Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-Q
[] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2000
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 August 11, 2000 was 35,358,210 shares of Common
Stock, par value $0.01.
INDEX
For the Six Months Ended June 30, 2000 Page
PART I - FINANCIAL INFORMATION
I. Consolidated Financial Statements
A. Statement of Operations
For the Three Months Ended June 30, 2000 and 1999..... 3
B. Statement of Operations
For the Six Months Ended June 30, 2000 and 1999........4
C. Balance Sheet............................................5
D. Statement of Cash Flows..................................6
E. Statement of Stockholders' Equity........................7
F. Notes....................................................8
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................9
3. Quantitative and Qualitative Disclosures about Market Risk...17
PART II - OTHER INFORMATION.....................................18
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Three Months Ended June 30, 2000 1999
---- ----
($ in thousands except per share data)
Revenues $ 26,928 $ 26,193
-------- -------
Costs and expenses:
Cost of sales 23,230 18,565
General and administrative 3,146 3,220
Special litigation 103 245
Depreciation and amortization 1,767 1,462
------- -------
Total costs and expenses 28,246 23,492
------- -------
Operating profit (loss) (1,318) 2,701
Interest expense, net 4,964 4,609
------- -------
Net loss $ (6,282) $ (1,908)
======= =======
Net loss per common share $ (.18) $ (.06)
======= =======
Weighted average shares outstanding 35,308 34,600
======= =======
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Six Months Ended June 30, 2000 1999
---- ----
($ in thousands except per share data)
Revenues $ 34,864 $ 32,753
------- -------
Costs and expenses:
Cost of sales 31,696 24,214
General and administrative 6,083 6,171
Special litigation 276 472
Depreciation and amortization 2,467 2,202
------- -------
Total costs and expenses 40,522 33,059
------- -------
Operating loss (5,658) (306)
Interest expense, net 9,466 9,023
------- -------
Net loss $ (15,124) $ (9,329)
======== ========
Net loss per common share $ (.43) $ (.27)
======== ========
Weighted average shares outstanding 35,263 34,279
======== ========
See accompanying notes to the consolidated financial statements.
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, December 31,
2000 1999
---- ----
($ in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 1,128 $ 4,537
Accounts receivable, net 25,327 8,436
Inventories 33,136 18,423
Prepaid expenses and other 845 917
------- -------
Total current assets 60,436 32,313
Investment in partnerships 1,527 1,497
Property, plant, equipment and
water programs, net 169,715 169,009
Other assets 11,621 11,283
------- -------
$ 243,299 $ 214,102
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 23,347 $ 8,110
Accrued liabilities 6,032 7,686
Revolving credit facility 28,800 -
Long-term debt, current portion 24,990 725
------- -------
Total current liabilities 83,169 16,521
Long-term debt 118,056 142,089
Deferred income taxes 5,447 5,447
Other liabilities 556 375
Commitments and contingencies
Stockholders' equity:
Common stock - $.01 par value;
70,000,000 shares authorized;
shares issued and outstanding -
35,319,213 at June 30, 2000 and -
35,166,661 at December 31, 1999 353 352
Additional paid-in capital 137,724 136,200
Accumulated deficit (102,006) (86,882)
------- -------
Total stockholders' equity 36,071 49,670
------- -------
$ 243,299 $ 214,102
======== ========
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Six Months Ended June 30, 2000 1999
---- ----
($ in thousands)
Cash flows from operating activities:
Net loss $ (15,124) $ (9,329)
Adjustments to reconcile net loss
from operations to cash used for
operating activities:
Depreciation and amortization 3,736 3,289
Gain on sale of assets (3) (46)
Share of partnership operations (30) -
Stock earned for services (625) -
Changes in operating assets and
liabilities:
Increase in accounts receivable (16,891) (18,969)
Increase in inventories (12,912) (17,115)
Decrease in prepaid expenses and other 72 309
Increase in accounts payable 15,237 12,370
(Decrease) increase in accrued
liabilities (1,654) 276
Increase (decrease) in other liabilities 181 (102)
------- -------
Net cash used for
operating activities (28,013) (29,317)
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (609) (3,974)
Proceeds from disposal of property, plant
and equipment 433 88
Additions to water programs (786) (1,544)
Additions to developing crops (2,792) (2,176)
Increase in other assets (342) (721)
------- -------
Net cash used for investing activities (4,096) (8,327)
------- -------
Cash flows from financing activities:
Net proceeds from issuance of stock 253 6,262
Principal payments on long-term debt (353) (196)
Net proceeds from short-term debt 28,800 21,050
------- -------
Net cash provided by
financing activities 28,700 27,116
------- -------
Net decrease in cash and cash equivalents (3,409) (10,528)
Cash and cash equivalents, beginning of period 4,537 13,635
------- --------
Cash and cash equivalents, end of period $ 1,128 $ 3,107
======= =======
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
For the Six Months Ended June 30, 2000
($ in thousands)
Additional Total
Common Stock Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------ ------ -------- ---------- -----------
Balance as of
December 31, 1999 35,166,661 $ 352 $ 136,200 $ (86,882) $ 49,670
Exercise of
stock options 52,552 - 253 - 253
Issuance of warrants to
a lender - - 247 - 247
Stock issued for
services 100,000 1 1,024 - 1,025
Net loss - - - (15,124) (15,124)
-------- ------ -------- -------- -------
Balance as of
June 30, 2000 35,319,213 $ 353 $ 137,724 $(102,006) $ 36,071
========== ====== ========= ========== ========
See accompanying notes to the consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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, 1999.
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, 2000 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):
June 30, December 31,
2000 1999
----- -----
Growing crops $ 25,093 $ 14,297
Pepper seed 836 1,028
Harvested product 1,337 98
Materials and supplies 5,870 3,000
------- -------
$ 33,136 $ 18,423
======== ========
NOTE 3 - DEBT
-------------
In February 2000, Sun World renewed its $30 million seasonal
revolving credit facility for an additional year. Amounts borrowed
under the facility accrue interest at prime plus 1.0% or LIBOR plus
2.5% at the Company's election. In June 2000, the Company increased
the revolving credit facility to $33 million for the period from
June 15, 2000 to July 31, 2000, after which the maximum availability
under the facility returns to $30 million.
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 six
months ended June 30, 2000 and 1999 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. 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 not 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 June 30, 2000 Compared to Three Months Ended June 30, 1999
-----------------------------------------------------------------------------
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 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,
--------
2000 1999
---- ----
Divisional net income (loss):
Farming $ (842) $ 3,252
Packing 1,950 2,028
Marketing 1,500 1,740
Proprietary product development 643 213
------ -------
3,251 7,233
General and administrative 2,699 2,825
Special litigation 103 245
Depreciation and amortization 1,767 1,462
Interest expense 4,964 4,609
------ -------
Net loss $ (6,282) $ (1,908)
======= ========
FARMING OPERATIONS. Net loss from farming operations totaled
$0.8 million for the three months ended June 30, 2000 compared to
net income of $3.3 million for the three months ended June 30, 1999.
Operating results during the second quarter of 2000 and 1999 were
derived primarily from the harvest of table grapes, peppers and
watermelons from the Coachella Valley operations and the beginning
of the stonefruit harvest from the San Joaquin Valley operations.
During the quarter ended June 30, 2000, the decrease in farming
income resulted primarily from reduced profits of $3.1 million for
Coachella Valley table grapes due to a reduction in F.O.B. prices
coupled with a decline from the exceptional yields achieved in 1999.
However, Sun World's proprietary table grape varieties continue to
command a price premium to the overall market. Additionally,
results for peppers and watermelons were unfavorably impacted by
lower prices offset by higher yields. Revenues from farming
operations totaled $21.3 million for the 2000 quarter compared to
$20.8 million for the 1999 quarter. Farming expenses totaled $22.1
million in the 2000 quarter compared to $17.5 million in the 1999
quarter.
PACKING OPERATIONS. Sun World's packing and handling facilities
contributed revenues of $6.1 million offset by $4.1 million of
expenses for net income of $2.0 million for both the quarter ended
June 30, 2000 and the quarter ended June 30, 1999. Units packed
during the quarter totaled 1.1 million in 2000 compared to 1.2
million in 1999. The reduced units packed during the quarter were
primarily due to 300,000 fewer units of third party citrus being
packed in Coachella partially offset by 200,000 more units of Sun
World-grown stonefruit being packed in Bakersfield.
MARKETING OPERATIONS. Marketing revenues of $2.6 million were
offset by marketing expenses of $1.1 million resulting in net income
of $1.5 million for the second quarter of 2000. Marketing revenues
of $2.9 million were offset by marketing expenses of $1.2 million
for net income of $1.7 million for the second quarter of 1999. The
decrease in marketing net income was due primarily to a 21% decrease
in average marketing commissions per unit primarily resulting from
lower F.O.B. prices for southern table grapes and watermelons. This
decrease was partially offset by a 17% increase in units marketed
due to the southern table grape harvests occurring approximately two
weeks earlier in 2000 as compared to 1999 as well as increased units
of Sun World-grown and third party stonefruit. During the three
months ended June 30, 2000, Sun World sold 3.6 million units,
consisting primarily of Sun World-grown table grapes, watermelons,
peppers and stonefruit as well as citrus and stonefruit from
domestic third party growers in Coachella compared to 3.0 million
units sold during the three months ended June 30, 1999.
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 June 30, 2000, net income from proprietary
product development was $0.6 million compared to $0.2 million for
the 1999 quarter. The increase in proprietary product development
income is primarily due to $0.4 million of management income from
Kingdom Agricultural Development Company (KADCO) for Sun World's
role in developing agricultural land in Egypt.
GENERAL AND ADMINISTRATIVE EXPENSES. General and
administrative expenses during the three months ended June 30, 2000
totaled $2.7 million compared to $2.8 million for the three months
ended June 30, 1999. This decrease primarily resulted from reduced
legal and professional fees.
SPECIAL LITIGATION. The Company is engaged in lawsuits seeking
monetary damages arising from activities adverse to the Company in
connection 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" within Part II - Other Information. During the
three months ended June 30, 2000, expenses including litigation
costs and professional fees totaled $0.1 million as compared to $0.2
million during the 1999 period.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expense for the three months ended June 30, 2000 totaled $1.8
million compared to $1.5 million during the same period in 1999.
The increase is primarily attributable to an increase in the relief
of depreciation costs from inventory due to the 2000 table grape
harvests occurring approximately two weeks earlier than the 1999
harvests.
INTEREST EXPENSE, NET. Net interest expense totaled $5.0
million during the three months ended June 30, 2000, compared to
$4.6 million during the same period in 1999. The following table
summarizes the components of net interest expense for the two
periods (in thousands):
Three Months Ended
June 30,
2000 1999
---- ----
Interest on outstanding debt - Sun World $ 3,900 $ 3,781
Interest on outstanding debt - Cadiz 490 425
Amortization of financing costs 661 525
Interest income (87) (122)
------- -------
$ 4,964 $ 4,609
======== ========
The increase in interest expense is primarily due to (a)
increased borrowings on the Sun World Revolver and (b) amortization
of warrants issued to extend the Cadiz senior term loan facility and
the Cadiz Revolver. Financing costs, which include legal fees and
warrants, are amortized over the life of the debt agreements.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
-------------------------------------------------------------------------
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
-----
2000 1999
---- ----
Divisional net income (loss):
Farming $ (1,677) $ 4,356
Packing 1,765 1,829
Marketing 1,246 1,307
Proprietary product development 982 301
------- -------
2,316 7,793
General and administrative 5,231 5,425
Special litigation 276 472
Depreciation and amortization 2,467 2,202
Interest expense, net 9,466 9,023
------- -------
Net loss $(15,124) $ (9,329)
========= ========
FARMING OPERATIONS. Net loss from farming operations totaled
$1.7 million for the six months ended June 30, 2000 compared to net
income of $4.4 million for the six months ended June 30, 1999.
Farming revenues were $27.0 million and farming expenses were $28.7
million for the six months ended June 30, 2000. For the six months
ended June 30, 1999, the Company had farming revenues of $25.3
million and farming expenses of $20.9 million. The decrease in
farming results in 2000 compared to 1999 was primarily due to (a)
reduced profits of $3.1 million for southern table grapes due to
lower F.O.B. prices; (b) lower prices offset by higher yields for
Sun World-grown watermelons and peppers; and (c) reduced F.O.B.
prices for Sun World-grown navels, artichokes and sweet red peppers
from Mexico resulting from an over supply in the industry.
PACKING OPERATIONS. Sun World's packing and handling
facilities contributed $1.8 million in profit during the six months
ended June 30, 2000 and 1999. Sun World packed 1.8 million units
during the six months ended June 30, 2000 compared to 1.6 million
during the same period in 1999. The increase in units packed is due
primarily to increased citrus and stonefruit volumes at the
Kimberlina facility. Citrus units were up by 200,000 units due to
the packing of Sun World-grown citrus from the San Joaquin Valley
where almost no units were packed in 1999 due to the freeze.
Stonefruit units were up by 200,000 due to increased units of early
peaches and plums. The increase was offset by 200,000 fewer units of
third party citrus being packed in Coachella due to soft market
conditions. Units packed and handled during the first half of 2000
primarily consisted of Sun World-grown table grapes, 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 $8.6 million was offset by
$6.8 million of expenses for the six months ended June 30, 2000.
Revenues totaled $7.9 million offset by expenses of $6.1 million for
the six months ended June 30, 1999.
MARKETING OPERATIONS. During the six months ended June 30,
2000, a total of 4.5 million units were sold consisting primarily of
Sun World-grown table grapes, peppers and watermelons from the
Coachella Valley; table grapes, stonefruit, watermelons and citrus
from domestic third party growers; peppers from Mexico; and Sun
World-grown stonefruit from the San Joaquin Valley. These unit
sales resulted in marketing revenue of $3.3 million. Marketing
expenses totaled $2.1 million for the six months ended June 30, 2000
resulting in net income from marketing operations of $1.2 million.
During the six months ended June 30, 1999, 3.8 million units were
marketed resulting in revenues of $3.5 million offset by expenses of
$2.2 million for net income of $1.3 million. The increase in units
sold is primarily due to increased units of Sun World-grown table
grapes, stonefruit, watermelons and citrus, offset by a decrease in
third party citrus. The decrease in commission revenue is due to a
19% decrease in average commission per unit resulting from lower
F.O.B prices compared to 1999 for Coachella Valley table grapes,
watermelons and third party citrus.
PROPRIETARY PRODUCT DEVELOPMENT. During the six months ended
June 30, 2000, net income from proprietary product development was
$1.0 million compared to $0.3 million for the six months ended June
30, 1999. The increase in proprietary product development income
primarily related to management income from KADCO for Sun World's
role in developing agricultural land in Egypt.
GENERAL AND ADMINISTRATIVE EXPENSES. General and
administrative expenses for the six months ended June 30, 2000
totaled $5.2 million compared to $5.4 million for the 1999 period.
The decrease primarily resulted from reduced legal and professional
fees.
SPECIAL LITIGATION. The Company is engaged in lawsuits seeking
monetary damages arising from activities adverse to the Company in
connection 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" within Part II - Other Information. During the
six months ended June 30, 2000, expenses including litigation costs
and professional fees totaled $0.3 million as compared to $0.5
million during the 1999 period.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and
amortization expense for the six months ended June 30, 2000 totaled
$2.5 million compared to $2.2 million during the same period in
1999. The increase is primarily attributable to an increase in the
relief of depreciation costs from inventory due to the 2000 table
grape harvests occurring approximately two weeks earlier than the
1999 harvests.
INTEREST EXPENSE, NET. Net interest expense totaled $9.5
million during the six months ended June 30, 2000, compared to $9.0
million during the same period in 1999. The following table
summarizes the components of net interest expense for the two
periods (in thousands):
Six Months Ended
June 30
------
2000 1999
---- ----
Interest on outstanding debt - Sun World $ 7,383 $ 7,220
Interest on outstanding debt - Cadiz 980 916
Amortization of financing costs 1,263 1,087
Interest income (160) (200)
------- --------
$ 9,466 $ 9,023
======== =======
The increase in interest on outstanding debt during the 2000
period is primarily due to (a) increased borrowings on the Sun World
Revolver to meet seasonal working capital needs and (b) amortization
of warrants issued for the extension of the Cadiz Revolver and the
Cadiz term loan facility. Financing costs, which include legal fees,
loan fees and warrants, are amortized over the life of the debt
agreement.
LIQUIDITY AND CAPITAL RESOURCES
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, 2000, Cadiz was obligated for approximately
$10.3 million under a senior term loan facility and $15 million
under a $15 million revolving credit facility (the "Cadiz
Revolver") with the same lender. Both facilities have a
maturity date of January 31, 2001. Currently, the lender holds
a senior deed of trust on substantially all of Cadiz' non-Sun
World related property under the term loan facility and a
second lien on substantially all of the non-Sun World assets of
the Company under the Cadiz Revolver. The Company and the
lender have historically structured their financing arrangement
with a view toward effective implementation of the Program.
While the Company currently anticipates repayment of these
facilities with monies to be received under the Program, the
Company may, if it deems necessary, replace or renegotiate the
terms of these facilities to accommodate other developments
such as delays in the timetable for regulatory approvals of the
Program.
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 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; (b) utilization of monies to be received from
Metropolitan for its initial purchase of indigenous groundwater
or storage rights; and (c) financing through Metropolitan by
offsetting Cadiz' costs for capital facilities financing
against payments due to Cadiz for stored or transferred water.
Based upon the results of analyses performed by investment
banking firms retained by the Company and current negotiations,
management believes that several alternative long-term
financing arrangements are available to the Company.
Sun World Obligations
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 $30
million credit agreement (the "Sun World Revolver ") which is
guaranteed by Cadiz. Sun World obtained a one-year extension of
the Revolver in February 2000. In June 2000, the Company
increased the revolving credit facility to $33 million for the
period from June 15, 2000 to July 31, 2000, after which the
maximum availability under the facility returns to $30 million.
As of June 30, 2000, $28.8 million was outstanding under the
Sun World Revolver. Additionally, Sun World has an intercompany
revolving credit agreement with Cadiz for seasonal working
capital requirements as needed. No amounts were outstanding
under this facility at June 30, 2000.
In addition, Sun World has outstanding $115 million of
First Mortgage Notes (the "Sun World Notes") which will mature
on April 15, 2004 that are registered under the Securities Act
of 1933 and are publicly traded. The Sun World Notes are
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 15
and October 15 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.
CASH USED FOR OPERATING ACTIVITIES. Cash used for
operating activities totaled $28.0 million for the six months
ended June 30, 2000 as compared to cash used for operating
activities of $29.3 million for the six months ended June 30,
1999. The decrease in cash used for operating activities is
primarily due to (a) decreased inventory balances in 2000
resulting from the harvests running approximately two weeks
earlier than prior year; (b) decreased accounts receivable
resulting from the earlier harvests offset by lower F.O.B.
prices; (c) increased accounts payable resulting from higher
amounts owed to third party growers resulting from increased
product volumes and increased farming activity in 2000; offset
by (d) increased net loss in 2000 compared to 1999 due to lower
farming profits.
CASH USED FOR INVESTING ACTIVITIES. Cash used for
investing activities totaled $4.1 million for the six months
ended June 30, 2000 compared to cash used for investing
activities of $8.3 million for the same period in 1999. The
decrease is primarily due to completion of a wide array of
technical, environmental and engineering analyses for the
Program during 1999 as well as exercise of a purchase option
for 2,439 acres of land with significant water resources in
1999. During the six months ended June 30, 2000, the Company
invested $2.8 million in developing crops, $0.8 million in
water programs, and $0.6 million for the purchase of property,
plant and equipment.
CASH PROVIDED BY FINANCING ACTIVITIES. Cash provided by
financing activities totaled $28.7 million for the six months
ended June 30, 2000 consisting primarily of $28.8 in borrowings
by Sun World for seasonal working capital compared to $21.1
million in 1999. Principal payments on long-term debt totaled
$0.4 million for the six months ended June 30, 2000 compared to
$0.2 million for the six months ended June 30, 1999. Net
proceeds from the exercise of stock options totaled $0.3
million during the six months ended June 30, 2000 compared to
$6.3 million during the six months ended June 30, 1999.
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 a 50-year 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 groundwater basin underlying
the Company's property. 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 call for the
establishment of a comprehensive groundwater monitoring and
management plan to ensure long-term protection of the groundwater
basin. The final agreement may reflect adjustments to the developed
principles and terms in order to reflect and respond to information
identified during the ongoing environmental review process, and the
final agreement will be subject to the approval by the respective
Boards of both parties. Also, see "Narrative Description of
Business - Water Resource Development - Cadiz Groundwater Storage
and Dry-Year Supply Program" in the Company's Form 10-K for the year
ended December 31, 1999.
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 that are
complimentary to its current portfolio of water and agricultural
resources.
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
anticipates it will be able to meet its ordinary working capital
needs, in the short-term, through a combination of cash on hand,
payments under the Program, 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
exercise of outstanding stock options and, if necessary, through an
intercompany revolver with Sun World. Except for the foregoing,
additional intercompany cash payments between Sun World and Cadiz
are subject to certain restrictions under its current lending
arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------
Information about market risks for the six months ended June
30, 2000 does not differ materially from that discussed under Item
7A of the registrant's Annual Report on Form 10-K for 1999.
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., Civil
Action No. SC 05743 (the "State Court Action"). In the State
Court Action, the Company filed its Second Amended Complaint.
On May 12, 2000, the trial court denied Waste Management's
demurrer to, and motion to strike certain causes of action
from, the Company's Second Amended Complaint. Waste
Management has appealed this decision with the Court of
Appeal of the State of California, Second Appellate District.
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 June 30, 2000, the Company issued
warrants to purchase 50,000 shares of the Company's common
stock at an exercise price of $7.06 per share. These
warrants were issued to the Company's primary lender as
consideration for an extension of the maturity date of the
Company's term obligations to such lender. The issuance of
the warrants was not registered under the Securities Act of
1933, as amended (the "Securities Act"). 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
---------------------------------------------------
The annual meeting of the stockholders of the Company was
held on May 15, 2000. For the voting results of actions taken
at the meeting, see "Item 4 in Part II - Other Information "
of the registrant's March 31, 2000 Quarterly Report on Form
10-Q.
Item 5. Other Information
------------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
A. Exhibits
1. Exhibit 3.1 - Certificate of Amendment to Certificate of
Incorporation of Cadiz Inc.
2. Exhibit 27.1 - 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 August ,2000
----------------------------------- -----------------------
Keith Brackpool, President and Date
Chief Executive Officer and Director
By: /s/ Stanley E. Speer August ,2000
----------------------------------- ----------------------
Stanley E. Speer Date
Chief Financial Officer
