U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the fiscal year ended June 30, 2001
[ ] 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 0-1912
SONOMAWEST HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-1069729
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification Number)
2064 HIGHWAY 116 NORTH, SEBASTOPOL, CALIFORNIA 95472
(Address of principal executive offices)
(707) 824-2001
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
On September 4, 2001 non-affiliates of the Registrant held voting stock
with an aggregate market value of $5,451,424 computed by reference to the
average of the bid and asked prices of such stock on such date. For the purposes
of the foregoing calculations, only directors and executive officers of the
Registrant are deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
As of September 4, 2001, there were 1,023,506 shares of common stock,
no par value, outstanding which is the only class of shares publicly traded.
Portions of the following document are incorporated by reference:
Proxy Statement for Registrant's 2001 Annual Meeting of Shareholders
currently scheduled to be held October 31, 2001 and to be filed with the
Securities and Exchange Commission on or before 120 days after the end of the
2001 fiscal year is incorporated by reference into Part III of this report.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
SonomaWest Holdings, Inc. (the "Company" or "Registrant") is including
the following cautionary statement in this Annual Report to make applicable and
take advantage of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 for any forward looking statements made by, or on
behalf of, the Company. Forward looking statements include statements concerning
plans, objectives, goals, strategies, future events or performance and
underlying assumptions, and other statements which are other than statements of
historical facts. Certain statements contained herein are forward looking
statements and, accordingly, involve risks and uncertainties which could cause
actual results or outcomes to differ materially from those expressed in the
forward looking statements. The Company's expectations, beliefs and projections
are expressed in good faith and are believed by the Company to have a reasonable
basis, although actual results may differ materially from those described in any
such forward looking statements. Risks inherent in Registrant's business and
factors that could cause or contribute to such differences include, without
limitation, the considerations set forth under "Management's Discussion and
Analysis of Financial Condition and Results of Operations There can be no
assurance that management's expectations, beliefs or projections will be
achieved or accomplished, and the Company expressly disclaims any obligation to
update any forward looking statements.
PART I
ITEM 1. BUSINESS
The Company was incorporated in California on December 27, 1946 as
Vacu-dry Company, and until July 30, 1999 was engaged in the development,
production and marketing of fruit products. Thereafter, and as part of a
strategic reorientation, the Company sold a major portion of it assets related
to its product lines of processed apple products and products containing
processed apple products to Tree Top, Inc. (Tree Top) for $13.9 million. Certain
product lines used in or related to the apple product lines were not included in
the sale. These included vacuum dried apple products, certain mixed fruit
products, apple products packaged for the Company by others, and organic apple
products. Thereafter in August 1999, the Company determined that these product
lines, as well as the food storage product line, would be discontinued and held
for sale. In the third quarter of fiscal 2000, the Company decided to
discontinue and hold for sale the assets and operations of its organic packaged
goods subsidiary Made In Nature Company, Inc. The intellectual property and most
dried fruit inventories related to the organic packaged goods operation were
sold in May 2000 for $1.1 million to Premier Valley Foods, Inc. Therefore, as of
June 2001, the Company's remaining line of business is its real estate
management and rental operations, consisting of two industrial parks north and
south of Sebastopol, California, totaling almost 458,000 square feet of rentable
space on 82 acres of land. (See Item 2, Properties.) Sebastopol is approximately
56 miles north of San Francisco in Sonoma County. The Company has also committed
itself to a $3 million investment in the preferred stock of a privately held
telecommunications company, MetroPCS, Inc. As of June 30, 2001, the Company had
invested $599,000 on its $3 million commitment.
INDUSTRY SEGMENT INFORMATION
For the year ended June 30, 2001, the Company operated in one
reportable segment, real estate management and rental operations. The Company's
primary business revenue is generated from the leasing of its two industrial
properties, located in Sebastopol, California. The properties are leased out to
multiple tenants with leases varying in length from month-to-month to eight
years. The Company's business is not seasonal and does not require significant
working capital. Revenue from the leasing activities is recorded on a monthly
basis and terms of payment are either net the 1st or 15th of the month. As of
June 30, 2001, no single tenant accounted for more than 10% of the Company's
revenue.
-1-
In addition, while not part of its general operations, the Company has
made a financial commitment to a $3 million investment in the preferred stock of
MetroPCS, Inc., a privately held telecommunications company. The Company is not
involved in the daily operations nor the management of MetroPCS, Inc.
Information regarding all other business income is included in the discussion of
discontinued operations.
ENVIRONMENTAL MATTERS
The Company believes it has complied with all governmental regulations
regarding protection of the environment. Upon the expiration of the existing
waste water permit (issued by the State of California), the Company was notified
that to renew its permit, the Company's current waste water system would need to
be modified to separate domestic waste from its processed waste water. As a
result, the Company is in the process of making these changes to comply with
these regulations and will incur capital expenditures of approximately $100,000
to $150,000 to implement these changes during the 2002 fiscal year. In addition
to these capital expenditures, the Company could be held liable for the costs of
removal or remediation of any hazardous or toxic substances which might be
located on or in our properties in the future. These laws often impose such
liability without regard to whether the owner knew of, or was responsible for,
the presence of the hazardous or toxic substances. The presence of such
substances, or the failure to remediate such substances properly, may adversely
affect the owner's ability to sell or rent the property or to borrow using the
property as collateral. Other Federal and state laws require the removal of
damaged material containing asbestos in the event of remodeling or renovation.
EMPLOYEES
The Company currently employs 6 employees, each in a management or
staff capacity, and none of whom is covered under a collective bargaining
agreement.
Historically the Company has employed an average of approximately 265
persons, many of whom were production workers and covered by a collective
bargaining agreement. The Company substantially reduced its workforce following
the sale to Tree Top in 1999, after which time none of its employees has been
covered under a collective bargaining agreement.
INSURANCE
The Company maintains product, property, and general liability
insurance plus umbrella liability coverage. While management feels the limits
and coverage are adequate relative to the related risks, there is no assurance
that this insurance will be adequate to protect the Company from all unforeseen
occurrences.
CERTAIN FACTORS
In evaluating the Company and its business, the following factors should be
given careful consideration, in addition to the information mentioned elsewhere
in this Form 10-K.
RISKS ASSOCIATED WITH INVESTMENTS IN REAL ESTATE
Income from the properties may be adversely affected by, among other
things, increasing unemployment rates, oversupply of competing properties,
reduction in demand for properties in the area, inflation, and adverse real
estate, zoning and tax laws. Certain significant expenditures associated with an
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investment in real estate (such as mortgage payments, real estate taxes, and
maintenance costs) constitute fixed costs and do not decrease when circumstances
cause a reduction in income from the investment.
SHORT OPERATING HISTORY IN THIS REAL ESTATE INDUSTRY SEGMENT AND INVESTMENT
ACTIVITIES
While the Company has managed real estate and facilities issues for
many years, it is only recently that it has shifted its primary business focus
to that business segment and its investment activities. While the Company
believes that it has sufficient experience, resources and personnel to manage
its properties and investments effectively, it does not have a long operating
history that demonstrates such effective management and there is no assurance
that it will be successful.
POTENTIAL ENVIRONMENTAL LIABILITY
The Company could be held liable for the costs of removal or
remediation of any hazardous or toxic substances located on or in its
properties. These laws often impose such liability without regard to whether the
owner knew of, or was responsible for, the presence of the hazardous or toxic
substances. The presence of such substances, or the failure to remediate such
substances properly, may adversely affect the owner's ability to sell or rent
the property or to borrow using the property as collateral. Other Federal and
state laws require the removal of damaged material containing asbestos in the
event of remodeling or renovation.
UNINSURED LOSS
The Company carries several types of insurance. There are, however,
certain types of extraordinary losses (such as losses from earthquakes) that may
be either uninsurable or not economically insurable. Should an uninsured loss
occur, the Company could lose its investment in and anticipated profits and cash
flow from a property and would continue to be obligated on any mortgage
indebtedness on the property.
INVESTMENT RISKS
The Company has committed to a $3 million minority investment in a
telecommunications company. As of June 30, 2001, the Company had invested
$599,000 on its $3.0 million commitment. Even though the Company's management
believes that the investment in Metro PCS will ultimately provide a positive
return to the Company, there is no assurance that this will occur.
NO DIVIDENDS ON COMMON STOCK
The Company has not paid dividends on its common stock within the last
15 years. Even if its future operations result in profitability, as to which
there can be no assurance, there is no present anticipation that dividends will
be paid. Rather, the Company expects that any future earnings will be applied
toward the further development of the Company's business.
ITEM 2. PROPERTIES
ADMINISTRATIVE OFFICES. As of August 25, 2001 the principal
administrative offices of the Company were relocated to 2064 Highway 116 North,
Sebastopol, California. The administrative offices occupy a small portion of
this Company-owned property. Prior to March 2000, the principal administrative
offices of the Company were located in Santa Rosa, California. These offices
consist of approximately 9,200 square feet of office space and are leased
through December 2003. This space has been sublet through May 2002 at
approximately the Company's lease rate, with an option to renew
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through December 2003. If in management's opinion it is probable that the
sublessee will not exercise the option through December 2003, the Company will
actively market this space to minimize the vacancy risk upon expiration of the
sublease. There can be no assurance that these marketing efforts will be
successful or that a suitable sublessee will be located in a timely manner.
REAL PROPERTY. The Company owns two properties together comprising
81.5 acres in the "West County" wine area of Sonoma County approximately 56
miles north of San Francisco. The properties are four miles apart, north and
south of the town of Sebastopol located in the "Russian River Valley" wine
appellation district.
SONOMAWEST INDUSTRIAL PARK SOUTH. This property consists of 15.2 acres
of land immediately south of Sebastopol at 1365 Gravenstein Highway South. It is
in the City of Sebastopol's sphere of influence. The improvements consist of
five connected buildings on a parcel approximately five acres in size with an
aggregate of 91,300 square feet of rentable space. The available space is quite
suitable for commercial rental. All buildings have fire sprinkler protection.
Other features include ample parking, security and a location close to major
north-south and east-west traffic arteries. In addition, there is 19,000 square
feet of paved parking area that can be leased. The property is zoned for
"limited industrial" use which means that permitted uses include
agricultural/food processing, light industry, office, warehousing or storage.
Adjacent to these five acres are two additional undeveloped Company owned
parcels approximately two acres and eight acres in size zoned "limited
industrial" and "low density residential", respectively. Currently 88% of the
space available has been leased to nine tenants. Lease terms range from
month-to-month to eight years with options to extend beyond that.
The following table sets forth the schedule of the lease expirations
for each of the ten years commencing with the fiscal year ending June 30, 2002:
Number of Percent of
Tenants Whose Total Square Annual Rent Gross Rent
Year ending Leases Will Feet Covered Represented Represented
June 30th Expire by Leases by Leases by Leases
--------------------------------------------------------------------------------
2002 2 75,018 $ 304,854 84%
2003 - 63,671 265,242 73%
2004 - 63,671 265,242 73%
2005 1 63,671 232,988 64%
2006 1 32,265 89,441 25%
2007 1 5,417 8,075 2%
The federal tax basis of the property is $357,612. The accumulated book
depreciation is $844,233 and the book net carrying value is $353,781.
Depreciation expense is calculated on a straight-line basis for book purposes
and various methods for tax purposes.
The real estate taxes for this property for the fiscal year ended June
30, 2001 were $13,323.
The Company has a $ 2.0 million loan secured by this property, which
matures in December 2003.
SONOMAWEST INDUSTRIAL PARK NORTH. This property consists of 66.4 acres
of land approximately two miles north of Sebastopol at 2064 Gravenstein Highway
North. The improvements consist of twelve buildings located on approximately 27
acres with an aggregate of 366,484 square feet of leasable space. The balance of
the property is dedicated to wastewater treatment and a large pond for fire
protection. This property is zoned "diversified agriculture" in its entirety
which means that it can be used for agricultural/food processing, cold storage,
warehousing, processing and office space. SonomaWest is
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currently attempting to broaden the permitted uses of the 2064 Gravenstein
Highway North property to allow other types of activities, but there can be no
assurance that such efforts will be successful. The existing use permit may
restrict the types of tenants that could occupy the property, resulting in
prolonged vacancy and/or lower rental rates, having a material adverse effect on
the Company's business, financial condition and results of operations.
Currently 43% of the space available has been leased to sixteen
tenants. An additional 62,778 square feet of outside space has also been leased.
Leases range from month-to-month to eight years with options to extend beyond
that.
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Number of Percent of
Tenants Whose Total Square Annual Rent Gross Rent
Year ending Leases Will Feet Covered Represented Represented
June 30th Expire by Leases by Leases by Leases
--------------------------------------------------------------------------------
2002 7 104,678 $ 450,057 49%
2003 - 57,678 319,881 35%
2004 1 57,678 311,223 34%
2005 - 55,273 302,565 33%
2006 1 55,273 256,885 28%
2007 1 4,295 11,447 1%
The federal tax basis of the property is $1,648,498. The accumulated
book depreciation is $3,625,117 and the book net carrying value is $1,702,490.
Depreciation expense is calculated on a straight-line basis for book purposes
and various methods for tax purposes.
The real estate taxes for this property for the fiscal year ended June
30, 2001 were $49,998.
The Company has no debt associated with this facility. The Company is
also evaluating whether it should seek development entitlements for this
property.The Company has engaged a major real estate brokerage firm on a
commission basis to assist in marketing all of its properties. There can be no
assurance that these marketing efforts will be successful, or that suitable
tenants will be found on a timely basis. Significant, prolonged vacancies at the
properties may have a material adverse impact on the Company's business,
financial condition and results of operations.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the last
quarter of the year ended June 30, 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the Nasdaq National Market
System (symbol: SWHI).
The quarterly high and low prices for the last two fiscal years were as
follows:
QUARTER ENDING LOW HIGH
-------------- ---- ----
09/30/99 6.75 10.50
12/31/99 5.38 7.00
03/31/00 4.88 6.13
06/30/00 4.25 6.50
09/30/00 5.75 6.44
12/31/00 5.94 7.50
03/31/01 6.94 8.00
06/30/01 6.40 7.83
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The above quotations were obtained from the Yahoo Finance Historical
Quotes Online website.
On September 4, 2001, there were approximately 473 registered holders
of common stock and 478 shareholders that held stock in street name. On that
date, the average of the high and low price per share of the Company's stock was
$8.00. This price reflects interdealer prices, does not include dealer mark-ups,
mark-downs or commissions, and may not necessarily represent actual
transactions.
In December 2000, the Company repurchased and retired 112,000 warrants
for $112,000. The warrants represented a right to purchase 112,000 shares of
common stock and had an exercise price of $8 per share. The warrants were
originally assigned a value of $456,000. Common stock was increased by the
difference between the repurchase price and the originally assigned value.
In October 2000, the Company's Board of Directors authorized the
repurchase of up to 500,000 shares of the Company's stock at $8.00 per share in
a tender offer. During the fourth quarter of fiscal 2001, 777,000 shares were
tendered resulting in the pro rated repurchase of 64% (500,000) of the tendered
shares.
ITEM 6. SELECTED FINANCIAL DATA.
YEAR ENDED JUNE 30 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2001 2000 1999 1998 1997
------ ------ ------ ------ ------
Total revenues (1) $1,192 $1,197 $ 665 $ 518 $ 537
Net loss from continuing
operations (355) (473) (759) (573) (509)
Net earnings (loss) from
discontinued operations 161 3,183 (2,170) 1,472 1,026
Net earnings (loss) (194) 2,710 (2,929) 899 517
Loss per share from continuing
operations
Basic (0.27) (0.31) (0.50) (0.36) (0.31)
Diluted (0.27) (0.31) (0.50) (0.36) (0.31)
Earnings (loss) per share from
discontinued operations
Basic 0.12 2.09 (1.43) 0.93 0.62
Diluted 0.12 2.06 (1.43) 0.92 0.62
Earnings (loss) per share
Basic (0.15) 1.78 (1.93) 0.57 0.31
Diluted (0.15) 1.75 (1.93) 0.56 0.31
Total Assets 7,687 12,969 17,023 17,008 14,576
Long Term Debt 1,917 1,974 2,860 1,703 1,808
(1) After the sale of the Company's apple-based industrial ingredient
business and the discontinuation of its organic packaged goods business in
fiscal 2000, the Selected Financial Data presented above was reformatted to
reflect this discontinuation in the ongoing business of the Company.
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As a result, this chart now reflects the ongoing real estate business as
continuing operations and the financial results from the discontinuation of its
industrial ingredient and organic packaged goods business as discontinued
operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
OVERVIEW
As of fiscal 2001, the Company's business consists of its real estate
management and rental operations and its investment in the preferred stock of a
private telecommunications company, MetroPCS, Inc. Prior to the sale of its
other business segments, SonomaWest operated in three business segments:
industrial dried fruit ingredients, organic packaged goods and real estate. The
Company commenced a strategic reorientation upon the announcement of the
proposed sale of its apple-based industrial ingredients product line in June
1999. In August 1999 the decision was made to sell or discontinue all product
lines in the Company's industrial dried fruit ingredients business. In January
2000, the Company decided to sell or discontinue its organic packaged goods
business. As a result of these decisions, both of these business segments are
considered discontinued operations and their operating results, results of cash
flows and net assets are reflected outside of the Company's continuing
operations.
During fiscal 2001, the Company committed to a $3 million minority
investment in a telecommunications company. As of June 30, 2001, the Company had
invested $599,000 on its $3.0 million commitment.
DISCONTINUED OPERATIONS
In July 1999, the Company sold the bulk of its apple-based industrial
ingredients product line to Tree Top, Inc., of Selah, Washington. This product
line represented 55% and 81% of the Company's sales for the years ended June 30,
1999 and 1998, respectively. This sale, which was recorded in the first quarter
of fiscal 2000, is an important element of the Company's strategic plan to
increase the return on its investments and increase shareholder value by exiting
businesses with low returns and high capital requirements. The transaction
provided financial resources to support the Company's real estate and other
business opportunities. Following completion of the sale, the Company determined
in August 1999 that the remaining product lines in the Company's vacuum
ingredients segment of its business would be discontinued and held for sale.
These product lines included the Company's dried ingredients, Perma-Pak
long-term food storage, and drink mix businesses. In January 2000, the Company
decided to sell or discontinue its organic packaged goods business. As a result
of these decisions, the Company has classified these business segments as
discontinued operations. Accordingly, the Company has segregated the net assets
of the discontinued operations in the consolidated balance sheets at June 30,
2001 and 2000, the operating results of the discontinued operations in the
consolidated statements of operations for fiscal 2001, 2000, and 1999 and the
cash flows from discontinued operations in the consolidated statements of cash
flows for fiscal 2001, 2000, and 1999.
For fiscal 2001, the Company recorded an after-tax gain from
discontinued operations of $161,000. This compares to an after-tax gain from
discontinued operations of $3,151,000 for 2000. The small gain in 2001 relates
to sales of remaining inventories at higher than anticipated prices as the
wind-down of the vacuum ingredients and organic packaged goods segments is
completed.
In fiscal 2000, the Company recorded after-tax earnings from
discontinued operations of $32,000 on sales of $9.5 million for the ingredients
business and $2.2 million for the organic packaged goods business. This compares
to an after-tax loss of $2.2 million on sales of $35.2 million for the
ingredients business and $2.7 million for the organic packaged goods business in
fiscal 1999. The decline in sales in
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the ingredients business is due to the sale of the apple ingredients business
during the first quarter of fiscal 2000 and a significant decline in the sales
of Perma-Pak food storage products. The decline in sales in the organic packaged
goods business is due to the sale of the dried fruit business in the fourth
quarter of fiscal 2000. After the allocation of selling, general and
administrative expenses between continuing and discontinued operations, the
discontinued businesses generated $53,000 of operating income in fiscal 2000
versus an operating loss of $4.1 million in fiscal 1999. Included in cost of
sales, however, in fiscal 1999 is the write-down of food storage inventories by
$3.5 million to reflect estimated net realizable value. While the Company
experienced exceptionally strong food storage sales through the third quarter of
fiscal 1999, sales have declined substantially since that time. The Company is
actively marketing all remaining assets of its discontinued businesses
(primarily food storage inventory), but there can be no assurances that there
will be a sale of all or any of the remaining assets.
RESULTS OF CONTINUING OPERATIONS
The Company's continuing line of business is its real estate management
and rental operations. See Item 2, Properties, above for a further discussion of
the Company's real estate operations. Additionally, the Company has committed to
a $3 million investment in a telecommunications company, MetroPCS, Inc. As of
June 30, 2001, the Company had invested $599,000 on its $3.0 million commitment.
In August 2001, an additional investment of $446,300 was paid to MetroPCS.
FISCAL 2001 COMPARED TO FISCAL 2000
RENTAL REVENUE. The Company leases warehouse, production, and office
space as well as outside storage space at both of its properties. The two
properties have a combined leaseable area of approximately 458,000 square feet
on 82 acres of land. As of the end of fiscal year 2001, there were 25 leases
covering 275,941 square feet of space or 59% leased compared to 57% leased in
fiscal 2000. The leases contain varying original terms ranging from
month-to-month to eight years. Fiscal 2001 rental revenue remained relatively
constant at $ 1,192,000 decreasing $5,200 from fiscal 2000. Nonetheless, rental
revenue does not cover all operating costs, yielding deficits of $532,000 and
$789,000 in fiscal years 2001 and 2000 respectively. While the Company and its
retained broker are actively marketing the properties to prospective tenants,
there can be no assurance that tenants will be found in the near term or at
rates comparable with existing leases. As a result, the Company's operating
results will be negatively impacted as long as the tenant rental revenue stream
fails to cover existing operating costs.
OPERATING COSTS. Operating costs consist of direct costs related to
continuing operations and all general corporate costs. Only direct selling,
general and administrative costs related to the ingredients and organic packaged
goods businesses were charged to discontinued operations in the consolidated
statements of operations in 2000 and 2001. As of the end of fiscal 2001, the
Company's total operating costs exceeded the tenant rental revenue. Cost
reduction efforts to minimize any avoidable spending have been undertaken to
minimize these negative operating results while the Company actively searches
for additional tenant revenue. For fiscal 2001, operating costs decreased 11% or
$216,000 to $1,974,000 compared to $2,190,000 in the prior year. Operating costs
have begun to normalize for the continuing operations, with the reduction of
temporary labor costs contributing partially to the decrease in these costs. The
Company continues to focus on the reduction of these costs where possible. The
Company's continuing operating results will be negatively impacted as long as
the tenant rental revenue stream fails to cover existing operating costs.
INTEREST AND OTHER INCOME (EXPENSE), NET. Interest and other income
(expense) consists primarily of interest income on the Company's cash balances
and interest expense on mortgage debt. Proceeds from the sale of the ingredients
business received in July 1999 were used to pay off the Company's revolving bank
line of credit and substantially reduce long-term debt. As a result of this
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elimination of debt, the Company was a net investor of cash in fiscal 2001 and
2000. In fiscal 2001 the Company generated $418,000 of interest income and
incurred $156,000 of interest expense, compared to $409,000 of interest income
and $218,000 of interest expense in fiscal 2000.
INCOME TAXES. The fiscal 2001 effective tax rate decreased to 33% from
the fiscal 2000 effective tax rate of 40%. The decrease is due to a valuation
allowance placed on state net operating losses generated in fiscal 2001 due to
the uncertainty of future taxable income against which the state net operating
losses could be offset. The Company has continued to benefit from federal losses
due to the ability to carry such losses back and offset against 2000 taxable
income.
FISCAL 2000 COMPARED TO FISCAL 1999
RENTAL REVENUE. Rental revenue in fiscal 2000 increased 80% or $532,000
from fiscal 1999. This increase was primarily a result of leasing activities at
the Company's former production facility.
OPERATING COSTS. In fiscal 2000, operating costs increased 15% or
$282,000. This change was primarily due to increased temporary labor costs
incurred during the first two quarters of fiscal 2000.
INTEREST AND OTHER INCOME (EXPENSE), NET. In fiscal 2000, the proceeds
from the sale of the Company's ingredient business were used to significantly
reduce its debt. As a result, in fiscal 2000 the Company become a net investor
of cash, generating $409,000 of interest income and incurring $218,000 of
interest expense. In the prior year it was a net borrower, generating interest
income of $2,000 and incurring interest expense of $179,000.
INCOME TAXES. The fiscal 2000 effective tax rate changed from a benefit
of 43% to a charge of 40%, due primarily to lower tax credits in fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash of $ 3.9 million at June 30, 2001, and current
maturities of long-term debt of $57,000. Although the Company generated a
pre-tax loss of $532,000 from operating activities, the cash balances decreased
$4.4 million from $8.3 million at June 30, 2000 to $3.9 million at June 30,
2001. Cash generated from operations was $1,011,000 after adding back non-cash
changes and the changes in other current operating assets and liabilities. The
decrease in the Company's cash balance was primarily a result of the repurchase
of 500,000 shares of the Company's stock at $8.00 per share ($4,087,000
including costs) (see below), an investment in Metro PCS of $599,000 (see
below), a shareholder note payoff of $564,000, the repurchase of warrants of
$112,000 and principal payments on the remaining long-term debt.
During December 2000, the Company entered into an agreement with its
sole lender in order to modify the terms of the lending agreement. As a result,
the financial based debt covenant was amended. The new covenant required the
Company, at the end of each Fiscal Year, to maintain a debt service coverage
ratio at least 1:15 to 1. Until such time as this ratio reaches 1.25 to 1, the
Company was required to maintain restricted, unencumbered cash or marketable
securities of at least $600,000. Furthermore, the terms of the loan restrict the
Company from incurring any additional indebtedness during the term of the loan.
As of June 30, 2001, the Company's debt service ratio was .97 to 1.
Consequently, $600,000 is classified as restricted cash on the accompanying
balance sheet. The Company received a waiver from the Bank of this
non-compliance with the debt service coverage ratio as of June 30, 2001.
As of August 15, 2001, the Company and the Bank agreed to a Restated
and Amended Addendum to this Agreement. This addendum amends and restates the
provisions of the agreement stated
10
above. The new addendum requires that the Company, at the end of each
Fiscal Year, maintain a debt service coverage ratio of at least 1.05 to 1. It
still requires that until such time as this ratio reaches 1.25 to 1, the Company
is required to maintain restricted, unencumbered cash or marketable securities
of at least $600,000. In addition to the lien on the Real Property (South
Property only) it grants the bank a lien in a Money Market account established
by the Company after the fiscal 2001 year end, in the amount of $90,000.
Management is confident that in the future it can remain in compliance with this
new debt service coverage ratio.
The Company has a variable rate borrowing tied to the LIBOR rate. To
reduce its exposure to changes in the LIBOR rate, the Company has entered into a
swap contract. The Company is a party to an interest rate swap under which it
exchanges monthly, the difference between fixed and floating interest amounts
calculated on an initial agreed-upon notional amount of $2,100,000. The notional
amount is amortized monthly based on the Company's principal payments and was
$1,974,000 as of June 30, 2001. The interest rate contract has a five year term
that coincides with the term of the borrowing, both of which began on December
1, 1998 and end on December 1, 2003. The swap contract requires the Company's
counter party to pay it a floating rate of interest based on USD-LIBOR due
monthly. In return, the Company pays its counter party a fixed rate of 5.10%
interest due monthly. The Company will report all changes in fair value of its
swap contract in earnings. During the year ended June 30, 2001, the Company
recorded a decrease in the value of this swap of $12,262. This amount is
included in interest expense. The cumulative effect of adopting this standard
effective July 1, 2000 was not significant.
The Company has committed itself to a $3 million investment in the
preferred stock of a privately held telecommunications company, MetroPCS, Inc.
As of June 30, 2001, the Company had invested $599,000 of its $3 million
commitment. The Company has accounted for the investment using the cost method.
In August, 2001 an additional investment of $446,300 was paid to MetroPCS. It is
expected that the remaining $1,954,700 will be funded in several installments
throughout the fiscal year ending June 30, 2002.
In December 2000, the Company repurchased and retired 112,000 warrants
for $112,000. The warrants represented a right to purchase 112,000 shares of
common stock and had an exercise price of $8 per share. The warrants were
originally assigned a valued of $456,000. Common stock was increased by the
difference between the repurchase price and the originally assigned value.
During fiscal 2001, the Company repurchased 500,000 shares of the
Company's stock at $8.00 per share in a tender offer. The tender offer was
oversubscribed, as 777,000 shares were tendered resulting in the pro rated
repurchase of 64% (500,000 shares) of the tendered shares.
SUBSEQUENT EVENTS
On July 17, 2001 the Company approved the granting of 25,000 common
stock options to Board Members: David Bugatto - 10,000, Roger Mertz - 5,000,
Fred Selinger - 5,000 and Craig Stapleton - 5,000, each at a price of $7.48 per
share.
On July 17, 2001 the Board of Directors entered into an agreement in
principle, which was thereafter executed, with Gary L. Hess, its President and
Chief Executive Officer, replacing Mr. Hess's existing employment agreement.
Pursuant to the separation agreement, Mr. Hess will continue as the President
and Chief Executive Officer, first on a full-time basis and then on a parttime
basis, through October 31, 2001. Effective September 2001, the Company will pay
separation payments to Mr. Hess in the amount of $12,500 monthly for 29 months,
replacing all payment obligations under his prior employment agreement. Mr. Hess
has also been designated as the Company's exclusive sales representative in its
efforts to sell any and all remaining Perma-Pak finished good inventory and
other
11
Perma-Pak property. Mr. Hess also has the option of extending the period within
which he is eligible to exercise options previously granted to him.
On July 17, 2001 the Company entered into a Consulting Agreement with
David J. Bugatto, a director. Pursuant to the agreement Mr. Bugatto will provide
consulting services to the Company in connection with its real estate business
for a monthly fee of $2,500. The agreement is retroactive to April 1, 2001.
MINIMUM LEASE PAYMENTS
The Company has been leasing warehouse space, generating revenues of $1,192,000
in 2001, $1,197,000 in 2000 and $665,000 in 1999. The leases have varying terms,
which range from month-to-month to expiration dates through 2007. As of June 30,
2001, assuming none of the existing leases is renewed or no additional space is
leased, the following will be the future minimum lease income (in thousands):
YEAR ENDING
JUNE 30
----------
2002 $755
2003 585
2004 576
2005 536
2006 346
Thereafter 59
----------
Total $2,857
==========
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Consolidated Financial Statements and Consolidated Financial Statement
Schedule
Independent Auditor's Report .............................................. F-1
Consolidated Balance Sheets at June 30, 2001 and 2000 ..................... F-2
Consolidated Statements of Operations for the years ended
June 30, 2001, 2000 and 1999 .............................................. F-3
Consolidated Statements of Changes in Shareholders' Equity for
the years ended June 30, 2001, 2000 and 1999 .............................. F-4
Consolidated Statements of Cash Flows for the years ended
June 30, 2001, 2000 and 1999 .............................................. F-5
Notes to Consolidated Financial Statements ................................ F-6
12
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
SonomaWest Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of SonomaWest
Holdings, Inc. (a California corporation) and Subsidiary as of June 30, 2001 and
2000, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for the three years then ended. These
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SonomaWest Holdings, Inc. and
Subsidiary as of June 30, 2001 and 2000, and the results of its operations and
its cash flows for the three years then ended, in conformity with accounting
principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Schedule listed in the index to the
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not a required part of the basic
financial statements. This Schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
San Francisco, California,
August 6, 2001
F-1
SONOMAWEST HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2001 AND 2000
(AMOUNTS IN THOUSANDS)
ASSETS 2001 2000
------------------
CURRENT ASSETS:
Cash $3,336 $ 8,359
Restricted cash (see note 4) 600
Accounts receivable, less allowances for
uncollectible accounts of $10 and $47 in
fiscal 2001 and 2000, respectively 97 110
Other receivables 124 --
Prepaid income taxes 287 816
Prepaid expenses and other assets 129 87
Current deferred income taxes, net 263 621
------------------
Total current assets 4,836 9,993
------------------
RENTAL PROPERTY, net 2,252 2,854
------------------
NET ASSETS OF DISCONTINUED OPERATIONS -- 122
------------------
INVESTMENT, at cost 599 --
------------------
Total assets $7,687 $12,969
==================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 57 $ 617
Accounts payable 70 24
Unearned rents and deposits 176 143
Accrued payroll and related liabilities 52 78
Accrued expenses 241 123
Net liabilities of discontinued operations 281 628
------------------
Total current liabilities 877 1,613
------------------
LONG-TERM DEBT, net of current maturities 1,917 1,974
------------------
DEFERRED INCOME TAXES, net 45 147
------------------
Total liabilities 2,839 3,734
------------------
SHAREHOLDERS' EQUITY:
Preferred stock: 2,500 shares authorized;
no shares outstanding -- --
Common stock: 5,000 shares authorized, no par
value; 1,024 and 1,522 shares outstanding
in fiscal 2001 and 2000, respectively 2,187 2,905
Warrants for common stock -- 456
Retained earnings 2,661 5,874
------------------
Total shareholders' equity 4,848 9,235
------------------
Total liabilities and shareholders' equity $7,687 $12,969
==================
The accompanying notes are an integral part of these consolidated statements.
F-2
SONOMAWEST HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2001, 2000, AND 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2001 2000 1999
---------------------------
RENTAL REVENUE $1,192 $1,197 $ 665
---------------------------
OPERATING COSTS 1,974 2,190 1,908
---------------------------
INTEREST AND OTHER INCOME (EXPENSE), NET 250 204 (179)
---------------------------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX (532) (789) (1,422)
BENEFIT FOR INCOME TAXES (177) (316) (663)
---------------------------
NET LOSS FROM CONTINUING OPERATIONS (355) (473) (759)
---------------------------
DISCONTINUED OPERATIONS:
Earnings (loss) from discontinued operations,
net of income taxes -- 32 (2,170)
Gain on sale of discontinued operations,
net of income taxes 161 3,151 --
---------------------------
NET EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS 161 3,183 (2,170)
---------------------------
NET EARNINGS (LOSS) $ (194) $2,710 $(2,929)
===========================
WEIGHTED AVERAGE COMMON SHARES AND EQUIVALENTS:
Basic 1,291 1,520 1,514
Diluted 1,319 1,548 1,549
EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations:
Basic $(0.27) $(0.31) $ (0.50)
Diluted (0.27) (0.31) (0.50)
Discontinued operations:
Basic 0.12 2.09 (1.43)
Diluted 0.12 2.06 (1.43)
Net earnings (loss):
Basic (0.15) 1.78 (1.93)
Diluted (0.15) 1.75 (1.93)
The accompanying notes are an integral part of these consolidated statements.
F-3
SONOMAWEST HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2001, 2000, AND 1999
(AMOUNTS IN THOUSANDS)
COMMON STOCK
---------------- WARRANTS TOTAL
NUMBER FOR SHARE-
OF COMMON RETAINED HOLDERS'
SHARES AMOUNT STOCK EARNINGS EQUITY
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 1,511 $ 2,837 $ 456 $ 6,093 $ 9,386
Net loss -- -- -- (2,929) (2,929)
Issuance of common stock 8 53 -- -- 53
--------------------------------------------
BALANCE, JUNE 30, 1999 1,519 2,890 456 3,164 6,510
Net earnings -- -- -- 2,710 2,710
Issuance of common stock 3 15 -- -- 15
--------------------------------------------
BALANCE, JUNE 30, 2000 1,522 2,905 456 5,874 9,235
Net loss -- -- -- (194) (194)
Repurchase of Common Stock (500) (1,068) -- (3,019) (4,087)
Repurchase and Retire Warrants 344 (456) (112)
Issuance of common stock 2 6 -- -- 6
--------------------------------------------
BALANCE, JUNE 30, 2001 1,024 $ 2,187 $ -- $ 2,661 $ 4,848
============================================
The accompanying notes are an integral part of these consolidated statements.
F-4
SONOMAWEST HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2001, 2000, AND 1999
(AMOUNTS IN THOUSANDS)
2001 2000 1999
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (194) $ 2,710 $(2,929)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
(Income) loss from discontinued
operations, net -- (32) 2,170
Gain on sale of discontinued operations, net (161) (3,151) --
Depreciation and amortization expense 419 414 468
Changes in assets and liabilities:
Accounts receivable, net 13 (110) --
Other receivables (124) -- --
Deferred income tax provision (benefit) 256 1,884 (2,863)
Prepaid income taxes 529 (250) (439)
Prepaid expenses (42) 78 5
Accounts payable and accrued expenses 164 (65) (2,006)
Accrued payroll and related liabilities (26) (199) 277
Unearned rents and deposits 33 140 (30)
-----------------------------
1,061 (1,291) (2,418)
-----------------------------
Net cash provided by (used in)
continuing operations 867 1,419 (5,347)
-----------------------------
Net cash provided by discontinued
operations 144 11,887 1,573
-----------------------------
Net cash provided by (used in)
operating activities 1,011 13,306 (3,774)
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (25) (179) (379)
Investment in Metro PCS (599) -- --
Investing activities of discontinued operations -- 2,099 (820)
-----------------------------
Net cash provided by (used in)
investing activities (624) 1,920 (1,199)
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under the line of credit -- 3,727 26,924
Payments on the line of credit -- (9,472) (23,476)
Principal payments of long-term debt 53 1,414 465
Principal payments of shareholder debt 564 271 --
Stock repurchase (4,087) -- --
Warrant repurchase (112) -- --
Issuance of common stock 6 15 53
Financing activities of discontinued operations -- -- 2,100
-----------------------------
Net cash provided by (used for)
financing activities (4,810) (7,415) 5,136
-----------------------------
NET INCREASE (DECREASE) IN CASH (4,423) 7,811 163
CASH AT BEGINNING OF YEAR 8,359 548 385
-----------------------------
CASH AT END OF YEAR $ 3,936 $ 8,359 $ 548
=============================
The accompanying notes are an integral part of these consolidated statements.
F-5
SONOMAWEST HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
SonomaWest Holdings, Inc., formerly Vacu-dry Company, (SonomaWest or the
Company) was incorporated in 1946 and currently operates as a real estate
management and rental company with an investment in Metro PCS, Inc., a private
telecommunications company. Its rental operations include
industrial/agricultural property, some of which was formerly used by the Company
in its discontinued businesses. This commercial property is now being rented to
third parties. Prior to June 30, 2000 the Company operated in three business
segments: organic packaged goods, real estate and ingredients. As of June 30,
1999, the Company discontinued its ingredients business and was in the process
of selling the assets related to this segment (see Note 2). The business
included low-moisture fruits, bulk apple juice, apple juice concentrate, private
label drink mixes, and low-moisture food products, which were sold to
manufacturers principally in the United States and Canada. In the third quarter
of fiscal 2000, the Company discontinued its organic packaged goods business,
operated through a subsidiary, Made In Nature Company, Inc. (MINCO), and has
sold the assets related to this segment (see Note 2). This subsidiary was formed
on June 11, 1998 upon the acquisition of certain assets and liabilities of Made
In Nature, Inc. (see Note 3). The business included the marketing of organic
packaged foods and chilled pasteurized beverages, which were sold to
distributors and retailers principally in the United States and Canada.
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of SonomaWest and its
85 percent-owned subsidiary, MINCO. As of June 30, 2001, all of the remaining
assets of MINCO have been sold. The accompanying consolidated statements of
operations reflect the financial results of MINCO as part of discontinued
operations. All significant intercompany transactions have been eliminated in
consolidation.
DISCONTINUED OPERATIONS
In July 1999, the Company consummated the sale of its processed apple products
business line to Tree Top, Inc. (see Note 2). Subsequent to the sale, the
Company decided to discontinue its entire ingredients segment and began pursuing
potential buyers for other product lines within this segment. In January 2000,
the Company decided to discontinue its entire organic packaged goods business
and sold a significant portion of MINCO's assets to Premier Valley Foods, Inc.
(see Note 2). The Company's continuing operations consist of its real estate
management , rental operations and an investment in Metro PCS. As a result of
these decisions, SonomaWest has classified its ingredients and organic packaged
goods operations as discontinued operations for all years presented and,
accordingly, has segregated the net assets and liabilities of the discontinued
operations in the consolidated balance sheets as of June 30, 2001 and 2000.
As of June 30, 2001, the Company has disposed of all discontinued assets with
the exception of certain inventories and fixed assets related to the Perma-Pak
product line, which have been fully reserved.
The Company has a net liability for discontinued operations of $281 which
consists of reserves of $74 for potential sublease shortfalls related to its
lease at Stony Point Circle in Santa Rosa, $190 for repairs to the North
Property and $17 for legal expenses.
All corporate overhead costs are presented as a component of continuing
operations.
F-6
SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
2001 2000 1999
----------------------------------------
Cash paid for:
Interest $ 159 $ 326 $ 528
========================================
Income taxes $ 2 $ 420 $ 783
========================================
INVENTORIES
As of June 30, 2001 the Company's remaining inventories of $2,234 consisting
solely of Perma-Pak food storage items, are priced using the first-in, first-out
(FIFO) method and are fully reserved.
PROPERTY, PLANT, AND EQUIPMENT
Property and equipment acquired in connection with the acquisition of Made In
Nature were recorded at estimated fair value on the acquisition date. All other
property, plant, and equipment are stated at cost. The remaining machinery and
equipment of the ingredients segment are fully reserved. Depreciation is
computed using the straight-line method based upon the estimated useful lives of
the assets as follows:
Buildings and improvements 5 to 40 years
Machinery and equipment 3 to 15 years
No depreciation is charged on property, plant, and equipment classified in
discontinued operations.
F-7
Rental property consist of the following as of June 30:
2001 2000
---------------------------
Land $ 231 $ 231
Buildings and improvements 6,670 7,192
Office equipment 349 354
Construction in Progress 12 --
---------------------------
Total rental property 7,262 7,777
Accumulated depreciation (5,010) (4,923)
---------------------------
Net rental property $ 2,252 $ 2,854
===========================
Improvements that extend the life of the asset are capitalized; other
maintenance and repairs are expensed. The cost of maintenance and repairs was
$139 in 2001, $113 in 2000, and $1,041 in 1999.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets and identifiable intangibles whenever
events or circumstances indicate that the carrying amount of such assets may not
be fully recoverable. The Company evaluates the recoverability of long-lived
assets by measuring the carrying amount of the assets against the estimated
undiscounted cash flows associated with these assets. At the time such
evaluations indicate that the future undiscounted cash flows of certain
long-lived assets are not sufficient to recover the assets' carrying value, the
assets are adjusted to their fair values (based upon discounted cash flows).
During fiscal 1998, the Company acquired certain assets and liabilities of MINCO
(Note 3). This acquisition was accounted for under the purchase method, with the
excess of cost over management's estimated fair value of the net assets acquired
of $3,103 allocated to goodwill.
During 1999, management reviewed the estimated future cash flows related to this
operation and deemed them to be insufficient to fully recover the carrying value
of the assets acquired. Accordingly, the Company recognized a $2,935 impairment
expense during the fourth quarter of fiscal 1999 to write-off all unamortized
goodwill as of that date. The expense is included in the net loss from
discontinued operations.
INCOME TAXES
The Company records income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109
requires the Company to compute deferred taxes based upon the amount of taxes
payable in future years after considering changes in tax rates and other
statutory provisions that will be in effect in those years.
Deferred taxes are recorded based upon differences between the financial
statement and tax bases of assets and liabilities and available tax credit
carryforwards.
REVENUE
The Company recognizes rental income on a straight-line basis over the term of
occupancy in accordance with the provisions of the leases.
F-8
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and related interpretations
in accounting for its employee stock options. Under APB 25, because the exercise
price of employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recorded. The Company has
adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock
Based Compensation."
EARNINGS PER COMMON SHARE
Basic earnings per common share are computed by dividing net earnings by the
weighted average number of shares of stock outstanding during the period.
Diluted earnings per common share include the impact of stock options using the
treasury stock method, if dilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. In June 1999, the FASB issued SFAS No. 137, Accounting
for Derivatives and Hedging Activities - Deferral of the Effective Date of SFAS
No. 133. In June 2000, the FASB issued SFAS No. 138, Accounting for Certain
Derivatives and Certain Hedging Activities, an amendment of FASB Statement No.
133. Statement 133, as amended, establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. The Statement requires
that changes in the derivative instrument's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. The Company has
adopted Statement 133 effective July 1, 2000.
The Company has a variable rate borrowing tied to the LIBOR rate. To reduce its
exposure to changes in the LIBOR rate, the Company has entered into a swap
contract. The Company is a party to an interest rate swap under which it
exchanges monthly, the difference between fixed and floating interest amounts
calculated on an initial agreed-upon notional amount of $2,100. The notional
amount is amortized monthly based on the Company's principal payments and was
$1,974 as of June 30, 2001. The interest rate contract has a five year term that
coincides with the term of the borrowing, both of which began on December 1,
1998 and end on December 1, 2003. The swap contract requires the Company's
counter party to pay it a floating rate of interest based on USD-LIBOR due
monthly. In return, the Company pays its counter party a fixed rate of 5.10%
interest due monthly. The Company will report all changes in fair value of its
swap contract in earnings. During the year ended June 30, 2001, the Company
recorded a decrease in the value of this swap of $12. This amount is included in
interest expense. The cumulative effect of adopting this standard effective July
1, 2000 was not significant.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2000 and 1999 consolidated
financial statements to conform to the current year presentation adopted for
fiscal 2001 and as required with respect to discontinued operations.
F-9
2. DISCONTINUED OPERATIONS:
In July 1999, the Company consummated an asset purchase agreement (the Purchase
Agreement) with Tree Top, Inc. The Purchase Agreement governed the sale of all
intangible assets (primarily trademarks, know-how, and customer lists) and
certain of the equipment relating to the Company's processed apple products
line. Although the Purchase Agreement excludes other product lines within the
Company's ingredient segment, the Company decided to actively seek buyers for
the remaining product lines of the ingredients segment and has discontinued
production of all ingredients segment products. Consequently, the ingredients
segment has been presented as a discontinued operation in the accompanying
consolidated financial statements for all periods presented. The purchase price
for the sale of the processed apple products line of $12 million was paid in
cash at the closing date of the sale on July 30, 1999. In addition, equipment
with a net book value of $1,478 was sold for $500, and apple product inventories
with a cost of $1.7 million were purchased for $1.9 million. Tree Top, Inc. did
not assume any of the Company's liabilities. In connection with the Purchase
Agreement, the Company and certain shareholders, directors, and management have
agreed not to compete with Tree Top, Inc. in processed apple product lines for a
period of three to ten years. In addition, as part of the transaction, the
Company sold the Vacu-dry trademark. Thus, the Company changed its name to
SonomaWest Holdings, Inc. in December 1999. In February 2000, certain local
apple growers filed suit against the Company and Tree Top, Inc. alleging that
this sale and related activities created a monopoly in the dried apple business
in violation of federal and California law. The growers are seeking treble
damages, punitive damages, interest, and attorney fees, all in unnamed amounts.
On August 4, 2000, the Company's motion to dismiss the complaint was granted
with leave to amend. The Company feels the suit is without merit and intends to
continue to defend itself vigorously should an amended complaint be filed.
In the third quarter of fiscal 2000, the Company decided to dispose of its
organic packaged foods operations. Accordingly, the organic packaged foods
segment is included in discontinued operations in the accompanying consolidated
financial statements for all periods presented. The Company received $1.1
million for all intellectual property, consisting of the Made In Nature brand
name and all related trademarks, and certain dried fruit inventory of the
organic packaged goods segment from Premier Valley Foods, Inc. in May 2000. All
of the remaining assets of this segment have been disposed of as of June 30,
2001.
During fiscal 2001, the Company recorded an additional after tax gain of $161
related to the wind-down of the ingredients and organic packaged foods segment
as product was sold at higher than anticipated prices.
During fiscal 2000, the Company recorded a net after-tax gain of $3.2 million
from the sale of the processed apple product line and the disposal of the
remaining product lines of the ingredients segment and the organic packaged
foods segment. The net after-tax gain included $16.1 million of proceeds from
the sales offset by: a) the write-down of assets related to the discontinued
segments to their estimated net realizable value (assets which were impaired as
a direct result of the decision to discontinue the segments); b) costs incurred
in closing the discontinued segments (consisting primarily of severance costs,
professional fees, relocation costs and lease buy-outs); c) estimated operating
losses to be incurred during the wind-down period; and d) losses on sale of
equipment.
The Company's remaining line of business is its real estate management, rental
operations and an investment in MetroPCS, Inc.
F-10
Summarized historical information of the discontinued operations is as follows:
FISCAL YEAR ENDED JUNE 30
------------------------------
2001 2000 1999
------------------------------
Income statement data:
Revenues $ -- $ 9,264 $ 37,879
Costs and expenses -- (9,211) (41,943)
------------------------------
Operating income (loss) -- 53 (4,064)
Income tax (provision) benefit -- (21) 1,894
------------------------------
Income (loss) from discontinued
operations, net of income taxes $ -- $ 32 $ (2,170)
==============================
June 30, June 30,
BALANCE SHEET DATA: 2001 2000
---------------------
Accounts receivable, net of reserves
of $0 and $57 $ -- $ --
Inventories, net of reserves of $2,234
and $4,801 -- --
---------------------
Total current assets of discontinued
operations -- --
Property, plant, and equipment, net -- 122
---------------------
Total assets of discontinued operations -- 122
---------------------
Accounts payable -- 234
Provision for severance, transaction costs,
wind-down costs and other liabilities
related to the decision to discontinue
the segments 281 394
---------------------
Total liabilities of discontinued
operations 281 628
---------------------
Net assets (liabilities) of
discontinued operations $(281) $ (506)
=====================
F-11
Summarized historical information of the discontinued operations reserves is as
follows:
June 30, June 30, June 30,
2001 2000 1999
------------------------------
Beginning Balance $ 394 -- --
------------------------------
Additions to Reserve 48 3,551 --
==============================
Reserves Utilized 161 3,157 --
==============================
Provision for severance, transaction costs,
wind-down costs and other liabilities
related to the decision to discontinue
the segments $ 281 $ 394 $ --
==============================
3. ACQUISITION OF MADE IN NATURE:
On April 22, 1998, Made In Nature Company, Inc. (MINCO) was formed for the
purpose of acquiring certain assets and liabilities of Made In Nature, Inc. On
June 11, 1998, SonomaWest acquired the assets and certain liabilities of Made In
Nature, Inc. In addition to the assumption of certain liabilities, SonomaWest
paid $336 in cash and issued to Made In Nature, Inc. and its primary shareholder
a total of 112 warrants to purchase SonomaWest's common stock at $8.00 per
share, expiring through June 2003. The warrant price was equal to the market
price of the Company's stock on June 11, 1998. The value assigned to the
warrants at acquisition date was $456. In December 2000, the Company repurchased
and retired the 112 of warrants for $112. Common stock was increased by the
difference between the repurchase price and the originally assigned value.
Subsequent to the purchase, the Company entered into an agreement with a
creditor of Made In Nature, Inc. whereby this creditor converted its debt into a
15 percent equity interest in MINCO. The acquisition was accounted for using the
purchase method of accounting. The excess of purchase price over the estimated
fair values of assets acquired and liabilities assumed of $3,103 was recorded as
goodwill and was being amortized on a straight-line basis over 20 years during
fiscal 1999. During the fourth quarter of fiscal 1999, the Company's analysis
showed that cash flow projections did not support the recorded value of MINCO
goodwill. Consequently, a charge of $2,935 was recorded to write-off the
unamortized balance of MINCO goodwill.
4. LONG-TERM DEBT:
Long-term debt consists of the following:
2001 2000
------------------------
Notes payable: unsecured five-year notes
resulting from repurchase of stock, interest
at 8.5 percent, interest due monthly,
principal due in January 2003, paid in full
in January and August 2000 -- 564
Note payable: five-year note, interest
synthetically fixed at 7.35 percent,
interest and principal due monthly, maturing
in December 2003, secured by real property 1,974 2,027
------------------------
Total 1,974 2,591
Less: Current maturities (57) (617)
------------------------
Long-term debt $ 1,917 $ 1,974
========================
The Company retired two shareholder notes totaling $271 in the third quarter of
fiscal 2000 and retired the remaining shareholder note of $564 in August 2000.
Interest expense related to the real property note is included in continuing
operations. Interest expense of $45 and $386, attributed to the ingredients and
F-12
organic packaged foods segments, is included in earnings from discontinued
operations for fiscal 2000 and 1999, respectively.
The Company has a variable rate borrowing tied to the LIBOR rate. To reduce its
exposure to changes in the LIBOR rate, the Company has entered into a swap
contract. The Company is a party to an interest rate swap under which it
exchanges monthly, the difference between fixed and floating interest amounts
calculated on an initial agreed-upon notional amount of $2,100. The notional
amount is amortized monthly based on the Company's principal payments and was
$1,974 as of June 30, 2001. The interest rate contract has a five year term that
coincides with the term of the borrowing, both of which began on December 1,
1998 and end on December 1, 2003. The swap contract requires the Company's
counter party to pay it a floating rate of interest based on USD-LIBOR due
monthly. In return, the Company pays its counter party a fixed rate of 5.10%
interest due monthly. The Company will report all changes in fair value of its
swap contract in earnings. During the year ended June 30, 2001, the Company
recorded a decrease in the value of this swap of $12. This amount is included in
interest expense. The cumulative effect of adopting this standard effective July
1, 2000 was not significant.
During December 2000, the Company entered into an agreement with its sole lender
in order to modify the terms of the lending agreement. As a result, the
financial based debt covenant was amended. The new covenant required the
Company, at the end of each Fiscal Year, to maintain a debt service coverage
ratio at least 1:15 to 1. Until such time this ratio reaches 1.25 to 1, the
Company was required to maintain restricted, unencumbered cash or marketable
securities of at least $600. Furthermore, the terms of the loan restrict the
Company from incurring any additional indebtedness during the term of the loan.
As of June 30, 2001, the Company's debt service ratio was .97 to 1.
Consequently, $600 is classified as restricted cash on the accompanying balance
sheet. The Company received a waiver from the Bank of this non-compliance with
the debt service coverage ratio as of June 30, 2001. As of August 15, 2001, the
Company and the Bank agreed to a Restated and Amended Addendum to this
Agreement. This addendum amends and restates the provisions of the agreement
stated above. The new addendum requires that the Company, at the end of each
Fiscal Year, maintain a debt service coverage ratio of at least 1.05 to 1. It
still requires that until such time as this ratio reaches 1.25 to 1, the Company
is required to maintain restricted, unencumbered cash or marketable securities
of at least $600. In addition to the lien on the Real Property (South Property
only) it grants the bank a lien in a Money Market account established by the
Company after the fiscal 2001 year end, in the amount of $90. Management is
confident that in the future it can remain in compliance with this new debt
service coverage ratio.
Maturities of long-term debt are as follows:
YEAR ENDING
JUNE 30
-----------
2002 $ 57
2003 61
2004 1,856
--------
Total $ 1,974
========
5. INCOME TAXES:
The following is a summary of the Company's provision for income taxes:
F-13
2001 2000 1999
----------------------------------------
Current:
Federal $ (288) $ (60) $ 238
State -- (18) 15
Deferred:
Federal 194 1,448 (2,168)
State -- 436 (695)
----------------------------------------
Provision (benefit) $ (94) $ 1,806 $ (2,610)
========================================
The components of the provision (benefit) related to continuing operations and
discontinued operations are as follows:
2001 2000 1999
----------------------------------------
Continuing operations $ (177) $ (316) $ (663)
Discontinued operations 83 2,122 (1,947)
----------------------------------------
Provision (benefit) $ (94) $ 1,806 $ (2,610)
========================================
A reconciliation of the income tax provision to the expected provision at the
federal statutory income tax rate is as follows:
2001 % 2000 % 1999 %
----------- --------- ----------- ------------ ----------- -----------
Provision (benefit) at federal statutory rate $ (98) 34% $ 1,535 34% $ (2,056) 34%
State taxes, less federal tax benefit (--) -- 260 6 (370) 6
Tax credits and other 4 (1) 11 -- (184) 3
----------- --------- ----------- ------------ ----------- -----------
Total provision (benefit) $ (94) 33% $ 1,806 40% $ (2,610) 43%
=========== ========= =========== ============ =========== ===========
Temporary differences that gave rise to deferred tax assets and liabilities for
2001 and 2000 were as follows:
2001 2000
-----------------------------
Deferred tax assets:
Employee benefit accruals $ 13 $ 15
Bad debt reserves 4 28
Discontinued operations reserves 246 558
Other -- 20
-----------------------------
Total deferred tax assets 263 621
-----------------------------
Deferred tax liabilities:
Depreciation (45) (147)
-----------------------------
Total deferred tax liabilities (45) (147)
-----------------------------
$ 218 $ 474
=============================
6. STOCK REPURCHASE:
In December 2000, the Company repurchased and retired 112 warrants for $112. The
warrants represented a right to purchase 112 shares of common stock and had an
exercise price of $8 per share. The warrants were originally assigned a value
of $456. Common stock was increased by the difference between the repurchase
price and the originally assigned value.
F-14
In October 2000, the Company's Board of Directors authorized the repurchase of
up to 500 shares of the Company's stock at $8.00 per share in a tender offer. In
the fourth quarter of fiscal 2001, 777 shares were tendered resulting in the pro
rated repurchase of 64% (500 shares) of the tendered shares.
There were no repurchases during fiscal 2000.
7. STOCK APPRECIATION RIGHTS PLAN:
The Company has a stock appreciation rights (SAR) plan as an incentive for key
employees. Under the SAR plan, key employees are granted rights entitling them
to market price increases in the Company's stock. At June 30, 2001 and 2000, 100
SARs were authorized. The Company has not granted SARs since 1995, and all
employees holding SARs were among those terminated during fiscal 2000 in
connection with the discontinuation of the ingredients segment. As a result, all
remaining SARs were canceled during fiscal 2000.
All rights are granted at fair market value at the date of grant. Rights
generally vest ratably over a period from the second to the sixth anniversary
date of the grant. The SAR liability and expense or credit recorded quarterly is
based on the market price of the Company's stock as of the balance sheet date.
In 2001, 2000, and 1999, the Company decreased operating costs by $0, $0, and
$41, respectively, in order to reflect the current SAR liability.
8. EMPLOYEE STOCK PURCHASE PLAN:
The Employee Stock Purchase Plan enables substantially all employees to purchase
a specified number of shares of the Company's common stock at 85 percent of the
market value on the first or last business day of the quarterly offering period,
whichever is lower. A maximum of 100 shares is authorized for issuance over the
ten-year term of the plan that began on January 1, 1994. At June 30, 2001, 37
shares remain available for purchase under the plan. The following shares were
issued under the terms of the plan during the three fiscal years ending June 30:
SHARES AVERAGE PRICE PER
ISSUED SHARE
------------------ -------------------
2001 1 $ 5.58
2000 3 5.19
1999 8 6.34
1998 7 4.98
9. EMPLOYEE STOCK OPTION PLAN:
During 1996, the Board of Directors (the Board) approved a stock option plan
(the Plan) for employees and nonemployee consultants authorizing issuance of
options for up to 90 shares of common stock. In 1998, the Plan limit was
increased to 150 shares of common stock. In 1999, the Plan limit was increased
to 275 shares of common stock. The Plan includes incentive stock options (ISOs)
and nonqualified stock options (NSOs). Some of the terms and conditions of the
Plan are different for ISOs and NSOs. The purchase price of each ISO granted
will not be less than the fair market value of the Company's common shares at
the date of grant. The purchase price of each NSO granted shall be determined by
the Board in its absolute discretion, but in no event shall such price be less
than 85 percent of the fair market value at the time of grant. NSO and ISO
options granted have a ten-year life from the date of grant. Vested options can
be exercised until the earlier of: 1) their expiration; or 2) 90 days from the
termination of the employment or consulting relationship. Options normally vest
in 25% annual increments from the date of hire.
F-15
The number of shares available for granting future options was 167 as of June
30, 2001, 128 as of June 30, 2000 and 64 as of June 30, 1999.
During May 1999, the Company modified its 1996 Stock Option program (the Plan)
to include all nonbargaining employees. The modification allowed all employees
who were employed as of April 26, 1999, to participate in the Plan, resulting in
the issuance of 123 stock options.
A summary of the status of the Company's stock option plan at June 30, 2001, and
changes during the year ended are presented in the table below:
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
----------------------------------------
Balance, June 30, 2000 148 $ 5.68
Granted -- --
Cancelled (40) 7.35
Exercised -- --
----------------------------------------
Balance, June 30, 2001 108 $ 5.06
========================================
Options outstanding, exercisable, and vested by price range at June 30, 2001,
are as follows:
OPTIONS WEIGHTED WEIGHTED
OPTIONS VESTED AND AVERAGE AVERAGE FAIR
OUTSTANDING EXERCISABLE REMAINING VALUE OF
EXERCISE AT JUNE 30, AT JUNE 30, CONTRACTUAL OPTIONS GRANTED,
PRICE 2001 2001 LIFE (YEARS) AT GRANT DATE
--------------------------------------------------------------------------------
$ 5.00 104 104 5.4 $ 1.94
5.28 2 -- 8.7 2.10
8.00 2 1 7.8 4.24
----------------------------------- ------------------
108 105 $ 1.99
=================================== ==================
The Company accounts for the Plan under APB Opinion No. 25, under which no
compensation cost has been recognized for employee grants of options under the
plan. Had compensation cost for the Plan been determined consistent with SFAS
No. 123, the Company's net income and earnings per share would have been reduced
to the following pro forma amounts:
2001 2000 1999
------------------------------------------
Net income (loss):
As reported $ (194) $ 2,710 $ (2,929)
Pro forma (201) 2,550 (2,995)
Basic earnings per share:
As reported (0.15) 1.78 (1.93)
Pro forma (0.15) 1.68 (1.98)
Diluted earnings per share:
As reported (0.15) 1.75 (1.93)
Pro forma (0.15) 1.65 (1.98)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model, with the following weighted-average
assumptions used for the 2000, 1999 and 1996 grants, respectively: weighted
average risk-free interest rate of 6.19, 5.13 and 6.61 percent; expected
dividend yield of 0 percent; expected life of four years for the Plan options;
and expected volatility of 39.54, 63.85 and 37.44 percent.
F-16
10. EARNINGS PER SHARE CALCULATION:
The Company computes earnings per share in accordance with SFAS No. 128,
"Earnings per Share." In 2001, 2000 and 1999, the effect of potentially dilutive
stock options and warrants has not been computed where the effect would be
anti-dilutive due to a loss from continuing operations, discontinued operations
and/or a net loss.
11. COMMITMENT AND CONTINGENCIES:
The Company leases office space under an operating lease that expires in 2004.
At June 30, 2000, future minimum rental payments for the operating lease are as
follows:
OPERATING LEASE
-------------------
2002 $188
2003 188
2004 86
-------------------
$462
===================
Rental expense under operating leases was $178 in 2001, $176 in 2000 and $403 in
1999.
The Company has committed itself to a $3 million investment in the preferred
stock of a privately held telecommunications company, MetroPCS, Inc. As of June
30, 2001, the Company had invested $599 on its $3 million commitment. The
Company has accounted for the investment using the cost method. It is expected
that the remaining $2,401 is to be funded in several installments throughout the
fiscal year ending June 30, 2002.
LITIGATION
The Company is a party to lawsuits and claims arising out of the normal course
of business. Management believes that the outcome of these claims and lawsuits
will not have a material adverse effect on the financial position and results of
the Company.
12. RETIREMENT PLANS:
The Company has a contributory retirement savings and profit sharing plan
covering nonunion employees. The Company contributes one and one-half times the
first 3 percent of employee contributions to the retirement savings plan.
Profit-sharing contributions are derived using a specific formula based upon the
Company's earnings. Company contributions to the retirement savings and profit
sharing plan are funded currently and were approximately $20 in 2001, $58 in
2000 and $160 in 1999. The employer's contributions for any fiscal year may not
exceed the amount lawfully deductible by the Company under the provisions of the
Internal Revenue Code.
As of fiscal 2001, there are no employees covered by a collective bargaining
agreement. Prior to fiscal 2001, the Company contributed to a defined
contribution plan for employees covered by collective bargaining agreement.
These contributions, funded currently, were $0 in 2001, $144 in 2000, and $628
in 1999, and were included in discontinued operations.
13. RELATED-PARTY TRANSACTIONS:
A member of the Company's Board is a member of the law firm that serves as the
Company's general counsel. During 2001, 2000, and 1999, the Company incurred
$214, $271 and $124 respectively, for
F-17
legal services from this firm and from another firm of which the director was a
member prior to October 16, 1999. There were no amounts payable to this law firm
as of June 30, 2001.
A member of the Company's Board has entered into an independent consulting
agreement with the Company, whereby the Board member will provide real estate
consulting services to the Company. During fiscal 2001, the Company incurred $8,
for real estate consulting services. As of June 30, 2001, $8 was payable to the
Board member.
During fiscal 1999, the Company incurred $150 for consulting services from a
current shareholder of the Company.
14. SUBSEQUENT EVENTS
On July 17, 2001 the Company approved the granting of 25 common stock options to
Board Members: David Bugatto - 10 options, Roger Mertz - 5 options, Fred
Selinger - 5 options and Craig Stapleton - 5 options, each at a price of $7.48
per share.
On July 17, 2001 the Company entered into an agreement in principle, which was
thereafter executed, with its President and Chief Executive Officer replacing
the executive's existing employment agreement. Pursuant to the separation
agreement, the executive will continue as President and Chief Executive Officer,
first on a full-time basis and then on a part-time basis, through October 31,
2001. Effective September 2001, the Company will pay separation payments to Mr.
Hess in the amount of $13 monthly for 29 months, replacing all payment
obligations under his prior employment agreement. Mr. Hess has also been
designated as the Company's exclusive sales representative in its efforts to
sell any and all remaining Perma-Pak finished good inventory and other Perma-Pak
property. Mr. Hess also has the option of extending the period within which he
is eligible to exercise options previously granted to him.
On July 17, 2001 the Company entered into a Consulting Agreement with David J.
Bugatto, a director. Pursuant to the agreement Mr. Bugatto will provide
consulting services to the Company in connection with its real estate business
for a monthly fee of $3. The agreement is retroactive to April 1, 2001.
F-18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEMS 10, 11, 12 AND 13.
The information required in Items 10, 11, 12 and 13 will be included in
the definitive Proxy Statement for Registrant's 2001 Annual Meeting of
Shareholders or in an amendment to the Form 10-K. The information required in
this Part III will be filed with the Securities and Exchange Commission no later
than 120 days after the end of the Company's fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K.
I. Documents filed as part of this Report:
(a)(1) Financial Statements
The information required by this Item appears in Item 8 of this Annual
Report on Form 10-K.
(a)(2) Financial Statement Schedules
Financial statement schedules not included herein have been omitted
because of the absence of conditions under which they are required or because
the required information, where material, is shown in the financial statements
or notes thereto.
Schedule III.* Real Estate and Accumulated Depreciation
*Schedule included after signature page.
(a)(3) EXHIBITS
EXHIBIT NO. DOCUMENT DESCRIPTION
----------- --------------------
3.1(7) Articles of Incorporation, as amended to date
3.2(1) ByLaws, as amended to date
10.1(2) Employment Agreement between Vacu-dry Company and
Gary L. Hess, dated March 14, 1996
10.2(1) Stock Appreciation Rights Plan
10.3(3) 1996 Stock Option Plan, as amended
10.4(4) 1993 Employee Stock Purchase Plan
10.5(5) Agreement dated June 11, 1998 between MIN Acquisition
Corp., Vacu-dry Company and Global Walk, Inc.
10.6(5) Co-Sale Agreement dated June 11, 1998 between
Vacu-dry Company and Global Walk, Inc.
10.7(5) Asset Purchase Agreement dated June 11, 1998 between
Vacu-dry Company, MIN Acquisition Corp., Made In
Nature, Inc. and Gerald E. Prolman
10.8(5) Warrant to Purchase Common Stock dated June 11, 1998
issued by Vacu-dry Company to Made In Nature, Inc.
10.9(5) Warrant to Purchase Common Stock dated June 11, 1998
issued by Vacu-dry Company to Gerald E. Prolman
10.10(6) Asset Purchase Agreement dated June 21, 1999 between
Vacu-dry Company and Tree Top, Inc.
10.11(7) June 20, 1999 Amendment to Employment Agreement
between Vacu-dry Company and Gary L. Hess, dated
March 14, 1996.
10.12(7) Asset Purchase Agreement dated May 25, 2000 between
Premier Valley Foods, Inc., Made In Nature Company,
Inc., and SonomaWest Holdings, Inc.
10.13 Independent Consultant Agreement dated July 17, 2001
between SonomaWest Holdings, Inc. and David J.
Bugatto.
10.14 Severance Agreement dated July 17, 2001 between
SonomaWest Holdings, Inc. and Gary L. Hess
10.15 Restated and Amended Addendum to Promissory Note,
dated August 15, 2001 between Sonoma West Holdings,
Inc. and Wells Fargo Bank, NA.
11 Computation of Per Share Earnings
21 Subsidiaries of the registrant
23 Consent of Independent Public Accountants
27 Financial Data Schedule (EDGAR Filing Only)
----------
(1) Incorporated by reference to the registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1992
(2) Incorporated by reference to the registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1996
(3) Incorporated by reference to the registrant's Registration Statement on
Form S-8 (No. 333-84295) filed on August 2, 1999
(4) Incorporated by reference to the registrant's Registration Statement on
Form S-8 (No. 033-70870) filed on October 27, 1993
(5) Incorporated by reference to the registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1998
(6) Incorporated by reference to Annex A to the registrant's Consent
Statement on Schedule 14A filed on July 14, 1999
(7) Incorporated by reference to the registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 2000.
(b) REPORTS ON FORM 8-K
During the quarter ended June 30, 2001, the Company did not file any
reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: September 27, 2001 SONOMAWEST HOLDINGS, INC.
By: /s/ GARY L. HESS
----------------
Gary L. Hess
Chief Executive Officer
President
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ GARY L. HESS Chief Executive Officer,
-------------------------- Chief Financial Officer,
Gary L. Hess President, and Director September 27, 2001
/s/ ROGER S. MERTZ
--------------------------
Roger S. Mertz Director September 27, 2001
/s/ FREDRIC SELINGER
--------------------------
Fredric Selinger Director September 27, 2001
/s/ DAVID J. BUGATTO
--------------------------
David J.Bugatto Director September 27, 2001
SCHEDULE III
SonomaWest Holdings, Inc.
REAL ESTATE AND ACCUMULATED DEPRECIATION
June 30, 2001
(DOLLARS IN THOUSANDS)
Column A Column B Column C Column D | Column E | Column F
Costs | Gross Amount |
Initial Cost Subsequently | at which Carried |
to Company Capitalized | at Close of Year |
----------------------------------------------------------------------------
Buildings | Buildings |
and | and Total | Accumulated
Description Encumbrances Land Improvements Improvements | Land Improvements (Note 1) | Depreciation
------------------------------------------------------------------------------------------------------------------------------------
1365 Gravenstein Hwy. So., | |
Sebastopol, CA 1,974 72 308 875 | 72 1,183 1,255 | 899
2064 Gravenstein Hwy. No., | |
Sebastopol, CA -- 159 2,312 3,154 | 159 5,466 5,625 | 3,914
--------------------------------------------------------------------------------------------------------
| |
1,974 231 2,620 4,029 | 231 6,649 6,880 | 4,813
========================================================================================================
Column G Column H Column I
Life on which
Year of Year Depreciation
Construction Acquired is Computed
----------------------------------------------
N/A 1964 5-40
N/A 1983 5-20
Note 1. The changes in the total cost of land, buildings, and improvements for
the three years ended June 30, are as follows:
2001 2000 1999
---- ---- ----
Balance at beginning
of period 7,423 7,391 7,019
Additions 12 32 372
Assets of discontinued
operations (537)
Cost of disposed property (18)
------------------------------------------
Balance at end of period 6,880 7,423 7,391
==========================================
Note 2. The changes in accumulated depreciation for the three years ended June
30, are as follows:
2001 2000 1999
---- ---- ----
Balance at beginning
of period 4,826 4,465 4,143
Depreciation expense 336 361 322
Assets of discontinued
operations (331)
Relief of accumulated
balances related to
disposed property (18)
--------------------------------------------
Balance at end of period 4,813 4,826 4,465
============================================