loss - - - (15,466) (15,466)
------- ----- ------ ------- -------
Balance as of
September 30,
2000 35,432,910 $ 354 $ 138,122 $(102,348) $ 36,128
========== ===== ======== ========= =========
See accompanying notes to the consolidated financial statements.
CADIZ INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
_______________________________
The Consolidated Financial Statements have been prepared by the
Company without audit and should be read in conjunction with the
Consolidated Financial Statements and notes thereto included in the
Company's latest Form 10-K for the year ended December 31, 1999. The
foregoing Consolidated Financial Statements include all adjustments,
consisting only of normal recurring adjustments which the Company considers
necessary for a fair presentation. These financial statements reflect
certain reclassifications made to the prior period balances to conform with
the current year presentation. The results of operations for the nine
months ended September 30, 2000 are not necessarily indicative of the
results to be expected for the full fiscal year.
See Note 2 to the Consolidated Financial Statements included in the
Company's latest Form 10-K for a discussion of the Company's accounting
policies.
NOTE 2 - INVENTORIES
_____________________
Inventories consist of the following (dollars in thousands):
September 30, December 31,
2000 1999
---- ----
Growing crops $ 8,651 $ 14,297
Pepper seed 386 1,028
Harvested product 2,842 98
Materials and supplies 2,717 3,000
------ ------
$14,596 $ 18,423
======= ========
NOTE 3 - REVOLVING CREDIT FACILITY
----------------------------------
In February 2000, Sun World renewed its $30 million seasonal revolving
credit facility for an additional year. Amounts borrowed under the facility
accrue interest at prime plus 1.0% or LIBOR plus 2.5% at the Company's
election. In June 2000, the Company increased the revolving credit
facility to $33 million for the period from June 15, 2000 to July 31, 2000,
after which the maximum availability under the facility returned to $30
million.
NOTE 4 - LONG-TERM DEBT
-----------------------
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 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.
The First Mortgage Notes are also secured by the guarantees of
Coachella Growers, Inc., Sun Desert, Inc., Sun World Brands, Sun World
Management Corporation, Sun World/Rayo, and Sun World International de
Mexico S.A. de C.V. (collectively, the "Sun World Subsidiary Guarantors")
and by the Company. The Company also pledged all of the stock of Sun
World as collateral for its guarantee. Sun World and the Sun World
Subsidiary Guarantors are all direct and indirect wholly-owned subsidiaries
of the Company. The guarantees by the Sun World Subsidiary Guarantors are
full, unconditional, and joint and several. Sun World and the Sun World
Subsidiary Guarantors comprise all of the direct and indirect subsidiaries
of the Company other than inconsequential subsidiaries. Additionally,
management believes that the direct and indirect non-guarantor subsidiaries
of Cadiz are inconsequential, both individually and in the aggregate, to
the financial statements of the Company for all periods presented.
SUMMARIZED CONSOLIDATING FINANCIAL INFORMATION
In accordance with the release of Financial Release No. 55 ("FRR 55")
issued by the Securities and Exchange Commission, condensed consolidating
financial information as of and for the nine months ended September 30,
2000 and 1999 for the Company is as follows (in thousands):
Consolidating Statement
of Operations Information
Nine Months Ended
September 30, 2000 Cadiz Sun World Eliminations Consolidated
------- -------- ------------ ------------
Revenues $ 1,338 $ 90,224 $ (1,322) $ 90,240
------- -------- -------- ----------
Costs and expenses:
Cost of sales - 75,261 (197) 75,064
General and
administrative 3,323 6,868 (1,125) 9,066
Special litigation 360 - - 360
Depreciation and
amortization 877 5,938 - 6,815
------ ------ ------- -------
Total costs and expenses 4,560 88,067 (1,322) 91,305
------ ------ ------ ------
Operating profit (loss) (3,222) 2,157 - (1,065)
Interest expense, net 2,923 11,478 - 14,401
------ ------ ------- ------
Net loss $ (6,145) $ (9,321) $ - $(15,466)
======== ======== ======== ========
Consolidating
Balance Sheet
Information
September 30, 2000 Cadiz Sun World Eliminations Consolidated
------- -------- ------------ ------------
ASSETS
Current assets:
Cash and cash
equivalents $ - $ 548 $ - $ 548
Accounts receivable,
net 49 14,520 - 14,569
Due from affiliate - 742 (742) -
Inventories - 14,903 (307) 14,596
Prepaid expenses
and other 270 441 - 711
------ -------- -------- --------
Total current assets 319 31,154 (1,049) 30,424
Investment in partnership - 1,528 - 1,528
Investment in subsidiary 20,846 - (20,846) -
Property, plant,
equipment and
water programs, net 38,556 130,134 - 168,690
Other assets 4,135 7,506 - 11,641
------- ------- ------- ---------
$63,856 $ 170,322 $ (21,895) $ 212,283
======= ======== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 959 $ 11,289 $ - $ 12,248
Accrued liabilities 944 8,794 - 9,738
Due to affiliate 1,049 - (1,049) -
Revolving credit
facility - 4,600 - 4,600
Long-term debt,
current portion 24,717 734 - 25,451
------- ------- ------ ----------
Total current
liabilities 27,669 25,417 (1,049) 52,037
Long-term debt - 117,999 - 117,999
Deferred income taxes - 5,447 - 5,447
Other liabilities 59 613 - 672
Stockholders' equity:
Common stock 354 - - 354
Additional paid-in
capital 138,122 34,183 (34,183) 138,122
Accumulated deficit (102,348) (13,337) 13,337 (102,348)
-------- ------- ------ --------
Total stockholders'
equity 36,128 20,846 (20,846) 36,128
------- ------- ------ --------
$ 63,856 $170,322 $(21,895) $ 212,283
======== ======== ======== ==========
Consolidating Statement
of Cash Flow Information
Nine Months Ended
September 30, 2000 Cadiz Sun World Eliminations Consolidated
------- -------- --------- -----------
Net cash used for
operating activities $ (3,234) $ (438) $ - $ (3,672)
-------- -------- ------- ---------
Cash flows from
investing activities:
Additions to property,
plant and equipment (283) (617) - (900)
Proceeds from disposal
of property, plant and
equipment 1 435 - 436
Additions to water
programs (1,248) - - (1,248)
Additions to developing
crops - (3,066) - (3,066)
Increase in other assets (13) (358) - (371)
------ ------- ------- --------
Net cash used for
investing activities (1,543) (3,606) - (5,149)
Cash flows from
financing activities:
Net proceeds from
issuance of stock 652 - - 652
Principal payments
on long-term debt (20) (400) - (420)
Net proceeds from
short-term debt - 4,600 - 4,600
------ ------ ------ -------
Net cash proved by
financing activities 632 4,200 - 4,832
------ ------ ------ ------
Net (decrease) increase
in cash and
cash equivalents (4,145) 156 - (3,989)
Cash and cash equivalents,
beginning of period 4,145 392 - 4,537
------- ------- ------- -------
Cash and cash equivalents,
end of period $ - $ 548 $ - $ 548
======= ======= ======= =========
Consolidating Statement
of Operations Information
Nine Months Ended
September 30, 1999 Cadiz Sun World Eliminations Consolidated
------- -------- ------------ ------------
Revenues $ 1,134 $ 93,388 $ (1,125) $ 93,397
------- -------- -------- ---------
Costs and expenses:
Cost of sales - 68,882 - 68,882
General and administrative 3,645 6,828 (1,125) 9,348
Special litigation 817 - - 817
Depreciation and
amortization 884 6,345 - 7,229
------- ------- ------- --------
Total costs and
expenses 5,346 82,055 (1,125) 86,276
------ ------- ------- -------
Operating profit (loss) (4,212) 11,333 - 7,121
Interest expense, net 2,097 11,360 - 13,457
------ ------ ------- ------
Net loss $(6,309) $ (27) $ - $ (6,336)
======= ======= ======= =========
Consolidating Balance
Sheet Information
December 31, 1999 Cadiz Sun World Eliminations Consolidated
------- -------- ------------- ------------
ASSETS
Current assets:
Cash and cash
equivalents $ 4,145 $ 392 $ - $ 4,537
Accounts receivable,
net 16 8,431 (11) 8,436
Inventories - 18,626 (203) 18,423
Prepaid expenses
and other 386 531 - 917
------- ------- ------- --------
Total current
assets 4,547 27,980 (214) 32,313
Investment in partnership - 1,497 - 1,497
Investment in subsidiary 30,167 - (30,167) -
Property, plant,
equipment and
water programs, net 36,710 132,299 - 169,009
Other assets 4,372 6,911 - 11,283
------- ------- ------- --------
$ 75,796 $ 168,687 $ (30,381) $ 214,102
======= ========= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 705 $ 7,416 $ (11) $ 8,110
Accrued liabilities 1,536 6,150 - 7,686
Due to affiliate 203 - (203) -
Long-term debt, current
portion 21 704 - 725
------- ------- ------- --------
Total current liabilities 2,465 14,270 (214) 16,521
Long-term debt 23,661 118,428 - 142,089
Deferred income taxes - 5,447 - 5,447
Other liabilities - 375 - 375
Stockholders' equity:
Common stock 352 - - 352
Additional paid-in capital 136,200 34,183 (34,183) 136,200
Accumulated deficit (86,882) (4,016) 4,016 (86,882)
------- ------- ------- --------
Total stockholders'
equity 49,670 30,167 (30,167) 49,670
------ ------ ------ ------
$ 75,796 $ 168,687 $ (30,381) $ 214,102
======= ========= ========= =========
Consolidating Statement
of Cash Flow Information
Nine Months Ended
September 30, 1999 Cadiz Sun World Eliminations Consolidated
------- --------- ------------ ------------
Net cash (used for)
provided by
operating activities $ (3,296) $ 1,172 $ - $ (2,124)
-------- --------- --------- ----------
Cash flows from
investing activities:
Additions to property,
plant and equipment (3,587) (2,539) 1,497 (4,629)
Proceeds from disposal
of property, plant and
equipment 1,490 185 (1,490) 185
Additions to water
programs (2,016) - (7) (2,023)
Additions to developing
crops - (2,865) - (2,865)
Increase in other assets (262) (557) - (819)
------ ------- ------- --------
Net cash used for
investing activities (4,375) (5,776) - (10,151)
Cash flows from
financing activities:
Net proceeds issuance
of stock 6,438 - - 6,438
Proceeds from issuance
of long-term debt - 32 - 32
Principal payments on
long-term debt (7) (274) - (281)
------ ------ ------ --------
Net cash provided by
(used for)
financing activities 6,431 (242) - 6,189
Net decrease in cash
and cash equivalents (1,240) (4,846) - (6,086)
Cash and cash equivalents,
beginning of period 7,493 6,142 - 13,635
------ ------ ------- --------
Cash and cash equivalents,
end of period $ 6,253 $ 1,296 $ - $ 7,549
======= ======= ======= ========
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Cadiz Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and
of cash flows 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.
These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our 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
<TABLE>
<CAPTION>
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
------ ----- ------ ------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
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.
</TABLE>
CADIZ INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
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
------ ----- ------ ------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
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 in 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 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.
The First Mortgage Notes are also secured by the guarantees of
Coachella Growers, Inc., Sun Desert, Inc., Sun World Brands, Sun World
Management Corporation, Sun World/Rayo, and Sun World International de
Mexico S.A. de C.V. (collectively, the "Sun World Subsidiary Guarantors")
and by the Company. The Company also pledged all of the stock of Sun
World as collateral for its guarantee. Sun World and the Sun World Subsidiary
Guarantors are all direct and indirect wholly-owned subsidiaries of the
Company. The guarantees by the Sun World Subsidiary Guarantors are full,
unconditional, and joint and several. Sun World and the Sun World
Subsidiary Guarantors comprise all of the direct and indirect subsidiaries
of the Company other than inconsequential subsidiaries. Additionally,
management believes that the direct and indirect non-guarantor subsidiaries
of Cadiz are inconsequential, both individually and in the aggregate, to the
financial statements of the Company for all periods presented.
SUMMARIZED CONSOLIDATING FINANCIAL INFORMATION
In accordance with the release of Financial Release No. 55 ("FRR 55")
issued by the Securities and Exchange Commission, condensed consolidating
financial information as of and for the two years ended December 31, 1999
and 1998 for the Company is as follows (in thousands):
Consolidating Statement
of Operations Information
Year Ended
December 31, 1999 Cadiz Sun World Eliminations Consolidated
------ --------- ------------ ------------
Revenues $ 1,829 $ 114,890 $ (1,818) $ 114,901
Income from partnership - 328 - 328
------- --------- -------- ---------
Total revenues 1,829 115,218 (1,818) 115,229
------- --------- -------- ---------
Costs and expenses:
Cost of sales 132 84,140 (451) 83,821
General and
administrative 4,672 9,058 (1,367) 12,363
Special litigation 937 - - 937
Depreciation and
amortization 1,179 7,712 - 8,891
------- --------- -------- ---------
Total costs and expenses 6,920 100,910 (1,818) 106,012
------- --------- -------- ---------
Operating profit (loss) (5,091) 14,308 - 9,217
Interest expense, net 2,932 14,879 - 17,811
------- --------- -------- ---------
Net loss $(8,023) $ (571) $ - $ (8,594)
======= ========= ======== ==========
Consolidating
Balance Sheet Information
December 31, 1999 Cadiz Sun World Eliminations Consolidated
------ --------- ------------ ------------
ASSETS
Current assets:
Cash and cash
equivalents $ 4,145 $ 392 $ - $ 4,537
Accounts receivable,
net 16 8,431 (11) 8,436
Inventories - 18,626 (203) 18,423
Prepaid expenses
and other 386 531 - 917
------- --------- -------- ---------
Total current assets 4,547 27,980 (214) 32,313
Investment in partnership - 1,497 - 1,497
Investment in subsidiary 30,167 - (30,167) -
Property, plant,
equipment and
water programs, net 36,710 132,299 - 169,009
Other assets 4,372 6,911 - 11,283
------- --------- -------- ---------
$ 75,796 $ 168,687 $(30,381) $ 214,102
======= ========= ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 705 $ 7,416 $ (11) $ 8,110
Accrued liabilities 1,536 6,150 - 7,686
Due to affiliate 203 - (203) -
Long-term debt,
current portion 21 704 - 725
------- --------- -------- ---------
Total current
liabilities 2,465 14,270 (214) 16,521
Long-term debt 23,661 118,428 - 142,089
Deferred income taxes - 5,447 - 5,447
Other liabilities - 375 - 375
Stockholders' equity:
Common stock 352 - - 352
Additional paid-in
capital 136,200 34,183 (34,183) 136,200
Accumulated deficit (86,882) (4,016) 4,016 (86,882)
------- --------- -------- ---------
Total stockholders'
equity 49,670 30,167 (30,167) 49,670
------- --------- -------- ---------
$ 75,796 $ 168,687 $ (30,381) $ 214,102
======= ========== ========= =========
Consolidating Statement
of Cash Flow Information
Year Ended
December 31, 1999 Cadiz Sun World Eliminations Consolidated
------ --------- ------------ ------------
Net cash (used for)
provided by
operating activities $ (4,746) $ 2,151 $ - $ (2,595)
-------- -------- --------- ---------
Cash flows from investing
activities:
Additions to property,
plant and equipment (3,645) (2,680) 1,490 (4,835)
Additions to water
programs (3,177) - - (3,177)
Additions to
developing crops - (3,531) - (3,531)
Proceeds from
disposal of
property,
plant and equipment 1,490 233 (1,490) 233
Increase in other
assets (64) (1,247) - (1,311)
------ ------- ------ -------
Net cash used for
investing activities (5,396) (7,225) - (12,621)
Cash flows from
financing activities:
Net proceeds from
issuance of stock 6,803 - - 6,803
Principal payments
on long-term debt (9) (676) - (685)
------ ------- ------- -------
Net cash provided by
(used for)
financing activities 6,794 (676) - 6,118
------- -------- ------- --------
Net decrease in cash
and cash equivalents (3,348) (5,750) - (9,098)
Cash and cash equivalents,
beginning of period 7,493 6,142 - 13,635
------- -------- ------- --------
Cash and cash equivalents,
end of period $ 4,145 $ 392 $ - $ 4,537
======= ======== ====== =========
Consolidating
Statement of
Operations Information
Year Ended
December 31, 1998 Cadiz Sun World Eliminations Consolidated
------ --------- ------------ ------------
Revenues $ 2,003 $ 95,742 $ (1,900) $ 95,845
Income from partnership - 10,699 - 10,699
------- --------- -------- --------
Total revenues 2,003 106,441 (1,900) 106,544
Costs and expenses:
Cost of sales 144 75,015 (417) 74,742
General and administrative 4,631 8,588 (1,483) 11,736
Special litigation 1,308 - - 1,308
Depreciation and
amortization 1,182 7,506 - 8,688
------- --------- -------- --------
Total costs and expenses 7,265 91,109 (1,900) 96,474
------- --------- -------- --------
Operating profit (loss) (5,262) 15,332 - 10,070
Interest expense, net 2,403 15,137 - 17,540
------- --------- -------- --------
Net income (loss) (7,665) $ 195 $ - $ (7,470)
======= ========= ======== =========
Consolidating
Balance Sheet Information
December 31, 1998 Cadiz Sun World Eliminations Consolidated
------ --------- ------------ ------------
ASSETS
Current assets:
Cash and cash
equivalents $ 7,493 $ 6,142 $ - $ 13,635
Accounts receivable,
net 77 6,218 - 6,295
Due from affiliate 71 - (71) -
Inventories - 15,140 (121) 15,019
Prepaid expenses and
other 253 739 - 992
------- --------- -------- --------
Total current assets 7,894 28,239 (192) 35,941
Investment in partnership - 1,169 - 1,169
Investment in subsidiary 30,738 - (30,738) -
Property, plant,
equipment and
water programs, net 32,174 133,848 - 166,022
Other assets 4,585 6,642 - 11,227
------- --------- -------- --------
$75,391 $ 169,898 $ (30,930) $ 214,359
======= ========= ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 701 $ 8,052 $ - $ 8,753
Accrued liabilities 1,826 5,020 - 6,846
Due to affiliate - 192 (192) -
Long-term debt,
current portion 9 604 - 613
------- --------- -------- --------
Total current liabilities 2,536 13,868 (192) 16,212
Long-term debt 23,145 119,172 - 142,317
Deferred income taxes - 5,447 - 5,447
Other liabilities - 673 - 673
Stockholders' equity:
Common stock 336 - - 336
Additional paid-in
capital 127,662 34,183 (34,183) 127,662
Accumulated deficit (78,288) (3,445) 3,445 (78,288)
------- --------- -------- --------
Total stockholders'
equity 49,710 30,738 (30,738) 49,710
------- --------- -------- --------
$ 75,391 $ 169,898 $ (30,930) $ 214,359
======= ========= ======== ==========
Consolidating
Statement of
Cash Flow Information
Year Ended
December 31, 1998 Cadiz Sun World Eliminations Consolidated
------ --------- ------------ ------------
Net cash used for
operating activities $ (4,420) $ (3,477) $ - $ (7,897)
------- --------- -------- --------
Cash flows from
investing activities:
Additions to property,
plant and equipment (2,910) (4,398) - (7,308)
Additions to water
programs (856) - - (856)
Additions to
developing crops - (3,396) - (3,396)
Proceeds from disposal
of property,
plant and equipment 27 361 - 388
Partnership distributions - 15,859 - 15,859
Increase in other assets (71) (1,949) - (2,020)
------- --------- -------- --------
Net cash (used for)
provided by
investing activities (3,810) 6,477 - 2,667
Cash flows from
financing activities:
Net proceeds from
issuance of stock 2,154 - - 2,154
Proceeds from
issuance of
long-term debt 10,000 2,000 - 12,000
Principal payments
on long-term debt (21) (566) - (587)
------- --------- -------- --------
Net cash provided
by financing activities 12,133 1,434 - 13,567
------- --------- -------- --------
Net increase in cash
and cash equivalents 3,903 4,434 - 8,337
Cash and cash equivalents,
beginning of period 3,590 1,708 - 5,298
------- --------- -------- --------
Cash and cash equivalents
end of period $ 7,493 $ 6,142 $ - $ 13,635
======= ========= ====== ==========
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
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Sun World International, Inc.
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations and accumulated deficit and
cash flows present fairly, in all material respects, the financial position
of Sun World International, Inc., a wholly-owned subsidiary 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. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our 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
SUN WORLD INTERNATIONAL, INC.
(A Wholly-Owned Subsidiary of Cadiz Inc.)
Consolidated Financial Statements
For the Three Years Ended December 31, 1999
SUN WORLD INTERNATIONAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)
Consolidated Statement of Operations and Accumulated Deficit
Year Ended December 31,
($ in thousands) 1999 1998 1997
____ ____ ____
Revenues $ 114,890 $ 95,742 $ 98,541
Income from partnerships 328 10,699 1,388
_________ ________ ________
Total revenues 115,218 106,441 99,929
_________ ________ ________
Costs and expenses:
Cost of sales 84,140 75,015 76,535
General and administrative 9,058 8,588 9,332
Litigation benefit - - (3,780)
Depreciation and amortization 7,712 7,506 6,751
_________ ________ ________
100,910 91,109 88,838
_________ ________ ________
Operating income 14,308 15,332 11,091
Interest expense, net 14,879 15,137 13,908
_________ ________ ________
Net income (loss) (571) 195 (2,817)
Accumulated deficit at
beginning of period (3,445) (3,640) (823)
_________ ________ ________
Accumulated deficit at
end of period $ (4,016) $ (3,445) $ (3,640)
========== ========= ========
See accompanying notes to the consolidated financial statements.
SUN WORLD INTERNATIONAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)
Consolidated Balance Sheet
December 31,
($ in thousands) 1999 1998
____ ____
ASSETS
Current assets:
Cash and cash equivalents $ 392 $ 6,142
Accounts receivable, net 8,431 6,218
Inventories 18,625 15,140
Prepaid expenses and other 531 738
_______ _______
Total current assets 27,979 28,238
Investment in partnerships 1,497 1,169
Property, plant, equipment, and
water programs, net 132,298 133,848
Other assets 6,911 6,643
_______ _______
Total assets $168,685 $169,898
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 7,415 $ 8,052
Accrued liabilities 6,149 5,020
Due to parent - 193
Long term debt due in one year 704 604
_______ _______
Total current liabilities 14,268 13,869
Long-term debt 118,429 119,172
Deferred income taxes 5,447 5,447
Other liabilities 374 672
Commitments and contingencies
Stockholder's equity:
Common stock, $.01 par value,
300,000 shares authorized;
42,000 shares issued and outstanding - -
Additional paid-in capital 34,183 34,183
Accumulated deficit (4,016) (3,445)
________ ________
Total stockholder's equity 30,167 30,738
________ ________
Total liabilities and
stockholder's equity $168,685 $169,898
======== ========
See accompanying notes to the consolidated financial statements.
SUN WORLD INTERNATIONAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)
Consolidated Statement of Cash Flows
Year Ended December 31,
($ in thousands) 1999 1998 1997
____ ____ ____
Cash flows from operating activities:
Net income (loss) $ (571) $ 195 $ (2,817)
Adjustments to reconcile net
income (loss) to net
cash provided by (used for)
operating activities:
Depreciation and amortization 8,570 8,450 7,764
Litigation benefit - - (3,780)
Gain on disposal of assets (110) (189) (38)
Share of partnership operations (328) (10,699) (1,388)
Changes in operating assets
and liabilities:
(Increase) decrease in accounts
receivable (2,213) (355) 1,639
(Increase) decrease in inventories (3,405) (1,637) 520
Decrease in prepaid expenses
and other 207 431 295
(Decrease) increase in accounts payable (637) 245 1,704
Increase (decrease) in accrued
liabilities 1,129 (90) 1,060
(Decrease) increase in due to parent (193) 107 (246)
Decrease in other current liabilities - - (591)
Decrease) increase in other
liabilities (298) 68 64
________ ________ ________
Net cash provided by (used for)
operating activities 2,151 (3,474) 4,186
________ ________ _______
Cash flows from investing activities:
Additions to property, plant, equipment,
and water programs (2,679) (4,399) (1,476)
Additions to developing crops (3,531) (3,396) (4,725)
Proceeds from disposal of property,
plant and equipment 233 361 2,784
Partnership distributions - 15,859 1,165
(Increase) decrease in other assets (1,249) (1,950) 472
________ ________ ________
Net cash (used for) provided by
investing activities (7,226) 6,475 (1,780)
________ ________ ________
Cash flows from financing activities:
Proceeds from issuance of long-term debt - 2,000 115,005
Principal payments on long-term debt (675) (567) (132,017)
Debt issuance costs - - (5,761)
Return of capital to parent - - (9,100)
_______ _______ ________
Net cash (used for) provided by
financing activities (675) 1,433 (31,873)
________ ________ ________
Net (decrease) increase in cash
and cash equivalents (5,750) 4,434 (29,467)
________ ________ ________
Cash and cash equivalents at
beginning of period 6,142 1,708 31,175
________ ________ ________
Cash and cash equivalents at end
of period $ 392 $ 6,142 $ 1,708
====== ======== ==========
See accompanying notes to the consolidated financial statements.
SUN WORLD INTERNATIONAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)
Notes to Consolidated Financial Statements
NOTE 1 - NATURE OF OPERATIONS
______________________________
Founded in 1975, Sun World International, Inc. ("SWII") and its
subsidiaries (the "Company") operates as the agricultural segment of
Cadiz Inc. ("Cadiz"). The Company is an integrated agricultural
operation that 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, packed and shipped to food
wholesalers and retailers located throughout the United States and to
more than 25 foreign countries. The Company owns and operates three cold
storage and/or packing facilities located in California, of which two
are operated and one is leased to a third party.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
__________________________________________________
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of SWII
and its subsidiaries, substantially all of which are wholly-owned. All
significant intercompany transactions have been eliminated.
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
The Company incurs costs to research and develop new varieties of
proprietary products. Research and development costs are expensed as
incurred. Such costs were approximately $1,450,000 for the year ended
December 31, 1999, $1,249,000 for the year ended December 31, 1998,
$809,000 for the year ended December 31, 1997.
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 PARTNERSHIPS
The Company, 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, The Company 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. The Company 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 usually 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 programs are stated at cost. All costs directly
attributable to the development of such programs are being capitalized
by the Company.
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 fair value.
OTHER ASSETS
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
The Company is included in the consolidated federal and combined
state tax returns of Cadiz. The Company and Cadiz have a tax sharing
agreement which provides that the Company's current tax liability is
determined as though the Company filed its own returns. 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 payments for interest for the years ended December 31, 1999,
1998 and 1997 were $14,204,000, $14,362,000 and $11,802,000,
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 growers 582 231
Other 3,331 2,179
______ ______
8,655 6,502
Less allowance for doubtful accounts (224) (284)
______ ______
$ 8,431 $ 6,218
======= ======
Substantially all domestic trade 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 the Company 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 in 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 $14,499 $11,329
Pepper seed 1,028 1,344
Harvested product 98 360
Materials and supplies 3,000 2,107
_______ _______
$18,625 $15,140
======== =======
NOTE 5 - PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS
_______________________________________________________
Property, plant, equipment, and water projects consist of the
following (dollars in thousands):
December 31,
1999 1998
____ ____
Land $51,588 $50,112
Permanent crops 58,129 58,893
Developing crops 8,862 5,167
Buildings 20,440 20,381
Machinery and equipment 13,540 12,508
Water programs 2,135 2,135
_______ _______
154,694 149,196
Less accumulated depreciation (22,396) (15,348)
_______ _______
$132,298 $133,848
======== ========
NOTE 6 - OTHER ASSETS
_____________________
Other assets consist of the following (dollars in thousands):
December 31,
1999 1998
____ ____
Capitalized loan fees, net $ 3,274 $ 4,088
Other receivables 1,849 1,498
Capitalized trademark development, net 1,323 989
Other 465 68
_______ _______
$ 6,911 $ 6,643
======= =======
NOTE 7 - ACCRUED LIABILITIES
____________________________
Accrued liabilities consist of the following (dollars in
thousands):
December 31,
1999 1998
____ ____
Interest $ 2,732 $ 2,732
Payroll and benefits 2,298 1,375
Other 1,119 913
_______ _______
$ 6,149 $ 5,020
======= =======
NOTE 8 - REVOLVING CREDIT FACILITIES
__________________________________________
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 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
____ ____
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
Less: current portion (704) (604)
________ ________
$ 118,429 $ 119,172
========= ========
Annual maturities of long-term debt outstanding on December 31, 1999
are as follows: 2000 - $704; 2001 - $738; 2002 - $660; 2003 - $578;
2004 - $115,599 and thereafter - $854.
In April 1997, the Company issued $115 million of Series A First
Mortgage Note 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 the Company 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 Cadiz and by
certain subsidiaries of the Company. Cadiz also pledged all of its stock
in the Company as collateral for its guarantee.
The guarantees by the Sun World Subsidiary Guarantors are full,
unconditional, and joint and several. Sun World and the Sun World
Subsidiary Guarantors comprise all of the direct and indirect subsidiaries
of Cadiz other than inconsequential subsidiaries. Additionally,
management believes that the direct and indirect non-guarantor subsidiaries
are inconsequential, both individually and in the aggregate, to the
financial statements of the Company for all periods presented.
The First Mortgage Notes mature April 15, 2004, but are redeemable at
the option of the Company, in whole or in part, at any time on or after
April 15, 2001. The First Mortgage Notes include covenants, which restrict
Cadiz ability to receive distributions from the Company.
NOTE 10 - INCOME TAXES
__________________________
Significant components of the Company's deferred income tax assets
and liabilities as of December 31, 1999 and 1998 are as follows (dollars
in thousands):
December 31,
1999 1998
____ ____
Deferred tax liabilities:
Net fixed assets basis difference $ 8,141 $ 5,819
________ _______
Total deferred tax liabilities 8,141 5,819
_______ _______
Deferred tax assets:
Net operating losses 4,513 3,220
Reserve for notes receivable 1,178 1,178
State taxes 4,246 1,851
Other 944 483
_______ _______
Total deferred tax assets 10,881 6,732
Valuation allowance for deferred
tax assets (8,187) (6,360)
________ ________
Total deferred tax assets net 2,694 372
_______ ________
Net deferred tax liability $ 5,447 $ 5,447
======= =======
As of December 31, 1999, the Company has net operating loss (NOL)
carryforwards of approximately $12.0 million for federal income tax
purposes. Such carryforwards expire in varying amounts through the year
2019. As of December 31, 1999, the Company has state NOL carryforwards
of approximately $4.9 million. These NOL carryforwards expire in
varying amounts through the year 2004.
A reconciliation of the income tax expense to the statutory federal
income tax rate is as follows (dollars in thousands):
Year Ended
December 31,
1999 1998
____ ____
Expected federal income tax (benefit)
expense at 34% $ (194) $ 66
Loss with no tax benefit provided 139 -
State income tax - 424
Utilization of net operating losses - (515)
Other non-deductible expenses 55 25
_______ ________
Income tax expense $ - $ -
======== =======
NOTE 11 - EMPLOYEE BENEFIT PLANS
________________________________
The Company participates in the Cadiz Inc. 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. The
Company matches 75% of the first four percent deferred by an employee up
to $1,600 per year. In addition, the Company 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 - RELATED PARTY TRANSACTIONS
_____________________________________
Cadiz owns approximately 1,600 acres of irrigated farmland in San
Bernardino County consisting primarily of citrus and grapes. Pursuant
to a ten year lease entered into as of the acquisition date, the Company
is responsible for the production, packing and handling, and marketing
of the products on the Cadiz property. Pursuant to the lease as amended
in April 1997, Cadiz is to receive annual land rent of $250 per acre or
$400,000. In addition, the Company entered into a services agreement
with Cadiz in which Cadiz provides management and financial services to
the Company. The term of the agreement is ten years with an annual fee
of $1.5 million. The agreement provides for certain other reimbursement
of expenses incurred on behalf of the Company. The Company made payments
to Cadiz of $2.4 million for 1999 and 1998 and $2.1 million for 1997
pursuant to the services agreement and the lease agreement mentioned
above. In addition, the Company purchased a citrus ranch from Cadiz at
book value of $1.5 million in January 1999.
The Company 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 or
1998.
NOTE 13 - CONTINGENCIES
_______________________
Prior to the acquisition of the Company by Cadiz, the Internal
Revenue Service (IRS) had filed claims against the Company 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 and Accumulated Deficit 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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Cadiz Inc.
By: /s/ Stanley E. Speer
------------------------------
Stanley E. Speer
Chief Financial Officer
Dated: January 16, 2001
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