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, 1998
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 August 13, 1998 was 33,269,161 shares of Common Stock,
par value $0.01.
CADIZ LAND COMPANY, INC.
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 PAGE
I. FINANCIAL STATEMENTS
A. Consolidated Statement of Operations
For the Three Months Ended June 30, 1998 and 1997. . . .2
B. Consolidated Statement of Operations
For the Six Months Ended June 30, 1998 and 1997. . . . .3
C. Consolidated Balance Sheet
As of June 30, 1998 and December 31, 1997. . . . . . . . 4
D. Consolidated Statement of Cash Flows
For the Six Months Ended June 30, 1998 and 1997. . . . . 5
E. Consolidated Statement of Stockholders' Equity
For the Six Months Ended June 30, 1998. . . . . . . . . 6
F. Notes to the Consolidated Financial Statements. . . . . . . . 7
II. SUPPLEMENTARY INFORMATION
A. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . 8
B. Other Information. . . . . . . . . . . . . . . . . . . . . . 20
C. Signatures. . . . . . . . . . . . . . . . . . . . . . . . . 22
CADIZ LAND COMPANY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 1997
---- ----
($ in thousands except per share data)
Revenues $22,619 $25,656
-------- -------
Costs and expenses:
Cost of sales 16,955 20,153
Landfill prevention activities 333 176
General and administrative 2,669 3,135
Depreciation and amortization 1,269 1,812
------- -------
Total costs and expenses 21,226 25,276
-------- -------
Operating profit 1,393 380
Interest expense, net 4,458 3,949
------- -------
Net loss (3,065) (3,569)
Less: Preferred stock dividends - (766)
-------- --------
Net loss applicable to common stock (3,065) (4,335)
======== ========
Net loss per common share $ (.09) $ (.15)
======== ========
Weighted average shares outstanding 33,131 29,000
======= ========
See accompanying notes to the consolidated financial statements.
CADIZ LAND COMPANY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 1997
---- ----
($ in thousands except per share data)
Revenues $28,103 $30,543
------- -------
Costs and expenses:
Cost of sales 21,968 25,171
Landfill prevention activities 646 380
General and administrative 5,274 5,826
Depreciation and amortization 2,013 2,345
------- ------
Total costs and expenses 29,901 33,722
------- ------
Operating loss (1,798) (3,179)
Interest expense, net 8,457 7,786
------- ------
Net loss (10,255) (10,965)
======= =======
Less: Preferred stock dividends - (1,204)
------- -------
Net loss applicable to common stock (10,255) (12,169)
======= =======
Net loss per common share $ (.31) $ (.46)
======= ========
Weighted average shares outstanding 32,961 26,400
======== ========
See accompanying notes to the consolidated financial statements.
CADIZ LAND COMPANY, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
June 30, December 31,
1998 1997
---- ----
($ in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 706 $5,298
Accounts receivable, net 21,072 5,881
Inventories 31,109 13,838
Prepaid expenses and other 1,083 1,161
------- --------
Total current assets 53,970 26,178
Investment in partnership 6,603 6,327
Property, plant, equipment and
water programs, net 163,522 160,193
Other assets 10,358 10,351
-------- --------
$234,453 $203,049
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $16,180 $8,517
Accrued liabilities 6,932 6,114
Revolving credit facility 19,700 -
Long-term debt, current portion 321 519
------- --------
Total current liabilities 43,133 15,150
Long-term debt 140,214 131,689
Deferred income taxes 5,447 5,447
Other liabilities 564 382
Commitments and contingencies
Stockholders' equity:
Common stock - $.01 par value;
45,000,000 shares authorized;
shares issued and outstanding -
33,144,161 at June 30, 1998
and 32,646,661 at December 31, 1997 331 326
Additional paid-in capital 125,837 120,873
Accumulated deficit (81,073) (70,818)
------- --------
Total stockholders' equity 45,095 50,381
------- -------
$234,453 $203,049
========= ========
See accompanying notes to the consolidated financial statements.
CADIZ LAND COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 1997
---- ----
($ in thousands)
Cash flows from operating activities:
Net loss $ (10,255) $ (10,965)
Adjustments to reconcile net
loss from operations
to cash used for operating activities:
Depreciation and amortization 2,800 2,345
Issuance of shares for services 262 357
Interest capitalized to debt - 315
Gain (loss) on disposal of assets (20) 146
Share of partnership operations (786) (579)
Changes in operating assets and
liabilities:
Increase in accounts receivable (15,191) (12,731)
Increase in inventories (15,253) (11,195)
Decrease in prepaid expenses and other 418 22
Increase in accounts payable 7,663 12,041
Increase in accrued liabilities 529 1,274
Increase (decrease) in other
liabilities 184 (286)
-------- --------
Net cash used for operating activities (29,649) (19,256)
-------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (2,465) (1,151)
Proceeds from disposal of property,
plant and equipment 56 2,798
Additions to water programs (674) (368)
Additions to developing crops (1,502) (2,605)
Partnership distributions 510 1,039
(Increase) decrease in other assets (605) 1,305
-------- -------
Net cash (used for) provided by
investing activities (4,680) 1,018
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of stock 432 1,328
Proceeds from issuance of long-term debt 10,000 115,080
Principal payments on long-term debt (395) (140,338)
Net proceeds from short-term debt 19,700 16,910
Costs for debt issuance - (5,248)
------ --------
Net cash provided by (used for)
financing activities 29,737 (12,268)
------- --------
Net decrease in cash and cash equivalents (4,592) (30,506)
Cash and cash equivalents,
beginning of period 5,298 33,307
------- -------
Cash and cash equivalents, end of period $ 706 $ 2,801
======= =======
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
($ in thousands)
Additional Total
Common Stock Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
Balance as of
December 31, 1997 32,646,661 $ 326 $ 120,873 $ (70,818) $ 50,381
Exercise of stock
options 92,500 1 433 - 434
Issuance of warrants
to a lender - - 1,643 - 1,643
Stock issued for
services 30,000 - 264 - 264
Acquisition of
hydrological
research company 375,000 4 2,624 - 2,628
Net loss - - - (10,255) (10,255)
-------- ---- -------- -------- ----------
Balance as of
June 30, 1998 33,144,161 $ 331 $ 125,837 $ (81,073) $ 45,095
========== ====== ========= ========= =========
See accompanying notes to the consolidated financial statements.
CADIZ LAND COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
- -------------------------------
The 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 year ended December 31, 1997. 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, 1998 are not necessarily indicative of
the results to be expected for the full fiscal year.
See Note 2 to the Consolidated Financial Statements included in the
Company's latest Form 10-K for a discussion of the Company's accounting
policies.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (UNAUDITED)
RESULTS OF OPERATIONS
The financial statements set forth herein as of and for the six
months ended June 30, 1998 and 1997 reflect the results of operations
for the Company, Sun World International, Inc. and its wholly-owned
subsidiaries ("Sun World"), and Southwest Fruit Growers ("SWFG") in which
the Company is the general partner and has an approximate 66.3 percent
partnership interest. For purposes of this discussion, 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 (a) the operations of the Cadiz/Fenner Water
Storage and Supply Program and (b) 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, net profit from Sun World's packing, marketing and
proprietary product development operations tends to be more consistent
from year to year than net profit from Sun World's farming operations.
As such, Sun World continues to strategically add volume in the packing
and marketing areas that will complement Sun World's in-house production
or fill in contra-seasonal marketing windows. 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 and Exchange
Act of 1934, as amended. Actual results could differ materially from
those projected in the forward-looking statements throughout this
document. Specific factors that might cause such a difference include,
but are not limited to, the timing and terms of the various approvals
required in order to complete the Cadiz/Fenner Water Storage and Supply
Program.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE
- ----------------------------------------------------------------------
30, 1997
- -------
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 stonefruit crops. Due to this concentrated
activity, Sun World has historically incurred losses with respect to
its agricultural operations during the other months of the year.
The cooler weather patterns in California during the first half of
1998 have had the effect of delaying the harvest of all California grape
and stonefruit production by as much as four weeks from the 1997 harvest
schedule which has caused a delay in recognition of certain revenues
from the second to the third quarter of 1998.
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,
1998 1997
---- ----
Divisional net income:
Farming $ 1,774 $ 1,118
Packing 2,189 2,286
Marketing 1,085 1,626
Proprietary product development 367 298
------- --------
5,415 5,328
Landfill prevention activities 333 176
General and administrative 2,420 2,960
Depreciation and amortization 1,269 1,812
Interest expense 4,458 3,949
-------- -------
Net loss $ (3,065) $ (3,569)
======== =======
FARMING OPERATIONS. The Company farms over 19,000 acres of
agricultural properties located primarily in two major growing areas of
California, the San Joaquin Valley and the Coachella Valley. The
Company's agricultural properties are primarily dedicated to producing
permanent commercial crops and to a lesser extent, row crops. Net income
from farming operations totaled $1.8 million for the three months ended
June 30, 1998, compared to $1.1 million for the three months ended June
30, 1997. Profits during the quarter resulted primarily from the
harvest of table grapes, sweet peppers and watermelons from the
Coachella Valley and stonefruit from the San Joaquin Valley. The
increase in farming net income resulted primarily from (a) improved
F.O.B. pricing on peppers, watermelons and early stonefruit, and (b)
removal of underperforming stonefruit crops after the 1997 harvest.
These favorable improvements were partially offset by unfavorable
pricing on table grapes in Coachella primarily due to increased crop
yields and increased competition from Mexico. Revenues from farming
operations totaled $17.1 million for the 1998 quarter compared to $20.1
million in the 1997 quarter. Expense totaled $15.3 million in the 1998
quarter compared to $19.0 million in the 1997 quarter.
PACKING OPERATIONS. For the quarter ended June 30, 1998, Sun
World's four packing and handling facilities contributed revenues of
$6.3 million offset by $4.1 million of expenses resulting in $2.2
million of net income from packing operations. Revenues of $6.6 million
were offset by expenses of $4.3 million resulting in net income from
packing operations of $2.3 million during the second quarter of 1997.
The $0.1 million decrease in net income resulted primarily from reduced
handling income on table grapes due to the delay in harvest. Sun
World packed 1.4 million units during the second quarter of 1998 and
1997.
MARKETING OPERATIONS. Sun World's marketing operations include the
sale and promotion of Sun World grown products, as well as providing
these services for third party growers. During the three months ended
June 30, 1998, a total of approximately 2.5 million units were sold
compared to 3.4 million units sold during the three months ended June
30, 1997. Units sold consisted primarily of Company-grown table grapes,
sweet peppers, watermelons and stonefruit; citrus from domestic
third party growers from the Coachella Valley; and sweet peppers and
watermelons from Mexico. This reduction in units was primarily due
to delays in the harvest in both the Coachella and San Joaquin Valley,
particularly in table grapes. The 1998 unit sales resulted in marketing
revenue of $2.1 million while marketing expenses totaled $1.0 million
for net income of $1.1 million for the quarter. For the second quarter
of 1997, marketing revenues were $2.8 million while marketing expenses
were $1.2 million for net income of $1.6 million.
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 many 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. The
increase in net income from proprietary product development to $0.4
million for the 1998 quarter from $0.3 million for the 1997 quarter
primarily resulted from an increase in the Company's share of
partnership income from American Sunmelon.
LANDFILL PREVENTION ACTIVITIES. The Company is engaged in various
lawsuits seeking monetary damages in connection with activities
surrounding the prevention of a proposed landfill that would have been
located adjacent to its Cadiz/Fenner Valley properties. During the
three months ended June 30, 1998, expenses incurred totaled $0.3 million
compared to $0.2 million of costs incurred during the same period in 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses during the three months ended June 30, 1998 totaled $2.4
million compared to $3.0 for the three months ended June 30, 1997. This
reduction primarily resulted from the reduction in the administrative
staff since the beginning of 1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expense for the three months ended June 30, 1998 totaled $1.3 million
compared to $1.8 million for the same period in 1997. The decrease is
primarily attributable to a reduction in relief of depreciation costs
from inventory due to the delay in the harvest and sale of Company-grown
crops.
INTEREST EXPENSE, NET. Net interest expense totaled $4.5 million
during the three months ended June 30, 1998, compared to $3.9 million
during the same period in 1997. The following table summarizes the
components of net interest expense for the two periods (in thousands):
Three Months Ended
June 30,
1998 1997
----- -----
Interest on outstanding debt - Sun World $ 3,743 $ 3,523
Interest on outstanding debt - Cadiz 295 201
Amortization of financing costs 479 295
Interest income (59) (70)
-------- --------
$ 4,458 $ 3,949
======== =======
The increase in interest expense is primarily due to (a) increased
borrowings for seasonal working capital needs primarily resulting from
the delay in harvest and sale of crops due to the weather conditions and
(b) amortization of warrants issued for the Cadiz Revolver that was
entered into during the fourth quarter of 1997. Financing costs, which
include legal fees and warrants, are amortized over the life of the debt
agreements.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30,
1997
- ------------------------------------------------------------------------
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
1998 1997
---- ----
Divisional net income:
Farming $ 2,544 $ 1,306
Packing 1,768 1,764
Marketing 708 1,422
Proprietary product development 606 540
------- -------
5,626 5,032
Landfill prevention expense 646 380
General and administrative expense 4,765 5,486
Depreciation and amortization expense 2,013 2,345
Interest expense, net 8,457 7,786
------- --------
Net loss $(10,255) $(10,965)
======== ========
FARMING OPERATIONS. Net income from farming operations totaled
$2.5 million for the six months ended June 30, 1998 primarily resulting
from the harvest of table grapes, sweet peppers and watermelons from the
Coachella Valley operations and the beginning of the stonefruit harvest
from the San Joaquin Valley operations. Farming revenues were $20.2
million and farming expenses were $17.7 million for the six months ended
June 30, 1998. For the six months ended June 30, 1997, the Company had
farming revenues of $22.3 million, farming expenses of $21.0 million and
net income from farming operations of $1.3 million. Due to the delay in
the harvests, farming revenues declined from the comparable 1997 period;
however, overall profitability increased by $1.2 million. F.O.B. prices
were higher for peppers and watermelons from the Coachella Valley as
well as for San Joaquin Valley stonefruit. Large table grape yields in
the Coachella Valley coupled with increased production from Mexico
caused downward pressure on table grape prices compared to 1997.
The Company's proprietary products such as Superior Seedless(R)
table grapes and Black Diamond(R) plums have allowed Sun World to
continue to command a price premium to the overall market which
has helped mitigate downward pressure on table grape prices and
reduced yields on stonefruit.
PACKING OPERATIONS. Sun World's four packing and handling
facilities contributed $1.8 million in profit during the six months
ended June 30, 1998 and 1997. During both of the six month periods, the
Company packed 1.7 million units. Units packed and handled during the
first half of 1998 primarily consisted of Company-grown table grapes,
sweet peppers and seedless watermelons in the Coachella Valley; table
grapes and citrus products packed for third party growers; and the
beginning of the stonefruit harvest in the San Joaquin Valley. Packing
and handling revenue for these operations of $7.8 million was offset by
$6.0 million of expenses for the six months ended June 30, 1998.
Revenues totaled $8.2 million offset by expenses of $6.4 million for the
six months ended June 30, 1997.
MARKETING OPERATIONS. During the six months ended June 30, 1998, a
total of 3.3 million units were sold consisting primarily of Company-
grown table grapes, sweet peppers and watermelons from the Coachella
Valley; table grapes, watermelons and citrus from domestic third party
growers; watermelons and sweet peppers from Mexico; and Company-grown
stonefruit from the San Joaquin Valley. These unit sales resulted in
marketing revenue of $2.7 million. Marketing expenses totaled $2.0
million for the six months ended June 30, 1998 resulting in net income
from marketing operations of $0.7 million. During the six months ended
June 30, 1997, 4.3 million units were marketed resulting in revenues of
$3.4 million offset by expenses of $2.0 million for net profit of $1.4
million. The decrease in units sold, revenues and net income from
marketing operations from 1997 to 1998 is primarily attributable to the
delay in the harvest, particularly for table grapes.
PROPRIETARY PRODUCT DEVELOPMENT. During the six months ended June
30, 1998, net income from proprietary product development was $0.6
million consisting of the Company's share of partnership income in
American Sunmelon totaling $0.8 million offset by $0.2 million in net
research and development expenses. During the six months ended June 30,
1997, net income from proprietary product development totaled $0.5
million resulting primarily from the Company's share of partnership
income in American Sunmelon.
LANDFILL PREVENTION ACTIVITIES. During the six months ended June
30, 1998 and 1997, expenses incurred for various lawsuits seeking
monetary damages in connection with the prevention of a proposed landfill
that would have been located adjacent to its Cadiz/Fenner Valley
properties totaled $0.6 million and $0.4 million, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the six months ended June 30, 1998 totaled $4.8 million
compared to $5.5 million for the six months ended June 30, 1997. The
$0.7 million reduction in general and administrative costs resulted
primarily from the reduction in administrative staff since the beginning
of 1997 as well as reduced professional fees.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and
amortization expense for the six months ended June 30, 1998 totaled $2.0
million compared to $2.3 million for the same period in 1997. The
decrease is primarily attributable to a reduction in relief of
depreciation from inventory resulting from the delay in harvest and crop
sales.
INTEREST EXPENSE, NET. Net interest expense totaled $8.5 million
during the six months ended June 30, 1998, compared to $7.8 million
during the same period in 1997. The following table summarizes the
components of net interest expense for the two periods (in thousands):
Six Months Ended
June 30
1998 1997
---- ----
Interest on outstanding debt - Sun World $ 7,173 $ 6,803
Interest on outstanding debt - Cadiz 624 479
Amortization of financing costs 785 965
Interest income (125) (461)
-------- -------
$ 8,457 $ 7,786
======== =======
The increase in interest on outstanding debt during the 1998 period
is primarily attributable to the Company's debt refinancing in April
1997, whereby Sun World issued $115 million of 11-1/4% First Mortgage
Notes and used the proceeds and existing cash balance to pay off
approximately $130 million of long-term debt. Interest expense is also
higher due to (a) increased borrowings for seasonal working capital
needs primarily resulting from the delay in harvest and sale of crops
due to cooler weather conditions during the growing season and (b)
amortization of warrants issued on the Cadiz $15.0 million Revolver
entered into during the fourth quarter of 1997 and (c) reduced average
cash balances in 1998 compared to 1997 prior to the debt refinancing
resulting in lower interest income. Financing costs, which include
legal fees, loan fees and warrants, are amortized over the life of the
debt agreement.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL DISCUSSION OF LIQUIDITY AND CAPITAL RESOURCES. With the
revolving credit facilities in place for both Cadiz and 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" below.
Under Sun World's historical working capital cycle, working capital
is required primarily to finance the costs of growing and harvesting
crops, which occur 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 in April 1997, Sun World's cash balance
was sufficient to provide for these seasonal working capital
requirements without the need for additional outside funding. However,
management determined that utilizing a substantial portion of Sun
World's cash on hand to pay down long-term debt and concurrently
entering into a revolving line of credit to meet its seasonal working
capital needs was a more effective use of its financial resources. In
April 1998, Sun World entered into a $25 million one year facility (the
"Sun World Revolver"). As of June 30, 1998, $19.7 million was
outstanding under the Sun World Revolver with additional borrowing
availability of $5.3 million. See "Current Financing Arrangements - Sun
World" below.
In order to provide additional availability of working capital and
to provide a readily available funding mechanism for add-on acquisition
opportunities, Cadiz entered into a three year $15 million revolving
credit facility (the "Cadiz Revolver") in November 1997. As of June 30,
1998, $15.0 million was outstanding under the Cadiz Revolver of which
$9.3 million was loaned to Sun World for seasonal working capital needs
through an intercompany revolving credit arrangement. This intercompany
balance is expected to be repaid during the last half of 1998 utilizing
proceeds from the sale of Sun World's crops.
CURRENT FINANCING ARRANGEMENTS
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 of June 30, 1998, Cadiz was obligated for approximately
$9.8 million under a senior term loan facility. With Cadiz' election to
extend the facility in 1998, the maturity date of the term loan is
April 30, 1999. The Company issued certain additional warrants in
conjunction with the extension. Cadiz also has the right to obtain an
additional one-year extension. If that extension is exercised, Cadiz
would be required to issue certain warrants and the interest rate
would be further adjusted. Currently, the term lender holds a senior
deed of trust on substantially all of Cadiz' non-Sun World related
property.
In November 1997, the Company entered into the $15 million Cadiz
Revolver. The Cadiz Revolver is secured by a second lien on
substantially all of the non-Sun World assets of the Company. Principal
is due on December 31, 2000. The Company had $15.0 million outstanding
under the Cadiz Revolver at June 30, 1998. During 1998, the Company
issued additional warrants in connection with borrowings under the Cadiz
Revolver.
As the Company continues to actively pursue its business strategy,
additional financing specifically in connection with the Company's water
programs may be required. Responsibility for funding the design,
construction and program implementation costs of the capital facilities
for the Cadiz/Fenner Water Storage and Supply Program will, under
currently developed principles and terms, be shared equally by the
Company and the Metropolitan Water District of Southern California
("Metropolitan"). The Company is analyzing various alternatives for
funding its fifty percent share of the estimated $125 million to $150
million cost of the program capital facilities. These funding
alternatives include (a) long-term financing arrangements or (b)
utilization of monies to be received from Metropolitan for its initial
purchase of 500,000 acre-feet of indigenous groundwater. The principles
of agreement call for payment of at least $115 million for this initial
groundwater. 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.
SUN WORLD OBLIGATIONS
The Sun World Notes, which were issued in the principal amount of
$115 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 Sun World
Revolver, 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 are registered under the Securities Act of 1933 and have the same
terms as the Sun World Notes. The exchange of all of the Sun World
Notes was completed on November 12, 1997.
In April 1998, Sun World entered into the Sun World Revolver which
is guaranteed by Cadiz. As of June 30, 1998, $19.7 million was
outstanding under the Sun World Revolver.
CASH USED FOR OPERATING ACTIVITIES. Cash used for operating
activities totaled $29.7 million for the six months ended June 30, 1998,
as compared to cash used for operating activities of $19.3 million for
the six months ended June 30, 1997. The increase in cash used from
operating activities is primarily due to the delay in crop harvests
resulting in a larger increase in accounts receivable and inventories as
well as a reduced increase in accounts payable.
CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES. Cash used for
investing activities totaled $4.7 million for the six months ended June
30, 1998, as compared to cash provided by investing activities of $1.0
million for the same period in 1997. The Company invested $1.5 million
in developing crops, $0.7 million in water programs, and $2.5 million in
the purchase of property, plant and equipment (including $1.1 million
for a new computer system implementation). In 1997, the Company
received $2.8 million from the disposal of certain non-core properties.
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES. Cash provided by
financing activities totaled $29.7 million for the six months ended June
30, 1998, consisting primarily of $19.7 million in borrowings under the
Sun World Revolver and $10.0 million in borrowings under the Cadiz
Revolver, as compared to cash used for financing activities of $12.3
million for the six months ended June 30, 1997 resulting from the Sun
World debt refinancing in April 1997. Principal payments on long-term
debt totaled $0.4 million for the six months ended June 30, 1998. Net
proceeds from the exercise of stock options totaled $0.4 million during
the six months ended June 30, 1998.
OUTLOOK
The Company is actively pursuing the development of its water
resources. Specifically, the Company and Metropolitan have verified the
feasibility of and developed principles and terms for a water storage
and supply program at its Cadiz, California property (the "Cadiz/Fenner
Water Storage and Supply Program" or the "Program"). The Program will
involve the conveyance of water from Metropolitan's Colorado River
Aqueduct, during periods of excess supply, for storage in the aquifers
underlying the Company's properties. The water will be delivered
through a 35-mile transmission pipeline, which will have a capacity of
100,000 acre-feet per year. Total storage capacity will be
approximately 500,000 acre-feet. During periods of shortage, the stored
water will be extracted by wells and returned to the Colorado River
Aqueduct. The program will also have the ability to transfer high-
quality indigenous groundwater for distribution throughout
Metropolitan's service area.
Metropolitan, assisted by an accredited panel of independent
industry experts, has completed a review of numerous environmental,
engineering, hydrological and other studies which confirm the Program's
feasibility. Principles and terms for the agreement have been developed
and approved by the Boards of both parties. The parties have commenced
facility optimization studies, the environmental review process and
documentation of the Program contract. The Program could be operational
by the year 2000. The principles of agreement call for minimum commitments
totaling 2 million acre-feet of Program utilization by Metropolitan.
Based upon the fees associated with these minimum commitments,
the Company believes the revenue stream generated by the
Program will be sufficient to meet the then existing operating
requirements of the Company. A detailed summary of the principles and
terms for the Program was included in the Company's Report on Form 8-K
dated May 29, 1998.
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. The Company also continually
evaluates acquisition opportunities which are complementary to its
current portfolio of landholdings, water resources and agricultural
operations.
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, the Sun World Revolver, and through an
intercompany revolver with Cadiz. 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 Cadiz Revolver, and the exercise of
outstanding stock options. Except for the foregoing, additional
intercompany cash payments between Sun World and Cadiz are subject to
certain restrictions under its current lending arrangements.
YEAR 2000
The Company has developed and is currently implementing plans to
address the potential problems related to the effect on its computer
systems of the Year 2000. Key financial, information and operating
systems are being assessed and are currently on target to be Year 2000
compliant by December 31, 1999. If necessary modifications and
conversions by the Company and those with which it conducts business are
not completed on time, the Year 2000 issue may have a material adverse
effect on the Company's results of operations. The financial effect of
making the required systems changes is not expected to be material to
the Company's financial position, results of operations, or cash flows.
OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
See "Item 3. Legal Proceedings" included in the Company's
latest Form 10-K and "Item 1. Legal Proceedings" included in the
Company's Form 10-Q for the quarter ended March 31, 1998.
ITEM 2. - CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended June 30, 1998, the Company issued
warrants to a lender which were not, at the time of issuance,
registered under the Securities Act of 1933, as amended
(the "Securities Act"). The Company believes that the transactions
described are exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof as transactions
not involving any public offerings. All warrants issued were to
an accredited lender to the Company. The lender confirmed to the
Company their investment intent, and was provided with information
about the Company and/or access to such information, and restrictions
were placed on resales of the securities. All of the warrants granted
were issued in accordance with executed loan agreements.
In April 1998, the Company issued 75,000 warrants in consideration
of the assumption and extension of the outstanding term loan for
Cadiz. These warrants have a term of seven years and an exercise
price of $11.81. In April 1998 and June 1998, the Company issued
a total of 150,000 warrants in connection with draws on the Cadiz
Revolver. These warrants have a term of seven years and an exercise
price of $7.00.
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
May 13, 1998. The stockholders took the following action at the
meeting:
1. Elected Dwight W. Makins, Keith Brackpool, Russ Hammond, Murray
Hutchinson and Mitt Parker to the Company's Board of Directors. Mr.
Makins was elected by the vote of 18,402,527 in favor and 25,750
against, with no one abstaining and no broker non-votes. Mr.
Brackpool was elected by the vote of 18,399,827 in favor and
28,450 against with no one abstaining and no broker non-votes.
Mr. Hammond was elected by the vote of 18,402,527 in favor and
25,750 against with no one abstaining and no broker non-votes.
Mr. Hutchinson was elected by the vote of 18,402,427 in favor
and 25,850 against, with no one abstaining and no broker non-
votes. Mr. Parker was elected by the vote of 18,402,527 in
favor and 25,750 against with no one abstaining and no broker
non-votes.
2. Approved the proposal to amend the Company's Certificate of
Incorporation to change the Company's name to Cadiz Inc. by the
vote of 18,298,179 in favor and 60,100 against, with 6,965
abstaining and 63,033 broker non-votes.
3. Ratified the selection by the Company's Board of Directors of
Price Waterhouse LLP to continue as the Company's independent
auditors for fiscal 1998 by the vote of 18,401,905 in favor
and 4,000 against, with 22,372 abstaining and no broker
non-votes.
ITEM 5. - OTHER INFORMATION
In accordance with the approval by the Company's stockholders,
the name of the Company will be changed to Cadiz Inc. effective
September 1, 1998.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
1. Exhibit 27 - Financial Data Schedule
B. REPORTS ON FORM 8-K
1. Report on Form 8-K dated May 29, 1998 summarizing the proposed
principles of agreement between the Company and Metropolitan
Water District of Southern California for a groundwater storage
and dry-year supply program at the Company's Cadiz, California
property.
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, 1998
------------------------------------ ---------------
Keith Brackpool, President and Date
Chief Executive Officer and Director
By: /s/ Stanley E. Speer August 14, 1998
------------------------------------ ----------------
Stanley E. Speer Date
Chief Financial Officer
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