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Severn Trent Morningstar® Document Research℠ FORM 10-KCADIZ INC - CDZIFiled: March 19, 1999 (period: December 31, 1998)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results. ======================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from..to... Commission File Number 0-12114 -------------------------------- Cadiz Inc (Exact name of registrant specified in its charter) DELAWARE 77-0313235 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 Wilshire Boulevard, Suite 1600 Santa Monica, CA 90401-1111(Address of principal executive offices) (Zip Code) (310) 899-4700 (Registrant's telephone number, including area code) ------------------------------------------------ Cadiz Land Company, Inc. (Former Name of Registrant) Securities Registered Pursuant to Section 12(b) of the Act: None ------------------------------------------------- Title of Each Class Name of Each Exchange on Which registered None None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 220.405 of this chapter) is not contained herein, and will not be contained to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. /_/ As of March 16, 1999, the registrant had 34,366,572 shares of Common Stock outstanding. The aggregate market value of the Common Stock held by nonaffiliates as of March 16, 1999, was approximately $263,903,000 based on the average of the closing bid and asked prices on this date. Documents Incorporated by ReferenceCertain portions of Registrant's proxy statement for the annual meeting to be held on May 10, 1999, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. close of the Registrant's fiscal year, are incorporated by reference under Part II of this Form 10-K.========================================================================= PART IITEM 1. BUSINESS The long-term strategy of Cadiz Inc. (the"Company") is to acquire and develop water andagricultural resources, as well as selected water-related technologies. The Company has createdan integrated and complementary portfolio of assetsencompassing undeveloped land with high-qualitygroundwater resources and/or storage potential,prime agricultural properties located throughoutcentral and southern California with secure andreliable water rights, and other contractual waterrights. Management therefore believes that, withboth the increasing scarcity of water supplies inCalifornia and an increasing population, theCompany's access to water will provide it with acompetitive advantage both as a major agriculturalconcern and as a supplier of water, which will leadto continued appreciation in the value of theCompany's portfolio. In September 1996, the Company significantlyenhanced this portfolio through its acquisition ofSun World International, Inc. ("Sun World"). TheSun World acquisition made the Company one of thelargest fully integrated agricultural companies inCalifornia by adding to the Company's portfolioprime agricultural land, packing facilities,marketing expertise, proprietary agriculturalproducts and the highly regarded Sun World brandname. The acquisition of Sun World also addedvaluable water rights to the Company's existingwater resource development operations. Currently,Sun World owns more than 19,200 acres of landprimarily located in two major growing areas ofCalifornia: the San Joaquin Valley and the CoachellaValley. In addition to its Sun World properties, theCompany holds more than 39,000 acres of land ineastern San Bernardino County which are underlain byexcellent groundwater resources with demonstratedpotential for various applications, including waterstorage and supply programs, and agricultural,municipal, recreational and industrial development.All of the Company's properties are located in closeproximity to California's major aqueduct systems.The Company expects to utilize its resources toparticipate in a broad variety of water storage andsupply programs, including the storage and supply ofsurplus water for public agencies, which requiresupplemental sources of water, exchanges, ortransfers to third parties. In December 1997, the Company entered into aninterim Agreement with the Metropolitan WaterDistrict of Southern California ("Metropolitan") todevelop principles and terms for a long-termagreement at its Cadiz, California property. InJuly 1998, the Company and Metropolitan approved theprinciples and terms for agreement for the CadizGroundwater Storage and Dry-Year Supply Program (the"Program"), authorized preparation of a finalagreement based on these principles and terms andinitiated the environmental review process for theProgram. The Program will enhance SouthernCalifornia water supply reliability in two ways,providing a new dry-year water supply and much-needed storage. During wet years or periods ofSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. excess supply, Metropolitan will store surplusColorado River water in the aquifer systemunderlying the Company's Cadiz property. During dryyears, the previously imported water, together withindigenous groundwater, will be extracted anddelivered, via a conveyance pipeline, toMetropolitan's service area. The principles andterms for agreement call for Metropolitan to store aminimum of 500,000 acre-feet of Colorado River waterand purchase a minimum of 1,100,000 acre-feet ofindigenous groundwater for transfer over the 50-yearterm of the agreement. The Company continually seeks to develop andmanage its water and agricultural resourcesfor their highest and best uses. The Company alsocontinues to evaluate acquisition opportunities,which are complementary to its current portfolio ofwater and agricultural resources.(a) General Development of Business ---------------------------------- As part of its current business plan, theCompany's land acquisition, development activitiesand agricultural operations are conducted for thepurpose of enhancing the long-term appreciation ofits properties. See "Narrative Description ofBusiness," below. As the most populous state in the nation,California's population is projected to swell tonearly 50 million people by the year 2020. Thisincreasing population is placing great demands onCalifornia's infrastructure, particularly itslimited water resources. According to theCalifornia Department of Water Resources, shortfallsof approximately 7 million acre-feet are forecastedin a dry year by the year 2020. Managementtherefore believes that, with both the increasingscarcity of water supplies in California and theincreasing demand for water, the Company's access towater will provide it with a competitive advantageboth as a major agricultural concern and as asupplier of water which will lead to continuedappreciation in the value of the Company'sportfolio. On September 13, 1996, the Company acquired allof the stock of a reorganized Sun World pursuant toa consensual plan of reorganization for a netpurchase price of approximately $179 million (the"Sun World Acquisition"). Sun World and certainsubsidiaries of Sun World had filed voluntarypetitions for relief under Chapter 11 of theBankruptcy Code on October 3, 1994 after debtrestructuring negotiations with its existing lendersfailed. The Company's Sun World Acquisition was anintegral part of the Company's business strategy.Sun World adds to the Company's portfolioapproximately 19,200 acres of prime agriculturalland primarily in the San Joaquin and CoachellaValleys, increasing the Company's total landholdingsto approximately 58,200 acres. See Item 2,"Properties." Effective September 1, 1998, the Companychanged its name from Cadiz Land Company, Inc. toCadiz Inc.(b) Financial Information About Industry Segments ----------------------------------------------Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. During the year ended December 31, 1998, theCompany operated its agricultural resources segmentand continues to develop its water resource segmentof the business. See Consolidated FinancialStatements. Also, see Item 7, "Management'sDiscussion and Analysis."(c) Narrative Description of Business ----------------------------------- Pursuant to its business strategy, the Companycontinually seeks to develop and manage itsportfolio of water and agricultural resources fortheir highest and best uses. The development andmanagement activities of the Company are currentlyfocused on agricultural operations (primarilythrough its wholly-owned Sun World subsidiary) andwater resource development. The Company alsocontinues to evaluate acquisition opportunities, which are complementary to its current portfolio of water and agricultural resources.WATER RESOURCE DEVELOPMENT The Company's portfolio of water resources,located in close proximity to the Colorado River orthe major aqueduct systems of central and southernCalifornia, such as the State Water Project and theColorado River Aqueduct, provides the Company withthe opportunity to participate in a variety of waterstorage and supply programs in partnership withregional public water agencies. CADIZ GROUNDWATER STORAGE AND DRY-YEAR SUPPLYPROGRAM. The Company's 27,400 acres in the Cadizand Fenner Valleys of eastern California (the"Cadiz/Fenner Property") are underlain by asubstantial high-quality groundwater basin. Thisgroundwater is recharged by rain and snowfall withina catchment area of nearly 1,300 square miles. SeeItem 2, "Properties - The Cadiz/Fenner Property." In July 1998, the Company and Metropolitanapproved principles and terms for agreement for theCadiz Groundwater Storage and Dry-Year SupplyProgram. The principles and terms for agreementprovide that Metropolitan will, during wet years orperiods of excess supply, store surplus water fromits Colorado River Aqueduct in the Company'sgroundwater basin. During dry-years or times of reducedallocations from the Colorado River, the stored waterwill be withdrawn and returned via conveyance facilitiesto the aqueduct to meet Metropolitan's water supplyneeds. In addition, indigenous groundwater would also be transferred utilizing the same facilities. During the 50-year term of the agreement,Metropolitan will store a minimum of 500,000 acre-feet of Colorado River Aqueduct water in theCompany's groundwater basin and purchase a minimumof 1,100,000 acre-feet of existing groundwater fortransfer during dry-years. The Program will havethe capacity to convey, either for storage ortransfer, up to 150,000 acre-feet in any given year. During storage operations, Metropolitan willpay a fee per acre-foot for put of water intostorage and a fee per acre-foot for return of waterfrom storage, and a storage fee every year that water is stored in the groundwater basin. On the transfer of water, Metropolitan will pay a base rate of approximately $230 per acre-foot, which willbe adjusted according to a water price formula.Additionally, recognizing that delivery of theCompany's high-quality, indigenous groundwater toSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. the aqueduct provides a significant water qualitybenefit, Metropolitan will pay the Company a waterquality fee for both transferred and returned water. The Program facilities, including spreadingbasins, extraction wells, conveyance pipeline and apumping plant, are estimated to cost between $125and $150 million, and both parties will share thesecosts. A pilot spreading basin project has beenconstructed which will model and further analyze thestorage and extraction of water. Engineering andoptimization studies are currently ongoing tofinalize design criteria for the Program facilities.All operational costs of the Program, includingannual operations, maintenance and energy costs,will be an obligation of Metropolitan. The principles and terms for agreement call for theestablishment of a comprehensive, independent groundwatermonitoring and management plan to ensure long-term protection of the groundwater basin. The environmental review process, which will include compliance with California Environmental Quality Act and National Environmental Protection Act requirements, has commenced. The final agreement may reflect adjustments to these principles and terms in order to reflect information identifiedduring this review. The final agreement will bepresented to the respective Boards of both partiesfor approval. The Program is anticipated to beoperational by the year 2001. PIUTE. The Company's water developmentoperations at its 7,300 acre Piute property arelocated in eastern San Bernardino Countyapproximately 15 miles from the resort community ofLaughlin, Nevada and about 12 miles from theColorado River town of Needles, California.Hydrological studies and testing of a full scaleproduction well have demonstrated that thislandholding is underlain by recharging groundwaterof excellent quality. See Item 2, "Properties - ThePiute Property." Additional technical andenvironmental investigations are currently underwayfor a water development program anticipated totransfer approximately 10,000 to 15,000 acre feetper year. DANBY LAKE AND OTHER. The Company currentlyowns or controls additional acreage locatedthroughout other areas of the Mojave Desert, such asDanby Lake. This area is located approximately 30miles southeast of the Company's Cadiz/Fenner Valleyproperty and 10 miles north of the Colorado RiverAqueduct. SUN WORLD WATER RESOURCES. Sun World hasvaluable water rights in various parts of centraland southern California. The Company believes withincreasing water shortages in California, land withprime water rights will increase substantially invalue. Sun World's landholdings and associated waterresources are located adjacent to the major aqueductsystems of central and southern California, and inclose proximity to the Colorado River. Theseholdings complement the Company's other groundwaterresources and will enhance the Company'sopportunities to participate in a broad variety ofwater storage, supply, exchange or banking programs.AGRICULTURAL OPERATIONS The Company is one of California's largestvertically integrated agricultural companiesSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. combining an extensive research and developmentprogram, year-round sourcing, farming and packingactivities and strong marketing capabilities. Forthe twelve months ended December 31, 1998, Sun Worldrecorded revenues of $106.4 million. PRODUCT LINE. Sun World ships approximately 75different varieties of fresh fruits and vegetablesto all 50 states and to more than 30 foreigncountries. Sun World is a leading grower andmarketer of table grapes, seedless watermelons,colored sweet peppers, plums, peaches, nectarines,apricots and lemons. It is also one of California'slargest independent marketers of grapefruit,tangerines, mandarins, navel oranges and dates. The breadth and diversity of the product linehelps to minimize the impact of individual cropearnings fluctuations. Further, the breadth anddiversity of its product offering provides Sun Worldwith greater presence and influence with its groceryand food service customers. Although many fruits and vegetables arefungible commodities, Sun World has adopted astrategy of developing and acquiring specialtyproduce varieties with unique characteristics whichdifferentiate them from commodity produce varieties.Most of these varieties are harvested duringfavorable marketing windows when available supplyfrom competitors is limited. These specialtyvarieties typically command a price premium and areless subject to the same price volatility than thecommodity varieties. They also provide Sun Worldwith a dominant position in a number of productcategories. Examples of the branded produce grownand marketed by Sun World include Superior Seedless(TM) table grapes, Black Diamond(R) plums, Sun WorldSeedless(R) watermelons, Honeycot(R) apricots, AmberCrest(R) peaches, Super Star(TM) nectarines and Sun Worldsweet colored peppers. These products evolvedthrough a combination of internal development andacquisition. Sun World's research and developmentcenter is dedicated to developing additional highvalue proprietary varieties. See "ProprietaryProduct Development," below. FARMING OPERATIONS. Sun World's farmingoperations produced approximately 7 million units offruits and vegetables during the year ended December31, 1998. Its principal agricultural lands arelocated in the San Joaquin and Coachella Valleys ofCalifornia. See Item 2, "Properties." Sun World properties are primarily dedicated toproducing permanent commercial crops and, to alesser extent, annual (or row) crops. Additionally,over 1,400 acres are currently utilized fordeveloping crops (e.g., vines and trees that have notyet reached a commercial maturity). Following theSun World acquisition, the Company implemented acrop development plan which has redeployedmarginally productive acreage to produce morevarieties of crops which possess superiorproprietary characteristics and/or are available fordelivery at peak pricing windows throughout theyear. Additionally, during 1998, the Company acquiredtwo citrus ranches totaling approximately 2,000acres in the San Joaquin Valley. These acquisitionsreflect the Company's strategy of expanding itscontra-seasonal operations to complement the summertable grape and treefruit production.Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PACKING AND MARKETING OPERATIONS. In additionto merchandising its own products, Sun Worldprovides marketing and packing services to thirdparty growers. For third party growers, Sun Worldprovides three key benefits: (i) Sun World's brandname, proprietary products and reputation withwholesalers resulting in a significant pull througheffect; (ii) a full complement of handling servicesthat include harvest, cooling, packing and shipping;and (iii) an internal sales and marketing forceservicing over 650 customers throughout the world. Sun World's packing facilities handledapproximately 8 million units of produce during theyear ended December 31, 1998. These facilitiesprovide harvesting, packing, cooling and shippingservices for Sun World production, as well as forother commercial clients. Currently, Sun World ownsfour facilities, three of which are located in theCoachella Valley and one of which is located in theSan Joaquin Valley. See Item 2, "Properties." Sun World's vertically integrated operationsenable it to offer the market a continuous stream ofnew specialty products, which receive a marketpremium. As a large grower, Sun World is able tomanage the quality of its own product line, and as asignificant packer/marketer, Sun World works withother growers to ensure product quality throughpacking and distribution. During fiscal 1998, theCompany sold approximately 10 million units withwholesale value of approximately $100 million. Thisamount includes sale proceeds received for unitssold on behalf of third party growers for which onlythe sales commission and packing revenues receivedby Sun World are included in Sun World's reportedrevenues. Sun World's sourcing, both external andinternal, is diversified geographically. SunWorld's owned and leased farming operations arelocated throughout California from the CoachellaValley in the south to central California's SanJoaquin Valley, as well as operations near the coast.Sun World sources externally produced product fromthroughout California, from other areas of theUnited States, and from international sources. Thisgeographic diversification not only reduces theimpact that unfavorable weather conditions andinfestations could have on Sun World's operations,but also provides Sun World with a longer sellingseason for many crops since the harvests occur atdifferent times. In addition, geographicdiversification also allows Sun World the ability toprovide the quality and breadth of productthroughout the year which is being demanded byretailers. Sun World's customer base consists of more than650 accounts including supermarket retailers, foodservice entities, warehouse clubs, and internationaltrading companies located in approximately 30countries. Domestic customers include nationalretailers such as Safeway Stores and Albertson's;club stores, including PriceCostco and Sam's; andfood service distributors, including Sysco andAlliant. Approximately 9% of Sun World's productswere marketed outside of the United States inCanada, Europe, Australia, Japan, Hong Kong,Singapore, Malaysia and Taiwan in 1998. Only onenational retailer, Safeway Stores, (representingapproximately 12%) accounted for more than 10% ofSun World's revenues in 1998. As is consistent withindustry practice, Sun World does not maintainwritten agreements with this or its otherSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. significant customers. PROPRIETARY PRODUCT DEVELOPMENT. Sun World hasa long history of product innovation, and itsresearch and development center maintains a fruitbreeding program that has introduced dozens ofproprietary fruit varieties in the last six years.Recent product successes include the MidnightBeauty(TM) seedless black table grape, Black Diamond(R)plum, the Amber Crest(R) peach, Super Star(TM) nectarineand the Honeycot(R) apricot. Management believes thatthere are several other promising grape andtreefruit varieties, which are scheduled forcommercial planting and production in the nearfuture. Sun World utilizes approximately 235 acres forits research and development center and cropexperimentation. The research and developmentcenter facility houses tissue culture rooms, growthrooms, four greenhouses, and over 200 acres ofexperimental growing crops. The amounts expended bySun World on its research and development activitiessince the Sun World Acquisition amounted to $1,249,000 for the year ended December 31, 1998, $809,000 for the year ended December 31, 1997 and $120,000 for the periodfrom September 14, 1996 to December 31, 1996. As a result of over 20 years of research anddevelopment, Sun World holds rights to more than 600patents and trademarks around the world. The patentregistrations exist in most major fruit producingcountries and the trademarks are held in both fruitproducing and consuming regions. Sun World'spatents have varying expiration dates occurringwithin the next several years through 2017; however,the expiration of any individual patent will nothave a material effect upon Sun World's operations. Enhancing the value of the proprietary product portfolio through licensing is an integral part of Sun World's growth strategy. Sun World continues to seek key licensing opportunities (both domestically and internationally) in production areas that do not compete with Sun World's own domestic production. These licensing agreements will provide Sun World with a long-term annual revenue stream based upon a royalty fee for each box of proprietary fruit sold from the licensed production. In December 1998, the Company entered into a definitive agreement with the South African fruit industry granting long-term license agreements to South African fruit companies seeking to produce and export Sun World's proprietary Sugraone grape variety (more commonly known as Sun World's private Superior Seedless(R) grapes). These agreements also provide Sun World compensation for past Sugraone grapevine plantings and fruit sales and grant Sun World exclusive North American marketing rights for these Sugraone grapes. The Company believes these licensing agreements have established a precedent that will change the way new and improved varieties of produce will be brought to market in the future.SEASONALITY In connection with the water resourcedevelopment activities of the Company, revenues arenot expected to be seasonal in nature. Sun World's agricultural operations areimpacted by the general seasonal trends that arecharacteristic of the agricultural industry. SunWorld has historically received the majority of itsnet income during the months of June to Octoberfollowing the harvest and sale of its table grapeSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. and treefruit crops. Due to this concentratedactivity, the Company has, therefore, historicallyincurred a loss with respect to its agriculturaloperations in the other months during the year. The wet and cool weather conditions inCalifornia during the first half of 1998 delayed theharvest of all California grape and treefruitproduction by as much as four weeks from theprevious year's harvest schedule. This caused ashift in recognition of certain revenues and relatedprofits from the third to the fourth quarter of1998.COMPETITION The Company faces competition for theacquisition, development and sale of its propertiesfrom a number of competitors, some of which havegreater resources than the Company. The Company mayalso face competition in the development of waterresources associated with its properties. SinceCalifornia has scarce water resources and anincreasing demand for available water, the Companybelieves that location, price and reliability ofdelivery are the principal competitive factorsaffecting transfers of water in California. The agricultural business is highlycompetitive. Sun World's competitors include alimited number of large international foodcompanies, as well as a large number of smallerindependent growers and grower cooperatives. Nosingle competitor has a dominant market share inthis industry due to the regionalized nature ofthese businesses. In addition to drawing from itsproprietary base of products, Sun World utilizesbrand recognition, product quality, harvesting infavorable production windows, effective customerservice and consumer marketing programs to enhanceits position within the highly competitive freshfood industry. Consumer and institutionalrecognition of the Sun World trademark and relatedbrands and the association of these brands with highquality food products contribute to Sun World'sability to compete in the market for fresh fruit andvegetables.EMPLOYEES As of December 31, 1998, the Company employed atotal of 843 full-time employees. Sun World,throughout the year, engages various part-time andseasonal employees, with a seasonal high ofapproximately 2,500 part-time employees.Approximately 150 of the Company's employees arerepresented by a labor union pursuant to contractsthat expire in 1999. Generally, the Companybelieves that its employee relations are good. REGULATION Certain areas of the Company's operations aresubject to varying degrees of federal, state andlocal law and regulations. The Company'sagricultural operations are subject to a broad rangeof evolving environmental laws and regulations.These laws and regulations include the Clean AirAct, the Clean Water Act, the Resource Conservationand Recovery Act, the Federal Insecticide, Fungicideand Rodenticide Act and the ComprehensiveEnvironmental Response, Compensation and LiabilityAct. Compliance with these foreign and domesticlaws and related regulations is an ongoing process,which is not currently expected to have a materialSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. effect on the Company's capital expenditures,earnings or competitive position. Environmentalconcerns are, however, inherent in most majoragricultural operations, including those conductedby the Company, and there can be no assurance thatthe cost of compliance with environmental laws andregulations in the future will not be material.However, neither the Company nor Sun World expectsto incur any material capital expenditures forenvironmental control facilities during 1999. The Company's food operations are also subjectto regulations enforced by, among others, the U.S.Food and Drug Administration and state, local andforeign equivalents and to inspection by the U.S.Department of Agriculture and other federal, state,local and foreign environmental and healthauthorities. Among other things, the U.S. Food andDrug Administration enforces statutory standardsregarding the safety of food products, establishesingredients and manufacturing procedures for certainfoods, establishes standards of identity for foodsand determines the safety of food substances in theUnited States. Similar functions are performed bystate, local and foreign governmental entities withrespect to food products produced or distributed intheir respective jurisdictions. Existingenvironmental regulations have not, in the past, hada materially adverse effect upon the operations ofthe Company, and the Company believes that existingenvironmental regulations will not, in the future,have a materially adverse effect upon itsoperations. There can be no assurances, however, asto the effect of any environmental regulationswhich may be adopted in the future. As the Company proceeds with the development ofits properties, including the Program, the Companywill be required to satisfy various regulatoryauthorities that it is in compliance with the laws,regulations and policies enforced by suchauthorities. Groundwater development, and theexport of surplus groundwater for sale to singleentities such as public water agencies, are notsubject to regulation by existing statutes otherthan general environmental statutes applicable toall development projects. Additionally, the Companymust obtain a variety of approvals and permits fromstate and federal governments with respect to issuesthat may include environmental issues, issuesrelated to special status species, issues related tothe public trust, and others. Because of thediscretionary nature of these approvals and concernswhich may be raised by various governmentalofficials, public interest groups and otherinterested parties during both the approval anddevelopment process, the Company's ability todevelop properties and realize income from itsprojects, including the Program, could be delayed,reduced or eliminated. ITEM 2. PROPERTIES The Company currently leases its executiveoffices in Santa Monica, California. The Companyalso maintains a development office in SanBernardino, California. Sun World owns its mainpacking facility (including sales and administrativeoffices) in Bakersfield, California and owns threepacking facilities (including sales offices) inCoachella, California. The Company and each of itssubsidiaries believe that their property andequipment are generally well maintained, in goodoperating condition and adequate for their presentSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. needs. The following is a description of the Company'ssignificant properties.THE CADIZ/FENNER PROPERTY In 1984, the Company conducted an investigationof the feasibility of the agricultural developmentof land located in the Mojave desert near Cadiz,California, and confirmed the availability of primequality water in commercial quantities appropriatefor agricultural development. Since 1985, theCompany has acquired over 27,000 acres in the Cadizand Fenner Valleys of eastern San Bernardino Countyapproximately 30 miles north of the Colorado RiverAqueduct. Additional numerous independent geotechnicaland engineering studies conducted since 1985 haveconfirmed that the Cadiz/Fenner property overlies anatural groundwater basin which is ideally suitedfor underground water storage and dry year transfersas contemplated in the Program. See Item 1,"Business - Narrative Description of Business -Water Resource Development." In November 1993, the San Bernardino CountyBoard of Supervisors unanimously approved a GeneralPlan Amendment establishing an agricultural land usedesignation for 9,600 acres at Cadiz for which 1,600acres have been developed and are leased to SunWorld. This Board action represented the largestland use approval on behalf of a single propertyholder in the County's known history. This actionalso approved permits to construct infrastructureand facilities to house as many as 1,150 seasonalworkers and 170 permanent residents (employees andtheir families) and allows for the withdrawal ofmore than 1,000,000 acre-feet of groundwater fromthe Company's underground water basin. Substantially all Cadiz/Fenner acreage is heldin fee directly by the Company.THE SUN WORLD PROPERTIES FARM PROPERTIES. Sun World owns approximately19,200 acres and leases approximately 3,000 acres ofimproved land in central and southern California.The majority of this land is used for thecultivation of permanent and annual crops andsupport activities, including packing facilities. Sun World owned farming property is dividedbetween five distinct geographic regions: Madera,Bakersfield and Arvin (located within the SanJoaquin Valley), Coachella (located in the state'ssoutheastern corner near Palm Springs) and Blythe(located approximately 100 miles east of theCoachella Valley adjoining the Colorado River). PACKING AND HANDLING FACILITIES. Sun Worldowns four packing and handling facilities, three ofwhich are located on one campus in the Coachella Valley and one of which is located in the San Joaquin Valley atKimberlina, near Bakersfield. The Kimberlina facility, located on an 83 acreparcel owned by Sun World, consists of two highlyautomated production lines for packing treefruit andcitrus, cold storage areas, and office space. Sun World's Coachella Valley facility consists of three independent buildings located on 26 acres of industrial Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. commercial zoned land in Coachella, California. One building is used primarily for packing citrus, receiving table grapes, cold storage and office space. A second building is usedprimarily for receiving, cooling and storing table grapes.The third building is used primarily for packing watermelonsand lemons and for storage.THE PIUTE PROPERTY The Piute property consists of approximately7,300 acres and is located approximately 60 milesnortheast of Cadiz and approximately 15 miles westof the Colorado River and Laughlin, Nevada, a small,fast growing town with hotels, casinos and waterrecreation facilities. The Piute property wasidentified for acquisition by the Company by acombination of satellite imaging and geologicaltechniques, which were used by the Company toidentify water at Cadiz. The Piute acreage adjoins Highway 95, which isa direct route to Las Vegas, approximately 60 milesnorth. The Santa Fe Railroad passes through theland and Interstate 40 is approximately 12 miles tothe south. The property is held by the Company infee title as to approximately 3,600 acres, with theremaining acreage under option. The Company has commenced the development ofthe 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 additionalacres in the Mojave Desert, including the Danby Lakeproperty, as to which development has not yetcommenced. The Company will continue to seek to acquireadditional properties both in southern Californiadesert regions and elsewhere which are believed tobe suitable for development.DEBT SECURED BY PROPERTIES Of the Company's outstanding debt at December 31, 1998, $119.1 million represents loans secured by substantially all of Sun World's properties and $24.8 million represents loans secured by the majority of the Company's non-Sun World properties. Information regarding interest rates and principal maturities is provided in Note10 to the consolidated financial statements.ITEM 3. LEGAL PROCEEDINGS In December 1995, an action styled CADIZ LANDCOMPANY, INC. VS. COUNTY OF SAN BERNARDINO, ET AL,CASE NO. BCV 02341 was filed by the Company inSuperior Court in San Bernardino County. The actionchallenges the various decisions by the Countyrelative to the proposed construction and operationof a landfill (the "Rail-Cycle Project") near theCompany's Cadiz, California property, and seeks toset aside such decisions and to obtain compensatorydamages arising therefrom. Named in this action, inaddition to the County, were the County's Board ofSupervisors, three individual members of the Boardof Supervisors, a County employee and Rail-Cycle,L.P., whose general partner is controlled by WasteManagement, Inc. ("WMI"). On or about September 30,1998, the Court granted defendants' motions forSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. summary judgement, finding that the Company'sprocedural due process claim is not ripe due to thefact that, as the Rail-Cycle Project cannot proceedwithout voter approval of a business license tax,there is no actual concrete injury to the Company atthis point in time. The Company has appealed thisdecision. On October 24, 1997, the Company filed suit inthe United States District Court, Central Districtof California (CADIZ LAND COMPANY, INC. V. WASTEMANAGEMENT, INC., ET. AL., CASE NO. CV 97-7827 WMB(MANx) (the "Federal Court Action")) against WMI,certain key executives and consultants of WMI, andcertain other parties in interest as to the Rail-Cycle Project. The Complaint as originally filedasserted claims under both federal and state lawfrom activities of defendants adverse to the Company in connection with the Rail-Cycle Project. In December 1997, the federal district judge, on its own motion, severed the state law claims from the complaint and dismissed them without prejudice. Those claims were reasserted in a state proceeding filed by the Company on January 8, 1998 in Los Angeles Superior Court (West Division) (CADIZ LAND COMPANY, INC. V. WASTE MANAGEMENT, INC., Civil Action No. SC 050743 (the "State Court Action")). On or about April 27, 1998, in response tomotions to dismiss filed by various defendants inthe Federal Court Action, an order was enteredgranting the Company leave to amend its complaint.In addition, pursuant to that order, the Company'sclaims for stock manipulation pursuant to Section10(b) of the Exchange Act against the WMI defendantsand its RICO claims against San Bernardino Countyofficials Marsha Turoci and Michael Dombrowski weredismissed without leave to amend. Judgements weresubsequently entered in favor of defendants withrespect to these claims. Based upon the criminalindictments against certain defendants describedbelow and other evidence made available to theCompany on account of the pending criminalinvestigation, the Company has filed appeals withthe Ninth Circuit Court of Appeals seeking thereversal of the trial court's dismissal of theseclaims, and these appeals are currently pending.Upon the Company's motion, the remainder of theCompany's claims in the Federal Court Action, whichwill be pursued in the State Court Action, have beendismissed without prejudice. In response to the State Court Action, the WMIdefendants on or about April 15, 1998 sought andobtained a stay of the action, which expired by itsown terms in December 1998. The Company intends to file a Second Amended Complaint and will continue tovigorously prosecute its claims against the WMI defendants. During 1998, felony complaints were filed bythe San Bernardino District Attorney charging aWaste Management employee and a consultant withmultiple felony counts based upon their criminalactivities in connection with the Rail-CycleProject, and, also during 1998, an indictment washanded down by a San Bernardino Special CriminalGrand Jury which charges WMI, certain affiliates andemployees with 23 felony counts, all arising fromWMI's scheme to sabotage the Company in retaliation for the Company's opposition to the Rail-Cycle Project. In addition, indictments were handed down for certain County employees for criminal activities in connection with the Rail-Cycle Project. The WMI consultant pleadednolo contendere to four felony counts, includingstock fraud and conspiracy to commit stock fraud andSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. was sentenced to six years in prison. Prior to the acquisition of Sun World, theInternal Revenue Service (IRS) had filed claimsagainst Sun World and certain of its subsidiaries(collectively "the Sun World Claimants") for taxesrefunded for workers that the IRS claims wereemployees. The Sun World Claimants contend that theworkers are excluded from the definition ofemployment under the Internal Revenue Code. OnJanuary 21, 1998, the District Court ruled in favorof one of the Sun World Claimants. The IRS hasappealed this decision. Management believes thatthe likelihood of an unfavorable future outcome withregard to this matter is remote. Accordingly, theCompany released $3,780,000 of reserves related tothis matter at December 31, 1997 which are reportedon the Consolidated Statement of Operations asLitigation Benefit. The Company is involved in other legal andadministrative proceedings and claims. In theopinion of management, the ultimate outcome of eachproceeding or all such proceedings combined will nothave a material adverse impact on the financialposition of the Company.ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The results of the Company's Annual Meeting ofStockholders held May 13, 1998 were reported in theCompany's Quarterly Report on Form 10-Q for thequarterly period ended June 30, 1998. PART IIITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on theNasdaq National Stock Market under the symbol"CLCI." The following table reflects actual salestransactions. The high and low range of the salesprice of the common stock for the dates indicatedhave been provided by Nasdaq. High Low Quarter Ended Sales Sales Price Price ------ ----- 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 1998: March 31 $ 11.938 $ 7.875 June 30 $ 14.188 $ 10.625 September 30 $ 13.438 $ 7.750 December 31 $ 9.500 $ 5.875 On March 16, 1999, the high, low and last sales prices for the shares, as reported by Nasdaq, were $8.13, $7.94 and $7.94, respectively. In January 1998, options in the Company's stock began trading on the American Stock Exchange, the Chicago Board Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 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 to1,000 shares of Series B Preferred, of which 1,000 shareshave 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 3,070, and the number of stockholders of record on March 16, 1999 was 231. To date, the Company has not paid a cash dividendon Common Stock. The Company's ability to pay suchdividends is subject to certain covenants pursuantto agreements with the Company's lenders. During the quarter ended December 31, 1998, theCompany issued 18,100 shares upon exercise ofoutstanding options to a single option holder at anexercise price of $5.50 per share. The issuance ofthe shares was not registered under the SecuritiesAct of 1933, as amended (the "Securities Act"). TheCompany believes that the transactions described areexempt from the registration requirements of theSecurities Act by virtue of Section 4(2) thereof astransactions not involving any public offerings.The shares were issued in accordance with the termsof previously executed stock option agreements. Allother securities sold by the Company during the yearended December 31, 1998, which were not registeredunder the Securities Act have previously beenreported in the Company's Quarterly Reports on Form10-Q.ITEM 6. SELECTED FINANCIAL DATA The following selected financial data insofar asit relates to the years ended December 31, 1998, and1997, the nine months ended December 31, 1996, andto each of the years ended March 31, 1996 and 1995has been derived from financial statements auditedby PricewaterhouseCoopers LLP, independentaccountants. The information that follows should beread in conjunction with the audited consolidatedfinancial statements and notes thereto for the yearsended December 31, 1998, and 1997 and the ninemonths ended December 31, 1996 included elsewhereherein. See also Item 7, "Management's Discussionand Analysis". CADIZ INC. Selected Financial Data ($ in thousands, except for per share data) Nine Months Year Ended Ended Year Ended December 31, December 31, March 31, --------------- ----------- ----------- 1998 1997 1996(1) 1996 1995Statement of ---- ---- ---- ---- ---- Operations Data: Total revenues $ 106,544 $ 100,157 $ 23,780 $ 1,441 $ 543 Loss from continuingSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. operations before extraordinary items (7,470) (8,538) (5,997) (8,487) (4,706) Extraordinary items -0- -0- -0- -0- 115 Net loss (7,470) (8,538) (5,997) (8,487) (4,591) Less: Preferred stock dividends -0- (1,213) (674) -0- -0- Imputed dividend on preferred stock -0- -0- (2,451) -0- -0- ------- ------- -------- -------- ------ Net loss applicable to common stock $ (7,470) $ (9,751) $ (9,122) $ (8,487) $(4,591) ========= ========= ========= ======== =======Per share: Net loss from continuing operations before extraordinary items $ (.23) $ (.33) $ (.44) $ (.48) $ (.29) Extraordinary items -0- -0- -0- -0- .01 --------- --------- -------- --------- ------- Net loss $ (.23) $ (.33) $ (.44) $ (.48) $ (.28) ========= ========= ========= ======= ========Weighted average common shares and equivalents 33,173 29,485 20,500 17,700 16,500 ========= ========= ========= ======= ======== December 31, March 31, ------------------------- -------------- 1998 1997 1996 1996 1995Balance Sheet Data: ---- ---- ---- ---- ----- Total assets $ 214,359 $ 203,049 $ 230,790 $ 38,663 $ 34,888 Long-term debt $ 142,317 $ 131,689 $ 149,111 $ 68 $ 16,827 Redeemable preferred stock $ -0- $ -0- $ 27,431 $ -0- $ -0- Preferred stock, common stock and additional paid-in capital $ 127,998 $ 121,199 $ 88,808 $ 73,149 $ 62,857 Accumulated deficit $ (78,288) $ (70,818) $ (61,067) $ (54,396) $(45,909) Stockholders' equity $ 49,710 $ 50,381 $ 27,741 $ 18,753 $ 16,948 (1) Subsequent to the Company's September 13, 1996 acquisition of Sun World, the Company changed its fiscal year end from March 31 to December 31 in order to align the Company's year end with that of Sun World. Additionally, as a result of the Sun World acquisition, the operations for the nine months ended December 31, 1996 include the results of operations of Sun World for the period September 14, 1996 through December 31, 1996. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSGENERAL On September 13, 1996, the Company acquired allof the outstanding capital stock of Sun World. TheCompany's acquisition of Sun World was accounted forusing the purchase method of accounting. TheConsolidated Financial Statements include Sun Worldfrom the date of acquisition. In addition, in 1996,Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. the Company changed its fiscal year end from March31 to December 31 in order to align the Company'syear end with that of Sun World.RESULTS OF OPERATIONS The consolidated financial statements set forthherein for the years ended December 31, 1998 and1997 and the nine months ended December 31, 1996,reflect the results of operations of the Company andits wholly owned subsidiaries, Sun World (sinceSeptember 14, 1996), and Southwest Fruit Growers("SWFG") in which the Company was the generalpartner and had an approximate 66.3 percentpartnership interest. On November 5, 1998, theCompany purchased the assets of SWFG and thepartnership dissolved. A summary of the Sun World elements whichmanagement of the Company believes is essential toan analysis of the results of operations for suchperiods is presented below. For purposes of thissummary, the term Sun World will be used, when thecontext so requires, with respect to the operationsand activities of the Company's Sun Worldsubsidiary, and the term Cadiz will be used, whenthe context so requires, with respect to thoseoperations and activities of the Company notinvolving Sun World. The Company's net income or loss in futurefiscal periods will be largely reflective of (a) theoperations of the Company's water development activities including the Cadiz Groundwater Storage and Dry-Year Supply Program (the "Program") and (b) the operations of Sun World. Sun World conducts its operations through four operating divisions:farming, packing, marketing and proprietary productdevelopment. Net income from farming operationsvaries from year to year primarily due to yield andpricing fluctuations which can be significantlyinfluenced by weather conditions, and are,therefore, generally subject to greater annualvariation than Sun World's other divisions.However, the geographic distribution of Sun World'sfarming operations and the diversity of its crop mixmakes it unlikely that adverse weather conditionswould affect all of Sun World's properties or all ofits crops in any single year. Nevertheless, netprofit from Sun World's packing, marketing andproprietary product development operations tends tobe more consistent from year to year than net profitfrom Sun World's farming operations. As such, SunWorld continues to strategically add volume in thepacking and marketing areas that will complement Sun World's in-house production or fill in contra-seasonal marketing windows. Sun World has entered into agreements internationally to license selected proprietary fruit varieties and continues to pursue additional domestic and international licensing opportunities.YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED- -------------------------------------------------------DECEMBER 31, 1997- ----------------- The Company's agricultural operations areimpacted by the general seasonal trends that arecharacteristic of the agricultural industry. SunWorld has historically received the majority of itsnet income during the months of June to Octoberfollowing the harvest and sale of its table grapeand treefruit crops. Due to this concentratedactivity, Sun World has, therefore, historicallyincurred a loss with respect to its agriculturalSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. operations in the other months during the year. The cooler wet weather patterns experienced inCalifornia during the first half of 1998 delayed theharvest of all California grape and treefruitproduction by as much as four weeks from the 1997harvest schedule and also reduced yields on certaincrops which prefer warmer weather conditions,particularly early season table grapes in the SanJoaquin Valley. The table below sets forth, for the periodsindicated, the results of operations for theCompany's four main divisions (before elimination ofany interdivisional charges), as well as thecategories of costs and expenses incurred by theCompany which are not included within the divisionalresults (in thousands): Year Ended December 31, 1998 1997 ---- ---- Divisional net income Farming $ 8,522 $ 8,643 Packing 7,320 8,017 Marketing 3,245 4,126 Proprietary product development 11,466 1,568 ------- ------- 30,553 22,354 General and administrative 10,487 10,636 Special litigation 1,308 683 Litigation benefit - (3,780) Depreciation and amortization 8,688 7,745 Interest expense, net 17,540 15,608 ------- ------- Net loss $ (7,470) $ (8,538) ======== ======== FARMING OPERATIONS. Net income from farmingoperations totaled $8.5 million for 1998 compared to$8.6 million in 1997. Farming revenues were $78.1million and farming expenses were $69.6 million for1998. For 1997, the Company had farming revenues of$77.9 million and farming expenses of $69.3 million.Farming profits from the Coachella Valley operationsincreased $1.7 million from 1997 due to strongF.O.B. prices for peppers and watermelons and recordtable grape yields partially offset by lower tablegrape F.O.B. prices due to downward pressure fromthe record yields coupled with increased productionfrom Mexico. Farming profits for the desert lemonoperations at Blythe and Cadiz increased $2.7million from 1997 due to strong yields and strongF.O.B. pricing experienced in 1998. Farming profitsfrom the San Joaquin Valley operations decreased $4.1million primarily due to reduced yields and higherharvest costs on the early season table grapes inthe San Joaquin Valley. These unfavorable resultswere partially offset by improved F.O.B. pricing onplums and the removal of certain underperformingpeach and nectarine crops at the conclusion of the1997 season. Farming profits for coastal sweetpeppers were off $0.4 million from 1997 primarilyattributable to increased production costs. PACKING OPERATIONS. During 1998, Sun World'sfour packing and handling facilities contributed$20.5 million in revenues offset by $13.2 million inexpenses resulting in $7.3 million in net income. In1997, Sun World generated revenues of $23.1 millionand expenses of $15.1 million resulting in netSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. income of $8.0 million. The decrease in net incomefrom packing operations is primarily attributable tothe impact of reduced yields experienced in thefarming operations during the year, particularly forthe early season table grapes in the San JoaquinValley. During the year, Sun World packed 3.6million units and moved an additional 4.0 millionunits through the cold storage facilities for atotal of 7.6 million units processed through thepacking operations. In 1997, Sun World packed 4.1million units and moved an additional 5.1 millionunits through the cold storage facilities for a total of 9.2 million units. Products packed or handled duringthe year primarily consisted of Sun World-growntable grapes, treefruit, sweet red and yellowpeppers, seedless watermelons and lemons, as well astable grapes and citrus products packed for thirdparty growers. MARKETING OPERATIONS. Sun World's marketingoperations include selling, merchandising andpromoting Sun World-grown products, as well asproviding these services for third party growers.During 1998, approximately 9.9 million units weresold primarily consisting of Sun World-grown tablegrapes, treefruit, sweet red and yellow peppers,seedless watermelons and lemons; and table grapes,seedless watermelon, and citrus from domestic thirdparty growers. These unit sales resulted inmarketing revenue of $7.7 million while marketingexpenses totaled $4.5 million for 1998 resulting ina net income from marketing operations of $3.2million. During 1997, Sun World marketed 12.2million units and generated revenues of $9.0 millionoffset by expenses of $4.9 million resulting in netincome of $4.1 million. The decrease in units sold,revenues and net income primarily resulted from thedecreased yields experienced in the farmingoperations, particularly the early season tablegrapes in the San Joaquin Valley. PROPRIETARY PRODUCT DEVELOPMENT. Sun World hasa long history of product innovation, and itsresearch and development center maintains a fruitbreeding program that has introduced dozens ofproprietary fruit varieties during the past fiveyears. In addition, Sun World has a 50% interest inASC/SWB Partnership, formerly named AmericanSunMelon (the "Partnership"). During the year endedDecember 31, 1998, net income from proprietaryproduct development was $11.5 million consisting ofrevenues of $12.7 million ($10.7 million from thePartnership) offset by expenses of $1.2 million. The Partnership revenues relate to the operations of American SunMelon for the period from January 1, 1998 to October 27, 1998 and the revenues related to the distribution of proceeds from the Partnership from the sale of substantially all of its assets to a third party on October 27, 1998. In addition, the increase inproprietary product development income is alsoattributable to the licensing agreement for theCompany's Sugraone table grape variety entered intowith the South African table grape industry inDecember 1998. Revenues of $1.1 million wererecognized in 1998 related to current and pastroyalties for fruit sales and for past Sugraonegrapevine plantings. Net income of $1.6 million forthe year ended December 31, 1997 related primarilyto the operations of American SunMelon. GENERAL AND ADMINISTRATIVE. General andadministrative expenses for 1998 totaled $10.5million compared to $10.6 million in 1997. SPECIAL LITIGATION. The Company is engaged inSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. lawsuits seeking monetary damages in connection with the prevention of a landfill which was proposed to be located adjacent to its Cadiz/Fenner Valley properties. See "Item 3 - Legal Proceedings." During the year ended December 31, 1998, expenses including litigation costs and professional fees and expenses totaled $1.3 millionas compared to $0.7 million during the year endedDecember 31, 1997. LITIGATION BENEFIT. Prior to the acquisitionof Sun World by the Company, the Internal RevenueService (IRS) had filed claims against Sun World andcertain of its subsidiaries, (collectively "the SunWorld Claimants") for taxes refunded for workersthat the IRS claims were employees. Sun WorldClaimants contend that the workers are excluded fromthe definition of employment under the InternalRevenue Code. On January 21, 1998, the DistrictCourt ruled in favor of the Sun World Claimant whohad the largest outstanding claim. The IRS hasappealed this decision. Management believes thatthe likelihood of an unfavorable future outcome withregard to this matter is remote. Accordingly, SunWorld released $3.8 million of reserves related tothis matter at December 31, 1997. DEPRECIATION AND AMORTIZATION. Depreciationand amortization expenses for the year endedDecember 31, 1998 totaled $8.7 million compared to$7.7 million for the year ended December 31, 1997.The increase is attributable to depreciation relatedto property, plant and equipment additions madeduring the year and the timing of relief ofdepreciation costs from inventory due to the timingof the harvests. INTEREST EXPENSE. As a result of theacquisition of Sun World, net interest expensetotaled $17.5 million during the year ended December31, 1998 compared to $15.6 million during the yearended December 31, 1997. The following tablesummarizes the components of net interest expensefor the two periods (in thousands): Year Ended December 31, 1998 1997 Interest on outstanding debt - Sun World $ 14,394 $ 13,446 Interest on outstanding debt - Cadiz 1,511 875 Amortization of financing costs 1,914 1,879 Interest income (279) (592) ------- ------- $ 17,540 $ 15,608 ======== ======== The increase in interest on outstanding debtduring 1998 is primarily attributable to theCompany's debt refinancing in April 1997, wherebySun World issued $115 million of 11-1/4% FirstMortgage Notes and used the proceeds and existingcash balance to pay off approximately $130 millionof long-term debt. Interest expense is also higherdue to (a) increased borrowings for seasonal workingcapital needs primarily resulting from the delay inharvest and sale of crops due to cooler weatherconditions during the growing season, (b)amortization of warrants issued on the $15.0 millionCadiz Revolver entered into during the fourthquarter of 1997 and (c) reduced average cashbalances in 1998 compared to 1997 prior to the debtrefinancing resulting in lower interest income.Financing costs, which include legal fees, loan feesand warrants, are amortized over the life of theSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. debt agreements.YEAR ENDED DECEMBER 31, 1997 COMPARED TO NINE MONTHS ENDED- ----------------------------------------------------------DECEMBER 31, 1996- ----------------- The table below sets forth, for the periodsindicated, the results of operations for theCompany's four main divisions (before elimination ofany interdivisional charges) as well as thecategories of costs and expenses incurred by theCompany which are not included within the divisionalresults (in thousands): Year Nine Months Ended Ended December 31, December 31, 1997 1996 ---- ---- Divisional net income Farming $ 8,643 $ 3,867 Packing 8,017 726 Marketing 4,126 666 Proprietary product development 1,568 718 ------- -------- 22,354 5,977 General and administrative 10,636 5,979 Special litigation 683 394 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 farmed over19,000 acres of agricultural properties in 1997primarily dedicated to producing permanentcommercial crops. Revenues during the year endedDecember 31, 1997 resulted primarily from theharvest of table grapes, treefruit, sweet red andyellow peppers and seedless watermelons from the SanJoaquin Valley; table grapes, sweet red and yellowpeppers and seedless watermelons from the CoachellaValley; lemons from the Cadiz and Blythe ranches; aswell as sweet red and yellow peppers from theCalifornia coastal operations. Although yields forthese crops were higher than normal, similar highcrop yields throughout the industry resulted inlower prices. As Sun World was able to command apremium price for its proprietary products such asSuperior Seedless(TM) table grapes and Black Diamond(R)plums, the impact of the industry-wide lower priceswere somewhat mitigated. Net income from farmingoperations totaled $8.6 million for the year endedDecember 31, 1997 based upon revenues of $77.9million offset by farming expenses of $69.3 million.Net income from farming operations for the ninemonths ended December 31, 1996, which included theoperations of Sun World subsequent to theacquisition from September 13, 1996, totaled $3.9million on revenues of $16.5 million and expenses of$12.6 million. PACKING OPERATIONS. During 1997, Sun World'sfour packing and handling facilities contributed$23.1 million in revenues offset by $15.1 million inexpenses resulting in $8.0 million in net income.Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. During the year, Sun World packed 4.1 million unitsand moved an additional 5.1 million units throughthe cold storage facilities for a total of 9.2million units processed through the packingoperations. Products packed or handled during theyear primarily consisted of Sun World-grown tablegrapes, treefruit, sweet red and yellow peppers,seedless watermelons and lemons, as well as tablegrapes and citrus products packed for third partygrowers. The 1996 net income of $0.7 million frompacking operations related to the results of SunWorld from September 14, 1996 to December 31, 1996in which Sun World generated packing revenues of$4.7 million and expenses of $4.0 million. MARKETING OPERATIONS. During the year endedDecember 31, 1997, approximately 12.2 million unitswere sold primarily consisting of Sun World-growntable grapes, treefruit, sweet red and yellowpeppers, seedless watermelons and lemons; and tablegrapes, seedless watermelon, and citrus fromdomestic third party growers. These unit salesresulted in marketing revenue of $9.0 million whilemarketing expenses totaled $4.9 million for the yearended December 31, 1997 resulting in a net incomefrom marketing operations of $4.1 million. The 1996net income from marketing operations related to theresults of Sun World from September 14, 1996 toDecember 31, 1996 in which Sun World generatedmarketing revenues of $2.5 million offset byexpenses of $1.8 million resulting in net profits of$0.7 million. PROPRIETARY PRODUCT DEVELOPMENT. During theyear ended December 31, 1997, net income fromproprietary product development was $1.6 millionconsisting of revenues of $2.4 million ($1.3 millionfrom American SunMelon) offset by expenses of $0.8million. The net income of $0.7 million for thenine months ended December 31, 1996 relatedprimarily to the operations of American SunMelonfrom September 14, 1996 to December 31, 1996. GENERAL AND ADMINISTRATIVE. General andadministrative expenses during the year endedDecember 31, 1997 and the nine months ended December31, 1996 consisted primarily of corporate operatingexpenses, professional fees and salaries. Theseexpenses increased by $4.7 million in 1997 ascompared to the nine months ended December 31, 1996period primarily due to the inclusion of a full yearof operations for Sun World in 1997. SPECIAL LITIGATION . The Company is engaged in lawsuits seeking monetary damages in connection with the prevention of a landfill which was proposed to be located adjacent to its Cadiz/Fenner Valley properties. See Item 3, "Legal Proceedings." During the year ended December 31, 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. LITIGATION BENEFIT. Prior to the acquisitionof Sun World by the Company, the Internal RevenueService (IRS) had filed claims against Sun World andcertain of its subsidiaries, (collectively "the SunWorld Claimants") for taxes refunded for workersthat the IRS claims were employees. The Sun WorldClaimants contend that the workers are excluded fromthe definition of employment under the InternalRevenue Code. On January 21, 1998, the DistrictCourt ruled in favor of the Sun World Claimant whohad the largest outstanding claim. ManagementSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. believes that the likelihood of an unfavorablefuture outcome with regard to this matter is remote.Accordingly, Sun World released $3.8 million ofreserves related to this matter at December 31,1997. DEPRECIATION AND AMORTIZATION. Depreciationand amortization expense for the year ended December31, 1997 totaled $7.7 million compared to $1.0million for the nine months ended December 31, 1996.The increase is attributable to depreciationrelating to the acquired Sun World assets. INTEREST EXPENSE. As a result of theacquisition of Sun World, net interest expensetotaled $15.6 million during the year ended December31, 1997 compared to $5.2 million during the ninemonths ended December 31, 1996. The following tablesummarizes the components of net interest expensefor 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 expense on outstandingdebt during 1997 is attributable to the long-termdebt acquired as part of the Sun World acquisition.Financing costs, which include legal fees andextension fees, are amortized over the life of thedebt agreement.LIQUIDITY AND CAPITAL RESOURCESGeneral Discussion of Liquidity and Capital Resources- ----------------------------------------------------- Based on the $13.6 million of cash at December31, 1998 and the revolving credit facilities inplace for both Cadiz and Sun World, as furtherdiscussed below, the Company believes it will beable to meet its working capital needs over the nextyear without looking to additional outside fundingsources, although no assurances can be made. See"Current Financing Arrangements" below. Under Sun World's historical working capitalcycle, working capital is required primarily tofinance the costs of growing and harvesting crops,which generally occur from January through Septemberwith a peak need in June. Sun World harvests andsells the majority of its crops during the periodfrom June through October, when it receives themajority of its revenues. In order to bridge thegap between incurrence of expenditures and receiptof revenues, large cash outlays are required eachyear which are financed through a revolving creditagreement. In April 1998, Sun World entered into a$25 million one year facility (the "Sun WorldRevolver"). In February 1999, Sun World increasedthe Sun World Revolver to a $30 million facility inconjunction with a one year renewal of the facility.See "Current Financing Arrangements - Sun World"Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. below. In order to provide additional availability ofworking capital and to provide a readily availablefunding mechanism for add-on acquisitionopportunities, Cadiz entered into a three year $15million revolving credit facility (the "CadizRevolver") in November 1997.Current Financing Arrangements- --------------------------------CADIZ OBLIGATIONS As Cadiz has not received significant revenuesfrom its water resource activity to date, Cadiz hasbeen required to obtain financing to bridge the gapbetween the time water resource development expensesare incurred and the time that revenue willcommence. Historically, Cadiz has addressed theseneeds primarily through secured debt financingarrangements with its lenders, private equityplacements and the exercise of outstanding stockoptions. As of December 31, 1998, Cadiz was obligatedfor approximately $9.8 million under a senior termloan facility. With Cadiz' election to extend thefacility in 1998, the maturity date of the term loanis April 30, 1999. The Company issued certainadditional warrants in conjunction with theextension. Cadiz also has the right to obtain anadditional one-year extension. The Company iscurrently evaluating opportunities to refinance thisterm loan. If the extension is exercised, Cadizwould be required to issue certain warrants and theinterest rate would be adjusted. Currently, theterm lender holds a senior deed of trust onsubstantially all of Cadiz' non-Sun World relatedproperty. The Cadiz Revolver is secured by a second lienon substantially all of the non-Sun World assets ofthe Company. Principal is due on December 31, 2000.The Company had $15.0 million outstanding under theCadiz Revolver at December 31, 1998. During 1998,the Company issued additional warrants in connectionwith borrowings under the Cadiz Revolver. As the Company continues to actively pursue itsbusiness strategy, additional financing specificallyin connection with the Company's water programs maybe required. Responsibility for funding the design,construction and program implementation costs of thecapital facilities for the Cadiz Groundwater Storageand Dry-Year Supply Program will, under currently developed principles and terms, be shared equally by the Company and the Metropolitan Water District of Southern California ("Metropolitan"). The Company is analyzing various alternatives for funding its share of the estimated $125 million to $150 million cost of the program capital facilities. These funding alternatives include (a) long-term financing arrangements or (b) utilization of monies to be received from Metropolitan for its initial purchase of 500,000 acre-feet of indigenousgroundwater. The principles of agreement call forpayment to Cadiz of at least $115 million for thisinitial groundwater. Based upon the results ofanalyses performed by investment banking firmsretained by the Company, management believes thatseveral alternative long-term financing arrangementsare available to the Company.SUN WORLD OBLIGATIONSSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The First Mortgage Notes (the "Sun WorldNotes") were issued in the principal amount of $115million on April 16, 1997 and will mature on April15, 2004. The Sun World Notes will be redeemable atthe option of Sun World, in whole or in part, at anytime on or after April 15, 2001. Interest accruesat the rate of 11-1/4% per annum and is payable semi-annually on April 15 and October 15 of each year.The Sun World Notes are secured by a first lien(subject to certain permitted liens) onsubstantially all of the assets of Sun World and itssubsidiaries, other than growing crops, cropinventories and accounts receivable and proceedsthereof, which secure the Sun World Revolver, andcertain real property pledged to third parties. TheSun World Notes are also secured by the guarantee ofCadiz and the pledge by Cadiz of all of the stock ofSun World. Commencing October 14, 1997, Sun World offeredto exchange (the "Exchange Offer") up to $115.0million aggregate principal amount of its 11-1/4 %Series B First Mortgage Notes (the "Exchange Notes")for $115.0 million aggregate principal amount of theSun World Notes. The Exchange Notes are registeredunder the Securities Act of 1933 and have the sameterms as the Sun World Notes. The exchange of allof the Sun World Notes was completed on November 12,1997. In April 1998, Sun World entered into the SunWorld Revolver which is guaranteed by Cadiz. As ofDecember 31, 1998, no amount was outstanding underthe Sun World Revolver. To meet its working capitalneeds for 1999, Sun World has renewed the Sun WorldRevolver for an additional year including anincrease in the facility to $30 million.Additionally, Sun World has an intercompanyrevolving credit agreement with Cadiz for seasonalworking capital needs as needed. No amount wasoutstanding under the intercompany revolver as ofDecember 31, 1998. CASH (USED FOR) PROVIDED BY OPERATINGACTIVITIES. Cash used for operating activitiestotaled $7.9 million for the year ended December 31,1998, as compared to cash provided by operatingactivities of $0.2 million for the year endedDecember 31, 1997. The increase in cash used foroperating activities is primarily due to theelimination of the Company's share of partnershipoperations related to the sale by American SunMelon of the majority of its assets in October 1998 as the cash distribution to Sun World corresponding to the sale is included in investing activities. CASH PROVIDED BY (USED FOR) INVESTINGACTIVITIES. Cash provided by investing activitiestotaled $2.7 million for the year ended December 31,1998, as compared to cash used for investingactivities of $2.9 million for the same period in1997. In October 1998, Sun World received aninitial distribution of $15.2 million from a 50%owned partnership, American SunMelon. Thisdistribution resulted from the sale by thepartnership of substantially all of its assets to athird party for $35 million in cash. During 1998, the Company invested $3.4 million in developing crops, $0.9 million in water programs, and $7.3 million for the purchase of property, plant and equipment includingtwo citrus ranches in the San Joaquin Valley,totaling approximately 2,000 acres, and a newcomputer system implementation. In 1997, theCompany received $2.8 million from the disposal ofcertain non-core properties compared to $0.4 millionSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. in 1998. CASH PROVIDED BY (USED FOR) FINANCINGACTIVITIES. Cash provided by financing activitiestotaled $13.6 million for the year ended December31, 1998, consisting primarily of $2.0 million inborrowings by Sun World in conjunction with thepurchase of a citrus ranch and $10.0 million inborrowings under the Cadiz Revolver. Cash used forfinancing activities totaled $25.3 million for theyear ended December 31, 1997 resulting from the SunWorld debt refinancing in April 1997. Principalpayments on long-term debt totaled $0.6 million forthe year ended December 31, 1998. Net proceeds fromthe exercise of stock options totaled $2.2 millionduring 1998 compared to $1.7 million during 1997.OUTLOOK The Company is actively pursuing thedevelopment of its water resources. Specifically,in July 1998, the Company and Metropolitan approved the principles and terms for agreement 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 Groundwater Storage and Dry-Year Supply Program"). The principles and terms for agreement provide that Metropolitan will, during wet years or periods of excess supply, store surplus water from its Colorado River Aqueduct in the Company's groundwater basin. During dry years or times of reduced allocations from the Colorado River, the previously imported water, together with additional existing groundwater, will be extracted and delivered, via a conveyance pipeline, back to the aqueduct. During the 50 year term of the agreement,Metropolitan will store a minimum of 500,000 acre-feet of Colorado River Aqueduct water in theCompany's groundwater basin and purchase a minimumof 1,100,000 acre-feet of existing groundwater fortransfer during dry-years. The Program will havethe capacity to convey, either for storage ortransfer, up to 150,000 acre-feet in any given year. During storage operations, Metropolitan willpay a fee per acre-foot for put of water intostorage and a fee per acre-foot for return of waterfrom storage, and a storage fee per acre-foot everyyear that water is stored in the groundwater basin.On the transfer of water, Metropolitan will pay abase rate of approximately $230 per acre-foot, whichwill be adjusted according to a water price formula.Additionally, recognizing that delivery of theCompany's high-quality, indigenous groundwater tothe aqueduct provides a significant water qualitybenefit, Metropolitan will pay the Company a waterquality fee for both transferred and returned water. The Program facilities, including spreadingbasins, extraction wells, conveyance pipeline and apumping plant, are estimated to cost between $125and $150 million, and both parties will share thesecosts. All operational costs of the Program,including annual operations, maintenance and energycosts, will be an obligation of Metropolitan. The principles and terms for agreement call forthe establishment of a comprehensive independentgroundwater monitoring and management plan to ensurelong-term protection of the groundwater basin. Theparties have commenced the environmental reviewprocess, which will include compliance withCalifornia Environmental Quality Act and NationalEnvironmental Protection Act requirements. TheSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. final agreement may reflect adjustments to theseprinciples and terms in order to reflect informationidentified during this review. The final agreementwill be presented to the respective Boards of bothparties for approval. The Program is anticipated tobe operational by the year 2001. In addition to the development of its waterresources, the Company is actively involved infurther agricultural development and reinvestment inits landholdings. Such development will besystematic and in furtherance of the Company'sbusiness strategy to provide for maximization of thevalue of its assets. The Company also continuallyevaluates acquisition opportunities, which arecomplimentary to its current portfolio of water andagricultural resources. With the acquisition of twocitrus ranches in 1998, the Company will grow, packand market additional boxes of citrus from Decemberthrough March, which is contra-seasonal to theCompany's primary farming operations. Thisacquisition helps to further diversify the Company'sportfolio and enables the Company to utilize itsBakersfield packing facility during a previousperiod of limited utilization. The Company believes that, based upon currentlevels of operations and anticipated growth, SunWorld can adequately service its indebtedness andmeet its seasonal working capital needs utilizingavailable internal cash, the Sun World Revolver and,if necessary, through an intercompany revolver withCadiz. Cadiz expects to be able to meet itsordinary working capital needs, in the short-term,through a combination of cash on hand, quarterlymanagement fee payments from Sun World, paymentsfrom Sun World under an agricultural lease wherebySun World now operates the Company's 1,600 acres ofdeveloped agricultural property at Cadiz,California, and the possible exercise of outstandingstock options. Except for the foregoing, additionalintercompany cash payments between Sun World andCadiz are subject to certain restrictions under itscurrent lending arrangements. Since the Company's inception, inflation hasnot had a material impact on the cost of materialsrequired in the development of property or on laborcosts. Similarly, the value of the Company's realproperty has not been materially impacted byinflation. In the event the rate of inflationshould accelerate in the future, the Companybelieves the increase in value of its real propertywill exceed any increases in costs attributable toinflation.YEAR 2000 The year 2000 ("Y2K") issue is the result ofcomputer programs using two digits rather than fourto define the applicable year. Such software mayrecognize a date using "00" as the year 1900 ratherthan the year 2000. This could result in systemfailures or miscalculations leading to disruptionsin the Company's activities and operations. If theCompany or its significant suppliers or customersfail to make necessary modifications, conversions,and contingency plans on a timely basis, the Y2Kissue could have a material adverse effect on theCompany's business, operations, cash flows, andfinancial condition. The impact of the Y2K issuecannot be quantified at this time because theCompany cannot accurately estimate the magnitude,duration, or ultimate impact of noncompliance bysuppliers, customers, and third parties that have noSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. direct relationship to the Company. The Company has established a corporate-wideproject team to identify and mitigate all Y2Kissues. The team has identified three categories ofsoftware and systems that require attention: (1) Information technology ("IT") systems, such as mini mainframes, PCs, and networks; (2) Non-IT systems, such as equipment, machinery, climate control, and security systems, which may contain microcontrollers with embedded technology; and (3) Partner (supplier and customer) IT and non-IT systems. For each category, the project team isutilizing the following steps to identify andresolve Y2K issues: (1) inventory the systems, (2)assess risks and impact of each system, (3)prioritize projects, (4) fix, replace, or developcontingency plans for non-compliant systems, and (5)test Y2K compliance.The status of each of the major categories as ofFebruary 1999 is as follows: Information Technology ---------------------- Currently, various IT remediation projects areat different phases of completion. The Company'sassessments have identified three major internal ITremediation projects: (1) AS400 Applications, (2) PCBased Accounting and Payroll Systems, and (3) PCBased Network Servers and Desktop Computers. The Company's plan is to resolve complianceissues in critical business information systems byAugust 31, 1999. YEAR 2000 COMPLIANCE FOR AS/400 APPLICATIONS The IBM AS/400 hardware and operating systemsare year 2000 compliant. The Company utilizes AS/400applications for its sales/order entry, accountsreceivable, produce inventory, and grower accountingsystems. The primary year 2000 issue as it relatesto the IBM AS/400 is that the core businessapplications software currently does not process norstore properly dates after December 31, 1999.Currently, date storage fields are being expandedfrom six digits to eight digits for all affecteddisplay screens and reports where appropriate. TheCompany plans to have all programming and testingwith regard to core business AS/400 applicationscompleted by August 31, 1999. As of February 28,1999, the Company is approximately 50% complete withthe AS/400 project and remains on schedule to havethe AS/400 applications Year 2000 compliant byAugust 31, 1999. YEAR 2000 COMPLIANCE FOR PC BASED ACCOUNTING AND PAYROLL SYSTEMS The Company utilizes commercial PC basedaccounting systems for its general ledger, accountspayable, project costing, purchasing, non-produceinventory, payroll and human resource systems. Asof January 1999, all required service packs to makethese applications Year 2000 compliant have beenSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. installed and tested. YEAR 2000 COMPLIANCE ON PC BASED NETWORK SERVERS AND DESKTOP COMPUTERS The Company has contacted all significant PCbased desktop and server system manufacturers toascertain Year 2000 compliance. All significant PCbased systems are either Year 2000 compliant withoutany changes or will be with the installation of ROMupgrades. The Company plans to complete therequired ROM upgrades by March 31, 1999. Non-IT Systems --------------- Although no other areas of the business areexpected to create Year 2000 issues, the projectteam is continuing to review all areas of thebusiness to determine Year 2000 compliance.Management believes that given the agriculturalnature of the Company's business, the project teamwill not encounter any major Y2K issues which cannotbe corrected or would have a material adverse affecton the Company, although no absolute assurances canbe given. Suppliers and Customers IT and Non-IT Systems --------------------------------------------- The Company has identified all significantsuppliers and customers and has started the processof sending surveys and conducting formalcommunications to determine the extent to which itmay be affected by those third parties' Y2Kpreparedness plans. In the absence of adequateresponses and disclosures from major suppliers andcustomers, the Company will attempt to makeindependent assessments. However, a compliancefailure by a major supplier or customer, or one oftheir suppliers or customers, could have a materialadverse effect on the Company's business orfinancial condition. As a result, in some cases theCompany will develop contingency plans for suppliersand customers determined to be at risk ofnoncompliance or business disruption. Such planscould include finding alternative suppliers ormanual intervention where necessary. Costs related to the Y2K issue are fundedthrough operating cash flows. The Company presentlybelieves that the total costs to obtain Y2Kcompliant systems will not exceed $250,000, whichconsists mostly of internal labor for programmingand testing.CERTAIN TRENDS AND UNCERTAINTIES In connection with the "safe harbor" provisionsof the Private Securities Litigation Reform Act of1995, the Company is hereby filing cautionarystatements identifying important risk factors thatcould cause the Company's actual results to differmaterially from those projected in forward-lookingstatements of the Company made by or on behalf ofthe Company. The Company wishes to caution readers thatthese factors, among others, could cause theCompany's actual results to differ materially fromthose expressed in any projected, estimated orforward-looking statements relating to the Company.The following factors should be considered inconjunction with any discussion of operations orresults by the Company or its representatives,Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. including any forward-looking discussion, as well ascomments contained in press releases, presentationsto securities analysts or investors, or othercommunications by the Company. In making these statements, the Company is notundertaking to address or update each factor infuture filings or communications regarding theCompany's business or results, and is notundertaking to address how any of these factors mayhave caused changes to discussions or informationcontained in previous filings or communications. Inaddition, certain of these matters may have affectedthe Company's past results and may affect futureresults. RISKS INHERENT IN AGRICULTURAL OPERATIONS. TheCompany is subject to risks associated with itsagricultural operations. Numerous factors canaffect the price, yield and marketability of thecrops grown on the Company's properties. Cropprices may vary greatly from year to year as aresult of the relationship between production andmarket demand. For example, the production of aparticular crop in excess of demand in anyparticular year will depress market prices, andinflationary factors and other unforeseeableeconomic changes may also, at the same time,increase operating costs with respect to such crops.In addition, the agricultural industry in the UnitedStates is highly competitive, and domestic growersand produce marketers are facing increasedcompetition from abroad, particularly from Mexico.There are also a number of factors outside of theCompany's control that could, alone or incombination, materially adversely affect theCompany's agricultural operations, such as adverseweather conditions, insects, blight or otherdiseases, labor problems such as boycotts or strikesand shortages of competent laborers. The Company'soperations may also be adversely affected by changesin governmental policies, social and economicconditions, and industry production levels. RISKS OF WATER DEVELOPMENT PROJECTS. TheCompany anticipates that it will continue to incuroperating losses from its non-Sun World operationsuntil such time as it is able to receive significantrevenues from the development of its waterdevelopment projects, including the CadizGroundwater Storage and Dry-Year SupplyProgram. In addition to the risk of delaysassociated with receiving all necessary regulatoryapprovals and permits, the Company may alsoencounter unforeseen technical difficulties, whichcould result in construction delays, and costincreases with respect to the Company's waterdevelopment projects. The Company is continuing tonegotiate the terms and conditions of water storageand supply programs with various California wateragencies (including Metropolitan with respect topreparing the final agreement for the CadizGroundwater Storage and Dry-Year Supply Program).However, the outcome of other negotiations cannot bepredicted with any degree of certainty. Thecircumstances under which transfers or storage ofwater can be made and the profitability of anytransfers or storage are subject to significantuncertainties, including hydrologic risks ofvariable water supplies, risks presented byallocations of water under existing and prospectivepriorities, and risks of adverse changes to orinterpretations of U.S. federal, state and locallaws, regulations and policies.Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Other important risk factors that could causethe Company's actual results to differ materiallyfrom those expressed or implied by the Company or onbehalf of the Company are discussed elsewhere withinthis Form 10-K in the sections entitled:Seasonality, Regulation, Competition, Year 2000, andLiquidity and Capital Resources.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk fromchanges in interest rates on long-term debtobligations that impact the fair value of theseobligations. The Company's policy is tomanage interest rates through the use of acombination of fixed and variable rate debt. TheCompany's interest rate risk management objective isto limit the impact of interest rate changes onearnings and cash flows and to lower its overallborrowing costs. Other instruments, such asinterest rate swaps, options, floors, caps orcollars may also be used depending upon marketconditions. No such instruments were used in 1998. The table below presents the principal amounts,weighted average interests rates, and fair values byyear of scheduled maturities to evaluate theexpected cash flows and sensitivity to interest ratechanges (in thousands of dollars). Circumstancescould arise which may cause interest rates and thetiming and amount of actual cash flows to differmaterially from the schedule below: Long-Term Debt ---------------------------------------- Average Average Fixed Interest Variable InterestExpected Maturity Rate Rate Rate Rate- ----------------- ---- ---- ---- ---- 1999 $ 327 7.7% $ 286 7.8% 2000 15,432 9.9% 10,038 9.9% 2001 445 7.6% 286 7.8% 2002 385 7.7% 286 7.8% 2003 285 7.8% 856 7.8% Thereafter 115,932 11.2% -0- - -------- ----- -------- ----- Total $ 132,806 11.0% $ 11,752 9.6% ======== ===== ======== ===== Fair Value at 12/31/98 $ 139,206 $ 11,752 ======== ========ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item issubmitted in response to Part IV hereof. See theIndex to Consolidated Financial Statements. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information called for by this item isincorporated herein by reference to the definitiveproxy statement involving the election of directorswhich the Company intends to file with theCommission pursuant to Regulation 14A under theSecurities and Exchange Act of 1934 not later thanSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 120 days after December 31, 1998.ITEM 11. EXECUTIVE COMPENSATION The information called for by this item isincorporated herein by reference to the definitiveproxy statement involving the election of directorswhich the Company intends to file with theCommission pursuant to Regulation 14A under theSecurities and Exchange Act of 1934 not later than120 days after December 31, 1998.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information called for by this item isincorporated herein by reference to the definitiveproxy statement involving the election of directorswhich the Company intends to file with theCommission pursuant to Regulation 14A under theSecurities and Exchange Act of 1934 not later than120 days after December 31, 1998.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information called for by this item isincorporated herein by reference to the definitiveproxy statement involving the election of directorswhich the Company intends to file with theCommission pursuant to Regulation 14A under theSecurities and Exchange Act of 1934 not later than120 days after December 31, 1998. PART IVITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements. See Index to Consolidated Financial Statements. 2. Financial Statement Schedules. See Index to Consolidated Financial Statements. 3. Exhibits. The following exhibits are filed or incorporated by reference as part of this Annual Report. 3.1 Certificate of Incorporation of the Company, as amended(2) 3.2 Amendment to Certificate of Incorporation dated November 12, 1996(3) 3.3 Amendment to Certificate of Incorporation dated September 1, 1998(13) 3.4 Bylaws of the Company, as amended to date(4) 3.5 Amended and Restated Certificate of Incorporation of Sun World, Inc.(10) 3.6 Certificate of Merger of Sun World International, Inc. into Sun World, Inc.(10) 3.7 Agreement and Plan of Merger of Sun World, Inc. and Sun World International, Inc.(10) 3.8 Amended and Restated Bylaws of Sun World International, Inc.(10) 4.1 Specimen Form of Stock Certificate for the Company's registered stock(13)Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 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 Whitehall Bank & Trust Company as trustee, for the benefit of holders of 11-1/4% First Mortgage Notes due 2004 (including as Exhibit A to the Indenture, the form of the Global Note and the form of each Guarantee)(8) 4.6 Form of Amendment to Indenture dated as of October 9, 1997(11) 4.7 Form of Amendment to Indenture dated as of January 23, 1998(12) 10.1 The Company's 1996 Stock Option Plan(6) 10.2 Form of Employment Agreement dated September 13, 1996 between Sun World, the Company and Timothy J. Shaheen(7) 10.3 Form of Employment Agreement dated September 13, 1996 between Sun World, the Company and Stanley E. Speer(7) 10.4 Form of Sun World Executive Officer Employment Agreement(9) 10.5 Credit Agreement between the Company and ING Baring (U.S.) Capital Corporation dated November 25, 1997(12) 10.6 Revolving Credit Note between the Company and ING Baring (U.S.) Capital Corporation dated November 25, 1997(12) 10.7 Employment Agreement between the Company and Keith Brackpool dated February 1, 1998(12) 10.8 Principles for an Agreement between the Metropolitan Water District of Southern California and the Company dated August 14, 1998(13) 21.1 Subsidiaries of the Registrant 23.1 Consent of Independent Accountants (included in Part IV of the Form 10-K) 27.1 Financial Data Schedule (1) Previously filed as Exhibit to the Company's Report on Form 8-K dated September 13, 1996 (2) Previously filed as Exhibit to the Company's Registration Statement of Form S-1 (Registration No. 33-75642) declared effective May 16, 1994 (3) Previously filed as Exhibit to the Company's Report on Form 10-Q for the quarter ended September 30, 1996 (4) Previously filed as Exhibit to the Company's 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 A to the Company's Proxy Statement relating to the Annual Meeting of Stockholders held on November 8, 1996 Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (7) Previously filed as Exhibit to the Company's Transition Report on Form 10-K for the nine months ended December 31, 1996 (8) Previously filed as Exhibit to Amendment No. 1 to the Company's Form S-1 Registration Statement No. 333-19109 (9) Previously filed as Exhibit to the Company's Report on Form 10-Q for the quarter ended March 31, 1997 (10) Previously filed as Exhibit to Sun World's Form S-4 Registration Statement No. 333-31103 (11) Previously filed as Exhibit to Amendment No. 2 to Sun World's Form S-4 Registration Statement No. 333-31103 (12) Previously filed as Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (13) Previously filed as Exhibit to the Company's Report on Form 10-Q for the quarter ended September 30, 1998 (b) Reports on Form 8-K 1. Report on Form 8-K dated December 7, 1998, describing the expiration of an offer made by the Company's Sun World subsidiary to purchase Series B First Mortgage Notes using proceeds received from the October 1998 sale of substantially all of the assets of ASC/SWB Partnership (formerly American SunMelon), a watermelon seed company in which Sun World holds a 50% interest. SIGNATURESPursuant to the requirements of Section 13 or 15(d)of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signedon its behalf by the undersigned, thereto dulyauthorized.CADIZ INC.By: /s/ Keith Brackpool By: /s/ Stanley E. Speer ----------------------- ---------------------- Keith Brackpool, Stanley E. Speer, Chief Executive Officer Chief Financial Officer and Director and Secretary Date: March 19, 1999 Date: March 19, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated. Name and Position Date ------------------- -----/s/ Dwight W. Makins March 19, 1999- ----------------------------Dwight Makins, Chairmanof the Board and Director/s/ Keith Brackpool March 19, 1999- ----------------------------Keith Brackpool,Chief Executive Officerand Director(Principal Executive Officer)/s/ Stanley E. Speer March 19, 1999Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. - ----------------------------Stanley E. Speer,Chief Financial Officerand Secretary(Principal Financial andAccounting Officer)/s/ Murray H. Hutchison March 19, 1999- ----------------------------Murray H. Hutchison, Director/s/ Mitt Parker March 19, 1999- ----------------------------Mitt Parker, Director/s/ Timothy J. Shaheen March 19, 1999- ----------------------------Timothy J. Shaheen, Director/s/ Anthony L. Coelho March 19, 1999- -----------------------------Anthony L. Coelho, Director CADIZ INC. INDEX TO FINANCIAL STATEMENTS PageFINANCIAL STATEMENTS- --------------------Report of Independent Accountants................................34Consolidated Statement of Operations for the years ended December 31, 1998 and 1997, and the nine months ended December 31, 1996..............................................35Consolidated Balance Sheet as of December 31, 1998 and 1997......36Consolidated Statement of Cash Flows for the years ended December 31, 1998 and 1997, and the nine months ended December 31, 1996..............................................37Consolidated Statement of Stockholders' Equity for the years ended December 31, 1998 and 1997, and the nine months ended December 31, 1996.................................38Notes to the Consolidated Financial Statements...................41FINANCIAL STATEMENT SCHEDULES- ------------------------------Schedule I - Condensed Financial Information of Registrant for the years ended December 31, 1998 and 1997, and the nine months ended December 31, 1996..........57Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 1998 and 1997, and the nine months ended December 31, 1996........................................60(Schedules other than those listed above have been omittedsince they are either not required, inapplicable, or therequired information is included on the financial statementsor notes thereto.) REPORT OF INDEPENDENT ACCOUNTANTS Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. To the Board of Directors and Stockholders ofCadiz Inc.In our opinion, the consolidated financial statements listed inthe accompanying index present fairly, in all material respects,the financial position of Cadiz Inc. and its subsidiaries atDecember 31, 1998 and 1997, and the results of their operationsand their cash flows for the years ended December 31, 1998 and1997, and the nine months ended December 31, 1996, in conformitywith generally accepted accounting principles. These financialstatements are the responsibility of the Company's management;our responsibility is to express an opinion on these financialstatements based on our audits. We conducted our audits of thesestatements in accordance with generally accepted auditingstandards, which require that we plan and perform the audit toobtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, andevaluating the overall financial statement presentation. Webelieve that our audits provide a reasonable basis for theopinion expressed above./s/ PricewaterhouseCoopers- -------------------------------- PricewaterhouseCoopers LLPLos Angeles, CaliforniaFebruary 19, 1999 CADIZ INC. CONSOLIDATED STATEMENT OF OPERATIONS Nine Months Year Ended Ended December 31, December 31,(In thousands except per share data) 1998 1997 1996- ------------------------------------------------------------------------Revenues $95,845 $98,769 $22,942Income from partnerships 10,699 1,388 838 ------- ------- ------- Total revenues 106,544 100,157 23,780 ------- ------- -------Costs and expenses: Cost of sales 74,742 76,566 17,725 General and administrative 11,736 11,873 6,057 Special litigation 1,308 683 394 Litigation benefit - (3,780) - Depreciation and amortization 8,688 7,745 1,039 ------- ------- ------- Total costs and expenses 96,474 93,087 25,215 ------- ------- -------Operating profit (loss) 10,070 7,070 (1,435)Interest expense, net 17,540 15,608 5,203 -------- -------- -------Loss before income taxes (7,470) (8,538) (6,638)Income tax benefit - - (641) ------- ------- -------Net loss (7,470) (8,538) (5,997)Less: Preferred stock dividends - (1,213) (674)Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Imputed dividend on preferred stock - - (2,451) ------- ------- -------Net loss applicable to common stock $(7,470) $(9,751) $(9,122) ======= ======== ========Net loss per common share $ (.23) $ (.33) $ (.44) ======== ======== ========Weighted average shares outstanding 33,173 29,485 20,500 ======= ======= ======= See accompanying notes to the consolidated financial statements. CADIZ INC. CONSOLIDATED BALANCE SHEET December 31,($ in thousands) 1998 1997 ---- ----ASSETS Current assets: Cash and cash equivalents $ 13,635 $ 5,298 Accounts receivable, net 6,295 5,881 Inventories 15,019 13,838 Prepaid expenses and other 992 1,161 ------- -------- Total current assets 35,941 26,178Investment in partnerships 1,169 6,327Property, plant, equipment and water programs, net 166,022 160,042 Other assets 11,227 10,502 ------- ------- $ 214,359 $ 203,049 ========= =========LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities: Accounts payable $8,753 $ 8,517 Accrued liabilities 6,846 6,114 Long-term debt, current portion 613 519 ------- ------- Total current liabilities 16,212 15,150Long-term debt 142,317 131,689Deferred income taxes 5,447 5,447Other liabilities 673 382Commitments and contingenciesStockholders' equity: Common stock - $.01 par value; 45,000,000 shares authorized; shares issued and outstanding 33,592,261 at December 31, 1998 and 32,646,661 at December 31, 1997 336 326Additional paid-in capital 127,662 120,873Accumulated deficit (78,288) (70,818) ------- -------Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Total stockholders' equity 49,710 50,381 ------- ------- $ 214,359 $ 203,049 ========= ========= See accompanying notes to the consolidated financial statements. CADIZ INC. CONSOLIDATED STATEMENT OF CASH FLOWS Nine Months Year Ended Ended December 31, December 31,($ in thousands) 1998 1997 1996 ---- ---- ----Cash flows from operating activities: Net loss $(7,470) $(8,538) $(5,997) Adjustments to reconcile net loss to net cash (used for) provided by operating activities: Depreciation and amortization 10,601 9,227 1,654 Litigation benefit - (3,780) - Issuance of stock for services 374 470 - Interest capitalized to debt - 315 481 (Gain) loss on disposal of assets (207) 99 - Share of partnership operations (10,699) (1,388) (838) Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (414) 1,652 11,367 (Increase) decrease in inventories (1,559) 570 1,000 Decrease (increase) in prepaid expenses and other 307 64 (428) Increase (decrease) in accounts payable 236 672 (6,798) Increase in accrued liabilities 916 1,332 68 Decrease in other current liabilities - (591) - Increase (decrease) in other liabilities 18 54 (674) ------ ------- ------- Net cash (used for) provided by operating activities (7,897) 158 (165) ------ ------- -------Cash flows from investing activities: Additions to property, plant and equipment (7,308) (2,114) (895) Additions to water programs (856) (400) (343) Additions to developing crops (3,396) (4,725) (187) Proceeds from disposal of property, plant and equipment 388 2,817 12,415 Partnership distributions 15,859 1,165 140 Acquisition of Sun World, net of cash acquired - - (4,474) (Increase) decrease in other assets (2,020) 358 - ------ ------- ------- Net cash provided by (used for) investing activities 2,667 (2,899) 6,656 ------ ------- -------Cash flows from financing activities: Net proceeds from issuance of stock 2,154 1,690 37,761 Proceeds from issuance of long-term debt 12,000 120,089 - Principal payments on long-term debt (587) (141,248) (16,428) Proceeds from short-term borrowings, net - - 330 Debt issuance costs - (5,799) -Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ------ ------- ------- Net cash provided by (used for) financing activities 13,567 (25,268) 21,663 ------ ------- -------Net increase (decrease) in cash and cash equivalents 8,337 (28,009) 28,154Cash and cash equivalents, beginning of period 5,298 33,307 5,153 ------ ------- -------Cash and cash equivalents, end of period $ 13,635 $ 5,298 $ 33,307 ====== ======= ======== See accompanying notes to the consolidated financial statements. CADIZ INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITYFor the Years Ended December 31, 1998 and 1997, and the Nine Months EndedDecember 31, 1996($ in thousands) Total Additional Accumu- Stock Preferred Stock Common Stock Paid-in lated holders' Shares Amount Shares Amount Capital Deficit Equity ------ ------ ------ ------ ------- ------- ------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 - 942Common stock issued for acquisition ofof Sun World - - 1,153,908 12 3,576 - 3,588Net proceeds from private placements ofpreferred stock 1,300 - - - 10,688 - 10,688Cash dividends paid on conversion ofpreferred stock - - - - - (99) (99)Dividends paid on conversion of preferredstock - - 28,777 - 127 (127) -Accrued dividends on preferred stock - - - - - (448) (448)Conversion of redeemable preferredstock to common stock - - 53,332 1 199 - 200Conversion of preferred stock to common stock (960) - 2,627,240 26 (26) - -Issuance of stock warrants for services - - - - 114 - 114Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Net loss - - - - - (5,997) (5,997) ----- ------- ---------- ---- -------- --------- ---------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 - 27,431Exercise of stock options and warrants - - 588,500 7 1,358 - 1,365Common stock issued to satisfy Sun World purchase liability - - 65,000 1 324 - 325Preferred dividends paid with common stock - - 361,251 3 1,714 - 1,717Issuance of warrants to a lender - - - - 1,083 - 1,083Stock issued for services - - 75,000 1 329 - 330Issuance of stock for refinancing - - 30,000 - 140 - 140Conversion of preferred stock to common stock (340) - 766,125 7 (7) - -Accrued dividends onpreferred 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 ----- ------- ---------- ---- -------- --------- ---------Exercise of stock options - - 515,600 6 2,148 - 2,154Issuance of warrants to lender - - - - 1,643 - 1,643Stock issued for services - - 55,000 - 374 - 374Acquisition of hydrological research company - - 375,000 4 2,624 - 2,628Net loss - - - - - (7,470) (7,470) ----- ------- ---------- ---- -------- --------- ---------Balance as of December Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 31, 1998 - $ - 33,592,261 $336 $127,662 $(78,288) $ 49,710 ====== ======= ========== ==== ======== ======== ======== See accompanying notes to the consolidated financial statements. CADIZ INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 1 - DESCRIPTION OF BUSINESS- ----------------------------------- Effective September 1, 1998, Cadiz Land Company, Inc.changed its name to Cadiz Inc. (the "Company"). The Companycurrently has agricultural operations and is developing thewater resource segment of its business. The primary businessof the Company is to acquire and develop water and agricultural resources. The Company has created an integrated and complementary portfolio of assets encompassing undeveloped land with high-quality groundwater resources and/or storage potential, prime agricultural properties located throughout central and southern California with secure and reliable water rights, and other contractual water rights. Management believes that, with both the increasing scarcity of water supplies in California and an increasing population, the Company's access to water will provide it with a competitive advantage both as a major agricultural concern and as a supplier of water, which willlead to continued appreciation in the value of the Company'sportfolio. On September 13, 1996, the Company significantlyenhanced this portfolio through its acquisition of Sun WorldInternational, Inc. and its wholly-owned subsidiaries,collectively referred to as "Sun World," and became avertically integrated agricultural company. Today, SunWorld farms more than 21,000 acres, primarily located in twomajor growing areas of California: the San Joaquin Valleyand the Coachella Valley. Fresh produce, including tablegrapes, treefruit, peppers and watermelons, is marketed andshipped to food wholesalers and retailers throughout theUnited States and to more than 30 foreign countries. As ofDecember 31, 1998, Sun World owned four cold storage and/orpacking facilities in California, of which three areoperated and one is leased to a third party. In addition, the acquisition of Sun World provided theCompany with valuable water rights throughout central andsouthern California. The Company's landholdings, which nowtotal approximately 58,300 acres, are located adjacent to the Colorado River and the major aqueduct systems of central and southern California. The Company expects to utilize its resources to participate in a broad variety of water storage and supplyprojects, including the storage and supply of surplus waterfor public agencies that require supplemental sources ofwater for exchanges or transfers to third parties. In 1998, the Company and the Metropolitan WaterDistrict of Southern California ("Metropolitan") verifiedthe feasibility of and approved principles and terms for awater storage and supply program at its Cadiz, Californiaproperty. The Cadiz Groundwater Storage and Dry-Year SupplyProgram (the "Program") will enhance southern Californiawater supply reliability in two ways, providing a new dry-year water supply and much-needed storage. During wet yearsor periods of excess supply, Metropolitan will store surplusColorado River water in the aquifer system underlying theCompany's Cadiz property. During dry years, the previouslyimported water, together with additional existinggroundwater, will be extracted and delivered, via a 35-mileconveyance pipeline, to Metropolitan's service area. Duringthe 50-year term of the agreement, Metropolitan will store aminimum of 500,000 acre-feet of Colorado River water andpurchase a minimum of 1,100,000 acre-feet of existinggroundwater for transfer. The Program will have theSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. capacity to convey up to 150,000 acre-feet of water peryear. The Company and Metropolitan have commenced theenvironmental review process required by state and federalenvironmental laws for the Program and construction ofpilot spreading basins, which will model and further analyzethe storage and extraction of water. Additionally,engineering and optimization studies are currently beingfinalized for the design of the Program's capitalfacilities. Although the development and management activities ofthe Company are currently focused on agricultural operations(primarily through its wholly-owned subsidiary, Sun World)and water resource development, the Company will continue todevelop and manage its land, water and agriculturalresources for their highest and best uses. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- -----------------------------------------------------PRINCIPLES OF CONSOLIDATION The consolidated financial statements include theaccounts of the Company and its wholly-owned subsidiaries,Sun World (since September 14, 1996), and Southwest FruitGrowers Limited Partnership, a limited partnership ("SWFG")in which the Company was the general partner and had anapproximate 66.3 percent partnership interest. Allocableloses incurred through the year ended March 31, 1991 servedto eliminate the minority interest in SWFG for accountingpurposes. On November 5, 1998, the Company purchased theassets of SWFG and the partnership dissolved. All materialintercompany balances and activity have been eliminated fromthe consolidated financial statements.CHANGE IN YEAR END AND RECLASSIFICATIONS In 1996, the Company changed its fiscal year end fromMarch 31 to December 31 in order to align the Company's yearend with that of Sun World. These financial statementsreflect certain reclassifications made to the prior periodbalances to conform with the current year presentation.USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformitywith generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenuesand expenses during the reporting period. Actual resultscould differ from those estimates.REVENUE RECOGNITION The Company recognizes crop sale revenue, packingrevenue and marketing commissions upon shipment tocustomers.RESEARCH AND DEVELOPMENT Sun World incurs costs to research and develop newvarieties of proprietary products. Research and developmentcosts are expensed as incurred. Such costs wereapproximately $1,249,000 for the year ended December 31,1998, $809,000 for the year ended December 31, 1997, and$120,000 for the period from September 14, 1996 to December31, 1996.NET LOSS PER COMMON SHARE Basic Earnings Per Share (EPS) is computed by dividingthe net loss, after deduction for preferred dividends eitheraccrued or imputed, if any, by the weighted average commonSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. shares outstanding. Because the Company had a net loss forall periods presented, basic EPS equals diluted EPS. Asdescribed in Note 13, the terms for conversion of the SeriesB and C preferred stock issued during the nine months endedDecember 31, 1996 afforded the holders a conversion pricelower than the market price of the common stock at the timeof issuance in order to recognize the sales and other marketrestrictions of the unregistered common stock to be issuedupon conversion. The difference between the conversionprice and market price has been reported as an imputeddividend for purposes of calculating basic EPS, although noassets of the Company will ever be expended. The imputeddividend of $2,451,000 had the effect of increasing the lossper share for the nine months ended December 31, 1996 by$0.11. It should be noted that the imputed dividend hasbeen given no other accounting recognition in the financialstatements of the Company for that period and any subsequentperiod. All shares for all series of preferred stock hadbeen converted to common stock as of December 31, 1997.CASH AND CASH EQUIVALENTS The Company considers all short-term deposits with anoriginal maturity of three months or less to be cashequivalents. The Company invests its excess cash indeposits with major international banks and short-termcommercial paper and, therefore, bears minimal risk. Suchinvestments are stated at cost, which approximates fairvalue, and are considered cash equivalents for purposes ofreporting cash flows.INVENTORIES Growing crops, pepper seed, and materials and suppliesare stated at the lower of cost or market, on a first-in,first-out (FIFO) basis. Growing crops inventory includesdirect costs and an allocation of indirect costs.INVESTMENT IN PARTNERSHIPS Sun World, through a wholly-owned subsidiary, owns a50% interest in ASC/SWB Partnership, formerly named AmericanSunmelon (the "Partnership"). In October 1998, thePartnership sold substantially all of its assets to a thirdparty for $35 million in cash. In conjunction with thesale, Sun World received an initial distribution of $15.2million from the Partnership. The Partnership was engagedin proprietary development, production, and marketing ofseedless watermelon seed. Sun World accounts for itsinvestment in the Partnership using the equity method.During 1997, Sun World sold its 50% interest in the Sun Datepartnership.PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS Property, plant, equipment and water programs arestated at cost. The Company capitalizes direct and certain indirectcosts of planting and developing orchards and vineyardsduring the development period, which varies by crop andgenerally ranges from three to seven years. Depreciationcommences in the year commercial production is achieved. Permanent land development costs, such as acquisitioncosts, clearing, initial leveling and other costs requiredto bring the land into a suitable condition for generalagricultural use, are capitalized and not depreciated sincethese costs have an indeterminate useful life. Depreciation is provided using the straight-line methodover the estimated useful lives of the assets, generally tento forty-five years for land improvements and buildings,three to twenty-five years for machinery and equipment, andfive to thirty years for permanent crops.Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Water rights and water storage and supply programs arestated at cost. All costs directly attributable to thedevelopment of such programs are being capitalized by theCompany. These costs, which are expected to be recoveredthrough future revenues, consist of direct labor, drillingcosts, consulting fees for various engineering,hydrological, environmental and feasibility studies, andother professional and legal fees.IMPAIRMENT OF LONG-LIVED ASSETS The Company annually evaluates its long-lived assets,including intangibles, for potential impairment. Whencircumstances indicate that the carrying amount of the assetmay not be recoverable, as demonstrated by estimated futurecash flows, an impairment loss would be recorded based onfair value.OTHER ASSETS As a result of a merger in May 1988 between twocompanies, which eventually became known as Cadiz Inc.,an excess of purchase price over net assets acquiredin the amount of $7,006,000 was recorded. This amountis being amortized on a straight-line basis over thirtyyears. Accumulated amortization was $2,493,000 and$2,259,000 at December 31, 1998 and December 31, 1997,respectively. Capitalized loan fees represent costs incurred toobtain debt financing. Such costs are amortized over thelife of the related loan. At December 31, 1998, the majorityof capitalized loan fees relate to the issuance of the FirstMortgage Notes described in Note 10.INCOME TAXES Income taxes are provided for using an asset andliability approach which requires the recognition ofdeferred tax assets and liabilities for the expected futuretax consequences of temporary differences between thefinancial statement and tax bases of assets and liabilitiesat the applicable enacted tax rates. A valuation allowanceis provided when it is uncertain that some portion or all ofthe deferred tax assets will be realized.SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest during the years ended December31, 1998 and 1997 and the nine months ended December 31,1996 was $15,348,000, $12,452,000 and $3,892,000,respectively.NOTE 3 - ACQUISITIONS- -------------------- On September 13, 1996, the Company acquired all of thestock of a reorganized Sun World for approximately $179million. Sun World and certain subsidiaries had filedvoluntary petitions for relief under Chapter 11 of theBankruptcy Code on October 3, 1994. The acquisition of SunWorld was accounted for under the purchase method ofaccounting. Accordingly, the results of operations of SunWorld have been included in the consolidated financialstatements since the date of acquisition. In January 1998, the Company issued 375,000 shares ofcommon stock to a hydrological research company in order toacquire title to substantially all of its assets. In 1998, the Company purchased two citrus ranches inthe San Joaquin Valley totaling approximately 2,000 acresfor $3.8 million.Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. NOTE 4 - ACCOUNTS RECEIVABLE- ------------------------------- Accounts receivable consist of the following (dollarsin thousands): December 31, 1998 1997 ---- ---- Trade receivables $ 4,092 $ 4,131 Due from unaffiliated growers 231 535 Other 2,257 1,502 ------- ------- 6,580 6,168 Less allowance for doubtful accounts (285) (287) ------- ------- $ 6,295 $ 5,881 ======= ======== Substantially all domestic receivables are from largenational and regional supermarket chain stores and producebrokers and are unsecured. Amounts due from unaffiliatedgrowers represent receivables for harvest advances and forservices (harvest, haul and pack) provided on behalf ofgrowers under agreement with Sun World and are recoveredfrom proceeds of product sales. Other receivables primarilyinclude wine grape sales and other miscellaneousreceivables. Revenues attributable to one national retailer totaled$11.9 million in 1998, $13.6 million in 1997 and $3.8million for the period September 14, 1996 to December 31,1996. Export sales accounted for approximately 8.5%, 11.4%and 20.6% of the Company's revenues for the years endedDecember 31, 1998 and 1997, and for the period September 14,1996 to December 31, 1996, respectively.NOTE 5 - INVENTORIES- --------------------- Inventories consist of the following (dollars inthousands): December 31, 1998 1997 ---- ---- Growing crops $11,208 $ 9,955 Pepper seed 1,344 1,648 Harvested product 360 169 Materials and supplies 2,107 2,066 ------- -------- $ 15,019 $ 13,838 ========= ========NOTE 6 - PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS- ------------------------------------------------------ Property, plant, equipment and water programs consistof the following (dollars in thousands): December 31, 1998 1997 ---- ---- Land $ 66,536 $ 64,005 Permanent crops 67,286 62,660 Developing crops 5,192 6,422 Water programs 8,482 5,284 Buildings 21,397 20,667 Machinery and equipment 18,186 14,262Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ------- ------- 187,079 173,300 Less accumulated depreciation (21,057) (13,258) ------- ------- $ 166,022 $ 160,042 ======= =======NOTE 7 - OTHER ASSETS- -------------------- Other assets consist of the following (dollars in thousands): December 31, 1998 1997 ---- ---- Capitalized loan fees, net $4,159 $ 4,785 Excess of purchase price over asset acquired, net 4,514 4,747 Capitalized trademark development, net 989 732 Other 1,565 238 ------- ------- $11,227 10,502 ====== =======NOTE 8 - ACCRUED LIABILITIES- ----------------------------- Accrued liabilities consist of the following (dollars in thousands): December 31, 1998 1997 ----- ---- Interest $3,548 $ 2,989 Payroll and benefits 2,049 2,433 Other 1,249 692 ------- -------- $6,846 $ 6,114 ======= =======NOTE 9 - REVOLVING CREDIT FACILITY- ----------------------------------- In April 1998, Sun World entered into a one year $25million Revolving Credit Facility. The Revolving CreditFacility is secured by eligible accounts receivable andinventory, and is guaranteed by the Company. Amountsborrowed under the facility will accrue interest at eitherprime plus 1.0% or LIBOR plus 2.50% at the Company'selection. No amounts were outstanding under the RevolvingCredit Facility at December 31, 1998. In February 1999, SunWorld increased the Revolving Credit Facility to $30 millionin conjunction with a one year renewal.NOTE 10 - LONG-TERM DEBT- ------------------------ Management estimates that the fair value of theCompany's long-term debt approximates the carrying value forall debt instruments except for the Series B First MortgageNotes ("First Mortgage Notes"). The fair value of the FirstMortgage Notes is estimated to be approximately $121.4million based on quoted market prices as of December 31,1998. At December 31, 1998 and December 31, 1997, thecarrying amount of the Company's outstanding debt issummarized as follows (dollars in thousands): December 31, 1998 1997 ------ ------Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Cadiz obligations: Senior term bank loan, interest payable semi-annually, variable interest rate based upon LIBOR plus 4% (9.97% at December 31, 1998 and 7.78% at December 31, 1997) $9,752 $ 9,752 $15 million revolving line of credit, interest payable semi-annually at 8% 15,000 5,000 Other 30 49 Debt discount (1,628) (935) ------- ------- 23,154 13,866 ------- ------- Sun World obligations: Series B First Mortgage Notes, interest payable semi-annually with principal due in April 2004, interest at 11.25% 115,000 115,000 Note payable to bank, quarterly principal installments of $72 plus interest payable monthly, due December 31, 2003, interest at prime (7.75% at December 31, 1998) 2,000 - Note payable to insurance company, quarterly installments of $93 (including interest), due September 13, 2006, interest at 7.75% 2,110 2,306 Note payable to supplier, monthly installments of $104 (including interest) due March 1, 1998, interest at 10.00% - 205 Note payable to finance company, monthly installments of $18 (including interest) due July 1, 2002, interest at 7.50% 666 831 ------- ------ 119,776 118,342 ------- -------- 142,930 132,208 Less current portion (613) (519) ------- ------- $ 142,317 $ 131,689 ======== ======== Annual maturities of long-term debt outstanding,excluding $1,628,000 representing the unamortized portion of warrants, on December 31, 1998 are as follows: 1999 - $613,000; 2000 - $25,470,000; 2001 - $731,000; 2002 - $671,000; 2003 - $1,141,000 and thereafter - $115,932,000.CADIZ OBLIGATIONS The senior term bank loan is secured by substantiallyall of the Company's non-Sun World related property. WithCadiz' election to extend the loan in April 1998, thematurity date of the obligation is April 30, 1999, withinterest at a rate of LIBOR plus 400 basis points, payableat LIBOR semi-annually, with the remaining accrued interestdeferred until maturity. In connection with obtaining theone-year extension, the Company issued warrants to purchase75,000 shares of the Company's common stock at $11.81, themarket price at issuance. The fair value of the warrantsSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. totaled $394,000 and is being amortized over one year. TheCompany has the right to obtain an additional one-yearextension. If the Company elects to exercise the option toextend the note for an additional year, the interest ratewill be further adjusted and the Company will be required toissue additional warrants to the lender. In November 1997, the Company entered into a three-year$15 million revolving credit facility. The facility issecured by a second lien on substantially all of the non-SunWorld assets of the Company. Principal is due in 2000. TheCompany had $15 million outstanding under the facility atDecember 31, 1998. The Company issued 200,000 warrants inconnection with the initial borrowings at $7.00, the marketprice at issuance. The total fair value of the warrants was$920,000 and has been recorded as a debt discount and isbeing amortized over the three-year term of the facility.The Company issued warrants to purchase 150,000 shares ofthe Company's common stock at $7.00 during 1998 inconnection with additional draws on the facility. The fair value of the warrants of $1,249,000 has been recorded as a debt discount and is being amortized over the remaining life of the facility.SUN WORLD OBLIGATIONS In April 1997, Sun World restructured its long-termdebt by issuing $115 million of Series A First MortgageNotes through a private placement. The notes havesubsequently been exchanged for Series B First MortgageNotes which are registered under the Securities Act of 1933and publicly traded. Sun World utilized the proceeds fromthe debt offering and existing cash on hand to repay debttotaling approximately $130 million. The First Mortgage Notes are secured by a first lien(subject to certain permitted liens) on substantially all ofthe assets of Sun World and its subsidiaries other thangrowing crops, crop inventories and accounts receivable andproceeds thereof, which secure the Revolving CreditFacility. The First Mortgage Notes are also guaranteed bycertain subsidiaries and the Company pledged all of thestock of Sun World. The First Mortgage Notes mature April15, 2004, but are redeemable at the option of Sun World, inwhole or in part, at any time on or after April 15, 2001.The First Mortgage Notes include covenants which restrictthe Company's ability to receive distributions from SunWorld.NOTE 11 - INCOME TAXES- ------------------------ Deferred taxes are recorded based upon differencesbetween the financial statement and tax basis of assets andliabilities and available carryforwards. Temporarydifferences and carryforwards which gave rise to asignificant portion of deferred tax assets and liabilitiesas of December 31, 1998 and 1997 are as follows (inthousands): December 31, 1998 1997 ---- ---- Deferred tax liabilities: Net fixed asset basis difference $ 5,618 $ 4,841 Net basis difference in partnership investments - 3,886 Other - 1,268 ------- -------- Total deferred tax liabilities 5,618 9,995 ------- ------- Deferred tax assets: Net operating losses 25,813 25,815Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Reserve for notes receivable 1,178 1,178 State taxes 1,649 1,779 Other 550 1,097 ------- -------- Total deferred tax assets 29,190 29,869 Valuation allowance for deferred tax assets (29,019) (25,321) ------- -------- Net deferred tax assets 171 4,548 ------ -------- Net deferred tax liability $ 5,447 $ 5,447 ======= ======== As of December 31, 1998, the Company had net operatingloss (NOL) carryforwards of approximately $73.2 million forfederal income tax purposes. Such carryforwards expire invarying amounts through the year 2012. In accordance withthe Tax Reform Act of 1986, NOL utilization may be subjectto an annual limitation. When there is a change ofownership of more than 50% (as defined) of a corporation,the use of any NOL is limited annually to an amount definedby law. As of December 31, 1998, $21.7 million of NOLcarryforwards are limited to utilization of $4.5 million peryear. The remaining NOLS are not limited on an annualbasis. As of December 31, 1998, the Company has state NOLcarryforwards of $10.6 million. These NOL carryforwardsexpire in varying amounts through the year 2002.A reconciliation of the income tax benefit to the statutoryfederal income tax rate is as follows (dollars inthousands): Nine Year Months Ended Ended December 31, December 31, 1998 1997 1996 ----- ----- ----- Expected federal income tax benefit at 34% $ (2,540) $ (2,903) $ (2,257) Loss with no tax benefit 2,414 2,981 1,790 State income tax 451 - - Amortization 79 79 60 Utilization of net operating losses (601) - (696) Other non-deductible expenses 197 (157) 462 ------ ------- ------- Income tax benefit $ - - $ (641) ======= ======= =======NOTE 12 - EMPLOYEE BENEFIT PLANS- -------------------------------- The Company has a 401(k) Plan for all employees ofCadiz. This plan contains no eligibility requirements andcontributions by the Company are discretionary. To date, nocontributions to this plan have been made by the Company. Sun World has a 401(k) Plan for its salaried employees.Employees must work 1,000 hours and have completed one yearof service to be eligible to participate in this plan. SunWorld matches 75% of the first four percent deferred by anemployee up to $1,500 per year. In addition, Sun Worldmaintains a defined contribution pension plan coveringsubstantially all of its employees who (i) are not coveredby a collective bargaining agreement, (ii) have at least oneyear of service and (iii) have worked at least 1,000 hours.Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Contributions are 2% of each covered employee's salary. Forthose hourly employees covered under a collective bargainingagreement, contributions are made to a multi-employerpension plan in accordance with negotiated labor contractsand are generally based on the number of hours worked.Effective January 1, 1999, the Cadiz 401(k) plan is beingmerged into the Sun World 401(k) plan and renamed the CadizInc. 401(k) plan.NOTE 13 - PREFERRED AND COMMON STOCK- ------------------------------------- During the nine months ended December 31, 1996, theCompany issued (i) 27,431 shares totaling $27.6 million ofnewly authorized Convertible Series A Redeemable PreferredStock; (ii) $10.0 million of newly authorized 6% ConvertibleSeries B Preferred Stock and (iii) $3.0 million of newlyauthorized 6% Convertible Series C Preferred Stock. Allpreferred stock was converted to common stock as of December31, 1997. During 1997, the Company paid $1,717,000 ofpreferred stock dividends with common stock.NOTE 14 - STOCK-BASED COMPENSATION PLANS AND WARRANTS- ------------------------------------------------------STOCK OPTIONS AND WARRANTS The Company issues options pursuant to its 1996 StockOption Plan (the "1996 Plan") and the 1998 Non-QualifiedStock Option Plan (the "1998 Plan") approved by the Board ofDirectors in February 1998. The plans provide for thegranting of up to 3,000,000 shares. At December 31, 1998,the Company has 360,000 remaining options that can begranted under the plans. All options are granted at a priceapproximating fair market value at the date of grant, havevesting periods ranging from issuance date to five years,have maximum terms ranging from three to seven years and areissued to directors, officers, consultants and employees ofthe Company. During the year ended December 31, 1998, theCompany granted options to purchase 525,000 shares of theCompany's common stock at a weighted average exercise priceof $9.12 per share. Compensation cost for stock options is measured as theexcess, if any, of the quoted market price of the Company'sstock at the date of the grant over the amount an employeemust pay to acquire the stock. Had compensation cost forthese plans been determined using fair value, as explainedbelow, rather than the quoted market price, the Company'snet loss and net loss per common share would have increasedto the following pro forma amounts (dollars in thousands): Nine Year Months Ended Ended December 31, December 31, 1998 1997 1996 ---- ---- ---- Net loss: As reported $ (7,470) $ (8,538) $ (5,997) Pro forma $ (8,833) $(10,203) $ (6,655) Net loss per common share As reported $ (.23) $ (.33)(a) $ (.44)(a) Pro forma $ (.27) $ (.35)(a) $ (.48)(a) (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 theperiods reported was estimated on the date of grant usingthe Black-Scholes option pricing model. The following table summarizes stock option activityfor the periods noted. All options listed below were issuedSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. to officers, directors, employees and consultants. Weighted- Options Average Outstanding Exercise Number Price ----- ---------- 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 $ 4.61 Granted 525,000 $ 9.12 Expired or canceled (42,500) $ 6.44 Exercised (515,600) $ 4.18 -------- ------- Outstanding at December 31, 1998 3,891,900(a) $ 5.26 ========= ======= Options exercisable at December 31, 1996 1,966,000 $ 4.30 ========= ======= Options exercisable at December 31, 1997 2,297,500 $ 4.40 ========= ======= Options exercisable at December 31, 1998 2,472,900 $ 4.50 ========= ======= Weighted-average fair value of options granted during the year ended December 31, 1998 $ 3.60 ========= Weighted-average remaining contractual life of options outstanding at December 31, 1998 2.11 ========= (a) Exercise prices vary from $4.25 to $9.375 and expiration dates vary from May 1999 to November 2003. During the years ended December 31, 1998 and 1997, and thenine months ended December 31, 1996, the Company issued225,000, 275,000 and 30,000 warrants with weighted-averageexercise prices of $8.60, $6.45 and $3.55, respectively.During the year ended December 31, 1997 and the nine monthsended December 31, 1996, 240,000 warrants with a weighted-average exercise price of $0.05 and 10,000 warrants with aweighted-average exercise price of $3.55 were exercised,respectively. No warrants expired or were canceled duringany of the three periods discussed. At December 31, 1998,there were 500,000 warrants outstanding at a weighted-average exercise price of $7.43 per share, which expirethrough 2004. See Note 10 for further discussion of thesewarrants.RESTRICTED STOCK AWARD Following the acquisition of Sun World in 1996, theCompany's Chief Executive Officer was awarded a stock bonusof 125,000 shares of restricted common stock at no cost.25,000 and 75,000 of these shares were issued during theyear ended December 31, 1998 and 1997, respectively. Theremaining 25,000 shares will be issuable in September 1999.Compensation expense is being recognized as earned over theperiod of service.Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. NOTE 15 - CONTINGENCIES- ----------------------- In December 1995 the Company filed an action relativeto the proposed construction and operation of a landfill(the "Rail-Cycle Project") which was to be located adjacentto the Company's Cadiz property with the Superior Court inSan Bernardino County, California. The action challengesthe various decisions by the County of San Bernardinorelative to the proposed Rail-Cycle Project. Named in thisaction in addition to the County of San Bernardino, were theBoard of Supervisors for the County of San Bernardino, threeindividual members of the Board of Supervisors, an employeeof the County and Rail-Cycle, L.P. ("Rail-Cycle") whosegeneral partner is controlled by Waste Management, Inc.("WMI"). The Company continues to believe the proposed Rail-Cycle Project, if constructed and operated as currentlydesigned, poses environmental risks both to the Company'sagricultural operations at Cadiz and to the groundwaterbasin underlying the Cadiz property. Accordingly, theCompany intends to pursue a claim for damages against theCounty of San Bernardino and Rail-Cycle and the action seekscompensatory damages. On or about September 30, 1998, thecourt granted defendants' motions for summary judgement finding that the Company's procedural due process claim is not ripe due to the fact that, as the Rail-Cycle Project cannot proceed without voter approval of a business license tax, there is no actual concrete injury at this point in time. The Company has appealed this decision. On October 24, 1997, the Company filed suit in theUnited States District Court, for the Central District ofCalifornia, against WMI and certain key executives andconsultants of WMI, and certain other parties in interest asto the proposed Rail-Cycle Project (the "Federal Court Action").The Complaint as originally filed asserted claims arising under both federal and state law arising from activities of defendants adverse to the Company in connection with the Rail-Cycle Project. In December 1997, the federal district judge, on his own motion, severed the state law claims from the complaint and dismissed them without prejudice. Those claims were reasserted in a state proceeding filed on January 8, 1998 in Los Angeles Superior Court (West Division) (the "State Court Action"). On or about April 27, 1998, in response to motions todismiss filed by various defendants in the Federal CourtAction, an order was entered granting the Company leave toamend its complaint. In addition, pursuant to that order,the Company's claims for stock manipulation pursuant toSection 10(b) of the Exchange Act against the WMI defendantsand its RICO claims against San Bernardino County officialsMarsha Turoci and Michael Dombrowski were dismissed withoutleave to amend. Judgements were subsequently entered infavor of defendants with respect to these claims. Basedupon the criminal indictments against certain defendantsdescribed below and other evidence made available to theCompany on account of the pending criminal investigation,the Company has filed appeals with the Ninth Circuit Courtof Appeals seeking the reversal of the trial court'sdismissal of these claims, and these appeals are currentlypending. Upon the Company's motion, the remainder of theCompany's claims in the Federal Court Action, which will bepursued in the State Court Action, have been dismissedwithout prejudice. In response to the State Court Action, the WMIdefendants on or about April 15, 1998 sought and obtained astay of the action, which expired by its own terms inDecember 1998. The Company intends to file a Second AmendedComplaint and will continue to vigorously prosecute its Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. claims against the WMI defendants. During 1998, felony complaints were filed by the SanBernardino District Attorney charging a Waste Managementemployee and a consultant with multiple felony counts basedupon their criminal activities in connection with the Rail-Cycle Project, and, also during 1998, an indictment washanded down by a San Bernardino Special Criminal Grand Jurywhich charges WMI, certain affiliates and employees with 23felony counts, all arising from WMI's scheme to sabotage theCompany in retaliation for the Company's opposition to the Rail-Cycle Project. In addition, indictments were handed down for certain County employees for criminal activities in connection with the Rail-Cycle Project. The WMI consultant pleaded nolo contendere to four felony counts, including stock fraud and conspiracy to commit stock fraud, and was sentenced on December 3, 1998 for felonies, which include perjury in the Federal Court Action and the receipt of bribes. Prior to the acquisition of Sun World, the InternalRevenue Service (IRS) had filed claims against Sun World andcertain of its subsidiaries (collectively "the Sun WorldClaimants"), for taxes refunded for workers that the IRSclaims were employees. The Sun World Claimants contend thatthe workers are excluded from the definition of employmentunder the Internal Revenue Code. On January 21, 1998, theDistrict Court ruled in favor of one of the Sun WorldClaimants. The IRS has appealed this decision. Accordingly,the Company released $3,780,000 of reserves related to thismatter at December 31, 1997 which are reported on theConsolidated Statement of Operations as Litigation Benefit.Management believes that the likelihood of an unfavorablefuture outcome with regard to this matter is remote. In the normal course of its agricultural operations,the Company handles, stores, transports and dispensesproducts identified as hazardous materials. Regulatoryagencies periodically conduct inspections and, currently,there are no pending claims with respect to hazardousmaterials. The Company is involved in other legal andadministrative proceedings and claims. In the opinion ofmanagement, the ultimate outcome of each proceeding or allsuch proceedings combined will not have a material adverseimpact on the Company's financial statements.NOTE 16 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)- ------------------------------------------------------ Quarter Ended ----------------------------------------------- March 31, June 30, September 30, December 31, 1998 1998 1998 1998Revenues $ 5,484 $ 22,619 $ 45,596 $ 32,845Gross profit 471 5,664 8,008 17,659Net (loss) income (7,190) (3,065) (4,894) 7,679Net (loss) income per common share (.22) (.09) (.15) .23 Quarter Ended ----------------------------------------------- March 31, June 30, September 30, December 31, 1997 1997 1997 1997Revenues $ 4,805 $ 25,656 $ 52,949 $ 16,747Gross (loss) profit (213) 5,503 14,633 3,668Net (loss) income (7,396) (3,569) 3,618 (1,191)Preferred stock dividends (438) (766) (9) -Net (loss) income per common share (.33) (.15) .11 (.04) Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CADIZ INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT December 31,BALANCE SHEET ($ in thousands): 1998 1997 ---- ----ASSETS Current assets: Cash and cash equivalents $7,493 $ 3,590 Accounts receivable, net 77 18 Due from subsidiary 71 86 Prepaid expenses and other 253 130 -------- ------- Total current assets 7,894 3,824Investment in subsidiary 30,738 30,543Property, plant, equipment and water programs, net 32,174 26,769Other assets 4,585 4,740 ------- -------- $75,391 $65,876 ======= ========LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities: Accounts payable $ 701 $ 710 Accrued liabilities 1,826 870 Long-term debt, current portion 9 20 ------- ------- Total current liabilities 2,536 1,600Long-term debt 23,145 13,846Other liabilities - 49Commitments and contingenciesStockholders' equity: Common stock - $.01 par value; 45,000,000 shares authorized; shares issued and outstanding 33,592,261 at December 31, 1998 and 32,646,661 at December 31, 1997 336 326Additional paid-in capital 127,662 120,873Accumulated deficit (78,288) (70,818) -------- -------- Total stockholders' equity $49,710 $50,381 ------- ------ $75,391 $65,876 ======= ======= CADIZ INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT Nine Months Year Ended EndedSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Statement of Operations December 31, December 31,($ in thousands except per share data) 1998 1997 1996 ---- ---- ----Revenues $ 2,003 $ 1,968 $ 1,278 ------- ------- -------Costs and expenses: Cost of sales 49 270 1,329 General and administrative 4,726 4,042 3,206 Special litigation 1,308 683 394 Depreciation and amortization 1,182 994 773 ------- ------- ------- Total costs and expenses 7,265 5,989 5,702 ------- ------- -------Operating loss (5,262) (4,021) (4,424)Profit (loss) from subsidiaries 195 (2,817) (823)Interest expense, net 2,403 1,700 1,391 ------ ------- --------Loss before income taxes (7,470) (8,538) (6,638)Income tax benefit - - 641 ------- ------- --------Net loss (7,470) (8,538) (5,997) Less: Preferred stock dividends - (1,213) (674) Imputed dividend on preferred stock - - (2,451) ------- ------- -------Net loss applicable to common stock $(7,470) $(9,751) $(9,122) ======= ======= ========Net loss per common share $ (.23) $ (.33) $ (.44) ======= ======= ========Weighted average shares outstanding 33,173 29,485 20,500 ======= ======= ======= CADIZ INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT Nine Months Year Ended Ended December 31, December 31,Statement of Cash Flows ($ in thousands) 1998 1997 1996 ---- ---- ----Cash flows from operating activities: Net loss $ (7,470) $ (8,538) $ (5,997) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 2,230 1,462 1,388 Issuance of stock for services 374 470 - (Gain) loss from subsidiaries (195) 2,817 823 Interest capitalized to debt - 315 481 (Gain) loss on disposal of assets (17) 138 - Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (59) 192 411 Decrease in inventories - 7 259 (Increase) decrease in due from subsidiary (107) 131 (923) Increase in prepaid expenses and other (123) (56) (317)Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Decrease in accounts payable (9) (667) (441) Increase in accrued liabilities 1,007 506 219 Increase in deferred liabilities - - 375 Decrease in other liabilities (47) (1,006) - -------- -------- ------- Net cash used for operating activities (4,416) (4,229) (3,722) ------- ------- -------Cash flows from investing activities: Additions to property, plant and equipment (2,910) (638) (27) Additions to water programs (856) (466) (490) Proceeds from disposal of property, plant and equipment 27 33 (187) Acquisition of Sun World - - (36,587) Decrease (increase) in other assets (71) 153 - ------- ------- ------- Net cash used for investing activities (3,810) (918) (37,291) ------- ------- --------Cash flows from financing activities: Net proceeds from issuance of stock 2,150 1,690 37,761 Proceeds from short-term debt, net - - 330 Proceeds from issuance of long-term debt 10,000 5,084 - Principal payments on long-term debt (21) (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 12,129 6,605 37,992 ------- ------- -------Net increase (decrease) in cash and cash equivalents 3,903 1,458 (3,021)Cash and cash equivalents, beginning of period 3,590 2,132 5,153 ------- ------- ------Cash and cash equivalents, end of period $ 7,493 $ 3,590 $ 2,132 ======= ======= ======= CADIZ INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTSFor the years ended December 31, 1998 and 1997 and the nine months ended December 31, 1996 ($ in thousands) Additions Charged to Balance at --------------- Beginning Costs BalanceYear ended of and Other at EndDecember 31, 1998 Period Expenses Accounts Deductions Period- ----------------- ------- -------- -------- ---------- ------ Allowance for doubtful accounts $ 287 $ 130 $ - $ 132 $ 285 ===== ===== ===== ===== =====Year endedDecember 31, 1997- -------------------Allowance for doubtful accounts $ 480 $ - $ - $ 193 $ 287 ===== ===== ===== ===== ===== Nine months endedSource: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. December 31, 1996- ------------------ Allowance for doubtful accounts $ - $ 107 $ 373 $ - $ 480 ===== ===== ===== ===== ===== CONSENT OF INDEPENDENT ACCOUNTANTSWe hereby consent to the incorporation by reference in theRegistration Statements on Form S-8 (Nos. 33-83360, 33-63065,333-35491 and 333-41367) and on Form S-3 (No. 333-53069) ofCadiz Inc. of our report dated February 19, 1999, appearingon page 36 of this Form 10-K./s/ PricewaterhouseCoopers- --------------------------PricewaterhouseCoopers LLPLos Angeles, CaliforniaMarch 19, 1999Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 21.1 ------------- CADIZ INC. SUBSIDIARIES OF THE COMPANY Rancho Cadiz Mutual Water Company Sun World International, Inc. EXHIBIT 27.1 ------------Source: CADIZ INC, 10-K, March 19, 1999Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.
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