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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
MARK ONE [1]
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Dectember 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from............to............
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Commission File Number 0-12114
CADIZ LAND COMPANY, 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
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 899-4700
Securities Registered Pursuant to Section 12(b) of the Act: None
Name of each exchange
Title of each class 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 (Sec. 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 to this Form 10-K. /X/
As of March 23, 1998, the registrant had 33,069,161 shares of Common Stock
outstanding. The aggregate market value of the Common Stock held by
nonaffiliates as of March 23, 1998, was approximately $237,543,000
based on the average of the closing bid and asked prices on that date.
==========================================================================
Documents Incorporated by Reference
Certain portions of Registrant's proxy statement for the annual meeting to
be held on May 13, 1998, 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 long-term strategy of Cadiz Land Company, Inc. (the "Company") is
to acquire and develop water-related land and agricultural assets, as well
as selected water-related technologies. The Company has created an
integrated and complementary portfolio of landholdings, water resources,
and agricultural operations located throughout central and southern
California which either possess sizable assured supplies of water or can,
in future years, utilize water supplied from other Company properties.
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.
In September 1996, the Company significantly enhanced this portfolio
through its acquisition of Sun World International, Inc. ("Sun World").
The Sun World acquisition has made the Company one of the largest fully
integrated agricultural companies in California by adding to the Company's
portfolio more than 17,200 acres of prime agricultural land, packing
facilities, marketing expertise, proprietary agricultural products and the
highly regarded Sun World brand name. The acquisition of Sun World also
added valuable water rights to the Company's existing water resource
development operations.
In addition to its Sun World properties, the Company holds more than
39,000 acres of land in eastern San Bernardino County which are underlain
by excellent groundwater resources with demonstrated potential for future
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 programs,
including the storage and supply of surplus water for public agencies
which require supplemental sources of water. The Company has entered into
an interim Agreement with the Metropolitan Water District of Southern
California ("MWD") to develop principles and terms for a long-term
agreement at its Cadiz, California property. The program (the
"Cadiz/Fenner Water Storage and Supply Program") will provide storage
capacity of approximately 500,000 acre-feet and a dry-year source of up to
100,000 acre-feet per year of high quality water.
The Company continually seeks to develop and manage its land, water
and agricultural resources for their highest and best uses. Agricultural
development enables the Company to maximize the value of its landholdings
while generating cash flow. The Company also continues to evaluate
acquisition opportunities which are complementary to its current portfolio
of landholdings, water resources and agricultural operations.
(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.
On September 13, 1996, the Company acquired all of the stock of a
reorganized Sun World pursuant to a consensual plan of reorganization for
a net purchase price of approximately $179 million (the "Sun World
Acquisition"). Sun World and certain subsidiaries of Sun World had filed
voluntary petitions for relief under Chapter 11 of the Bankruptcy Code on
October 3, 1994 after debt restructuring negotiations with its existing
lenders failed.
The Company's Sun World Acquisition was an integral part of the
Company's business strategy. Sun World has added to the Company's
portfolio approximately 17,200 acres of prime agricultural land primarily
in the San Joaquin and Coachella Valleys, increasing the Company's total
landholdings to approximately 56,200 acres. See Item 2, "Properties."
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
During the year ended December 31, 1997, the Company operated in one
industry segment: resource development. 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 land, 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 its wholly-owned Sun World subsidiary) and water
resource development. Agricultural development enables the Company to
maximize the use of its landholdings while generating cash flow. The
Company also continues to evaluate acquisition opportunities which are
complementary to its current portfolio of landholdings, water resources,
and agricultural operations.
WATER RESOURCE DEVELOPMENT
The Company's portfolio of water resources, located in close
proximity to the major aqueduct systems of central and southern California
such as the State Water Project, the Colorado River Aqueduct, and the
Colorado River, provides the Company with the opportunity to participate
in a variety of water banking, exchange and storage and supply programs
in partnership with regional public water agencies.
CADIZ/FENNER WATER STORAGE AND 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. This groundwater is recharged by rain and snowfall
within a catchment area of nearly 1,300 square miles. Average annual
recharge is estimated by independent experts to be in the range of 20,000
to 30,000 acre-feet. See Item 2, "Properties - The Cadiz/Fenner
Property."
Pursuant to an Environmental Impact Report ("EIR") and land use
approvals by San Bernardino County, the Company is authorized to pump
approximately 30,000 acre-feet of groundwater per year for irrigation of
its Cadiz Valley property. An acre-foot is 326,000 gallons, or enough for
approximately two families for one year. The Company uses only
approximately 6,000 acre-feet per year to irrigate its Cadiz Valley
agricultural development. As a result, the Company has the ability to
supply groundwater - surplus to its present and near-term needs - to
public agencies which require supplemental sources of water.
Additionally, independent geotechnical and engineering studies confirm
that the Company's Cadiz Valley properties are well suited for temporary
storage of water which could be imported from the Colorado River during
periods of excess supply.
During wet years or periods of excess supply, the Company would store
water from the Colorado River in its groundwater basin. During periods of
regional drought or reduced allocations from the Colorado River, the
previously imported water, together with additional indigenous
groundwater, could be extracted and conveyed to the Colorado River
Aqueduct.
On December 23, 1997, the Company entered into an interim Agreement
with MWD to develop principles and terms for a long-term agreement in
which the Company would provide storage capacity of approximately 500,000
acre-feet and a dry-year source of up to 100,000 acre-feet per year of
high quality water. The interim Agreement calls for the development of
principles and terms, such as a fee structure, delivery schedule and
environmental compliance, and final verification of feasibility for a
water storage and supply program. The program would involve the
construction of groundwater spreading and recovery facilities, a pumping
plant, power facilities, and a pipeline that would convey the water to and
from the Cadiz property from the Colorado River Aqueduct. The program
could be fully operational by the year 2000.
The interim Agreement also calls for the Company and MWD to explore
two potential future additions to the water storage and supply program,
including the construction of a dual pipeline at the Cadiz/Fenner property
and/or the development of an additional program at the Company's nearby
Danby Lake property. Either addition would increase the storage and/or
supply capacity.
In addition, once operational, the Cadiz/Fenner Water Storage and
Supply Program will be conducted in accordance with a comprehensive,
independent basin management program to ensure long-term protection of the
groundwater basin.
PIUTE. The Company's water development operations at its 7,300 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 groundwater of excellent quality. Average
annual recharge is estimated by independent experts to be in the range of
10,000 to 20,000 acre-feet. See Item 2, "Properties - The Piute
Property."
Additional technical and environmental investigations are currently
underway for a water development program anticipated to transfer
approximately 10,000 to 15,000 acre feet per year.
DANBY LAKE AND OTHER. The Company currently owns or controls
additional acreage located throughout other areas of the Mojave Desert,
such as Danby Lake. This area is located approximately 30 miles southeast
of the Company's Cadiz/Fenner Valley property and 10 miles north of the
Colorado River Aqueduct.
As discussed above, the interim Agreement with MWD identifies the
Company's Danby Lake property as a potential addition to the Cadiz/Fenner
Water Storage and Supply Program.
SUN WORLD WATER RESOURCES. The Sun World Acquisition brought to the
Company valuable water rights in various parts of central and southern
California. The Company believes 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.
AGRICULTURAL OPERATIONS
With the Sun World Acquisition, the Company has become 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, 1997, Sun World
recorded revenues of $99.9 million.
PRODUCT LINE. Sun World ships 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, plums, peaches, nectarines, apricots
and lemons. It is also one of California's largest independent marketers
of grapefruit, tangerines, mandarins, 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 or 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(TM) table grapes, Black
Diamond(TM) plums, Sun World Seedless(R) watermelons, Honeycot(R)
apricots, Amber Crest(R) peaches and Sun World sweet colored peppers.
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, 1997. 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 1,600 acres are currently utilized for developing crops
(e.g. vines and trees that have not yet reached a commercial maturity).
Subsequent to the Sun World acquisition, the Company implemented a crop
development plan that provides for the planting of certain proprietary
varieties of grapes and treefruit (approximately 1,100 acres) as well as
the removal of approximately 1,400 acres of certain under-performing
permanent crops. Given the Company's current crop allocation plan, it is
now redeploying marginally productive acreage to produce more varieties of
crops which 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 resulting in a significant pull through effect; (ii) a
full complement of handling services that include harvest, cooling,
packing and shipping; and (iii) an internal sales and marketing force
servicing over 650 customers throughout the world.
Sun World's packing facilities handled approximately 9 million units
of produce during the year ended December 31, 1997. These facilities
provide harvesting, packing, cooling and shipping services for Sun World
production, as well as for other commercial clients. Currently, Sun World
owns four facilities, three 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. As a result, on average, the Company sells 12 to 13
million units annually with wholesale value of approximately $120 million.
This amount includes sale proceeds received for units sold on behalf of
third party growers for which only the sales commission and packing
revenues received by Sun World are included in Sun World's reported
revenues for 1997 of $99.9 million.
Sun World's sourcing, both external and internal, is diversified
geographically. Sun World's owned and leased farming operations are
located throughout California from the Coachella Valley in the south to
central California's San Joaquin Valley as well as operations near the
coast. Sun World sources externally produced product from throughout
California, from other areas of the United States, and from international
sources. This geographic diversification not only reduces the impact that
unfavorable weather conditions and infestations could have on Sun World's
operations, but also provides Sun World with a longer selling season for
many crops since the harvests occur at different times. In addition,
geographic diversification also allows Sun World the ability to provide
the quality and breadth of product throughout the year which is being
demanded by retailers.
Sun World's customer base consists of more than 650 accounts
including supermarket retailers, food service entities, warehouse clubs,
and international trading companies located in approximately 30 countries.
Domestic customers include national retailers such as Safeway Stores and
American Stores; club stores, including PriceCostco and Sam's; and food
service distributors, including Sysco and Alliant. Approximately 11% of
Sun World's products are marketed outside of the United States in Canada,
Europe, Australia, Japan, Hong Kong, Singapore, Malaysia and Taiwan. Only
one national retailer, Safeway Stores, (representing approximately 14%)
accounted for more than 10% of Sun World's revenues in 1997. 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 five years. Recent product successes include the
Black Diamond(TM) plum, the Amber Crest(R) peach and the Honeycot(R)
apricot. There are several other promising grape and treefruit varieties
which are scheduled for commercial planting and production in the near
future.
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
since the Sun World Acquisition amounted to $809,000 for the year ended
December 31, 1997 and $120,000 for the period from September 14, 1996 to
December 31, 1996. Management expects to maintain at least its 1997 level
of expenditures in the future.
As a result of over 20 years of research and development, Sun World
holds rights to more than 600 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 2017; however, the expiration of any individual
patent will not have a material effect upon Sun World's operations.
Additionally, Sun World has a 50% ownership interest in American
Sunmelon, a partnership engaged in the proprietary development, production
and marketing of seedless watermelon seed. Sun World's share of net
income generated by American Sunmelon was approximately $1.4 million for
calendar year 1997.
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 treefruit 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 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, 1997, the Company employed a total of 843
full-time employees. Sun World throughout the year engages various part
time and seasonal employees, with a seasonal high of approximately 2,500
part time employees. Approximately 119 of the Company's employees are
represented by a labor union pursuant to a contract that expires in 1999.
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 laws 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 1998.
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 related infrastructure, 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, are not subject to regulation by
existing statutes, other than general environmental statutes applicable to
all development projects. Although applicable laws, regulations and
policies have not had a materially adverse effect upon the ability of the
Company to develop its Cadiz or other properties to date, management
cannot predict with certainty what requirements, if any, may be imposed by
regulators upon future development. In addition, the time and costs
associated with obtaining regulatory approvals for resource development
are significant, and there can be no assurance that the Company will
receive desired approvals for future development plans.
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 three 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. Since 1990, the Company has
been pumping an average of approximately 6,000 acre-feet of groundwater
annually from its well operations for agricultural purposes.
Additional independent geotechnical and engineering studies conducted
since 1985 have confirmed that the Cadiz/Fenner property is well suited
for temporary storage of water which could be imported from the Colorado
River during periods of excess supply and alternatively the transfer of
stored water from the Company's property and conveyed back to the Colorado
River Aqueduct.
In December 1997, the Company entered into an interim Agreement with
MWD to develop principles and terms for a long-term agreement in which the
Company would provide storage capacity of approximately 500,000 acre-feet
and a dry-year source of up to 100,000 acre-feet per year in connection
with this property. 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
Company's underground water basin.
Substantially all Cadiz/Fenner acreage is held in fee directly by the
Company.
THE SUN WORLD PROPERTIES
FARM PROPERTIES. Sun World owns approximately 17,200 acres and
leases approximately 2,100 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 five distinct
geographic regions: Madera, Bakersfield 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 four packing and
handling facilities, three of which are located in the Coachella Valley
and one of which is located in the San Joaquin Valley at Kimberlina, near
Bakersfield.
The Kimberlina facility, located on an 83 acre parcel owned by Sun
World, consists of two highly automated production lines for packing
treefruit and citrus, cold storage areas, and office space.
Sun World's primary Coachella Valley facility consists of two
independent buildings located on 22 acres of industrial commercial zoned
land in Coachella, California, two miles south of Indio. The 22 acres
consists of 5 acres of buildings and improvements, 6 acres of packing, and
11 acres of open land. One building is used primarily for packing citrus,
receiving table grapes, cold storage and office space. The other building
is used primarily for receiving, cooling and storing table grapes.
Sun World's other operating facility in Coachella consists of one
building on 4 acres of land and is used primarily for packing watermelons
and citrus and for storage.
All of the Sun World properties are subject to encumbrances in favor
of the holders of the Series B First Mortgage Notes issued by Sun World
with an aggregate outstanding balance of $115.0 million as of December 31,
1997. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources -
Current Financing Arrangements."
THE PIUTE PROPERTY
The Piute property consists of approximately 7,300 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
Piute property was identified for acquisition by the Company by a
combination of satellite imaging and geological techniques which were used
by the Company to identify water at Cadiz.
The Piute acreage adjoins Highway 95, which is a direct route to Las
Vegas, approximately 60 miles north. The Santa Fe Railroad passes through
the land and Interstate 40 is approximately 12 miles to the south. The
property is held by the Company in fee title as to approximately 3,600
acres, with the remaining acreage under option.
The Company has commenced the development of the water resources of
this property. See Item 1, "Business - Narrative Description of Business
- - Water Resource Development."
OTHER PROPERTIES
In addition to the Cadiz and Piute properties, the Company owns
approximately 4,300 additional acres in the Mojave Desert as to which
development has not yet commenced. These properties include the Danby
Lake property which has been identified as a potential future addition for
a water storage and supply program under the Company's interim agreement
with MWD. See Item 1, "Business - Narrative Description of Business -
Water Resource Development."
The Company will continue to seek to acquire additional properties
both in Southern California desert regions and elsewhere which are
believed to be suitable for development.
All of the Company's non-Sun World fee property is subject to
encumbrances in favor of Cadiz' primary lender as security for loans with
outstanding balances aggregating approximately $14.8 million as of
December 31, 1997. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources - Current Financing Arrangements."
ITEM 3. LEGAL PROCEEDINGS
In November 1995, the San Bernardino County Board of Supervisors
certified an Environmental Impact Report/Environmental Impact Statement
("EIR/EIS"), and approved a Conditional Use Permit for the proposed
construction and operation of a substantial landfill on the shore of
Bristol Lake near Amboy, California (the "Rail Cycle" Project). The
general partner of Rail Cycle is controlled by Waste Management, Inc.
("WMI"). The Rail Cycle Project would be located within a few miles of
land owned by the Company at Cadiz, California, which the County of San
Bernardino has designated for agricultural use in its General Plan.
The Company has vigorously opposed the Rail Cycle Project on a number
of grounds. In December 1995, an action styled CADIZ LAND COMPANY, INC.
VS. COUNTY OF SAN BERNARDINO, ET. AL. CASE NO. BCV 02341 was filed by the
Company in Superior Court in San Bernardino County. The action challenges
the various decisions by the County of San Bernardino relative to the
Rail Cycle Project. Named in this action, in addition to the County of
San Bernardino, were the Board of Supervisors of the County of San
Bernardino, three individual members of the Board of Supervisors, an
employee of the County, and Rail Cycle, L.P. whose general partner is
controlled by WMI. The Company alleges that the actions of the County of
San Bernardino did not comply with the guidelines prescribed by the
California Environmental Quality Act and violated state planning and
zoning laws. The action seeks to set aside the county certification of
the EIR/EIS and approval of the proposed Rail Cycle Project. The Company
continues to believe the proposed Rail Cycle Project, if constructed and
operated as currently designed, poses environmental risks both to the
Company's agricultural operations at Cadiz and to the groundwater basin
underlying the Cadiz property. Accordingly, the Company intends to pursue
a claim for damages against the County of San Bernardino and Rail Cycle
and the action seeks compensatory damages. On November 6, 1997, the San
Bernardino Superior Court denied the Company's application for a Writ of
Mandate to set aside the County of San Bernardino's certification of the
("EIR/EIS"). The Company intends to continue prosecuting its claim for
monetary damages. No trial date has yet been set.
On October 24, 1997, the Company filed suit in the United States
District Court, for the Central District of California, against WMI,
certain key executives and consultants of WMI, and certain other parties
in interest as to the Rail Cycle Project. The Complaint as originally
filed asserted the following claims arising under federal law: Violations
of the Racketeer Influenced and Corrupt Organization Act (RICO),
Conspiracy to Violate the Racketeer Influenced and Corrupt Organization
Act (RICO), violations of Section 10(b) of the Securities Exchange Act of
1934, and Interception of Wire Communications. Additionally, the
Complaint asserted the following claims arising under state law:
Conspiracy, Misappropriation of Trade Secrets, Conversion, Defamation,
Trade Libel, Wiretapping, Interference with Existing Business
Relationship, and Unfair Business Practices. On December 9, 1997, the
federal district court severed the eight state law claims from the
complaint and dismissed them without prejudice. Those claims have been
reasserted in a state proceeding filed on January 8, 1998 in Los Angeles
Superior Court (West Division).
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. Management believes that the
likelihood of an unfavorable future outcome with regard to this matter is
remote. Accordingly, the Company released $3,780,000 of reserves related
to this matter at December 31, 1997 which are reported on the Consolidated
Statement of Operations as Litigation Benefit.
The Company is involved in other legal and administrative proceedings
and claims. In the opinion of management, the ultimate outcome of each
proceeding or all such proceedings combined will not have a material
adverse impact on the financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The results of the Company's Annual Meeting of Stockholders held June
12, 1997 were reported in the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1997.
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
--------- -----------
1995:
March 31 $5.438 $4.125
June 30 $4.875 $4.000
September 30 $5.500 $3.688
December 31 $6.250 $4.063
1996:
March 31 $6.375 $5.250
June 30 $6.500 $5.219
September 30 $6.000 $3.875
December 31 $5.625 $3.875
1997:
March 31 $ 6.063 $4.838
June 30 $ 6.250 $4.813
September 30 $ 8.063 $5.000
December 31 $ 9.375 $6.125
On March 23, 1998, the high, low and last sales prices for the
shares, as reported by Nasdaq, were $9.7344, $9.7344 and $9.7344
respectively.
In January 1998, options in the Company's stock began trading on the
American Stock Exchange, The Chicago Board Options Exchange and the
Pacific Stock Exchange under the symbol "QAZ."
The Company also has an authorized class of 100,000 shares of
preferred stock ("Preferred Stock"). To date the Board of Directors has
designated three series of Preferred Stock for issuance, including (i) up
to 60,000 shares of Series A Preferred, of which 27,631 shares have been
issued and no shares remain outstanding; (ii) up to 1,000 shares of Series
B Preferred, of which 1,000 shares have been issued and no shares remain
outstanding; and (iii) up to 365 shares of Series C Preferred, of which
340 shares have been issued and no shares remain outstanding. The Board
of Directors has no present plans or arrangements for the issuance of
additional shares of Preferred Stock.
The estimated number of beneficial owners of the Company's Common
Stock is approximately 2,700, and the number of stockholders of record on
March 23, 1998, was 276.
To date, the Company has never 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 year ended December 31, 1997, the Company sold the
following securities which were not registered under the Securities Act of
1933, as amended (the "Securities Act"). The Company believes that the
transactions described below were all exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof as
transactions not involving any public offerings. In each transaction, the
number of investors was limited, the investors confirmed to the Company
their investment intent, the investors were provided with information
about the Company and/or access to such information, and restrictions were
placed on resales of the securities. In each transaction involving the
issuance of stock options or warrants, the exercise price was equal to the
fair market value of the Company's common stock as of the date of grant of
such options or warrants. No underwriters were used or commissions paid
on connection with any such sales.
In March, June, and September 1997, prior to the registration in
September 1997 of options issuable under the Company's 1996 Stock Option
Plan, the Company issued a total of 317,500 options to purchase common
stock to employees of the Company under the Plan. All such options vest
three years from issuance and are exercisable until five years from date
of grant. 280,000 options granted in March and 27,500 options granted in
June are exercisable at $5.00 per share; 5,000 options granted in June are
exercisable at $5.25 per share; and 5,000 options granted in September are
exercisable at $6.00 per share. In January 1997, the Company issued
50,000 options to purchase common stock to a consultant in consideration
of consulting services rendered to the Company. These options are
exercisable for three years at an exercise price of $5.50 per share. In
May 1997, the Company issued 75,000 warrants to ING Baring (U.S.) Capital
Corporation ("ING") in consideration of the assumption and extension by
ING of the Company's outstanding term loan. These warrants are
exercisable for five years at an exercise price of $5.03 per share. In
November 1997, the Company issued 200,000 warrants to ING in consideration
of the issuance by ING of a revolving credit facility to the Company. The
warrants have a term of seven years and an exercise price of $7.00 per
share. In April 1997, 50,000 shares were granted to the Company's Chief
Executive Officer at no cost as a bonus for extraordinary services
rendered. In May 1997, 65,000 shares valued at $5.00 per share were
issued to a single investor in connection with the settlement of
obligations assumed in connection with the Sun World Acquisition. In June
1997, 240,000 shares were issued to Rabobank for total consideration of
$12,000 upon the exercise of warrants previously granted in connection
with the Company's credit facilities with Rabobank.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data insofar as it relates to the
year ended December 31, 1997, the nine months ended December 31, 1996 and
to each of the years ended March 31, 1996, 1995, and 1994 has been derived
from financial statements audited by Price Waterhouse LLP, independent
accountants. The information that follows should be read in conjunction
with the audited consolidated financial statements and notes thereto for
the year ended December 31, 1997, the nine months ended December 31, 1996
and for the year ended March 31, 1996 included elsewhere herein. See also
Item 7, "Management's Discussion and Analysis".
CADIZ LAND COMPANY, INC.
Selected Financial Data
($ in thousands, except for per share data)
Year Nine Months
Ended Ended
December 31, December 31, Year Ended March 31,
-----------------------
1997 1996(1) 1996 1995 1994
---- ------ ---- ---- ----
Statement of
Operations Data:
Revenues $ 100,157 $ 23,780 $ 1,441 $ 543 $ 190
Loss from continuing
operations before
extraordinary items (8,538) (5,997) (8,487) (4,706) (4,239)
Gain from disposal
of discontinued
segment(2) -0- -0- -0- -0- 145
Extraordinary items -0- -0- -0- 115 343
Net loss (8,538) (5,997) (8,487) (4,591) (3,751)
Less: Preferred
stock
dividends (1,213) (674) -0- -0- -0-
Imputed
dividend
on preferred
stock -0- (2,451) -0- -0- -0-
------- -------- -------- ------- -------
Net loss applicable
to common stock $ (9,751) $ (9,122) $ (8,487) $ (4,591) $(3,751)
========= ========= ========= ========= ========
Per Share:
Net loss from continuing
operations before
extraordinary items $ (0.33) $ (0.44) $ (0.48) $ (0.29) $ (0.33)
Net income from
operations of
discounted segment
segment and disposal
of discontinued
segment(2) -0- -0- -0- -0- 0.01
Extraordinary items -0- -0- -0- 0.01 0.03
-------- -------- -------- ------- ------
Net loss $ (0.33) $ (0.44) $ (0.48) $ (0.28) $ (0.29)
========= ========= ======== ======== ========
Weighted average
common shares
and equivalents 29,485 20,500 17,700 16,500 12,800
======== ======== ======== ======= =======
December 31, December 31, March 31,
--------------------------
1997 1996 1996 1995 1994
---- ----- ---- ---- -----
Balance Sheet Data:
Total assets $ 203,049 $ 230,790 $ 38,663 $ 34,888 $ 34,058
Long-term debt $ 131,689 $ 149,111 $ 68 $ 16,827 $ 13,833
Redeemable
preferred stock $ -0- $ 27,431 $ -0- $ -0- $ -0-
Preferred stock,
common stock
and additional
paid-in-capital $ 121,199 $ 88,808 $ 73,149 $ 62,857 $ 60,044
Accumulated deficit $ (70,818) $ (61,067) $(54,396) $(45,909) $(41,318)
Stockholders'
Equity $ 50,381 $ 27,741 $ 18,753 $ 16,948 $ 18,726
- -----------------------------
(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.
(2) In December 1990, the Company committed to a plan to eliminate all
agribusiness operations acquired as part of its 1988 merger with
Pacific Agricultural Services, Inc.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
On September 13, 1996, the Company acquired all of the outstanding
capital stock of Sun World. The Company's acquisition of Sun World was
accounted for using the purchase method of accounting. The Consolidated
Financial Statements include Sun World from the date of acquisition. In
addition, in 1996, 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.
RESULTS OF OPERATIONS
The consolidated financial statements set forth herein for the year
ended December 31, 1997, the nine months ended December 31, 1996, and the
year ended March 31, 1996, reflect the results of operations of the
Company and its wholly owned subsidiaries, Sun World (since September 14,
1996), and Southwest Fruit Growers ("SWFG") in which the Company is the
general partner and has an approximate 66.3 percent partnership interest.
As a result of the Sun World Acquisition and the change in fiscal
year end, direct comparisons of the Company's consolidated results of
operations for the year ended December 31, 1997 to the nine months ended
December 31, 1996 will not, in the view of management of the Company,
prove meaningful. Instead, 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 Cadiz/Fenner Water Storage
and Supply 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 and the diversity of its
crop mix makes it unlikely that adverse weather conditions would affect
all of Sun World's properties or all of its crops in any single year.
Nevertheless, net profit from Sun World's packing, marketing and
proprietary product development operations tends to be more consistent
from year to year than net profit from Sun World's farming operations. As
such, Sun World continues to strategically add volume in the packing and
marketing areas that will compliment Sun World's in-house production or
fill in contra-seasonal marketing windows. Sun World is also actively
exploring various domestic and international opportunities to license
selected proprietary fruit varieties.
The following discussion contains trend analysis and other forward-
looking statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Actual results could differ materially from those
projected in the forward-looking statements throughout this document.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
- -----------------------------------------------------------------------
1996
- -----
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 treefruit 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.
During 1997, atypical weather conditions resulted in much higher
than normal crop yields for table grapes and treefruit crops, therefore
resulting in lower prices throughout the industry. However, Sun World's
proprietary products, such as Superior Seedless(TM) table grapes and Black
Diamond(TM) plums, allowed Sun World to continue to command a price
premium to the overall market which has helped mitigate the difficult
market conditions industry-wide.
The table below sets forth, for the periods indicated, the results
of operations for the Company's four main operating 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):
Nine Months
Year Ended Ended
December 31, December 31,
1997 1996
---- ----
Divisional net income:
Farming $ 7,839 $ 3,867
Packing 8,017 726
Marketing 4,126 666
Proprietary product development 1,568 718
------- -------
21,550 5,977
Landfill prevention activities 683 394
General and administrative 9,832 5,979
Litigation benefit (3,780) -
Depreciation and amortization 7,745 1,039
Interest expense, net 15,608 5,203
Income tax benefit - (641)
-------- -------
Net loss $ (8,538) $ (5,997)
======== ========
FARMING OPERATIONS. The Company farms over 19,000 acres of
agricultural properties, which are primarily dedicated to producing
permanent commercial crops. Revenues during the year ended December 31,
1997 resulted primarily from the harvest of table grapes, treefruit, sweet
red and yellow peppers and seedless watermelons from the San Joaquin
Valley; table grapes, sweet red and yellow peppers and seedless
watermelons from the Coachella Valley; lemons from the Cadiz and Blythe
ranches; as well as sweet red and yellow peppers from the California
coastal operations. Although yields for these crops were higher than
normal, similar high crop yields throughout the industry resulted in lower
prices. As Sun World is able to command a premium price for its
proprietary products such as Superior Seedless(TM) table grapes and Black
Diamond(TM) plums, the impact of the industry-wide lower prices have been
somewhat mitigated. Net income from farming operations totaled $7.8
million for the year ended December 31, 1997 based upon revenues of $77.3
million offset by farming expenses of $69.5 million. Net income from
farming operations for the nine months ended December 31, 1996, which
included the operations of Sun World subsequent to the acquisition from
September 14, 1996 to December 31, 1996, totaled $3.9 million on revenues
of $16.5 million and expenses of $12.6 million.
PACKING OPERATIONS. During 1997, Sun World's four packing and
handling facilities contributed $23.1 million in revenues offset by $15.1
million in expenses resulting in $8.0 million in net income. During the
year, Sun World packed 4.1 million units and moved an additional 5.1
million units through the cold storage facilities for a total of 9.2
million units processed through the packing operations. Products packed
or handled during the year primarily consisted of Sun World-grown table
grapes, treefruit, sweet red and yellow peppers, seedless watermelons and
lemons as well as table grapes and citrus products packed for third party
growers. The 1996 net income of $0.7 million from packing operations
related to the results of Sun World from September 14, 1996 to December
31, 1996 in which Sun World generated packing revenues of $4.7 million and
expenses of $4.0 million.
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 the year ended
December 31, 1997, approximately 12.2 million units were sold primarily
consisting of Sun World-grown table grapes, treefruit, 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 $9.0 million while marketing
expenses totaled $4.9 million for the year ended December 31, 1997
resulting in a net income from marketing operations of $4.1 million. The
1996 net income from marketing operations related to the results of Sun
World from September 14, 1996 to December 31, 1996 in which Sun World
generated marketing revenues of $2.5 million offset by expenses of $1.8
million resulting in net profits of $0.7 million.
PROPRIETARY PRODUCT DEVELOPMENT. Sun World has a long history of
product innovation, and its research and development center maintains a
fruit breeding program that has introduced dozens of proprietary fruit
varieties during the past five years. In addition, Sun World has a 50%
interest in American Sunmelon, a partnership engaged in proprietary
development, production and marketing of seedless watermelon seed. During
the year ended December 31, 1997, net income from proprietary product
development was $1.6 million consisting of revenues of $2.4 million ($1.3
million from American Sunmelon) offset by expenses of $0.8 million. The
net income of $0.7 million for the nine months ended December 31, 1996
related primarily to the operations of American Sunmelon from September
14, 1996 to December 31, 1996.
LANDFILL PREVENTION ACTIVITIES. The Company is engaged in
opposition to the proposed construction and operation of a landfill to be
located adjacent to its Cadiz/Fenner Valley properties, and has filed
three lawsuits seeking, among other things, to set aside approvals for the
landfill project and monetary damages. See Item 3, "Legal Proceedings."
During the year ended December 31, 1997, expenses incurred in connection
with activities in opposition to the project, such as litigation costs and
professional fees and expenses totaled $0.7 million as compared to $0.4
million during the nine months ended December 31, 1996.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
during the year ended December 31, 1997 and the nine months ended December
31, 1996 consisted primarily of corporate operating expenses, professional
fees and salaries. These expenses increased by $3.9 million in 1997 as
compared to the nine months ended December 31, 1996 period primarily due
to the inclusion of a full year of operations for Sun World in 1997.
LITIGATION BENEFIT. Prior to the acquisition of Sun World by the
Company, the Internal Revenue Service (IRS) had filed claims against Sun
World and certain of its subsidiaries, (collectively "the Sun World
Claimants") for taxes refunded for workers that the IRS claims were
employees. 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 the Sun World
Claimant who had the largest outstanding claim. Management believes that
the likelihood of an unfavorable future outcome with regard to this matter
is remote. Accordingly, Sun World released $3.8 million of reserves
related to this matter at December 31, 1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
for the year ended December 31, 1997 totaled $7.7 million compared to $1.0
million for the nine months ended December 31, 1996. The increase is
attributable to depreciation relating to the acquired Sun World assets.
INTEREST EXPENSE. As a result of the acquisition of Sun World, net
interest expense totaled $15.6 million during the year ended December 31,
1997 compared to $5.2 million during the nine months ended December 31,
1996. The following table summarizes the components of net interest
expense for the two periods (in thousands):
Year Nine Months
Ended Ended
December 31, December 31,
1997 1996
---- -----
Interest on outstanding debt - Sun World $ 13,446 $ 4,411
Interest on outstanding debt - Cadiz 875 782
Amortization of financing costs 1,879 746
Interest income (592) (736)
-------- -------
$ 15,608 $ 5,203
======== =======
The increase in interest on outstanding debt during 1997 is
attributable to the long-term debt acquired as part of the Sun World
acquisition. Financing costs, which include legal fees and extension
fees, are amortized over the life of the debt agreement.
NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED MARCH 31, 1996
During the nine months ended December 31, 1996, the Company incurred
a net loss of $6.0 million compared to a loss of $8.5 million during the
year ended March 31, 1996. The following table summarizes the net loss
for both periods (dollars in thousands):
Nine Months Year
Ended Ended
December 31, March 31,
1996 1996
---- ----
Revenues $ 23,780 $ 1,441
-------- -------
Costs and expenses:
Cost of sales 17,725 1,649
Landfill prevention activities 394 1,919
General and administrative 6,057 3,506
Depreciation and amortization 1,039 1,067
Interest expense, net 5,203 1,787
Income tax benefit (641) -
--------- -------
Net loss $ (5,997) $ (8,487)
========= ========
The operations of Sun World for the period September 14 through
December 31, 1996 are included above; however, due to the seasonality of
the operations of Sun World, this is not indicative of the results of
operations should a full fiscal year of activity be included.
REVENUES. During the nine months ended December 31, 1996, the
Company recorded revenues of $23.8 million, of which $22.5 million
resulted from Sun World operations, all of which were recognized from
September 14, 1996 (the date subsequent to the Sun World Acquisition)
through December 31, 1996. The balance of the Company's revenues were
recognized from the development activities of Cadiz, consisting primarily
of crop proceeds from the Cadiz ranch.
COST OF SALES. Cost of sales for the nine months ended December 31,
1996 of $17.7 million consisted of all direct costs and an allocation of
indirect costs related to revenue generated by the Company, $16.4 million
of which related to Sun World activities, for the period September 14,
1996 through December 31, 1996 as compared to $1.7 million for Cadiz
during the year ended March 31, 1996.
LANDFILL PREVENTION ACTIVITIES. During the nine months ended
December 31, 1996, expenses incurred in connection with activities in
opposition to the proposed landfill, such as litigation costs and
professional fees and expenses totaled $0.4 million as compared to $1.9
million during the fiscal year ending March 31, 1996.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
during both the nine months ended December 31, 1996 and the fiscal year
ended March 31, 1996 consisted primarily of corporate operating expenses,
professional fees and salaries as well as expenses incurred in the land
and water resource development of the Company's landholdings. These
expenses increased by $2.6 million during the nine months ended December
31, 1996 as compared to the year ended March 31, 1996 primarily as a
result of the Sun World Acquisition and the addition of corporate and
administrative costs related to Sun World in the amount of $2.5 million
for the period September 14, 1996 through December 31, 1996. During the
period ended December 31, 1996, Cadiz was awarded and received
approximately $0.4 million as final payment toward full reimbursement of
its legal fees and costs incurred in defending a legal action which was
netted against the related legal fees incurred.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization totaled
$1.0 million for the nine months ended December 31, 1996 as compared to
$1.1 million for the year ended March 31, 1996. The decrease is primarily
attributable to reduced amortization for Cadiz.
INTEREST EXPENSE. Net interest expense totaled $5.2 million during
the nine months ended December 31, 1996 as compared to $1.8 million during
the year ended March 31, 1996. The following table summarizes the
components of net interest expense for the nine months ended December 31,
1996 and the fiscal year ended March 31, 1996 (dollars in thousands):
Nine Months Year
Ended Ended
December 31, March 31,
1996 1996
---- -----
Interest expense on outstanding debt $ 5,193 $ 1,000
Amortization of financing costs 746 841
Interest income (736) (54)
------- -------
5,203 $ 1,787
======= =======
The increase in interest expense on outstanding debt during the
period ended December 31, 1996 is attributable to the long-term debt
acquired as part of the Sun World Acquisition. Interest income increased
due to the average Sun World cash balance of over $30 million maintained
during the fourth calendar quarter of 1996.
INCOME TAX BENEFIT. An income tax benefit of $0.6 million arose
during the nine months ended December 31, 1996 as a result of utilization
of net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL DISCUSSION OF LIQUIDITY AND CAPITAL RESOURCES. With the
completion of the offering by Sun World of $115.0 million in secured notes
and the issuance of revolving credit facilities for both Sun World and
Cadiz, as further discussed below, the Company believes it will be able to
meet its working capital needs without looking to additional outside
funding sources, although no assurances can be made. See "Current
Financing Arrangements" below.
In order to provide additional availability of working capital at the
parent level and to provide a readily available funding mechanism for
add-on acquisition opportunities, Cadiz entered into a three year $15 million
revolving credit facility with ING Baring (U.S.) Capital Corporation
("ING") (the "Cadiz ING Revolver") in November 1997. As of December 31,
1997, $5.0 million was outstanding under the Cadiz ING Revolver.
On April 16, 1997, Sun World completed a private placement of $115.0
million in secured 11-1/4% Series A First Mortgage Notes (the "Sun World
Notes"). The notes have subsequently been exchanged for Series B First
Mortgage Notes registered under the Securities Act of 1933 which are
publicly traded. The proceeds from the Sun World Notes, when combined with
Sun World's existing cash and cash made available under a one year $30
million revolving credit facility with Cooperatieve Centrale Raiffeisen-
Boerenleenbank B.A. ("Rabobank") (the "Sun World Revolver") entered into
by Sun World concurrently with the issuance of the Sun World Notes, were
used to retire Sun World's existing indebtedness to John Hancock Mutual
Life Insurance Company and Caisse Nationale de Credit Agricole, acting
through its Grand Cayman branch, as well as Cadiz' existing indebtedness
to Rabobank (referred to hereinafter as the "Debt Refinancing" ).
Management believes that the terms of Sun World's debt facilities
following the issuance of the Sun World Notes are more favorable to Sun
World than the terms of the retired debt facilities. See "Outlook,"
below.
Under Sun World's historical working capital cycle, working capital
is required primarily to finance the costs of growing and harvesting
crops, which occurs 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. Prior
to its Debt Refinancing, Sun World's cash balance was sufficient to
provide for these seasonal working capital requirements without the need
for additional outside funding. However, Sun World determined that
utilizing a substantial portion of its cash on hand to pay down long-term
debt and concurrently entering into the Sun World Revolver to meet its
seasonal working capital needs was a more effective use of its financial
resources. Peak borrowings under the Sun World Revolver during the 1997
season were $18.2 million. As of December 31, 1997, no amount was
outstanding under the Sun World Revolver. Sun World has replaced the Sun
World Revolver with a $25 million one year facility which, in management's
view, provides more favorable terms. See "Current Financing Arrangements -
Sun World Obligations" below.
As of December 31, 1997, Cadiz had approximately $14.8 million of
indebtedness outstanding and $10.0 million borrowing availability under
the Cadiz ING Revolver. Sun World had $118.3 million of indebtedness
outstanding and $30.0 million of borrowing availability under the Sun
World Revolver.
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, 1997, Cadiz was obligated to ING for approximately
$9.8 million under a senior term loan facility. The maturity date of the
ING obligation is April 30, 1998 (with the interest rate LIBOR plus 200
basis points, payable at LIBOR only semi-annually, with the remaining
accrued interest added to principal). ING also granted to Cadiz the right
to obtain two additional one-year extensions. Upon exercise of the first
and second extension, Cadiz would be required to issue certain warrants to
ING and the interest rate would be further adjusted. Currently, ING holds
a senior deed of trust on substantially all of Cadiz' non-Sun World
related property. Cadiz expects to exercise the first one-year extension
under the senior term loan facilities.
In November 1997, the Company entered into the Cadiz ING Revolver to
provide additional availability of working capital at the parent level and
to provide a readily available funding mechanism for add-on acquisition
opportunities. The Cadiz ING Revolver is secured by a second lien on
all of the non-Sun World assets of the Company. Principal is due on
December 31, 2000. Interest is payable semi-annually at 8% if paid in
cash and at 10% if paid in common stock of the Company. The Company had
$5.0 million outstanding under the Cadiz ING Revolver at December 31,
1997. The Company issued 200,000 warrants in connection with the initial
borrowings at $7.00, the market price at issuance. The agreement calls
for the issuance of certain additional warrants if and when the remaining
$10.0 million is drawn.
As the Company continues to actively pursue its business strategy,
additional financing specifically in connection with the Company's water
programs will be required. The nature of such additional financing for
the water storage and supply programs (including the Cadiz/Fenner Water
Storage and Supply Program - see Item 2 - Water Resource Development) will
depend upon how the development and ownership of each project is
ultimately structured, and how much of each project's funding will be the
Company's responsibility. Should the Company determine that it will be
able to maximize its profit potential through construction and ownership
of the water storage and/or delivery systems used in the program, the
Company will obtain appropriate long-term financing. Based upon the
results of analyses performed by an investment banking firm retained by
the Company, management believes that several alternative long-term
financing arrangements are available to the Company which will be further
evaluated once funding responsibility and ownership alternatives are
determined.
SUN WORLD OBLIGATIONS
The Sun World Notes, which were issued in the principal amount of
$115.0 million on April 16, 1997 and will mature on April 15, 2004, accrue
interest at the rate of 11-1/4% per annum. Interest only is payable semi-
annually on April 15 and October 15 of each year, commencing October 15,
1997. 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.
Commencing October 14, 1997, Sun World offered to exchange (the
"Exchange Offer") up to $115.0 million aggregate principal amount of its
11-1/4% Series B First Mortgage Notes (the "Exchange Notes") for $115.0
million aggregate principal amount of the Sun World Notes. The Exchange
Notes are registered under the Securities Act of 1933 and have the same
terms as the Sun World Notes. The exchange of all of the Sun World Notes
was completed on November 12, 1997.
In April, 1997, Sun World entered into the Sun World Revolver which
is guaranteed by Cadiz. Amounts borrowed under the Sun World Revolver
accrue interest at either prime plus 1.50% or LIBOR plus 2.50%, at Sun
World's election, with an additional .50% payable for advances on eligible
inventory above specified levels. As of December 31, 1997, no amount was
outstanding under the Sun World Revolver. To meet working capital needs
for 1998, Sun World has replaced the existing Sun World Revolver with a
one year $25 million revolving credit facility (the "New Revolver") that
provides more favorable terms than the existing Sun World Revolver.
Interest on the New Revolver will accrue at either prime plus 1% or LIBOR
plus 2.50% at Sun World's election.
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES. Cash provided by
operating activities totaled $0.2 million for the year ended December 31,
1997 as compared to cash used for continuing operating activities of $0.2
million for the nine months ended December 31, 1996. The increase in cash
generated from operating activities primarily resulted from the inclusion
of Sun World's operations in the entire 1997 period. Significant working
capital changes included a decrease in accounts receivable of $1.6 million
primarily attributable to the lower FOB prices experienced due to atypical
weather conditions resulting in higher than normal crop yields industry
wide offset by an increase in accounts payable of $0.7 million and accrued
liabilities of $1.3 million (primarily related to accrued interest on the
Sun World Notes).
CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES. Cash used for
investing activities totaled $2.9 million during the year ended December
31, 1997 as compared to cash provided by investing activities of $6.7
million during the nine months ended December 31, 1996. The Company
invested $4.7 million in developing crops and $2.7 million in the purchase
of land, property, plant and equipment and in furtherance of its water
storage and supply programs. Additionally, the Company received proceeds
of $2.8 million from the disposal of underproducing Sun World assets
through an asset disposal program. In addition, partnership distributions
received by Sun World totaled $1.2 million and other assets decreased by
$0.5 million.
CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES. Cash used for
financing activities totaled $25.3 million for the year ended December 31,
1997 as compared to cash provided by financing activities of $21.7 million
during the nine months ended December 31, 1996. Principal payments on
long-term debt of $141.2 million were made from the proceeds from the Debt
Refinancing. Costs related to debt issuances totaled approximately $5.8
million. Net proceeds from the issuance of stock including the exercise
of stock options and warrants totaled $1.7 million during the year ended
December 31, 1997.
OUTLOOK
The Company is actively pursuing the development of its water
resources. Specifically, on December 23, 1997, the Company announced an
interim agreement with the Metropolitan Water District of Southern
California ("MWD") to develop principles and terms for a water storage and
supply program on the Company's land in the Cadiz and Fenner valleys of
eastern San Bernardino County (the "Cadiz/Fenner Water Storage and Supply
Program"). The proposed long-term program will involve the conveyance of
water from MWD's Colorado River Aqueduct, during periods of excess supply,
for storage in the aquifers underlying the Company's properties. The
water will be delivered through a 35-mile transmission pipeline having a
capacity of 100,000 acre-feet per year. Total storage capacity is
expected to be approximately 500,000 acre-feet. During periods of
shortage, the stored water will be extracted by wells and returned to the
Colorado River Aqueduct by gravity flow through the transmission pipeline.
The program will also have the ability to transfer high quality indigenous
groundwater for distribution throughout MWD's service area. The program,
which is subject to regulatory approvals, could be operational by the year
2000. The Company anticipates that the revenue stream generated by the
program will be sufficient to meet the then existing operating
requirements of the Company, although no assurances can be given.
In addition to the development of its water resources, the Company is
actively involved in further agricultural development and reinvestment in
its landholdings. Such development will be systematic and in furtherance
of the Company's business strategy to provide for maximization of the
value of its assets. The Company also continually evaluates acquisition
opportunities which are complimentary to its current portfolio of
landholdings, water resources and agricultural operations.
The Company believes that, based upon current levels of operations
and anticipated growth, Sun World can adequately service its indebtedness
and meet its seasonal working capital needs utilizing available internal
cash, the New Revolver and, if necessary, through an intercompany revolver
with Cadiz. Cadiz expects to be able to meet its ordinary working capital
needs, in the short-term, through a combination of 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, draws from the Cadiz ING
Revolver, and the possible exercise of outstanding stock options. Except
for the foregoing, additional intercompany cash payments between Sun World
and Cadiz are subject to certain restrictions under its current lending
arrangements.
Since the Company's inception, inflation has not had a material
impact either on the costs of materials required in the development of
property and/or on labor costs. Similarly, the value of the Company's
real property has not been materially impacted by inflation. In the event
the rate of inflation should accelerate in the future, the Company
believes the increase in value of its real property will exceed any
increases in costs attributable to inflation.
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.
PART III
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, 1997.
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 Exchange Act of 1934 not later than 120 days after
December 31, 1997.
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 Exchange Act of 1934 not later than 120 days after
December 31, 1997.
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 Exchange Act of 1934 not later than 120 days after
December 31, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements. See Index to Consolidated Financial
Statements.
2. Financial Statement Schedules. See Index to Consolidated
Financial Statements.
3. Exhibits.
The following exhibits are filed or incorporated by reference as part
of this Annual Report:
3.1 Certificate of Incorporation of the Company, as amended(2)
3.2 Amendment to Certificate of Incorporation dated
November 8, 1996(3)
3.3 Bylaws of the Company, as amended to date(4)
3.4 Amended and Restated Certificate of Incorporation of Sun World,
Inc.(12)
3.5 Certificate of Merger of Sun World International, Inc. into Sun
World, Inc.(12)
3.6 Agreement and Plan of Merger of Sun World, Inc. and Sun World
International, Inc.(12)
3.7 Amended and Restated Bylaws of Sun World International, Inc.(12)
4.1 Specimen Form of Stock Certificate for the Company's registered
stock(4)
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(5)
4.4 Certificate of Designations of 6% Convertible Series C Preferred
Stock(1)
4.5 Indenture dated as of April 16, 1997 among Sun World as issuer,
Sun World and certain subsidiaries of Sun World as guarantors,
and IBJ Schroder 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)(10)
4.6 Form of Amendment to Indenture dated as of October 9, 1997(14)
4.7 Form of Amendment to Indenture dated as of January 23, 1998
10.1 Pacific Agricultural Holdings, Inc. 1988 Nonstatutory Stock
Option Plan(6)
10.2 The Company's 1996 Stock Option Plan(8)
10.3 Form of Limited Partnership Agreement of Southwest Fruit
Growers, L.P.(7)
10.4 Farm Management Agreement dated as of March 28, 1990 between
the Company and Southwest Fruit Growers, L.P.(7)
10.5 Promissory Note in the amount of $3,486,868 dated as of
March 28, 1990 issued by Southwest Fruit Growers, L.P. in
favor of the Company (Hyder Note)(7)
10.6 Promissory Note in the amount of $4,934,922 dated as of
March 28, 1990 issued by Southwest Fruit Growers, L.P. in
favor of the Company (Cadiz Note)(7)
10.7 Promissory Note in the amount of $3,141,344 dated as of
March 28, 1990 issued by Southwest Fruit Growers, L.P. in
favor of the Company (Farming Note)(7)
10.8 Amended and Restated Credit Agreement between Sun World
International, Inc. and Caisse Nationale de Credit Agricole
dated September 13, 1996(3)
10.9 Promissory Note between Sun World International, Inc. and
Caisse Nationale de Credit Agricole dated September 13, 1996(3)
10.10 New Hancock Credit Agreement between Sun World International,
Inc. and John Hancock Mutual Life Insurance Company dated
September 13, 1996(3)
10.11 Secured Promissory Note between Sun World International, Inc.
and John Hancock Mutual Life Insurance Company dated
September 13, 1996(3)
10.12 Form of Employment Agreement dated September 13, 1996 between
Sun World, the Company and Timothy J. Shaheen(9)
10.13 Form of Employment Agreement dated September 13, 1996
between Sun World, the Company and Stanley E. Speer(9)
10.14 Form of Sun World Executive Officer Employment Agreement(11)
10.15 Credit Agreement between the Company and ING Baring (U.S.)
Capital Corporation dated November 25, 1997
10.16 Revolving Credit Note between the Company and ING Baring (U.S.)
Capital Corporation dated November 25, 1997
10.17 Agreement between Metropolitan Water District of Southern
California and Cadiz Land Company, Inc. to Develop Principles
and Terms for Agreement and to verify Program Feasibility
10.18 Employment Agreement between Cadiz Land Company, Inc. and Keith
Brackpool dated February 1, 1998
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Accountants (included in Part IV of the
Form 10-K)
27.1 Financial Data Schedule
- ------------------------
(1) Previously filed as Exhibit to the Company's Report on Form 8-K
dated September 13, 1996
(2) Previously filed as Exhibit to the Company's Registration
Statement on 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 Report on Form 8-K
dated May 6, 1992
(5) Previously filed as Exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1996
(6) Previously filed as Exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1988
(7) Previously filed as Exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1990
(8) Previously filed as Exhibit A to the Company's Proxy Statement
relating to the Annual Meeting of Stockholders held on November 8,
1996
(9) Previously filed as Exhibit to Cadiz' Transition Report on Form
10-K for the nine months ended December 31, 1996
(10) Previously filed as Exhibit to Amendment No. 1 to Cadiz' Form S-1
Registration Statement No. 333-19109
(11) Previously filed as Exhibit to Cadiz' Report on Form 10-Q for the
quarter ended March 31, 1997
(12) Previously filed as Exhibit to Sun World's Form S-4 Registration
Statement No. 333-31103
(13) Previously filed as Exhibit to Amendment No. 1 to Sun World's Form
S-4 Registration Statement No. 333-31103
(14) Previously filed as Exhibit to Amendment No. 2 to Sun World's Form
S-4 Registration Statement No. 333-31103
(b) Reports on Form 8-K
1. Report on Form 8-K dated December 23, 1997 providing a Press Release
issued by the Company announcing the signing of an interim Agreement
with the Metropolitan Water District of Southern California.
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 LAND COMPANY, INC.
By: /s/ Keith Brackpool By: /s/ Stanley E. Speer
---------------------------- --------------------------
Keith Brackpool, President & Stanley E. Speer,
Chief Executive Officer and Director Chief Financial Officer
Date: March 26, 1998 Date: March 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
Name and Position Date
/s/ Dwight Makins Date: March 26, 1998
------------------------------------
Dwight Makins, Chairman of the Board
and Director
/s/ Keith Brackpool Date: March 26, 1998
------------------------------------
Keith Brackpool, President &
Chief Executive Officer
and Director (Principal Executive Officer)
/s/ Stanley E. Speer Date: March 26, 1998
--------------------------------------
Stanley E. Speer, Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Russ Hammond Date: March 26, 1998
--------------------------------
Russ Hammond, Director
/s/ Murray H. Hutchison Date: March 26, 1998
--------------------------------
Murray Hutchison, Director
/s/ Mitt Parker Date: March 26, 1998
--------------------------------
Mitt Parker, Director
CADIZ LAND COMPANY, INC.
Index to Consolidated Financial Statements
Page
------
FINANCIAL STATEMENTS:
Report of Independent Accountants. . . . . . . . . . . . . . . 28
Consolidated Statement of Operations for the
year ended December 31, 1997,
the nine months ended December 31, 1996 and
the year ended March 31, 1996 . . . . . . . . . . . . . . . 29
Consolidated Balance Sheet at December 31, 1997 and 1996 . . . 30
Consolidated Statement of Cash Flows for the
year ended December 31, 1997, the nine months ended
December 31, 1996 and the year ended March 31, 1996 . . . . 32
Consolidated Statement of Stockholders' Equity
for the year ended December 31, 1997, the
nine months ended December 31, 1996 and the
year ended March 31, 1996 . . . . . . . . . . . . . . . . . 33
Notes to the Consolidated Financial Statements . . . . . . . . 35
FINANCIAL STATEMENT SCHEDULES:
Schedule I - Condensed Financial Information of Registrant
for the year ended December 31, 1997 and
the nine months ended December 31, 1996 . . . . . . . . . . 52
Schedule II - Valuation and Qualifying Accounts
For the year ended December 31, 1997,
the nine months ended December 31, 1996 and the
year ended March 31, 1996 . . . . . . . . . . . . . . . . . 55
(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 Land Company, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the
financial position of Cadiz Land Company, Inc. and its subsidiaries at
December 31, 1997 and 1996, and the results of their operations and
their cash flows for the year ended December 31, 1997, the nine months
ended December 31, 1996 and for the year ended March 31, 1996, in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
the opinion expressed above.
/s/ Price Waterhouse LLP
- --------------------------
PRICE WATERHOUSE LLP
Los Angeles, California
February 13, 1998
CADIZ LAND COMPANY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Year Nine Months Year
Ended Ended Ended
December 31, December 31, March 31,
(In thousands except per share data) 1997 1996 1996
------ ------ ------
Revenues $100,157 $ 23,780 $ 1,441
-------- --------- --------
Costs and expenses:
Cost of sales 76,566 17,725 1,649
Landfill prevention activities 683 394 1,919
General and administrative 11,873 6,057 3,506
Litigation benefit (3,780) - -
Depreciation and amortization 7,745 1,039 1,067
-------- ------ ------
Total costs and expenses 93,087 25,215 8,141
------- ------ ------
Operating profit (loss) 7,070 (1,435) (6,700)
Interest expense, net 15,608 5,203 1,787
-------- ------ ------
Loss before income taxes (8,538) (6,638) (8,487)
Income tax benefit - (641) -
------ ------ ------
Net loss (8,538) (5,997) (8,487)
Less: Preferred stock dividends (1,213) (674) -
Imputed dividend on
preferred stock - (2,451) -
------ ------ -------
Net loss applicable to common stock $ (9,751) $ (9,122) $ (8,487)
======== ========= =========
Net loss per common share $ (.33) $ (.44) $ (.48)
======== ========= =========
Weighted average shares outstanding 29,485 20,500 17,700
========= ========= ========
See accompanying notes to the consolidated financial statements.
CADIZ LAND COMPANY, INC.
CONSOLIDATED BALANCE SHEET
December 31,
Assets ($ in thousands): 1997 1996
---- ----
Current assets:
Cash and cash equivalents $ 5,298 $ 33,307
Accounts receivable, net 5,881 7,533
Inventories 13,838 14,121
Prepaid expenses and other 1,161 1,225
Assets held for sale - 6,534
------- --------
Total current assets 26,178 62,720
Investment in partnerships 6,327 6,104
Property, plant, equipment and
water programs, net 160,193 155,453
Other assets 10,351 6,513
------- --------
$ 203,049 $ 230,790
========= =========
See accompanying notes to the consolidated financial statements.
CADIZ LAND COMPANY, INC.
CONSOLIDATED BALANCE SHEET (CONTINUED)
Liabilities and Stockholders' Equity December 31,
($ in thousands): 1997 1996
------ ------
Current liabilities:
Accounts payable $ 8,517 $ 7,845
Accrued liabilities 6,114 4,762
Long-term debt, current portion 519 4,753
Other current liabilities - 591
------- --------
Total current liabilities 15,150 17,951
Long-term debt 131,689 149,111
Deferred income taxes 5,447 4,347
Other liabilities 382 4,209
Commitments and contingencies
Series A redeemable preferred stock -
$.01 par value($1,000 liquidation
value); 60,000 shares authorized;
shares issued and outstanding -
none at December 31, 1997 and
27,431 at December 31, 1996 - 27,431
Stockholders' equity:
Preferred stock - $.01 par value;
40,000 shares authorized;
shares issued and outstanding -
none at December 31, 1997 and
340 shares at December 31, 1996 - -
Common stock - $.01 par value;
45,000,000 shares authorized; shares
issued and outstanding - 32,646,661 at
December 31, 1997 and 23,445,868
at December 31, 1996 326 234
Additional paid-in capital 120,873 88,574
Accumulated deficit (70,818) (61,067)
-------- --------
Total stockholders' equity 50,381 27,741
------- -------
$ 203,049 $ 230,790
========== =========
See accompanying notes to the consolidated financial statements.
CADIZ LAND COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Nine Months Year
Ended Ended Ended
December 31, December 31, March 31,
($ in thousands) 1997 1996 1996
---- ---- ----
Cash flows from operating activities:
Net loss $ (8,538) $ (5,997) $ (8,487)
Adjustments to reconcile net
loss to cash provided by (used for)
operating activities:
Depreciation and amortization 9,227 1,654 1,909
Litigation benefit (3,780) - -
Issuance of shares for service 470 - -
Interest capitalized to debt 315 481 474
Loss on disposal of assets 99 - -
Share of partnership operations (1,388) (838) -
Changes in operating assets and
liabilities:
Decrease (increase) in
accounts receivable 1,652 11,367 (379)
Decrease in inventories 570 1,000 -
Decrease (increase) in prepaid
expenses and other 64 (428) 13
Increase (decrease) in accounts payable 672 (6,798) 734
Increase in accrued liabilities 1,332 68 -
Decrease in other current liabilities (591) - -
Increase (decrease) in other liabilities 54 (674) -
------- ------- ------
Net cash provided by (used for)
operating activities 158 (165) (5,736)
Cash flows from investing activities:
Additions to property, plant and equipment (2,114) (895) (932)
Additions to water programs (551) (343) (732)
Additions to developing crops (4,725) (187) -
Proceeds from disposal of property,
plant and equipment 2,817 12,415 -
Partnership distributions 1,165 140 -
Acquisition of Sun World, net of
cash acquired - (4,474) (693)
Decrease in other assets 509 - -
------- ------- ------
Net cash (used for) provided
by investing activities (2,899) 6,656 (2,357)
------- ------- -------
Cash flows from financing activities:
Net proceeds from issuance of stock 1,690 37,761 10,292
Proceeds from issuance of long-term debt 120,089 - -
Principal payments on long-term debt (141,248) (16,428) (177)
Proceeds from short-term borrowings, net - 330 677
Debt issuance costs (5,799) - -
------- ------- -------
Net cash (used for) provided
by financing activities (25,268) 21,663 10,792
------- ------- ------
Net (decrease) increase in cash and
cash equivalents (28,009) 28,154 2,699
Cash and cash equivalents,
beginning of period 33,307 5,153 2,454
------- ------- ------
Cash and cash equivalents,
end of period $ 5,298 $ 33,307 $ 5,153
======= ======= ======
See accompanying notes to the consolidated financial statements.
CADIZ LAND COMPANY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Year Ended December 31, 1997, the Nine Months Ended December
31, 1996 and the Year Ended March 31, 1996
($ in thousands)
Total
Additional Accumu- Share-
Preferred Stock Common Stock Paid-in lated holders'
Shares Amount Shares Amount Capital Deficit Equity
------- ------- ------- ------- -------- ------- ------
Balance as of
March 31, 1995 - $ - 16,988,454 $ 170 $ 62,687 $ (45,909) $ 16,948
Issuance of
shares in
connection with
private
placements 2,114,157 21 9,911 9,932
Exercise of
stock options 145,000 1 359 360
Net loss (8,487) (8,487)
------ ----- ---------- ------ -------- -------- --------
Balance as of
March 31, 1996 - - 19,247,611 192 72,957 (54,396) 18,753
Exercise of
stock options
and warrants 335,000 3 939 942
Common stock
issued for
acquisition
of Sun World 1,153,908 12 3,576 3,588
Net proceeds
from private
placements
of preferred
stock 1,300 10,688 10,688
Cash dividends
paid on
conversion of
preferred stock (99) (99)
Dividends paid
in common
stock on
conversion of
preferred stock 28,777 127 (127) -
Accrued
dividends on
preferred stock (448) (448)
Conversion of
redeemable
preferred
stock to
common stock 53,332 1 199 200
Conversion of
preferred
stock to
common stock (960) 2,627,240 26 (26) -
Issuance of
stock
warrants
for services 114 114
Net loss (5,997) (5,997)
------ ----- ---------- ------ -------- -------- --------
Balance as
of December
31, 1996 340 $ - 23,445,868 $ 234 $ 88,574 $ (61,067) $ 27,741
====== ==== ========== ======= ========= ========= =========
See accompanying notes to the consolidated financial statements.
CADIZ LAND COMPANY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
For the Year Ended December 31, 1997, the Nine Months Ended December
31, 1996 and the Year Ended March 31, 1996
($ in thousands)
Total
Additional Accumu- Share-
Preferred Stock Common Stock Paid-in lated holders'
Shares Amount Shares Amount Capital Deficit Equity
------- ----- -------- ------ --------- ---------- --------
Balance as
of December
31, 1996 340 $ - 23,445,868 $ 234 $ 88,574 $ (61,067) $ 27,741
Conversion
of redeemable
preferred
stock
to common
stock 7,314,917 73 27,358 27,431
Exercise of
stock options
and warrants 588,500 7 1,358 1,365
Common stock
issued to
satisfy Sun
World
purchase
liability 65,000 1 324 325
Preferred
dividends
paid with
common stock 361,251 3 1,714 1,717
Issuance of
warrants to
a lender 1,083 1,083
Stock issued
for services 75,000 1 329 330
Issuance of
stock for
refinancing 30,000 140 140
Conversion
of preferred
stock to
common
stock (340) 766,125 7 (7) -
Accrued
dividends on
preferred
stock (1,213) (1,213)
Net loss (8,538) (8,538)
----- ---- ---------- ------ --------- ---------- --------
Balance as
of December
31, 1997 - $ - 32,646,661 $ 326 $ 120,873 $ (70,818) $ 50,381
===== ==== =========== ====== ========= =========== ========
See accompanying notes to the consolidated financial statements.
CADIZ LAND COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS
The primary business of Cadiz Land Company, Inc. (the "Company") is
to acquire and develop water-related land and agricultural assets. The
Company has created an integrated and complementary portfolio of
landholdings, water resources, and agricultural operations located
throughout central and southern California which either possess sizable
assured supplies of water or can, in future years, utilize water
supplied from other Company properties. Management 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.
On September 13, 1996, the Company significantly enhanced this
portfolio through its acquisition of Sun World International, Inc. and
its wholly-owned subsidiaries, collectively referred to as "Sun World",
and became a vertically integrated agricultural company. Sun World
farms more than 19,000 acres, primarily located in two major growing
areas of California, the San Joaquin Valley and the Coachella Valley.
Fresh produce, including table grapes, treefruit, peppers and
watermelons is marketed, packed and shipped to food wholesalers and
retailers throughout the United States and to more than 30 foreign
countries. As of December 31, 1997, Sun World owned and operated four
cold storage and/or packing facilities in California.
In addition, the acquisition of Sun World provided the Company with
valuable water rights throughout central and southern California. The
Company's landholdings, which now total approximately 56,200 acres, are
located adjacent to the major aqueduct systems of central and southern
California. The Company expects to utilize its resources to participate
in a broad variety of water storage and supply projects, including the
storage and supply of surplus water for public agencies which require
supplemental sources of water. On December 23, 1997, the Company signed
an interim agreement with the Metropolitan Water District of Southern
California to develop principles and terms for a long-term storage and
supply agreement at its Cadiz, California property. The program (the
"Cadiz/Fenner Water Storage and Supply Program") will provide storage
capacity of approximately 500,000 acre-feet and a dry-year source of up
to 100,000 acre-feet per year of high-quality water.
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 its wholly-owned subsidiaries, Sun World (since September
14, 1996), and Southwest Fruit Growers Limited Partnership, a limited
partnership ("SWFG") in which the Company is the general partner and has
an approximate 66.3 percent partnership interest. Allocable losses
incurred through the year ended March 31, 1991 served to eliminate the
minority interest in SWFG for accounting purposes. All material
intercompany balances and activity have been eliminated from the
consolidated financial statements.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
CHANGE IN YEAR END AND RECLASSIFICATIONS
In 1996, 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. 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 after harvest and shipment
to customers. Packing revenues are recognized as units are packed.
Marketing commission revenues are recognized at the time of product
shipment.
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 $809,000 for the year ended
December 31, 1997 and $120,000 for the period from September 14, 1996 to
December 31, 1996.
NET LOSS PER COMMON SHARE
As of December 31, 1997, the Company adopted and applied
retroactively the new accounting standard for computing earnings per
share (EPS). This standard replaces primary EPS with basic EPS and
requires the dual presentation of basic and diluted EPS where
appropriate. Because the Company had a net loss for all periods
presented, basic EPS equals diluted EPS. Basic 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. As described in Note 13, the terms for conversion of the
Series B and C preferred stock issued during the nine months ended
December 31, 1996 afforded the holders a conversion price lower than the
market price of the common stock at the time of issuance in order to
recognize the sales and other market restrictions of the unregistered
common stock to be issued upon conversion. The difference between the
conversion price and market price has been reported as an imputed
dividend for purposes of calculating basic EPS, although no assets of
the Company will ever be expended. The imputed dividend of $2,451,000
had the effect of increasing the loss per share for the nine months
ended December 31, 1996 by $0.11. It should be noted that the imputed
dividend has been given no other accounting recognition in the financial
statements of the Company for that period and any subsequent period.
All shares for all series of preferred stock had been converted to
common stock as of December 31, 1997.
CASH AND CASH EQUIVALENTS
The Company considers all short-term deposits with an original
maturity of three months or less to be cash equivalents. The Company
invests its excess cash in deposits with major international banks and
short-term commercial paper and, therefore, bears minimal risk. Such
investments are stated at cost, which approximates fair value, and are
considered cash equivalents for purposes of reporting cash flows.
INVENTORIES
Growing crops, pepper seed, and materials and supplies are stated
at the lower of cost or market, on a first-in, first-out (FIFO) basis.
Growing crops inventory includes direct costs and an allocation of
indirect costs.
INVESTMENT IN PARTNERSHIPS
Sun World, through a wholly-owned subsidiary, owns a 50% interest
in American Sunmelon. American Sunmelon is engaged in proprietary
development, production, and marketing of seedless watermelon seed. Sun
World accounts for its partnership investment in American Sunmelon using
the equity method. During 1997, Sun World sold its 50% interest in the
Sun Date partnership.
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 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 costs 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 fair value.
OTHER ASSETS
As a result of a merger in May 1988 between two companies which
eventually became known as Cadiz Land Company, 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 $2,259,000 and $2,026,000 at
December 31, 1997 and December 31, 1996, 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, 1997, the majority of capitalized loan fees relate to
the issuance of the First Mortgage Notes described in Note 10.
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 more likely than not that some portion or all of the deferred
tax assets will not be realized.
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest during the year ended December 31, 1997, the
nine months ended December 31, 1996 and the fiscal year ended March 31,
1996 was $12,452,000, $3,892,000 and $455,000, respectively.
NOTE 3 - ACQUISITION OF SUN WORLD INTERNATIONAL, INC.
On September 13, 1996, the Company acquired all of the stock of a
reorganized Sun World. Sun World and certain subsidiaries had filed
voluntary petitions for relief under Chapter 11 of the Bankruptcy Code
on October 3, 1994. The acquisition of Sun World was accounted for
under the purchase method of accounting. Accordingly, the results of
operations of Sun World have been included in the consolidated financial
statements since the date of acquisition. The total purchase price
consisted of the following: (i) $179 million of assumed bankruptcy
related obligations, including $156 million of restructured secured debt
with Sun World's existing lenders (of which $5.5 million was paid by
Cadiz concurrent with the acquisition), (ii) $11 million of ongoing
trade and other accrued liabilities which were assumed by Cadiz, (iii)
$3.2 million of direct acquisition costs, including 1,500 shares of
Redeemable Series A Preferred Stock valued at $1,000 per share; and (iv)
cash and stock of approximately $40 million, including a $15 million
capital contribution to Sun World which was made with the intent of
eliminating the requirement for Sun World to have any additional debt
facilities beyond those owed to its existing secured creditors. The
final effect of allocating the total purchase price to the net assets
acquired based on their estimated fair values is summarized as follows
(dollars in thousands):
Cash $32,113
Assets held for sale 18,049
Other current assets 44,997
Investments in partnerships 5,424
Property, plant and equipment 130,885
Other assets 3,409
-------
Total assets 234,877
-------
Prepetition bankruptcy claims payable (13,164)
Other current liabilities (16,477)
Long-term debt (151,783)
Other liabilities (10,170)
-------
Total liabilities (191,594)
--------
Net assets acquired $43,283
=======
No goodwill was recognized as a result of the acquisition. The
above purchase price allocation reflects certain changes made in 1997 to
estimated fair values used in the initial accounting for the acquisition
of Sun World. The net effect of these changes resulted in approximately
$5.7 million of permanent crops being reclassified to land based on
final appraisals received in 1997.
NOTE 4 - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following (dollars in
thousands):
December 31,
1997 1996
---- ----
Trade receivables $ 4,131 $ 4,200
Due from unaffiliated growers 535 1,153
Other 1,502 2,660
------- -------
6,168 8,013
Less allowance for doubtful accounts (287) (480)
------- -------
$ 5,881 $ 7,533
======= =======
Substantially all domestic receivables are from large national and
regional supermarket chain stores and produce brokers and are unsecured.
Amounts due from unaffiliated growers represent receivables for harvest
advances and for services (harvest, haul and pack) provided on behalf of
growers under agreement with Sun World and are recovered from proceeds
of product sales. Other receivables primarily include wine grape sales
and other miscellaneous receivables.
Approximately $13.6 and $3.8 million of sales made by Sun World for
the year ended December 31, 1997 and for the period September 14, 1996
through December 31, 1996, respectively, are attributable to one
national retailer. Export sales accounted for approximately 11.4% and
20.6% of the Company's sales for the year ended December 31, 1997 and
for the period September 14, 1996 to December 31, 1996, respectively.
NOTE 5 - INVENTORIES
Inventories consist of the following (dollars in thousands):
December 31,
1997 1996
---- -----
Growing crops $10,124 $10,299
Pepper seed 1,648 2,018
Harvested product 169 267
Materials and supplies 1,897 1,537
------- -------
$13,838 $14,121
======= =======
NOTE 6 - PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS
Property, plant, equipment and water programs consist of the
following (dollars in thousands):
December 31,
1997 1996
---- ----
Land $ 64,005 $ 54,029
Permanent crops 62,660 67,754
Developing crops 6,422 1,671
Water programs 5,435 4,885
Buildings 20,667 18,968
Machinery and equipment 14,262 13,573
------- -------
173,451 160,880
Less accumulated depreciation (13,258) (5,427)
------- -------
$ 160,193 $155,453
======= =======
NOTE 7 - OTHER ASSETS
Other assets consist of the following (dollars in thousands):
December 31,
1997 1996
---- ----
Capitalized loan fees, net $ 4,785 $ 150
Excess of purchase price
over assets acquired, net 4,747 4,980
Capitalized trademark
development, net 732 76
Deposits - 1,180
Other 87 127
------ -------
$10,351 $ 6,513
======= ========
NOTE 8 - ACCRUED LIABILITIES
Accrued liabilities consist of the following (dollars in
thousands):
December 31,
1997 1996
---- ----
Interest $ 2,989 $ 1,084
Payroll and benefits 2,433 2,801
Preferred dividends - 448
Other 692 429
------- -------
$ 6,114 $ 4,762
======= =======
NOTE 9 - REVOLVING CREDIT FACILITY
In April 1997, in connection with Sun World's debt restructuring
described in Note 10, Sun World entered into a one year $30 million
Revolving Credit Facility. The Revolving Credit Facility is secured by
eligible accounts receivable and inventory, and is guaranteed by the
Company. Amounts borrowed under the facility will accrue interest at
either prime plus 1.50% or LIBOR plus 2.50% at the Company's election
with an additional .50% payable for advances on eligible inventory above
specified levels. No amounts were outstanding under the Revolving
Credit Facility at December 31, 1997.
NOTE 10 - 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 $106
million based on quoted market prices as of December 31, 1997. At
December 31, 1997 and December 31, 1996, the carrying amount of the
Company's outstanding debt is summarized as follows (dollars in
thousands):
December 31,
1997 1996
---- ----
Cadiz obligations:
Senior term bank loan, interest
payable monthly, variable
interest rate based upon
LIBOR plus 2% (7.78% at
December 31, 1997
and 6.34% at December 31, 1996) $ 9,752 $ 9,446
Subordinated term bank loan,
interest payable
monthly, interest at 4.81% - 9,100
$15 million revolving line of
credit, interest payable
semi-annually at 8% if paid in
cash and 10% if paid in stock 5,000 -
Other 49 88
Debt discount (935) (124)
------ ------
13,866 18,510
Sun World obligations: ------ ------
Series B First Mortgage Notes,
interest payable semi-annually
with principal due in
April 2004,
interest at 11.25% 115,000 -
Term insurance company loan
due in variable
installments through
September 13, 2006,
interest at 10.60% - 77,092
Term bank loan, interest
payable monthly with
principal due in variable
installments through
September 13, 2006, variable
interest rate
based upon prime or LIBOR - 53,284
Note payable to insurance
company, quarterly
installments of $93
(including interest),
due September 13, 2006,
interest at 7.75% 2,306 2,531
Note payable to supplier,
monthly installments of
$104 (including interest),
due March 1, 1998,
interest at 10.00% 205 1,458
Note payable to finance
company, monthly
installments of $18
(including interest),
due July 1, 2002, interest
at 7.50% 831 989
-------- --------
118,342 135,354
-------- --------
132,208 153,864
Less current portion (519) (4,753)
-------- ---------
$ 131,689 $ 149,111
========= =========
Annual maturities of long-term debt outstanding, excluding $935,000
representing the unamortized portion of warrants, on December 31, 1997
are as follows: 1998 - $519,000; 1999 - $391,000; 2000 - $15,184,000;
2001 - $445,000; 2002 - $384,000; 2003 and thereafter - $116,220,000.
Cadiz Obligations
As of December 31, 1996, the Company's obligations to Cooperatieve
Centrale Raiffeisen-Boerenleenbank B.A. ("Rabobank") and Henry Ansbacher
& Co. Limited ("Ansbacher") were approximately $9.1 million and $9.4
million, respectively.
ING Baring (U.S.) Capital Corporation ("ING") purchased the $9.4
million senior term bank loan effective March 31, 1997. The loan is
secured by substantially all of the Company's non-Sun World related
property. The maturity date of the obligation is April 30, 1998 with
interest at a rate of LIBOR plus 200 basis points payable at LIBOR
semi-annually, with the remaining accrued interest added to principal.
ING granted to the Company the right to two one-year extensions in
May 1997. In connection with this transaction, ING received warrants
to purchase 75,000 shares of the Company's common stock at $5.03, the
market price at issuance. The Company also issued 30,000 shares of
stock to Ansbacher in connection with the refinancing. The total fair
value of the warrants was $163,000 and has been recorded as a debt
discount and is being amortized over one year. If the Company elects
to exercise the first or second extension, the interest rate will be
further adjusted and the Company will be required to issue additional
warrants to ING. Additionally, as part of the Sun World debt
refinancing described below, the Company repaid its $9.1 million
subordinated term bank loan.
In November 1997, the Company entered into a three year $15 million
Revolving Credit Facility with ING. The Revolving Credit Facility is
secured by a second lien on all of the non-Sun World assets of the
Company. Principal is due in 2000. Interest is payable semi-annually
at 8% if paid in cash and at 10% if paid in stock. The Company had $5
million outstanding under the Revolving Credit Facility at December 31,
1997. The Company issued 200,000 warrants in connection with the
initial borrowings at $7.00, the market price at issuance. The
agreement calls for the issuance of certain additional warrants if and
when the remaining $10 million is drawn. The total fair value of the
warrants was $920,000 and has been recorded as a debt discount and is
being amortized over the three-year remaining term of the revolver.
Sun World Obligations
In April 1997, Sun World restructured its long-term debt by issuing
$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 publicly traded. Sun World utilized the proceeds from the debt
offering and existing cash on hand to repay the term insurance company
loan and the term bank loan, totaling approximately $130 million.
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 include covenants which restrict the
Company's ability to receive distributions from Sun World.
The Sun World Notes are also secured by the guarantees of Coachella
Growers, Inc., Sun Desert, Inc., Sun World Brands, Sun World Management
Corporation and Sun World/Rayo (collectively, the "Sun World Subsidiary
Guarantors") and by the Company. The Company also pledged all of the
stock of Sun World. Effective December 31, 1997, Agri-Land Realty,
Inc., Big Valley Leasing, Inc., Dinuba Packing Corporation, Pacific Farm
Service, Inc., SFC Marketing Corporation, Sun Harvest, Inc., Sun World
Avocado and Sun World Export, Inc., were dissolved and are no longer Sun
World Subsidiary Guarantors. Sun World and the Sun World Subsidiary
Guarantors are all direct and indirect wholly-owned subsidiaries of the
Company. The guarantees by the Sun World Subsidiary Guarantors are
full, unconditional, and joint and several. Sun World and the Sun World
Subsidiary Guarantors comprise all of the direct and indirect
subsidiaries of the Company other than inconsequential subsidiaries.
Additionally, management believes that the direct and indirect
non-guarantor subsidiaries of Cadiz are inconsequential, both individually
and in the aggregate, to the financial statements of the Company for all
periods presented.
SUMMARIZED FINANCIAL INFORMATION
Summarized consolidated financial information for Sun World is as
follows (in thousands):
December 31, 1997 December 31, 1996
----------------- -----------------
Current assets $ 22,483 $ 60,651
Noncurrent assets 145,318 136,344
Current liabilities 13,635 14,920
Noncurrent liabilities 123,623 139,615
For the Period
Year Ended September 14, 1996
December 31, 1997 to December 31, 1996
----------- ------------------
Revenues $ 99,929 $ 22,580
Cost of sales (76,535) (16,396)
Operating income 11,091 2,989
Net income (loss) (2,817) (823)
Combined summarized financial information for the Sun World
Subsidiary Guarantors is as follows (in thousands):
December 31, 1997 December 31, 1996
------------------ -------------------
Current assets $ - $ -
Noncurrent assets 8,833 7,439
Current liabilities 27 4
Noncurrent liabilities 107 107
For the Period
Year Ended September 14, 1996
December 31, 1997 to December 31, 1996
------------------ --------------------
Share of net income of
equity investee $ 1,388 $ 820
Separate financial statements for Sun World and each of the Sun
World Subsidiary Guarantors are not presented as management has
determined that they would not be material to investors.
NOTE 11 - INCOME TAXES
Deferred taxes are recorded based upon differences between the
financial statement and tax basis 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, 1997 and 1996 are as follows (in
thousands):
December 31, December 31,
1997 1996
---- ----
Deferred tax liabilities:
Net fixed asset basis difference $ 4,841 $ 5,786
Net basis difference in
partnership investments 3,886 4,734
Other 1,268 444
------ -------
Total deferred tax liabilities 9,995 10,964
------- -------
Deferred tax assets:
Net operating losses 25,815 23,943
Reserve for notes receivable 1,178 1,239
State taxes 1,779 1,142
Other 1,097 1,228
------ -------
Total deferred tax assets 29,869 27,552
Valuation allowance for deferred
tax assets (25,321) (20,935)
------- -------
Net deferred tax assets 4,548 6,617
------- -------
Net deferred tax liability $ 5,447 $ 4,347
======= =======
As of December 31, 1997, the Company has net operating loss (NOL)
carryforwards of approximately $71.1 million for federal income tax
purposes. Such carryforwards expire in varying amounts through the year
2013. In accordance with the Tax Reform Act of 1986, NOL utilization
may be subject to an annual limitation. When there is a change of
ownership, of more than 50% (as defined) of a corporation, the use of
any NOL is limited annually to an amount defined by law. As of December
31, 1997, $26.2 million of NOL carryforwards are limited to utilization
of $4.5 million per year. The remaining NOLs are not limited on an
annual basis.
The Company has state NOLs as of December 31, 1997 of $18.4
million. Of these, $14.2 million are not subject to limitations and
expire in varying amounts through the year 2002. The remaining $4.2
million of NOLs relate to Sun World prior to the acquisition. These
NOLs are limited to annual utilization of $400,000 plus any built-in
gains and expire in varying amounts through the year 2000.
A reconciliation of the income tax benefit for income taxes to the
statutory federal income tax rate is as follows (dollars in thousands):
Nine
Year Months Year
Ended Ended Ended
December 31, December 31, March 31,
1997 1996 1996
---- ---- ----
Expected federal income
tax benefit at 34% $(2,903) $ (2,257) $ (2,886)
Loss with no tax benefit 2,981 1,790 2,405
Amortization 79 60 80
Utilization of net operating losses - (696) -
Other nondeductible expenses (157) 462 401
------- ------- -------
Income tax benefit $ - $ (641) $ -
======= ======== ========
NOTE 12 - EMPLOYEE BENEFIT PLANS
In December 1994, the Company established a 401(k) Plan for all
employees of Cadiz. This plan contains no eligibility requirements and
contributions by the Company are at the option of the Company on a year-
to-year basis. No contributions by the Company to this plan have been
made to-date.
Sun World established a 401(k) Plan for its salaried employees on
January 1, 1996. 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
$1,500 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 13 - PREFERRED AND COMMON STOCK
During the nine months ended December 31, 1996, the Company issued
(i) 27,431 shares totaling $27.6 million of newly authorized Convertible
Series A Redeemable Preferred Stock; (ii) $10.0 million of newly
authorized 6% Convertible Series B Preferred Stock; and (iii) $3.0
million of newly authorized 6% Convertible Series C Preferred Stock.
All preferred stock was converted to common stock as of December 31,
1997. During 1997, the Company paid $1,717,000 of preferred stock
dividends with common stock.
On October 1, 1997, the Company agreed to issue 375,000 shares of
common stock to a hydrological research company in order to acquire
title to substantially all of its assets. This transaction was
completed in February 1998.
NOTE 14 - STOCK-BASED COMPENSATION PLANS AND WARRANTS
STOCK OPTIONS AND WARRANTS
The Company issues options pursuant to its 1996 Stock Option Plan
(the "Plan") as well as options which are not pursuant to a plan. The
Plan provides for the granting of up to 3,000,000 shares. All options,
whether under the Plan or not, are granted at a price approximating fair
market value at the date of grant, have vesting periods ranging from
issuance date to three years, have maximum terms ranging from three to
five years and are issued to directors, officers, consultants and
employees of the Company. During the year ended December 31, 1997, the
Company granted options to purchase 527,500 shares of the Company's
common stock at a weighted average exercise price of $5.61 per share.
Compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of
the grant over the amount an employee must pay to acquire the stock.
Had compensation cost for these plans been determined using fair value,
as explained below, rather than the quoted market price, the Company's
net loss and net loss per common share would have increased to the
following pro forma amounts (dollars in thousands):
Nine
Year Months Year
Ended Ended Ended
December 31, December 31, March 31
1997 1996 1996
---- ---- ----
Net loss: As reported $ (8,538) $ (5,997) $ (8,487)
Pro forma $ (10,203) $ (6,655) $ (8,665)
Net loss per common share:
As reported $ (.33)(a) $ (.44)(a) $ (.48)
Pro forma $ (.35)(a) $ (.48)(a) $ (.49)
(a) After adjustment for preferred dividends during the year
ended December 31, 1997 and the nine months ended December
31, 1996 of $1,213 and $3,125, respectively.
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.
The following table summarizes stock option activity for the
periods noted. All options listed below were issued to officers,
directors, employees and consultants.
Weighted-
Options Average
Outstanding Exercise
Number Price
----------- -------
Outstanding at March 31, 1995 2,335,500 $3.95
Granted 607,500 $5.19
Expired or canceled (7,000) $4.89
Exercised (145,000) $2.50
----------- -----
Outstanding at March 31, 1996 2,791,000 $4.29
Granted 1,800,000 $4.62
Expired or canceled (400,000) $5.50
Exercised (325,000) $2.79
---------- -----
Outstanding at December 31, 1996 3,866,000 $4.44
Granted 527,500 $5.61
Expired or canceled (120,000) $4.80
Exercised (348,500) $4.17
---------- -----
Outstanding at December 31, 1997 3,925,000(a) $4.61
========== =====
Options exercisable at March 31, 1996 2,116,000 $4.34
========== =====
Options exercisable at December 31, 1996 1,966,000 $4.30
========== =====
Options exercisable at December 31, 1997 2,297,500 $4.40
========== =====
Weighted-average fair value of
options grantedduring the year ended
December 31, 1997 $ 2.55
==========
Weighted-average remaining contractual
life of options outstanding at
December 31, 1997 2.7
==========
(a) Exercise prices vary from $3.00 to $7.00 and expiration dates
vary from February 1998 to October 2002.
During the year ended December 31, 1997, the nine months ended
December 31, 1996 and the year ended March 31, 1996, the Company issued
275,000, 30,000 and 10,000 warrants with weighted-average exercise
prices of $6.45, $3.55 and $0.05, respectively. During the year ended
December 31, 1997 and the nine months ended December 31, 1996, 240,000
warrants with a weighted-average exercise price of $0.05 and 10,000
warrants with a weighted-average exercise price of $3.55 were exercised,
respectively. No warrants expired or were canceled during any of the
three periods discussed. At December 31, 1997 there were 275,000
warrants outstanding at a weighted average exercise price of $6.45 per
share which expire in 2004. See Note 10 for further discussion of these
warrants.
RESTRICTED STOCK AWARD
Following the Sun World acquisition in 1996, the Company's Chief
Executive Officer was awarded a stock bonus of 125,000 shares of
restricted common stock at no cost. 75,000 of these shares were issued
during the year ended December 31, 1997. The remaining 50,000 shares
are issuable in equal annual installments over the next two years.
Compensation expense is being recognized as earned over the period of
service.
NOTE 15 - CONTINGENCIES
In December 1995, the Company filed an action relative to the
proposed construction and operation of a landfill (the "Rail Cycle
Project") 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. Named in this action, in
addition to the County of San Bernardino, were the Board of Supervisors
of the County of San Bernardino, three individual members of the Board
of Supervisors, an employee of the County and Rail Cycle, L.P.
("Rail Cycle") whose general partner is controlled by Waste Management,
Inc. ("WMI"). The Company alleges that the actions of the County of San
Bernardino did not comply with the guidelines prescribed by the
California Environmental Quality Act and violated state planning and
zoning laws. The action seeks to set aside the county certification of
Rail Cycle's EIR/EIS and approval of the proposed Rail Cycle Project.
The Company continues to believe the proposed Rail Cycle project, if
constructed and operated as currently designed, poses environmental
risks both to the Company's agricultural operations at Cadiz and to the
groundwater basin underlying the Cadiz property. Accordingly, the
Company intends to pursue its claims including compensatory damages
against the County of San Bernardino and Rail Cycle. On November 6,
1997, the San Bernardino Superior Court denied the Company's application
for a Writ of Mandate to set aside the County of San Bernardino's
certification of the EIR/EIS. The Company intends to continue
prosecuting its claim for monetary damages. No trial date has yet been
set.
On October 24, 1997, the Company filed suit in the United States
District Court, for the Central District of California, against WMI, and
certain key executives and consultants of WMI, and certain other parties
in interest as to the proposed Rail Cycle Project. The Complaint as
originally filed asserted the following claims arising under federal
law: Violations of the Racketeer Influenced and Corrupt Organization Act
(RICO), Conspiracy to Violate the Racketeer Influenced and Corrupt
Organization Act (RICO), violations of Section 10(b) of the Securities
Exchange Act of 1934 and Interception of Wire Communications.
Additionally, the Complaint asserted the following claims arising under
state law: Conspiracy, Misappropriation of Trade Secrets, Conversion,
Defamation, Trade Libel, Wiretapping, Interference with Existing
Business Relationship, and Unfair Business Practices. On December 9,
1997, the federal district court severed the eight state law claims from
the complaint and dismissed them without prejudice. Those claims have
been reasserted in a state proceeding filed on January 8, 1998 in Los
Angeles Superior Court (West Division).
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.
Management believes that the likelihood of an unfavorable future outcome
with regard to this matter is remote. Accordingly, the Company released
$3,780,000 of reserves related to this matter at December 31, 1997 which
are reported on the Consolidated Statement of Operations as Litigation
Benefit.
In the normal course of its agricultural operations, the Company
handles, stores, transports and dispenses products identified as
hazardous materials. Regulatory agencies periodically conduct
inspections and, currently, there are no pending claims with respect to
hazardous materials.
The Company is involved in other legal and administrative
proceedings and claims. In the opinion of management, the ultimate
outcome of each proceeding or all such proceedings combined will not
have a material adverse impact on the Company's financial statements.
NOTE 16 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarter Ended
-----------------------------------------------
June 30, September 30, December 31, March 31,
1995 1995 1995 1996
---- ---- ---- ----
Revenues $ 54 $ 596 $ 470 $ 321
Gross profit (loss) 16 178 140 (542)
Net loss (1,851) (1,835) (1,660) (3,141)
Net loss per common share (0.11) (0.10) (0.10) (0.17)
Quarter Ended
------------------------------------
June 30, September 30, December 31,
1996 1996 1996
---- ---- ----
Revenues $ 82 $ 4,738 $ 18,960
Gross (loss) profit (426) 258 6,223
Net loss (1,987) (2,442) (1,568)
Preferred stock dividends - - (3,125)
Net loss per common share (0.10) (0.12) (0.23)
Quarter Ended
--------------------------------------------------
March 31, June 30, September 30, December 31,
1997 1997 1997 1997
---- ---- ---- ----
Revenues $ 4,805 $ 25,656 $ 52,949 $ 16,747
Gross (loss) profit (213) 5,503 14,633 3,668
Net (loss) income (7,396) (3,569) 3,618 (1,191)
Preferred stock dividends (438) (766) (9) -
Net (loss) income per
common share (0.33) (0.15) 0.11 (0.04)
CADIZ LAND COMPANY, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
December 31,
BALANCE SHEET ($ in thousands): 1997 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 3,590 $ 2,132
Accounts receivable, net 18 31
Inventories - 7
Due from subsidiary 86 332
Prepaid expenses and other 130 274
------- --------
Total current assets 3,824 2,776
Investment in subsidiary 30,543 42,460
Property, plant, equipment and
water programs, net 26,769 26,595
Other assets 4,740 5,131
-------- -------
$65,876 $76,962
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 710 1,332
Accrued liabilities 870 1,513
Deferred revenue - 375
Long-term debt, current portion 20 518
------ -------
Total current liabilities 1,600 3,738
Long-term debt 13,846 17,992
Other Liabilities 49 60
Commitments and contingencies
Series A redeemable preferred stock
- $.01 par value;
($1,000 liquidation value);
60,000 shares authorized;
shares issued and outstanding -
none at December 31, 1997 and
27,431 at December 31, 1996 - 27,431
Stockholders' equity:
Preferred stock - $.01 par value;
40,000 shares authorized;
shares issued and outstanding -
none at December 31, 1997 and
340 shares at December 31, 1996 - -
Common stock - $.01 par value;
45,000,000 shares
authorized; shares issued
and outstanding - 32,646,661
at December 31, 1997 and
23,445,868 at December 31,1996 326 234
Additional paid-in capital 120,873 88,574
Accumulated deficit (70,818) (61,067)
-------- --------
Total stockholders' equity: 50,381 27,741
-------- --------
$ 65,876 $ 76,962
======== ========
CADIZ LAND COMPANY, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF OPERATIONS
Year Nine Months
Ended Ended
December 31, December 31,
(In thousands except per share data): 1997 1996
---- ----
Revenues $ 1,968 $ 1,278
-------- --------
Costs and expenses:
Cost of sales 270 1,329
Landfill prevention activities 683 394
General and administrative 4,042 3,206
Depreciation and amortization 994 773
------ -----
Total costs and expenses 5,989 5,702
------ ------
Operating loss (4,021) (4,424)
Loss from subsidiaries (2,817) (823)
Interest expense, net 1,700 1,391
------- -------
Net loss before income taxes (8,538) (6,638)
Income tax benefit - 641
------- ------
Net Loss (8,538) (5,997)
Less: Preferred stock dividends (1,213) (674)
Imputed dividend on
preferred stock - (2,451)
------ -------
Net loss applicable to common stock $ (9,751) $ (9,122)
======= ======
Net loss per common share $ (.33) $ (.44)
======= =======
Weighted average shares outstanding 29,485 20,500
======= =======
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS ($ in thousands):
Year Nine Months
Ended Ended
December 31, December 31,
1997 1996
---- ----
Cash flows from operating activities:
Net loss $ (8,538) $ (5,997)
Adjustments to reconcile net loss
to cash used for operating activities:
Depreciation and amortization 1,462 1,388
Issuance of shares for services 470 -
Loss from subsidiaries 2,817 823
Provisions for loss on disposal of assets 138 -
Changes in operating assets
and liabilities:
Interest capitalized to debt 315 481
Decrease in accounts receivable 192 411
Decrease in inventories 7 259
Decrease (increase) in due
from subsidiary 131 (923)
Increase in prepaid expenses
and other (56) (317)
Decrease in accounts payable (667) (441)
Increase in accrued liabilities 506 219
Increase in deferred revenue - 375
Decrease in other liabilities (1,006) -
------ -------
Net cash used for operating
activities (4,229) (3,722)
Cash flows from investing activities:
Additions to property, plant and
equipment (638) (27)
Land purchase and development - (490)
Additions to water programs (466) (187)
Proceeds from disposal of property,
plant and equipment 33 -
Acquisition of Sun World - (36,587)
Decrease in other assets 153 -
------- -------
Net cash used for investing
activities (918) (37,291)
------- -------
Cash flows from financing activities:
Net proceeds from issuance of stock 1,690 37,761
Proceeds from short-term debt, net - 330
Proceeds from issuance of long-term
debt 5,084 -
Principal payments on long-term debt (9,231) -
Debt issuance costs (38) -
Dividends paid on conversion of
preferred stock - (99)
Return of capital from subsidiary 9,100 -
------- -------
Net cash provided by financing
activities 6,605 37,992
------- -------
Net increase (decrease) in cash
and cash equivalents 1,458 (3,021)
Cash and cash equivalents,
beginning of period 2,132 5,153
------ ------
Cash and cash equivalents,
end of period $ 3,590 $ 2,132
======= =======
SCHEDULE II - VALUATION & QUALIFYING ACCOUNTS
For the year ended December 31, 1997, the nine months ended December 31,
1996 and the year ended March 31, 1996 ($ in thousands)
Additions
------------------
Charged
Balance at to Charged
Beginning Costs to Balance
of and Other at End
Period Expenses Accounts Deductions of Period
--------- -------- -------- ---------- ---------
Year ended
December 31, 1997
Allowance for
doubtful accounts $ 480 $ - $ - $ 193 $ 287
Amortization of excess
of purchase price
over net assets
acquired 2,026 233 - - 2,259
------ ------ ------ ------ ------
$ 2,506 233 - 193 2,546
======= ====== ====== ====== =====
Nine months ended
December 31, 1996
Allowance for
doubtful accounts $ - $ 107 $ 373 $ - $ 480
Amortization of
excess of purchase
price over net
assets acquired 1,851 175 - - 2,026
------ ------- ------- ------ ------
$ 1,851 $ 282 $ 373 $ - $ 2,506
======== ======= ======= ====== =======
Year ended
March 31, 1996
Allowance for
doubtful accounts $ - $ - $ - $ - $ -
Amortization of
excess of purchase
price over net
assets acquired 1,617 234 - - 1,851
-------- ------- ------- ------ --------
$ 1,617 $ 234 $ - $ - $ 1,851
======= ====== ======= ======= =======
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Nos. 33-73936, 33-83360, 33-63065, 33-63667, 333-34911,
333-35491, 333-41367 and 333-47057) of Cadiz Land Company, Inc. of our
report dated February 13, 1998, appearing on page 28 of this Form 10-K.
Price Waterhouse LLP
Los Angeles, California
March 26, 1998