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 March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from............to............
Commission File Number 0-12114
CADIZ INC.
(Exact name of registrant specified in its charter)
DELAWARE 77-0313235
(State or other jurisdiction of (I.R.S. 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 May ____, 1999 was __________ shares of Common Stock,
par value $0.01.
CADIZ INC.
INDEX
For the Three Months Ended March 31, 1999 Page
PART I - FINANCIAL INFORMATION
I. Consolidated Financial Statements
A. Statement of Operations...............................2
B. Balance Sheet.........................................3
C. Statement of Cash Flows...............................4
D. Statement of Stockholders' Equity.....................5
E. Notes.................................................6
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................7
3. Quantitative and Qualitative Disclosures about
Market Risk...........................................16
PART II - OTHER INFORMATION................................16
CADIZ INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For the Three Months Ended March 31, 1999 1998
---- ----
($ in thousands except per share data)
Revenues $ 6,560 $ 5,053
Income from partnership - 431
------- ------
Total revenues 6,560 5,484
------- ------
Costs and expenses:
Cost of sales 5,649 5,013
General and administrative 2,951 2,605
Special litigation 227 313
Depreciation and amortization 740 744
------- ------
Total costs and expenses 9,567 8,675
-------- ------
Operating loss (3,007) (3,191)
Interest expense, net 4,414 3,999
------- ------
Net loss $(7,421) $(7,190)
======= =======
Net loss per common share $ (.22) $ (.22)
======== =======
Weighted average shares outstanding 33,953 32,791
======= ======
See accompanying notes to the condensed consolidated financial statements.
CADIZ INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
March 31, December 31,
1999 1998
---- ----
($ in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 4,976 $ 13,635
Accounts receivable, net 5,778 6,295
Inventories 27,168 15,019
Prepaid expenses and other 766 992
------- -------
Total current assets 38,688 35,941
Investment in partnerships 1,169 1,169
Property, plant, equipment and
water programs, net 166,463 166,022
Other assets 11,434 11,227
------- -------
$ 217,754 $ 214,359
-------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,360 $ 8,753
Accrued liabilities 10,210 6,846
Revolving credit facility 4,100 -
Long-term debt, current portion 681 613
------- ------
Total current liabilities 23,351 16,212
Long-term debt 142,442 142,317
Deferred income taxes 5,392 5,447
Other liabilities 625 673
Commitments and contingencies
Stockholders' equity:
Common stock - $.01 par value;
45,000,000 shares authorized; shares
issued and outstanding - 34,384,911 at
March 31, 1999 and 33,592,261 at
December 31, 1998 344 336
Additional paid-in capital 131,309 127,662
Accumulated deficit (85,709) (78,288)
-------- -------
Total stockholders' equity 45,944 49,710
------- -------
$ 217,754 $ 214,359
-------- ---------
See accompanying notes to the condensed consolidated financial statements.
CADIZ INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended March 31, 1999 1998
($ in thousands) ---- ----
Cash flows from operating activities:
Net loss $ (7,421) $ (7,190)
Adjustments to reconcile net loss
from operations to cash used for
operating activities:
Depreciation and amortization 1,194 1,052
Issuance of shares for services - 264
Gain on sale of assets (40) -
Share of partnership operations - (431)
Changes in operating assets and liabilities:
Decrease in accounts receivable 517 2,652
Increase in inventories (10,611) (7,456)
Decrease in prepaid expenses and other 226 133
Decrease in accounts payable (393) (1,358)
Increase in accrued liabilities 3,514 3,760
Decrease in other liabilities (104) (77)
------- -------
Net cash used for operating activities (13,118) (8,651)
------- -------
- -
Cash flows from investing activities:
Additions to property, plant and equipment (805) (1,732)
Proceeds from disposal of property,
plant and equipment 54 11
Additions to water programs (669) (385)
Additions to developing crops (1,062) (1,101)
Partnership distributions - 210
Increase in other assets (564) (379)
------- -------
Net cash used for investing activities (3,046) (3,376)
------- -------
Cash flows from financing activities:
Net proceeds from issuance of stock 3,505 337
Principal payments on long-term debt (100) (301)
Net proceeds from short-term debt 4,100 9,792
------- -------
Net cash provided by financing
activities 7,505 9,828
------- -------
Net decrease in cash and cash equivalents (8,659) (2,199)
Cash and cash equivalents, beginning
of period 13,635 5,298
-------- -------
Cash and cash equivalents, end of period $ 4,976 $ 3,099
======= =========
See accompanying notes to the condensed consolidated financial statements.
CADIZ INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
For the Three Months Ended March 31, 1999
($ in thousands)
Additional Total
Common Stock Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
Balance as of
December 31, 1998 33,592,261 $ 336 $ 127,662 $ (78,288) $ 49,710
Exercise of stock
options 773,900 8 3,497 - 3,505
Stock issued for
services 18,750 - 150 - 150
Net loss - - - (7,421) (7,421)
---------- ----- ------- -------- ------
Balance as of
March 31, 1999 34,384,911 $ 344 $ 131,309 $ (85,709) $ 45,944
========== ====== ========= ======== =======
See accompanying notes to the consolidated financial statements.
CADIZ INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
- -------------------------------
The Condensed Consolidated Financial Statements have been
prepared by the Company without audit and should be read in
conjunction with the Consolidated Financial Statements and
notes thereto included in the Company's latest Form 10-K for
the year ended December 31, 1998. The foregoing Condensed
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 three months ended March 31,
1999 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.
NOTE 2 - INVENTORIES
Inventories consist of the following (dollars in thousands):
March 31, December 31,
1999 1998
----- ------
Growing crops $ 21,367 $ 11,208
Pepper seed 1,230 1,344
Harvested product 24 360
Materials and supplies 4,547 2,107
------- -------
$ 27,168 $ 15,019
====== ========
NOTE 3 - DEBT
- ----------------------
In February 1999, Sun World renewed its seasonal
revolving credit facility for an additional year and increased
the facility to $30 million from $25 million. Amounts borrowed
under the facility accrue interest at prime plus 1.0% or LIBOR
plus 2.5% at the Company's election.
Effective April 30, 1999, the Company obtained a one-year
extension of its senior term bank loan totaling $10.3 million
(including $0.5 million of accrued but unpaid interest).
Pursuant to the extension agreement, the loan will accrue
interest at LIBOR plus 2% and the Company will issue
certain warrants.
ITEM 2. 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 three months ended March 31, 1999 and 1998 reflect the
results of operations for the Company and its wholly-owned
subsidiary, Sun World International, Inc. ("Sun World").
A summary of the Sun World elements which management of
the Company believes is 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 (a) the operations of the
Company's water development activities including the Cadiz
Groundwater Storage and Dry-Year Supply Program (the
"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 has entered into agreements
internationally to license selected proprietary fruit
varieties and continues to pursue additional domestic and
international licensing opportunities.
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.
Specific factors that may cause such a difference include, but
are limited to, price and yield fluctuations in the
agricultural operations, seasonality, timing and terms of
various approvals required to complete the Program. See
additional discussions under the heading "Certain Trends and
Uncertainties" in Item 7 of the Company's latest Form 10-K.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS
ENDED MARCH 31, 1998
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
treefruit 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 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
March 31,
1999 1998
----- -----
Divisional net income (loss):
Farming $ 1,104 $ 770
Packing (199) (421)
Marketing (433) (377)
Proprietary product development 88 239
------- ------
560 211
General and administrative 2,600 2,345
Special litigation 227 313
Depreciation and amortization 740 744
Interest expense 4,414 3,999
------ ------
Net loss $ (7,421) $ (7,190)
======== ========
FARMING OPERATIONS. Net income from farming operations
totaled $1.1 million for the three months ended March 31,
1999, compared to $0.8 million for the three months ended
March 31, 1998. Operating results during the first quarter of
1999 and 1998 were derived primarily from lemon sales into
the fresh and juice markets as well as sweet red peppers from
Mexico. During the quarter ended March 31, 1999, farming
results were favorably impacted by increased yields coupled
with strong pricing for southern lemons due to lower industry
volumes resulting from the December freeze in the San Joaquin
Valley.
PACKING OPERATIONS. For the quarter ended March 31,
1999, Sun World's four packing and handling facilities
contributed revenues of $1.8 million offset by $2.0 million of
expenses largely due to the fixed infrastructure associated
with these facilities for a net loss of $0.2 million compared
to a net loss of $0.4 million for the quarter ended March 31,
1998. Packing operations generally reflect a loss in the
first quarter of the year as less than 10% of the annual
volume is packed or handled during the quarter. Units packed
during the quarter totaled 399,000 in 1999 compared to 384,000
in 1998. The Company packed 396,000 units in the Coachella
facility in the first quarter of 1999 compared to 257,000
units in the first quarter of 1998. Units packed were higher
in 1999 for both third party citrus and Company-farmed lemons
at the Coachella facility. The increase in volume in
Coachella more than offset the 124,000 unit reduction of
citrus packed in the Kimberlina facility resulting from the
freeze.
MARKETING OPERATIONS. Sun World's marketing operations
include the selling, merchandising and promoting of Sun World
grown products, as well as providing these services for third
party growers. During the three months ended March 31, 1999,
a total of approximately 721,000 units were sold, consisting
primarily of Company-farmed lemons, citrus from domestic third
party growers in Coachella, and sweet red peppers from Mexico,
compared to 810,000 units sold during the three months ended
March 31, 1998. This reduction in units was primarily due to
a reduction in the marketing of San Joaquin citrus resulting
from the freeze in December and reduced yields on sweet red
peppers from Mexico. Marketing revenues of $0.6 million were
offset by marketing expenses of $1.0 million resulting in a
net loss of $0.4 million for the first quarter of 1998 and
1999. Similar to the packing operations, marketing operations
ordinarily reflect a loss during the first quarter of the year
as less than 10% of the annual volume of units marketed are
sold during the quarter.
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. During the three months ended March 31, 1999 and
1998, net income from proprietary product development was $0.1
million consisting of $0.4 million of international royalties
primarily related to the Company's licensing agreement of the
Sugraone table grape in South Africa offset by research and
development expenses of $0.3 million. During the three months
ended March 31, 1998, net income from proprietary product
development was $0.2 million consisting primarily of profits
from the Company's 50% partnership interest in American SunMelon
offset by $0.3 million of research and development expenses.
American SunMelon sold substantially all of its assets and
distributed the majority of the proceeds to the partners in
the fourth quarter of 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and
administrative expenses during the three months ended March
31, 1999 totaled $2.6 million compared to $2.3 for the three
months ended March 31, 1998. This increase primarily resulted
from additional administrative costs incurred by Cadiz due to
activity associated with the implementation of the Program.
SPECIAL LITIGATION. The Company is engaged in lawsuits
seeking monetary damages arising from activities adverse to the
Company in conection with a landfill, which until its defeat by
the voters of San Bernardino County in 1996, was proposed to be
located adjacent to the Company's Cadiz/Fenner Valley properties.
See "Item 1 - Legal Proceedings." During the three months ended
March 31, 1999, expenses including litigation costs and
professional fees totaled $0.2 million as compared to $0.3
million during the 1998 period.
DEPRECIATION AND AMORTIZATION. Depreciation and
amortization expense for the three months ended March 31, 1999
and 1998 totaled $0.7 million.
INTEREST EXPENSE, NET. Net interest expense totaled $4.4
million during the three months ended March 31, 1999, compared
to $4.0 million during the same period in 1998. The following
table summarizes the components of net interest expense for
the two periods (in thousands):
Three Months Ended
March 31,
1999 1998
---- -----
Interest on outstanding debt - Sun World $ 3,439 $ 3,430
Interest on outstanding debt - Cadiz 491 329
Amortization of financing costs 562 307
Interest income (78) (67)
------- ------
$ 4,414 $ 3,999
======= =======
The increase in interest expense to $4.4 million during
the first quarter of 1999 from $4.0 million in 1998 is
primarily due to (a) increased borrowings on the $15.0 million
Cadiz Revolver (as defined below) compared to 1998 and (b)
amortization of warrants issued for the Cadiz Revolver.
Financing costs, which include legal fees and warrants, are
amortized over the life of the debt agreements.
LIQUIDITY AND CAPITAL RESOURCES
General Discussion of Liquidity and Capital Resources
- ------------------------------------------------------
Based on the cash on hand at March 31, 1999 and 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 over the next year 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 generally 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 which are financed through a revolving
credit agreement. In April 1998, Sun World entered into a $25
million one year facility (the "Sun World Revolver"). In
February 1999, Sun World increased the Sun World Revolver to a
$30 million facility in conjunction with a one year renewal of
the facility. 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.
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 March 31, 1999, Cadiz was obligated for
approximately $10.3 million under a senior term loan facility
(including $0.5 million of accrued but unpaid interest). With
the election to extend the facility in April 1999, the
maturity date of the term loan is April 30, 2000. The Company
issued certain warrants in conjunction with the extension.
Currently, the term lender holds a senior deed of trust on
substantially all of Cadiz' non-Sun World related property.
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 March 31,
1999.
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
Groundwater Storage and Dry-Year 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 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 to Cadiz of at least $115 million
for this initial groundwater. Based upon the results of
analyses performed by investment banking firms retained by the
Company, management believes that several alternative long-
term financing arrangements are available to the Company.
SUN WORLD OBLIGATIONS
The First Mortgage Notes (the "Sun World Notes") were
issued in the principal amount of $115 million on April 16,
1997 and will mature on April 15, 2004. The Sun World Notes
will be redeemable at the option of Sun World, in whole or in
part, at any time on or after April 15, 2001. Interest
accrues at the rate of 11-1/4% per annum and is payable semi-
annually on April 15th and October 15th of each year. 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. To meet its working
capital needs for 1999, Sun World has renewed the Sun World
Revolver for an additional year including an increase in the
facility to $30 million. As of March 31, 1999, $4.1 million
was outstanding under the Sun World Revolver. Additionally,
Sun World has an intercompany revolving credit agreement with
Cadiz for seasonal working capital needs as needed. $5.2
million was outstanding under the intercompany revolver as of
March 31, 1999 which is expected to be repaid during the last
half of 1999 utilizing proceeds from the sale of Sun World's
crops.
CASH USED FOR OPERATING ACTIVITIES. Cash used for
operating activities totaled $13.1 million for the three
months ended March 31, 1999, as compared to cash used for
operating activities of $8.7 million for the three months
ended March 31, 1998. The increase in cash used for operating
activities is primarily due to increased inventory balances
in 1999 resulting from (a) an increase in acreage farmed in
1999 compared to 1998 due to the acquisition of two citrus
ranches during the last half of 1998, and (b) Sun World
purchasing additional packaging materials during the
pre-season at favorable terms.
CASH USED FOR INVESTING ACTIVITIES. Cash used for
investing activities totaled $3.0 million for the three months
ended March 31, 1999, as compared to cash used for investing
activities of $3.4 million for the same period in 1998. The
decrease was primarily due to reduced capital expenditures
during the first quarter of 1999 compared to 1998 primarily
due to computer system implementation costs incurred during
the first quarter of 1998. During the first quarter of 1999,
the Company invested $1.1 million in developing crops, $0.7
million in water programs, and $0.8 million for the purchase
of property, plant and equipment.
CASH PROVIDED BY FINANCING ACTIVITIES. Cash provided by
financing activities totaled $7.5 million for the three months
ended March 31, 1999, consisting primarily of $4.1 million in
borrowings by Sun World for seasonal working capital compared
to $9.8 million in 1998. Principal payments on long-term debt
totaled $0.1 million for the three months ended March 31, 1999
compared to $0.3 million for the three months ended March 31,
1998. Net proceeds from the exercise of stock options totaled
$3.5 million during the three months ended March 31, 1999
compared to $0.3 million during the three months ended March
31, 1998.
OUTLOOK
The Company is actively pursuing the development of its
water resources. Specifically, in July 1998, the Company and
Metropolitan approved the principles and terms for agreement
for the Cadiz Groundwater Storage and Dry-Year Supply
Program. The principles and terms for agreement provide
that Metropolitan will, during wet years or periods of excess
supply, store surplus water from its Colorado River Aqueduct
in the Company's groundwater basin. During dry years or times
of reduced allocations from the Colorado River, the previously
imported water, together with additional existing groundwater,
will be extracted and delivered, via a conveyance pipeline,
back to the aqueduct.
The principles and terms for agreement provide that over
the 50 year term of the agreement, Metropolitan will store a
minimum of 500,000 acre-feet of Colorado River Aqueduct water
in the Company's groundwater basin and purchase a minimum of
1,100,000 acre-feet of existing groundwater for transfer
during dry-years. The Program will have the capacity to
convey, either for storage or transfer, up to 150,000 acre-
feet in any given year.
During storage operations, Metropolitan will pay a fee
per acre-foot for put of water into storage and a fee per acre-
foot for return of water from storage, and a storage fee per
acre-foot every year that water is stored in the groundwater
basin. On the transfer of water, Metropolitan will pay a base
rate of approximately $230 per acre-foot, which will be
adjusted according to a water price formula. Additionally,
recognizing that delivery of the Company's high-quality,
indigenous groundwater to the aqueduct provides a significant
water quality benefit, Metropolitan will pay the Company a
water quality fee for both transferred and returned water.
The Program facilities, including spreading basins,
extraction wells, conveyance pipeline and a pumping plant, are
estimated to cost between $125 and $150 million, and both
parties will share these costs. All operational costs of the
Program, including annual operations, maintenance and energy
costs, will be an obligation of Metropolitan.
The principles and terms for agreement call for the
establishment of a comprehensive independent groundwater
monitoring and management plan to ensure long-term protection
of the groundwater basin. The parties have commenced the
environmental review process, which will include compliance
with California Environmental Quality Act and National
Environmental Protection Act requirements. The final
agreement may reflect adjustments to these principles and
terms in order to reflect information identified during this
review. The final agreement will be presented to the
respective Boards of both parties for approval. The Program
is anticipated to be operational by the year 2001.
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 complimentary to its
current portfolio of water and agricultural resources. With
the acquisition of two citrus ranches in 1998, the Company
will grow, pack and market additional boxes of citrus from
December through March, which is contra-seasonal to the
Company's primary farming operations. This acquisition helps
to further diversify the Company's portfolio and enables the
Company to utilize its Bakersfield packing facility during a
previous period of limited utilization.
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, if necessary, 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 cash on hand, quarterly management fee payments
from Sun World, payments from Sun World under an agricultural
lease whereby Sun World now operates the Company's 1,600 acres
of developed agricultural property at Cadiz, California, and
the possible exercise of outstanding stock options. 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 year 2000 ("Y2K") issue is the result of computer
programs using two digits rather than four to define the
applicable year. Such software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could
result in system failures or miscalculations leading to
disruptions in the Company's activities and operations. If
the Company or its significant suppliers or customers fail to
make necessary modifications, conversions, and contingency
plans on a timely basis, the Y2K issue could have a material
adverse effect on the Company's business, operations, cash
flows, and financial condition. The impact of the Y2K issue
cannot be quantified at this time because the Company cannot
accurately estimate the magnitude, duration, or ultimate
impact of noncompliance by suppliers, customers, and third
parties that have no direct relationship to the Company.
The Company has established a corporate-wide project team
to identify and mitigate all Y2K issues. The team has
identified three categories of software and systems that
require attention:
(1) Information technology ("IT") systems, such as
mini mainframes, PCs, and networks;
(2) Non-IT systems, such as equipment, machinery,
climate control, and security systems, which
may contain microcontrollers with embedded
technology; and
(3) Partner (supplier and customer) IT and non-IT
systems.
For each category, the project team is utilizing the
following steps to identify and resolve Y2K issues: (1)
inventory the systems, (2) assess risks and impact of each
system, (3) prioritize projects, (4) fix, replace, or develop
contingency plans for non-compliant systems, and (5) test Y2K
compliance.
The status of each of the major categories as of April 1999 is
as follows:
Information Technology
-----------------------
Currently, various IT remediation projects are at
different phases of completion. The Company's assessments have
identified three major internal IT remediation projects: (1)
AS400 Applications, (2) PC Based Accounting and Payroll
Systems, and (3) PC Based Network Servers and Desktop
Computers.
The Company's plan is to resolve compliance issues in
critical business information systems by August 31, 1999.
YEAR 2000 COMPLIANCE FOR AS/400 APPLICATIONS
The IBM AS/400 hardware and operating systems are year
2000 compliant. The Company utilizes AS/400 applications for
its sales/order entry, accounts receivable, produce inventory,
and grower accounting systems. The primary year 2000 issue as
it relates to the IBM AS/400 is that the core business
applications software currently does not process nor store
properly dates after December 31, 1999. Currently, date
storage fields are being expanded from six digits to eight
digits for all affected display screens and reports where
appropriate. The Company plans to have all programming and
testing with regard to core business AS/400 applications
completed by August 31, 1999. As of April 22, 1999, the
Company is approximately 60% complete with the AS/400 project
and remains on schedule to have the AS/400 applications Year
2000 compliant by August 31, 1999.
YEAR 2000 COMPLIANCE FOR PC BASED ACCOUNTING AND PAYROLL
SYSTEMS
The Company utilizes commercial PC based accounting
systems for its general ledger, accounts payable, project
costing, purchasing, non-produce inventory, payroll and human
resource systems. As of January 1999, all required service
packs to make these applications Year 2000 compliant have been
installed and tested.
YEAR 2000 COMPLIANCE ON PC BASED NETWORK SERVERS AND
DESKTOP COMPUTERS
The Company has contacted all significant PC based
desktop and server system manufacturers to ascertain Year 2000
compliance. All significant PC based systems are Year 2000
compliant with required ROM upgrades made in April 1999.
Non-IT Systems
--------------
Although no other areas of the business are expected to
create Year 2000 issues, the project team is continuing to
review all areas of the business to determine Year 2000
compliance. Management believes that given the agricultural
nature of the Company's business, the project team will not
encounter any major Y2K issues which cannot be corrected or
would have a material adverse affect on the Company, although
no absolute assurances can be given.
Suppliers and Customers IT and Non-IT Systems
---------------------------------------------
The Company has identified all significant suppliers and
customers and has sent surveys and is conducting formal
communications to determine the extent to which it may be
affected by those third parties' Y2K preparedness plans. In
the absence of adequate responses and disclosures from major
suppliers and customers, the Company will attempt to make
independent assessments. However, a compliance failure by a
major supplier or customer, or one of their suppliers or
customers, could have a material adverse effect on the
Company's business or financial condition. As a result, in
some cases the Company will develop contingency plans for
suppliers and customers determined to be at risk of
noncompliance or business disruption. Such plans could
include finding alternative suppliers or manual intervention
where necessary.
Costs related to the Y2K issue are funded through
operating cash flows. The Company presently believes that the
total costs to obtain Y2K compliant systems will not exceed
$250,000, which consists mostly of internal labor for
programming and testing.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
---------------------------------------------------------
Information about market risks for the three months ended
March 31, 1999 does not differ materially from that discussed
under Item 7A of the registrant's Annual Report on Form 10-K
for 1998.
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
--------------------
See "Item 3. Legal Proceedings" included in the
Company's latest Form 10-K for a complete discussion.
CADIZ LAND COMPANY, INC. V. WASTE MANAGEMENT, INC., ET.
AL., Case No. CV 97-7827 WMB (MANx) (the "federal
action") and CADIZ LAND COMPANY, INC. V. WASTE
MANAGEMENT, INC., Civil Action No. SC 05743 (the "State
Court Action"). In the State Court Action, on March
10, 1999, the court sustained a demurrer to the
Company's First Amended Complaint, with leave to amend.
The Company's time in which to file its Second Amended
Complaint has been extended until 60 days after certain
discovery issues are resolved. The Company will
continue to vigorously prosecute its claims against the
WMI defendants.
Item 2. - Changes in Securities and Use of Proceeds
------------------------------------------
During the quarter ended March 31, 1999, the Company
issued 1,900 shares upon exercise of outstanding
options to a single option holder at an exercise price
of $5.50 per share. The issuance of the shares was not
registered under the Securities Act of 1933, as amended
(the "Securities Act"). The shares were issued in
accordance with the terms of previously executed stock
option agreements. The Company believes that this
transaction was exempt from the registration
requirements of the Securities Act by virtue of Section
4(2) thereof as a transaction not involving a public
offering.
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
None.
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 Inc.
By: /s/ Keith Brackpool May , 1999
------------------------------------ --------------------
Keith Brackpool, President and Date
Chief Executive Officer and Director
By: /s/ Stanley E. Speer May , 1999
----------------------------------- ---------------------
Stanley E. Speer Date
Chief Financial Officer
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