Cadiz Inc.
Annual Report 2000

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KCADIZ INC - CDZIFiled: March 29, 2001 (period: December 31, 2000)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 For the Fiscal Year Ended December 31, 2000 OR [ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from..to... Commission File Number 0-12114 __________________________ Cadiz Inc. (Exact name of registrant specified in its charter) DELAWARE 77-0313235(State or other jurisdiction of (I.R.S. Employerincorporation or organization) Identification No.)100 Wilshire Boulevard, Suite 1600 Santa Monica, CA 90401-1111(Address of principal executive offices) (Zip Code) (310) 899-4700 (Registrant's telephone number, including area code) Securities Registered Pursuant to Section 12(b) of the Act: None Title of Each Class Name of Each Exchange on Which Registered None None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock (Title of Class) Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes [X] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405of 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 definitiveproxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment of this Form 10-K. /__/As of March 26, 2001, the registrant had 35,709,924 shares of Common Stockoutstanding. The aggregate market value of the Common Stock held bynonaffiliates as of March 23, 2001 was approximately $310,669,000 based on theclosing price on this date. DOCUMENTS INCORPORATED BY REFERENCE Source: CADIZ INC, 10-K, March 29, 2001Powered 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.Certain portions of Registrant's proxy statement for the annual meeting to beheld on May 14, 2001, to be filed with the Securities and Exchange Commissionpursuant to Regulation 14A not later than 120 days after the close of theRegistrant's fiscal year, are incorporated by reference under Part II of thisForm 10-K. PART I ITEM 1. BUSINESS The combination of considerable population increases and limited suppliesare placing great demands on water resources both in California and worldwide.Compounding the issue, many population centers are not located wheresignificant precipitation occurs. Management therefore believes that acompetitive advantage exists for those companies that possess or can provide ahigh quality, reliable and affordable water supply in locations worldwideincluding California and its multi-billion dollar agricultural industry, oneof the largest users of water in the state. Accordingly, water resourcemanagement and agricultural operations, two inter-dependent efforts, form thelong-term business strategy of Cadiz Inc. (the "Company"). The Company hascreated an integrated and complementary portfolio of assets encompassinglandholdings with high-quality groundwater resources and/or storage potential,prime agricultural properties located throughout central and southernCalifornia with secure and reliable water rights, and other contractual waterrights, and may include technologies for water conservation, reclamation,production and conveyance. Management believes that the Company's access towater will provide it with a competitive edge both as a major agriculturalconcern and as a supplier of water, leading to continued appreciation in thevalue of the Company's portfolio. Additionally, product innovation from its fruit breeding programs,international licensing programs, global marketing reach, and highly regardedSun World brand name, provides the Company's agricultural operations with astrong position in the ongoing consolidation in the global retail groceryindustry. The Company's agricultural operations are provided through itswholly-owned subsidiary, Sun World International, Inc. and its subsidiaries(collectively "Sun World"), one of the largest developers, growers, producersand marketers of proprietary fruits and vegetables in California, specializingin high-value permanent crops. Currently, Sun World owns more than 19,000acres of land primarily located in two major growing areas of California: theSan Joaquin Valley and the Coachella Valley. In addition to its Sun World properties, the Company holds approximately37,700 acres of land in eastern San Bernardino County (and the exclusiveoption to receive up to an additional 7,000 acres in connection with theCompany's settlement of certain litigation in March 2001 - See Item 3. "LegalProceedings") that are substantially underlain by excellent groundwaterresources with demonstrated potential for various applications, includingwater storage and supply programs, and agricultural, municipal, recreationaland industrial development. All of the Company's properties are located inclose proximity to California's major aqueduct systems. The Company expectsto utilize its resources to participate in a broad variety of water storageand supply, transfer, exchange and conservation programs with public agenciesand other parties. In December 1997, the Company entered into an interim Agreement with theMetropolitan Water District of Southern California ("Metropolitan") to developprinciples and terms for a long-term agreement at its Cadiz, Californiaproperty. In July 1998, the Company and Metropolitan approved the Principlesand Terms for Agreement ("Principles") for the Cadiz Groundwater Storage andDry-Year Supply Program (the "Cadiz Program"), authorized preparation of afinal agreement based on these Principles and initiated the environmentalreview process for the Cadiz Program. Following extensive negotiations withthe Company to further refine and finalize these basic Principles,Metropolitan submitted definitive economic terms and responsibilities("Definitive Terms") to its Board of Directors in March 2001 for anticipatedconsideration at a forthcoming Board meeting. A Special Oversight Committeeof Metropolitan's directors, charged with negotiating the Definitive Terms,have unanimously recommended approval of these proposed Definitive Terms. The Cadiz Program will enhance Southern California water supplyreliability in two ways, providing a new dry-year water supply and much neededstorage. During wet years or periods of excess supply, Metropolitan willstore surplus Colorado River water in the aquifer system underlying theCompany's Cadiz property. During dry years, the previously imported water,Source: CADIZ INC, 10-K, March 29, 2001Powered 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.together with indigenous groundwater, will be extracted and delivered, via aconveyance pipeline, to Metropolitan's service area during the 50-year term ofthe agreement. In 2000, the Company and Metropolitan completed several significantmilestones in the environmental review process. This process must becompleted before construction and operation of the Cadiz Program can commence.A Draft Environmental Impact Report/Environmental Impact Statement("DEIR/EIS") was issued by Metropolitan and the U. S. Bureau of LandManagement ("BLM") in November 1999 for public review and comment. The publiccomment period closed in March 2000. The DEIR/DEIS incorporated a wide arrayof technical, environmental and engineering analyses and studies completedduring 1999, including the operation of a pilot spreading basin project thatserves as a prototype for the full-scale program, and optimization studies forthe design of the capital facilities. In October 2000, Metropolitan and BLM published a Supplement to thepreviously released DEIR/EIS for public review and comment. The Supplementincluded a comprehensive Groundwater Monitoring and Management Plan("Management Plan") that is designed to ensure the safe operation of theaquifer system underlying the Company's agricultural property and to protectsurrounding environmental resources - during and after the life of the CadizProgram operations. Prepared collaboratively by Metropolitan, the BLM, the U.S. Geological Survey, the National Park Service, the County of San Bernardinoand the Company, the Management Plan addresses key water resource and relatedair quality concerns that were raised in public comment on the DEIR/EIS.Also, see "Narrative Description of Business - Water Resources Development -Cadiz Groundwater Storage and Dry-Year Supply Program." Based upon the Company's expertise in water and agricultural resources,in June 1999, Sun World was appointed by Kingdom Agricultural DevelopmentCompany (KADCO), a company currently 100% controlled by His Royal HighnessPrince Alwaleed Bin Talal Bin Abdulaziz Alsaud, to develop and manage up to100,000 acres of agricultural land in southern Egypt, called the TushkaProject. The Tushka Project is the cornerstone in the Egyptian government'smulti-billion dollar South Valley Project, an immense infrastructure plandesigned to irrigate more than 500,000 acres of desert land to foster urbanand agricultural development. The South Valley Project involves theconstruction of one of the world's largest pumping stations and a 43-mile (70km) canal that diverts water from Egypt's Lake Nasser, the reservoir formed onthe Nile River by the Aswan High Dam, to four separate areas - the first beingthe Tushka site. Construction is well underway with the main canal, pumpingstation and branch canals slated to be complete and operational in 2002. Theinitial commercial plantings of permanent crops for the Tushka Project willfollow in early 2003. In addition to Sun World's role in Tushka, Cadiz andKADCO also agreed to form an entity to pursue the development and managementof water resources in the region. The Company continually seeks to develop and manage its water andagricultural resources for their highest and best uses. The Company alsocontinues to evaluate acquisition opportunities, which are complementary toits current portfolio of water and agricultural resources.(a) General Development of Business _______________________________ As part of its current business plan, the Company's land acquisition,development activities and agricultural operations are conducted for thepurpose of enhancing the long-term appreciation of its properties. See"Narrative Description of Business," below. As the most populous state in the nation, California's population isprojected to swell to nearly 50 million people by the year 2020. Thisincreasing population is placing great demands on California's infrastructure,particularly its limited water resources. According to the CaliforniaDepartment of Water Resources, shortfalls of approximately 7 million acre-feetare forecasted in a dry year by the year 2020. Management therefore believesthat, with both the increasing scarcity of water supplies in California andthe increasing demand for water, the Company's access to water will provide itwith a competitive advantage both as a major agricultural concern and as asupplier of water which will lead to continued appreciation in the value ofthe Company's portfolio. The increasing scarcity of water supplies, coupled with increased demandfrom population growth, is not just a California issue but a worldwide issue.Source: CADIZ INC, 10-K, March 29, 2001Powered 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's California experience in water resource management anddevelopment provides a strong foundation for pursuing water resourceopportunities internationally, including in the Middle East in partnershipwith KADCO. Sun World, which was acquired by the Company in September 1996, ownsapproximately 19,000 acres of prime agricultural land primarily in the SanJoaquin and Coachella Valleys, giving the Company total landholdings ofapproximately 56,200 acres. Additionally, the Company has an exclusive optionto receive up to 7,000 acres in eastern San Bernardino County. See Item 2,"Properties."(b) Financial Information about Industry Segments _____________________________________________ During the year ended December 31, 2000, the Company operated itsagricultural resources segment and continues to develop its water resourcesegment of the business. See Consolidated Financial Statements. Also, seeItem 7, "Management's Discussion and Analysis."(c) Narrative Description of Business _________________________________ Pursuant to its business strategy, the Company continually seeks todevelop and manage its portfolio of water and agricultural resources for theirhighest and best uses. The development and management activities of theCompany are currently focused on agricultural operations (primarily throughSun World) and water resource development. The Company also continues toevaluate acquisition opportunities, which are complementary to its currentportfolio of water and agricultural resources.WATER RESOURCE DEVELOPMENT The Company's portfolio of water resources, located in close proximity tothe Colorado River or the major aqueduct systems of central and southernCalifornia, such as the State Water Project and the Colorado River Aqueduct,provides the Company with the opportunity to participate in a variety of waterstorage and supply programs, exchanges and transfers. CADIZ GROUNDWATER STORAGE AND DRY-YEAR SUPPLY PROGRAM. The Company's27,400 acres in the Cadiz and Fenner Valleys of eastern California (the"Cadiz/Fenner Property") are underlain by a substantial high-qualitygroundwater basin. Precipitation falls within a catchment area of nearly1,300 square miles, providing annual recharge to the basin. See Item 2,"Properties - The Cadiz/Fenner Property." In July 1998, the Company and Metropolitan entered into Principles andTerms for Agreement ("Principles") for the Cadiz Program, one of the largestpublic/private partnerships in California's water history. The Principlesprovide that Metropolitan will, during wet years or periods of excess supply,store surplus water from its Colorado River Aqueduct in the groundwater basinunderlying the Company's property. During dry-years or times of reducedallocations from the Colorado River, the stored water will be withdrawn andreturned via conveyance facilities to the aqueduct to meet Metropolitan'swater supply needs. In addition, indigenous groundwater would also betransferred utilizing the same facilities. The Cadiz Program will have thecapacity to convey, either for storage or transfer, up to 150,000 acre-feet inany given year during its 50-year term. Subsequently, Metropolitan, following extensive negotiations with theCompany to further refine and finalize these basic principles and terms,submitted definitive economic terms and responsibilities ("Definitive Terms")to its Board of Directors in March 2001 for anticipated consideration at aforthcoming Board meeting. Until such consideration and action by both theCompany's and Metropolitan's Boards, the proposed Definitive Terms will remainproposed and subject to change. In addition, execution of a final agreementwill be contingent upon and subject to completion of the ongoing environmentalreview process for the Cadiz Program. Pursuant to the proposed Definitive Terms, during storage operations,Metropolitan will pay a $50 fee per acre-foot for put of Colorado River waterinto storage, and a $40 fee per acre-foot for return of Colorado River waterfrom storage, or a total of $90 per acre-foot to cycle water into and out ofthe basin. On the transfer of indigenous water, Metropolitan will pay a baserate of $230 per acre-foot, which will be adjusted according to a fair marketSource: CADIZ INC, 10-K, March 29, 2001Powered 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.value adjustment procedure. Metropolitan has committed to minimum levels ofutilization of the Cadiz Program for both storage of Colorado River Aqueductwater (900,000 acre-feet) and transfer of indigenous groundwater (up to1,500,000 acre-feet). In addition, the Definitive Terms now provide Cadiz theoption to sell a portion of the indigenous groundwater (30,000 acre-feet peryear for 25 years or a total of 750,000 acre-feet) to outside third partieswithin Metropolitan's service area at fair market value. The Cadiz Program facilities, including spreading basins, extractionwells, conveyance pipeline and a pumping plant, are estimated to cost between$125 and $150 million, and both parties will jointly share these costs. Apilot spreading basin project was constructed to model and to analyze thestorage and extraction of water. All operational costs of the Cadiz Program,including annual operations, maintenance and energy costs, will be anobligation of Metropolitan. However, the Company will assume pro rataoperational costs associated with the sale of indigenous groundwater to thirdparties. The Principles and Definitive Terms call for the establishment of acomprehensive groundwater monitoring and management plan to ensure long-termprotection of the groundwater basin. The final agreement may reflectadjustments to the Definitive Terms in order to reflect information identifiedduring the ongoing environmental review process and will be subject toapproval by the respective Boards of both parties. Before construction and operation of the Cadiz Program can commence, theenvironmental review process must be completed including the certification andapproval of a Final EIR/EIS by the appropriate regulatory agencies,Metropolitan for state law purposes and the United States Bureau of LandManagement ("BLM") for federal law purposes. The process for obtaining theseapprovals is often difficult and time consuming as the process involvessignificant public review and comment and often draws opposition from thirdparties. During 2000, the Company and Metropolitan completed several significantmilestones in the environmental review process, publishing a DEIR/EIS inNovember 1999 for public review and comment. The public comment period closedin March 2000. All of the comments received will be considered and addressedby Metropolitan and BLM as part of the environmental review process. TheDEIR/EIS incorporated a wide array of technical, environmental and engineeringanalyses and studies completed during 1999 including the operation of a pilotspreading basin project that serves as a prototype for the full-scale program,and optimization studies for the design of the capital facilities. In October 2000, Metropolitan and BLM published a Supplement to thepreviously released DEIR/EIS for public review and comment. The Supplementincluded a comprehensive Groundwater Monitoring and Management Plan("Management Plan") that is designed to ensure the safe operation of theaquifer system underlying the Company's agricultural property and to protectsurrounding environmental resources - during and after the life of CadizProgram operations. Prepared collaboratively by Metropolitan, the BLM, the U.S. Geological Survey, the National Park Service, the County of San Bernardinoand Cadiz Inc., the Management Plan addresses key water resource and relatedair quality concerns that were raised during circulation of the DEIR/EIS forthe Cadiz Program. The public comment period closed on January 8, 2001. The Final EIR/EIS, which includes technical information contained withinthe DEIR/EIS and the Supplement and responses to comments received from thepublic, is currently being prepared by Metropolitan and the BLM, incollaboration with the U.S. Geological Survey and the National Park Service.The Cadiz Program is anticipated to be operational within 18 months ofobtaining certification and approval of the Final EIR/EIS. OTHER EASTERN MOJAVE PROPERTIES. The Company's water developmentactivities at its 6,000 acre Piute property are located in eastern SanBernardino County approximately 15 miles from the resort community ofLaughlin, Nevada and about 12 miles from the Colorado River town of Needles,California. Hydrological studies and testing of a full-scale production wellhave demonstrated that this landholding is underlain by recharging groundwaterof excellent quality and additional investigations are ongoing regarding thedevelopment of the property for a variety of uses. Additionally, the Company currently owns or controls additional acreagelocated throughout other areas of the eastern Mojave Desert, such as DanbyLake. This area is located approximately 30 miles southeast of the Company'sSource: CADIZ INC, 10-K, March 29, 2001Powered 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/Fenner Valley property and 10 miles north of the Colorado RiverAqueduct. The Company's initial hydrological studies confirm that thisproperty has excellent storage and supply capabilities. SUN WORLD WATER RESOURCES. Sun World has valuable water rights invarious parts of central and southern California. The Company believes thatwith increasing water shortages in California, land with prime water rightswill increase substantially in value. Sun World's landholdings and associated water resources are locatedadjacent to the major aqueduct systems of central and southern California, andin close proximity to the Colorado River. These holdings complement theCompany's other groundwater resources and will enhance the Company'sopportunities to participate in a broad variety of water storage, supply,exchange or banking programs. By way of example, the Company has identifiedmore than 10,000 acre-feet of excess water that the Company plans to eithertransfer to other Company properties or exchange or transfer to other waterusers without affecting current agricultural production.AGRICULTURAL OPERATIONS The Company is one of California's largest vertically integratedagricultural companies combining an extensive research and developmentprogram, year-round sourcing, farming and packing activities and strongmarketing capabilities. For the twelve months ended December 31, 2000, SunWorld recorded revenues of $107.7 million. PRODUCT LINE. Sun World ships approximately 75 different varieties offresh fruits and vegetables to all 50 states and to more than 30 foreigncountries. Sun World is a leading grower and marketer of table grapes,seedless watermelons, colored sweet peppers, citrus (oranges and lemons) andstonefruit (plums, peaches, nectarines and apricots). It is also one ofCalifornia's largest independent marketers of grapefruit, tangerines,mandarins, navel oranges, lemons and dates. The breadth and diversity of the product line helps to minimize theimpact of individual crop earnings fluctuations. Further, the breadth anddiversity of its product offering provides Sun World with greater presence andinfluence with its grocery and food service customers. Although many fruits and vegetables are fungible commodities, Sun Worldhas adopted a strategy of developing and acquiring specialty produce varietieswith unique characteristics which differentiate them from commodity producevarieties. Most of these varieties are harvested during favorable marketingwindows when available supply from competitors is limited. These specialtyvarieties typically command a price premium and are less subject to the sameprice volatility than the commodity varieties. They also provide Sun Worldwith a dominant position in a number of product categories. Examples of thebranded produce grown and marketed by Sun World include Superior Seedless(R)table grapes, Midnight Beauty(R) table grapes, Black Diamond(R) plums,Honeycot(R) apricots, and Amber Crest(R) peaches. These products evolvedthrough a combination of internal development and acquisition. Sun World'sresearch and development center is dedicated to developing additional highvalue proprietary varieties. See "Proprietary Product Development," below. FARMING OPERATIONS. Sun World's farming operations producedapproximately 8 million units of fruits and vegetables during the year endedDecember 31, 2000 from its approximately 14,500 planted acres. Its principalagricultural lands are located in the San Joaquin and Coachella Valleys ofCalifornia. See Item 2, "Properties." Sun World properties are primarily dedicated to producing permanentcommercial crops and, to a lesser extent, annual (or row) crops.Additionally, over 1,500 acres are currently utilized for developing crops(e.g., new vines and trees that have not yet reached a commercial maturity).The Company has implemented a crop development plan, which has redeployedmarginally productive acreage to produce more varieties of crops, thatpossess superior proprietary characteristics and/or are available for deliveryat peak pricing windows throughout the year. PACKING AND MARKETING OPERATIONS. In addition to merchandising its ownproducts, Sun World provides marketing and packing services to third partygrowers. For third party growers, Sun World provides three key benefits: (i)Sun World's brand name, proprietary products and reputation with wholesalers;(ii) a full complement of handling services that include harvest, cooling,Source: CADIZ INC, 10-K, March 29, 2001Powered 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 shipping; and (iii) an internal sales and marketing forceservicing over 550 customers throughout the world. Sun World's packing facilities handled approximately 9 million units ofproduce during the year ended December 31, 2000. These facilities provideharvesting, packing, cooling and shipping services for Sun World production,as well as for other commercial clients. Currently, Sun World owns threefacilities, two of which are located in the Coachella Valley and one of whichis located in the San Joaquin Valley. See Item 2, "Properties." Sun World's vertically integrated operations enable it to offer themarket a continuous stream of new specialty products, which receive a marketpremium. As a large grower, Sun World is able to manage the quality of itsown product line, and as a significant packer/marketer, Sun World works withother growers to ensure product quality through packing and distribution.During fiscal 2000, the Company sold approximately 12 million units withwholesale value of approximately $110 million. This amount includes salesproceeds received for units sold on behalf of third party growers for whichonly the sales commission and packing revenues received by Sun World areincluded in Sun World's reported revenues. Sun World's sourcing, both external and internal, is diversifiedgeographically throughout California. Sun World's owned and leased farmingoperations are located throughout California from the Coachella Valley in thesouth to central California's San Joaquin Valley, as well as operations nearthe coast. Sun World sources externally produced product from throughoutCalifornia, from other areas of the United States, and from internationalsources. This geographic diversification not only reduces the impact thatunfavorable weather conditions and infestations could have on Sun World'soperations, but also provides Sun World with a longer selling season for manycrops since the harvests occur at different times. In addition, geographicdiversification also allows Sun World the ability to provide the quality andbreadth of product throughout the year which is being demanded by retailers. Sun World's customer base consists of more than 550 accounts includingsupermarket retailers, food service entities, warehouse clubs, andinternational trading companies located in approximately 30 countries.Domestic customers include national retailers such as Safeway Stores andAlbertson's; club stores, including Costco and Sam's; and food servicedistributors, including Sysco and Alliant. During 2000, approximately 10% ofSun World's products were marketed outside of the United States in Canada,Europe, Australia, Japan, Hong Kong, Singapore, Malaysia, Taiwan, Middle Eastand South Africa. Only one national retailer, Safeway Stores, (representingapproximately 12%) accounted for more than 10% of Sun World's revenues in2000. As is consistent with industry practice, Sun World does not maintainwritten agreements with this or its other significant customers. PROPRIETARY PRODUCT DEVELOPMENT. Sun World has a long history of productinnovation, and its research and development center maintains a fruit breedingprogram that has introduced dozens of proprietary fruit varieties in the lastsix years. Recent product successes include the Midnight Beauty(R) seedlessblack table grape, the Black Diamond(R) plum, the Amber Crest(R) peach and theHoneycot(R) apricot. During 2000, Sun World filed for twelve new plantpatents in the United States, including six new varieties of table grapes,three new varieties of plums and three new varieties of peaches. Managementbelieves that these products and several other promising grape and stonefruitvarieties will be planted commercially in the near future, both domesticallyand internationally. Sun World utilizes approximately 235 acres for its research anddevelopment center and crop experimentation. The research and developmentcenter facility houses tissue culture rooms, growth rooms, four greenhouses,and over 200 acres of experimental growing crops. The amounts expended by SunWorld on its research and development activities totaled $1,636,000 for theyear ended December 31, 2000, $1,450,000 for the year ended December 31, 1999and $1,249,000 for the year ended December 31, 1998. As a result of over 20 years of research and development, Sun World holdsrights to approximately 450 patents and trademarks around the world. Thepatent registrations exist in most major fruit producing countries and thetrademarks are held in both fruit producing and consuming regions. SunWorld's patents have varying expiration dates occurring within the nextseveral years through 2024; however, the expiration of any individual patentwill not have a material effect upon Sun World's operations. Source: CADIZ INC, 10-K, March 29, 2001Powered 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. Enhancing the value of the proprietary product portfolio throughlicensing is an integral part of Sun World's growth strategy. Sun Worldcontinues to seek key licensing opportunities with key strategic partners tointroduce, trial and produce Sun World's proprietary products in majorproduction areas that do not have appropriate plant protection rights tocompete with Sun World's own domestic production. These licensing agreementswill provide Sun World with a long-term annual revenue stream based upon aroyalty fee for each box of proprietary fruit sold over the lives of thelicensed trees or vines approximating 25 to 40 years. Currently, Sun Worldhas licensing agreements in place in Australia, Egypt, Israel, Italy, Morocco,South Africa, Spain and the United States and expects additional licensingagreements to be signed in 2001. An example of Sun World's licensing successis the definitive agreement entered into with the South African fruit industrygranting long-term license agreements to South African fruit companies seekingto produce and export Sun World's proprietary Sugraone grape variety (morecommonly known as Sun World's private Superior Seedless(R) grapes). Theseagreements also provided Sun World compensation for past Sugraone grapevineplantings and fruit sales and grant Sun World exclusive North Americanmarketing rights for these Sugraone grapes. The Company believes theselicensing agreements have established a precedent that will change the way newand improved varieties of produce will be brought to market in the future. The combination of the Company's innovative proprietary products andexpertise in desert farming and water resources management led to Sun World'sappointment by Kingdom Agricultural Development Company (KADCO), a companycurrently 100% controlled by His Royal Highness Prince Alwaleed Bin Talal BinAbdulaziz Alsaud, to develop and manage up to 100,000 acres of agriculturalland in southern Egypt, called the Tushka Project. The Tushka Project is thecornerstone in the Egyptian government's multi-billion dollar South ValleyProject, an immense infrastructure plan designed to irrigate more than 500,000acres of desert land to foster urban and agricultural development. The SouthValley Project involves the construction of one of the world's largest pumpingstations and a 43-mile (70 km) canal that diverts water from Egypt's LakeNasser, the reservoir formed on the Nile River by the Aswan High Dam, to fourseparate parcels of land - the first being the Tushka site. Construction iswell underway, with the main canal, pumping station and branch canals slatedto be complete and operational in 2002. The initial commercial plantings ofpermanent crops for the Tushka Project will follow in early 2003. Concurrentto the development of necessary infrastructure, a research site and nursery,including 300 acres of test plots irrigated with local groundwater, have beenestablished. In addition to Sun World's role in Tushka, Cadiz and KADCO alsoagreed to form an entity to pursue the development and management of waterresources in the region. As compensation for project development and management of the TushkaProject, Sun World will earn annually an equity interest in KADCO and has beengranted an option to purchase additional shares. The combined equity interestwill equate to approximately 10% ownership of KADCO. In addition, Sun Worldwill receive annual marketing and licensing fees equal to the greater of 1.5%of gross revenues or 5% of EBITDA from the project. No capital investment isrequired by Sun World, and KADCO will reimburse Sun World for all expensesincurred. The management agreement, signed in October 1999, has a four-yearterm with an option to extend for multiple further terms. SEASONALITY In connection with the water resource development activities of theCompany, revenues are not expected to be seasonal in nature. Sun World's agricultural operations are impacted by the general seasonaltrends that are characteristic of the agricultural industry. Sun World hashistorically received the majority of its net income during the months of Juneto October following the harvest and sale of its table grape and stonefruitcrops. Due to this concentrated activity, the Company has, therefore,historically incurred a loss with respect to its agricultural operations inthe other months during the year.COMPETITION The Company faces competition for the acquisition, development and saleof its properties from a number of competitors, some of which have greaterresources than the Company. The Company may also face competition in thedevelopment of water resources associated with its properties. SinceCalifornia has scarce water resources and an increasing demand for availablewater, the Company believes that location, price and reliability of deliverySource: CADIZ INC, 10-K, March 29, 2001Powered 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.are the principal competitive factors affecting transfers of water inCalifornia. The agricultural business is highly competitive. Sun World's competitorsinclude a limited number of large international food companies, as well as alarge number of smaller independent growers and grower cooperatives. Nosingle competitor has a dominant market share in this industry due to theregionalized nature of these businesses. In addition to drawing from itsproprietary base of products, Sun World utilizes brand recognition, productquality, harvesting in favorable production windows, effective customerservice and consumer marketing programs to enhance its position within thehighly competitive fresh food industry. Consumer and institutionalrecognition of the Sun World trademark and related brands and the associationof these brands with high quality food products contribute to Sun World'sability to compete in the market for fresh fruit and vegetables.EMPLOYEES As of December 31, 2000, the Company employed a total of 1,175 full-timeemployees. Sun World, throughout the year, engages various part-time andseasonal employees, with a seasonal high of approximately 2,000 part-timeemployees. Additionally, the Company contracts with outside labor contractorsfor personnel used in the farming operations with a seasonal high ofapproximately 6,000 people. Approximately 230 of the Company's employees arerepresented by a labor union pursuant to contracts renewed in 1999 that expirein 2002. Generally, the Company believes that its employee relations are good.REGULATION Certain areas of the Company's operations are subject to varying degreesof federal, state and local law and regulations. The Company's agriculturaloperations are subject to a broad range of evolving environmental laws andregulations. These laws and regulations include the Clean Air Act, the CleanWater Act, the Resource Conservation and Recovery Act, the FederalInsecticide, Fungicide and Rodenticide Act and the Comprehensive EnvironmentalResponse, Compensation and Liability Act. Compliance with these foreign anddomestic laws and related regulations is an ongoing process, which is notcurrently expected to have a material effect on the Company's capitalexpenditures, earnings or competitive position. Environmental concerns are,however, inherent in most major agricultural operations, including thoseconducted by the Company, and there can be no assurance that the cost ofcompliance with environmental laws and regulations in the future will not bematerial. However, neither the Company nor Sun World expects to incur anymaterial capital expenditures for environmental control facilities during2001. The Company's food operations are also subject to regulations enforcedby, among others, the U.S. Food and Drug Administration and state, local andforeign equivalents and to inspection by the U.S. Department of Agricultureand other federal, state, local and foreign environmental and healthauthorities. Among other things, the U.S. Food and Drug Administrationenforces statutory standards regarding the safety of food products,establishes ingredients and manufacturing procedures for certain foods,establishes standards of identity for foods and determines the safety of foodsubstances in the United States. Similar functions are performed by state,local and foreign governmental entities with respect to food products producedor distributed in their respective jurisdictions. Existing environmentalregulations have not, in the past, had a materially adverse effect upon theoperations of the Company, and the Company believes that existingenvironmental regulations will not, in the future, have a materially adverseeffect upon its operations. There can be no assurances, however, as to theeffect of any environmental regulations, which may be adopted in the future. As the Company proceeds with the development of its properties, includingthe Cadiz Program, the Company will be required to satisfy various regulatoryauthorities that it is in compliance with the laws, regulations and policiesenforced by such authorities. Groundwater development, and the export ofsurplus groundwater for sale to single entities such as public water agencies,is not subject to regulation by existing statutes other than generalenvironmental statutes applicable to all development projects. Additionally,the Company must obtain a variety of approvals and permits from state andfederal governments with respect to issues that may include environmentalissues, issues related to special status species, issues related to the publictrust, and others. Because of the discretionary nature of these approvals andconcerns which may be raised by various governmental officials, publicSource: CADIZ INC, 10-K, March 29, 2001Powered 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.interest groups and other interested parties during both the approval anddevelopment process, the Company's ability to develop properties and realizeincome from its projects, including the Cadiz Program, could be delayed,reduced or eliminated.ITEM 2. PROPERTIES The Company currently leases its executive offices in Santa Monica,California. The Company also maintains a development office in SanBernardino, California. Sun World owns its main packing facility (includingsales and administrative offices) in Bakersfield, California and owns twopacking facilities (including sales offices) in Coachella, California. TheCompany and each of its subsidiaries believe that their property and equipmentare generally well maintained, in good operating condition and adequate fortheir present needs. The following is a description of the Company's significant properties. THE CADIZ/FENNER PROPERTY In 1984, the Company conducted an investigation of the feasibility of theagricultural development of land located in the Mojave Desert near Cadiz,California, and confirmed the availability of prime quality water incommercial quantities appropriate for agricultural development. Since 1985,the Company has acquired over 27,000 acres in the Cadiz and Fenner Valleys ofeastern San Bernardino County approximately 30 miles north of the ColoradoRiver Aqueduct. In March 2001, the Company obtained the exclusive option toreceive up to 7,000 acres of land primarily located adjacent to the Company'sexisting properties in the Cadiz and Fenner Valleys in connection with theCompany's settlement of certain litigation. See Item 3 "Legal Proceedings." Additional numerous independent geotechnical and engineering studiesconducted since 1985 have confirmed that the Cadiz/Fenner property overlies anatural groundwater basin which is ideally suited for underground waterstorage and dry-year transfers as contemplated in the Cadiz Program. See Item1, "Business - Narrative Description of Business - Water ResourceDevelopment." In November 1993, the San Bernardino County Board of Supervisorsunanimously approved a General Plan Amendment establishing an agriculturalland use designation for 9,600 acres at Cadiz for which 1,600 acres have beendeveloped and are leased to Sun World. This Board action represented thelargest land use approval on behalf of a single property holder in theCounty's known history. This action also approved permits to constructinfrastructure and facilities to house as many as 1,150 seasonal workers and170 permanent residents (employees and their families) and allows for thewithdrawal of more than 1,000,000 acre-feet of groundwater from thegroundwater basin underlying the Company's property. Substantially all Cadiz/Fenner acreage is held in fee directly by theCompany.THE SUN WORLD PROPERTIES FARM PROPERTIES. Sun World owns approximately 19,000 acres and leasesapproximately 3,000 acres of improved land in central and southern California.The majority of this land is used for the cultivation of permanent and annualcrops and support activities, including packing facilities. Sun World-owned farming property is divided between six distinctgeographic regions: Madera, Bakersfield, Tulare and Arvin (located within theSan Joaquin Valley), Coachella (located in the state's southeastern cornernear Palm Springs) and Blythe (located approximately 100 miles east of theCoachella Valley adjoining the Colorado River). PACKING AND HANDLING FACILITIES. Sun World owns three packing andhandling facilities: one facility located in the San Joaquin Valley atKimberlina near Bakersfield, a facility in the Coachella Valley, and a thirdfacility also in the Coachella Valley that is leased to a third party. The Kimberlina facility, located on an 83 acre parcel owned by Sun World,consists of two highly automated production lines for packing stonefruit andcitrus, cold storage areas, and office space. Source: CADIZ INC, 10-K, March 29, 2001Powered 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. Sun World's Coachella Valley facility consists of three independentbuildings located on 26 acres of industrial commercial zoned land inCoachella, California. One building is used primarily for packing citrus,receiving table grapes, cold storage and office space. A second building isused primarily for receiving, cooling and storing table grapes and row crops.The third building is used primarily for packing watermelons and lemons andfor storage.OTHER EASTERN MOJAVE PROPERTIES In addition to the Cadiz properties, the Company owns approximately10,300 additional acres in the eastern Mojave Desert, including the Piute andDanby Lake properties. The Piute property consists of approximately 6,000 acres and is locatedapproximately 60 miles northeast of Cadiz and approximately 15 miles west ofthe Colorado River and Laughlin, Nevada, a small, fast growing town withhotels, casinos and water recreation facilities. The Company identified thePiute property for acquisition by a combination of satellite imaging andgeological techniques, which were used by the Company to identify water atCadiz. The Piute acreage adjoins Highway 95, approximately 60 miles south of LasVegas. The Santa Fe Railroad passes through the land and Interstate 40 isapproximately 12 miles to the south. All of the acreage is held in feedirectly by the Company.DEBT SECURED BY PROPERTIES Of the Company's outstanding debt at December 31, 2000, $118.4 millionrepresents loans secured by substantially all of Sun World's properties and$25.3 million represents loans secured by the majority of the Company's non-Sun World properties. Information regarding interest rates and principalmaturities is provided in Note 9 to the consolidated financial statements.ITEM 3. LEGAL PROCEEDINGS On March 13, 2001, the Company and Waste Management, Inc., WasteManagement Holdings, Inc., a successor-by-merger to Waste Management of NorthAmerica, Inc., and Rail-Cycle L.P. (collectively referred to herein as "WasteManagement") executed a settlement agreement ("Settlement Agreement") intendedto fully and finally compromise and settle the claims asserted by the Companyagainst Waste Management in the action styled CADIZ LAND COMPANY, INC. vs.COUNTY OF SAN BERNARDINO, ET AL., CASE NO. BCV 02341 (San Bernardino SuperiorCourt) (the "CEQA Action") and the civil action filed in Los Angeles CountySuperior Court entitled CADIZ INC. V. WASTE MANAGEMENT, INC., ET AL., Case No.050743 ("the State Court Action"). The CEQA Action challenged the various decisions by the County relativeto the proposed construction and operation of a landfill (the "Rail-CycleProject") near property owned by the Company in Cadiz, California. The actionsought to set aside such decisions and to obtain compensatory damages arisingtherefrom. Named in this action, in addition to the County, were the County'sBoard of Supervisors, three individual members of the Board of Supervisors, aCounty employee and Rail-Cycle, L.P., whose general partner is controlled byWaste Management, Inc. ("WMI"). On or about September 30, 1998, the Courtgranted defendants' motions for summary judgement, finding that the Company'sprocedural due process claim is not ripe due to the fact that, as the Rail-Cycle Project cannot proceed without voter approval of a business license tax,there is no actual concrete injury to the Company at this point in time. TheCompany appealed this decision. In August 2000, the California Court of Appeal (4th District) granted inpart the Company's appeal, finding that the Environmental Impact Report("EIR") prepared on behalf of Waste Management in support of the Rail-CycleProject was invalid. Specifically, the Court ruled the EIR inadequate underthe California Environmental Quality Act because, inter alia, it failed toaddress or acknowledge groundwater resources underlying the Company'sagricultural property. The Court's decision revoked all environmental andland-use approvals, and thus, effectively terminated the Rail-Cycle Project,as proposed. The State Court Action asserted the Company's civil claims against WasteManagement arising out of alleged criminal and fraudulent conduct engaged inby Waste Management in connection with the Rail-Cycle Project. The CompanySource: CADIZ INC, 10-K, March 29, 2001Powered 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.sought to recover both compensatory and punitive damages. Pursuant to the terms of the Settlement Agreement, on March 13, 2001,Waste Management paid to the Company the sum of six million dollars($6,000,000). In addition, Waste Management granted to Cadiz an exclusiveoption to acquire up to approximately 7,000 acres of real property at no costto the Company in eastern San Bernardino County, California (the "Option").Cadiz may exercise this Option, if it chooses to do so following its duediligence of the property, at any time through and until April 30, 2001. In consideration of the above, Cadiz dismissed with prejudice all claimsasserted against Waste Management in the CEQA Action and State Court Action. Prior to the acquisition of Sun World, the Internal Revenue Service (IRS)had filed claims against Sun World and certain of its subsidiaries(collectively "the Sun World Claimants") for taxes refunded for workers thatthe IRS claims were employees. The Sun World Claimants contend that theworkers are excluded from the definition of employment under the InternalRevenue Code. On January 21, 1998, the District Court ruled in favor of oneof the Sun World Claimants. The IRS appealed this decision. In October 2000,the Company entered into a full settlement of the claim with the IRS, whichdid not have a material adverse impact on the Company's financial position. The Company is involved in other legal and administrative proceedings andclaims. In the opinion of management, the ultimate outcome of each proceedingor all such proceedings combined will not have a material adverse impact onthe financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The results of the Company's Annual Meeting of Stockholders held May 15,2000 were reported in the Company's Quarterly Report on Form 10-Q for thequarterly period ended March 31, 2000. PART IIITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on the Nasdaq National Stock Marketunder the symbol "CLCI." The following table reflects actual salestransactions. The high and low range of the sales price of the common stockfor the dates indicated have been provided by Nasdaq. High Low Quarter Ended Sales Price Sales Price ------------- ----------- ----------- 1998: March 31 $ 11.938 $ 7.875 June 30 $ 14.188 $ 10.625 September 30 $ 13.438 $ 7.750 December 31 $ 9.500 $ 5.875 1999: March 31 $ 9.125 $ 7.000 June 30 $ 11.625 $ 7.250 September 30 $ 11.125 $ 8.688 December 31 $ 9.750 $ 7.875 2000: March 31 $ 12.500 $ 7.313 June 30 $ 8.875 $ 5.563 September 30 $ 10.125 $ 7.750 December 31 $ 10.750 $ 6.938 On March 23, 2001, the high, low and last sales prices for the shares, asreported by Nasdaq, were $8.906, $8.563 and $8.625, respectively. Options in the Company's stock trade under the symbol "QAZ." The Company also has an authorized class of 100,000 shares of preferredstock ("Preferred Stock"). To date, the Board of Directors has designatedfour series of Preferred Stock for issuance, including (i) up to 60,000 sharesof Series A Preferred, of which 27,631 shares have been issued and no sharesremain outstanding; (ii) up to 1,000 shares of Series B Preferred, of whichSource: CADIZ INC, 10-K, March 29, 2001Powered 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.1,000 shares have been issued and no shares remain outstanding; (iii) up to365 shares of Series C Preferred, of which 340 shares have been issued and noshares remain outstanding; and (iv) up to 5,000 shares of Series D Preferredstock of which 5,000 shares have been issued and are outstanding. The Boardof Directors has no present plans or arrangements for the issuance ofadditional shares of Preferred Stock. On May 10, 1999 the Company adopted a Stockholders' Rights Plan. Inconnection with the Rights Plan, and as further described in the Rights Plan,the Company declared a dividend of one preferred share purchase right for eachoutstanding share of the Company's common stock outstanding at the close ofbusiness on June 1, 1999. The estimated number of beneficial owners of the Company's Common Stockis approximately 2,636, and the number of stockholders of record on March 23,2001 was 185. To date, the Company has not paid a cash dividend on Common Stock. TheCompany's ability to pay such dividends is subject to certain covenantspursuant to agreements with the Company's lenders. During the quarter ended December 31, 2000, the Company issued warrantsto purchase 100,000 shares of the Company's common stock at an exercise priceof $6.74 per share. These warrants were issued to the Company's primary lenderas consideration for an extension of the maturity date of the Company's termobligations to such lender. Additionally, the Company issued 50,000 shares ofcommon stock and warrants to purchase 200,000 shares of the Company's commonstock at an exercise price of $8.94 per share in connection with the Company'sissuance of $5 million of Series D Preferred Stock and Sun World obtaining a$5 million unsecured term loan. The issuance of the warrants and common stock,the Series D Preferred Stock, and the unsecured term loan were not registeredunder the Securities Act of 1933, as amended (the "Securities Act"). TheCompany believes that the transactions described are exempt from theregistration requirements of the Securities Act by virtue of Section 4(2),thereof as transactions not involving any public offerings. All othersecurities sold by the Company during the year ended December 31, 2000, whichwere not registered under the Securities Act have previously been reported inthe Company's Quarterly Reports on Form 10-Q. The warrants and shares issuedin connection with the above transactions were registered for resale inJanuary 2001 through the Company's filing of a Registration Statement on FormS-3.ITEM 6. Selected Financial Data The following selected financial data insofar as it relates to the yearsended December 31, 2000, 1999, 1998 and 1997, and to the nine months endedDecember 31, 1996 has been derived from financial statements audited byPricewaterhouseCoopers LLP, independent accountants. The information thatfollows should be read in conjunction with the audited consolidated financialstatements and notes thereto for each of the three years in the period endedDecember 31, 2000 included elsewhere herein. See also Item 7, "Management'sDiscussion and Analysis". ($ in thousands, except for per share data) Nine Months Ended Year Ended December 31, December 31, 2000 1999 1998 1997 1996(1) ---- ---- ---- ---- ----Statement of Operations Data: Total revenues $ 107,745 $115,229 $106,544 $100,157 $ 23,780 Net loss (22,458) (8,594) (7,470) (8,538) (5,997) Less: Preferred stock dividends - - - (1,213) (674) Imputed dividend on preferred stock - - - - (2,451) --------- --------- -------- -------- -------- Net loss applicable toSource: CADIZ INC, 10-K, March 29, 2001Powered 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. common stock $(22,458) $(8,594) $(7,470) $(9,751) $ (9,122) ========= ========= ======== ======== =========Per share: Net loss $ (.64) $ (.25) $ (.23) $ (.33) $ (.44) ========= ========= ======== ======== =======Weighted-average Common shares outstanding 35,344 34,678 33,173 29,485 20,500 ========= ======= ======== ======== ====== December 31, -------------------------------------------------- 2000 1999 1998 1997 1996 ------------ ---- ----Balance Sheet Data: Total assets $ 205,094 $ 214,102 $ 214,359 $203,049 $230,790 Long-term debt $ 145,610 $ 142,089 $ 142,317 $131,689 $149,111 Redeemable preferred stock $ 3,950 $ - $ - $ - $ 27,431 Preferred stock, common stock and additional paid-in capital $ 143,063 $ 136,552 $ 127,998 $121,199 $ 88,808 Accumulated deficit $ (109,340) $ (86,882) $(78,288) $(70,818) $ (61,067) Stockholders' equity $ 33,723 $ 49,670 $ 49,710 $ 50,381 $ 27,741 (1) Subsequent to the Company's September 13, 1996 acquisition of Sun World, the Company changed its fiscal year end from March 31 to December 31 in order to align the Company's year end with that of Sun World. Additionally, as a result of the Sun World acquisition, the operations for the nine months ended December 31, 1996 include the results of operations of Sun World for the period September 14, 1996 through December 31, 1996. ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSRESULTS OF OPERATIONS The consolidated financial statements set forth herein for each of thethree years in the period ended December 31, 2000, reflect the results ofoperations of the Company and its wholly-owned subsidiaries including SunWorld. A summary of the Sun World elements which management of the Companybelieves is essential to an analysis of the results of operations for suchperiods is presented below. For purposes of this summary, the term Sun Worldwill be used, when the context so requires, with respect to the operations andactivities of the Company's Sun World subsidiary, and the term Cadiz will beused, when the context so requires, with respect to those operations andactivities of the Company not involving Sun World. The Company's net income or loss in future fiscal periods will be largelyreflective of (a) the operations of the Company's water development activitiesincluding the Cadiz Groundwater Storage and Dry-Year Supply Program (the"Cadiz Program") and (b) the operations of Sun World. Sun World conducts itsoperations through four operating divisions: farming, packing, marketing andproprietary product development. Net income from farming operations variesfrom year to year primarily due to yield and pricing fluctuations which can besignificantly influenced by weather conditions, and are, therefore, generallysubject to greater annual variation than Sun World's other divisions.However, the geographic distribution of Sun World's farming operations withinCalifornia and the diversity of its crop mix makes it unlikely that adverseweather conditions would affect all of Sun World's properties or all of itscrops in any single year. Nevertheless, net profit from Sun World's packing,marketing and proprietary product development operations tends to be moreconsistent from year to year than net profit from Sun World's farmingoperations. Packing and marketing revenues from third party growers currentlyrepresent less than ten percent (10%) of total Company revenues. Sun WorldSource: CADIZ INC, 10-K, March 29, 2001Powered 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.has entered into agreements internationally to license selected proprietaryfruit varieties and continues to pursue additional domestic and internationallicensing opportunities. License revenues also currently represent less thanten percent (10%) of total Company revenues.YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999-------------------------------------------------------------------------- The Company's agricultural operations are impacted by the generalseasonal trends that are characteristic of the agricultural industry. SunWorld has historically received the majority of its net income during themonths of June to October following the harvest and sale of its table grapeand stonefruit crops. Due to this concentrated activity, Sun World has,therefore, historically incurred a loss with respect to its agriculturaloperations in the other months during the year. The table below sets forth, for the periods indicated, the results ofoperations for the Company's four main divisions (before elimination of anyinterdivisional charges), as well as the categories of costs and expensesincurred by the Company which are not included within the divisional results(in thousands): Year Ended December 31, 2000 1999 ---- ---- Divisional net income Farming $2,791 $14,542 Packing 7,193 7,656 Marketing 3,868 4,573 Proprietary product development 4,331 3,187 ------ ------ 18,183 29,958 General and administrative 10,939 10,913 Special litigation 424 937 Removal of underperforming crops 1,549 - Depreciation and amortization 8,381 8,891 Interest expense, net 19,188 17,811 Income tax expense 160 - ------ ------ Net loss $(22,458) $(8,594) ========= ======== FARMING OPERATIONS. Net income from farming operations totaled $2.8million for 2000 compared to $14.5 million in 1999. Farming revenues were$86.4 million and farming expenses were $83.6 million for 2000. For 1999, theCompany had farming revenues of $94.9 million and farming expenses of $80.4million. The decrease in farming results in 2000 compared to 1999 wereprimarily due to decreased prices on table grapes, wine grapes, stonefruit andcitrus due to an over supply of products in the industry. Average F.O.B.prices for 2000 were down 13%. The increase in farming expenses is primarilydue to costs to grow and harvest citrus in the San Joaquin Valley in 2000 thatwere not incurred in 1999 due to the December 1998 freeze. The Company'sproprietary table grape and stonefruit products have allowed Sun World tocontinue to command a price premium to the overall market which helped offsetsome of the losses incurred from the Company's commodity products. PACKING OPERATIONS. Sun World's packing and handling facilitiescontributed $7.2 million in profit during 2000 compared to $7.7 million in1999. The Company packed 3.6 million units and moved an additional 5.0million units through the cold storage facilities for a total of 8.6 millionunits processed through the packing operations in 2000 compared to the sametotal of 8.6 million units in 1999. Packing results were negatively impactedby a significant increase in corrugated box costs and temporary use of thirdparty storage facilities during July 2000 due to capacity constraints. Unitspacked and handled during 2000 primarily consisted of Company-grown tablegrapes, stonefruit, citrus, peppers and seedless watermelons as well as tablegrapes, citrus and stonefruit products packed for third party growers.Packing and handling revenue for these operations of $21.9 million was offsetby $14.7 million of expenses for 2000. Revenues totaled $20.5 million offsetby expenses of $12.8 million for 1999. MARKETING OPERATIONS. Sun World's marketing operations include selling,Source: CADIZ INC, 10-K, March 29, 2001Powered 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.merchandising and promoting Sun World-grown products, as well as providingthese services for third party growers. During 2000, a total of 11.5 millionunits were sold consisting primarily of Company-grown table grapes,stonefruit, citrus, peppers and watermelons as well as table grapes,watermelons, citrus and stonefruit from domestic third party growers. Theseunit sales resulted in marketing revenue of $8.6 million. Marketing expensestotaled $4.7 million for 2000 resulting in net income from marketingoperations of $3.9 million. During 1999, 11.1 million units were soldresulting in revenues of $9.4 million offset by expenses of $4.8 million fornet income of $4.6 million. The increase in units sold is primarily due toincreased units of Company-grown plums and stonefruit marketed for thirdparties. Average commissions for 2000 were down 12% from average commissionsin 1999 due to the lower F.O.B. prices noted above. PROPRIETARY PRODUCT DEVELOPMENT. Sun World has a long history ofproduct innovation, and its research and development center maintains a fruitbreeding program that has introduced dozens of proprietary fruit varietiesincluding twelve new varieties for which plant patents have been applied forin 2000. During 2000, net income from proprietary product development totaled$4.3 million consisting of revenues of $6.0 million offset by expenses of $1.7million. For 1999, net income from proprietary product development was $3.2million consisting of revenues of $4.6 million offset by expenses of $1.4million. The increase in revenues resulted from international royaltiesprimarily related to the Company's licensing agreements for Sugraone tablegrapes and consulting income from KADCO. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expensestotaled $10.9 million for both 2000 and 1999. SPECIAL LITIGATION. The Company was engaged in lawsuits seeking monetarydamages in connection with the prevention of a landfill, which was proposed tobe located adjacent to its Cadiz/Fenner Valley properties. In March 2001, theCompany entered into a settlement agreement with Waste Management related tothese lawsuits. See "Item 3 - Legal Proceedings." During the year endedDecember 31, 2000, expenses including litigation costs and professional feesand expenses totaled $0.4 million as compared to $0.9 million during the yearended December 31, 1999. REMOVAL OF UNDERPERFORMING CROPS. In December 2000, the Company accruedcosts to remove certain underperforming crops, primarily 600 acres of winegrapes and stonefruit. The Company intends to redevelop this acreage with newproprietary crops. The Company recorded a one-time charge of $1.5 million inconnection with these removals. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expensesfor the year ended December 31, 2000 totaled $8.4 million compared to $8.9million for the year ended December 31, 1999. The decrease is primarilyattributable to certain assets being sold or removed and other assets becomingfully depreciated. INTEREST EXPENSE. Net interest expense totaled $19.2 million during theyear ended December 31, 2000 compared to $17.8 million during the year endedDecember 31, 1999. The following table summarizes the components of netinterest expense for the two periods (in thousands): Year Ended December 31, 2000 1999 ---- --- Interest on outstanding debt - Sun World $ 14,546 $ 14,204 Interest on outstanding debt - Cadiz 2,319 1,785 Amortization of financing costs 2,546 2,176 Interest income (223) (354) -------- -------- $ 19,188 $ 17,811 ======== ======== The increase in interest on outstanding debt during 2000 is primarily dueto (a) increased borrowings on the Sun World Revolver to meet seasonal workingcapital needs and (b) amortization of warrants issued for the extension of theCadiz Revolver and the Cadiz term loan facility. Financing costs, whichinclude legal fees, loan fees and warrants, are amortized over the life of thedebt agreement.Source: CADIZ INC, 10-K, March 29, 2001Powered 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.YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998------------------------------------------------------------------------- The table below sets forth, for the periods indicated, the results ofoperations for the Company's four main divisions (before elimination of anyinterdivisional charges), as well as the categories of costs and expensesincurred by the Company which are not included within the divisional results(in thousands): Year Ended December 31, 1999 1998 ---- ---- Divisional net income Farming $ 14,542 $ 7,547 Packing 7,656 7,320 Marketing 4 ,573 3,245 Proprietary product development 3,187 12,441 -------- ------- 29,958 30,553 General and administrative 10,913 10,487 Special litigation 937 1,308 Depreciation and amortization 8,891 8,688 Interest expense, net 17,811 17,540 -------- ------- Net loss $ (8,594) $ (7,470) ======== ======== FARMING OPERATIONS. Net income from farming operations totaled $14.5million for 1999 compared to $7.5 million in 1998. Farming revenues were$94.9 million and farming expenses were $80.4 million for 1999. For 1998, theCompany had farming revenues of $78.1 million and farming expenses of $70.6million. Farming profits for the San Joaquin Valley increased by $5.5 millionover 1998 profits while profits from the southern operations, which includeCoachella, Cadiz and Blythe, increased $0.5 million. The increased profitswere primarily attributable to increased yields and higher F.O.B. prices fortable grapes. Overall, F.O.B. prices for table grapes were up 10% compared to1998 while yields increased by 29% as a result of improved weather conditionscoupled with increased acreage as certain developing crops turned commercialin 1999. These improvements were partially offset by soft market conditionsfor watermelons due to excess supplies and reduced stonefruit yields oncertain plum varieties due to the freezing temperatures experienced duringbloom. PACKING OPERATIONS. During 1999, Sun World's packing and handlingfacilities contributed $20.5 million in revenues offset by $12.8 million inexpenses resulting in $7.7 million in net income. In 1998, Sun World generatedrevenues of $20.5 million and expenses of $13.2 million resulting in netincome of $7.3 million. The increase in net income from packing operations isprimarily attributable to the impact of (a) increased handling incomeresulting from increased table grape yields noted above; (b) a 14% increase inthird-party citrus units packed resulting from stronger demand due to reducedsupplies from Florida and Texas offset by; (c) reduced packing and handlingincome from stonefruit due to reduced yields. During the year, Sun Worldpacked 3.2 million units and moved an additional 5.4 million units through thecold storage facilities for a total of 8.6 million units processed through thepacking operations. In 1998, Sun World packed 3.6 million units and moved anadditional 4.0 million units through the cold storage facilities for a totalof 7.6 million units. Products packed or handled during the year primarilyconsisted of Sun World-grown table grapes, stonefruit, sweet red and yellowpeppers, seedless watermelons and lemons, as well as table grapes and citrusproducts packed for third party growers. MARKETING OPERATIONS. Sun World's marketing operations include selling,merchandising and promoting Sun World-grown products, as well as providingthese services for third party growers. During 1999, approximately 11.1million units were sold primarily consisting of Sun World-grown table grapes,stonefruit, sweet red and yellow peppers, seedless watermelons and lemons; andtable grapes, seedless watermelon, and citrus from domestic third partygrowers. These unit sales resulted in marketing revenue of $9.4 million whilemarketing expenses totaled $4.8 million for 1999 resulting in a net incomeSource: CADIZ INC, 10-K, March 29, 2001Powered 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.from marketing operations of $4.6 million. During 1998, Sun World marketed9.9 million units and generated revenues of $7.7 million offset by expenses of$4.5 million resulting in net income of $3.2 million. The increase in unitssold, revenues and net income primarily resulted from increased table grapeand pepper production, and improved F.O.B. pricing for table grapes offset bydecreased stonefruit production. PROPRIETARY PRODUCT DEVELOPMENT. Sun World has a long history of productinnovation, and its research and development center maintains a fruit breedingprogram that has introduced dozens of proprietary fruit varieties during thepast five years. During the year ended December 31, 1999, net income fromproprietary product development was $3.2 million consisting of revenues of$4.6 million offset by expenses of $1.4 million. For 1998, net income fromproprietary product development was $12.4 million consisting of revenues of$13.6 million offset by expenses of $1.2 million. The reduced revenues andnet income in 1999 resulted from the sale in 1998 of substantially all of theassets of ASC/SWB Partnership formerly named American SunMelon (thePartnership). Sun World has a 50% interest in the partnership whichcontributed $0.3 million in net income during 1999 compared to $10.7 millionin 1998. GENERAL AND ADMINISTRATIVE. General and administrative expenses for 1999totaled $10.9 million compared to $10.5 million in 1998. The increaseprimarily resulted from additional administrative costs incurred due toactivity associated with the implementation of the Cadiz Program. SPECIAL LITIGATION. The Company was engaged in lawsuits seeking monetarydamages in connection with the prevention of a landfill, which was proposed tobe located adjacent to its Cadiz/Fenner Valley properties. See "Item 3 -Legal Proceedings." During the year ended December 31, 1999, expensesincluding litigation costs and professional fees and expenses totaled $0.9million as compared to $1.3 million during the year ended December 31, 1998. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expensesfor the year ended December 31, 1999 totaled $8.9 million compared to $8.7million for the year ended December 31, 1998. The increase is primarilyattributable to depreciation related to property, plant and equipmentadditions made during the year. INTEREST EXPENSE. Net interest expense totaled $17.8 million during theyear ended December 31, 1999 compared to $17.5 million during the year endedDecember 31, 1998. The following table summarizes the components of netinterest expense for the two periods (in thousands): Year Ended December 31, 1999 1998 ---- ---- Interest on outstanding debt - Sun World $ 14,204 $ 14,394 Interest on outstanding debt - Cadiz 1,785 1,511 Amortization of financing costs 2,176 1,914 Interest income (354) (279) ------- -------- $ 17,811 $ 17,540 ======= ======== The increase in interest on outstanding debt during 1999 is primarily dueto (a) increased average outstanding balance on the $15.0 million CadizRevolver (as defined below) compared to 1998 and (b) amortization of warrantsissued for the Cadiz Revolver and the Cadiz term loan facility describedbelow. Financing costs, which include legal fees, loan fees and warrants, areamortized over the life of the debt agreements.LIQUIDITY AND CAPITAL RESOURCESGeneral Discussion of Liquidity and Capital Resources----------------------------------------------------- Based on the cash on hand at December 31, 2000, cash received from theRail-Cycle litigation settlement, and the revolving credit facility in placefor Sun World, the Company believes it will be able to meet its workingcapital needs over the next year without looking to additional outside fundingsources, although no assurances can be made. See "Current FinancingArrangements" below. In addition, the Company anticipates payments to bereceived under the Cadiz Program, as further discussed below.Source: CADIZ INC, 10-K, March 29, 2001Powered 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. Under Sun World's historical working capital cycle, working capital isrequired primarily to finance the costs of growing and harvesting crops, whichgenerally occur from January through September with a peak need in June. SunWorld harvests and sells the majority of its crops during the period from Junethrough October, when it receives the majority of its revenues. In order tobridge the gap between incurrence of expenditures and receipt of revenues,large cash outlays are required each year which are financed through a $30million revolving credit agreement (the "Sun World Revolver"). See "CurrentFinancing Arrangements - Sun World's obligations" below.Current Financing Arrangements------------------------------CADIZ OBLIGATIONS As Cadiz has not received significant revenues from its water resourceactivity to date, Cadiz has been required to obtain financing to bridge thegap between the time water resource development expenses are incurred and thetime that revenue will commence. Historically, Cadiz has addressed theseneeds primarily through secured debt financing arrangements with its lenders,private equity placements and the exercise of outstanding stock options. As of December 31, 2000, Cadiz was obligated for approximately $10.3million under a senior term loan facility and $15 million under a $15 millionrevolving credit facility (the "Cadiz Revolver") with the same lender. InDecember 2000, the Company completed an extension of both facilities to amaturity date of January 31, 2002. In connection with the extensions, theCompany repriced certain previously issued warrants to purchase common stockof the Company. The cash interest rate remained at LIBOR plus 2%, payablequarterly. The Company has the option to pay interest on the Cadiz Revolverin stock at LIBOR plus 6%. Currently, the lender holds a senior deed of truston substantially all of Cadiz' non-Sun World related property under the termloan facility and a second lien on substantially all of the non-Sun Worldassets of the Company under the Cadiz Revolver. The Company and the lenderhave historically structured their financing arrangement with a view towardeffective implementation of the Cadiz Program. While the Company currentlyanticipates repayment of these facilities with monies to be received under theCadiz Program, the Company may, if it deems necessary, replace or renegotiatethe terms of these facilities to accommodate other developments such as delaysin the timetable for regulatory approvals of the Cadiz Program. Additionally,Cadiz has an intercompany loan agreement with Sun World for working capitalneeds. At December 31, 2000, no amount was outstanding under this facility. In December 2000, the Company issued $5 million of Series D ConvertiblePreferred Stock ("Preferred Stock"). The stock is convertible into 625,000shares of the Company's common stock any time prior to July 2004 at theelection of the holder. The Company also has the right to convert thepreferred stock, but only when the closing price of the Company's common stockhas exceeded $12 per share for 30 consecutive trading days. The PreferredStock will be redeemed in July 2004 if still outstanding. As the Company continues to actively pursue its business strategy,additional financing specifically in connection with the Company's waterprograms will be required. Responsibility for funding the design,construction and program implementation costs of the capital facilities forthe Cadiz Groundwater Storage and Dry YearDry-Year Supply Program will, undercurrently developed principles and terms, be shared equally by the Company andthe Metropolitan Water District of Southern California ("Metropolitan"). TheCompany is analyzing various alternatives for funding its share of theestimated $125 million to $150 million cost of the program capital facilities.These funding alternatives include (a) long-term financing arrangements and(b) utilization of monies to be received from Metropolitan for its initialpayment for 600,000 acre-feet of groundwater storage. Based upon the resultsof analyses performed by investment banking firms retained by the Company,management believes that several alternative long-term financing arrangementsare available to the Company.SUN WORLD OBLIGATIONS Sun World has outstanding $115 million of First Mortgage Notes (the "SunWorld Notes") which will mature on April 15, 2004 and are publicly traded andregistered under the Securities Act of 1933. The Sun World Notes areredeemable at the option of Sun World, in whole or in part, at any time on orafter April 15, 2001. Interest accrues at the rate of 11-1/4% per annum andSource: CADIZ INC, 10-K, March 29, 2001Powered 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.is payable semi-annually on April 15th and October 15th of each year. The SunWorld Notes are secured by a first lien (subject to certain permitted liens)on substantially all of the assets of Sun World and its subsidiaries, otherthan growing crops, crop inventories and accounts receivable and proceedsthereof, which secure the Sun World Revolver, and certain real propertypledged to third parties. The Sun World Notes are also secured by theguarantee of Cadiz and the pledge by Cadiz of all of the stock of Sun World. In order to meet its working capital needs, Sun World maintains the SunWorld Revolver which was extended in February 2001 for the 2001 growingseason. As of December 31, 2000, no amount was outstanding under the SunWorld Revolver. Additionally, Sun World has an intercompany revolving creditagreement with the Company for seasonal working capital needs, as needed. Noamount was outstanding under the intercompany revolver as of December 31,2000. CASH USED FOR OPERATING ACTIVITIES. Cash used for operating activitiestotaled $7.7 million for the year ended December 31, 2000, as compared to $2.9million for the year ended December 31, 1999. The increase in cash used foroperating activities is primarily due to reduced returns from the farmingoperations of Sun World offset by decreases in inventory primarily resultingfrom the removal or sale of 1,300 acres of underperforming crops. CASH USED FOR INVESTING ACTIVITIES. Cash used for investing activitiestotaled $2.7 million for the year ended December 31, 2000, as compared to$12.3 million for the same period in 1999. During 2000, the Company invested$3.8 million in developing crops, $1.6 million in water programs, and $1.3million for the purchase of property, plant and equipment. These expenditureswere offset by $3.0 million in proceeds received primarily from the sale ofapproximately 700 acres of underperforming crops, and $1.6 million received inconnection with the final distribution from ASC/SWB partnership (formerlyAmerican SunMelon). In 1999, the Company invested $4.8 million in property,plant and equipment additions, including $2.6 million spent by the Company toexercise its option to purchase certain land in Piute, California, $3.2million on water programs and $3.5 million on developing crops. CASH PROVIDED BY FINANCING ACTIVITIES. Cash provided by financingactivities totaled $10.6 million for the year ended December 31, 2000,consisting primarily of $1.0 million generated from the exercise of stockoptions, $5.0 million from the issuance of preferred stock, and $5.2 millionfrom the issuance of long-term debt offset by $0.7 million of repayments onlong-term debt. Cash provided by financing activities totaled $6.1 million forthe year ended December 31, 1999 resulting from $6.8 million from the exerciseof stock options offset by $0.7 million of principal payments on long-termdebt.OUTLOOK The Company is actively pursuing the development of its water resources.Specifically, in July 1998, the Company and Metropolitan approved thePrinciples for a 50-year agreement for the Cadiz Program. The Principlesprovide that Metropolitan will, during wet years or periods of excess supply,store surplus water from its Colorado River Aqueduct in the groundwater basinunderlying the Company's property. During dry years or times of reducedallocations from the Colorado River, the previously imported water, togetherwith additional existing groundwater, will be extracted and delivered, via aconveyance pipeline, back to the aqueduct. Subsequently, Metropolitan, following extensive negotiations with theCompany to further refine and finalize the Principles, submitted definitiveeconomic terms and responsibilities ("Definitive Terms") to its Board ofDirectors in March 2001 for anticipated consideration at a forthcoming BoardMeeting. Until such consideration and action by both the Company's andMetropolitan's Board, the proposed Definitive Terms will remain proposed andsubject to change. In addition, execution of a final agreement will becontingent upon and subject to completion of the ongoing environmental reviewprocess for the Cadiz Program. Key provisions of the proposed Definitive Terms are as follows: * Over the 50-year term of the agreement, Metropolitan will store a minimum of 900,000 acre-feet of Colorado River Aqueduct ("CRA") water in the Company's groundwater basin and purchase up to a minimum of 1,500,000 acre-feet of existing groundwater for transfer during dry- years. The Cadiz Program will have the capacity to convey, either forSource: CADIZ INC, 10-K, March 29, 2001Powered 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. storage or transfer, up to approximately 150,000 acre-feet in any given year. * During storage operations, Metropolitan will pay $50 per acre-foot for put of Colorado River water into storage and $40 per acre-foot for return of Colorado River water from storage, or a total of $90 acre- feet to cycle water into and out of the basin. These fees will be adjusted by CPI. * As outlined above, Metropolitan's total minimum commitment for storage is 900,000 acre-feet. Metropolitan will pay for the initial 600,000 acre-feet of put and take activity upon final contract execution and completion of the environmental review ($54 million before CPI adjustment). Metropolitan will pay for an additional 300,000 acre- feet of put and take activity at the earlier of actual usage or 30,000 acre-feet annual increments during years 5-14 of Cadiz Program operations ($2,700,000 per year before CPI adjustment). * For transfer operations, Metropolitan shall purchase 30,000 acre-feet per year of indigenous groundwater for 25 years at $230 per acre-foot Transfer Fee, subject to a fair market value adjustment as described below. In addition, Cadiz may elect to either sell up to an additional 30,000 acre-feet per year of indigenous groundwater to third parties in Metropolitan's service area at fair market value, or require Metropolitan to purchase that amount of water at a fixed Transfer Fee of $230 per acre-foot. Accordingly, Metropolitan's total potential minimum commitment for the life of the Cadiz Program will be 1,500,000 acre-feet of indigenous groundwater. All transfers of indigenous groundwater, whether to Metropolitan or third parties, will be made in accordance with the terms and conditions of the Management Plan. * The Transfer Fee will reflect a "fair market value" adjustment, which shall be determined up to once a year. The Transfer Fee will be adjusted by one-half of any increase or decrease in the fair market value, above or below the base $230 rate. For example, if the fair market value is $350 per acre-foot, then the adjusted Transfer Fee shall be $230 + 50% * ($350-$230) = $290 per acre-foot. Each increase or decrease in the transfer fee paid by Metropolitan may not exceed 15%. * Cadiz' right to sell to third parties within Metropolitan's service area includes scheduled access to Metropolitan's system at the wheeling rate charged for "as available capacity," plus power costs and any standard water stewardship fee that is uniformly charged to Metropolitan member agencies or third parties. Depending on availability of system capacity, Metropolitan may elect to exchange other water for delivery to Cadiz customers and "bank" the water Cadiz has sold. * If indigenous water supplies are determined to exceed 1,700,000 acre- feet, Metropolitan shall have the first right of refusal to purchase one-half of that excess yield. * Cadiz groundwater meets all existing federal and state water quality standards. Metropolitan's CRA water meets all existing federal and state water quality standards. Metropolitan shall be responsible to ensure, at its expense, that CRA water introduced into the Cadiz groundwater basin shall, at a minimum, meet all existing and potential future federal and state water quality standards applicable to the CRA. Cadiz shall be responsible to ensure, at its expense, that indigenous groundwater introduced into the Metropolitan delivery system shall at a minimum, meet all existing and potential future federal and state water quality standards. If both indigenous groundwater and stored Colorado River water exceed any future federal or state water quality standard, then the parties will share compliance with the new standard based pro rata on the contribution to exceeding the standard. * The Cadiz Program facilities, including spreading basins, extraction wells, conveyance pipeline and a pumping plant are estimated to cost between $125 and $150 million, and both parties will equally share these costs. Each party will be responsible for financing its portion of the capital costs.Source: CADIZ INC, 10-K, March 29, 2001Powered 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. * Metropolitan will be responsible for operational costs of the Cadiz Program. However, Cadiz will assume pro rata operational costs associated with the sale of indigenous groundwater to third parties. * Metropolitan and Cadiz shall share equally the capital costs required for mitigation at outset of the Cadiz Program. Cadiz shall assume remaining mitigation costs, including the ongoing annual cost of operating the Management Plan. In addition to the development of its water resources, the Company isactively involved in further agricultural development and reinvestment in itslandholdings. Such development will be systematic and in furtherance of theCompany's business strategy to provide for maximization of the value of itsassets. The Company also continually evaluates acquisition opportunities thatare complimentary to its current portfolio of water and agriculturalresources. Sun World currently services its indebtedness and meets its seasonalworking capital needs utilizing available internal cash, the Sun WorldRevolver and, if necessary, through an intercompany revolver with Cadiz.Cadiz currently meets its ordinary working capital needs through a combinationof available internal cash, quarterly management fee payments from Sun World,payments from Sun World under an agricultural lease whereby Sun World nowoperates the Company's 1,600 acres of developed agricultural property atCadiz, California, the exercise of outstanding stock options, and through anintercompany revolver with Sun World. Except for the foregoing, additionalintercompany cash payments between Sun World and Cadiz are subject to certainrestrictions under its current lending arrangements. In the event the Companyrequires additional cash beyond the foregoing to meet its working capitalneeds, the Company believes that additional debt and/or equity can be issuedas needed for this purpose.CERTAIN TRENDS AND UNCERTAINTIES In connection with the "safe harbor" provisions of the Private SecuritiesLitigation Reform Act of 1995, the Company is hereby filing cautionarystatements identifying important risk factors that could cause the Company'sactual results to differ materially from those projected in forward-lookingstatements of the Company made by or on behalf of the Company. The Company wishes to caution readers that these factors, among others,could cause the Company's actual results to differ materially from thoseexpressed in any projected, estimated or forward-looking statements relatingto the Company. The following factors should be considered in conjunctionwith any discussion of operations or results by the Company or itsrepresentatives, including any forward-looking discussion, as well as commentscontained in press releases, presentations to securities analysts orinvestors, or other communications by the Company. In making these statements, the Company is not undertaking to address orupdate each factor in future filings or communications regarding the Company'sbusiness or results, and is not undertaking to address how any of thesefactors may have caused changes to discussions or information contained inprevious filings or communications. In addition, certain of these matters mayhave affected the Company's past results and may affect future results. RISKS INHERENT IN AGRICULTURAL OPERATIONS. The Company is subject torisks associated with its agricultural operations. Numerous factors canaffect the price, yield and marketability of the crops grown on the Company'sproperties. Crop prices may vary greatly from year to year as a result of therelationship between production and market demand. For example, theproduction of a particular crop in excess of demand in any particular yearwill depress market prices, and inflationary factors and other unforeseeableeconomic changes may also, at the same time, increase operating costs withrespect to such crops. In addition, the agricultural industry in the UnitedStates is highly competitive, and domestic growers and produce marketers arefacing increased competition from abroad, particularly from Mexico. There arealso a number of factors outside of the Company's control that could, alone orin combination, materially adversely affect the Company's agriculturaloperations, such as adverse weather conditions, insects, blight or otherdiseases, labor problems such as boycotts or strikes and shortages ofcompetent laborers. The Company's operations may also be adversely affected bychanges in governmental policies, social and economic conditions, and industryproduction levels.Source: CADIZ INC, 10-K, March 29, 2001Powered 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. RISKS OF WATER DEVELOPMENT PROJECTS. The Company anticipates that itwill continue to incur operating losses from its non-Sun World operationsuntil such time as it is able to receive significant revenues from thedevelopment of its water development projects, including the Cadiz Program.In addition to the risks associated with receiving all necessary regulatoryapprovals and permits with respect to the Company's water developmentprojects, the Company may also encounter unforeseen technical difficulties,which could result in construction delays, and cost increases or determinationthat a project is not feasible. The Company is continuing to negotiate theterms and conditions of water storage and supply programs with variousCalifornia water agencies (including Metropolitan with respect to preparingthe final agreement for the Cadiz Program). However, the outcome of thesenegotiations cannot be predicted with any degree of certainty. Thecircumstances under which transfers or storage of water can be made and theprofitability of any transfers or storage are subject to significantuncertainties, including hydrologic risks of variable water supplies, riskspresented by allocations of water under existing and prospective priorities,and risks of adverse changes to or interpretations of U.S. federal, state andlocal laws, regulations and policies. Other important risk factors that could cause the Company's actualresults to differ materially from those expressed or implied by the Company oron behalf of the Company are discussed elsewhere within this Form 10-K in thesections entitled: Seasonality, Regulation, Competition, and Liquidity andCapital Resources.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MmARKET RISK The Company is exposed to market risk from changes in interest rates onlong-term debt obligations that impact the fair value of these obligations.The company'sCompany's policy is to manage interest rates through the use of acombination of fixed and variable rate debt. The Company's interest rate riskmanagement objective is to limit the impact of interest rate changes onearnings and cash flows and to lower its overall borrowing costs. Otherinstruments, such as interest rate swaps, options, floors, caps or collars mayalso be used depending upon market conditions. No such instruments were usedin 2000. The table below presents the principal amounts, weighted-averageinterests rates, and fair values by year of scheduled maturityies to evaluatethe expected cash flows and sensitivity to interest rate changes (in thousandsof dollars). Circumstances could arise which may cause interest rates and thetiming and amount of actual cash flows to differ materially from the schedulebelow: Long-Term Debt ------------------------------------------- Fixed Average Variable Average Rate Interest Rate InterestExpected Maturity Maturities Rate Maturities Rate --------- ------- -------- --------- 2001 $ 501 7.7% $ 358 9.5% 2002 564 7.7% 30,631 8.7% 2003 482 7.8% 855 9.5% 2004 115,531 11.2% - - 2005 122 7.8% - - --------- ---- ------- ---- Total $ 117,200 11.2% $31,844 8.7% ========== ===== ======= ===== Fair Value at 12/31/00 $ 105,700 $31,844 ======== =======ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is submitted in response to Part IVhereof. See the Index to Consolidated Financial Statements. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.Source: CADIZ INC, 10-K, March 29, 2001Powered 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.ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information called for by this item is incorporated herein byreference to the definitive proxy statement involving the election ofdirectors which the Company intends to file with the Commission pursuant toRegulation 14A under the Securities and Exchange Act of 1934 not later than120 days after December 31, 2000.ITEM 11. EXECUTIVE COMPENSATION The information called for by this item is incorporated herein byreference to the definitive proxy statement involving the election ofdirectors which the Company intends to file with the Commission pursuant toRegulation 14A under the Securities and Exchange Act of 1934 not later than120 days after December 31, 2000.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information called for by this item is incorporated herein byreference to the definitive proxy statement involving the election ofdirectors which the Company intends to file with the Commission pursuant toRegulation 14A under the Securities and Exchange Act of 1934 not later than120 days after December 31, 2000.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information called for by this item is incorporated herein byreference to the definitive proxy statement involving the election ofdirectors which the Company intends to file with the Commission pursuant toRegulation 14A under the Securities and Exchange Act of 1934 not later than120 days after December 31, 2000. PART IVITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 1. Financial Statements. See Index to Consolidated Financial Statements. 2. Financial Statement Schedules. See Index to Consolidated Financial Statements. 3. Exhibits. The following exhibits are filed or incorporated by reference as part of this Annual Report. 3.1 Certificate of Incorporation of the Company, as amended(2) 3.2 Amendment to Certificate of Incorporation dated November 12, 1996(3) 3.3 Amendment to Certificate of Incorporation dated September 1, 1998(12) 3.4 Amended and Restated Certificate of Incorporation of Sun World, Inc.(9) 3.5 Certificate of Merger of Sun World International, Inc. into Sun World, Inc.(9) 3.6 Agreement and Plan of Merger of Sun World, Inc. and Sun World International, Inc.(9) 3.7 Amended and Restated Bylaws of Sun World International, Inc.(9) 3.8 Bylaws of the Company, as amended (13) 4.1 Specimen Form of Stock Certificate for the Company's registered stock(12) 4.2 Certificate of Designations of 6% Convertible Series ASource: CADIZ INC, 10-K, March 29, 2001Powered 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. Preferred Stock(1) 4.3 Certificate of Designations of 6% Convertible Series B Preferred Stock(4) 4.4 Certificate of Designations of 6% Convertible Series C Preferred Stock(1) 4.5 Certificate of Designations of Series A Junior Participating Preferred Stock(14) 4.6 Certificate of Designations of Series D Preferred Stock dated December 28, 2000(15) 4.7 Certificate of Correction Filed to Correct the Certificate of Designations of Series D Preferred Stock of Cadiz Inc. dated December 28, 2000(15) 4.8 Indenture dated as of April 16, 1997 among Sun World as issuer, Sun World and certain subsidiaries of Sun World as guarantors, and IBJ Whitehall Bank & Trust Company as trustee, for the benefit of holders of 11-1/4% First Mortgage Notes due 2004 (including as Exhibit A to the Indenture, the form of the Global Note and the form of each Guarantee)(7) 4.9 Form of Amendment to Indenture dated as of October 9, 1997(10) 4.10 Form of Amendment to Indenture dated as of January 23, 1998(11) 10.1 The Company's 1996 Stock Option Plan(5) 10.2 Form of Employment Agreement dated September 13, 1996 between Sun World, the Company and Timothy J. Shaheen(6) 10.3 Form of Employment Agreement dated September 13, 1996 between Sun World, the Company and Stanley E. Speer(6) 10.4 Form of Sun World Executive Officer Employment Agreement(8) 10.5 Credit Agreement between the Company and ING Baring (U.S.) Capital Corporation dated November 25, 1997(11) 10.6 Revolving Credit Note between the Company and ING Baring (U.S.) Capital Corporation dated November 25, 1997(11) 10.7 Employment Agreement between Cadiz Land the Company , Inc. and Keith Brackpool dated February 1, 1998(11) 10.8 Principles for an Agreement between the Metropolitan Water District of Southern California and the Company dated August 14, 1998(12) 10.9 Amendment to the Company's 1996 Stock Option Plan(13) 10.10 The Company's 2000 Stock Award Plan(16) 21.1 Subsidiaries of the Registrant 23.1 Consent of Independent Accountants (included in Part IV of the Form 10-K) ----------------------- (1) Previously filed as Exhibit to the Company's Report on Form 8-K dated September 13, 1996 (2) Previously filed as Exhibit to the Company's Registration Statement of Form S-1 (Registration No. 33-75642) declared effective May 16, 1994 (3) Previously filed as Exhibit to the Company's Report on Form 10- Q for the quarter ended September 30, 1996 (4) Previously filed as Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 Source: CADIZ INC, 10-K, March 29, 2001Powered 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. (5) Previously filed as Exhibit A to the Company's Proxy Statement relating to the Annual Meeting of Stockholders held on November 8, 1996 (6) Previously filed as Exhibit to the Company's Transition Report on Form 10-K for the nine months ended December 31, 1996 (7) Previously filed as Exhibit to Amendment No. 1 to the Company's Form S-1 Registration Statement No. 333-19109 (8) Previously filed as Exhibit to the Company's Report on Form 10-Q for the quarter ended March 31, 1997 (9) Previously filed as Exhibit to Sun World's Form S-4 Registration Statement No. 333-31103 (10) Previously filed as Exhibit to Amendment No. 2 to Sun World's Form S-4 Registration Statement No. 333-31103 (11) Previously filed as Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (12) Previously filed as Exhibit to the Company's Report on Form 10-Q for the quarter ended September 30, 1998 (13) Previously filed as Exhibit to the Company's Report on Form 10-Q for the quarter ended June 30, 1999 (14) Previously filed as Exhibit to the Company's Report on Form 8-K dated May 10, 1999 (15) Previously filed as Exhibit to the Company's Report on Form 8-K dated December 28, 2000 (16) Previously filed as Appendix A to the Company's Proxy Statement dated April 5, 2000, filed with the Commission on March 29, 2000 (b) Reports on Form 8-K 1. Report on Form 8-K dated March 12, 2001 reporting that Metropolitan had submitted refined definitive economic terms and responsibilities for the Cadiz Program to its Board of Directors, which were unanimously recommended for approval by a Special Oversight Committee of Metropolitan's Board. 2. Report on Form 8-K dated January 16, 2001 to ensure technical compliance with the requirements of Financial Release No. 55 ("FRR-55"), which became effective September 25, 2000. 3. Report on Form 8-K dated January 6, 2001 reporting that Metropolitan had submitted definitive economic terms and responsibilities for the Cadiz Program to its Board of Directors for anticipated consideration at its January 9, 2001 Board Meeting. 4. Report on Form 8-K dated December 29, 2000 describing the Company's issuance of $5,000,000 in newly authorized Series D Convertible Preferred Stock and Sun World's borrowing of $5,000,000 pursuant to a two-year unsecured term loan. SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to besigned on its behalf by the undersigned, thereto duly authorized.CADIZ INC.By: /s/ Keith Brackpool By: /s/ Stanley E. Speer -------------------------- ---------------------------Source: CADIZ INC, 10-K, March 29, 2001Powered 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. Keith Brackpool, Stanley E. Speer, Chief Executive Officer Chief Financial Officer and Director and Secretary Date: March 29, 2001 Date: March 29, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, thisreport has been signed by the following persons in the capacities and on thedates indicated. Name and Position Date ----------------- -----/s/ Keith Brackpool March 29, 2001------------------------------------Keith Brackpool, Chief Executive Officerand Director (Principal Executive Officer)/s/ Anthony L. Coelho March 29, 2001------------------------------------Anthony L. Coelho, Director/s/ Murray H. Hutchison March 29, 2001------------------------------------Murray H. Hutchison, Director/s/ Dwight W. Makins March 29, 2001------------------------------------Dwight Makins, Chairman of the Boardand Director/s/ Mitt Parker March 29, 2001------------------------------------Mitt Parker, Director/s/ Timothy J. Shaheen March 29, 2001------------------------------------Timothy J. Shaheen, Director/s/ Stanley E. Speer March 29, 2001------------------------------------Stanley E. Speer, Chief Financial Officerand Secretary (Principal Financial andAccounting Officer) CADIZ INC. INDEX TO THE FINANCIAL STATEMENTS PageCADIZ INC. FINANCIAL STATEMENTSReport of Independent Accountants. . . . . . . . . . . . . . 35Consolidated Statement of Operations for the three years ended December 31, 2000. . . . . . . . . . . . 36Consolidated Balance Sheet as of December 31, 2000 and 1999. . . . . . . . . . . . . . . . . . . . . . . . . .37Consolidated Statement of Cash Flows for the three years ended December 31, 2000. . . . . . . . . . . . . . . 38Consolidated Statement of Stockholders' Equity for the three years ended December 31, 2000 . . . . . . . . . . 39Source: CADIZ INC, 10-K, March 29, 2001Powered 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.Notes to the Consolidated Financial Statements. . . . . . . .40CADIZ INC. FINANCIAL STATEMENT SCHEDULESSchedule I - Condensed Financial Information of Registrant for the three years ended December 31, 2000. . . . . . . . . . . . . . . . . . . . .61Schedule II - Valuation and Qualifying Accounts for the three years ended December 31, 2000. . . . . . . . .64SUN WORLD INTERNATIONAL INC. FINANCIAL STATEMENTSReport of Independent Accountants. . . . . . . . . . . . . . .65Consolidated Statement of Operations and Accumulated Deficit for the three years ended December 31, 2000. . . . .66Consolidated Balance Sheet as of December 31, 2000 and 1999. . . . . . . . . . . . . . . . . . . . . . . . . . 67Consolidated Statement of Cash Flows for the three years ended December 31, 2000. . . . . . . . . . . . . . . . 68Notes to the Consolidated Financial Statements. . . . . . . . .69(Schedules other than those listed above have been omitted since they areeither not required, inapplicable, or the required information isincluded on the financial statements or notes thereto.) REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Cadiz Inc. In our opinion, the accompanying consolidated balance sheet and therelated consolidated statements of operations and cash flows and stockholder'sequity present fairly, in all material respects, the financial position ofCadiz Inc. and its subsidiaries at December 31, 2000 and 1999, and the resultsof their operations and their cash flows for each of the three years in theperiod ended December 31, 2000 in conformity with accounting principlesgenerally accepted in the United States of America. In addition, in ouropinion, the financial statement schedules listed in the accompanying indexpresent fairly, in all material respects, the information set forth thereinwhen read in conjunction with the related consolidated financial statements.These financial statements and financial statement schedules are theresponsibility of the Company's management; our responsibility is to expressan opinion on these financial statements and financial statement schedulesbased on our audits. We conducted our audits of these statements inaccordance with auditing standards generally accepted in the United States ofAmerica, which require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management,and evaluating the overall financial statement presentation. We believe thatour audits provide a reasonable basis for our opinion./s/ PricewaterhouseCoopers---------------------------PricewaterhouseCoopers LLPLos Angeles, CaliforniaFebruary 16, 2001, except as toNote 14, which is as of March 13, 2001Source: CADIZ INC, 10-K, March 29, 2001Powered 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. CONSOLIDATED STATEMENT OF OPERATIONS Year Ended December 31,(In thousands except per share data) 2000 1999 1998 ---- ---- ----Revenues $ 107,674 $114,901 $ 95,845Income from partnership 71 328 10,699 --------- --------- --------- Total revenues 107,745 115,229 106,544 --------- --------- ---------Costs and expenses: Cost of sales 87,925 83,821 74,742 General and administrative 12,576 12,363 11,736 Special litigation 424 937 1,308 Removal of underperforming crops 1,549 - - Depreciation and amortization 8,381 8,891 8,688 --------- --------- --------- Total costs and expenses 110,855 106,012 96,474 --------- --------- ---------Operating profit (loss) (3,110) 9,217 10,070Interest expense, net 19,188 17,811 17,540 --------- --------- ---------Net loss before income taxes (22,298) (8,594) (7,470)Income tax expense 160 - - --------- --------- ---------Net loss $(22,458) $(8,594) $ (7,470) ========= ========= =========Basic and diluted net loss per share $ (.64) $ (.25) $ (.23) ========= ========= =========Weighted-average shares outstanding 35,344 34,678 33,173 ========= ========= =========See accompanying notes to the consolidated financial statements. CADIZ INC. CONSOLIDATED BALANCE SHEET December 31,($ in thousands) 2000 1999 ---- ----ASSETS Current assets:Cash and cash equivalents $ 4,768 $ 4,537Accounts receivable, net 7,884 8,436Inventories 15,203 18,423Prepaid expenses and other 631 917 --------- ---------- Total current assets 28,486 32,313Investment in partnership - 1,497Property, plant, equipment and water programs, net 164,824 169,009Other assets 11,784 11,283 --------- ----------Source: CADIZ INC, 10-K, March 29, 2001Powered 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. $ 205,094 $ 214,102 ========== ===========LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITYCurrent liabilities: Accounts payable $ 9,377 $ 8,110 Accrued liabilities 5,815 7,686 Long-term debt, current portion 859 725 --------- ---------- Total current liabilities 16,051 16,521Long-term debt 145,610 142,089Deferred income taxes 5,447 5,447Other liabilities 313 375Commitments and contingenciesSeries D redeemable convertible preferred stock - $0.01 par value: 5,000 shares authorized; shares issued and outstanding - 5,000 at December 31, 2000 and none at December 31, 1999 3,950 -Stockholders' equity: Common stock - $.01 par value; 70,000,000 shares authorized; shares issued and outstanding 35,674,674 at December 31, 2000 and 35,166,661 at December 31, 1999 357 352Additional paid-in capital 142,706 136,200Accumulated deficit (109,340) (86,882) --------- ---------- Total stockholders' equity 33,723 49,670 --------- ---------- $ 205,094 $ 214,102 ========== =========== See accompanying notes to the consolidated financial statements. CADIZ INC. CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended December 31, ---------------------------($ in thousands) 2000 1999 1998 ---- ---- ----Cash flows from operating activities: Net loss $ (22,458) $(8,594) $(7,470) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 10,926 11,060 10,601 Issuance of stock for services - 28 374 Gain on disposal of assets (96) (104) (207) Removal of underperforming crops 1,549 - - Stock earned for services (1,250) (313) - Share of partnership operations (71) (328) (10,699) Deferred stock compensation 237 - - Changes in operating assets and liabilities:Source: CADIZ INC, 10-K, March 29, 2001Powered 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 (increase) in accounts receivable 552 (2,141) (414) Decrease (increase) in inventories 2,740 (3,318) (1,559) Decrease in prepaid expenses and other 286 75 307 Increase (decrease) in accounts payable 1,267 (643) 236 (Decrease) increase in accrued liabilities (1,039) 1,668 916 (Decrease) increase in other liabilities (297) (298) 18 --------- --------- --------- Net cash used for operating activities (7,654) (2,908) (7,897) --------- --------- ---------Cash flows from investing activities: Additions to property, plant and equipment (1,252) (4,835) (7,308) Additions to water programs (1,595) (3,177) (856) Additions to developing crops (3,844) (3,531) (3,396) Proceeds from disposal of property, plant and equipment 2,956 233 388 Partnership distributions 1,568 - 15,859 Increase in other assets (525) (998) (2,020) --------- --------- --------- Net cash (used for) provided by investing activities (2,692) (12,308) 2,667 --------- --------- ---------Cash flows from financing activities: Net proceeds from issuance of stock 1,032 6,803 2,154 Proceeds from issuance of preferred stock 5,000 - - Proceeds from issuance of long-term debt 5,231 - 12,000 Principal payments on long-term debt (686) (685) (587) --------- --------- --------- Net cash provided by financing activities 10,577 6,118 13,567 --------- --------- ---------Net increase (decrease) in cash and cash equivalents 231 (9,098) 8,337Cash and cash equivalents, beginning of period 4,537 13,635 5,298 --------- --------- ---------Cash and cash equivalents, end of period $ 4,768 $ 4,537 $ 13,635 ========= ======== ======== See accompanying notes to the consolidated financial statements. CADIZ INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the Years Ended December 31, 2000, 1999 and 1998($ in thousands) Total Additional Accumu- Stock Common Stock Paid-in lated holders' Shares Amount Capital Deficit EquityBalance as of December 31, 1997 32,646,661 $ 326 $ 120,873 $(70,818) $ 50,381Source: CADIZ INC, 10-K, March 29, 2001Powered 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.Exercise of stock options 515,600 6 2,148 - 2,154Issuance of warrants to a 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 31, 1998 33,592,261 336 127,662 (78,288) 49,710Exercise of stock options 1,513,150 15 6,788 - 6,803Issuance of warrants to a lender - - 1,335 - 1,335Stock issued for services 61,250 1 415 - 416Net loss - - - (8,594) (8,594) ------------ ----- --------- --------- -------Balance as of December 31, 1999 35,166,661 352 136,200 (86,882) 49,670Exercise of stock options and warrants 246,149 2 1,030 - 1,032Issuance of warrants - - 2,358 - 2,358Interest paid with stock 111,864 1 831 - 832Stock issued for services 150,000 2 1,469 - 1,471Deferred beneficial Conversion feature for convertible preferred stock - - 818 - 818Net loss - - - (22,458) (22,458) ------------ ----- --------- --------- -------Balance as of December 31, 2000 35,674,674 $ 357 $ 142,706 $(109,340)$ 33,723 ============ ===== ========== ========= ======= See accompanying notes to the consolidated financial statements CADIZ INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - DESCRIPTION OF BUSINESS-------------------------------- The Company currently has agricultural operations through its whollyowned subsidiary, Sun World International, Inc. and its subsidiariescollectively referred to as "Sun World" and is developing the water resourcesegment of its business, which is not yet significant to the operations orbalance sheet of the Company. The primary business of the Company is toacquire and develop water and agricultural resources. The Company has createdan integrated and complementary portfolio of assets encompassing undevelopedland with high-quality groundwater resources and/or storage potential, primeSource: CADIZ INC, 10-K, March 29, 2001Powered 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.agricultural properties located throughout central and southern Californiawith secure and reliable water rights, and other contractual water rights.Management believes that, with both the increasing scarcity of water suppliesin California and an increasing population, the Company's access to water willprovide it with a competitive advantage both as a major agricultural concernand as a supplier of water, which will lead to continued appreciation in thevalue of the Company's portfolio. Sun World is a large vertically integrated agricultural company that ownsmore than 19,000 acres of land, primarily located in two major growing areasof California: the San Joaquin Valley and the Coachella Valley. Freshproduce, including table grapes, stonefruit, citrus, peppers and watermelons,is marketed and shipped to food wholesalers and retailers throughout theUnited States and to more than 30 foreign countries. Sun World owns threecold storage and/or packing facilities in California, of which two areoperated and one is leased to a third party. Sun World provides the Company with valuable water rights throughoutcentral and southern California. The Company's landholdings, which totalapproximately 56,200 acres, are located adjacent to the Colorado River and themajor aqueduct systems of central and southern California. The Companyexpects to utilize its resources to participate in a broad variety of waterstorage and supply, transfer, exchange, and conservation programs with publicagencies and other parties. In 1998, the Company and the Metropolitan Water District of SouthernCalifornia ("Metropolitan") verified the feasibility of and approvedprinciples and terms for a water storage and supply program at its Cadiz,California property. The Cadiz Groundwater Storage and Dry-Year SupplyProgram (the "Cadiz Program") will enhance southern California water supplyreliability in two ways, providing a new dry-year water supply and much-neededstorage. During wet years or periods of excess supply, Metropolitan willstore surplus Colorado River water in the aquifer system underlying theCompany's Cadiz property. During dry years, the previously imported water,together with additional existing groundwater, will be extracted anddelivered, via a 35-mile conveyance pipeline, to Metropolitan's service area.Implementation of the Cadiz Program is subject to completion and approval of afinal agreement and an environmental review process which currently is in itsfinal stages. Although the development and management activities of the Company arecurrently focused on agricultural operations (primarily through its wholly-owned subsidiary, Sun World) and water resource development, the Company willcontinue to develop and manage its land, water and agricultural resources fortheir highest and best uses.NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES---------------------------------------------------PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Companyand Sun World. All material intercompany balances and activity have beeneliminated from the consolidated financial statements.RECLASSIFICATIONS These financial statements reflect certain reclassifications made to theprior period balances to conform with the current year presentation.USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generallyaccepted accounting principles requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.REVENUE RECOGNITION The Company recognizes crop sale revenue upon shipment and transfer oftitle to customers. Packing revenues and market commissions from third partygrowers are recognized when the related services are provided. Proprietaryproduct development revenues are recognized based upon product sales bySource: CADIZ INC, 10-K, March 29, 2001Powered 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.licensees.RESEARCH AND DEVELOPMENT Sun World incurs costs to research and develop new varieties ofproprietary products. Research and development costs are expensed asincurred. Such costs were approximately $1,636,000 for the year endedDecember 31, 2000, $1,450,000 for the year ended December 31, 1999, and$1,249,000 for the year ended December 31, 1998.NET LOSS PER COMMON SHARE Basic Earnings Per Share (EPS) is computed by dividing the net loss,after deduction for preferred dividends either accrued or imputed, if any, bythe weighted-average common shares outstanding. Options and warrants topurchase certain shares of the Company's common stock, as described in Note 13and preferred stock convertible into shares of common stock were notconsidered in the computation of diluted EPS because their inclusion wouldhave been antidilutive.CASH AND CASH EQUIVALENTS The Company considers all short-term deposits with an original maturityof three months or less to be cash equivalents. The Company invests itsexcess cash in deposits with major international banks and short-termcommercial paper and, therefore, bears minimal risk. Such investments arestated at cost, which approximates fair value, and are considered cashequivalents for purposes of reporting cash flows. The Company reclassifiedbook overdrafts totaling $2,494,000 and $1,444,000 to accounts payable for theyears ended December 31, 2000 and 1999, respectively.INVENTORIES Growing crops, pepper seed, and materials and supplies are stated at thelower of cost or market, on a first-in, first-out (FIFO) basis. Growing cropinventory includes direct costs and an allocation of indirect costs.INVESTMENT IN PARTNERSHIP Sun World, through a wholly owned subsidiary, owned a 50% interest inASC/SWB Partnership, formerly named American SunMelon (the "Partnership"). InOctober 1998, the Partnership sold substantially all of its assets to a thirdparty for $35 million in cash. In conjunction with the sale, Sun Worldreceived an initial distribution of $15.2 million from the Partnership. InNovember 2000, Sun World received a final distribution of $1.6 million inconnection with the liquidation of the Partnership. Sun World accounted forits investment in the Partnership using the equity method.PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS Property, plant, equipment and water programs are stated at cost. The Company capitalizes direct and certain indirect costs of planting anddeveloping orchards and vineyards during the development period, which variesby crop and generally ranges from three to seven years. Depreciationcommences in the year commercial production is achieved. Permanent land development costs, such as acquisition costs, clearing,initial leveling and other costs required to bring the land into a suitablecondition for general agricultural use, are capitalized and not depreciatedsince these costs have an indeterminate useful life. Depreciation is provided using the straight-line method over theestimated useful lives of the assets, generally ten to forty-five years forland improvements and buildings, three to twenty-five years for machinery andequipment, and five to thirty years for permanent crops. Water rights and water storage and supply programs are stated at cost.All costs directly attributable to the development of such programs are beingcapitalized by the Company. These costs, which are expected to be recoveredthrough future revenues, consist of direct labor, drilling costs, consultingfees for various engineering, hydrological, environmental and feasibilitystudies, and other professional and legal fees.IMPAIRMENT OF LONG-LIVED ASSETSSource: CADIZ INC, 10-K, March 29, 2001Powered 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 annually evaluates its long-lived assets, includingintangibles, for potential impairment. When circumstances indicate that thecarrying amount of the asset may not be recoverable, as demonstrated byestimated future cash flows, an impairment loss would be recorded based onestimated fair value. In December 2000, the Company accrued costs to remove certainunderperforming crops, primarily stonefruit and wine grapes. The Companyrecorded a one-time charge of $1,549,000 in connection with the removal ofthese crops which is shown under the heading "Removal of underperformingcrops" on the Consolidated Statement of Operations.OTHER ASSETS As a result of a merger in May 1988 between two companies, whicheventually became known as Cadiz Inc., an excess of purchase price over netassets acquired in the amount of $7,006,000 was recorded. This amount isbeing amortized on a straight-line basis over thirty years. Accumulatedamortization was $2,960,000 and $2,726,000 at December 31, 2000 and December31, 1999, respectively. Capitalized loan fees represent costs incurred to obtain debt financing.Such costs are amortized over the life of the related loan. At December 31,2000, the majority of capitalized loan fees relate to the issuance of theFirst Mortgage Notes described in Note 9. Trademark development costs represent legal costs incurred to obtain anddefend patents and trademarks related to the Company's proprietary productsthroughout the world. Such costs are capitalized and amortized over theirestimated useful life, which range from 10 to 20 years.INCOME TAXES Income taxes are provided for using an asset and liability approach whichrequires the recognition of deferred tax assets and liabilities for theexpected future tax consequences of temporary differences between thefinancial statement and tax bases of assets and liabilities at the applicableenacted tax rates. A valuation allowance is provided when it is uncertainthat some portion or all of the deferred tax assets will be realized.SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest during the years ended December 31, 2000, 1999 and1998 was $16,328,000, $15,988,000, and $15,348,000, respectively.NOTE 3 - ACCOUNTS RECEIVABLE---------------------------- Accounts receivable consist of the following (dollars in thousands): December 31, 2000 1999 ---- ---- Trade receivables $ 4,190 $ 4,742 Due from unaffiliated growers 541 582 Other 3,675 3,336 -------- -------- 8,406 8,660 Less allowance for doubtful accounts (522) (224) -------- -------- $ 7,884 $ 8,436 ======== ======= Substantially all trade receivables are from large domestic national andregional supermarket chain stores and produce brokers and are unsecured.Amounts due from unaffiliated growers represent receivables for harvestadvances and for services (harvest, haul and pack) provided on behalf ofgrowers under agreement with Sun World and are recovered from proceeds ofproduct sales. Other receivables primarily include wine grape and raisinSource: CADIZ INC, 10-K, March 29, 2001Powered 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.sales, proceeds due from third party marketers and other miscellaneousreceivables. Revenues attributable to one national retailer totaled $12.8 million in2000, $14.4 million 1999, and $11.9 million in 1998. Export sales accountedfor approximately 9.9%, 10.3% and 8.5% of the Company's revenues for the yearsended December 31, 2000, 1999 and 1998, respectively.NOTE 4 - INVENTORIES-------------------- Inventories consist of the following (dollars in thousands): December 31, 2000 1999 ---- ---- Growing crops $ 11,538 $ 14,297 Pepper seed 257 1,028 Harvested product 528 98 Materials and supplies 2,880 3,000 -------- -------- $ 15,203 $ 18,423 ======== ========NOTE 5 - PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS------------------------------------------------------ Property, plant, equipment and water programs consist of the following(dollars in thousands): December 31, 2000 1999 ---- ---- Land $ 67,034 $ 69,377 Permanent crops 67,278 66,546 Developing crops 9,779 8,862 Water programs 14,433 11,814 Buildings 22,113 21,832 Machinery and equipment 20,042 19,623 ------ ------ 200,679 198,054 Less accumulated depreciation (35,855) (29,045) ------ ------ $164,824 $169,009 ====== ======= Depreciation expense during the years ended December 31, 2000, 1999 and1998 was $7,971,000, $8,460,000 and $8,256,000, respectively.NOTE 6 - OTHER ASSETS--------------------- Other assets consist of the following (dollars in thousands): December 31, 2000 1999 ---- ---- Excess of purchase price over asset acquired, net $ 4,046 $ 4,280 Capitalized loan costs, net 2,662 3,331 Long-term receivables 1,799 1,849 Capitalized trademark development, net 1,713 1,475 Other 1,564 348 ------- ------- $11,784 $11,283 ====== =======NOTE 7 - ACCRUED LIABILITIESSource: CADIZ INC, 10-K, March 29, 2001Powered 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.---------------------------- Accrued liabilities consist of the following (dollars in thousands): December 31, 2000 1999 ---- ---- Interest $ 2,835 $ 3,129 Payroll and benefits 1,754 3,031 Other 1,226 1,526 -------- -------- $ 5,815 $ 7,686 ========= ========NOTE 8 - REVOLVING CREDIT FACILITY----------------------------------- In February 2001, Sun World renewed its Revolving Credit Facility throughthe 2001 growing season with a maturity date of November 2001. Maximumamounts eligible to be borrowed under the Revolving Credit Facility varythroughout the year with a maximum of $30 million available during the peakborrowing periods of April to July. The Revolving Credit Facility is securedby eligible accounts receivable and inventory, requires Sun World to meetcertain financial covenants, and is guaranteed by the Company. Amountsborrowed under the facility will accrue interest at either prime plus 1.0% orLIBOR plus 2.50% at the Company's election. No amounts were outstanding underthe Revolving Credit Facility at December 31, 2000 and 1999.NOTE 9 - LONG-TERM DEBT----------------------- Management estimates that the fair value of the Company's long-term debtapproximates the carrying value for all debt instruments except for the SeriesB First Mortgage Notes ("First Mortgage Notes"). The fair value of the FirstMortgage Notes is estimated to be approximately $103.5 million based on quotedmarket prices as of December 31, 2000. At December 31, 2000 and December 31,1999, the carrying amount of the Company's outstanding debt is summarized asfollows (dollars in thousands): December 31, 2000 1999 ---- ---- Cadiz obligations: Senior term bank loan, interest payable quarterly, variable interest rate based upon LIBOR plus 2% (8.50% at December 31, 2000 and 8.16% at December 31, 1999), due January 31, 2002 $ 10,345 $ 10,345 $15 million revolving line of credit, interest payable quarterly, variable interest rate based upon LIBOR plus 2% (8.50% at December 31, 2000 and 8.16% at December 31, 1999), due January 31, 2002 15,000 15,000 Other - 21 Debt discount (1,433) (1,685) ----------- --------- 23,912 23,681 ----------- --------- Sun World obligations: Series B First Mortgage Notes, interest payable semi-annually with principal due in April 2004,Source: CADIZ INC, 10-K, March 29, 2001Powered 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. interest at 11.25% 115,000 115,000 Senior unsecured term loan, interest payable quarterly, due December 31, 2002, interest at LIBOR plus 3% (9.40% at December 31, 2000) 5,000 - Note payable to bank, quarterly principal installments of $72 plus interest payable monthly, due December 31, 2003, interest at prime (9.50% at December 31, 2000 and 8.75% at December 31, 1999) 1,500 1,714 Note payable to insurance company, quarterly installments of $120 (including interest), due January 1, 2005, interest at 7.75% 1,639 1,896 Note payable to finance company, monthly installments of $18 (including interest) due July 1, 2002, interest at 7.50% 305 492 Other 255 31 Debt Discount (1,142) - ----------- --------- 122,557 119,133 ----------- --------- 146,469 142,814 Less current portion (859) (725) ----------- --------- $ 145,610 $ 142,089 ========== ========= Annual maturities of long-term debt outstanding, excluding $2,575representing the unamortized portion of warrants, on December 31, 2000 are asfollows: 2001 - $859; 2002 - $31,195; 2003 - $1,337; 2004 - $115,531 and 2005- $122.CADIZ OBLIGATIONS The senior term bank loan is secured by substantially all of theCompany's non-Sun World related property. In December 2000, the Companycompleted an amendment to the loan that extended the maturity date of theobligation to January 31, 2002. The interest rate remained at LIBOR plus 200basis points, payable quarterly. In connection with obtaining the extension,the Company repriced certain warrants previously issued. The fair value ofthe warrants was recorded as a debt discount and is being amortized over theremaining term of the loan. In November 1997, the Company entered into a three year $15 millionrevolving credit facility. In December 2000, the Company completed anamendment to the facility that extended the maturity date of the obligation toJanuary 31, 2002. The interest rate can either be LIBOR plus 200 basis pointsif paid in cash or LIBOR plus 600 basis points if paid in common stock. Inconnection with obtaining the extension, the Company repriced certain warrantspreviously issued. The fair value of the warrants was recorded as a debtdiscount and is being amortized over the remaining term of the loan. Thefacility is secured by a second lien on substantially all of the non-Sun Worldassets of the Company. The Company had $15 million outstanding under thefacility at December 31, 2000.SUN WORLD OBLIGATIONSSource: CADIZ INC, 10-K, March 29, 2001Powered 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 April 1997, Sun World issued $115 million of Series A First MortgageNotes through a private placement. The notes have subsequently been exchangedfor Series B First Mortgage Notes, which are registered under the SecuritiesAct of 1933 and are publicly traded. The First Mortgage Notes are secured bya first lien (subject to certain permitted liens) on substantially all of theassets of Sun World and its subsidiaries other than growing crops, cropinventories and accounts receivable and proceeds thereof, which secure theRevolving Credit Facility. The First Mortgage Notes mature April 15, 2004, butare redeemable at the option of Sun World, in whole or in part, at any time onor after April 15, 2001. The First Mortgage Notes include covenants whichrestrict the Company's ability to receive distributions from Sun World. The First Mortgage Notes are also secured by the guarantees of CoachellaGrowers, Inc., Sun Desert, Inc., Sun World Brands, Sun World ManagementCorporation, Sun World/Rayo, and Sun World International de Mexico S.A. deC.V. (collectively, the "Sun World Subsidiary Guarantors") and by the Company.The Company also pledged all of the stock of Sun World as collateral for itsguarantee. Sun World and the Sun World Subsidiary Guarantors are all directand indirect wholly-owned subsidiaries of the Company. The guarantees by theSun World Subsidiary Guarantors are full, unconditional, and joint andseveral. Sun World and the Sun World Subsidiary Guarantors comprise all ofthe direct and indirect subsidiaries of the Company other than inconsequentialsubsidiaries. Additionally, management believes that the direct and indirectnon-guarantor subsidiaries of Cadiz are inconsequential, both individually andin the aggregate, to the financial statements of the Company for all periodspresented. In December 2000, Sun World entered into a two year $5 million seniorunsecured term loan. In connection with obtaining the loan, the Companyissued 50,000 shares of the Company's common stock as well as certain warrantsto purchase shares of the Company's common stock. The fair value of the stockand the warrants were recorded as a debt discount and are being amortized overthe life of the loan.CONDENSED CONSOLIDATING FINANCIAL INFORMATION Condensed consolidating financial information as of December 31, 2000 and1999 and for the three years ended December 31, 2000 for the Company is asfollows (in thousands):Consolidating Statementof Operations Information SunYear Ended December 31, 2000 Cadiz World Eliminations Consolidated ------ -------- --------- ----------Revenues $ 1,920 $ 107,656 $(1,902) $ 107,674Income from partnership - 71 - 71 ------- -------- -------- -------- Total revenues 1,920 107,727 (1,902) 107,745 ------- -------- -------- --------Costs and expenses: Cost of sales 124 88,203 (402) 87,925 General and administrative 4,355 9,721 (1,500) 12,576 Special litigation 424 - - 424 Removal of underperforming crops - 1,549 - 1,549Depreciation and amortization 1,174 7,207 - 8,381 ------- -------- -------- -------- Total costs and expenses 6,077 106,680 (1,902) 110,855 ------- -------- -------- --------Operating profit (loss) (4,157) 1,047 - (3,110)Interest expense, net 4,085 15,103 - 19,188 ------- -------- -------- --------Loss before income taxes (8,242) (14,056) - (22,298)Income tax expense - 160 - 160------- -------- -------- --------Source: CADIZ INC, 10-K, March 29, 2001Powered 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 $(8,242) $(14,216) $ - $(22,458) ======= ======== ======== ========Consolidating BalanceSheet Information SunDecember 31, 2000 Cadiz World Eliminations Consolidated ------ -------- --------- ----------ASSETSCurrent assets: Cash and cash equivalents $ 3,099 $ 1,669 $ - $ 4,768 Accounts receivable, net 7 7,879 (2) 7,884 Inventories - 15,405 (202) 15,203 Prepaid expenses and other 212 419 - 631 ------- -------- -------- -------- Total current assets 3,318 25,372 (204) 28,486Investment in subsidiary 17,093 - (17,093) -Property, plant, equipment and water programs, net 38,842 125,982 - 164,824Other assets 4,199 7,585 - 11,784 ------- -------- -------- -------- $ 63,452 $158,939 $(17,297) $ 205,094 ======= ======== ======== ========LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITYCurrent liabilities: Accounts payable $ 1,209 $ 8,170 $ (2) $ 9,377 Accrued liabilities 349 5,466 - 5,815 Due to affiliate 202 - (202) - Long-term debt, current portion - 859 - 859 ------- -------- -------- -------- Total current liabilities 1,760 14,495 (204) 16,051Long-term debt 23,912 121,698 - 145,610Deferred income taxes - 5,447 - 5,447Other liabilities 107 206 - 313Redeemable preferred stock 3,950 - - 3,950Stockholders' equity:Common stock 357 - - 357Additional paid-in capital 142,706 35,325 (35,325) 142,706Accumulated deficit (109,340) (18,232) 18,232 (109,340) ------- -------- -------- -------- Total stockholders' equity 33,723 17,093 (17,093) 33,723 ------- -------- -------- -------- $ 63,452 $158,939 $(17,297) $ 205,094 ======= ======== ======== ========Consolidating Statement ofCash Flow Information SunYear Ended December 31, 2000 Cadiz World Eliminations Consolidated ------ -------- --------- ----------Net cash used for operating activities $(4,849) $(2,805) $ - $ (7,654) ------- -------- -------- --------Cash flows from investing activities: Additions to property, plant and equipment (293) (959) - (1,252) Additions to water programs (1,595) - - (1,595) Additions to developing crops (159) (3,685) - (3,844) Proceeds from disposal of property,Source: CADIZ INC, 10-K, March 29, 2001Powered 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. plant and equipment 1 2,955 - 2,956 Partnership distributions - 1,568 - 1,568 Increase in other assets (162) (363) - (525) ------- -------- -------- --------Net cash used for investing activities (2,208) (484) - (2,692) ------- -------- -------- --------Cash flows from financing activities: Net proceeds from issuance of stock 1,032 - - 1,032 Proceeds from issuance of preferred stock 5,000 - - 5,000 Proceeds from issuance of long-term debt - 5,231 - 5,231 Principal payments on long-term debt (21) (665) - (686) ------- -------- -------- --------Net cash provided by financing activities 6,011 4,566 - 10,577 ------- -------- -------- --------Net (decrease) increase in cash and cash equivalents (1,046) 1,277 - 231Cash and cash equivalents, beginning of period 4,145 392 - 4,537 ------- -------- -------- --------Cash and cash equivalents, end of period $ 3,099 $ 1,669 $ - $ 4,768 ======= ======== ======== ========Consolidating Statementof Operations Information SunYear Ended December 31, 1999 Cadiz World Eliminations Consolidated ------ -------- --------- ----------Revenues $ 1,829 $ 114,890 $ (1,818) $ 114,901Income from partnership - 328 - 328 ------- -------- -------- -------- Total revenues 1,829 115,218 (1,818) 115,229 ------- -------- -------- --------Costs and expenses: Cost of sales 132 84,140 (451) 83,821 General and administrative 4,672 9,058 (1,367) 12,363 Special litigation 937 - - 937 Depreciation and amortization 1,179 7,712 - 8,891 ------- -------- -------- -------- Total costs and expenses 6,920 100,910 (1,818) 106,012 ------- -------- -------- --------Operating profit (loss) (5,091) 14,308 - 9,217Interest expense, net 2,932 14,879 - 17,811 ------- -------- -------- --------Net loss $(8,023) $ (571) $ - $ (8,594) ======= ======== ======== ========Consolidating BalanceSheet Information SunDecember 31, 1999 Cadiz World Eliminations Consolidated ------ -------- --------- ----------ASSETSSource: CADIZ INC, 10-K, March 29, 2001Powered 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.Current assets: Cash and cash equivalents $ 4,145 $ 392 $ - $ 4,537 Accounts receivable, net 16 8,431 (11) 8,436 Inventories - 18,626 (203) 18,423 Prepaid expenses and other 386 531 - 917 ------- -------- -------- -------- Total current assets 4,547 27,980 (214) 32,313Investment in partnership - 1,497 - 1,497Investment in subsidiary 30,167 - (30,167) -Property, plant, equipment and water programs, net 36,710 132,299 - 169,009Other assets 4,372 6,911 - 11,283 ------- -------- -------- -------- $ 75,796 $168,687 $(30,381) $ 214,102 ======= ======== ======== ========LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities: Accounts payable $ 705 $ 7,416 $ (11) $ 8,110 Accrued liabilities 1,536 6,150 - 7,686 Due to affiliate 203 - (203) - Long-term debt, current portion 21 704 - 725 ------- -------- -------- -------- Total current liabilities 2,465 14,270 (214) 16,521Long-term debt 23,661 118,428 - 142,089Deferred income taxes - 5,447 - 5,447Other liabilities - 375 - 375Stockholders' equity:Common stock 352 - - 352Additional paid-in capital 136,200 34,183 (34,183) 136,200Accumulated deficit (86,882) (4,016) 4,016 (86,882) ------- -------- -------- -------- Total stockholders' equity 49,670 30,167 (30,167) 49,670 ------- -------- -------- -------- $ 75,796 $168,687 $(30,381) $ 214,102 ======= ======== ======== ========Consolidating Statement ofCash Flow Information SunYear Ended December 31, 1999 Cadiz World Eliminations Consolidated ------ -------- --------- ----------Net cash (used for) provided by operating activities $(4,746) $ 1,838 $ - $ (2,908) ------- -------- -------- --------Cash flows from investingactivities: Additions to property, plant and equipment (3,645) (2,680) 1,490 (4,835) Additions to water programs (3,177) - - (3,177) Additions to developing crops - (3,531) - (3,531) Proceeds from disposal of property, plant and equipment 1,490 233 (1,490) 233 Increase in other assets (64) (934) - (998) ------- -------- -------- --------Net cash used for investing activities (5,396) (6,912) - (12,308) ------- -------- -------- --------Cash flows from financing activities: Net proceeds from issuance of stock 6,803 - - 6,803Source: CADIZ INC, 10-K, March 29, 2001Powered 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. Principal payments on long-term debt (9) (676) - (685) ------- -------- -------- --------Net cash provided by (used for) financing activities 6,794 (676) - 6,118 ------- -------- -------- --------Net decrease in cash and cash equivalents (3,348) (5,750) - (9,098)Cash and cash equivalents, beginning of period 7,493 6,142 - 13,635 ------- -------- -------- --------Cash and cash equivalents, end of period $ 4,145 $ 392 $ - $ 4,537 ======= ======== ======== ========Consolidating Statement ofOperations Information SunYear Ended December 31, 1998 Cadiz World Eliminations Consolidated ------ -------- --------- ----------Revenues $ 2,003 $ 95,742 $(1,900) $ 95,845Income from partnership - 10,699 - 10,699 ------- -------- -------- -------- Total revenues 2,003 106,441 (1,900) 106,544 ------- -------- -------- --------Costs and expenses:Cost of sales 144 75,015 (417) 74,742General and administrative 4,631 8,588 (1,483) 11,736Special litigation 1,308 - - 1,308Depreciation and amortization 1,182 7,506 - 8,688 ------- -------- -------- --------Total costs and expenses 7,265 91,109 (1,900) 96,474 ------- -------- -------- --------Operating profit (loss) (5,262) 15,332 - 10,070Interest expense, net 2,403 15,137 - 17,540 ------- -------- -------- --------Net income (loss) $(7,665) $ 195 $ - $ (7,470) ======= ======== ======== ========Consolidating Statement ofCash Flow Information SunYear Ended December 31, 1998 Cadiz World Eliminations Consolidated ------ -------- --------- ----------Net cash used for operating activities $(4,420) $(3,477) $ - $ (7,897) ------- -------- -------- --------Cash flows from investing activities: Additions to property, plant and equipment (2,910) (4,398) - (7,308) Additions to water programs (856) - - (856) Additions to developing crops - (3,396) - (3,396) Proceeds from disposal of property, plant and equipment 27 361 - 388 Partnership distributions - 15,859 - 15,859 Increase in other assets (71) (1,949) - (2,020) ------- -------- -------- --------Net cash (used for) provided bySource: CADIZ INC, 10-K, March 29, 2001Powered 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. investing activities (3,810) 6,477 - 2,667 ------- -------- -------- --------Cash flows from financing activities: Net proceeds from issuance of stock 2,154 - - 2,154 Proceeds from issuance of long-term debt 10,000 2,000 - 12,000 Principal payments on long-term debt (21) (566) - (587) ------- -------- -------- --------Net cash provided by financing activities 12,133 1,434 - 13,567 ------- -------- -------- --------Net increase in cash and cash equivalents 3,903 4,434 - 8,337Cash and cash equivalents, beginning of period 3,590 1,708 - 5,298 ------- -------- -------- --------Cash and cash equivalents, end of period $ 7,493 $ 6,142 $ - $ 13,635 ======= ======== ======== ========NOTE 10 - INCOME TAXES----------------------- Deferred taxes are recorded based upon differences between the financialstatement and tax bases of assets and liabilities and available carryforwards.Temporary differences and carryforwards which gave rise to a significantportion of deferred tax assets and liabilities as of December 31, 2000 and1999 are as follows (in thousands): December 31, 2000 1999 ---- ---- Deferred tax liabilities: Fixed asset basis difference $ 7,550 $ 7,515 Other 48 48 -------- -------- Total deferred tax liabilities 7,598 7,563 -------- -------- Deferred tax assets: Net operating losses 38,560 31,421 Reserve for notes receivable 1,178 1,178 Fixed asset basis difference 6,300 6,300 State taxes 1,855 1,855 Other 1,907 1,027 -------- -------- Total deferred tax assets 49,800 41,781 Valuation allowance for deferred tax assets (47,649) (39,665) -------- -------- Net deferred tax assets 2,151 2,116 -------- -------- Net deferred tax liability $ 5,447 5,447 ======== ======== As of December 31, 2000, the Company had net operating loss (NOL)carryforwards of approximately $108.4 million for federal income tax purposes.Such carryforwards expire in varying amounts through the year 2020. AtDecember 31, 2000, the Company has state NOL carryforwards of $19.3 million.These NOL carryforwards expire in varying amounts through the year 2010. A reconciliation of the income tax benefit to the statutory federalincome tax rate is as follows (dollars in thousands):Source: CADIZ INC, 10-K, March 29, 2001Powered 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. Year Ended December 31, -------------------------- 2000 1999 1998 ---- ---- ---- Expected federal income tax benefit at 34% $(7,581) $(2,922) $(2,540) Loss with no tax benefit provided 7,459 2,718 2,414 State income tax 147 451 - Amortization 79 79 79 Utilization of net operating losses - - (601) Other non-deductible expenses 56 125 197 ------ ------ ------ Income tax expense $ 160 $ - $ - ====== ====== ======NOTE 11 - EMPLOYEE BENEFIT PLANS-------------------------------- The Company has a 401(k) Plan for its salaried employees. Employees mustwork 1,000 hours and have completed one year of service to be eligible toparticipate in this plan. Sun World matches 75% of the first four percentdeferred by an employee up to $1,600 per year. In addition, Sun Worldmaintains a defined contribution pension plan covering substantially all ofits employees who (i) are not covered by a collective bargaining agreement,(ii) have at least one year of service and (iii) have worked at least 1,000hours. Contributions are 2% of each covered employee's salary. For thosehourly employees covered under a collective bargaining agreement,contributions are made to a multi-employer pension plan in accordance withnegotiated labor contracts and are generally based on the number of hoursworked.NOTE 12 - PREFERRED AND COMMON STOCK-------------------------------------SERIES D CONVERTIBLE PREFERRED STOCK The Company has an authorized class of 100,000 shares of preferred stock.On December 29, 2000, the Company issued 5,000 shares of Series D ConvertiblePreferred Stock ("Preferred Stock") for $5,000,000. The holder of thePreferred Stock is entitled to receive dividends, payable semi-annually, at arate of 7% if paid in cash or 9% if paid in the Company's common stock. ThePreferred Stock is convertible into 625,000 shares of the Company's commonstock any time prior to July 2004 at the election of the holder. The Companyalso has the right to convert the Preferred Stock, but only when the closingprice of the Company's common stock has exceeded $12 per share for 30consecutive trading days. Holders are entitled to a liquidation preferenceequal to the initial purchase of $1,000 per share plus any accrued and unpaiddividends. The Preferred Stock will be redeemable in July 2004 if stilloutstanding. The Company issued certain warrants to purchase shares of the Company'scommon stock in connection with the issuance of the Preferred Stock. The fairmarket value of the Company's common stock at the time of issuance was abovethe accounting conversion price resulting in an imputed dividend (beneficialconversion feature). The fair value of the warrants issued and the imputeddividend totaled $1,050,000 which was recorded as a discount to the PreferredStock. The discount is being amortized through the redemption date of thestock and treated as a reduction to earnings for earnings per sharecalculations although no assets of the Company will ever be expended.COMMON STOCK In March 2000, the Company issued 100,000 shares of common stock to ahydrological research company upon the deemed satisfaction of certaincontingencies with respect to the issuance of such shares established inconnection with the Company's 1998 acquisition of all of such company'sassets.NOTE 13 - STOCK-BASED COMPENSATION PLANS AND WARRANTS------------------------------------------------------Source: CADIZ INC, 10-K, March 29, 2001Powered 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.STOCK OPTIONS AND WARRANTS The Company issues options pursuant to its 1996 Stock Option Plan (the"1996 Plan") and the 1998 Non-Qualified Stock Option Plan (the "1998 Plan")approved by the Board of Directors in February 1998. The Company also grantsstock awards pursuant to its 2000 Stock Award Plan described below.Collectively, the plans provide for the granting of up to 4,000,000 shares.At December 31, 2000, the Company has 333,000 shares remaining that can begranted under the plans. All options are granted at a price approximatingfair market value at the date of grant, have vesting periods ranging fromissuance date to five years, have maximum terms ranging from five to sevenyears and are issued to directors, officers, consultants and employees of theCompany. Compensation cost for stock options is measured as the excess, if any, ofthe quoted market price of the Company's stock at the date of the grant overthe amount an employee must pay to acquire the stock. Had compensation costfor these plans been determined using fair value, as explained below, theCompany's net loss and net loss per common share would have increased to thefollowing pro forma amounts (dollars in thousands): Year Ended December 31, --------------------------- 2000 1999 1998 ---- ---- ---- Net loss applicable to common stock: As reported $(22,458) $ (8,594) $(7,470) Pro forma $(23,450) $(12,134) $(8,833) Net loss per common share: As reported $ (.64) $ (.25) $ (.23) Pro forma $ (.66) $ (.35) $ (.27) The fair value of each option granted during the periods reported wasestimated on the date of grant using the Black-Scholes option pricing modelbased on the weighted-average assumptions of: risk-free interest rate of 4.94%for 2000, 6.67% for 1999, and 4.87% for 1998; expected volatility of 66.7% for2000, 46.9% for 1999, and 61.6% for 1998; expected life of three years for2000 and five years for 1999 and 1998; and an expected dividend yield of zerofor all three years. The following table summarizes stock option activity for the periodsnoted. All options listed below were issued to officers, directors, employeesand consultants. Weighted- Average Amount Exercise Price Outstanding at December 31, 1997 3,925,000 $ 4.61 Granted 525,000 $ 9.12 Expired or canceled (42,500) $ 6.44 Exercised (515,600) $ 4.18 --------- Outstanding at December 31, 1998 3,891,900 $ 5.26 Granted 800,000 $ 7.58 Expired or canceled (66,000) $ 7.20 Exercised (1,513,150) $ 4.50 --------- Outstanding at December 31, 1999 3,112,750 $ 6.21 Granted 132,500 $ 9.76 Expired or canceled (19,500) $ 8.56 Exercised (215,152) $ 4.80 --------- Outstanding at December 31, 2000 3,010,598(a) $ 6.45 ========= Options exercisable at December 31, 1998 2,472,900 $ 4.50 ========= Options exercisable at December 31, 1999 2,306,500 $ 5.64 =========Source: CADIZ INC, 10-K, March 29, 2001Powered 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 exercisable at December 31, 2000 2,549,098 $ 5.98 ========= Weighted-average years of remaining contractual life of options outstanding at December 31, 2000 1.79 ========= (a) Exercise prices vary from $4.50 to $11.75 and expiration dates vary from September 2001 to December 2005. The weighted-average fair value of options granted during the years 2000,1999 and 1998 were $5.37, $3.71 and $3.60, respectively. The Company accounts for equity securities issued to non-employees inaccordance with the provisions of SFAS 123 and Emerging Issues Task Force 96-18. During the years ended December 31, 2000, 1999 and 1998, the Companyissued 350,000, 250,000, and 225,000 warrants with weighted-average exerciseprices of $6.46, $6.50 and $7.00, respectively. During the year endedDecember 31, 2000, 75,000 warrants with a weighted-average exercise price of$5.03 were exercised in a cashless transaction resulting in the issuance of30,997 shares of common stock. No warrants expired or were canceled during anyof the three periods discussed. During 2000, in connection with the loanamendments for the Cadiz obligations described in Note 9, the Company repricedcertain warrants previously issued resulting in a reduction in the weighted-average exercise price. At December 31, 2000, there were 1,025,000 warrantsoutstanding with a weighted-average exercise price of $5.34 per share, whichexpire through 2005.2000 STOCK AWARD PLAN The Cadiz Inc. 2000 Stock Award Plan ("Stock Award Plan") was approved bythe Company's shareholders in May 2000. Under the Stock Award Plan, theCompany may issue various forms of stock awards including stock and deferredstock units to attract, retain and motivate key employees or other eligiblepersons. As of December 31, 2000, the Company had outstanding 180,216deferred stock units granted under the Stock Award Plan which entitle theholder to receive one share of the Company's common stock for each deferredstock unit three years from the date of grant. The Company charged $237,000to expense in 2000 in connection with the Stock Award Plan.RESTRICTED STOCK AWARD Following the acquisition of Sun World in 1996, the Company's ChiefExecutive Officer was awarded a stock bonus of 125,000 shares of restrictedcommon stock at no cost. The Company issued 25,000, of these shares in eachof the years ended December 31, 1999 and 1998. Compensation expense wasrecognized as earned over the period of service.NOTE 14 - CONTINGENCIES----------------------- In December 1995, the Company filed an action relative to the proposedconstruction and operation of a landfill (the "Rail-Cycle Project") which wasto be located adjacent to the Company's Cadiz property with the Superior Courtin San Bernardino County, California. The action challenges the variousdecisions by the County of San Bernardino relative to the proposed Rail-CycleProject and seeks compensatory damages. In September 1998, the Court granteddefendants motion for summary judgment. The Company appealed this decisionand in August 2000, the California Court of Appeals granted, in part, theCompany's appeal. The Court's decision revoked all environmental and land-useapprovals, and thus effectively terminated the Rail-Cycle Project, asproposed. The Company filed other civil actions against Waste Management, Inc.,which asserted claims arising from alleged criminal and fraudulent conductagainst the Company engaged in by Waste Management in connection with the Rail-Cycle Project. On March 13, 2001, the Company and Waste Management executed a settlementagreement intended to fully and finally compromise and settle the claimsasserted by the Company against Waste Management in all of the outstandingcivil actions. Pursuant to the Settlement Agreement, Waste Management paidSource: CADIZ INC, 10-K, March 29, 2001Powered 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 $6 million and granted to the Company an exclusive option toreceive, at no cost to the Company, up to approximately 7,000 acres of realproperty in eastern San Bernardino County primarily adjacent to the CadizProgram property. Prior to the acquisition of Sun World by the Company in 1996, theInternal Revenue Service (IRS) had filed claims against Sun World and certainof its subsidiaries (collectively "the Sun World Claimants"), for taxesrefunded for workers that the IRS claims were employees. The Sun WorldClaimants contend that the workers are excluded from the definition ofemployment under the Internal Revenue Code. On January 21, 1998, the DistrictCourt ruled in favor of one of the Sun World claimants. The IRS appealed thedecision. In October 2000, the Company entered into a full settlement of theclaim with the IRS which did not have a material adverse impact on theCompany's financial condition. In the normal course of its agricultural operations, the Company handles,stores, transports and dispenses products identified as hazardous materials.Regulatory agencies periodically conduct inspections and, currently, there areno pending claims with respect to hazardous materials. The Company is involved in other legal and administrative proceedings andclaims. In the opinion of management, the ultimate outcome of each proceedingor all such proceedings combined will not have a material adverse impact onthe Company's financial statements.NOTE 15 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)----------------------------------------------------(In thousands except per share data) Quarter Ended ----------------------------------------- March 31, June 30,September 30, December 31, 2000 2000 2000 2000 ---- ---- ---- ----Revenues $ 7,936 $ 26,928 $ 55,376 $ 17,505Gross profit (loss) (530) 3,698 12,009 4,643Net loss (8,842) (6,282) (342) (6,992)Net loss per common share $ (.25) $ (.18) $ (.01) $ (.20) Quarter Ended ----------------------------------------- March 31, June 30, September 30, December 31, 1999 1999 1999 1999 ---- ---- ---- ----Revenues $ 6,560 $ 26,193 $ 60,644 $ 21,832Gross profit 911 7,628 15,976 6,893Net income (loss) (7,421) (1,908) 2,993 (2,258)Net income (loss) per common share $ (.22) $ (.06) $ .09 $ (.06) CADIZ INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT December 31,BALANCE SHEET ($ in thousands): 2000 1999 ---- ----ASSETS Current assets: Cash and cash equivalents $ 3,099 $ 4,145 Accounts receivable, net 7 16 Prepaid expenses and other 212 386 ------ -------- Total current assets 3,318 4,547Investment in subsidiary 17,093 30,167Property, plant, equipment and water programs, net 38,842 36,710Source: CADIZ INC, 10-K, March 29, 2001Powered 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 assets 4,199 4,372 ------ -------- $ 63,452 $ 75,796 ======== ========LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITYCurrent liabilities: Accounts payable $ 1,209 $ 705 Accrued liabilities 349 1,536 Due to subsidiary 202 203 Long-term debt, current portion - 21 --------- -------- Total current liabilities 1,760 2,465Long-term debt 23,912 23,661Other liabilities 107 -Commitments and contingenciesSeries D redeemable convertible preferred stock - $0.01 par value: 5,000 shares authorized; shares issued and outstanding - 5,000 at December 31, 2000 and none at December 31, 1999 3,950 -Stockholders' equity: Common stock - $.01 par value; 70,000,000 shares authorized; shares issued and outstanding 35,674,674 at December 31, 2000 and 35,166,661 at December 31, 1999 357 352Additional paid-in capital 142,706 136,200Accumulated deficit (109,340) (86,882) ------ ------ Total stockholders' equity 33,723 49,670 --------- -------- $ 63,452 $ 75,796 ========= ========= CADIZ INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANTSTATEMENT OF OPERATIONS Year Ended December 31,($ in thousands except per share data) 2000 1999 1998 ---- ---- ----Revenues $ 1,920 $ 1,829 $ 2,003 -------- -------- --------Costs and expenses: Cost of sales 124 132 144 General and administrative 4,355 4,672 4,631 Special litigation 424 937 1,308 Depreciation and amortization 1,174 1,179 1,182 -------- -------- -------- Total costs and expenses 6,077 6,920 7,265 -------- -------- --------Operating loss (4,157) (5,091) (5,262)Profit (loss) from subsidiaries (14,216) (571) 195Source: CADIZ INC, 10-K, March 29, 2001Powered 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.Interest expense, net 4,085 2,932 2,403 -------- -------- --------Net loss $(22,458) $(8,594) $ (7,470) ======== ======= ==========Net loss per share $ (.64) $ (.25) $ (.23) ======== ======= ==========Weighted-average shares outstanding 35,344 34,678 33,173 ======== ======= ========== CADIZ INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT Year Ended December 31, ------------------------STATEMENT OF CASH FLOWS ($ in thousands)2000 1999 1998 ---- ---- ----Cash flows from operating activities: Net loss $(22,458) $(8,594) $ (7,470) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 2,956 2,498 2,226 Issuance of stock for services - 28 374 Loss (profit) from subsidiaries 14,216 571 (195) (Gain) loss on disposal of assets (1) 6 (17) Deferred stock compensation 100 - - Changes in operating assets and liabilities: Decrease (increase) in accounts receivable 9 61 (59) Decrease (increase) in due from subsidiary - 274 (107) Decrease (increase) in prepaid expenses and other 174 (133) (123) Increase (decrease) in accounts payable 504 4 (9) (Decrease) increase in accrued liabilities (356) 539 1,007 Increase (decrease) in other liabilities 7 - (47) ------- -------- --------- Net cash used for operating activities (4,849) (4,746) (4,420) ------- -------- ---------Cash flows from investing activities: Additions to property, plant and equipment (293) (3,645) (2,910) Additions to developing crops (159) - - Additions to water programs (1,595) (3,177) (856) Proceeds from disposal of property, plant and equipment 1 1,490 27 Increase in other assets (162) (64) (71) ------- -------- --------- Net cash used for investing activities (2,208) (5,396) (3,810) ------- -------- ---------Cash flows from financing activities: Net proceeds from issuance of stock 1,032 6,803 2,154 Proceeds from issuance of preferred stock 5,000 - - Proceeds from issuance of long-term debt - - 10,000 Principal payments on long-term debt (21) (9) (21) ------- -------- ---------Source: CADIZ INC, 10-K, March 29, 2001Powered 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 financing activities 6,011 6,794 12,133 ------- -------- ---------Net (decrease) increase in cash and cash equivalents (1,046) (3,348) 3,903Cash and cash equivalents, beginning of period 4,145 7,493 3,590 ------- -------- ---------Cash and cash equivalents, end of period $ 3,099 $ 4,145 $ 7,493 ======== ======= ========== CADIZ INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the years ended December 31, 2000, 1999 and 1998 ($ in thousands) Balance Additions At Charged Balance Beginning to at EndYear Ended Of Costs and Other ofDecember 31, 2000 Period Expenses Accounts Deductions Period------------------ ------- ------- ------- --------- ------ Allowance for doubtful accounts $ 224 $ 308 $ - $ 10 $ 522 ======== ======= ======== ======= ======== Tax valuation allowance $ 39,665 $ - $ 7,984 $ - $ 47,649 ======== ======= ======== ======= ========Year endedDecember 31, 1999 Allowance for doubtful accounts $ 285 $ - $ - $ 61 $ 224 ======== ======= ======== ======= ======== Tax valuation allowance $ 35,319 $ - $ 4,346 $ - $ 39,665 ======== ======= ======== ======= ========Year endedDecember 31, 1998 Allowance for doubtful accounts $ 287 $ 130 $ - $ 132 $ 285 ======== ======= ======== ======= ======== Tax valuation allowance $ 25,321 $ - $ 9,998 $ - $ 35,319 ======== ======= ======== ======= ======== REPORT OF INDEPENDENT ACCOUNTANTSTo the Board of Directors and Stockholder ofSun World International, Inc. In our opinion, the accompanying consolidated balance sheet and therelated consolidated statements of operations and accumulated deficit and cashflows present fairly, in all material respects, the financial position of SunWorld International, Inc., a wholly-owned subsidiary of Cadiz Inc., and itssubsidiaries at December 31, 2000 and 1999, and the results of theiroperations and their cash flows for each of the three years in the periodended December 31, 2000 in conformity with accounting principles generallySource: CADIZ INC, 10-K, March 29, 2001Powered 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.accepted in the United States of America. These financial statements are theresponsibility of the Company's management; our responsibility is to expressan opinion on these financial statements based on our audits. We conductedour audits of these statements in accordance with auditing standards generallyaccepted in the United States of America, which require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, ona test basis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for ouropinion./s/ PricewaterhouseCoopers----------------------------------- PricewaterhouseCoopers LLPLos Angeles, CaliforniaFebruary 16, 2001 SUN WORLD INTERNATIONAL, INC. (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT Year Ended December 31,($ in thousands) 2000 1999 1998 ---- ---- ----Revenues $107,656 $ 114,890 $ 95,742Income from partnerships 71 328 10,699 --------- ---------- -------- Total revenues 107,727 115,218 106,441 --------- ---------- --------Costs and expenses: Cost of sales 88,203 84,140 75,015 General and administrative 9,721 9,058 8,588 Removal of underperforming crops 1,549 - - Depreciation and amortization 7,207 7,712 7,506 --------- ---------- -------- 106,680 100,910 91,109 --------- ---------- --------Operating income 1,047 14,308 15,332Interest expense, net 15,103 14,879 15,137 --------- ---------- --------Net income (loss) before income taxes (14,056) (571) 195Income tax expense 160 - - --------- ---------- --------Net income (loss) (14,216) (571) 195Accumulated deficit at beginning of period (4,016) (3,445) (3,640) --------- ---------- --------Accumulated deficit at end of period $(18,232) $ (4,016) $(3,445) ======== ========== =========Source: CADIZ INC, 10-K, March 29, 2001Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. See accompanying notes to the consolidated financial statements. SUN WORLD INTERNATIONAL, INC. (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) CONSOLIDATED BALANCE SHEET December 31,($ in thousands) 2000 1999 ----- ----ASSETSCurrent assets: Cash and cash equivalents $ 1,669 $ 392 Accounts receivable, net 7,879 8,431 Inventories 15,405 18,626 Prepaid expenses and other 419 531 -------- --------- Total current assets 25,372 27,980Investment in partnership - 1,497Property, plant, equipment, and water programs, net 125,982 132,299Other assets 7,585 6,911 -------- --------- Total assets $158,939 $ 168,687 ========= ==========LIABILITIES AND STOCKHOLDER'S EQUITYCurrent liabilities: Accounts payable $ 8,170 $ 7,416 Accrued liabilities 5,466 6,150 Long-term debt, current portion 859 704 -------- --------- Total current liabilities 14,495 14,270Long-term debt 121,698 118,428Deferred income taxes 5,447 5,447Other liabilities 206 375Commitments and contingenciesStockholder's equity: Common stock, $.01 par value, 300,000 shares authorized; 42,000 shares issued and outstanding - - Additional paid-in capital 35,325 34,183 Accumulated deficit (18,232) (4,016) -------- --------- Total stockholder's equity 17,093 30,167 -------- --------- Total liabilities and stockholder's equity $158,939 $ 168,687 ========= ==========See accompanying notes to the consolidated financial statements. Source: CADIZ INC, 10-K, March 29, 2001Powered 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. SUN WORLD INTERNATIONAL, INC. (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended December 31, ------------------------($ in thousands) 2000 1999 1998 ---- ---- ----Cash flows from operating activities:Net income (loss) $ (14,216) $ (571) $ 195Adjustments to reconcilenet income (loss) to netcash (used for) providedby operating activities: Depreciation and amortization 7,970 8,570 8,447 Gain on disposal of assets (95) (110) (189) Removal of underperforming crops 1,549 - - Stock earned for services (1,250) (313) - Share of partnership operations (71) (328) (10,699) Deferred stock compensation 137 - - Changes in operating assets and liabilities: Decrease (increase) in accounts receivable 552 (2,213) (355) Decrease (increase) in inventories 2,740 (3,405) (1,637) Decrease in prepaid expenses and other 112 207 431 Increase (decrease) in accounts payable 755 (637) 245 (Decrease) increase in accrued liabilities (683) 1,129 (90) (Decrease) increase in due to parent - (193) 107 (Decrease) increase in other liabilities (305) (298) 68 --------- --------- --------- Net cash (used for) provided by operating activities (2,805) 1,838 (3,477) ---------- --------- ---------Cash flows from investing activities:Additions to property, plant,equipment, and water programs (959) (2,680) (4,398)Additions to developing crops (3,685) (3,531) (3,396)Proceeds from disposal ofproperty, plant and equipment 2,955 233 361Partnership distributions 1,568 - 15,859Increase in other assets (363) (934) (1,949) ---------- --------- --------- Net cash (used for) provided by investing activities (484) (6,912) 6,477 ---------- --------- ---------Cash flows from financing activities:Proceeds from issuance of long-term debt 5,231 - 2,000Principal payments on long-term debt (665) (676) (566) ---------- --------- ---------Source: CADIZ INC, 10-K, March 29, 2001Powered 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 4,566 (676) 1,434 ---------- --------- ---------Net increase (decrease) in cash and cash equivalents 1,277 (5,750) 4,434Cash and cash equivalents at beginning of period 392 6,142 1,708 ---------- --------- ---------Cash and cash equivalents at end of period $ 1,669 $ 392 $ 6,142 ========= ========= ========See accompanying notes to the consolidated financial statements. SUN WORLD INTERNATIONAL, INC. (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) Notes to Consolidated Financial Statements NOTE 1 - NATURE OF OPERATIONS------------------------------ Founded in 1975, Sun World International, Inc. ("SWII") and itssubsidiaries (the "Company") operates as the agricultural segment of CadizInc. ("Cadiz"). The Company is an integrated agricultural operation that ownsmore than 19,000 acres of land, primarily located in two major growing areasof California: the San Joaquin Valley and the Coachella Valley. Freshproduce, including table grapes, stonefruit, citrus, peppers and watermelonsis marketed, packed and shipped to food wholesalers and retailers locatedthroughout the United States and to more than 30 foreign countries. TheCompany owns and operates three cold storage and/or packing facilities locatedin California, of which two are operated and one is leased to a third party. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES---------------------------------------------------PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of SWII and itssubsidiaries, substantially all of which are wholly-owned. All significantintercompany transactions have been eliminated.RECLASSIFICATIONS These financial statements reflect certain reclassifications made to theprior period balances to conform with the current year presentation.USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generallyaccepted accounting principles requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.REVENUE RECOGNITION The Company recognizes crop sale revenue upon shipment and transfer oftitle to customers. Packing revenues and market commissions from third partygrowers are recognized when the related services are provided. Proprietaryproduct development revenues are recognized based upon product sales bylicensees.RESEARCH AND DEVELOPMENT The Company incurs costs to research and develop new varieties ofproprietary products. Research and development costs are expensed asincurred. Such costs were approximately $1,636,000 for the year endedDecember 31, 2000, $1,450,000 for the year ended December 31, 1999, and$1,249,000 for the year ended December 31, 1998.Source: CADIZ INC, 10-K, March 29, 2001Powered 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. CASH AND CASH EQUIVALENTS The Company considers all short-term deposits with an original maturity ofthree months or less to be cash equivalents. The Company invests its excesscash in deposits with major international banks and short-term commercialpaper and, therefore, bears minimal risk. Such investments are stated atcost, which approximates fair value, and are considered cash equivalents forpurposes of reporting cash flows. The Company reclassified book overdraftstotaling $2,179,000 and $1,444,000 to accounts payable for the years endedDecember 31, 2000 and 1999, respectively. INVENTORIES Growing crops, pepper seed, and materials and supplies are stated at thelower of cost or market, on a first-in, first-out (FIFO) basis. Growing cropsinventory includes direct costs and an allocation of indirect costs. INVESTMENT IN PARTNERSHIPS The Company, through a wholly-owned subsidiary, owned a 50% interest inASC/SWB Partnership, formerly named American SunMelon (the "Partnership"). InOctober 1998, the Partnership sold substantially all of its assets to a thirdparty for $35 million in cash. In conjunction with the sale, the Companyreceived an initial distribution of $15.2 million from the Partnership. InNovember 2000, the Company received a final distribution of $1.6 million inconnection with the liquidation of the Partnership. The Company accounted forits investment in the Partnership using the equity method. PROPERTY, PLANT, EQUIPMENT, AND WATER PROGRAMS Property, plant, equipment, and water programs are stated at cost. The Company capitalizes direct and certain indirect costs of plantingand developing orchards and vineyards during the development period, whichvaries by crop and usually ranges from three to seven years. Depreciationcommences in the year commercial production is achieved. Permanent land development costs, such as acquisition costs, clearing,initial leveling and other costs required to bring the land into a suitablecondition for general agricultural use, are capitalized and not depreciatedsince these costs have an indeterminate useful life. Depreciation is provided using the straight-line method over theestimated useful lives of the assets, generally ten to forty-five years forland improvements and buildings, three to twenty-five years for machinery andequipment, and five to thirty years for permanent crops. Water programs are stated at cost. All costs directly attributable tothe development of such programs are being capitalized by the Company.IMPAIRMENT OF LONG-LIVED ASSETS The Company annually evaluates its long-lived assets, includingintangibles, for potential impairment. When circumstances indicate that thecarrying amount of the asset may not be recoverable, as demonstrated byestimated future cash flows, an impairment loss would be recorded based onfair value. In December 2000, the Company accrued costs to remove certainunderperforming crops, primarily stonefruit and wine grapes. The Companyrecorded a one-time charge of $1,549,000 in connection with the removal ofthese crops which is shown under the heading "Removal of underperformingcrops" on the Consolidated Statement of Operations. OTHER ASSETS Capitalized loan fees represent costs incurred to obtain debt financing.Such costs are amortized over the life of the related loan. At December 31,2000, the majority of capitalized loan fees relate to the issuance of theFirst Mortgage Notes described in Note 9. Trademark development costs represent legal costs incurred to obtain anddefend patents and trademarks related to the Company's proprietary productsthroughout the world. Such costs are capitalized and amortized over theirestimated useful life, which range from 10 to 20 years.Source: CADIZ INC, 10-K, March 29, 2001Powered 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 TAXES The Company is included in the consolidated federal and combined state taxreturns of Cadiz. The Company and Cadiz have a tax sharing agreement whichprovides that the Company's current tax liability is determined as though theCompany filed its own returns. Income taxes are provided for using an assetand liability approach which requires the recognition of deferred tax assetsand liabilities for the expected future tax consequences of temporarydifferences between the financial statement and tax bases of assets andliabilities at the applicable enacted tax rates. A valuation allowance isprovided when it is uncertain that some portion or all of the deferred taxassets will be realized. SUPPLEMENTAL CASH FLOW INFORMATION Cash payments for interest for the years ended December 31, 2000,1999 and 1998 were $14,497,000, $14,204,000 and $14,362,000, respectively.NOTE 3 - ACCOUNTS RECEIVABLE---------------------------- Accounts receivable consist of the following (dollars in thousands): December 31, 2000 1999 ---- ---- Trade receivables $ 4,190 $ 4,742 Due from growers 541 582 Other 3,670 3,331 -------- ------- 8,401 8,655 Less allowance for doubtful accounts (522) (224) -------- ------- $ 7,879 $ 8,431 ======== ======== Substantially all trade receivables are from large domestic national andregional supermarket chain stores and produce brokers and are unsecured.Amounts due from unaffiliated growers represent receivables for harvestadvances and for services (harvest, haul and pack) provided on behalf ofgrowers under agreement with the Company and are recovered from proceeds ofproduct sales. Other receivables primarily include wine grape and raisinsales, proceeds due from third party marketers and other miscellaneousreceivables. Revenues attributable to one national retailer totaled $12.8 million in2000, $14.4 million in 1999 and $11.9 million in 1998. Export sales accountedfor approximately 9.9%, 10.3%, and 8.5% of the Company's revenues for theyears ended December 31, 2000, 1999 and 1998, respectively.NOTE 4 - INVENTORIES-------------------- Inventories consist of the following (dollars in thousands): December 31, 2000 1999 ---- ---- Growing crops $ 11,740 $ 14,500 Pepper seed 257 1,028 Harvested product 528 98 Materials and supplies 2,880 3,000 --- ----- -------- $15,405 $ 18,626 ======== ========Source: CADIZ INC, 10-K, March 29, 2001Powered 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 5 - PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS------------------------------------------------------- Property, plant, equipment, and water programs consist of the following(dollars in thousands): December 31, 2000 1999 ---- ---- Land $ 49,196 $ 51,588 Permanent crops 58,860 58,129 Developing crops 9,546 8,862 Buildings 20,496 20,440 Machinery and equipment 14,025 13,540 Water programs 2,135 2,135 --------- --------- 154,258 154,694 Less accumulated depreciation (28,276) (22,395) --------- --------- $ 125,982 $ 132,299 ========= =========NOTE 6 - OTHER ASSETS--------------------- Other assets consist of the following (dollars in thousands): December 31, 2000 1999 ---- ---- Capitalized loan fees, net $ 2,510 $ 3,274 Long-term receivables 1,799 1,849 Capitalized trademark development, net 1,713 1,475 Other 1,563 313 -------- -------- $ 7,585 $ 6,911 ======== =======NOTE 7 - ACCRUED LIABILITIES--------------------------- Accrued liabilities consist of the following (dollars in thousands): December 31, 2000 1999 Interest $2,780 $2,732 Payroll and benefits 1,609 2,298 Other 1,077 1,120 -------- -------- $5,466 $6,150 ======== =======NOTE 8 - REVOLVING CREDIT FACILITIES------------------------------------ In February 2001, Sun World renewed its Revolving Credit Facility throughthe 2001 growing season with a maturity date of November 2001. Maximumamounts eligible to be borrowed under the Revolving Credit Facility varythroughout the year with a maximum of $30 million available during the peakborrowing periods of April to July. The Revolving Credit Facility is securedby eligible accounts receivable and inventory, requires the Company to meetcertain financial covenants, and is guaranteed by Cadiz. Amounts borrowedunder the facility will accrue interest at either prime plus 1.0% or LIBORplus 2.50% at the Company's election. No amounts were outstanding under theRevolving Credit Facility at December 31, 2000 and 1999.NOTE 9 - LONG-TERM DEBTSource: CADIZ INC, 10-K, March 29, 2001Powered 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.----------------------- Management estimates that the fair value of the Company's long-term debtapproximates the carrying value for all debt instruments except the Series BFirst Mortgage Notes ("First Mortgage Notes"). The fair value of the FirstMortgage Notes is estimated to be approximately $103.5 million based on quotedmarket prices as of December 31, 2000. At December 31, 2000 and December 31,1999, the carrying amount of the Company's outstanding debt is summarized asfollows (dollars in thousands): December 31, 2000 1999 ---- ---- Series B First Mortgage Notes, interest payable semi-annually with principal due in April 2004, interest at 11.25% $ 115,000 $ 115,000 Senior unsecured term loan, interest payable quarterly, due December 31, 2002, interest at LIBOR plus 3% (9.40% at December 31, 2000) 5,000 - Note payable to bank, quarterly principal installments of $72 plus interest payable monthly, due December 31, 2003, interest at prime (9.50% at December 31, 2000 and 8.75% at December 31, 1999) 1,500 1,714 Note payable to insurance company, quarterly installments of $120 (including interest), due January 1, 2005, interest at 7.75% 1,639 1,896 Note payable to finance company, monthly installments of $18 (including interest), due July 1, 2002, interest at 7.50% 305 492 Other 255 30 Debt discount (1,142) - ---------- --------- 122,557 119,132 Less: current portion (859) (704) ---------- --------- $ 121,698 $ 118,428 ========== ========= Annual maturities of long-term debt outstanding, excluding $1,142representing the unamortized portion of warrants on December 31, 2000 are asfollows: 2001 - $859; 2002 - $5,850; 2003 - $1,337; 2004 - $115,531 and 2005- $122. In April 1997, the Company issued $115 million of Series A First MortgageNotes through a private placement. The notes have subsequently been exchangedfor Series B First Mortgage Notes, which are registered under the SecuritiesAct of 1933 and are publicly traded. The First Mortgage Notes are secured bya first lien (subject to certain permitted liens) on substantially all of theassets of the Company and its subsidiaries other than growing crops, cropinventories and accounts receivable and proceeds thereof, which secure theRevolving Credit Facility. The First Mortgage Notes are also guaranteed byCadiz and by certain subsidiaries of the Company. Cadiz also pledged all ofits stock in the Company as collateral for its guarantee. The guarantees bythe Sun World subsidiary guarantors are full, unconditional and joint andseveral. Additionally, management believes that the non-guarantor subsidiariesare inconsequential, both individually and in the aggregate, to the financialstatements of the Company for all periods presented. The First Mortgage NotesSource: CADIZ INC, 10-K, March 29, 2001Powered 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.mature April 15, 2004, but are redeemable at the option of the Company, inwhole or in part, at any time on or after April 15, 2001. The First MortgageNotes include covenants, which restrict Cadiz ability to receive distributionsfrom the Company. In December 2000, Sun World entered into a two year $5 million seniorunsecured term loan. In connection with obtaining the loan, the Companyissued 50,000 shares of Cadiz common stock as well as certain warrants topurchase shares of Cadiz common stock. The fair value of the stock and thewarrants were recorded as a debt discount and are being amortized over thelife of the loan. Pursuant to Statement of Financial Accounting Standards No. 133,"Accounting for Derivative Instruments and Hedging Activities", the warrantsmeet the definition of a derivative for the Company as the value of thewarrants is tied to the market value of Cadiz stock. As such, the value ofthe warrants will be adjusted to fair value at each reporting date with thecorresponding gain or loss being amortized over the remaining life of thenote.NOTE 10 - INCOME TAXES----------------------- Significant components of the Company's deferred income tax assets andliabilities as of December 31, 2000 and 1999 are as follows (dollars inthousands): December 31, 2000 1999 ---- ---- Deferred tax liabilities: Net fixed assets basis difference $ 8,077 $ 8,093 Other 48 48 -------- --------- Total deferred tax liabilities 8,125 8,141 -------- --------- Deferred tax assets: Net operating losses 9,811 4,513 Reserve for notes receivable 1,178 1,178 State taxes 1,854 1,854 Other 1,728 944 -------- --------- Total deferred tax assets 14,571 8,489 Valuation allowance for deferred tax assets (11,893) (5,795) -------- --------- Net deferred tax assets 2,678 2,694 -------- --------- Net deferred tax liability $ 5,447 $ 5,447 ======== ======== As of December 31, 2000, the Company has net operating loss (NOL)carryforwards of approximately $24.3 million for federal income tax purposes.Such carryforwards expire in varying amounts through the year 2020. As ofDecember 31, 2000, the Company has state NOL carryforwards of approximately$17.7 million. These NOL carryforwards expire in varying amounts through theyear 2010. A reconciliation of the income tax expense to the statutory federal incometax rate is as follows (dollars in thousands): Year Ended December 31, 2000 1999 ---- ---- Expected federal income tax benefit at 34% $ (4,779) $ (194) Loss with no tax benefit provided 4,742 139 State income tax 147 -Source: CADIZ INC, 10-K, March 29, 2001Powered 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 non-deductible expenses 50 55 -------- --------- Income tax expense $ 160 $ - ========= =========NOTE 11 - EMPLOYEE BENEFIT PLANS------------------------------- The Company participates in the Cadiz Inc. 401(k) Plan for its salariedemployees. Employees must work 1,000 hours and have completed one year ofservice to be eligible to participate in this plan. The Company matches 75%of the first four percent deferred by an employee up to $1,600 per year. Inaddition, the Company maintains a defined contribution pension plan coveringsubstantially all of its employees who (i) are not covered by a collectivebargaining agreement, (ii) have at least one year of service and (iii) haveworked at least 1,000 hours. Contributions are 2% of each covered employee'ssalary. For those hourly employees covered under a collective bargainingagreement, contributions are made to a multi-employer pension plan inaccordance with negotiated labor contracts and are generally based on thenumber of hours worked.NOTE 12 - RELATED PARTY TRANSACTIONS------------------------------------ Cadiz owns approximately 1,600 acres of irrigated farmland in SanBernardino County consisting primarily of citrus and grapes. Pursuant to aten year lease entered into as of the acquisition date, the Company isresponsible for the production, packing and handling, and marketing of theproducts on the Cadiz property. Pursuant to the lease as amended in April1997, Cadiz is to receive annual land rent of $250 per acre or $400,000. Inaddition, the Company entered into a service agreement with Cadiz in whichCadiz provides management and financial services to the Company. The term ofthe agreement is ten years with an annual fee of $1.5 million. The agreementprovides for certain other reimbursement of expenses incurred on behalf of theCompany. The Company made payments to Cadiz of $2.3 million for 2000, and $2.4million for 1999 and 1998 pursuant to the services agreement and the leaseagreement mentioned above. In addition, the Company purchased a citrus ranchfrom Cadiz at book value of $1.5 million in January 1999. The Company has intercompany revolving credit agreements whereby theCompany can loan or borrow from Cadiz as needed. No amount was outstandingunder the intercompany revolving credit agreement as of December 31, 2000 or1999.NOTE 13 - CONTINGENCIES----------------------- In the normal course of its agricultural operations, the Company handles,stores, transports and dispenses products identified as hazardous materials.Regulatory agencies periodically conduct inspections and, currently, there areno pending claims with respect to hazardous materials. Prior to the acquisition of the Company by Cadiz in 1996, the InternalRevenue Service (IRS) had filed claims against the Company and certain of itssubsidiaries (collectively "the Sun World Claimants"), for taxes refunded forworkers that the IRS claims were employees. The Sun World Claimants contendthat the workers are excluded from the definition of employment under theInternal Revenue Code. On January 21, 1998, the District Court ruled in favorof one of the Sun World claimants. The IRS appealed the decision. In October2000, the Company entered into a full settlement of the claim with the IRS,which did not have a material adverse impact on the Company's financialcondition. The Company is involved in other legal and administrative proceedings andclaims. In the opinion of management, the ultimate outcome of each proceedingor all such proceedings combined will not have a material adverse impact onthe Company's financial statements.Source: CADIZ INC, 10-K, March 29, 2001Powered 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 CompanySun World International, Inc.Source: CADIZ INC, 10-K, March 29, 2001Powered 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 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in theRegistration Statements on Form S-8 (Nos. 33-83360, 33-63065, 333-35491, 333-41367, 333-74699 and 333-81805) and onForm S-3 (No. 333-53069 and 333-53768), of Cadiz Inc. of ourreports dated February 16, 2001, except as to Note 14 forCadiz Inc., which is as of March 13, 2001, relating to thefinancial statements and financial statement schedules,which appears in this Form 10-K. We also consent to thereference to us under the heading "Selected Financial Data,"which appears in this Form 10-K./s/ PricewaterhouseCoopers LLP------------------------------------ PricewaterhouseCoopers LLPLos Angeles, CaliforniaMarch 30, 2001Source: CADIZ INC, 10-K, March 29, 2001Powered 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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