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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, 2000
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
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 26, 2001, the registrant had 35,709,924 shares of Common Stock
outstanding. The aggregate market value of the Common Stock held by
nonaffiliates as of March 23, 2001 was approximately $310,669,000 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 14, 2001, 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
The combination of considerable population increases and limited supplies
are placing great demands on water resources both in California and worldwide.
Compounding the issue, many population centers are not 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 in locations worldwide
including California and its 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, and 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.
Additionally, product innovation from its fruit breeding programs,
international licensing programs, global marketing reach, and highly regarded
Sun World brand name, provides the Company's agricultural operations with a
strong position in the ongoing consolidation in the global retail grocery
industry. The Company's agricultural operations are provided through its
wholly-owned subsidiary, Sun World International, Inc. and its subsidiaries
(collectively "Sun World"), one of the largest developers, growers, producers
and marketers of proprietary fruits and vegetables in California, specializing
in high-value permanent crops. Currently, Sun World owns more than 19,000
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 (and the exclusive
option to receive up to an additional 7,000 acres in connection with the
Company's settlement of certain litigation in March 2001 - See Item 3. "Legal
Proceedings") that are substantially 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 ("Principles") for the Cadiz Groundwater Storage and
Dry-Year Supply Program (the "Cadiz Program"), authorized preparation of a
final agreement based on these Principles and initiated the environmental
review process for the Cadiz Program. Following extensive negotiations with
the Company to further refine and finalize these basic Principles,
Metropolitan submitted definitive economic terms and responsibilities
("Definitive Terms") to its Board of Directors in March 2001 for anticipated
consideration at a forthcoming Board meeting. A Special Oversight Committee
of Metropolitan's directors, charged with negotiating the Definitive Terms,
have unanimously recommended approval of these proposed Definitive Terms.
The Cadiz 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 2000, the Company and Metropolitan completed several significant
milestones in the environmental review process. This process must be
completed before construction and operation of the Cadiz Program can commence.
A Draft Environmental Impact Report/Environmental Impact Statement
("DEIR/EIS") was issued by Metropolitan and the U. S. Bureau of Land
Management ("BLM") in November 1999 for public review and comment. The public
comment period closed in March 2000. The DEIR/DEIS 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.
In October 2000, Metropolitan and BLM published a Supplement to the
previously released DEIR/EIS for public review and comment. The Supplement
included a comprehensive Groundwater Monitoring and Management Plan
("Management Plan") that is designed to ensure the safe operation of the
aquifer system underlying the Company's agricultural property and to protect
surrounding environmental resources - during and after the life of the Cadiz
Program operations. Prepared collaboratively by Metropolitan, the BLM, the U.
S. Geological Survey, the National Park Service, the County of San Bernardino
and the Company, the Management Plan addresses key water resource and related
air quality concerns that were raised in public comment on the DEIR/EIS.
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 areas - the first being
the Tushka site. Construction is well underway with the main canal, pumping
station and branch canals slated to be complete and operational in 2002. The
initial commercial plantings of permanent crops for the Tushka Project will
follow in early 2003. 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.
The increasing scarcity of water supplies, coupled with increased demand
from population growth, is not just a California issue but a worldwide issue.
The Company's California experience in water resource management and
development provides a strong foundation for pursuing water resource
opportunities internationally, including in the Middle East in partnership
with KADCO.
Sun World, which was acquired by the Company in September 1996, owns
approximately 19,000 acres of prime agricultural land primarily in the San
Joaquin and Coachella Valleys, giving the Company total landholdings of
approximately 56,200 acres. Additionally, the Company has an exclusive option
to receive up to 7,000 acres in eastern San Bernardino County. See Item 2,
"Properties."
(b) Financial Information about Industry Segments
_____________________________________________
During the year ended December 31, 2000, 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. Precipitation falls within a catchment area of nearly
1,300 square miles, providing annual recharge to the basin. See Item 2,
"Properties - The Cadiz/Fenner Property."
In July 1998, the Company and Metropolitan entered into Principles and
Terms for Agreement ("Principles") for the Cadiz 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 Cadiz Program will have the
capacity to convey, either for storage or transfer, up to 150,000 acre-feet in
any given year during its 50-year term.
Subsequently, Metropolitan, following extensive negotiations with the
Company to further refine and finalize these basic principles and terms,
submitted definitive economic terms and responsibilities ("Definitive Terms")
to its Board of Directors in March 2001 for anticipated consideration at a
forthcoming Board meeting. Until such consideration and action by both the
Company's and Metropolitan's Boards, the proposed Definitive Terms will remain
proposed and subject to change. In addition, execution of a final agreement
will be contingent upon and subject to completion of the ongoing environmental
review process for the Cadiz Program.
Pursuant to the proposed Definitive Terms, during storage operations,
Metropolitan will pay a $50 fee per acre-foot for put of Colorado River water
into storage, and a $40 fee per acre-foot for return of Colorado River water
from storage, or a total of $90 per acre-foot to cycle water into and out of
the basin. On the transfer of indigenous water, Metropolitan will pay a base
rate of $230 per acre-foot, which will be adjusted according to a fair market
value adjustment procedure. Metropolitan has committed to minimum levels of
utilization of the Cadiz Program for both storage of Colorado River Aqueduct
water (900,000 acre-feet) and transfer of indigenous groundwater (up to
1,500,000 acre-feet). In addition, the Definitive Terms now provide Cadiz the
option to sell a portion of the indigenous groundwater (30,000 acre-feet per
year for 25 years or a total of 750,000 acre-feet) to outside third parties
within Metropolitan's service area at fair market value.
The Cadiz 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 jointly 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 Cadiz Program,
including annual operations, maintenance and energy costs, will be an
obligation of Metropolitan. However, the Company will assume pro rata
operational costs associated with the sale of indigenous groundwater to third
parties.
The Principles and Definitive Terms 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 the Definitive Terms 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 Cadiz 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 involves
significant public review and comment and often draws opposition from third
parties.
During 2000, the Company and Metropolitan completed several significant
milestones in the environmental review process, publishing a DEIR/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
DEIR/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.
In October 2000, Metropolitan and BLM published a Supplement to the
previously released DEIR/EIS for public review and comment. The Supplement
included a comprehensive Groundwater Monitoring and Management Plan
("Management Plan") that is designed to ensure the safe operation of the
aquifer system underlying the Company's agricultural property and to protect
surrounding environmental resources - during and after the life of Cadiz
Program operations. Prepared collaboratively by Metropolitan, the BLM, the U.
S. Geological Survey, the National Park Service, the County of San Bernardino
and Cadiz Inc., the Management Plan addresses key water resource and related
air quality concerns that were raised during circulation of the DEIR/EIS for
the Cadiz Program. The public comment period closed on January 8, 2001.
The Final EIR/EIS, which includes technical information contained within
the DEIR/EIS and the Supplement and responses to comments received from the
public, is currently being prepared by Metropolitan and the BLM, in
collaboration with the U.S. Geological Survey and the National Park Service.
The Cadiz Program is anticipated to be operational within 18 months of
obtaining certification and approval of the Final EIR/EIS.
OTHER EASTERN MOJAVE PROPERTIES. The Company's water development
activities 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 investigations are ongoing regarding the
development of the property for a variety of uses.
Additionally, the Company currently owns or controls additional acreage
located throughout other areas of the eastern 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, 2000, Sun
World recorded revenues of $107.7 million.
PRODUCT LINE. Sun World ships approximately 75 different varieties of
fresh fruits and vegetables to all 50 states and to more than 30 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, lemons 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, 2000 from its approximately 14,500 planted acres. 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 1,500 acres are currently utilized for developing crops
(e.g., new 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, that
possess superior proprietary characteristics and/or are available for delivery
at peak pricing windows throughout the year.
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;
(ii) a full complement of handling services that include harvest, cooling,
packing and shipping; and (iii) an internal sales and marketing force
servicing over 550 customers throughout the world.
Sun World's packing facilities handled approximately 9 million units of
produce during the year ended December 31, 2000. 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 2000, the Company sold approximately 12 million units with
wholesale value of approximately $110 million. This amount includes sales
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 550 accounts including
supermarket retailers, food service entities, warehouse clubs, and
international trading companies located in approximately 30 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. During 2000, approximately 10% of
Sun World's products were marketed outside of the United States in Canada,
Europe, Australia, Japan, Hong Kong, Singapore, Malaysia, Taiwan, Middle East
and South Africa. Only one national retailer, Safeway Stores, (representing
approximately 12%) accounted for more than 10% of Sun World's revenues in
2000. 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, the Black Diamond(R) plum, the Amber Crest(R) peach and the
Honeycot(R) apricot. During 2000, Sun World filed for twelve new plant
patents in the United States, including six new varieties of table grapes,
three new varieties of plums and three new varieties of peaches. Management
believes that these products and several other promising grape and stonefruit
varieties will be planted commercially 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 $1,636,000 for the
year ended December 31, 2000, $1,450,000 for the year ended December 31, 1999
and $1,249,000 for the year ended December 31, 1998.
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 Australia, Egypt, Israel, Italy, Morocco,
South Africa, Spain and the United States and expects additional licensing
agreements to be signed in 2001. 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 the main canal, pumping station and branch canals slated
to be complete and operational in 2002. The initial commercial plantings of
permanent crops for the Tushka Project will follow in early 2003. Concurrent
to the development of necessary infrastructure, a research site and nursery,
including 300 acres of test plots irrigated with local groundwater, have been
established. 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 management agreement, signed in October 1999, has a four-year
term with an option to extend for multiple further terms.
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, 2000, the Company employed a total of 1,175 full-time
employees. Sun World, throughout the year, engages various part-time and
seasonal employees, with a seasonal high of approximately 2,000 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 230 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
2001.
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 Cadiz 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 Cadiz 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. In March 2001, the Company obtained the exclusive option to
receive up to 7,000 acres of land primarily located adjacent to the Company's
existing properties in the Cadiz and Fenner Valleys in connection with the
Company's settlement of certain litigation. See Item 3 "Legal Proceedings."
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 Cadiz 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 19,000 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.
OTHER EASTERN MOJAVE PROPERTIES
In addition to the Cadiz properties, the Company owns approximately
10,300 additional acres in the eastern Mojave Desert, including the Piute and
Danby Lake properties.
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, approximately 60 miles south of Las
Vegas. 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.
DEBT SECURED BY PROPERTIES
Of the Company's outstanding debt at December 31, 2000, $118.4 million
represents loans secured by substantially all of Sun World's properties and
$25.3 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
On March 13, 2001, the Company and Waste Management, Inc., Waste
Management Holdings, Inc., a successor-by-merger to Waste Management of North
America, Inc., and Rail-Cycle L.P. (collectively referred to herein as "Waste
Management") executed a settlement agreement ("Settlement Agreement") intended
to fully and finally compromise and settle the claims asserted by the Company
against Waste Management in the action styled CADIZ LAND COMPANY, INC. vs.
COUNTY OF SAN BERNARDINO, ET AL., CASE NO. BCV 02341 (San Bernardino Superior
Court) (the "CEQA Action") and the civil action filed in Los Angeles County
Superior Court entitled CADIZ INC. V. WASTE MANAGEMENT, INC., ET AL., Case No.
050743 ("the State Court Action").
The CEQA Action challenged 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
sought 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 appealed this decision.
In August 2000, the California Court of Appeal (4th District) granted in
part the Company's appeal, finding that the Environmental Impact Report
("EIR") prepared on behalf of Waste Management in support of the Rail-Cycle
Project was invalid. Specifically, the Court ruled the EIR inadequate under
the California Environmental Quality Act because, inter alia, it failed to
address or acknowledge groundwater resources underlying the Company's
agricultural property. The Court's decision revoked all environmental and
land-use approvals, and thus, effectively terminated the Rail-Cycle Project,
as proposed.
The State Court Action asserted the Company's civil claims against Waste
Management arising out of alleged criminal and fraudulent conduct engaged in
by Waste Management in connection with the Rail-Cycle Project. The Company
sought to recover both compensatory and punitive damages.
Pursuant to the terms of the Settlement Agreement, on March 13, 2001,
Waste Management paid to the Company the sum of six million dollars
($6,000,000). In addition, Waste Management granted to Cadiz an exclusive
option to acquire up to approximately 7,000 acres of real property at no cost
to the Company in eastern San Bernardino County, California (the "Option").
Cadiz may exercise this Option, if it chooses to do so following its due
diligence of the property, at any time through and until April 30, 2001.
In consideration of the above, Cadiz dismissed with prejudice all claims
asserted against Waste Management in the CEQA Action and State Court Action.
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 appealed this decision. In October 2000,
the Company entered into a full settlement of the claim with the IRS, which
did not have a material adverse impact on the Company's financial position.
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 15,
2000 were reported in the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2000.
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
------------- ----------- -----------
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
2000:
March 31 $ 12.500 $ 7.313
June 30 $ 8.875 $ 5.563
September 30 $ 10.125 $ 7.750
December 31 $ 10.750 $ 6.938
On March 23, 2001, the high, low and last sales prices for the shares, as
reported by Nasdaq, were $8.906, $8.563 and $8.625, 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
four 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; (iii) up to
365 shares of Series C Preferred, of which 340 shares have been issued and no
shares remain outstanding; and (iv) up to 5,000 shares of Series D Preferred
stock of which 5,000 shares have been issued and are 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 2,636, and the number of stockholders of record on March 23,
2001 was 185.
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, 2000, the Company issued warrants
to purchase 100,000 shares of the Company's common stock at an exercise price
of $6.74 per share. These warrants were issued to the Company's primary lender
as consideration for an extension of the maturity date of the Company's term
obligations to such lender. Additionally, the Company issued 50,000 shares of
common stock and warrants to purchase 200,000 shares of the Company's common
stock at an exercise price of $8.94 per share in connection with the Company's
issuance of $5 million of Series D Preferred Stock and Sun World obtaining a
$5 million unsecured term loan. The issuance of the warrants and common stock,
the Series D Preferred Stock, and the unsecured term loan were not registered
under the Securities Act of 1933, as amended (the "Securities Act"). The
Company believes that the transactions described are exempt from the
registration requirements of the Securities Act by virtue of Section 4(2),
thereof as transactions not involving any public offerings. All other
securities sold by the Company during the year ended December 31, 2000, which
were not registered under the Securities Act have previously been reported in
the Company's Quarterly Reports on Form 10-Q. The warrants and shares issued
in connection with the above transactions were registered for resale in
January 2001 through the Company's filing of a Registration Statement on Form
S-3.
ITEM 6. Selected Financial Data
The following selected financial data insofar as it relates to the years
ended December 31, 2000, 1999, 1998 and 1997, and to the nine months ended
December 31, 1996 has been derived from financial statements audited by
PricewaterhouseCoopers LLP, independent accountants. The information that
follows should be read in conjunction with the audited consolidated financial
statements and notes thereto for each of the three years in the period ended
December 31, 2000 included elsewhere herein. See also Item 7, "Management's
Discussion and Analysis".
($ in thousands, except for per share data)
Nine Months
Ended
Year Ended December 31, December 31,
2000 1999 1998 1997 1996(1)
---- ---- ---- ---- ----
Statement of
Operations Data:
Total revenues $ 107,745 $115,229 $106,544 $100,157 $ 23,780
Net loss (22,458) (8,594) (7,470) (8,538) (5,997)
Less:
Preferred stock
dividends - - - (1,213) (674)
Imputed dividend on
preferred stock - - - - (2,451)
--------- --------- -------- -------- --------
Net loss applicable to
common stock $(22,458) $(8,594) $(7,470) $(9,751) $ (9,122)
========= ========= ======== ======== =========
Per share:
Net loss $ (.64) $ (.25) $ (.23) $ (.33) $ (.44)
========= ========= ======== ======== =======
Weighted-average
Common shares
outstanding 35,344 34,678 33,173 29,485 20,500
========= ======= ======== ======== ======
December 31,
--------------------------------------------------
2000 1999 1998 1997 1996
------------ ---- ----
Balance Sheet Data:
Total assets $ 205,094 $ 214,102 $ 214,359 $203,049 $230,790
Long-term debt $ 145,610 $ 142,089 $ 142,317 $131,689 $149,111
Redeemable
preferred stock $ 3,950 $ - $ - $ - $ 27,431
Preferred stock,
common stock
and additional
paid-in capital $ 143,063 $ 136,552 $ 127,998 $121,199 $ 88,808
Accumulated deficit $ (109,340) $ (86,882) $(78,288) $(70,818) $
(61,067)
Stockholders'
equity $ 33,723 $ 49,670 $ 49,710 $ 50,381 $ 27,741
(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, 2000, 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
"Cadiz 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. Packing and marketing revenues from third party growers currently
represent less than ten percent (10%) 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. License revenues also currently represent less than
ten percent (10%) of total Company revenues.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------
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,
2000 1999
---- ----
Divisional net income
Farming $2,791 $14,542
Packing 7,193 7,656
Marketing 3,868 4,573
Proprietary product development 4,331 3,187
------ ------
18,183 29,958
General and administrative 10,939 10,913
Special litigation 424 937
Removal of underperforming crops 1,549 -
Depreciation and amortization 8,381 8,891
Interest expense, net 19,188 17,811
Income tax expense 160 -
------ ------
Net loss $(22,458) $(8,594)
========= ========
FARMING OPERATIONS. Net income from farming operations totaled $2.8
million for 2000 compared to $14.5 million in 1999. Farming revenues were
$86.4 million and farming expenses were $83.6 million for 2000. For 1999, the
Company had farming revenues of $94.9 million and farming expenses of $80.4
million. The decrease in farming results in 2000 compared to 1999 were
primarily due to decreased prices on table grapes, wine grapes, stonefruit and
citrus due to an over supply of products in the industry. Average F.O.B.
prices for 2000 were down 13%. The increase in farming expenses is primarily
due to costs to grow and harvest citrus in the San Joaquin Valley in 2000 that
were not incurred in 1999 due to the December 1998 freeze. The Company's
proprietary table grape and stonefruit products have allowed Sun World to
continue to command a price premium to the overall market which helped offset
some of the losses incurred from the Company's commodity products.
PACKING OPERATIONS. Sun World's packing and handling facilities
contributed $7.2 million in profit during 2000 compared to $7.7 million in
1999. The Company packed 3.6 million units and moved an additional 5.0
million units through the cold storage facilities for a total of 8.6 million
units processed through the packing operations in 2000 compared to the same
total of 8.6 million units in 1999. Packing results were negatively impacted
by a significant increase in corrugated box costs and temporary use of third
party storage facilities during July 2000 due to capacity constraints. Units
packed and handled during 2000 primarily consisted of Company-grown table
grapes, stonefruit, citrus, peppers and seedless watermelons as well as table
grapes, citrus and stonefruit products packed for third party growers.
Packing and handling revenue for these operations of $21.9 million was offset
by $14.7 million of expenses for 2000. Revenues totaled $20.5 million offset
by expenses of $12.8 million for 1999.
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 2000, a total of 11.5 million
units were sold consisting primarily of Company-grown table grapes,
stonefruit, citrus, peppers and watermelons as well as table grapes,
watermelons, citrus and stonefruit from domestic third party growers. These
unit sales resulted in marketing revenue of $8.6 million. Marketing expenses
totaled $4.7 million for 2000 resulting in net income from marketing
operations of $3.9 million. During 1999, 11.1 million units were sold
resulting in revenues of $9.4 million offset by expenses of $4.8 million for
net income of $4.6 million. The increase in units sold is primarily due to
increased units of Company-grown plums and stonefruit marketed for third
parties. Average commissions for 2000 were down 12% from average commissions
in 1999 due to the lower F.O.B. prices noted above.
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
including twelve new varieties for which plant patents have been applied for
in 2000. During 2000, net income from proprietary product development totaled
$4.3 million consisting of revenues of $6.0 million offset by expenses of $1.7
million. For 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. The increase in revenues resulted from international royalties
primarily related to the Company's licensing agreements for Sugraone table
grapes and consulting income from KADCO.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
totaled $10.9 million for both 2000 and 1999.
SPECIAL LITIGATION. The Company was 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. In March 2001, the
Company entered into a settlement agreement with Waste Management related to
these lawsuits. See "Item 3 - Legal Proceedings." During the year ended
December 31, 2000, expenses including litigation costs and professional fees
and expenses totaled $0.4 million as compared to $0.9 million during the year
ended December 31, 1999.
REMOVAL OF UNDERPERFORMING CROPS. In December 2000, the Company accrued
costs to remove certain underperforming crops, primarily 600 acres of wine
grapes and stonefruit. The Company intends to redevelop this acreage with new
proprietary crops. The Company recorded a one-time charge of $1.5 million in
connection with these removals.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
for the year ended December 31, 2000 totaled $8.4 million compared to $8.9
million for the year ended December 31, 1999. The decrease is primarily
attributable to certain assets being sold or removed and other assets becoming
fully depreciated.
INTEREST EXPENSE. Net interest expense totaled $19.2 million during the
year ended December 31, 2000 compared to $17.8 million during the year ended
December 31, 1999. The following table summarizes the components of net
interest expense for the two periods (in thousands):
Year Ended
December 31,
2000 1999
---- ---
Interest on outstanding debt - Sun World $ 14,546 $ 14,204
Interest on outstanding debt - Cadiz 2,319 1,785
Amortization of financing costs 2,546 2,176
Interest income (223) (354)
-------- --------
$ 19,188 $ 17,811
======== ========
The increase in interest on outstanding debt during 2000 is primarily due
to (a) increased borrowings on the Sun World Revolver to meet seasonal working
capital needs and (b) amortization of warrants issued for the extension of the
Cadiz Revolver and the Cadiz term loan facility. Financing costs, which
include legal fees, loan fees and warrants, are amortized over the life of the
debt agreement.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
- -------------------------------------------------------------------------
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 Cadiz Program.
SPECIAL LITIGATION. The Company was 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, 1999, 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.
LIQUIDITY AND CAPITAL RESOURCES
General Discussion of Liquidity and Capital Resources
- -----------------------------------------------------
Based on the cash on hand at December 31, 2000, cash received from the
Rail-Cycle litigation settlement, and the revolving credit facility in place
for Sun World, 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. In addition, the Company anticipates payments to be
received under the Cadiz Program, as further discussed 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, 2000, Cadiz was obligated for approximately $10.3
million under a senior term loan facility and $15 million under a $15 million
revolving credit facility (the "Cadiz Revolver") with the same lender. In
December 2000, the Company completed an extension of both facilities to a
maturity date of January 31, 2002. In connection with the extensions, the
Company repriced certain previously issued warrants to purchase common stock
of the Company. The cash interest rate remained at LIBOR plus 2%, payable
quarterly. The Company has the option to pay interest on the Cadiz Revolver
in stock at LIBOR plus 6%. Currently, the lender holds a senior deed of trust
on substantially all of Cadiz' non-Sun World related property under the term
loan facility and a second lien on substantially all of the non-Sun World
assets of the Company under the Cadiz Revolver. The Company and the lender
have historically structured their financing arrangement with a view toward
effective implementation of the Cadiz Program. While the Company currently
anticipates repayment of these facilities with monies to be received under the
Cadiz Program, the Company may, if it deems necessary, replace or renegotiate
the terms of these facilities to accommodate other developments such as delays
in the timetable for regulatory approvals of the Cadiz Program. Additionally,
Cadiz has an intercompany loan agreement with Sun World for working capital
needs. At December 31, 2000, no amount was outstanding under this facility.
In December 2000, the Company issued $5 million of Series D Convertible
Preferred Stock ("Preferred Stock"). The stock is convertible into 625,000
shares of the Company's common stock any time prior to July 2004 at the
election of the holder. The Company also has the right to convert the
preferred stock, but only when the closing price of the Company's common stock
has exceeded $12 per share for 30 consecutive trading days. The Preferred
Stock will be redeemed in July 2004 if still outstanding.
As the Company continues to actively pursue its business strategy,
additional financing specifically in connection with the Company's water
programs will be required. Responsibility for funding the design,
construction and program implementation costs of the capital facilities for
the Cadiz Groundwater Storage and Dry YearDry-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 and
(b) utilization of monies to be received from Metropolitan for its initial
payment for 600,000 acre-feet of groundwater storage. 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
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 15th and October 15th 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 order to meet its working capital needs, Sun World maintains the Sun
World Revolver which was extended in February 2001 for the 2001 growing
season. As of December 31, 2000, no amount was outstanding under the Sun
World Revolver. Additionally, Sun World has an intercompany revolving credit
agreement with the Company for seasonal working capital needs, as needed. No
amount was outstanding under the intercompany revolver as of December 31,
2000.
CASH USED FOR OPERATING ACTIVITIES. Cash used for operating activities
totaled $7.7 million for the year ended December 31, 2000, as compared to $2.9
million for the year ended December 31, 1999. The increase in cash used for
operating activities is primarily due to reduced returns from the farming
operations of Sun World offset by decreases in inventory primarily resulting
from the removal or sale of 1,300 acres of underperforming crops.
CASH USED FOR INVESTING ACTIVITIES. Cash used for investing activities
totaled $2.7 million for the year ended December 31, 2000, as compared to
$12.3 million for the same period in 1999. During 2000, the Company invested
$3.8 million in developing crops, $1.6 million in water programs, and $1.3
million for the purchase of property, plant and equipment. These expenditures
were offset by $3.0 million in proceeds received primarily from the sale of
approximately 700 acres of underperforming crops, and $1.6 million received in
connection with the final distribution from ASC/SWB partnership (formerly
American SunMelon). In 1999, the Company invested $4.8 million in property,
plant and equipment additions, including $2.6 million spent by the Company to
exercise its option to purchase certain land in Piute, California, $3.2
million on water programs and $3.5 million on developing crops.
CASH PROVIDED BY FINANCING ACTIVITIES. Cash provided by financing
activities totaled $10.6 million for the year ended December 31, 2000,
consisting primarily of $1.0 million generated from the exercise of stock
options, $5.0 million from the issuance of preferred stock, and $5.2 million
from the issuance of long-term debt offset by $0.7 million of repayments on
long-term debt. Cash provided by financing activities totaled $6.1 million for
the year ended December 31, 1999 resulting from $6.8 million from the exercise
of stock options offset by $0.7 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 for a 50-year agreement for the Cadiz Program. 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 previously imported water, together
with additional existing groundwater, will be extracted and delivered, via a
conveyance pipeline, back to the aqueduct.
Subsequently, Metropolitan, following extensive negotiations with the
Company to further refine and finalize the Principles, submitted definitive
economic terms and responsibilities ("Definitive Terms") to its Board of
Directors in March 2001 for anticipated consideration at a forthcoming Board
Meeting. Until such consideration and action by both the Company's and
Metropolitan's Board, the proposed Definitive Terms will remain proposed and
subject to change. In addition, execution of a final agreement will be
contingent upon and subject to completion of the ongoing environmental review
process for the Cadiz Program.
Key provisions of the proposed Definitive Terms are as follows:
* Over the 50-year term of the agreement, Metropolitan will store a
minimum of 900,000 acre-feet of Colorado River Aqueduct ("CRA") 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 Cadiz 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 $50 per acre-foot for
put of Colorado River water into storage and $40 per acre-foot for
return of Colorado River water from storage, or a total of $90 acre-
feet to cycle water into and out of the basin. These fees will be
adjusted by CPI.
* As outlined above, Metropolitan's total minimum commitment for storage
is 900,000 acre-feet. Metropolitan will pay for the initial 600,000
acre-feet of put and take activity upon final contract execution and
completion of the environmental review ($54 million before CPI
adjustment). Metropolitan will pay for an additional 300,000 acre-
feet of put and take activity at the earlier of actual usage or 30,000
acre-feet annual increments during years 5-14 of Cadiz Program
operations ($2,700,000 per year before CPI adjustment).
* For transfer operations, Metropolitan shall purchase 30,000 acre-feet
per year of indigenous groundwater for 25 years at $230 per acre-foot
Transfer Fee, subject to a fair market value adjustment as described
below. In addition, Cadiz may elect to either sell up to an
additional 30,000 acre-feet per year of indigenous groundwater to
third parties in Metropolitan's service area at fair market value, or
require Metropolitan to purchase that amount of water at a fixed
Transfer Fee of $230 per acre-foot. Accordingly, Metropolitan's total
potential minimum commitment for the life of the Cadiz Program will be
1,500,000 acre-feet of indigenous groundwater. All transfers of
indigenous groundwater, whether to Metropolitan or third parties, will
be made in accordance with the terms and conditions of the Management
Plan.
* The Transfer Fee will reflect a "fair market value" adjustment, which
shall be determined up to once a year. The Transfer Fee will be
adjusted by one-half of any increase or decrease in the fair market
value, above or below the base $230 rate. For example, if the fair
market value is $350 per acre-foot, then the adjusted Transfer Fee
shall be $230 + 50% * ($350-$230) = $290 per acre-foot. Each increase
or decrease in the transfer fee paid by Metropolitan may not exceed
15%.
* Cadiz' right to sell to third parties within Metropolitan's service
area includes scheduled access to Metropolitan's system at the
wheeling rate charged for "as available capacity," plus power costs
and any standard water stewardship fee that is uniformly charged to
Metropolitan member agencies or third parties. Depending on
availability of system capacity, Metropolitan may elect to exchange
other water for delivery to Cadiz customers and "bank" the water Cadiz
has sold.
* If indigenous water supplies are determined to exceed 1,700,000 acre-
feet, Metropolitan shall have the first right of refusal to purchase
one-half of that excess yield.
* Cadiz groundwater meets all existing federal and state water quality
standards. Metropolitan's CRA water meets all existing federal and
state water quality standards. Metropolitan shall be responsible to
ensure, at its expense, that CRA water introduced into the Cadiz
groundwater basin shall, at a minimum, meet all existing and potential
future federal and state water quality standards applicable to the
CRA. Cadiz shall be responsible to ensure, at its expense, that
indigenous groundwater introduced into the Metropolitan delivery
system shall at a minimum, meet all existing and potential future
federal and state water quality standards. If both indigenous
groundwater and stored Colorado River water exceed any future federal
or state water quality standard, then the parties will share
compliance with the new standard based pro rata on the contribution to
exceeding the standard.
* The Cadiz 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 equally share
these costs. Each party will be responsible for financing its portion
of the capital costs.
* Metropolitan will be responsible for operational costs of the Cadiz
Program. However, Cadiz will assume pro rata operational costs
associated with the sale of indigenous groundwater to third parties.
* Metropolitan and Cadiz shall share equally the capital costs required
for mitigation at outset of the Cadiz Program. Cadiz shall assume
remaining mitigation costs, including the ongoing annual cost of
operating the Management Plan.
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 that
are complimentary to its current portfolio of water and agricultural
resources.
Sun World currently services its indebtedness and meets its seasonal
working capital needs utilizing available internal cash, the Sun World
Revolver and, if necessary, through an intercompany revolver with Cadiz.
Cadiz currently meets its ordinary working capital needs through a combination
of available internal cash, 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, the exercise of outstanding stock options, and through an
intercompany revolver with Sun World. Except for the foregoing, additional
intercompany cash payments between Sun World and Cadiz are subject to certain
restrictions under its current lending arrangements. In the event the Company
requires additional cash beyond the foregoing to meet its working capital
needs, the Company believes that additional debt and/or equity can be issued
as needed for this purpose.
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 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 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 MmARKET 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'sCompany'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 2000.
The table below presents the principal amounts, weighted-average
interests rates, and fair values by year of scheduled maturityies 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
-------------------------------------------
Fixed Average Variable Average
Rate Interest Rate Interest
Expected Maturity Maturities Rate Maturities Rate
--------- ------- -------- ---------
2001 $ 501 7.7% $ 358 9.5%
2002 564 7.7% 30,631 8.7%
2003 482 7.8% 855 9.5%
2004 115,531 11.2% - -
2005 122 7.8% - -
--------- ---- ------- ----
Total $ 117,200 11.2% $31,844 8.7%
========== ===== ======= =====
Fair Value
at 12/31/00 $ 105,700 $31,844
======== =======
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, 2000.
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, 2000.
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, 2000.
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, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
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 Certificate of Designations of Series A Junior Participating
Preferred Stock(14)
4.6 Certificate of Designations of Series D Preferred Stock dated
December 28, 2000(15)
4.7 Certificate of Correction Filed to Correct the Certificate
of Designations of Series D Preferred Stock of Cadiz Inc.
dated December 28, 2000(15)
4.8 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)
4.9 Form of Amendment to Indenture dated as of October 9, 1997(10)
4.10 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 Cadiz Land the Company , Inc. 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)
10.10 The Company's 2000 Stock Award Plan(16)
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Accountants (included in Part IV of
the Form 10-K)
-----------------------
(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
(14) Previously filed as Exhibit to the Company's Report on
Form 8-K dated May 10, 1999
(15) Previously filed as Exhibit to the Company's Report on
Form 8-K dated December 28, 2000
(16) Previously filed as Appendix A to the Company's Proxy
Statement dated April 5, 2000, filed with the Commission
on March 29, 2000
(b) Reports on Form 8-K
1. Report on Form 8-K dated March 12, 2001 reporting
that Metropolitan had submitted refined definitive
economic terms and responsibilities for the Cadiz
Program to its Board of Directors, which were
unanimously recommended for approval by a Special
Oversight Committee of Metropolitan's Board.
2. Report on Form 8-K dated January 16, 2001 to ensure
technical compliance with the requirements of
Financial Release No. 55 ("FRR-55"), which became
effective September 25, 2000.
3. Report on Form 8-K dated January 6, 2001 reporting
that Metropolitan had submitted definitive economic
terms and responsibilities for the Cadiz Program to
its Board of Directors for anticipated consideration
at its January 9, 2001 Board Meeting.
4. Report on Form 8-K dated December 29, 2000 describing
the Company's issuance of $5,000,000 in newly
authorized Series D Convertible Preferred Stock and
Sun World's borrowing of $5,000,000 pursuant to a
two-year unsecured term loan.
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 Chief Financial Officer
and Director and Secretary
Date: March 29, 2001 Date: March 29, 2001
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/ Keith Brackpool March 29, 2001
- ------------------------------------
Keith Brackpool, Chief Executive Officer
and Director (Principal Executive Officer)
/s/ Anthony L. Coelho March 29, 2001
- ------------------------------------
Anthony L. Coelho, Director
/s/ Murray H. Hutchison March 29, 2001
- ------------------------------------
Murray H. Hutchison, Director
/s/ Dwight W. Makins March 29, 2001
- ------------------------------------
Dwight Makins, Chairman of the Board
and Director
/s/ Mitt Parker March 29, 2001
- ------------------------------------
Mitt Parker, Director
/s/ Timothy J. Shaheen March 29, 2001
- ------------------------------------
Timothy J. Shaheen, Director
/s/ Stanley E. Speer March 29, 2001
- ------------------------------------
Stanley E. Speer, Chief Financial Officer
and Secretary (Principal Financial and
Accounting Officer)
CADIZ INC.
INDEX TO THE FINANCIAL STATEMENTS
Page
CADIZ INC. FINANCIAL STATEMENTS
Report of Independent Accountants. . . . . . . . . . . . . . 35
Consolidated Statement of Operations for the
three years ended December 31, 2000. . . . . . . . . . . . 36
Consolidated Balance Sheet as of December 31, 2000
and 1999. . . . . . . . . . . . . . . . . . . . . . . . . .37
Consolidated Statement of Cash Flows for the three
years ended December 31, 2000. . . . . . . . . . . . . . . 38
Consolidated Statement of Stockholders' Equity for
the three years ended December 31, 2000 . . . . . . . . . . 39
Notes to the Consolidated Financial Statements. . . . . . . .40
CADIZ INC. FINANCIAL STATEMENT SCHEDULES
Schedule I - Condensed Financial Information
of Registrant for the three years ended
December 31, 2000. . . . . . . . . . . . . . . . . . . . .61
Schedule II - Valuation and Qualifying Accounts
for the three years ended December 31, 2000. . . . . . . . .64
SUN WORLD INTERNATIONAL INC. FINANCIAL STATEMENTS
Report of Independent Accountants. . . . . . . . . . . . . . .65
Consolidated Statement of Operations and Accumulated
Deficit for the three years ended December 31, 2000. . . . .66
Consolidated Balance Sheet as of December 31, 2000
and 1999. . . . . . . . . . . . . . . . . . . . . . . . . . 67
Consolidated Statement of Cash Flows for the three
years ended December 31, 2000. . . . . . . . . . . . . . . . 68
Notes to the Consolidated Financial Statements. . . . . . . . .69
(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 accompanying consolidated balance sheet and the
related consolidated statements of operations and cash flows and stockholder's
equity present fairly, in all material respects, the financial position of
Cadiz Inc. and its subsidiaries at December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. 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 of
America, 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 our opinion.
/s/ PricewaterhouseCoopers
- ---------------------------
PricewaterhouseCoopers LLP
Los Angeles, California
February 16, 2001, except as to
Note 14, which is as of March 13, 2001
CADIZ INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31,
(In thousands except per share data) 2000 1999 1998
---- ---- ----
Revenues $ 107,674 $114,901 $ 95,845
Income from partnership 71 328 10,699
--------- --------- ---------
Total revenues 107,745 115,229 106,544
--------- --------- ---------
Costs and expenses:
Cost of sales 87,925 83,821 74,742
General and administrative 12,576 12,363 11,736
Special litigation 424 937 1,308
Removal of underperforming crops 1,549 - -
Depreciation and amortization 8,381 8,891 8,688
--------- --------- ---------
Total costs and expenses 110,855 106,012 96,474
--------- --------- ---------
Operating profit (loss) (3,110) 9,217 10,070
Interest expense, net 19,188 17,811 17,540
--------- --------- ---------
Net loss before income taxes (22,298) (8,594) (7,470)
Income tax expense 160 - -
--------- --------- ---------
Net loss $(22,458) $(8,594) $ (7,470)
========= ========= =========
Basic and diluted net loss per share $ (.64) $ (.25) $ (.23)
========= ========= =========
Weighted-average shares outstanding 35,344 34,678 33,173
========= ========= =========
See accompanying notes to the consolidated financial statements.
CADIZ INC.
CONSOLIDATED BALANCE SHEET
December 31,
($ in thousands) 2000 1999
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 4,768 $ 4,537
Accounts receivable, net 7,884 8,436
Inventories 15,203 18,423
Prepaid expenses and other 631 917
--------- ----------
Total current assets 28,486 32,313
Investment in partnership - 1,497
Property, plant, equipment
and water programs, net 164,824 169,009
Other assets 11,784 11,283
--------- ----------
$ 205,094 $ 214,102
========== ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,377 $ 8,110
Accrued liabilities 5,815 7,686
Long-term debt, current portion 859 725
--------- ----------
Total current liabilities 16,051 16,521
Long-term debt 145,610 142,089
Deferred income taxes 5,447 5,447
Other liabilities 313 375
Commitments and contingencies
Series D redeemable convertible
preferred stock - $0.01 par value:
5,000 shares authorized; shares
issued and outstanding -
5,000 at December 31, 2000 and
none at December 31, 1999 3,950 -
Stockholders' equity:
Common stock - $.01 par value;
70,000,000 shares
authorized; shares issued
and outstanding 35,674,674
at December 31, 2000 and
35,166,661 at December 31, 1999 357 352
Additional paid-in capital 142,706 136,200
Accumulated deficit (109,340) (86,882)
--------- ----------
Total stockholders' equity 33,723 49,670
--------- ----------
$ 205,094 $ 214,102
========== ===========
See accompanying notes to the consolidated financial statements.
CADIZ INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31,
---------------------------
($ in thousands) 2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net loss $ (22,458) $(8,594) $(7,470)
Adjustments to reconcile net
loss to net cash used for
operating activities:
Depreciation and amortization 10,926 11,060 10,601
Issuance of stock for services - 28 374
Gain on disposal of assets (96) (104) (207)
Removal of underperforming crops 1,549 - -
Stock earned for services (1,250) (313) -
Share of partnership operations (71) (328) (10,699)
Deferred stock compensation 237 - -
Changes in operating assets
and liabilities:
Decrease (increase) in accounts
receivable 552 (2,141) (414)
Decrease (increase) in inventories 2,740 (3,318) (1,559)
Decrease in prepaid expenses and other 286 75 307
Increase (decrease) in accounts payable 1,267 (643) 236
(Decrease) increase in accrued
liabilities (1,039) 1,668 916
(Decrease) increase in other
liabilities (297) (298) 18
--------- --------- ---------
Net cash used for operating
activities (7,654) (2,908) (7,897)
--------- --------- ---------
Cash flows from investing activities:
Additions to property, plant
and equipment (1,252) (4,835) (7,308)
Additions to water programs (1,595) (3,177) (856)
Additions to developing crops (3,844) (3,531) (3,396)
Proceeds from disposal of property,
plant and equipment 2,956 233 388
Partnership distributions 1,568 - 15,859
Increase in other assets (525) (998) (2,020)
--------- --------- ---------
Net cash (used for) provided by
investing activities (2,692) (12,308) 2,667
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from issuance of stock 1,032 6,803 2,154
Proceeds from issuance of preferred
stock 5,000 - -
Proceeds from issuance of long-term debt 5,231 - 12,000
Principal payments on long-term debt (686) (685) (587)
--------- --------- ---------
Net cash provided by financing
activities 10,577 6,118 13,567
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents 231 (9,098) 8,337
Cash and cash equivalents,
beginning of period 4,537 13,635 5,298
--------- --------- ---------
Cash and cash equivalents, end of period $ 4,768 $ 4,537 $ 13,635
========= ======== ========
See accompanying notes to the consolidated financial statements.
CADIZ INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2000, 1999 and 1998
($ in thousands)
Total
Additional Accumu- Stock
Common Stock Paid-in lated holders'
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 a 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
a 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
Exercise of stock
options and warrants 246,149 2 1,030 - 1,032
Issuance of warrants - - 2,358 - 2,358
Interest paid
with stock 111,864 1 831 - 832
Stock issued
for services 150,000 2 1,469 - 1,471
Deferred beneficial
Conversion feature
for convertible
preferred stock - - 818 - 818
Net loss - - - (22,458) (22,458)
------------ ----- --------- --------- -------
Balance as of
December 31, 2000 35,674,674 $ 357 $ 142,706 $(109,340)$ 33,723
============ ===== ========== ========= =======
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, which is not yet significant to the operations or
balance sheet of the Company. 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 that owns
more than 19,000 acres of land, 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 30 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 total
approximately 56,200 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, transfer, exchange, and conservation programs with public
agencies and other 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 "Cadiz 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.
Implementation of the Cadiz Program is subject to completion and approval of a
final agreement and an environmental review process which currently is in its
final stages.
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 upon shipment and transfer of
title to customers. Packing revenues and market commissions from third party
growers are recognized when the related services are provided. Proprietary
product development revenues are recognized based upon product sales by
licensees.
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 $1,636,000 for the year ended
December 31, 2000, $1,450,000 for the year ended December 31, 1999, and
$1,249,000 for the year ended December 31, 1998.
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
and preferred stock convertible into shares of common stock 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. The Company reclassified
book overdrafts totaling $2,494,000 and $1,444,000 to accounts payable for the
years ended December 31, 2000 and 1999, respectively.
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 crop
inventory includes direct costs and an allocation of indirect costs.
INVESTMENT IN PARTNERSHIP
Sun World, through a wholly owned subsidiary, owned 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. In
November 2000, Sun World received a final distribution of $1.6 million in
connection with the liquidation of the Partnership. Sun World accounted 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.
In December 2000, the Company accrued costs to remove certain
underperforming crops, primarily stonefruit and wine grapes. The Company
recorded a one-time charge of $1,549,000 in connection with the removal of
these crops which is shown under the heading "Removal of underperforming
crops" on the Consolidated Statement of Operations.
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 $2,960,000 and $2,726,000 at December 31, 2000 and December
31, 1999, 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,
2000, 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, 2000, 1999 and
1998 was $16,328,000, $15,988,000, and $15,348,000, respectively.
NOTE 3 - ACCOUNTS RECEIVABLE
- ----------------------------
Accounts receivable consist of the following (dollars in thousands):
December 31,
2000 1999
---- ----
Trade receivables $ 4,190 $ 4,742
Due from unaffiliated growers 541 582
Other 3,675 3,336
-------- --------
8,406 8,660
Less allowance for doubtful accounts (522) (224)
-------- --------
$ 7,884 $ 8,436
======== =======
Substantially all trade receivables are from large domestic 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 $12.8 million in
2000, $14.4 million 1999, and $11.9 million in 1998. Export sales accounted
for approximately 9.9%, 10.3% and 8.5% of the Company's revenues for the years
ended December 31, 2000, 1999 and 1998, respectively.
NOTE 4 - INVENTORIES
- --------------------
Inventories consist of the following (dollars in thousands):
December 31,
2000 1999
---- ----
Growing crops $ 11,538 $ 14,297
Pepper seed 257 1,028
Harvested product 528 98
Materials and supplies 2,880 3,000
-------- --------
$ 15,203 $ 18,423
======== ========
NOTE 5 - PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS
- ------------------------------------------------------
Property, plant, equipment and water programs consist of the following
(dollars in thousands):
December 31,
2000 1999
---- ----
Land $ 67,034 $ 69,377
Permanent crops 67,278 66,546
Developing crops 9,779 8,862
Water programs 14,433 11,814
Buildings 22,113 21,832
Machinery and equipment 20,042 19,623
------ ------
200,679 198,054
Less accumulated depreciation (35,855) (29,045)
------ ------
$164,824 $169,009
====== =======
Depreciation expense during the years ended December 31, 2000, 1999 and
1998 was $7,971,000, $8,460,000 and $8,256,000, respectively.
NOTE 6 - OTHER ASSETS
- ---------------------
Other assets consist of the following (dollars in thousands):
December 31,
2000 1999
---- ----
Excess of purchase price over asset acquired, net $ 4,046 $ 4,280
Capitalized loan costs, net 2,662 3,331
Long-term receivables 1,799 1,849
Capitalized trademark development, net 1,713 1,475
Other 1,564 348
------- -------
$11,784 $11,283
====== =======
NOTE 7 - ACCRUED LIABILITIES
- ----------------------------
Accrued liabilities consist of the following (dollars in thousands):
December 31,
2000 1999
---- ----
Interest $ 2,835 $ 3,129
Payroll and benefits 1,754 3,031
Other 1,226 1,526
-------- --------
$ 5,815 $ 7,686
========= ========
NOTE 8 - REVOLVING CREDIT FACILITY
- -----------------------------------
In February 2001, Sun World renewed its Revolving Credit Facility through
the 2001 growing season with a maturity date of November 2001. Maximum
amounts eligible to be borrowed under the Revolving Credit Facility vary
throughout the year with a maximum of $30 million available during the peak
borrowing periods of April to July. The Revolving Credit Facility is secured
by eligible accounts receivable and inventory, requires Sun World to meet
certain financial covenants, 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, 2000 and 1999.
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 $103.5 million based on quoted
market prices as of December 31, 2000. At December 31, 2000 and December 31,
1999, the carrying amount of the Company's outstanding debt is summarized as
follows (dollars in thousands):
December 31,
2000 1999
---- ----
Cadiz obligations:
Senior term bank
loan, interest payable
quarterly, variable
interest rate based
upon LIBOR plus 2% (8.50% at
December 31, 2000 and 8.16%
at December 31, 1999),
due January 31, 2002 $ 10,345 $ 10,345
$15 million revolving line of
credit, interest payable
quarterly, variable interest
rate based upon LIBOR plus 2%
(8.50% at December 31, 2000
and 8.16% at December 31, 1999),
due January 31, 2002 15,000 15,000
Other - 21
Debt discount (1,433) (1,685)
----------- ---------
23,912 23,681
----------- ---------
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
Senior unsecured term loan,
interest payable
quarterly, due
December 31, 2002, interest
at LIBOR plus 3% (9.40% at
December 31, 2000) 5,000 -
Note payable to bank, quarterly
principal installments of $72 plus
interest payable monthly, due
December 31, 2003, interest at
prime (9.50% at December 31,
2000 and 8.75% at
December 31, 1999) 1,500 1,714
Note payable to insurance
company, quarterly installments
of $120 (including interest),
due January 1, 2005, interest at 7.75% 1,639 1,896
Note payable to finance company,
monthly installments of $18
(including interest) due
July 1, 2002, interest at 7.50% 305 492
Other 255 31
Debt Discount (1,142) -
----------- ---------
122,557 119,133
----------- ---------
146,469 142,814
Less current portion (859) (725)
----------- ---------
$ 145,610 $ 142,089
========== =========
Annual maturities of long-term debt outstanding, excluding $2,575
representing the unamortized portion of warrants, on December 31, 2000 are as
follows: 2001 - $859; 2002 - $31,195; 2003 - $1,337; 2004 - $115,531 and 2005
- - $122.
CADIZ OBLIGATIONS
The senior term bank loan is secured by substantially all of the
Company's non-Sun World related property. In December 2000, the Company
completed an amendment to the loan that extended the maturity date of the
obligation to January 31, 2002. The interest rate remained at LIBOR plus 200
basis points, payable quarterly. In connection with obtaining the extension,
the Company 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 2000, the Company completed an
amendment to the facility that extended the maturity date of the obligation to
January 31, 2002. The interest rate can either be LIBOR plus 200 basis points
if paid in cash or LIBOR plus 600 basis points if paid in common stock. In
connection with obtaining the extension, the Company 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. 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, 2000.
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.
In December 2000, Sun World entered into a two year $5 million senior
unsecured term loan. In connection with obtaining the loan, the Company
issued 50,000 shares of the Company's common stock as well as certain warrants
to purchase shares of the Company's common stock. The fair value of the stock
and the warrants were recorded as a debt discount and are being amortized over
the life of the loan.
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Condensed consolidating financial information as of December 31, 2000 and
1999 and for the three years ended December 31, 2000 for the Company is as
follows (in thousands):
Consolidating Statement
of Operations Information Sun
Year Ended December 31, 2000 Cadiz World Eliminations Consolidated
------ -------- --------- ----------
Revenues $ 1,920 $ 107,656 $(1,902) $ 107,674
Income from partnership - 71 - 71
------- -------- -------- --------
Total revenues 1,920 107,727 (1,902) 107,745
------- -------- -------- --------
Costs and expenses:
Cost of sales 124 88,203 (402) 87,925
General and administrative 4,355 9,721 (1,500) 12,576
Special litigation 424 - - 424
Removal of underperforming crops - 1,549 - 1,549
Depreciation and amortization 1,174 7,207 - 8,381
------- -------- -------- --------
Total costs and expenses 6,077 106,680 (1,902) 110,855
------- -------- -------- --------
Operating profit (loss) (4,157) 1,047 - (3,110)
Interest expense, net 4,085 15,103 - 19,188
------- -------- -------- --------
Loss before income taxes (8,242) (14,056) - (22,298)
Income tax expense - 160 - 160
- ------- -------- -------- --------
Net loss $(8,242) $(14,216) $ - $(22,458)
======= ======== ======== ========
Consolidating Balance
Sheet Information Sun
December 31, 2000 Cadiz World Eliminations Consolidated
------ -------- --------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 3,099 $ 1,669 $ - $ 4,768
Accounts receivable, net 7 7,879 (2) 7,884
Inventories - 15,405 (202) 15,203
Prepaid expenses and other 212 419 - 631
------- -------- -------- --------
Total current assets 3,318 25,372 (204) 28,486
Investment in subsidiary 17,093 - (17,093) -
Property, plant, equipment and
water programs, net 38,842 125,982 - 164,824
Other assets 4,199 7,585 - 11,784
------- -------- -------- --------
$ 63,452 $158,939 $(17,297) $ 205,094
======= ======== ======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,209 $ 8,170 $ (2) $ 9,377
Accrued liabilities 349 5,466 - 5,815
Due to affiliate 202 - (202) -
Long-term debt, current portion - 859 - 859
------- -------- -------- --------
Total current liabilities 1,760 14,495 (204) 16,051
Long-term debt 23,912 121,698 - 145,610
Deferred income taxes - 5,447 - 5,447
Other liabilities 107 206 - 313
Redeemable preferred stock 3,950 - - 3,950
Stockholders' equity:
Common stock 357 - - 357
Additional paid-in capital 142,706 35,325 (35,325) 142,706
Accumulated deficit (109,340) (18,232) 18,232 (109,340)
------- -------- -------- --------
Total stockholders' equity 33,723 17,093 (17,093) 33,723
------- -------- -------- --------
$ 63,452 $158,939 $(17,297) $ 205,094
======= ======== ======== ========
Consolidating Statement of
Cash Flow Information Sun
Year Ended December 31, 2000 Cadiz World Eliminations Consolidated
------ -------- --------- ----------
Net cash used for
operating activities $(4,849) $(2,805) $ - $ (7,654)
------- -------- -------- --------
Cash flows from
investing activities:
Additions to property,
plant and equipment (293) (959) - (1,252)
Additions to water programs (1,595) - - (1,595)
Additions to developing crops (159) (3,685) - (3,844)
Proceeds from disposal
of property,
plant and equipment 1 2,955 - 2,956
Partnership distributions - 1,568 - 1,568
Increase in other assets (162) (363) - (525)
------- -------- -------- --------
Net cash used for investing
activities (2,208) (484) - (2,692)
------- -------- -------- --------
Cash flows from financing
activities:
Net proceeds from issuance
of stock 1,032 - - 1,032
Proceeds from issuance
of preferred stock 5,000 - - 5,000
Proceeds from issuance
of long-term debt - 5,231 - 5,231
Principal payments on
long-term debt (21) (665) - (686)
------- -------- -------- --------
Net cash provided by
financing activities 6,011 4,566 - 10,577
------- -------- -------- --------
Net (decrease) increase
in cash and
cash equivalents (1,046) 1,277 - 231
Cash and cash equivalents,
beginning of period 4,145 392 - 4,537
------- -------- -------- --------
Cash and cash equivalents,
end of period $ 3,099 $ 1,669 $ - $ 4,768
======= ======== ======== ========
Consolidating Statement
of Operations Information Sun
Year Ended December 31, 1999 Cadiz 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 Sun
December 31, 1999 Cadiz 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 Sun
Year Ended December 31, 1999 Cadiz World Eliminations Consolidated
------ -------- --------- ----------
Net cash (used for) provided
by operating activities $(4,746) $ 1,838 $ - $ (2,908)
------- -------- -------- --------
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) (934) - (998)
------- -------- -------- --------
Net cash used for investing
activities (5,396) (6,912) - (12,308)
------- -------- -------- --------
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 Sun
Year Ended December 31, 1998 Cadiz 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 Statement of
Cash Flow Information Sun
Year Ended December 31, 1998 Cadiz 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, 2000 and
1999 are as follows (in thousands):
December 31,
2000 1999
---- ----
Deferred tax liabilities:
Fixed asset basis difference $ 7,550 $ 7,515
Other 48 48
-------- --------
Total deferred tax liabilities 7,598 7,563
-------- --------
Deferred tax assets:
Net operating losses 38,560 31,421
Reserve for notes receivable 1,178 1,178
Fixed asset basis difference 6,300 6,300
State taxes 1,855 1,855
Other 1,907 1,027
-------- --------
Total deferred tax assets 49,800 41,781
Valuation allowance for
deferred tax assets (47,649) (39,665)
-------- --------
Net deferred tax assets 2,151 2,116
-------- --------
Net deferred tax liability $ 5,447 5,447
======== ========
As of December 31, 2000, the Company had net operating loss (NOL)
carryforwards of approximately $108.4 million for federal income tax purposes.
Such carryforwards expire in varying amounts through the year 2020. At
December 31, 2000, the Company has state NOL carryforwards of $19.3 million.
These NOL carryforwards expire in varying amounts through the year 2010.
A reconciliation of the income tax benefit to the statutory federal
income tax rate is as follows (dollars in thousands):
Year Ended December 31,
--------------------------
2000 1999 1998
---- ---- ----
Expected federal income
tax benefit at 34% $(7,581) $(2,922) $(2,540)
Loss with no tax benefit
provided 7,459 2,718 2,414
State income tax 147 451 -
Amortization 79 79 79
Utilization of net
operating losses - - (601)
Other non-deductible expenses 56 125 197
------ ------ ------
Income tax expense $ 160 $ - $ -
====== ====== ======
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
- -------------------------------------
SERIES D CONVERTIBLE PREFERRED STOCK
The Company has an authorized class of 100,000 shares of preferred stock.
On December 29, 2000, the Company issued 5,000 shares of Series D Convertible
Preferred Stock ("Preferred Stock") for $5,000,000. The holder of the
Preferred Stock is entitled to receive dividends, payable semi-annually, at a
rate of 7% if paid in cash or 9% if paid in the Company's common stock. The
Preferred Stock is convertible into 625,000 shares of the Company's common
stock any time prior to July 2004 at the election of the holder. The Company
also has the right to convert the Preferred Stock, but only when the closing
price of the Company's common stock has exceeded $12 per share for 30
consecutive trading days. Holders are entitled to a liquidation preference
equal to the initial purchase of $1,000 per share plus any accrued and unpaid
dividends. The Preferred Stock will be redeemable in July 2004 if still
outstanding.
The Company issued certain warrants to purchase shares of the Company's
common stock in connection with the issuance of the Preferred Stock. The fair
market value of the Company's common stock at the time of issuance was above
the accounting conversion price resulting in an imputed dividend (beneficial
conversion feature). The fair value of the warrants issued and the imputed
dividend totaled $1,050,000 which was recorded as a discount to the Preferred
Stock. The discount is being amortized through the redemption date of the
stock and treated as a reduction to earnings for earnings per share
calculations although no assets of the Company will ever be expended.
COMMON STOCK
In March 2000, the Company issued 100,000 shares of common stock to a
hydrological research company upon the deemed satisfaction of certain
contingencies with respect to the issuance of such shares established in
connection with the Company's 1998 acquisition of all of such company's
assets.
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 Company also grants
stock awards pursuant to its 2000 Stock Award Plan described below.
Collectively, the plans provide for the granting of up to 4,000,000 shares.
At December 31, 2000, the Company has 333,000 shares 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.
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,
---------------------------
2000 1999 1998
---- ---- ----
Net loss applicable to
common stock: As reported $(22,458) $ (8,594) $(7,470)
Pro forma $(23,450) $(12,134) $(8,833)
Net loss per
common share: As reported $ (.64) $ (.25) $ (.23)
Pro forma $ (.66) $ (.35) $ (.27)
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 4.94%
for 2000, 6.67% for 1999, and 4.87% for 1998; expected volatility of 66.7% for
2000, 46.9% for 1999, and 61.6% for 1998; expected life of three years for
2000 and five years for 1999 and 1998; 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
Amount Exercise Price
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 $ 6.21
Granted 132,500 $ 9.76
Expired or canceled (19,500) $ 8.56
Exercised (215,152) $ 4.80
---------
Outstanding at December 31, 2000 3,010,598(a) $ 6.45
=========
Options exercisable at December 31, 1998 2,472,900 $ 4.50
=========
Options exercisable at December 31, 1999 2,306,500 $ 5.64
=========
Options exercisable at December 31, 2000 2,549,098 $ 5.98
=========
Weighted-average years of remaining
contractual life of
options outstanding at
December 31, 2000 1.79
=========
(a) Exercise prices vary from $4.50 to $11.75 and expiration dates
vary from September 2001 to December 2005.
The weighted-average fair value of options granted during the years 2000,
1999 and 1998 were $5.37, $3.71 and $3.60, respectively.
The Company accounts for equity securities issued to non-employees in
accordance with the provisions of SFAS 123 and Emerging Issues Task Force 96-
18. During the years ended December 31, 2000, 1999 and 1998, the Company
issued 350,000, 250,000, and 225,000 warrants with weighted-average exercise
prices of $6.46, $6.50 and $7.00, respectively. During the year ended
December 31, 2000, 75,000 warrants with a weighted-average exercise price of
$5.03 were exercised in a cashless transaction resulting in the issuance of
30,997 shares of common stock. No warrants expired or were canceled during any
of the three periods discussed. During 2000, in connection with the loan
amendments for the Cadiz obligations described in Note 9, the Company repriced
certain warrants previously issued resulting in a reduction in the weighted-
average exercise price. At December 31, 2000, there were 1,025,000 warrants
outstanding with a weighted-average exercise price of $5.34 per share, which
expire through 2005.
2000 STOCK AWARD PLAN
The Cadiz Inc. 2000 Stock Award Plan ("Stock Award Plan") was approved by
the Company's shareholders in May 2000. Under the Stock Award Plan, the
Company may issue various forms of stock awards including stock and deferred
stock units to attract, retain and motivate key employees or other eligible
persons. As of December 31, 2000, the Company had outstanding 180,216
deferred stock units granted under the Stock Award Plan which entitle the
holder to receive one share of the Company's common stock for each deferred
stock unit three years from the date of grant. The Company charged $237,000
to expense in 2000 in connection with the Stock Award Plan.
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, of these shares in each
of the years ended December 31, 1999 and 1998. 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. In September 1998, the Court granted
defendants motion for summary judgment. The Company appealed this decision
and in August 2000, the California Court of Appeals granted, in part, the
Company's appeal. The Court's decision revoked all environmental and land-use
approvals, and thus effectively terminated the Rail-Cycle Project, as
proposed.
The Company filed other civil actions against Waste Management, Inc.,
which asserted claims arising from alleged criminal and fraudulent conduct
against the Company engaged in by Waste Management in connection with the Rail-
Cycle Project.
On March 13, 2001, the Company and Waste Management executed a settlement
agreement intended to fully and finally compromise and settle the claims
asserted by the Company against Waste Management in all of the outstanding
civil actions. Pursuant to the Settlement Agreement, Waste Management paid
the Company $6 million and granted to the Company an exclusive option to
receive, at no cost to the Company, up to approximately 7,000 acres of real
property in eastern San Bernardino County primarily adjacent to the Cadiz
Program property.
Prior to the acquisition of Sun World by the Company in 1996, 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 appealed the
decision. In October 2000, the Company entered into a full settlement of the
claim with the IRS which did not have a material adverse impact on the
Company's financial condition.
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,
2000 2000 2000 2000
---- ---- ---- ----
Revenues $ 7,936 $ 26,928 $ 55,376 $ 17,505
Gross profit (loss) (530) 3,698 12,009 4,643
Net loss (8,842) (6,282) (342) (6,992)
Net loss per
common share $ (.25) $ (.18) $ (.01) $ (.20)
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)
CADIZ INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
December 31,
BALANCE SHEET ($ in thousands): 2000 1999
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 3,099 $ 4,145
Accounts receivable, net 7 16
Prepaid expenses and other 212 386
------ --------
Total current assets 3,318 4,547
Investment in subsidiary 17,093 30,167
Property, plant, equipment and
water programs, net 38,842 36,710
Other assets 4,199 4,372
------ --------
$ 63,452 $ 75,796
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,209 $ 705
Accrued liabilities 349 1,536
Due to subsidiary 202 203
Long-term debt, current portion - 21
--------- --------
Total current liabilities 1,760 2,465
Long-term debt 23,912 23,661
Other liabilities 107 -
Commitments and contingencies
Series D redeemable convertible
preferred stock - $0.01 par value:
5,000 shares authorized; shares
issued and outstanding -
5,000 at December 31, 2000 and
none at December 31, 1999 3,950 -
Stockholders' equity:
Common stock - $.01 par value;
70,000,000 shares
authorized; shares issued
and outstanding 35,674,674
at December 31, 2000 and
35,166,661 at
December 31, 1999 357 352
Additional paid-in capital 142,706 136,200
Accumulated deficit (109,340) (86,882)
------ ------
Total stockholders' equity 33,723 49,670
--------- --------
$ 63,452 $ 75,796
========= =========
CADIZ INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF OPERATIONS Year Ended December 31,
($ in thousands except per share data) 2000 1999 1998
---- ---- ----
Revenues $ 1,920 $ 1,829 $ 2,003
-------- -------- --------
Costs and expenses:
Cost of sales 124 132 144
General and administrative 4,355 4,672 4,631
Special litigation 424 937 1,308
Depreciation and amortization 1,174 1,179 1,182
-------- -------- --------
Total costs and expenses 6,077 6,920 7,265
-------- -------- --------
Operating loss (4,157) (5,091) (5,262)
Profit (loss) from subsidiaries (14,216) (571) 195
Interest expense, net 4,085 2,932 2,403
-------- -------- --------
Net loss $(22,458) $(8,594) $ (7,470)
======== ======= ==========
Net loss per share $ (.64) $ (.25) $ (.23)
======== ======= ==========
Weighted-average shares outstanding 35,344 34,678 33,173
======== ======= ==========
CADIZ INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Year Ended December 31,
------------------------
STATEMENT OF CASH FLOWS ($ in thousands)2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net loss $(22,458) $(8,594) $ (7,470)
Adjustments to reconcile
net loss to net cash used for
operating activities:
Depreciation and amortization 2,956 2,498 2,226
Issuance of stock for services - 28 374
Loss (profit) from subsidiaries 14,216 571 (195)
(Gain) loss on disposal of assets (1) 6 (17)
Deferred stock compensation 100 - -
Changes in operating assets
and liabilities:
Decrease (increase) in
accounts receivable 9 61 (59)
Decrease (increase) in
due from subsidiary - 274 (107)
Decrease (increase) in
prepaid expenses and other 174 (133) (123)
Increase (decrease) in
accounts payable 504 4 (9)
(Decrease) increase in
accrued liabilities (356) 539 1,007
Increase (decrease) in
other liabilities 7 - (47)
------- -------- ---------
Net cash used for
operating activities (4,849) (4,746) (4,420)
------- -------- ---------
Cash flows from investing activities:
Additions to property,
plant and equipment (293) (3,645) (2,910)
Additions to developing crops (159) - -
Additions to water programs (1,595) (3,177) (856)
Proceeds from disposal of
property, plant and equipment 1 1,490 27
Increase in other assets (162) (64) (71)
------- -------- ---------
Net cash used for investing
activities (2,208) (5,396) (3,810)
------- -------- ---------
Cash flows from financing activities:
Net proceeds from issuance
of stock 1,032 6,803 2,154
Proceeds from issuance of
preferred stock 5,000 - -
Proceeds from issuance of
long-term debt - - 10,000
Principal payments on
long-term debt (21) (9) (21)
------- -------- ---------
Net cash provided by
financing activities 6,011 6,794 12,133
------- -------- ---------
Net (decrease) increase in
cash and cash equivalents (1,046) (3,348) 3,903
Cash and cash equivalents,
beginning of period 4,145 7,493 3,590
------- -------- ---------
Cash and cash equivalents,
end of period $ 3,099 $ 4,145 $ 7,493
======== ======= ==========
CADIZ INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 2000, 1999 and 1998 ($ in thousands)
Balance Additions
At Charged Balance
Beginning to at End
Year Ended Of Costs and Other of
December 31, 2000 Period Expenses Accounts Deductions Period
- ------------------ ------- ------- ------- --------- ------
Allowance for
doubtful accounts $ 224 $ 308 $ - $ 10 $ 522
======== ======= ======== ======= ========
Tax valuation allowance $ 39,665 $ - $ 7,984 $ - $ 47,649
======== ======= ======== ======= ========
Year ended
December 31, 1999
Allowance for doubtful
accounts $ 285 $ - $ - $ 61 $ 224
======== ======= ======== ======= ========
Tax valuation allowance $ 35,319 $ - $ 4,346 $ - $ 39,665
======== ======= ======== ======= ========
Year ended
December 31, 1998
Allowance for doubtful
accounts $ 287 $ 130 $ - $ 132 $ 285
======== ======= ======== ======= ========
Tax valuation allowance $ 25,321 $ - $ 9,998 $ - $ 35,319
======== ======= ======== ======= ========
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, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States of America. 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 of America, 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 our
opinion.
/s/ PricewaterhouseCoopers
- -----------------------------------
PricewaterhouseCoopers LLP
Los Angeles, California
February 16, 2001
SUN WORLD INTERNATIONAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
Year Ended December 31,
($ in thousands) 2000 1999 1998
---- ---- ----
Revenues $107,656 $ 114,890 $ 95,742
Income from partnerships 71 328 10,699
--------- ---------- --------
Total revenues 107,727 115,218 106,441
--------- ---------- --------
Costs and expenses:
Cost of sales 88,203 84,140 75,015
General and administrative 9,721 9,058 8,588
Removal of underperforming crops 1,549 - -
Depreciation and amortization 7,207 7,712 7,506
--------- ---------- --------
106,680 100,910 91,109
--------- ---------- --------
Operating income 1,047 14,308 15,332
Interest expense, net 15,103 14,879 15,137
--------- ---------- --------
Net income (loss) before
income taxes (14,056) (571) 195
Income tax expense 160 - -
--------- ---------- --------
Net income (loss) (14,216) (571) 195
Accumulated deficit at
beginning of period (4,016) (3,445) (3,640)
--------- ---------- --------
Accumulated deficit at
end of period $(18,232) $ (4,016) $(3,445)
======== ========== =========
See accompanying notes to the consolidated financial statements.
SUN WORLD INTERNATIONAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)
CONSOLIDATED BALANCE SHEET
December 31,
($ in thousands) 2000 1999
----- ----
ASSETS
Current assets:
Cash and cash equivalents $ 1,669 $ 392
Accounts receivable, net 7,879 8,431
Inventories 15,405 18,626
Prepaid expenses and other 419 531
-------- ---------
Total current assets 25,372 27,980
Investment in partnership - 1,497
Property, plant, equipment,
and water programs, net 125,982 132,299
Other assets 7,585 6,911
-------- ---------
Total assets $158,939 $ 168,687
========= ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 8,170 $ 7,416
Accrued liabilities 5,466 6,150
Long-term debt, current portion 859 704
-------- ---------
Total current liabilities 14,495 14,270
Long-term debt 121,698 118,428
Deferred income taxes 5,447 5,447
Other liabilities 206 375
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 35,325 34,183
Accumulated deficit (18,232) (4,016)
-------- ---------
Total stockholder's equity 17,093 30,167
-------- ---------
Total liabilities and
stockholder's equity $158,939 $ 168,687
========= ==========
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) 2000 1999 1998
---- ---- ----
Cash flows from operating
activities:
Net income (loss) $ (14,216) $ (571) $ 195
Adjustments to reconcile
net income (loss) to net
cash (used for) provided
by operating activities:
Depreciation and amortization 7,970 8,570 8,447
Gain on disposal of assets (95) (110) (189)
Removal of underperforming crops 1,549 - -
Stock earned for services (1,250) (313) -
Share of partnership operations (71) (328) (10,699)
Deferred stock compensation 137 - -
Changes in operating assets
and liabilities:
Decrease (increase) in
accounts receivable 552 (2,213) (355)
Decrease (increase) in
inventories 2,740 (3,405) (1,637)
Decrease in prepaid
expenses and other 112 207 431
Increase (decrease)
in accounts payable 755 (637) 245
(Decrease) increase
in accrued liabilities (683) 1,129 (90)
(Decrease) increase
in due to parent - (193) 107
(Decrease) increase in
other liabilities (305) (298) 68
--------- --------- ---------
Net cash (used for) provided
by operating activities (2,805) 1,838 (3,477)
---------- --------- ---------
Cash flows from investing
activities:
Additions to property, plant,
equipment, and water programs (959) (2,680) (4,398)
Additions to developing crops (3,685) (3,531) (3,396)
Proceeds from disposal of
property, plant and equipment 2,955 233 361
Partnership distributions 1,568 - 15,859
Increase in other assets (363) (934) (1,949)
---------- --------- ---------
Net cash (used for)
provided by investing
activities (484) (6,912) 6,477
---------- --------- ---------
Cash flows from financing
activities:
Proceeds from issuance
of long-term debt 5,231 - 2,000
Principal payments
on long-term debt (665) (676) (566)
---------- --------- ---------
Net cash provided by
(used for) financing activities 4,566 (676) 1,434
---------- --------- ---------
Net increase (decrease)
in cash and cash equivalents 1,277 (5,750) 4,434
Cash and cash equivalents
at beginning of period 392 6,142 1,708
---------- --------- ---------
Cash and cash equivalents
at end of period $ 1,669 $ 392 $ 6,142
========= ========= ========
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 owns
more than 19,000 acres of land, 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 30 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 upon shipment and transfer of
title to customers. Packing revenues and market commissions from third party
growers are recognized when the related services are provided. Proprietary
product development revenues are recognized based upon product sales by
licensees.
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 $1,636,000 for the year ended
December 31, 2000, $1,450,000 for the year ended December 31, 1999, and
$1,249,000 for the year ended December 31, 1998.
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. The Company reclassified book overdrafts
totaling $2,179,000 and $1,444,000 to accounts payable for the years ended
December 31, 2000 and 1999, respectively.
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, owned 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. In
November 2000, the Company received a final distribution of $1.6 million in
connection with the liquidation of the Partnership. The Company accounted 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.
In December 2000, the Company accrued costs to remove certain
underperforming crops, primarily stonefruit and wine grapes. The Company
recorded a one-time charge of $1,549,000 in connection with the removal of
these crops which is shown under the heading "Removal of underperforming
crops" on the Consolidated Statement of Operations.
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,
2000, 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, 2000,
1999 and 1998 were $14,497,000, $14,204,000 and $14,362,000, respectively.
NOTE 3 - ACCOUNTS RECEIVABLE
- ----------------------------
Accounts receivable consist of the following (dollars in thousands):
December 31,
2000 1999
---- ----
Trade receivables $ 4,190 $ 4,742
Due from growers 541 582
Other 3,670 3,331
-------- -------
8,401 8,655
Less allowance for doubtful
accounts (522) (224)
-------- -------
$ 7,879 $ 8,431
======== ========
Substantially all trade receivables are from large domestic 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 $12.8 million in
2000, $14.4 million in 1999 and $11.9 million in 1998. Export sales accounted
for approximately 9.9%, 10.3%, and 8.5% of the Company's revenues for the
years ended December 31, 2000, 1999 and 1998, respectively.
NOTE 4 - INVENTORIES
- --------------------
Inventories consist of the following (dollars in thousands):
December 31,
2000 1999
---- ----
Growing crops $ 11,740 $ 14,500
Pepper seed 257 1,028
Harvested product 528 98
Materials and supplies 2,880 3,000
--- ----- --------
$15,405 $ 18,626
======== ========
NOTE 5 - PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS
- -------------------------------------------------------
Property, plant, equipment, and water programs consist of the following
(dollars in thousands):
December 31,
2000 1999
---- ----
Land $ 49,196 $ 51,588
Permanent crops 58,860 58,129
Developing crops 9,546 8,862
Buildings 20,496 20,440
Machinery and equipment 14,025 13,540
Water programs 2,135 2,135
--------- ---------
154,258 154,694
Less accumulated depreciation (28,276) (22,395)
--------- ---------
$ 125,982 $ 132,299
========= =========
NOTE 6 - OTHER ASSETS
- ---------------------
Other assets consist of the following (dollars in thousands):
December 31,
2000 1999
---- ----
Capitalized loan fees, net $ 2,510 $ 3,274
Long-term receivables 1,799 1,849
Capitalized trademark development, net 1,713 1,475
Other 1,563 313
-------- --------
$ 7,585 $ 6,911
======== =======
NOTE 7 - ACCRUED LIABILITIES
- ---------------------------
Accrued liabilities consist of the following (dollars in thousands):
December 31,
2000 1999
Interest $2,780 $2,732
Payroll and benefits 1,609 2,298
Other 1,077 1,120
-------- --------
$5,466 $6,150
======== =======
NOTE 8 - REVOLVING CREDIT FACILITIES
- ------------------------------------
In February 2001, Sun World renewed its Revolving Credit Facility through
the 2001 growing season with a maturity date of November 2001. Maximum
amounts eligible to be borrowed under the Revolving Credit Facility vary
throughout the year with a maximum of $30 million available during the peak
borrowing periods of April to July. The Revolving Credit Facility is secured
by eligible accounts receivable and inventory, requires the Company to meet
certain financial covenants, and is guaranteed by Cadiz. 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, 2000 and 1999.
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 $103.5 million based on quoted
market prices as of December 31, 2000. At December 31, 2000 and December 31,
1999, the carrying amount of the Company's outstanding debt is summarized as
follows (dollars in thousands):
December 31,
2000 1999
---- ----
Series B First Mortgage Notes,
interest payable semi-annually
with principal due in April 2004,
interest at 11.25% $ 115,000 $ 115,000
Senior unsecured term loan,
interest payable
quarterly, due December 31, 2002,
interest at LIBOR plus 3%
(9.40% at December 31, 2000) 5,000 -
Note payable to bank, quarterly
principal installments
of $72 plus interest payable monthly,
due December 31, 2003, interest at
prime (9.50% at December 31, 2000 and
8.75% at December 31, 1999) 1,500 1,714
Note payable to insurance
company, quarterly
installments of $120
(including interest), due
January 1, 2005, interest at 7.75% 1,639 1,896
Note payable to finance company,
monthly installments
of $18 (including interest),
due July 1, 2002, interest at 7.50% 305 492
Other 255 30
Debt discount (1,142) -
---------- ---------
122,557 119,132
Less: current portion (859) (704)
---------- ---------
$ 121,698 $ 118,428
========== =========
Annual maturities of long-term debt outstanding, excluding $1,142
representing the unamortized portion of warrants on December 31, 2000 are as
follows: 2001 - $859; 2002 - $5,850; 2003 - $1,337; 2004 - $115,531 and 2005
- - $122.
In April 1997, the Company 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 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. Additionally, management believes that the 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.
In December 2000, Sun World entered into a two year $5 million senior
unsecured term loan. In connection with obtaining the loan, the Company
issued 50,000 shares of Cadiz common stock as well as certain warrants to
purchase shares of Cadiz common stock. The fair value of the stock and the
warrants were recorded as a debt discount and are being amortized over the
life of the loan.
Pursuant to Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities", the warrants
meet the definition of a derivative for the Company as the value of the
warrants is tied to the market value of Cadiz stock. As such, the value of
the warrants will be adjusted to fair value at each reporting date with the
corresponding gain or loss being amortized over the remaining life of the
note.
NOTE 10 - INCOME TAXES
- -----------------------
Significant components of the Company's deferred income tax assets and
liabilities as of December 31, 2000 and 1999 are as follows (dollars in
thousands):
December 31,
2000 1999
---- ----
Deferred tax liabilities:
Net fixed assets basis difference $ 8,077 $ 8,093
Other 48 48
-------- ---------
Total deferred tax liabilities 8,125 8,141
-------- ---------
Deferred tax assets:
Net operating losses 9,811 4,513
Reserve for notes receivable 1,178 1,178
State taxes 1,854 1,854
Other 1,728 944
-------- ---------
Total deferred tax assets 14,571 8,489
Valuation allowance for deferred
tax assets (11,893) (5,795)
-------- ---------
Net deferred tax assets 2,678 2,694
-------- ---------
Net deferred tax liability $ 5,447 $ 5,447
======== ========
As of December 31, 2000, the Company has net operating loss (NOL)
carryforwards of approximately $24.3 million for federal income tax purposes.
Such carryforwards expire in varying amounts through the year 2020. As of
December 31, 2000, the Company has state NOL carryforwards of approximately
$17.7 million. These NOL carryforwards expire in varying amounts through the
year 2010.
A reconciliation of the income tax expense to the statutory federal income
tax rate is as follows (dollars in thousands):
Year Ended
December 31,
2000 1999
---- ----
Expected federal income tax benefit
at 34% $ (4,779) $ (194)
Loss with no tax benefit provided 4,742 139
State income tax 147 -
Other non-deductible expenses 50 55
-------- ---------
Income tax expense $ 160 $ -
========= =========
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 service 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 $2.3 million for 2000, and $2.4
million for 1999 and 1998 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 intercompany revolving credit agreements whereby the
Company can loan or borrow from Cadiz as needed. No amount was outstanding
under the intercompany revolving credit agreement as of December 31, 2000 or
1999.
NOTE 13 - CONTINGENCIES
- -----------------------
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.
Prior to the acquisition of the Company by Cadiz in 1996, 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 appealed the decision. In October
2000, the Company entered into a full settlement of the claim with the IRS,
which did not have a material adverse impact on the Company's financial
condition.
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.