SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 LAND COMPANY, INC.
(Exact name of registrant specified in its charter)
DELAWARE 77-0313235
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Wilshire Boulevard, Suite 1620
Santa Monica, CA 90401-1115
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 899-4700
Securities Registered Pursuant to Section 12(b) of the Act: None
Name of Each Exchange
Title of Each Class on Which Registered
None None
---------------------------
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes /X/ No
The number of shares outstanding of each of the Registrant's classes of
Common Stock at August 11,1997 was 32,407,344 shares of Common Stock, par
value $0.01.
===========================================================================
Cadiz Land Company, Inc.
Index to the Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 1997 Page(s)
I. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. Statement of Operations. . . . . . . . . . . . . . . . . 1
B. Balance Sheet. . . . . . . . . . . . . . . . . . . . . . 3
C. Statement of Cash Flows . . . . . . . . . . . . . . . . 5
D. Statement of Redeemable Preferred Stock,
Preferred Stock,Common Stock and
Other Stockholders' Equity . . . . . . . . . . . . . . . 6
E. Notes. . . . . . . . . . . . . . . . . . . . . . . . . . 7
II. SUPPLEMENTARY INFORMATION
A. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . .10
B. Other Information. . . . . . . . . . . . . . . . . . . .18
C. Signatures . . . . . . . . . . . . . . . . . . . . . . 19
Cadiz Land Company, Inc.
Condensed Consolidated Statement of Operations (unaudited)
For the Three Months Ended June 30, 1997 1996
------ ------
($ in thousands except per share data)
Revenues $ 25,656 $ 82
------- -------
Costs and expenses:
Cost of sales 20,153 508
Landfill prevention activities 176 127
General and administrative 3,135 737
Depreciation and amortization 1,812 258
------- -------
Total costs and expenses 25,276 1,630
------- -------
Operating profit (loss) 380 (1,548)
Interest expense, net 3,949 439
------- -------
Net loss (3,569) (1,987)
Less: Preferred stock dividends (766) -0-
------- -------
Net loss applicable to common stock (4,335) (1,987)
======= =======
Net loss per common share $ (.15) $ (.10)
======= ========
Weighted average shares outstanding 29,000 19,300
======= =======
See accompanying notes to the consolidated financial statements.
Cadiz Land Company, Inc.
Condensed Consolidated Statement of Operations (unaudited)
For the Six Months Ended June 30, 1997 1996
----- -----
($ in thousands except per share data)
Revenues $ 30,543 $ 403
------- -------
Costs and expenses:
Cost of sales 25,171 1,371
Landfill prevention activities 380 1,375
General and administrative 5,826 1,365
Depreciation and amortization 2,345 528
------- -------
Total costs and expenses 33,722 4,639
------- -------
Operating loss (3,179) (4,236)
Interest expense, net 7,786 892
------- -------
Net loss (10,965) (5,128)
Less: Preferred stock dividends (1,204) -0-
------- -------
Net loss applicable to common stock $ (12,169) $ (5,128)
======= =======
Net loss per common share $ (.46) $ (.27)
======= =======
Weighted average shares outstanding 26,400 18,800
======= =======
See accompanying notes to the consolidated financial statements.
Cadiz Land Company, Inc.
Condensed Consolidated Balance Sheet (unaudited)
June 30, December 31,
Assets ($ in thousands): 1997 1996
-------- -------
Current assets:
Cash and cash equivalents $ 2,801 $33,307
Accounts receivable, net 20,264 7,533
Assets held for sale 900 6,534
Inventories 27,056 14,121
Prepaid expenses and other 1,203 1,225
------- -------
Total current assets 52,224 62,720
Investment in partnerships 5,662 6,122
Property, plant and equipment, net 140,299 137,897
Land held for development 12,746 12,671
Water rights and transfer and
storage projects 5,073 4,705
Other assets 5,638 1,695
Excess purchase price over net
assets acquired, net 4,864 4,980
------- -------
$ 226,506 $ 230,790
======= =======
See accompanying notes to the consolidated financial statements.
Cadiz Land Company, Inc.
Condensed Consolidated Balance Sheet (unaudited)
Liabilities and Other Stockholders' Equity June 30, December 31,
($ in thousands) 1997 1996
------ -------
Current liabilities:
Revolving credit facility $16,910 $ -0-
Accounts payable 19,476 7,435
Accrued liabilities 5,947 5,172
Long-term debt, current portion 1,171 4,753
Other current liabilities 150 591
------- -------
Total current liabilities 43,654 17,951
Long-term debt 127,749 149,111
Deferred income taxes 4,347 4,347
Other liabilities 4,364 4,209
Commitments and contingencies
Series A redeemable preferred stock -
$.01 par value ($1,000 liquidation
value); 60,000 shares authorized;
shares issued and outstanding -
none at June 30, 1997
and 27,431 at December 31, 1996 -0- 27,431
Preferred stock - $.01 par value;
40,000 shares authorized,
shares issued and outstanding -
90 at June 30, 1997 and
340 shares at December 31, 1996 - -
Common stock - $.01 par value;
45,000,000 shares
authorized; shares issued and
outstanding - 32,361,116 at
June 30, 1997 and 23,445,868 at;
December 31, 1996 324 234
Additional paid-in capital 119,304 88,574
Accumulated deficit (73,236) (61,067)
------- -------
$ 226,506 $ 230,790
======== =======
See accompanying notes to the consolidated financial statements.
Cadiz Land Company, Inc.
Condensed Consolidated Statement of Cash Flows (unaudited)
For the Six Months Ended June 30, 1997 1996
---- -----
($ in thousands)
(unaudited)
Cash flows from operating activities:
Net loss from operations $ (10,965) $ (5,128)
Adjustments to reconcile net loss from
operations to cash used for operating
activities:
Depreciation and amortization 2,345 955
Issuance of shares for
professional services 357 -0-
Interest capitalized to debt 315 293
Provision for loss on disposal
of assets 146 -0-
Share of partnership operations (579) -0-
Changes in operating assets and
liabilities,net of acquisition
of Sun World:
Increase in accounts receivable (12,731) (436)
Increase in inventories (11,195) -0-
Decrease in prepaid expenses
and other 22 220
Increase in accounts payable 12,041 378
Increase in accrued liabilities 1,274 -0-
Decrease in other liabilities (286) -0-
------- -------
Net cash used for operating
activities (19,256) (3,718)
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (1,519) (686)
Proceeds from disposal of property,
plant and equipment 2,798 -0-
Additions to developing crops (2,605) -0-
Partnership distributions 1,039 -0-
Decrease in other assets 1,305 -0-
Acquisition of Sun World,
net of cash acquired -0- (1,590)
------- -------
Net cash provided by (used for)
investing activities 1,018 (2,276)
------- -------
Cash flows from financing activities:
Net proceeds from issuance of stock 1,328 5,687
Proceeds from issuance of debt 115,080 112
Principal payments on long-term debt (140,338) (162)
Proceeds from short-term borrowings 35,071 301
Payments on short-term borrowings (18,161) -0-
Costs for debt issuance (5,248) -0-
------- -------
Net cash (used for) provided
by financing activities (12,268) 5,938
------- -------
Net decrease in cash and cash equivalents (30,506) (56)
Cash and cash equivalents,
beginning of period 33,307 2,600
------- -------
Cash and cash equivalents, end of period $ 2,801 $ 2,544
======= =======
See accompanying notes to the consolidated financial statements.
Cadiz Land Company, Inc.
Condensed Consolidated Statement of Redeemable Preferred Stock,
Preferred Stock, Common Stock and Other Stockholders' Equity (unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1997
($ in thousands)
Redeemable Preferred
Preferred Stock Stock
Shares Amount Shares Amount
------- --------- ------- ------
<S> <C> <C> <C> <C>
Balance as of December 31, 1996 27,431 $ 27,431 340 $ -
Exercise of stock options
and warrants
Issuance of stock for refinancing
Issuance of stock for services
Conversion of redeemable
preferred stock to common
stock (27,431) (27,431)
Conversion of preferred stock
to common stock (250) -
Dividends paid in common
stock on conversion of
preferred stock
Accrued dividends on
preferred stock
Net loss
--------- ------- ------- -------
Balance as of June
30, 1997 -0- $ -0- 90 $ -
========= ======== ======= ========
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Balance as of December 31, 1996 23,445,868 $ 234 $ 88,574 $ (61,067)
Exercise of stock options
and warrants 563,500 6 1,322
Issuance of stock for refinancing 30,000 140
Issuance of stock for services 50,000 1 216
Conversion of redeemable
preferred stock to common
stock 7,314,917 74 27,358
Conversion of preferred stock
to common stock 598,279 6 94
Dividends paid in common stock
on conversion of preferred stock 358,552 3 1,600
Accrued dividends on
preferred stock (1,204)
Net loss (10,965)
--------- ------- ------- --------
Balance as of June 30, 1997 32,361,166 $ 324 $119,304 $(73,236)
========== ======= ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
CADIZ LAND COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The Condensed Consolidated Financial Statements have been prepared by the
Company without audit and should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's latest Form
10-K for the nine month period ended December 31, 1996. The foregoing
Consolidated Financial Statements include all adjustments, consisting only of
normal recurring adjustments which the Company considers necessary for a fair
presentation. The results of operations for the six months ended June 30, 1997
are not necessarily indicative of the results to be expected for the full
fiscal year.
See Note 2 to the Condensed Consolidated Financial Statements included in the
Company's latest Form 10-K for a discussion of the Company's accounting
policies.
In February 1997, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"),
which is effective for fiscal years ending after December 14, 1997. SFAS 128
replaces disclosure of primary and fully diluted earnings per share with basic
and diluted earnings per share. Application of SFAS 128 is not expected to
have a material effect on the Company's earnings per share for the quarters or
the six months ended June 30, 1997 or 1996.
NOTE 2 - LONG-TERM DEBT
- ------------------------
On April 16, 1997 Sun World completed a private placement of $115.0 million in
secured notes (the "Sun World Notes"). The Sun World Notes were sold through
Smith Barney Inc., as initial purchaser, to "qualified institutional buyers"
(as defined in Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act")) and a limited number of institutional "accredited investors"
(as defined in the Securities Act). The proceeds from the issuance of the Sun
World Notes, when combined with Sun World's existing cash and cash made
available under a $30 million Revolving Credit Facility entered into by Sun
World concurrently with the issuance of the Sun World Notes, were used to
retire Sun World's existing indebtedness to John Hancock Mutual Life Insurance
Company ("John Hancock") and Caisse Nationale de Credit Agricole, acting
through its Grand Cayman branch ("Credit Agricole") as well as the Company's
existing indebtedness to Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
("Rabobank").
SUN WORLD OBLIGATIONS
Sun World's $30.0 million Revolving Credit Facility matures in one year and is
guaranteed by the Company. Amounts borrowed under the Revolving Credit
Facility will accrue interest at either prime plus 1.50% or LIBOR plus 2.50%
at Sun World's election, with an additional .50% payable for advances on
eligible inventory above specified levels.
The Sun World Notes, which were issued in the principal amount of $115.0
million on April 16, 1996 and will mature on April 15, 2004, accrue interest
at the rate of 11-1/4% per annum. Interest only is payable semi-annually on
April 15 and October 15 of each year, commencing October 15, 1997. The Sun
World Notes are secured by a first lien on substantially all of the assets
of Sun World and its subsidiaries, other than growing crops, crop inventories
and accounts receivable and proceeds thereof, which secure the Revolving
Credit Facility.
The Sun World Notes are also secured by the guarantees of Coachella Growers,
Inc., Sun Desert, Inc., Sun World Brands, Sun World Management Corporation,
Sun World/Rayo, Agri-Land Realty, Inc., Big Valley Leasing, Inc., Dinuba
Packing Corporation, Pacific Farm Service, Inc., SFC Marketing Corporation,
Sun Harvest, Inc., Sun World Avocado and Sun World Export, Inc. (collectively,
the "Sun World Subsidiary Guarantors") and by the Company. The Company also
pledged all of the stock of Sun World. Sun World and the Sun World Subsidiary
Guarantors are all direct and indirect wholly-owned subsidiaries of the
Company. The guarantees by the Sun World Subsidiary Guarantors are full,
unconditional, and joint and several. Additionally, management believes
that the direct and indirect non-guarantor subsidiaries of Cadiz are
inconsequential, both individually and in the aggregate, to the financial
statements of the Company for all periods presented.
NOTE 2 - LONG-TERM DEBT - (Continued)
- -------------------------------------
SUMMARIZED FINANCIAL INFORMATION
Summarized consolidated financial information for Sun World is as follows
(in thousands):
June 30, 1997
------------
Current assets $ 51,684
Noncurrent assets 142,908
Current liabilities 42,399
Noncurrent liabilities 126,506
For the Six
Months Ended
June 30, 1997
--------------
Revenues $ 30,416
Cost of sales (25,184)
Operating loss (1,065)
Net loss (7,673)
Combined summarized financial information for the Sun World Subsidiary
Guarantors is as follows: (in thousands):
June 30, 1997
---------------
Current assets $ -0-
Noncurrent assets 8,964
Current liabilities 1
Noncurrent liabilities 100
For the Six
Months Ended
June 30, 1997
--------------
Share of net income of equity investee $ 579
Separate financial statements for Sun World and each of the Sun World
Subsidiary Guarantors are not presented as management has determined they would
not be material to investors.
NOTE 3 - PREFERRED AND COMMON STOCK
- ------------------------------------
During the six months ended June 30 1997, 150 shares of Series B Preferred
Stock ("Series B Preferred") were converted into 356,768 shares of common
stock. Additionally, 100 Shares of Series C Preferred Stock ("Series C
Preferred") were converted into 241,511 shares of common stock. Dividends
paid in common stock on conversion of the Series B Preferred and Series C
Preferred totalled 9,884 shares of common stock.
On May 7, 1997, the Company mandatorily converted all of the 27,431
outstanding shares of the Series A Redeemable Preferred Stock ("Series A
Preferred") into 7,314,917 shares of common stock. As a condition to such
conversion, the Company paid holders of the Series A Preferred one year of
dividends (less the amount of any dividends previously paid). Dividends
were paid in the form of 348,668 shares of common stock issued during the
six months ended June 30, 1997.
During the six months ended June 30, 1997, previously outstanding stock
options of 563,500 were exercised resulting in gross proceeds to the Company of
$1,328,000. In addition, 50,000 shares were issued to the Company's Chief
Executive Officer upon the achievement of certain performance criteria and
30,000 shares were issued to a former lender for refinancing arrangements.
CADIZ LAND COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- -------------------------------------------------------------------------
OPERATIONS (Unaudited)
- ----------
GENERAL
On September 13, 1996, the Company acquired all of the outstanding capital
stock of Sun World. The Company's acquisition of Sun World was accounted for
on a consolidated basis using the purchase method of accounting. The
Consolidated Financial Statements include Sun World from the date of
acquisition. In addition, the Company has changed its fiscal year from
March 31 to December 31 in order to align the Company's year end with that
of Sun World.
RESULTS OF OPERATIONS
The financial statements set forth herein for the three and six months
ending June 30, 1997, reflect the results of operations for both the Company
and Sun World for the period January 1, 1997 through June 30, 1997. The
results of operations of Sun World prior to the September 13, 1996 acquisition
date have not been consolidated with those of the Company. As a result of the
foregoing, direct comparisons of the Company's consolidated results of
operations for the three months and six months ended June 30, 1997 with
results for the three and six months ended June 30, 1996 will not, in the
view of management of the Company, prove meaningful. Instead, a summary of
the Sun World elements which management of the Company believes essential to
an analysis of the results of operations for such periods is presented below.
For purposes of this summary, the term Sun World will be used, when the context
so requires, with respect to the operations and activities of the Company's
Sun World subsidiary, and the term Cadiz will be used, when the context so
requires, with respect to those operations and activities of the Company not
involving Sun World.
The Company's net income or loss in future fiscal periods will be largely
reflective of the operations of Sun World. Sun World conducts its operations
through four operating divisions: farming, packing, marketing and proprietary
product development. Net income from farming operations varies from year to
year primarily due to yield and pricing fluctuations which can be significantly
influenced by weather conditions, and are, therefore, generally subject to
greater annual variation than Sun World's other divisions. However, the
geographic distribution of Sun World's farming operations and the diversity of
its crop mix makes it unlikely that adverse weather conditions would affect all
of Sun World's properties or all of its crops in any single year. Nevertheless,
as net profit from Sun World's packing, market operations and proprietary
product development tends to be more consistent from year to year than net
profit from Sun World's farming operations, Sun World is seeking to expand
volume in the packing and marketing areas by increasing the number of growers
with which Sun World maintains packing and marketing arrangements. Sun World
is also actively exploring various domestic and international opportunities
to license selected proprietary fruit varieties.
The following discussion contains trend analysis and other forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results could differ materially from those projected in the forward-
looking statements throughout this document.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
- ------------------------------------------------------------------------------
The Company's agricultural operations are impacted by the general seasonal
trends that are characteristic of the agricultural industry. Sun World has
historically received the majority of its net income during the months of June
to October following the harvest and sale of its table grape and tree fruit
crops. Due to this concentrated activity, Sun World has, therefore,
historically incurred a loss with respect to its agricultural operations in the
other months during the year.
During the current year, atypical weather conditions have resulted in much
higher than normal crop yields for table grapes and tree fruit crops, therefore
resulting in lower prices throughout the industry. However, the Company's
proprietary products such as Superior Seedless(TM) table grapes and Black
Diamond(TM) plums have allowed Sun World to continue to command a price
premium to the overall market which has helped mitigate the difficult market
conditions industry-wide.
The table below sets forth, for the periods indicated, the results of
operations for the Company's four main operating divisions (before elimination
of any interdivisional charges) as well as the categories of costs and expenses
incurred by the Company which are not included within the divisional results
(in thousands):
Three Months Ended
June 30,
----------
1997 1996
---- -----
Divisional net income (loss):
Farming $ 1,118 (426)
Packing 2,286 -0-
Marketing 1,626 -0-
Proprietary product development 298 -0-
------- --------
5,328 (426)
Landfill prevention expense 176 127
General and administrative expense 2,960 737
Depreciation and amortization expense 1,812 258
Interest expense, net 3,949 439
------- --------
Net loss $ (3,569) $ (1,987)
========== =========
The consolidated net loss for the quarter ended June 30, 1997 was $3.6
million compared to a loss of $2.0 million for the same period last year.
FARMING OPERATIONS. The Company's developed agricultural properties,
which total approximately 18,900 acres, are primarily dedicated to producing
permanent commercial crops. Revenues during the quarter resulted primarily
from the harvest of table grapes, sweet red and yellow peppers and seedless
watermelon from the Coachella Valley operations and the beginning of the table
grape and tree fruit harvest from the San Joaquin Valley operations. Although
yields for these crops were higher than normal, similar high crop yields
throughout the industry have resulted in lower prices. As the Company is able
to command a premium price for its proprietary products such as Superior
Seedless table grapes and Black DiamondTM plums, the impact of the industry-
wide lower prices have been somewhat mitigated. Net income from farming
operations totaled $1.1 million for the quarter ended June 30, 1997 based
upon revenues of $20.0 million offset by farming expenses of $18.9 million.
For the quarter ended June 30, 1996, the loss from farming operations
resulted primarily from the Cadiz citrus operations.
PACKING OPERATIONS. Sun World's four packing and handling facilities
contributed $6.6 million in revenues offset by $4.3 million in expenses
resulting in $2.3 million in net income from packing operations during the
quarter ended June 30, 1997. During the quarter, the Company packed 1.3
million units and handled 3.0 million units which represents approximately
35% of the annual volume expected to be packed or handled. Products packed
or handled during the quarter consisted of Company-grown table grapes, sweet
red and yellow peppers and seedless watermelon in the Coachella Valley; table
grapes and citrus products packed for third party growers; and the beginning
of the tree fruit and table grape harvest in the San Joaquin Valley.
The increased yields experienced in the farming operations coupled with
increased volumes from third party growers are expected to positively impact
the packing operations for the year. As all of the Company's packing
operations are conducted through Sun World, no such operations were conducted
by the Company during the 1996 period.
MARKETING OPERATIONS. The Company's marketing operations include selling,
merchandising and promoting Sun World grown products, as well as providing
these services for third party growers. During the three months ended June
30, 1997, a total of 3.4 million units were sold primarily consisting of
Company-grown table grapes, sweet red and yellow peppers and seedless
watermelon from the Coachella Valley; table grapes, seedless watermelon, and
citrus from domestic third party growers; and Company-grown table grapes and
tree fruit from the San Joaquin Valley. These unit sales resulted in
marketing revenue of $2.8 million while marketing expenses totaled $1.2
million for the quarter ended June 30, 1997 resulting in a net income from
marketing operations of $1.6 million. As all of the Company's marketing
operations are conducted through Sun World, no such operations were conducted
by the Company during the 1996 period.
PROPRIETARY PRODUCT DEVELOPMENT. Sun World has a long history of product
innovation, and its research and development center maintains a fruit breeding
program that has introduced dozens of proprietary fruit varieties during the
past five years. In addition, Sun World has a 50% interest in American
SunMelon, a partnership engaged in proprietary development, production and
marketing of seedless watermelon seed. During the three months ended June 30,
1997, net income from proprietary product development was $0.3 million
consisting of the Company's share of partnership income totaling $0.2 million
and $0.1 million in net research and development revenue. As proprietary
product development is conducted solely through Sun World, no such activity was
conducted by the Company during the 1996 period.
LANDFILL PREVENTION ACTIVITIES. The Company is engaged in opposition to
the proposed construction and operation of a landfill to be located adjacent to
its Cadiz Valley property, and has filed a lawsuit seeking, among other things,
to set aside regulatory approvals for the landfill project. During the three
months ended June 30, 1997, expenses incurred in connection with activities in
opposition to the project, such as litigation costs and professional fees and
expenses totaled $0.2 million as compared to $0.1 million during the 1996
period.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
during both the three months ended June 30, 1997 and the three months ended
June 30, 1996 consisted primarily of corporate operating expenses,
professional fees and salaries. These expenses increased by $2.2 million
during the three months ended June 30, 1997 as compared to the 1996 period
primarily due to the addition of Sun World administrative costs in the amount
of $2.1 million for the three months ended June 30, 1997.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense for the quarter ended June 30, 1997 totaled $1.8 million compared to
$0.3 million for the same period in 1996. The increase is attributable to
depreciation relating to the acquired Sun World assets.
INTEREST EXPENSE. Net interest expense totaled $3.9 million during the
three months ended June 30, 1997, compared to $0.4 million during the same
period in 1996. The following table summarizes the components of net interest
expense for the two periods (in thousands):
Three Months Ended
June 30,
-------
1997 1996
------- ------
Interest on outstanding debt - Sun World $ 3,523 $ -0-
Interest on outstanding debt - Cadiz 201 270
Amortization of financing costs 295 238
Interest income (70) (69)
------ ------
$ 3,949 $ 439
======== =======
The increase in interest on outstanding debt during the 1997 period is
attributable to the long-term debt acquired as part of the Sun World
acquisition. Financing costs, which include legal fees and extension fees,
are amortized over the life of the debt agreement.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
- -------------------------------------------------------------------------
The table below sets forth, for the periods indicated, the results of
operations for the Company's four main operating divisions (before elimination
of any interdivisional charges) as well as the categories of costs and expenses
incurred by the Company which are not included within the divisional results
(in thousands):
Six Months Ended
June 30,
--------
1997 1996
----- ------
Divisional net income (loss):
Farming $ 1,306 (968)
Packing 1,764 -0-
Marketing 1,422 -0-
Proprietary product development 540 -0-
-------- --------
5,032 (968)
Landfill prevention expense 380 1,375
General and administrative expense 5,486 1,365
Depreciation and amortization expense 2,345 528
Interest expense 7,786 892
-------- --------
Net loss $(10,965) $ (5,128)
========= =========
The consolidated net loss for the six months ended June 30, 1997 was $11.0
million compared to a loss of $5.1 million for the same period last year.
FARMING OPERATIONS. Net income from farming operations, totalled $1.3
million for the six months ended June 30, 1997, primarily resulting from the
harvest of table grapes, sweet red and yellow peppers and seedless watermelon
from the Coachella Valley operations and the beginning of the table grape and
tree fruit harvest from the San Joaquin Valley operations. Farming revenues
were $22.3 million and farming expenses were $21.0 million for the six months
ended June 30, 1997. Due to the higher than normal crop yield industry-wide,
prices have been lower which reduces farming earnings. The Company's
proprietary products such as Superior Seedless(TM) table grapes and Black
Diamond(TM) plums have allowed Sun World to continue to command a price
premium to the overall market which has helped mitigate the difficult market
conditions industry-wide. For the six months ended June 30, 1996, the $1.0
million loss from farming operations resulted primarily from the Cadiz citrus
operations.
PACKING OPERATIONS. Sun World's four packing and handling facilities
contributed $1.8 million in profit during the six months ended June 30, 1997.
During the six month period, the Company packed 1.7 million units and handled
3.5 million units which primarily consisted of Company-grown table grapes,
sweet red and yellow peppers and seedless watermelon in the Coachella Valley;
table grapes and citrus products packed for third party growers; and the
beginning of the tree fruit and table grape harvest in the San Joaquin Valley.
Packing and handling revenue for these operations of $8.2 million was offset
by $6.4 million of expenses largely related to labor costs and to the fixed
infrastructure costs associated with the Company's four packing facilities.
Year-to-date net income from packing operations is lower than the three
months ended June 30, 1997 as the packing operations reflected a loss due to
the lower volume of packed or handled product in the first quarter. As all
of the Company's packing operations are conducted through Sun World, no such
operations were conducted by the Company during the 1996 period.
MARKETING OPERATIONS. During the six months ended June 30 1997, a total
of 4.3 million units were sold consisting primarily of Company-grown table
grapes, sweet red and yellow peppers and seedless watermelon from the
Coachella Valley; table grapes, seedless watermelon and citrus from domestic
third party growers; Chilean table grapes; and Company-grown table grapes and
tree fruit from the San Joaquin Valley. These unit sales resulted in
marketing revenue of $3.4 million. Marketing expenses totaled $2.0 million
for the six months ended June 30, 1997 resulting in a net income from
marketing operations of $1.4 million. As all of the Company's marketing
operations are conducted through Sun World, no such operations were conducted
by the Company during the 1996 period.
PROPRIETARY PRODUCT DEVELOPMENT. During the six months ended June 30 1997,
net income from proprietary product development was $0.5 million consisting of
the Company's share of partnership income totaling $0.6 million offset by $0.1
million in research and development expenses. As proprietary product
development is conducted solely through Sun World, no such activity was
conducted by the Company during the 1996 period.
LANDFILL PREVENTION ACTIVITIES. During the six months ended June 30 1997,
expenses incurred in connection with activities in opposition to the landfill
project, such as litigation costs and professional fees and expenses totaled
$0.4 million as compared to $1.4 million during the 1996 period.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses,
consisting primarily of corporate operating expenses, professional fees and
salaries, increased by $4.1 million during the six months ended June 30 1997 as
compared to the 1996 period primarily due to the addition of Sun World
administrative costs for the six months ended June 30, 1997 of $4.2 million.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense for the six months ended June 30, 1997 totaled $2.3 million compared
to $0.5 million for the same period in 1996. The increase is attributable to
depreciation relating to the acquired Sun World assets.
INTEREST EXPENSE. Net interest expense totaled $7.8 million during the six
months ended June 30 1997, compared to $0.9 million during the same period in
1996. The following table summarizes the components of net interest expense
for the two periods (in thousands):
Six Months Ended
June 30,
-------
1997 1996
----- -----
Interest on outstanding debt - Sun World $ 6,803 $ -0-
Interest on outstanding debt - Cadiz 479 540
Amortization of financing costs 965 448
Interest income $ (461) (96)
-------- --------
$ 7,786 $ 892
======== =======
The increase in interest on outstanding debt during the 1997 period is
attributable to the long-term debt acquired as part of the Sun World
acquisition. Financing costs, which include legal fees and extension fees,
are amortized over the life of the debt agreement.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL DISCUSSION OF LIQUIDITY AND CAPITAL RESOURCES. With the acquisition
of Sun World, and the completion of an offering by Sun World of $115.0 million
in secured notes and a $30.0 million Revolving Credit Facility, as further
discussed below, the Company believes it will be able to meet its working
capital needs without looking to additional outside funding sources, although
no assurances can be made. See "Current Financing Arrangements" and "Equity
Placements," below. Prior to its acquisition of Sun World, the Company had
looked to outside funding sources to address its liquidity and working capital
needs.
On April 16, 1997, Sun World completed a private placement of $115.0 million
in secured notes (the "Sun World Notes"). The Sun World Notes were sold
through Smith Barney Inc., as initial purchaser, to "qualified institutional
buyers" (as defined in Rule 144A under the Securities Act of 1933, as amended
(the "Securities Act")) and a limited number of institutional "accredited
investors" (as defined in the Securities Act). The proceeds from the
issuance of the Sun World Notes, when combined with Sun World's existing cash
and cash made available under a $30 million Revolving Credit Facility entered
into by Sun World concurrently with the issuance of the Sun World Notes, were
used to retire Sun World's existing indebtedness to John Hancock Mutual Life
Insurance Company ("John Hancock") and Caisse Nationale de Credit Agricole,
acting through its Grand Cayman branch ("Credit Agricole"), as well as Cadiz'
existing indebtedness to Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
("Rabobank") (referred to hereinafter as the "Debt Refinancing" ).
Under Sun World's historical working capital cycle, working capital is
required primarily to finance the costs of growing and harvesting crops, which
occurs from January through September with a peak need in June. Sun World
harvests and sells the majority of its crops during the period from June
through October, when it receives the majority of its revenues. In order to
bridge the gap between incurrence of expenditures and receipt of revenues,
large cash outlays are required each year. Prior to its Debt Refinancing,
Sun World's cash balance was sufficient to provide for these seasonal working
capital requirements without the need for additional outside funding.
However, a substantial portion of Sun World's cash on hand was used upon
issuance of the Sun World Notes to fund debt repayments. Therefore, Sun World
has depended upon the Revolving Credit Facility to meet its seasonal working
capital needs in 1997. As of June 30, 1997, Sun World had an outstanding
balance of approximately $17.0 million under the Revolving Credit Facility
which will be continually reduced during the balance of the 1997 growing
season as seasonal revenues are received.
After giving effect to the issuance of the Sun World Notes and the
application of the net proceeds therefrom, Sun World has $120.0 million of
indebtedness outstanding and $30.0 million of borrowing availability under
the Revolving Credit Facility. Cadiz has approximately $10.0 million of
indebtedness outstanding. See "Cadiz Obligations," below. Management
believes that the terms of the Company's debt facilities following the
issuance of the Sun World Notes are more favorable to the Company than the
terms of the retired debt facilities. See "Outlook," below.
CURRENT FINANCING ARRANGEMENTS.
------------------------------
SUN WORLD OBLIGATIONS
The Sun World Notes, which were issued in the principal amount of $115.0
million on April 16, 1997 and will mature on April 15, 2004, accrue interest
at the rate of 11-1/4% per annum. Interest only is payable semi-annually on
April 15 and October 15 of each year, commencing October 15, 1997. The Sun
World Notes are secured by a first lien on substantially all of the assets of
Sun World and its subsidiaries, other than growing crops, crop inventories
and accounts receivable and proceeds thereof, which secure the Revolving
Credit Facility. The Sun World Notes are also secured by the guarantee of
Cadiz and the pledge by Cadiz of all of the stock of Sun World.
Sun World entered into a one year $30.0 million Revolving Credit Facility
which is guaranteed by Cadiz. Amounts borrowed under the Revolving Credit
Facility will accrue interest at either prime plus 1.50% or LIBOR plus 2.50%,
at Sun World's election, with an additional .50% payable for advances on
eligible inventory above specified levels. As of June 30, 1997, approximately
$17.0 million was outstanding under the Revolving Credit Facility.
CADIZ OBLIGATIONS
As Cadiz has not received significant revenues from its water resource
activity to date, Cadiz has been required to obtain financing to bridge the
gap between the time water resource development expenses are incurred and the
time that revenue will commence. Historically, Cadiz has addressed these
needs primarily through secured debt financing arrangements with its lenders,
private equity placements and the exercise of outstanding stock options.
As discussed in the Company's latest Form 10-K, Cadiz' primary current
lender is ING Baring (U.S.) Capital Corporation ("ING"). The maturity date
of the ING obligations is April 30, 1998 (with the interest rate of such
obligations adjusted as of May 1, 1997 to LIBOR plus 200 basis points,
payable at LIBOR only semi-annually, with the remaining accrued interest
added to principal). ING also granted to Cadiz the right to obtain two
additional one-year extensions. Upon exercise of the first and second
extension, Cadiz would be required to issue certain warrants to ING and the
interest rate would be further adjusted. Currently, ING holds a senior deed
of trust on substantially all of Cadiz' non-Sun World related property.
As the Company continues to aggressively pursue its business strategy,
additional financing specifically in connection with the Company's water
projects will be required. The nature of such additional financing for the
water transfer and/or storage projects will depend upon how the development
and ownership of each project is ultimately structured, and how much of each
project's funding will be the Company's responsibility. Should the Company
determine that it will be able to maximize its profit potential through
construction and ownership of the water delivery and/or storage systems
used in the project, the Company will be required to obtain long-term project
financing. Based upon the results of analyses performed by an investment
banking firm retained by the Company, management believes that several
alternative long-term financing arrangements are available to the Company
which will be further evaluated once funding responsibility and ownership
alternatives are determined.
CASH USED FOR OPERATING ACTIVITIES. Cash used for operating activities
totaled $19.3 million for the six months ended June 30, 1997 as compared to
cash used for continuing operating activities of $3.7 million for the same
period in 1996. The increase in cash used for operating activities primarily
resulted from the inclusion of Sun World's operations and seasonal working
capital requirements in the 1997 period. Significant working capital changes
included an increase in accounts receivable of $12.7 million and an increase
in inventories of $11.2 million attributable to the seasonality of Sun World's
agricultural operations offset by an increase in accounts payable of $12.0
million.
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES. Cash provided by
investing activities totaled $1.0 million during the six months ended June 30,
1997 as compared to cash used for investing activities of $2.3 million during
the prior year's period. Although the Company invested $2.6 million in
developing crops and $1.5 million in the purchase of land, property, plant
and equipment and in furtherance of its water transfer and storage projects,
the Company received proceeds of $2.8 million from the disposal of
underproducing Sun World assets through an asset disposal program. In
addition, partnership distributions received by Sun World totaled $1.0
million and other assets decreased by $1.3 million.
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES. Cash used for financing
activities totaled $12.3 million for the six months ended June 30, 1997 as
compared to cash provided by financing activities of $5.9 million during the
six months ended June 30, 1996. Principal payments on long-term debt of
$140.3 million were made from the proceeds from the issuance of $115.0
million of debt and from the payment of cash derived from the Company's
existing working capital. Costs related to the debt issuance totaled
approximately $5.2 million. Periodic drawdowns aggregating $35.1 million
under the Revolving Credit Facility, net of periodic repayments totaling
$18.2 million, were used to provide the Company's seasonal working capital
requirements. Net proceeds from the exercise of previously outstanding
stock options totaled $1.3 million during the six months ended June 30,
1997.
OUTLOOK
With the issuance of the Sun World Notes, the Company believes that, based
upon current levels of operations and anticipated growth, Sun World can
adequately service its indebtedness and meet its seasonal working capital
needs utilizing available internal cash and the Revolving Credit Facility.
Although the indenture securing the Sun World Notes (the"Sun World Indenture")
and agreements between Cadiz and its principal current lender restrict the
amount of cash that can flow from Sun World to Cadiz and vice versa, Cadiz
expects to be able to meet its ordinary working capital needs, in the short-
term, through a combination of quarterly management fee payments from Sun
World, payments from Sun World under an agricultural lease whereby Sun World
now operates the Company's 1,600 acres of developed agricultural property at
Cadiz, California, and the possible exercise of outstanding stock options.
In addition, there are provisions in the Sun World Indenture allowing for
certain additional payments to be made from Sun World to Cadiz, subject to
Sun World meeting specific tests and ratios.
As the Company is actively pursuing the development of its water resources,
it is seeking the finalization of the regulatory approvals needed to commence
construction of a water delivery and/or storage project at Cadiz. Once the
lengthy regulatory review process is finalized and construction of the
necessary delivery and/or storage system has commenced, the Company
anticipates generating a revenue stream within less than a year thereafter
which will be sufficient to meet the then existing operating requirements of
the Company, although no assurances can be given. Concurrently with the
regulatory review process, the Company is also negotiating the terms of water
delivery and/or storage arrangements with various California water agencies,
which include issues such as financing, pricing concepts and formulas and
ownership of the pipeline and the delivery and/or storage system.
In addition to the development of its water resources, the Company is
actively involved in further agricultural development and reinvestment in
its landholdings. Such development will be systematic and in furtherance of
the Company's business strategy to provide for maximization of the value of
its assets.
CADIZ LAND COMPANY, INC.
Other Information
Item 1 - LEGAL PROCEEDINGS
--------------------
See "Item 3. Legal Proceedings" included in the Company's latest
Form 10-K for a complete discussion.
A hearing on the Company's land use and regulatory claims opposing the
proposed construction and operation of a landfill to be located
adjacent to Company-owned property was held in late July with a
ruling anticipated to be issued within approximately 90 days.
Item 2 - CHANGE IN SECURITIES
---------------------
Not applicable.
Item 3 - DEFAULTS UPON SENIOR SECURITIES
--------------------------------
Not applicable.
Item 4 - SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
--------------------------------------------------
A. The annual meeting of the stockholders of the Company was held on
June 12, 1997. The stockholders took the following action at the
meeting:
1. Re-elected Dwight W. Makins, Keith Brackpool, Russ Hammond and
Stephen D. Weinress to the Company's Board of Directors. Mr.
Makins was elected by the vote of 14,046,239 in favor and
44,100 against, with no one abstaining and no broker non-
votes. Mr. Brackpool was elected by the vote of 14,046,189 in
favor and 44,150 against with no one abstaining and no broker
non-votes. Mr. Hammond was elected by the vote of 14,048,939
in favor and 41,400 against with no one abstaining and no
broker non-votes. Mr. Weinress was elected by the vote of
14,046,939 in favor and 43,400 against, with no one abstaining
and no broker non-votes.
2. Ratified the selection by the Company's Board of Directors
of Price Waterhouse LLP to continue as the Company's
independent auditors for fiscal year 1997 by the vote of
14,082,523 in favor and 4,766 against, with 3,050 abstaining
and no broker non-votes.
Item 5 - OTHER INFORMATION
-------------------
On June 12, 1997, Mr. Murray H. Hutchison was appointed to the Board of
Directors. Mr. Hutchison recently retired as chief executive officer and
chairman of the board for International Technology Corporation, one of
the largest environmental engineering firms in the United States.
On July 15, 1997, Stanley E. Speer was appointed to the position of Chief
Financial Officer of the Company in addition to his role as Chief
Financial Officer of Sun World International, Inc. Susan K. Chapman was
named to the position of Senior Vice President Administration of the
Company in addition to her continued role as Corporate Secretary.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
------------------------------------
A. EXHIBITS
1. Exhibit 27 - Financial Data Schedule
B. REPORTS ON FORM 8-K
Not applicable.
CADIZ LAND COMPANY, INC.
Signatures
Pursuant to the requirements 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.
Cadiz Land Company, Inc.
By: /s/ Keith Brackpool August 14, 1997
---------------------------- ---------------
Keith Brackpool Date
Chief Executive Officer and Director
By: /s/ Stanley E. Speer August 14, 1997
---------------------------- ----------------
Stanley E. Speer Date
Chief Financial Officer
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