<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[x] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 90401-1111
SANTA MONICA, CA (Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (310) 899-4700
Securities Registered Pursuant to Section 12(b) of the Act: None
-------------------------------
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
None None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
The number of shares outstanding of each of the Registrant's classes of Common
Stock at November 10, 2000 was 35,483,910 shares of Common Stock, par value
$0.01.
<PAGE>
CADIZ INC.
--------------------------------------------------------------------------------
INDEX
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 PAGE
--------------------------------------------------------------------------------------------------------------------
<S> <C>
PART I - FINANCIAL INFORMATION
1. CONSOLIDATED FINANCIAL STATEMENTS
A. Statement of Operations
For the Three Months Ended September 30, 2000 and 1999..................................3
B. Statement of Operations
For the Nine Months Ended September 30, 2000 and 1999...................................4
C. Balance Sheet
As of September 30, 2000 and December 31, 1999..........................................5
D. Statement of Cash Flows
For the Nine Months Ended September 30, 2000 and 1999...................................6
E. Statement of Stockholders' Equity
For the Nine Months Ended September 30, 2000............................................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...........................................18
PART II - OTHER INFORMATION...................................................................................18
</TABLE>
2
<PAGE>
CADIZ INC.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 1999
-------------------------------------------------------------------------------------------------------------
($ IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenues $ 55,376 $ 60,644
---------------- -------------------
Costs and expenses:
Cost of sales 43,367 44,668
General and administrative 2,983 3,177
Special litigation 84 345
Depreciation and amortization 4,349 5,027
---------------- -------------------
Total costs and expenses 50,783 53,217
---------------- -------------------
Operating profit 4,593 7,427
Interest expense, net 4,935 4,434
---------------- -------------------
Net income (loss) $ (342) $ 2,993
================ ===================
Basic income (loss) per common share $ (.01) $ .09
================ ===================
Diluted income (loss) per common share (.01) $ .08
================ ===================
Basic weighted average shares outstanding 35,364 35,036
================ ===================
Diluted weighted average shares outstanding 35,364 36,399
================ ===================
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
CADIZ INC.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 1999
----------------------------------------------------------------------------------------------------------------
($ IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenues $ 90,240 $ 93,397
----------- -----------
Costs and expenses:
Cost of sales 75,064 68,882
General and administrative 9,066 9,348
Special litigation 360 817
Depreciation and amortization 6,815 7,229
----------- -----------
Total costs and expenses 91,305 86,276
----------- -----------
Operating profit (loss) (1,065) 7,121
Interest expense, net 14,401 13,457
----------- -----------
Net loss $ (15,466) $ (6,336)
=========== ===========
Basic and diluted loss per common share $ (.44) $ (.18)
=========== ===========
Basic and diluted weighted average shares outstanding 35,290 34,528
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
CADIZ INC.
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
($ IN THOUSANDS) 2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 548 4,537
Accounts receivable, net 14,569 8,436
Inventories 14,596 18,423
Prepaid expenses and other 711 917
----------- -----------
Total current assets 30,424 32,313
Investment in partnership 1,528 1,497
Property, plant, equipment and water programs, net 168,690 169,009
Other assets 11,641 11,283
----------- -----------
$ 212,283 $ 214,102
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,248 8,110
Accrued liabilities 9,738 7,686
Revolving credit facility 4,600 -
Long-term debt, current portion 25,451 725
----------- -----------
Total current liabilities 52,037 16,521
Long-term debt 117,999 142,089
Deferred income taxes 5,447 5,447
Other liabilities 672 375
Commitments and contingencies
Stockholders' equity:
Common stock - $.01 par value; 70,000,000 shares
authorized; shares issued and outstanding -
35,432,910 at September 30, 2000 and 35,166,661 354 352
at December 31, 1999
Additional paid-in capital 138,122 136,200
Accumulated deficit (102,348) (86,882)
----------- -----------
Total stockholders' equity 36,128 49,670
----------- -----------
$ 212,283 $ 214,102
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
CADIZ INC.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 1999
--------------------------------------------------------------------------------------------------------------
($ IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (15,466) $ (6,336)
Adjustments to reconcile net loss from operations
to net cash used for operating activities:
Depreciation and amortization 8,768 8,824
Issuance of shares for compensation - 28
Gain on disposal of assets (3) (73)
Share of partnership operations (31) (318)
Stock earned for services (938) -
Changes in operating assets and liabilities:
Increase in accounts receivable (6,133) (7,928)
Decrease (increase) in inventories 3,438 (3,860)
Decrease in prepaid expenses and other 206 394
Increase in accounts payable 4,138 3,067
Increase in accrued liabilities 2,052 4,319
Increase (decrease) in other liabilities 297 (241)
----------- ------------
Net cash used for operating activities (3,672) (2,124)
----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment (900) (4,629)
Proceeds from disposal of property, plant and equipment 436 185
Additions to water programs (1,248) (2,023)
Additions to developing crops (3,066) (2,865)
Increase in other assets (371) (819)
----------- -----------
Net cash used for investing activities (5,149) (10,151)
----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of stock 652 6,438
Proceeds from issuance of long-term debt - 32
Principal payments on long-term debt (420) (281)
Net proceeds from short-term debt 4,600 -
----------- -----------
Net cash provided by financing activities 4,832 6,189
----------- -----------
Net decrease in cash and cash equivalents (3,989) (6,086)
Cash and cash equivalents, beginning of period 4,537 13,635
----------- -----------
Cash and cash equivalents, end of period $ 548 $ 7,549
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements
6
<PAGE>
CADIZ INC.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
--------------------------------------------------------------------------------------------------------------------
($ IN THOUSANDS)
ADDITIONAL TOTAL
COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
<S> <C> <C> <C> <C> <C>
Balance as of December 31, 1999 35,166,661 $ 352 $ 136,200 $ (86,882) $ 49,670
Exercise of stock options and warrants 166,249 1 651 - 652
Issuance of warrants to a lender - - 247 - 247
Stock issued for services 100,000 1 1,024 - 1,025
Net loss - - - (15,466) (15,466)
------------ ------- ----------- ------------ ------------
Balance as of September 30, 2000 35,432,910 $ 354 $ 138,122 $ (102,348) $ 36,128
============ ======= =========== ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
7
<PAGE>
CADIZ 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, 1999. The foregoing Consolidated Financial Statements
include all adjustments, consisting only of normal recurring adjustments which
the Company considers necessary for a fair presentation. These financial
statements reflect certain reclassifications made to the prior period balances
to conform with the current year presentation. The results of operations for the
nine months ended September 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):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
----------- -----------
<S> <C> <C>
Growing crops $ 8,651 $ 14,297
Pepper seed 386 1,028
Harvested product 2,842 98
Materials and supplies 2,717 3,000
----------- -----------
$ 14,596 $ 18,423
=========== ===========
</TABLE>
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 returned to $30 million.
8
<PAGE>
CADIZ INC.
--------------------------------------------------------------------------------
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 nine months
ended September 30, 2000 and 1999 reflect the results of operations for the
Company and its wholly-owned subsidiary, Sun World International, Inc.
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. Certain reclassifications
have been made to the prior period balances to conform to the current year
presentation.
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 to license selected proprietary fruit varieties internationally and
continues to pursue additional domestic as well as 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 SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
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
9
<PAGE>
CADIZ INC.
--------------------------------------------------------------------------------
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):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Divisional net income:
Farming $ 2,585 $ 5,563
Packing 4,803 5,368
Marketing 2,315 2,880
Proprietary product development 1,921 1,789
----------- -----------
11,624 15,600
General and administrative 2,598 2,801
Special litigation 84 345
Depreciation and amortization 4,349 5,027
Interest expense 4,935 4,434
----------- -----------
Net income (loss) $ (342) $ 2,993
=========== ===========
</TABLE>
FARMING OPERATIONS. Net income from farming operations totaled $2.6
million for the three months ended September 30, 2000 compared to $5.6
million for the three months ended September 30, 1999. Operating results
during the third quarter of 2000 and 1999 were derived primarily from the
harvest of table grapes and stonefruit from the San Joaquin Valley
operations. During the quarter ended September 30, 2000, farming results
declined primarily due to lower F.O.B. prices resulting from an over supply
in the industry. Results were favorably impacted due to the Company's
proprietary table grape and stonefruit products continuing to command a price
premium to the overall market which helped offset some of the losses incurred
from the Company's commodity products. The Company sold 2.8 million boxes of
table grapes in 2000 compared to 3.0 million in 1999. The decrease was
primarily due to 300,000 boxes being sold from the Coachella Valley in 1999
as a result of record yields extending the season well into July. Average
F.O.B. prices for table grapes declined by 9% from 1999 due to increased
supply in the industry. Farming results for stonefruit were favorable to
prior year due primarily to increased yields on the Company's Angeleno and
Black Diamond(R) plums. The Company sold 722,000 units of stonefruit during
the quarter compared to 567,000 units in 1999. Profits from wine grapes were
below prior year due to a 28% decrease in price per ton compared to 1999
resulting from an oversupply in the industry. Profits were favorably impacted
by a strong market for San Joaquin Valley peppers where yields were up 9%
and F.O.B. prices were up 15%. Revenues from farming operations totaled $46.7
million for the 2000 quarter compared to $52.4 million for the 1999 quarter.
Farming expenses totaled $44.1 million in the 2000 quarter compared to $46.8
million in the 1999 quarter.
10
<PAGE>
CADIZ INC.
--------------------------------------------------------------------------------
PACKING OPERATIONS. For the quarter ended September 30, 2000, Sun
World's packing and handling facilities contributed revenues of $9.9 million
offset by $5.1 million of expenses for net income of $4.8 million compared to
net income of $5.4 million for the quarter ended September 30, 1999. Packing
revenues were $9.5 million and expenses were $4.1 million in the 1999 quarter.
Units packed and handled during the quarter totaled 4.4 million in 2000 compared
to 4.6 million in 1999. The decrease in units packed and handled and revenues
during the quarter is primarily due to reduced volumes of Coachella table grapes
handled due to lighter yields offset by increased volumes of stonefruit
resulting from increased plum yields. The increase in packing expenses resulted
from a significant increase in corrugated box costs and temporary use of third
party storage facilities due to capacity constraints in July.
MARKETING OPERATIONS. Marketing revenues of $3.9 million were offset by
marketing expenses of $1.6 million resulting in net income of $2.3 million for
the third quarter of 2000. Marketing revenues of $4.3 million were offset by
marketing expenses of $1.4 million for net income of $2.9 million for the third
quarter of 1999. The decrease in marketing net income was primarily due to a 7%
decrease in average marketing commissions resulting from lower F.O.B. prices for
table grapes, stonefruit and third party citrus. During the three months ended
September 30, 2000 and 1999, the Company sold 5.5 million units, consisting
primarily of Company-farmed table grapes, peppers and stonefruit as well as
citrus from domestic third party growers in Coachella.
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 September 30, 2000, net profit
from proprietary product development was $1.9 million compared to $1.8 million
for 1999. 2000 net profit consisted of international royalties of $0.4 million,
net research and development income of $1.1 million and management income from
Kingdom Agricultural Development Company (KADCO) of $0.4 million. 1999 net
profit consisted of international royalties of $0.2 million, net research and
development income of $1.3 million and profits from ASC/SWB partnership
(formerly American SunMelon) of $0.3 million.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses during the three months ended September 30, 2000 totaled $2.6
million compared to $2.8 for the three months ended September 30, 1999. This
decrease primarily resulted from reduced employee-related expenses and lower
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 September 30, 2000, expenses including litigation
costs and professional fees totaled $0.1 million as compared to $0.3 million
during the 1999 period.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
for the three months ended September 30, 2000 totaled $4.4 million compared to
$5.0 million during the same period in 1999. The decrease is primarily
attributable to a decrease in the relief of depreciation costs from inventory
due to the timing of the 2000 harvests compared to 1999.
11
<PAGE>
CADIZ INC.
--------------------------------------------------------------------------------
INTEREST EXPENSE, NET. Net interest expense totaled $4.9 million during
the three months ended September 30, 2000, compared to $4.4 million during the
same period in 1999. The following table summarizes the components of net
interest expense for the two periods (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Interest on outstanding debt - Sun World $ 3,692 $ 3,607
Interest on outstanding debt - Cadiz 580 375
Amortization of financing costs 688 507
Interest income (25) (55)
----------- -----------
$ 4,935 4,434
=========== ===========
</TABLE>
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.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 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):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Divisional net income:
Farming $ 901 $ 9,919
Packing 6,568 7,197
Marketing 3,561 4,187
Proprietary product development 2,904 2,090
----------- -----------
13,934 23,393
General and administrative expense 7,824 8,226
Special litigation 360 817
Depreciation and amortization expense 6,815 7,229
Interest expense, net 14,401 13,457
----------- -----------
Net loss $ (15,466) $ (6,336)
=========== ===========
</TABLE>
FARMING OPERATIONS. Net income from farming operations totaled $0.9
million for the nine months ended September 30, 2000 compared to $9.9 million
for the nine months ended September 30, 1999. Farming revenues were $73.9
million and farming expenses were $73.0 million for the nine months ended
September 30, 2000. For the nine months ended September 30, 1999, the Company
had farming revenues of $77.6 million and farming expenses of $67.7
12
<PAGE>
CADIZ INC.
--------------------------------------------------------------------------------
million. The decrease in farming results in 2000 compared to 1999 were
primarily due to decreased prices on table grapes, wine grapes, stonefruit,
and citrus from the San Joaquin, Coachella Valley and Cadiz operations due to
an over supply of products in the industry. Average F.O.B. prices for 2000
are 7% below 1999 average F.O.B.'s. The increase in farming expenses is
primarily due to costs to grow and harvest citrus in the San Joaquin Valley
in 2000 that were not incurred in 1999 due to December 1998 freeze. The
Company's proprietary table grape and stonefruit products have allowed Sun
World to continue to command a price premium to the overall market which
helped offset some of the losses incurred from the Company's commodity
products.
PACKING OPERATIONS. Sun World's packing and handling facilities
contributed $6.6 million in profit during the nine months ended September 30,
2000 compared to $7.2 million for the nine months ended September 30, 1999. The
Company packed and handled 7.5 million units during the nine months ended
September 30, 2000 compared to 7.4 million during the same period in 1999. The
increase in units is primarily due to an increase in plum production as yields
improved over 1999. Packing results were negatively impacted by a significant
increase in corrugated box costs and temporary use of third party storage
facilities during July 2000 due to capacity constraints. Units packed and
handled during the first nine months of 2000 primarily consisted of
Company-grown table grapes, peppers and seedless watermelons in the Coachella
Valley; table grapes and citrus products packed for third party growers; and
table grapes and stonefruit from the San Joaquin Valley. Packing and handling
revenue for these operations of $18.5 million was offset by $11.9 million of
expenses for the nine months ended September 30, 2000. Revenues totaled $17.4
million offset by expenses of $10.2 million for the nine months ended September
30, 1999.
MARKETING OPERATIONS. During the nine months ended September 30, 2000,
a total of 9.9 million units were sold consisting primarily of Company-grown
table grapes, peppers and watermelons from the Coachella Valley; table grapes,
watermelons and citrus from domestic third party growers; and Company-grown
stonefruit and table grapes from the San Joaquin Valley. These unit sales
resulted in marketing revenue of $7.3 million. Marketing expenses totaled $3.7
million for the nine months ended September 30, 2000 resulting in net income
from marketing operations of $3.6 million. During the nine months ended
September 30, 1999, 9.2 million units were sold resulting in revenues of $7.8
million offset by expenses of $3.6 million for net income of $4.2 million. The
increase in units sold is primarily due to increased units of Company-grown
plums and stonefruit marketed for third parties. Average commissions for 2000
are down 13% from average commissions in 1999 due to lower F.O.B.
prices.
PROPRIETARY PRODUCT DEVELOPMENT. During the nine months ended September
30, 2000, net income from proprietary product development was $2.9 million
consisting of $0.6 million of international royalties primarily related to the
Company's licensing agreements for Sugraone table grapes, $1.3 million of
consulting income from KADCO, and $1.0 million in net research and development
income. Net profit in 1999 of $2.1 million consisted of international royalties
of $0.6 million, net research and development income of $1.2 million, and $0.3
million of the Company's share of partnership income in ASC/SWB partnership
(formerly American SunMelon).
13
<PAGE>
CADIZ INC.
--------------------------------------------------------------------------------
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the nine months ended September 30, 2000 totaled $7.8 million
compared to $8.2 million for the nine months ended September 30, 1999. The $0.4
million decrease in general and administrative costs resulted primarily from
reduced employee-related expenses 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 nine months ended September 30, 2000, expenses including litigation
costs and professional fees totaled $0.4 million as compared to $0.8 million
during the 1999 period.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense for the nine months ended September 30, 2000 totaled $6.8 million
compared to $7.2 million for the same period in 1999. The decrease is primarily
attributable to the timing of relief of depreciation from inventory resulting
from the timing of the harvests.
INTEREST EXPENSE, NET. Net interest expense totaled $14.4 million
during the nine months ended September 30, 2000, compared to $13.5 million
during the same period in 1999. The following table summarizes the components of
net interest expense for the two periods (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
2000 1999
----------- -----------
<S> <C> <C>
Interest on outstanding debt - Sun World $ 11,075 $ 10,827
Interest on outstanding debt - Cadiz 1,560 1,291
Amortization of financing costs 1,951 1,594
Interest income (185) (255)
----------- -----------
$ 14,401 $ 13,457
=========== ===========
</TABLE>
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.
14
<PAGE>
CADIZ INC.
--------------------------------------------------------------------------------
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. 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 September 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. Agreement in principle, subject to final
documentation, has been reached regarding an extension of these facilities
for an additional year. Additionally, Cadiz has an intercompany loan
agreement with Sun World for working capital needs. At September 30, 2000,
$0.7 million was outstanding under this facility.
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 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
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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. As of September 30, 2000, $4.6 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. At
September 30, 2000, no amounts were outstanding under this facility.
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 $3.7 million for the nine months ended September 30, 2000
as compared to cash used for operating activities of $2.1 million for the
nine months ended September 30, 1999. The increase in cash used for operating
activities is primarily due to (a) increased losses, offset by (b) decreased
inventory balances in 2000 resulting primarily from the accelerated sale of
late season table grapes and wine grapes.
CASH USED FOR INVESTING ACTIVITIES. Cash used for investing activities
totaled $5.1 million for the nine months ended September 30, 2000 compared to
cash used for investing activities of $10.2 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 nine months ended September 30, 2000, the Company
invested $3.1 million in developing crops, $1.2 million in water programs, and
$0.9 million for the purchase of property, plant and equipment.
CASH PROVIDED BY FINANCING ACTIVITIES. Cash provided by financing
activities totaled $4.8 million for the nine months ended September 30, 2000
consisting primarily of $4.6 million in outstanding borrowings by Sun World
for seasonal working capital compared to no outstanding borrowings under the
Sun World Revolver at September 30, 1999. Principal payments on long-term
debt totaled $0.4 million for the nine months ended September 30, 2000
compared to $0.3 million for the nine months ended September 30, 1999. Net
proceeds from the exercise of stock options totaled $0.7 million during the
nine months ended September 30, 2000 compared to $6.4 million during the nine
months ended September 30, 1999.
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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.
In October 2000, a Supplement to the previously released Draft
Environmental Impact Report/Environmental Impact Statement ("Supplement") for
the Program was released to provide the public the opportunity to review and
comment on the proposed Groundwater Monitoring and Management Plan that is
designed to ensure the safe operation of the aquifer system underlying Cadiz'
agricultural property and to protect surrounding environmental resources,
during and after the life of Program operations. The Supplement is being
circulated for a 45-day public review and comment period. Following the close
of the comment period for the Supplement, a final Environmental Impact
Report/Environmental Impact Statement will be compiled and published by
Metropolitan and the BLM. The Program is anticipated to be operational within
18 months of Metropolitan's and BLM's approval of the final environmental
documents. 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
landholding. 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.
Sun World currently services its indebtedness and meets its seasonal
working capital needs utilizing available internal cash, the Sun World
Revolver and, if necessary, through an intercompany revolver with Cadiz.
Cadiz currently meets its ordinary working capital needs 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, the exercise of outstanding stock options, and 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. In the event the Company
requires additional cash beyond the foregoing to meet its working capital
needs, the Company believes that additional debt and/or equity can be issued
as needed for this purpose.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information about market risks for the nine months ended September 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 demurred 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 appeal is pending and the action is stayed pending
the appeal. The Company will continue to vigorously prosecute its
claims for compensatory and punitive damages against the Waste
Management defendants.
On or about August 30, 2000, the Ninth Circuit Court of Appeals
entered an order affirming the decision of the Federal District
Court dismissing, with prejudice, the Company's claim against
the Waste Management defendants for alleged violations of
Section 10(b) of the Securities Exchange Act of 1934 and rule
10b-5 promulgated thereunder. The decision of the Ninth Circuit
did not address whether the conduct of the Waste Management
defendants was protected under the First Amendment, the Noerr
Pennington doctrine or California Civil Code 47, as asserted by
the Waste Management defendants. Accordingly, the Company
intends to vigorously pursue its claims for unfair business
practices, including stock manipulation, against the Waste
Management defendants in the pending State Court action.
On or about October 23, 2000, the district Attorney for San
Bernardino County announced that Glen Odell, the former Waste
Management employee responsible for managing the Rail Cycle
project, agreed to plead no contest to certain criminal charges
and pay a fine and a penalty totaling $50,000. Also, on or about
October 23, 2000, the District Attorney for San Bernardino
County announced that the County had entered into a settlement
with the remaining Waste Management defendants pursuant to which
Rail Cycle, L.P. agreed to pay the county $4.95 million for
restitution for certain alleged unfair business practices and to
reimburse the San Bernardino Sheriff's Department and the San
Bernardino District Attorney's Office for their respective
investigative costs and costs associated with the investigation
and prosecution of the criminal claims arising out of the Rail
Cycle project, which amounts to approximately $2.7 million. In
consideration of the Rail Cycle, L.P. payments, the criminal
charges against the remaining Waste Management defendants were
dismissed by the County.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended September 30, 2000, the Company issued
30,997 shares to its primary lender upon the cashless exercise of
75,000 warrants previously issued to such lender. The issuance of
these shares was not registered under the Securities Act of 1933,
as amended (the "Securities Act"). The Company believes that such
issuance was exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof as a transaction
not involving any public offerings.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
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1. Exhibit 27 - Financial Data Schedule
B. REPORTS ON FORM 8-K
None
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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 NOVEMBER 14, 2000
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Keith Brackpool, President and Date
Chief Executive Officer and Director
By: /s/ STANLEY E. SPEER NOVEMBER 14, 2000
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Stanley E. Speer Date
Chief Financial Officer
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