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 September 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 1600
Santa Monica, CA 90401-1111
(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 November 12, 1997 was 32,543,436 shares of Common Stock, par value
$0.01.
Cadiz Land Company, Inc.
Index to the Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 1997 Page(s)
I. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. Statement of Operations. . . . . . . . . . . . . . . . . 1
B. Balance Sheet. . . . . . . . . . . . . . . . . . . . . . 3
C. Statement of Cash Flows . . . . . . . . . . . . . . . . 5
D. Statement of Redeemable Preferred Stock,
Preferred Stock,Common Stock and
Other Stockholders' Equity . . . . . . . . . . . . . . . 6
E. Notes. . . . . . . . . . . . . . . . . . . . . . . . . . 7
II. SUPPLEMENTARY INFORMATION
A. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . .10
B. Other Information. . . . . . . . . . . . . . . . . . . .18
C. Signatures . . . . . . . . . . . . . . . . . . . . . . 19
Cadiz Land Company, Inc.
Condensed Consolidated Statement of Operations (unaudited)
For the Three Months Ended September 30, 1997 1996
------ ------
($ in thousands except per share data)
Revenues $ 52,949 $ 4,738
-------- -------
Costs and expenses:
Cost of sales 38,316 4,480
Landfill prevention activities 183 135
General and administrative 2,949 1,047
Depreciation and amortization 3,946 381
------- --------
Total costs and expenses 45,394 6,043
------- --------
Operating profit (loss) 7,555 (1,305)
Interest expense, net 3,937 1,137
------- --------
Net income (loss) 3,618 (2,442)
Less: Preferred stock dividends (9) -0-
------- --------
Net income (loss) applicable to common stock 3,609 (2,442)
======= =========
Net income (loss) per common share $ .11 $ (.12)
======= ==========
Weighted average shares outstanding 32,400 20,000
======= ==========
See accompanying notes to the consolidated financial statements.
Cadiz Land Company, Inc.
Condensed Consolidated Statement of Operations (unaudited)
For the Nine Months Ended September 30, 1997 1996
----- -----
($ in thousands except per share data)
Revenues $ 83,492 $ 5,141
------- -------
Costs and expenses:
Cost of sales 63,487 5,094
Landfill prevention activities 563 1,510
General and administrative 8,775 3,169
Depreciation and amortization 6,291 909
------- -------
Total costs and expenses 79,116 10,682
------- -------
Operating profit (loss) 4,376 (5,541)
Interest expense, net 11,723 2,029
------- -------
Net loss (7,347) (7,570)
Less: Preferred stock dividends (1,213) -0-
------- -------
Net loss applicable to common stock $ (8,560) $ (7,570)
======= =======
Net loss per common share $ (.30) $ (.39)
======= =======
Weighted average shares outstanding 28,400 19,200
======= =======
See accompanying notes to the consolidated financial statements.
Cadiz Land Company, Inc.
Condensed Consolidated Balance Sheet (unaudited)
September 30, December 31,
1997 1996
-------- -------
Assets ($ in thousands):
Current assets:
Cash and cash equivalents $ 5,137 $33,307
Accounts receivable, net 11,768 7,533
Assets held for sale 900 6,534
Inventories 14,045 14,121
Prepaid expenses and other 1,251 1,225
------- -------
Total current assets 33,101 62,720
Investment in partnerships 5,578 6,122
Property, plant and equipment, net 137,851 137,897
Land held for development 12,748 12,671
Water rights and transfer and
storage projects 7,925 4,705
Other assets 5,709 1,695
Excess purchase price over net
assets acquired, net 4,805 4,980
------- -------
$ 207,717 $ 230,790
======= =======
See accompanying notes to the consolidated financial statements.
Cadiz Land Company, Inc.
Condensed Consolidated Balance Sheet (unaudited)
September 30, December 31,
1997 1996
------ -------
Liabilities and Other Stockholders' Equity
($ in thousands)
Current liabilities:
Accounts payable 9,185 7,435
Accrued liabilities 9,674 5,172
Long-term debt, current portion 877 4,753
Other current liabilities 301 591
------- -------
Total current liabilities 20,037 17,951
Long-term debt 127,662 149,111
Deferred income taxes 4,347 4,347
Other liabilities 5,182 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 September 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 -
60 at September 30, 1997 and
340 shares at December 31, 1996 - -
Common stock - $.01 par value;
45,000,000 shares
authorized; shares issued and
outstanding - 32,543,436 at
September 30, 1997 and 23,445,868 at
December 31, 1996 325 234
Additional paid-in capital 119,791 88,574
Accumulated deficit (69,627) (61,067)
------- -------
$ 207,717 $ 230,790
======== =======
See accompanying notes to the consolidated financial statements.
Cadiz Land Company, Inc.
Condensed Consolidated Statement of Cash Flows (unaudited)
For the Nine Months Ended September 30, 1997 1996
---- -----
($ in thousands)
Cash flows from operating activities:
Net loss from operations $ (7,347) $ (7,570)
Adjustments to reconcile net loss from
operations to cash used for operating
activities:
Depreciation and amortization 7,254 1,523
Reserve adjustments -0- (87)
Issuance of shares for service 471 344
Interest capitalized to debt 315 83
Provision for loss on disposal of assets 141 -0-
Share of partnership operations (638) -0-
Changes in operating assets and
liabilities, net of acquisition
of Sun World:
(Increase) decrease in accounts receivable (4,235) 1,248
(Increase) decrease in inventories (389) 2,392
(Increase) in prepaid expenses and other (26) (286)
Increase (decrease) in accounts payable 1,750 (4,691)
Increase in accrued liabilities 5,005 1,145
Increase (decrease) in other liabilities 683 (5)
------- -------
Net cash provided (used for) operating
activities 2,984 (5,904)
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (1,883) (887)
Proceeds from disposal of property,
plant and equipment 2,735 -0-
Additions to developing crops (3,739) -0-
Partnership distributions 1,164 -0-
Decrease (increase) in other assets 386 (26)
Acquisition of Sun World, net of cash acquired -0- 1,430
------- -------
Net cash (used for) provided by
investing activities (1,337) 517
------- -------
Cash flows from financing activities:
Net proceeds from issuance of stock 1,690 44,976
Proceeds from issuance of debt 115,080 -0-
Principal payments on long-term debt (140,843) (2,594)
Proceeds from short-term borrowings, net -0- 507
Costs for debt issuance (5,744) -0-
Dividends paid on conversion of preferred stock -0- (19)
------- -------
Net cash (used for) provided
by financing activities (29,817) 42,870
------- -------
Net (decrease) increase in cash and
cash equivalents (28,170) 37,483
Cash and cash equivalents, beginning of period 33,307 2,600
------- -------
Cash and cash equivalents, end of period $ 5,137 $ 40,083
======= =======
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 Nine Months Ended September 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 (280) -
Dividends paid in common
stock on conversion of
preferred stock
Accrued dividends on
preferred stock
Net loss
--------- -------- ------- -------
Balance as of September 30, 1997 -0- $ -0- 60 $ -
========= ======== ======= ========
<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 653,500 7 1,683
Issuance of stock for refinancing 30,000 140
Issuance of stock for services 75,000 1 329
Conversion of redeemable
preferred stock to common stock 7,314,917 73 27,358
Conversion of preferred stock
to common stock 662,900 7 93
Dividends paid in common stock
on conversion of preferred stock 361,251 3 1,614
Accrued dividends on
preferred stock (1,213)
Net loss (7,347)
--------- ------- -------- --------
Balance as of September 30,1997 32,543,436 $ 325 $119,791 $(69,627)
========== ======= ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
CADIZ LAND COMPANY, INC.
NOTES THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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 nine months ended September 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 nine months ended September 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 11-1/4% Series A First Mortgage 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").
Commencing October 14, 1997, Sun World offered to exchange (the "Exchange
Offer") up to $115.0 million aggregate principal amount of its 11-1/4%
Series B First Mortgage Notes (the "Exchange Notes") for $115.0 million
aggregate principal amount of the Sun World Notes. The Exchange Notes
have the same terms as the Sun World Notes. The exchange of all of
the Sun World Notes was completed on November 12, 1997.
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 (subject to certain
permitted liens) on substantially all of the assets of Sun World and its
subsidiaries, other than growing crops, crop inventories and accounts
receivable and proceeds thereof, which secure the Revolving Credit
Facility, and certain real property pledged to third parties.
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.
SUMMARIZED FINANCIAL INFORMATION
Summarized consolidated financial information for Sun World is as follows
(in thousands):
September 30, 1997 December 31, 1996
------------------ ------------------
Current assets $ 33,248 $ 60,651
Noncurrent assets 143,170 136,344
Current liabilities 18,892 14,920
Noncurrent liabilities 127,303 139,615
For the Three For the Nine
Months Ended Months Ended
September 30, 1997 September 30, 1997
------------------ ------------------
Revenues $ 52,854 83,270
Cost of sales (38,409) (63,593)
Operating income 8,273 7,208
Net income (loss) 4,537 (3,136)
Combined summarized financial information for the Sun World Subsidiary
Guarantors is as follows: (in thousands):
September 30, 1997 December 31, 1996
------------------- -----------------
Current assets $ -0- $ -0-
Noncurrent assets 8,061 7,439
Current liabilities 4 4
Noncurrent liabilities 107 107
For the Three For the Nine
Months Ended Months Ended
September 30, 1997 December 31, 1997
------------------- ------------------
Share of net income of
equity investee $ 41 $ 620
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 nine months ended September 30 1997, 180 shares of Series B
Preferred Stock ("Series B Preferred") were converted into 421,389 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 12,583 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 nine months ended September 30, 1997, previously outstanding
stock options of 653,500 were exercised resulting in gross proceeds to the
Company of $1,690,000. In addition, 75,000 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 nine months
ending September 30, 1997, reflect the results of operations for both the
Company and Sun World for the period January 1, 1997 through September 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 nine months
ended September 30, 1997 with results for the three and nine months ended
September 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 September 30, 1997 Compared to Three Months Ended
- ---------------------------------------------------------------------
September 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
September 30,
----------------
1997 1996
Divisional net income (loss) ------- -------
Farming $ 5,618 (47)
Packing 5,411 200
Marketing 2,707 92
Proprietary product development 408 (14)
------- -------
14,144 233
Landfill prevention expense 183 135
General and administrative expense 2,460 1,022
Depreciation and amortization expense 3,946 381
Interest expense, net 3,937 1,137
------- -------
Net income (loss) $ 3,618 $ (2,442)
======= ========
The consolidated net income for the quarter ended September 30, 1997 was
$3.6 million compared to a loss of $2.4 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, tree fruit, sweet red and
yellow peppers and seedless watermelon from the San Joaquin Valley
operations and sweet red and yellow peppers from the California coastal
operations. Although yields for these crops were higher than normal,
similar high crop yields throughout the industry have resulted in lower
prices. As the Company is able to command a premium price for its
proprietary products such as Superior Seedless(TM) table grapes and Black
DiamondTM plums, the impact of the industry-wide lower prices have been
somewhat mitigated. Net income from farming operations totaled $5.6
million for the quarter ended September 30, 1997 based upon revenues of
$44.4 million offset by farming expenses of $38.8 million. For the quarter
ended September 30, 1996, the loss from farming operations resulted from
$0.6 million in net income from farming operations for Sun World from
September 14, 1996 to September 30, 1996 offset by losses from the Cadiz
operations.
PACKING OPERATIONS. Sun World's four packing and handling facilities
contributed $10.3 million in revenues offset by $4.9 million in expenses
resulting in $5.4 million in net income from packing operations during the
quarter ended September 30, 1997. During the quarter, the Company packed
1.4 million units and handled 4.5 million units which represents
approximately 50% of the annual volume expected to be packed or handled.
Products packed or handled during the quarter consisted of Company-grown
table grapes, tree fruit, sweet red and yellow peppers and seedless
watermelon in the San Joaquin Valley and table grapes and citrus products
packed for third party growers. The 1996 net income from packing
operations related to the results of Sun World from September 14, 1996
to September 30, 1996.
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 September 30, 1997, a total of 6.0 million units were sold primarily
consisting of Company-grown table grapes, tree fruit, sweet red and yellow
peppers and seedless watermelon from the San Joaquin Valley; table grapes,
seedless watermelon, and citrus from domestic third party growers; and
sweet red and yellow peppers from the Company's California coastal
operations. These unit sales resulted in marketing revenue of $4.1 million
while marketing expenses totaled $1.4 million for the quarter ended
September 30, 1997 resulting in a net income from marketing operations of
$2.7 million. The 1996 net income from marketing operations related to the
results of Sun World from September 14, 1996 to September 30, 1996.
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 September 30, 1997, net income from proprietary product
development was $0.4 million related to net research and development
revenue.
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 two lawsuits seeking,
among other things, to set aside approvals for the landfill project and
monetary damages. During the three months ended September 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 September 30, 1997 and the
three months ended September 30, 1996 consisted primarily of corporate
operating expenses, professional fees and salaries. These expenses
increased by $1.4 million during the three months ended September 30, 1997
as compared to the 1996 period primarily due to the addition of Sun World
administrative costs in the amount of $1.8 million for the three months
ended September 30, 1997.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense for the quarter ended September 30, 1997 totaled $3.9 million
compared to $0.4 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 September 30, 1997, compared to $1.1 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
September 30,
------------
1997 1996
----- -----
Interest on outstanding debt -Sun World $3,388 733
Interest on outstanding debt - Cadiz 213 262
Amortization of financing costs 408 210
Interest income (72) (68)
------ -------
$3,937 $1,137
====== =======
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.
Nine months ended September 30, 1997 Compared to Nine Months Ended
- ------------------------------------------------------------------
September 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):
Nine Months Ended
September 30,
------------------
1997 1996
------- -------
Divisional net income (loss):
Farming $ 6,953 (1,015)
Packing 7,175 200
Marketing 4,106 94
Proprietary product development 948 (14)
------- -------
19,182 (735)
Landfill prevention expense 563 1,510
General and administrative expense 7,952 2,387
Depreciation and amortization expense 6,291 909
Interest expense 11,723 2,029
------- -------
Net loss $ (7,347) $ (7,570)
======= =======
The consolidated net loss for the nine months ended September 30, 1997
was $7.3 million compared to a loss of $7.6 million for the same period
last year.
FARMING OPERATIONS. Net income from farming operations, totalled $7.0
million for the nine months ended September 30, 1997, primarily resulting
from the harvest of table grapes, tree fruit, sweet red and yellow peppers
and seedless watermelon from the San Joaquin and Coachella Valley
operations. Farming revenues were $66.7 million and farming expenses were
$59.7 million for the nine months ended September 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 nine months ended September 30, 1996, the $1.0 million loss from
farming operations resulted primarily from the Cadiz operations
offset by $0.6 million in net income from farming operations of Sun World
from September 14, 1996 to September 30, 1996.
PACKING OPERATIONS. Sun World's four packing and handling facilities
contributed $7.2 million in profit during the nine months ended September
30, 1997. During the nine month period, the Company packed 3.1 million
units and handled 8.0 million units which primarily consisted of Company-
grown table grapes, tree fruit, sweet red and yellow peppers and seedless
watermelon in the San Joaquin and Coachella Valleys and table grapes and
citrus products packed for third party growers. Packing and handling
revenue for these operations of $18.5 million was offset by $11.3 million
of expenses largely related to labor costs, packing materials, and the
fixed infrastructure costs associated with the Company's four packing
facilities. The 1996 net income from packing operations related to the
results of Sun World from September 14, 1996 to September 30, 1996.
MARKETING OPERATIONS. During the nine months ended September 30, 1997,
a total of 10.3 million units were sold consisting primarily of Company-
grown table grapes, tree fruit, sweet red and yellow peppers and seedless
watermelon from the San Joaquin and Coachella Valleys; table grapes,
seedless watermelon and citrus from domestic third party growers and
Chilean table grapes. These unit sales resulted in marketing revenue of
$7.5 million. Marketing expenses totaled $3.4 million for the nine months
ended September 30, 1997 resulting in a net income from marketing
operations of $4.1 million. The 1996 net income from marketing operations
related to the results of Sun World from September 14, 1996 to September
30, 1996.
PROPRIETARY PRODUCT DEVELOPMENT. During the nine months ended September
30, 1997, net income from proprietary product development was $0.9 million
consisting of the Company's share of partnership income totaling $0.6
million and $0.3 million in net research and development income related to
the Company's proprietary products.
LANDFILL PREVENTION ACTIVITIES. During the nine months ended September
30, 1997, expenses incurred in connection with activities in opposition to
the landfill project, such as litigation costs and professional fees and
expenses totaled $0.6 million as compared to $1.5 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 $5.6 million during the nine
months ended September 30 1997 as compared to the 1996 period primarily due
to the addition of Sun World administrative costs for the nine months ended
September 30, 1997 of $5.2 million.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense for the nine months ended September 30, 1997 totaled $6.3 million
compared to $0.9 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 $11.7 million during the
nine months ended September 30 1997, compared to $2.0 million during the
same period in 1996. The following table summarizes the components of net
interest expense for the two periods (in thousands):
Nine Months Ended
September 30,
-------------
1997 1996
------ -------
Interest on outstanding debt - Sun World $ 10,191 $ 733
Interest on outstanding debt - Cadiz 692 774
Amortization of financing costs 1,373 644
Interest income $ (533) (122)
-------- -------
$ 11,723 $ 2,029
======== =======
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, the completion of an offering by Sun World of
$115.0 million in secured notes and a $30.0 million Revolving Credit
Facility issued to Sun World, 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 11-1/4% Series A First Mortgage 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 depended upon the Revolving Credit Facility to meet
its seasonal working capital needs in 1997. Peak borrowings under the
Revolving Credit Facility during the 1997 season were $18.2 million.
As of September 30, 1997, no amount was outstanding under the
Revolving Credit Facility.
After giving effect to the issuance of the Sun World Notes and the
application of the net proceeds therefrom, Sun World has $119.0 million of
indebtedness outstanding and $30.0 million of borrowing availability under
the Revolving Credit Facility, and Cadiz has approximately $10.1 million of
indebtedness outstanding to its current primary lender, ING Baring (U.S.)
Capital Corporation ("ING"). 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.
In addition to the foregoing, in order to provide additional availability
of working capital at the parent level and to provide a readily available
funding mechanism for add-on acquisition opportunities, Cadiz has entered
into an agreement in principle with ING, subject to documentation, whereby
ING will provide a $15.0 million secured revolving credit facility to Cadiz.
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
(subject to certain permitted liens) on substantially all of the assets
of Sun World and its subsidiaries, other than growing crops, crop
inventories and accounts receivable and proceeds thereof, which secure
the Revolving Credit Facility, and certain real property pledged to third
parties. The Sun World Notes are also secured by the guarantee of Cadiz
and the pledge by Cadiz of all of the stock of Sun World.
Commencing October 14, 1997, Sun World offered to exchange (the
"Exchange Offer") up to $115.0 million aggregate principal amount of its
11-1/4% Series B First Mortgage Notes (the "Exchange Notes") for $115.0
million aggregate principal amount of the Sun World Notes. The Exchange
Notes have the same terms as the Sun World Notes. The exchange
of all of the Sun World Notes was completed on November 12, 1997.
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
September 30, 1997, no amount 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 is obligated to
ING for approximately $10.0 million. The maturity date of the ING
obligation is April 30, 1998 (with the interest rate of such obligation
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 actively 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 PROVIDED BY (USED FOR) OPERATING ACTIVITIES. Cash provided by
operating activities totaled $3.0 million for the nine months ended
September 30, 1997 as compared to cash used for continuing operating
activities of $5.9 million for the same period in 1996. The increase in
cash generated from operating activities primarily resulted from the
inclusion of Sun World's operations in the 1997 period. Significant
working capital changes included an increase in accounts receivable of
$4.2 million attributable to the seasonality of Sun World's agricultural
operations offset by an increase in accounts payable of $1.7 million and
accrued liabilities of $5.0 million (primarily related to accrued
interest on the Sun World Notes).
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES. Cash used for
investing activities totaled $1.3 million during the nine months ended
September 30, 1997 as compared to cash provided by investing activities
of $0.5 million during the prior year's period. Although the Company
invested $3.7 million in developing crops and $1.9 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
$2.7 million from the disposal of underproducing Sun World assets through
an asset disposal program. In addition, partnership distributions
received by Sun World totaled $1.2 million and other assets decreased by
$0.4 million.
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES. Cash used for
financing activities totaled $29.8 million for the nine months ended
September 30, 1997 as compared to cash provided by financing activities
of $42.9 million during the nine months ended September 30, 1996.
Principal payments on long-term debt of $140.8 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 debt issuances totaled approximately $5.7 million.
Net proceeds from the exercise of previously outstanding stock
options totaled $1.7 million during the nine months ended
September 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, draws from
the ING Facility, 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 also continually evaluates acquisition opportunities which are
complimentary to its current portfolio of landholdings, water resources
and agricultural operations. Accordingly, the planned ING Facility is
intended to provide a readily available funding mechanism for such
add-on acquisition opportunities.
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.
On October 24, 1997, the Company filed an action styled
CADIZ LAND COMPANY, INC. VS WASTE MANAGEMENT, INC. ET. AL.
CASE NO. CV-97-7827-WMB (MANx) in the U.S. District Court
for the Central District of California seeking damages
and equitable relief as a consequence of various unlawful and
malicous acts and practices undertaken by Waste Management, Inc.
("WMI"), certain key executives and consultants of WMI and
certain other parties in interest as to the Rail-Cycle Project.
The action asserts, among other things, that the defendants have
(i) violated the Racketeer Influenced and Corrupt Organization
Act (RICO), (ii) violated Section 10(b) of the Securities
Exchange Act of 1934, (iii) intercepted wire communications,
(iv) misappropriated Trade Secrets, and (v) engaged in
defamation and trade libel. No trial date has yet been set.
On November 6, 1997, the San Bernardino Superior Court denied the
Company's application for a Writ of Mandate to set aside the
County of San Bernardino's certification of an Environmental Impact
Report/Environmental Impact Statement ("EIR/EIS") in connection
with the construction and operation of a landfill to be located
adjacent to Company-owned property (the "Rail-Cycle Project").
The Company intends to continue prosecuting its claim for
monetary damages. No trial date has yet been set.
ITEM 2 - CHANGE IN SECURITIES AND USE OF PROCEEDS
------------------------------------------
(c) Unregistered Transactions
In August 1997, 64,621 shares of the Company's Common Stock were
issued to the holders of 30 shares of the Company's outstanding
Series B Preferred Stock (the "Series B Shares") upon the
conversion of the Series B Shares. In addition, 2,699 shares of
the Company's Common Stock were issued to these holders as
accrued dividends. As these transactions were with existing
security holders exclusively and as no fees were paid in
connection with such transactions, such transactions were exempt
from registration pursuant to Section 3(a)(9) of the Securities
Act of 1933, as amended.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
---------------------------------
Not applicable.
ITEM 4 - SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------
Not applicable.
ITEM 5 - OTHER INFORMATION
--------------------
Not applicable.
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 November 13, 1997
----------------------------------- -------------------
Keith Brackpool Date
Chief Executive Officer and Director
By:/s/ Stanley E. Speer November 13, 1997
------------------------------------- ---------------------
Stanley E. Speer Date
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