-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N4qe3NzNvuvN/q5I8Fe6P3IUMqYEOfa7tJ/jfP99tZhLrEexj/UHOYSdliNdShiW A/LGOHYOvRHnT4kP1Hqp/Q== 0000727273-02-000032.txt : 20020814 0000727273-02-000032.hdr.sgml : 20020814 20020814144613 ACCESSION NUMBER: 0000727273-02-000032 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CADIZ INC CENTRAL INDEX KEY: 0000727273 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE SERVICES [0700] IRS NUMBER: 770313235 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12114 FILM NUMBER: 02735015 BUSINESS ADDRESS: STREET 1: 100 WILSHIRE BLVD. STREET 2: SUITE 1600 CITY: SANTA MONICA STATE: CA ZIP: 90401 BUSINESS PHONE: 3108994700 MAIL ADDRESS: STREET 1: 100 WILSHIRE BLVD. STREET 2: SUITE 1600 CITY: SANTA MONICA STATE: CA ZIP: 90401-1111 FORMER COMPANY: FORMER CONFORMED NAME: ARIDTECH INC DATE OF NAME CHANGE: 19880523 FORMER COMPANY: FORMER CONFORMED NAME: PACIFIC AGRICULTURAL HOLDINGS INC DATE OF NAME CHANGE: 19920602 FORMER COMPANY: FORMER CONFORMED NAME: CADIZ LAND CO INC DATE OF NAME CHANGE: 19920703 10-Q 1 june10q02.txt JUNE 30, 2002 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2002 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 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 9, 2002 was 36,388,394 shares of Common Stock, par value $0.01. CADIZ INC. INDEX For the Six Months Ended June 30, 2002 Page PART I - FINANCIAL INFORMATION 1. Cadiz Inc. Consolidated Financial Statements Statement of Operations for the three months ended June 30, 2002 and 2001. . . . . . . . . . . . . . 1 Statement of Operations for the six months ended June 30, 2002 and 2001. . . . . . . . . . . . . . 2 Balance Sheet as of June 30, 2002 and December 31, 2001. . . . . . . . . . . . . . . . . . . .3 Statement of Cash Flows for the six months ended June 30, 2002 and 2001. . . . . . . . . . . . . . 4 Statement of Stockholders' Equity for the six months ended June 30, 2002. . . . . . . . . . . . . 5 Notes to the Consolidated Financial Statements. . . . . . 6 Sun World International, Inc. Consolidated Financial Statements Statement of Operations for the three months ended June 30, 2002 and 2001. . . . . . . . . . . . . .16 Statement of Operations for the six months ended June 30, 2002 and 2001. . . . . . . . . . . . . .17 Balance Sheet as of June 30, 2002 and December 31, 2001. . . . . . . . . . . . . . . . . . . 18 Statement of Cash Flows for the six months ended June 30, 2002 and 2001. . . . . . . . . . . . . .19 Statement of Stockholder's Equity for the six months ended June 30, 2002. . . . . . . . . . . . .20 Notes to the Consolidated Financial Statements. . . . . .21 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . .22 3. Quantitative and Qualitative Disclosures about Market Risk. . . . . . . . . . . . . .33 PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . .33 Page i CADIZ INC. CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) For the Three Months Ended June 30, ($ in thousands except per share data) 2002 2001 ---- ---- Revenues $ 23,063 $ 20,371 -------- -------- Costs and expenses: Cost of sales 16,848 15,444 General and administrative 4,232 3,264 Depreciation and amortization 1,729 1,730 -------- -------- Total costs and expenses 22,809 20,438 -------- -------- Operating profit (loss) 254 (67) Interest expense, net 5,685 4,777 -------- -------- Net loss before income taxes (5,431) (4,844) Income tax expense 3 1 -------- -------- Net loss (5,434) (4,845) Less: Preferred stock dividends 282 112 Imputed dividend on preferred stock 246 73 -------- -------- Net loss applicable to common stock $ (5,962) $ (5,030) ======== ======== Basic and diluted net loss per common share $ (0.16) $ (0.14) ======== ======== Basic and diluted weighted average shares outstanding 36,242 35,785 ======== ======== See accompanying notes to the consolidated financial statements. Page 1 CADIZ INC. CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) For the Six Months Ended June 30, ($ in thousands except per share data) 2002 2001 ---- ---- Revenues $ 30,813 $ 27,742 Special litigation recovery - 7,929 -------- -------- Total revenues and special litigation recovery 30,813 35,671 -------- -------- Costs and expenses: Cost of sales 23,101 23,385 General and administrative 7,470 6,513 Non-recurring compensation expense - 5,537 Depreciation and amortization 2,455 2,564 -------- -------- Total costs and expenses 33,026 37,999 -------- -------- Operating loss (2,213) (2,328) Interest expense, net 10,468 9,465 -------- -------- Net loss before income taxes (12,681) (11,793) Income tax expense 26 31 -------- -------- Net loss (12,707) (11,824) Less: Preferred stock dividends 563 225 Imputed dividend on preferred stock 492 146 -------- -------- Net loss applicable to common stock $(13,762) $(12,195) ======== ======== Basic and diluted net loss per common share $ (0.38) $ (0.34) ======== ======== Basic and diluted weighted average shares outstanding 36,191 35,740 ======== ======== See accompanying notes to the consolidated financial statements. Page 2 CADIZ INC. CONSOLIDATED BALANCE SHEET (Unaudited) June 30, December 31, ($ in thousands) 2002 2001 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 1,371 $ 1,458 Accounts receivable, net 25,162 6,327 Inventories 32,173 13,027 Prepaid expenses and other 663 788 -------- -------- Total current assets 59,369 21,600 Property, plant, equipment and water programs, net 163,825 165,297 Other assets 11,809 11,378 -------- -------- $235,003 $198,275 ======== ======== LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 24,128 $ 11,758 Accrued liabilities 6,733 5,680 Bank overdraft - 410 Revolving credit facility 23,400 - Long-term debt, current portion 38,080 4,960 -------- -------- Total current liabilities 92,341 22,808 Long-term debt 116,429 141,429 Deferred income taxes 5,447 5,447 Other liabilities 1,483 930 Commitments and contingencies Series D redeemable convertible preferred stock - $.01 par value: 5,000 shares authorized, shares issued and outstanding - 5,000 at June 30, 2002 and December 31, 2001 4,390 4,243 Series E-1 and Series E-2 redeemable convertible preferred stock - $.01 par value: 7,500 total shares authorized; shares issued and outstanding -7,500 at June 30, 2002 and December 31, 2001 6,061 5,715 Stockholders' equity: Common stock - $.01 par value; 70,000,000 shares authorized; shares issued and outstanding - 36,262,982 at June 30, 2002 and 36,070,834 at December 31, 2001 363 361 Additional paid-in capital 156,258 152,404 Accumulated deficit (147,769) (135,062) -------- -------- Total stockholders' equity 8,852 17,703 -------- -------- $235,003 $198,275 ======== ======== See accompanying notes to the consolidated financial statements. Page 3 CADIZ INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) For the Six Months Ended June 30, 2002 2001 ---- ---- ($ in thousands) Cash flows from operating activities: Net loss $ (12,707) $ (11,824) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 5,216 3,901 Gain on disposal of assets (41) (367) Land received in litigation recovery - (2,000) Shares of KADCO stock earned for services (625) (625) Compensation charge for deferred stock units 308 273 Non-recurring compensation expense - 5,537 Changes in operating assets and liabilities: Increase in accounts receivable (18,835) (14,172) Increase in inventories (17,158) (16,572) Decrease in prepaid expenses and other 125 57 Increase in accounts payable 12,370 12,890 Increase (decrease) in accrued liabilities 842 (789) Increase (decrease) in other liabilities 244 (17) -------- -------- Net cash used for operating activities (30,261) (23,708) -------- -------- Cash flows from investing activities: Additions to property, plant and equipment (337) (1,183) Additions to water programs (593) (774) Additions to developing crops (1,906) (1,702) Proceeds from disposal of property, plant and equipment 45 388 (Increase) decrease in other assets (430) 687 -------- -------- Net cash used for investing activities (3,221) (2,584) -------- -------- Cash flows from financing activities: Net proceeds from issuance of stock 763 659 Principal payments on long-term debt (358) (1,053) Net proceeds from short-term debt 33,400 22,675 Decrease in bank overdraft (410) - -------- -------- Net cash provided by financing activities 33,395 22,281 -------- -------- Net decrease in cash and cash equivalents (87) (4,011) Cash and cash equivalents, beginning of period 1,458 4,768 -------- -------- Cash and cash equivalents, end of period $ 1,371 $ 757 ======== ======= See accompanying notes to the consolidated financial statements. Page 4 CADIZ INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited) For the Six Months Ended June 30, 2002 ($ in thousands) Additional Total Common Stock Paid-in Accumulated Stockholders' Shares Amount Capital Deficit Equity ------- ------ ------- ------- ------ Balance as of December 31, 2001 36,070,834 $ 361 $ 152,404 $(135,062) $ 17,703 Exercise of stock options 151,241 2 761 - 763 Issuance and Repricing of warrants to lender - - 3,797 - 3,797 Preferred stock dividend - - (563) - (563) Payment of preferred stock dividends with common stock 40,907 - 351 - 351 Imputed dividend from warrants and deferred beneficial conversion feature - - (492) - (492) Net loss - - - (12,707) (12,707) --------- ------ -------- -------- -------- Balance as of June 30, 2002 36,262,982 $ 363 $ 156,258 $(147,769) $ 8,852 ========== ===== ========= ========= ======== See accompanying notes to the consolidated financial statements. Page 5 CADIZ INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION - ------------------------------ The Consolidated Financial Statements have been prepared by Cadiz Inc., sometimes referred to as "Cadiz" or "the Company", without audit and should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 2001. The foregoing Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiary, Sun World International, Inc. and its subsidiaries collectively referred to as "Sun World", and contain all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation. Certain reclassifications have been made to the prior period to conform to the current period presentation. The results of operations for the three and six month periods ended June 30, 2002 are not indicative of the results to be expected for the full fiscal year as Sun World's harvest seasons and revenues are seasonal in nature. See Note 2 to the Consolidated Financial Statements included in the Company's 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, 2002 2001 ---- ---- Growing crops $ 26,080 $ 10,174 Harvested product 1,052 218 Materials and supplies 5,041 2,635 --------- ------- $ 32,173 $ 13,027 ========= ======== NOTE 3 - DEBT - ------------- SUN WORLD OBLIGATIONS In April 1997, Sun World issued $115 million of Series A First Mortgage Notes through a private placement. The notes have subsequently been exchanged for Series B First Mortgage Notes, which are registered under the Securities Act of 1933 and are publicly traded. The First Mortgage Notes are secured by a first lien (subject to certain permitted liens) on substantially all of the assets of Sun World and its subsidiaries other than growing crops, crop inventories and accounts receivable and proceeds thereof, which secure the Revolving Credit Facility. The First Mortgage Notes mature April 15, 2004, but are redeemable at the option of Sun World, in whole or in part, and have been so since April 15, 2001. The First Mortgage Notes include covenants which restrict the Company's ability to receive distributions from Sun World. Page 6 The First Mortgage Notes are also secured by the guarantees of Coachella Growers, Inc., Sun Desert, Inc., Sun World/Rayo, and Sun World International de Mexico S.A. de C.V., collectively, the "Sun World Subsidiary Guarantors", and by the Company. The Company also pledged all of the stock of Sun World as collateral for its guarantee. Sun World and the Sun World Subsidiary Guarantors are all direct and indirect wholly owned subsidiaries of the Company. The guarantees by the Sun World Subsidiary Guarantors are full, unconditional, and joint and several. Sun World and the Sun World Subsidiary Guarantors comprise all of the direct and indirect subsidiaries of the Company other than inconsequential subsidiaries. Additionally, management believes that the direct and indirect non-guarantor subsidiaries of Cadiz are inconsequential, both individually and in the aggregate, to the financial statements of the Company for all periods presented. CONDENSED CONSOLIDATING FINANCIAL INFORMATION Condensed consolidating financial information as of and for the three months and six months ended June 30, 2002 and 2001 and consolidating balance sheet information as of December 31, 2001 for the Company is as follows (in thousands): Consolidating Statement of Operations Information Three Months Sun Ended June 30, 2002 Cadiz World Eliminations Consolidated ----- ----- ------------ ------------ Revenues $ 400 $ 23,063 $ (400) $ 23,063 ------ -------- ------ -------- Costs and expenses: Cost of sales 25 16,925 (102) 16,848 General and administrative 2,472 2,135 (375) 4,232 Depreciation and amortization 244 1,485 - 1,729 ------ -------- ------ -------- Total costs and expenses 2,741 20,545 (477) 22,809 ------ -------- ------ -------- Operating profit (loss) (2,341) 2,518 77 254 Interest expense, net 1,596 4,062 27 5,685 ------ -------- ------ -------- Net loss before income taxes (3,937) (1,544) 50 (5,431) Income tax expense - 3 - 3 ------ -------- ------ -------- Net loss (3,937) (1,547) 50 (5,434) Less: Preferred stock dividends 282 - - 282 Imputed dividend on preferred stock 246 - - 246 ------ -------- ------ -------- Net loss applicable to common stock $ (4,465) $ (1,547) $ 50 $ (5,962) ======= ========= ===== ========= Page 7 Consolidating Statement of Operations Information Six Months Ended Sun June 30, 2002 Cadiz World Eliminations Consolidated ----- ------ ------------ ------------ Revenues $ 882 $ 30,806 $ (875) $ 30,813 ------ -------- ------ -------- Costs and expenses: Cost of sales 57 23,246 (202) 23,101 General and administrative 3,877 4,343 (750) 7,470 Depreciation and amortization 471 1,984 - 2,455 ------ -------- ------ -------- Total costs and expenses 4,405 29,573 (952) 33,026 ------ -------- ------ -------- Operating profit (loss) (3,523) 1,233 77 (2,213) Interest expense, net 2,390 8,094 (16) 10,468 ------ -------- ------ -------- Net loss before income taxes (5,913) (6,861) 93 (12,681) Income tax expense 2 24 - 26 ------ -------- ------ -------- Net loss (5,915) (6,885) 93 (12,707) Less: Preferred stock dividends 563 - - 563 Imputed dividend on preferred stock 492 - - 492 ------ -------- ------ -------- Net loss applicable to common stock $(6,970) $ (6,885) $ 93 $ (13,762) ======= ========= ===== ========= Page 8 Consolidating Balance Sheet Information Sun June 30, 2002 Cadiz World Eliminations Consolidated ----- ------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 500 $ 871 $ - $ 1,371 Accounts receivable, net 1 25,161 - 25,162 Due from affiliate 17,768 - (17,768) - Inventories - 32,298 (125) 32,173 Prepaid expenses and other 146 517 - 663 ------ -------- ------- -------- Total current assets 18,415 58,847 (17,893) 59,369 Property, plant, equipment and water programs, net 41,549 122,276 - 163,825 Other assets 4,044 7,765 - 11,809 ------ -------- ------- -------- $64,008 $ 188,888 $ (17,893) $235,003 ======= ========= ========= ======== LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,216 $ 22,912 $ - $24,128 Accrued liabilities 1,101 5,632 - 6,733 Due to affiliate - 17,768 (17,768) - Revolving credit facility - 23,400 - 23,400 Long-term debt, current portion 32,809 5,271 - 38,080 ------ -------- ------- -------- Total current liabilities 35,126 74,983 (17,768) 92,341 Long-term debt - 116,429 - 116,429 Deferred income taxes - 5,447 - 5,447 Other liabilities 519 964 - 1,483 Losses in excess of investment in affiliate 8,716 - (8,716) - Series D redeemable preferred stock 4,390 - - 4,390 Series E-1 and E-2 redeemable preferred stock 6,061 - - 6,061 Stockholders' equity: Common stock 363 - - 363 Additional paid-in capital 156,258 38,289 (38,289) 156,258 Accumulated deficit (147,425) (47,224) 46,880 (147,769) ------- -------- ------- -------- Total stockholders' equity 9,196 (8,935) 8,591 8,852 ------ -------- ------- -------- $64,008 $ 188,888 $(17,893) $ 235,003 ======= ========= ======== ========= Page 9 Consolidating Statement of Cash Flow Information Six Months Ended Sun June 30, 2002 Cadiz World Eliminations Consolidated ----- -------- ------------ ------------ Net cash used for operating activities $ (12,943) $ (17,318) $ - $ (30,261) --------- --------- ------ --------- Cash flows from investing activities: Additions to property, plant and equipment (93) (244) - (337) Additions to water programs (593) - - (593) Additions to developing crops (66) (1,840) - (1,906) Proceeds from disposal of property, plant and equipment - 45 - 45 Decrease (increase) in other assets 300 (730) - (430) --------- --------- ------ --------- Net cash used for investing activities (452) (2,769) - (3,221) --------- --------- ------ --------- Cash flows from financing activities: Net proceeds from issuance of stock 763 - - 763 Principal payments on long-term debt - (358) - (358) Borrowings from intercompany revolver, net 3,142 (3,142) - - Net proceeds from short-term debt 10,000 23,400 - 33,400 Decrease in bank overdrafts (410) - - (410) --------- --------- ------ --------- Net cash provided by financing activities 13,495 19,900 - 33,395 --------- --------- ------ --------- Net increase (decrease) in cash and cash equivalents 100 (187) - (87) Cash and cash equivalents, beginning of period 400 1,058 - 1,458 --------- --------- ------ --------- Cash and cash equivalents, end of period $ 500 $ 871 $ - $ 1,371 ========= ========= ======== ========= Page 10 Consolidating Balance Sheet Information December 31, 2001 Cadiz Sun World Eliminations Consolidated ----- --------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 400 $ 1,058 $ - $ 1,458 Accounts receivable, net 1 6,326 - 6,327 Due from affiliate 11,254 - (11,254) - Inventories - 13,229 (202) 13,027 Prepaid expenses and other 210 578 - 788 --------- --------- -------- -------- Total current assets 11,865 21,191 (11,456) 21,600 Property, plant, equipment and water programs, net 41,266 124,031 - 165,297 Other assets 4,432 6,946 - 11,378 --------- --------- -------- -------- $ 57,563 $ 152,168 $(11,456) $ 198,275 ========= ========= ======== ======== LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,330 $ 10,428 $ - $ 11,758 Accrued liabilities 791 4,889 - 5,680 Due to affiliate - 11,254 (11,254) - Bank overdraft 410 - - 410 Long-term debt, current portion - 4,960 - 4,960 --------- --------- -------- -------- Total current liabilities 2,531 31,531 (11,254) 22,808 Long-term debt 24,732 116,697 - 141,429 Deferred income taxes - 5,447 - 5,447 Other liabilities 371 559 - 930 Losses in excess of investment in affiliate 2,066 - (2,066) - Series D redeemable preferred stock 4,243 - - 4,243 Series E-1 and E-2 redeemable preferred stock 5,715 - - 5,715 Stockholders' equity: Common stock 361 - - 361 Additional paid-in capital 152,404 38,273 (38,273) 152,404 Accumulated deficit (134,860) (40,339) 40,137 (135,062) --------- --------- -------- -------- Total stockholders' equity 17,905 (2,066) 1,864 17,703 --------- --------- -------- -------- $ 57,563 $ 152,168 $(11,456) $ 198,275 ========= ========== ======== ========= Page 11 Consolidating Statement of Operations Information Three Months Ended June 30, 2001 Cadiz Sun World Eliminations Consolidated ----- --------- ------------ ------------ Revenues $ 476 $ 20,370 $ (475) $ 20,371 --------- --------- -------- -------- Costs and expenses: Cost of sales 31 15,473 (60) 15,444 General and administrative 1,268 2,371 (375) 3,264 Depreciation and amortization 285 1,445 - 1,730 --------- --------- -------- -------- Total costs and expenses 1,584 19,289 (435) 20,438 --------- --------- -------- -------- Operating profit (loss) (1,108) 1,081 (40) (67) Interest expense, net 689 4,002 86 4,777 --------- --------- -------- -------- Net loss before income taxes (1,797 ) (2,921) (126) (4,844) Income tax expense 1 - - 1 --------- --------- -------- -------- Net loss (1,798) (2,921) (126) (4,845) Less: Preferred stock dividends 112 - - 112 Imputed dividend on preferred stock 73 - - 73 --------- --------- -------- -------- Net loss applicable to common stock $ (1,983) $ (2,921) $ (126) $ (5,030) ========= ========= ======== ======== Page 12 Consolidating Statement of Operations Information Six Months Ended June 30, 2001 Cadiz Sun World Eliminations Consolidated ----- --------- ------------ ------------ Revenues $ 954 $ 27,738 $ (950) $ 27,742 Special litigation recovery 7,929 - - 7,929 --------- --------- -------- -------- Total revenues and special litigation recovery 8,883 27,738 (950) 35,671 --------- --------- -------- -------- Costs and expenses: Cost of sales 61 23,524 (200) 23,385 General and administrative 2,782 4,481 (750) 6,513 Non-recurring compensation expense 2,584 2,953 - 5,537 Depreciation and amortization 573 1,991 - 2,564 --------- --------- -------- -------- Total costs and expenses 6,000 32,949 (950) 37,999 --------- --------- -------- -------- Operating profit (loss) 2,883 (5,211) - (2,328) Interest expense, net 1,501 7,916 48 9,465 --------- --------- -------- -------- Net income (loss) before income taxes 1,382 (13,127) (48) (11,793) Income tax expense 1 30 - 31 --------- --------- -------- -------- Net income (loss) 1,381 (13,157) (48) (11,824) Less: Preferred stock dividends 225 - - 225 Imputed dividend on preferred stock 146 - - 146 --------- --------- -------- -------- Net income (loss) applicable to common stock $ 1,010 $ (13,157) $ (48) $(12,195) ========= ========= ======== ======== Page 13 Consolidating Statement of Cash Flow Information Six Months Ended June 30, 2001 Cadiz Sun World Eliminations Consolidated ----- --------- ------------ ------------ Net cash provided by (used for) operating activities $ 2,430 $ (26,090) $ (48) $(23,708) --------- --------- -------- -------- Cash flows from investing activities: Additions to property, plant and equipment (34) (1,149) - (1,183) Additions to developing crops (95) (1,607) - (1,702) Additions to water programs (774) - - (774) Proceeds from disposal of property, plant and equipment - 388 - 388 (Increase) decrease in other assets (294) 933 48 687 --------- --------- -------- -------- Net cash used for investing activities (1,197) (1,435) 48 (2,584) --------- --------- -------- -------- Cash flows from financing activities: Net proceeds from issuance of stock 659 - - 659 Principal payments on long-term debt (250) (803) - (1,053) Borrowings from intercompany revolver, net (4,540) 4,540 - - Net proceeds from short-term borrowings - 22,675 - 22,675 --------- --------- -------- -------- Net cash (used for) provided by inancing activities (4,131) 26,412 - 22,281 --------- --------- -------- -------- Net decrease in cash and cash equivalents (2,898) (1,113) - (4,011) Cash and cash equivalents, beginning of period 3,099 1,669 - 4,768 --------- --------- -------- -------- Cash and cash equivalents, end of period $ 201 $ 556 $ - $ 757 ========= ========= ======== ======== NOTE 4 - NON-RECURRING COMPENSATION EXPENSE - ------------------------------------------- In March 2001, the Company agreed to issue 564,163 deferred stock units to certain senior managers of Cadiz and Sun World. These deferred stock units were issued in exchange for the cancellation of 1,055,000 fully vested options to purchase the Company's common stock held by the senior managers. Each deferred stock unit is exchangeable for one share of the Company's common stock at the end of the deferral period elected by the holder. The Company recorded a one-time charge of $5,537,000 and no cash was expended in connection with the issuance of the deferred stock units. Page 14 NOTE 5 - SPECIAL LITIGATION RECOVERY - ------------------------------------ In March 2001, the Company and Waste Management executed a settlement agreement to fully settle the claims asserted by the Company against Waste Management in all of the outstanding civil actions. Pursuant to the Settlement Agreement, Waste Management paid the Company $6 million in cash and granted to the Company approximately 7,000 acres of real property valued at approximately $2 million in eastern San Bernardino County primarily adjacent to the Cadiz Program property. Net proceeds from the settlement are included in the Company's statement of operations under the caption "Special Litigation Recovery". NOTE 6 - NET LOSS PER COMMON SHARE - ---------------------------------- Basic Earnings Per Share (EPS) is computed by dividing the net loss, after deduction for preferred dividends either accrued or imputed, if any by the weighted-average common shares outstanding. Options, deferred stock units, warrants, convertible debt, and preferred stock that are convertible into shares of the Company's common stock were not considered in the computation of diluted EPS because their inclusion would have been antidilutive. Had these instruments been included, the fully diluted weighted average shares outstanding would have increased by approximately 4.6 million shares and 2.2 million shares for the three months ended June 30, 2002 and 2001, respectively. For the six months ended June 30, 2002 and 2001, weighted average shares outstanding would have increased by approximately 4.5 million shares and 2.2 million shares, respectively. Page 15 SUN WORLD INTERNATIONAL, INC. (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) Three Months Ended June 30, ($ in thousands) 2002 2001 ---- ---- Revenues $ 23,063 $ 20,370 -------- -------- Costs and expenses: Cost of sales 16,925 15,473 General and administrative 2,135 2,370 Depreciation and amortization 1,485 1,445 -------- -------- Total costs and expenses 20,545 19,288 -------- -------- Operating profit 2,518 1,082 Interest expense, net 4,062 4,002 -------- -------- Net loss before income taxes (1,544) (2,920) Income tax expense 3 1 -------- -------- Net loss $ (1,547) $ (2,921) ======== ======== See accompanying notes to the consolidated financial statements. Page 16 SUN WORLD INTERNATIONAL, INC. (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) Six Months Ended June 30, ($ in thousands) 2002 2001 ---- ---- Revenues $ 30,806 $ 27,738 -------- -------- Costs and expenses: Cost of sales 23,246 23,524 General and administrative 4,343 4,481 Non-recurring compensation expense - 2,953 Depreciation and amortization 1,984 1,991 -------- -------- Total costs and expenses 29,573 32,949 -------- -------- Operating profit (loss) 1,233 (5,211) Interest expense, net 8,094 7,916 -------- -------- Net loss before income taxes (6,861) (13,127) Income tax expense 24 30 -------- -------- Net loss $ (6,885) $(13,157) ======== ======== See accompanying notes to the consolidated financial statements. Page 17 SUN WORLD INTERNATIONAL, INC. (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) CONSOLIDATED BALANCE SHEET (Unaudited) June 30, December 31, ($ in thousands) 2002 2001 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 871 $ 1,058 Accounts receivable, net 25,161 6,326 Inventories 32,298 13,229 Prepaid expenses and other 517 578 -------- -------- Total current assets 58,847 21,191 Property, plant, equipment and water programs, net 122,276 124,031 Other assets 7,765 6,946 -------- -------- Total assets $ 188,888 $ 152,168 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable $ 22,912 $ 10,428 Accrued liabilities 5,632 4,889 Due to parent 17,768 11,254 Revolving credit facility 23,400 - Long-term debt, current portion 5,271 4,960 -------- -------- Total current liabilities 74,983 31,531 Long-term debt 116,429 116,697 Deferred income taxes 5,447 5,447 Other liabilities 964 559 Commitments and contingencies Stockholder's equity: Common stock, $.01 par value, 300,000 shares authorized; 42,000 shares issued and outstanding - - Additional paid-in capital 38,289 38,273 Accumulated deficit (47,224) (40,339) -------- -------- Total stockholder's equity (8,935) (2,066) -------- -------- Total liabilities and stockholder's equity $ 188,888 $ 152,168 ========= ========= See accompanying notes to the consolidated financial statements. Page 18 SUN WORLD INTERNATIONAL, INC. (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, ($ in thousands) 2002 2001 ---- ---- Cash flows from operating activities: Net loss $ (6,885) $(13,157) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 2,800 2,615 Gain on disposal of assets (41) (368) Shares of KADCO stock earned for services (625) (625) Compensation charge for deferred stock units 160 148 Non-recurring compensation expense - 2,953 Changes in operating assets and liabilities: Increase in accounts receivable (18,835) (14,177) Increase in inventories (17,081) (16,572) Decrease (increase) in prepaid expenses and other 61 (28) Increase in accounts payable 12,484 13,039 Increase (decrease) in accrued liabilities 743 (769) Increase in due to parent 9,656 859 Increase (decrease) in other liabilities 245 (8) -------- -------- Net cash used for operating activities (17,318) (26,090) -------- -------- Cash flows from investing activities: Additions to property, plant, equipment and water programs (244) (1,149) Additions to developing crops (1,840) (1,607) Proceeds from disposal of property, plant and equipment 45 388 (Increase) decrease in other assets (730) 933 -------- -------- Net cash used for investing activities (2,769) (1,435) -------- -------- Cash flows from financing activities: Principal payments on long-term debt (358) (803) Borrowings from intercompany revolver, net (3,142) 4,540 Proceeds from short-term borrowings 23,400 22,675 -------- -------- Net cash provided by financing activities 19,900 26,412 -------- -------- Net decrease in cash and cash equivalents (187) (1,113) Cash and cash equivalents at beginning of period 1,058 1,669 -------- -------- Cash and cash equivalents at end of period $ 871 $ 556 ======== ======== See accompanying notes to the consolidated financial statements. Page 19 SUN WORLD INTERNATIONAL, INC. (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (UNAUDITED) For the Six Months Ended June 30, 2002 ($ in thousands) Additional Total Common Stock Paid-in Accumulated Stockholder's Shares Amount Capital Deficit Equity ------ ------ ------- ------- ------ Balance as of December 31, 2001 42,000 $ - $ 38,273 $ (40,339) $ (2,066) Revaluation of derivative for warrants - - 16 - 16 Net loss - - - (6,885) (6,885) ------- ------ -------- -------- -------- Balance as of June 30, 2002 42,000 $ - $ 38,289 $(47,224) $ (8,935) ======= ====== ======== ======== ======== See accompanying notes to the consolidated financial statements. Page 20 NOTE 1 - BASIS OF PRESENTATION - ----------------------------- The Consolidated Financial Statements have been prepared by Sun World International, Inc. and its subsidiaries collectively referred to as "Sun World" without audit and should be read in conjunction with the Sun World Consolidated Financial Statements and notes thereto included in the Cadiz Inc. Form 10-K for the year ended December 31, 2001. The foregoing Consolidated Financial Statements include all adjustments, consisting only of normal recurring adjustments, which Sun World considers necessary for a fair presentation. The results of operations for the three and six month periods ended June 30, 2002 are not necessarily indicative of the results to be expected for the full fiscal year as Sun World's harvest season and revenues are seasonal in nature. See Note 2 to the Sun World Consolidated Financial Statements included in the Cadiz Inc. Form 10-K for a discussion of Sun World's accounting policies. NOTE 2 - INVENTORIES Inventories consist of the following (dollars in thousands): June 30, December 31, 2002 2001 ---- ----- Growing crops $ 26,205 $ 10,376 Harvested product 1,052 218 Materials and supplies 5,041 2,635 ------- ------- $ 32,298 $ 13,229 ======= ======= NOTE 3 - NON-RECURRING COMPENSATION EXPENSE - ------------------------------------------ In March 2001, Cadiz agreed to issue 300,860 deferred stock units to certain senior managers of Sun World. These deferred stock units were issued in exchange for the cancellation of 565,000 fully vested options to purchase Cadiz common stock held by the senior managers. Each deferred stock unit is exchangeable for one share of Cadiz common stock at the end of the deferral period elected by the holder. Sun World recorded a one-time charge and a contribution to capital by Cadiz of $2,953,000 in connection with the issuance of the deferred stock units. No cash was expended in connection with the issuance of the deferred stock units. Page 21 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, 2002 and 2001 reflect the results of our operations and the operations of our wholly-owned subsidiaries including Sun World. A summary of the Sun World elements which our management 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 our Sun World subsidiary, and the term Cadiz will be used, when the context so requires, with respect to our operations and activities that do not involve Sun World. Our net income or loss in future fiscal periods will be largely reflective of (a) the operations of our water development activities including the Cadiz Groundwater Storage and Dry-Year Supply Program and (b) the operations of Sun World including its international expansion. 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 within California and the diversity of its crop mix make 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 income from Sun World's packing, marketing and proprietary product development operations tends to be more consistent from year to year than net income from Sun World's farming operations. Packing and marketing revenues from third party growers currently represent less than 10% of our total revenues. Sun World has entered into agreements domestically and internationally to license selected proprietary fruit varieties and continues to pursue additional domestic and international licensing opportunities. License revenues currently represent less than 10% of our total revenues. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the following discussion contains trend analysis and other forward-looking statements. Forward-looking statements can be identified by the use of words such as "intends", "anticipates", "believes", "estimates", "projects", "forecasts", "expects", "plans" and "proposes". Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. These include, among others, our ability to complete and implement proposed transactions with the Metropolitan Water District of Southern California and price, yield and seasonality fluctuations in our agricultural operations. See additional discussion under the heading "Certain Trends and Uncertainties" in Item 7 of the Company's Form 10-K for the year ended December 31, 2001. Page 22 THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED - ----------------------------------------------------------------- JUNE 30, 2001 - ------------- Our 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 which are not included within the divisional results (in thousands): Three Months Ended June 30, 2002 2001 ---- ---- Divisional net income: Farming $ 1,806 $ 1,286 Packing 1,801 1,518 Marketing 1,257 702 Proprietary product development 760 805 ------- ------- 5,624 4,311 General and administrative 3,641 2,648 Depreciation and amortization 1,729 1,730 Interest expense 5,685 4,777 Income tax expense 3 1 ------- ------- Net loss $(5,434) $(4,845) ======= ======= FARMING OPERATIONS. Net income from farming operations totaled $1.8 million for the three months ended June 30, 2002 compared to net income of $1.3 million for the three months ended June 30, 2001. Farming results during the second quarter of 2002 and 2001 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, 2002, farming results were favorably impacted by (a) improved market conditions, particularly for table grapes and peppers, as normal production windows returned to the key growing areas in 2002; (b) new production from proprietary table grape and early stonefruit plantings under Sun World's crop development program over the last several years; and (c) the elimination of certain underperforming stonefruit and row crops from production in 2001. Revenues from farming operations totaled $16.5 million for the 2002 quarter compared to $15.4 million for the 2001 quarter. Farming expenses totaled $14.7 million in the 2002 quarter compared to $14.1 million in the 2001 quarter. The increase in revenues and expenses for 2002 is primarily due to increased F.O.B. prices resulting from favorable market conditions as average F.O.B. prices were up 15% in 2002 compared to 2001 coupled with more units being harvested and sold due to earlier harvests in 2002. Page 23 PACKING OPERATIONS. Sun World's packing and handling facilities contributed revenues of $4.5 million offset by $2.7 million of expenses for net income of $1.8 million for the quarter ended June 30, 2002 compared to revenues of $4.4 million, expenses of $2.9 million, and net income of $1.5 million for the quarter ended June 30, 2001. Units packed during the quarter totaled 0.6 million in 2002 and 2001. Units handled for the second quarter totaled 1.9 million for 2002 compared to 1.8 million for 2001. Units handled increased primarily due to improved pepper yields. 2002 packing expenses were favorable to 2001 primarily due to a reduction in costs for packaging materials. MARKETING OPERATIONS. Marketing revenues of $3.5 million were offset by marketing expenses of $2.2 million resulting in net income of $1.3 million for the second quarter of 2002. Marketing revenues of $1.9 million were offset by marketing expenses of $1.2 million for net income of $0.7 million for the second quarter of 2001. The increase in marketing revenues and net income was due primarily to an overall increase in units sold of Sun World-grown table grapes, peppers and third party citrus coupled with higher F.O.B. prices. F.O.B. prices for the second quarter of 2002 were 10% higher than F.O.B. prices in 2001. Additionally, revenues and expenses increased due to fruit purchased from third party suppliers and sold primarily to a customer's distribution center related to Sun World's role as the primary supplier of certain fruit categories in 2002. During the three months ended June 30, 2002, Sun World sold 2.4 million units, consisting primarily of Sun World-grown table grapes, watermelons, peppers and stonefruit as well as table grapes, stonefruit and citrus from domestic third party growers in Coachella compared to 2.1 million units sold during the three months ended June 30, 2001. PROPRIETARY PRODUCT DEVELOPMENT. Sun World has a long history of product innovation, and its research and development center maintains a fruit breeding program that has introduced dozens of proprietary fruit varieties. During the three months ended June 30, 2002 and 2001, net income from proprietary product development was $0.8 million consisting of revenues of $1.4 million offset by expenses of $0.6 million for both periods. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses during the three months ended June 30, 2002 totaled $3.6 million compared to $2.6 million for the three months ended June 30, 2001. The increase in general and administrative expenses is primarily due to $0.8 million of professional fees related to the KADCO combination that was not completed and costs related to exploring water development opportunities in the Middle East. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense for the three months ended June 30, 2002 and 2001 totaled $1.7 million. Page 24 INTEREST EXPENSE, NET. Net interest expense totaled $5.7 million during the three months ended June 30, 2002, compared to $4.8 million during the same period in 2001. The following table summarizes the components of net interest expense for the two periods (in thousands): Three Months Ended June 30, ------ 2002 2001 ---- ---- Interest on outstanding debt - Sun World $ 3,694 $ 3,813 Interest on outstanding debt - Cadiz 284 337 Amortization of financing costs 1,712 689 Interest income (5) (62) ------- ------- $ 5,685 $ 4,777 ======= ======= The increase in interest on outstanding debt during the second quarter of 2002 is primarily due to (a) increased intercompany revolver borrowings at Sun World offset by lower interest rates on its variable rate debt, (b) amortization of warrants issued for the extension and increase in the Cadiz credit facilities, partially offset by (c) lower interest expenses at Cadiz due to an increased intercompany loan balance with Sun World coupled with lower rates on variable rate debt. Financing costs, which include legal fees and warrants, are amortized over the life of the debt agreement. SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE - ----------------------------------------------------------------- 30, 2001 - -------- 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 which are not included within the divisional results (in thousands): Six Months Ended June 30 2002 2001 ---- ---- Divisional net income: Farming $ 2,662 $ 546 Packing 1,676 1,462 Marketing 948 386 Proprietary product development 1,318 953 ------- ------- 6,604 3,347 General and administrative 6,362 5,503 Special litigation - (7,929) Non-recurring compensation expense - 5,537 Depreciation and amortization 2,455 2,564 Interest expense, net 10,468 9,465 Income tax expense 26 31 ------- ------- Net loss $(12,707) $(11,824) ======== ======== Page 25 FARMING OPERATIONS. Net income from farming operations totaled $2.7 million for the six months ended June 30, 2002 compared to a net income of $0.5 million for the six months ended June 30, 2001. Farming revenues were $22.0 million and farming expenses were $19.3 million for the six months ended June 30, 2002 compared to farming revenues of $21.2 million and farming expenses of $20.7 million for the same period in 2001. During the six months ended June 30, 2002, farming results were favorably impacted by (a) improved market conditions, particularly for table grapes, peppers and citrus, coupled with the return of normal production windows to the key growing areas in 2002; (b) new production from proprietary table grape and early stonefruit plantings under Sun World's crop development program over the last several years; as well as (c) the elimination of certain underperforming stonefruit and row crops from production in 2001. The increase in revenues for 2002 is primarily due to increased F.O.B. prices resulting from favorable market conditions as average F.O.B. prices were up 14% in 2002 compared to 2001 while expenses were lower due primarily to lower packaging material costs. PACKING OPERATIONS. Sun World's packing and handling facilities contributed $1.7 million in net income during the six months ended June 30, 2002 and $1.5 million during the six months ended June 30, 2001. Packing and handling revenue for these operations of $6.9 million was offset by $5.2 million of expenses for the six months ended June 30, 2002. Revenues totaled $7.1 million offset by expenses of $5.6 million for the six months ended June 30, 2001. Sun World packed 1.1 million units during the six months ended June 30, 2002 compared to 1.3 million during the same period in 2001. For the six months ended June 30, 2002, Sun World handled 2.8 million units compared to 2.7 million units in 2001. The increase in units handled and profits is due primarily to increased units of Sun-World grown table grapes, peppers, and strawberries and increased units of vegetables handled for third party growers. Units packed and handled during the first half of 2002 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. MARKETING OPERATIONS. During the six months ended June 30, 2002, a total of 3.0 million units were sold consisting primarily of Sun World-grown table grapes, peppers and watermelons from the Coachella Valley; table grapes, stonefruit and citrus from domestic third party growers; and Sun World-grown stonefruit from the San Joaquin Valley. These unit sales resulted in marketing revenue of $3.9 million. Marketing expenses totaled $3.0 million for the six months ended June 30, 2002 resulting in net income from marketing operations of $0.9 million. During the six months ended June 30, 2001, 3.0 million units were marketed resulting in revenues of $2.4 million offset by expenses of $2.0 million for net income of $0.4 million. The increase in revenues and marketing net income is primarily due to higher F.O.B. prices due to favorable market conditions. Additionally, revenues and expenses increased due to fruit purchased from third party suppliers and sold primarily to a customer's distribution center related to Sun World's role as the primary supplier of certain fruit categories in 2002. PROPRIETARY PRODUCT DEVELOPMENT. During the six months ended June 30, 2002, net income from proprietary product development was $1.3 million consisting of revenues of $2.4 million offset by expenses of $1.1 million. For the six months ended June 30, 2001, net income was $1.0 million consisting of revenues of $2.0 million offset by expenses of $1.0 million. Revenues increased in 2002 compared to 2001 primarily due to increased international royalties from improved table grape yields for acreage under license and a delay in the South Africa Page 26 harvest season, which effectively shifted a portion of South African revenues from the fourth quarter of 2001 to the first quarter of 2002. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the six months ended June 30, 2002 totaled $6.4 million compared to $5.5 million for the same 2001 period. The increase in general and administrative expenses is primarily due to $0.8 million of professional fees related to the KADCO combination that was not completed and costs related to exploring water development opportunities in the Middle East. SPECIAL LITIGATION. Cadiz was engaged in lawsuits against Waste Management seeking monetary damages arising from activities adverse to us 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 our Cadiz/Fenner Valley properties. In March 2001, Cadiz executed a settlement agreement with Waste Management related to these lawsuits. Pursuant to the settlement agreement, Waste Management paid Cadiz $6 million in cash and granted to Cadiz approximately 7,000 acres of real property in eastern San Bernadino County primarily adjacent to the Cadiz Program property. The settlement resulted in net proceeds recognized of $7.9 million for the six months ended June 30, 2001. NON-RECURRING COMPENSATION. In March 2001, Cadiz agreed to issue 564,163 deferred stock units to certain senior managers of Cadiz and Sun World. These deferred stock units were issued in exchange for the cancellation of 1,055,000 fully vested options to purchase our common stock held by the senior managers. We recorded a one-time charge of $5,537,000 and no cash was expended in connection with the issuance of the deferred stock units. DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense for the six months ended June 30, 2002 totaled $2.5 million compared to $2.6 million during the same period in 2001. The decrease in depreciation is due to the timing of crops being harvested and sold coupled with certain assets becoming fully depreciated during the last year. INTEREST EXPENSE, NET. Net interest expense totaled $10.5 million during the six months ended June 30, 2002 as compared to $9.5 million in 2001. The following table summarizes the components of net interest expense for the two periods (in thousands): Six Months Ended June 30 2002 2001 ---- ---- Interest on outstanding debt - Sun World $ 7,291 $ 7,372 Interest on outstanding debt - Cadiz 430 800 Amortization of financing costs 2,760 1,385 Interest income (13) (92) ------- ------- $10,468 $ 9,465 ======= ======= The increase in interest on outstanding debt for the six months ended June 30, 2002 is primarily due to (a) increased intercompany revolver borrowings at Sun World offset by lower interest rates on its variable rate debt, (b) amortization of warrants issued for the extension and increase in the Cadiz credit facilities, partially offset by (c) lower interest expenses at Cadiz due to an increased intercompany loan balance with Sun World coupled with lower rates on variable Page 27 rate debt. Financing costs, which include legal fees and warrants, are amortized over the life of the debt agreement. LIQUIDITY AND CAPITAL RESOURCES CURRENT FINANCING ARRANGEMENTS - ------------------------------ CADIZ OBLIGATIONS. As we have not received significant revenues from our water resource activity to date, we have 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, we have addressed these needs primarily through secured debt financing arrangements with our lenders, private equity placements and the exercise of outstanding stock options. As of June 30, 2002, we were obligated for approximately $10.1 million under a senior term loan facility and $25 million under a $25 million revolving credit facility with the same lender. In the first quarter of 2002, we completed an extension of both facilities to a maturity date of January 31, 2003 and increased our revolving credit facility to $25 million. $10 million of our revolving credit facility is convertible into 1,250,000 shares of our stock any time prior to January 2003 at the election of the lender. Currently, the lender holds a senior deed of trust on substantially all of our non-Sun World assets under the term loan facility and a second lien on our non-Sun World assets under our revolving credit facility. We have historically structured our financing arrangement with the lender with a view toward effective implementation of the Cadiz Program. While we ultimately anticipate repaying these facilities with monies to be received under the Cadiz Program, we plan to replace or renegotiate the terms of these facilities to accommodate other developments such as delays in the timetable for regulatory approvals or litigation related to regulatory approvals of the Cadiz Program. We retain the right to maintain $25.5 million of senior debt secured by the Cadiz Program area lands pursuant to the definitive economic terms for the Cadiz Program agreed with Metropolitan, as described under "Outlook" below. In December 2000, we issued $5 million of Series D Convertible Preferred Stock. The stock is convertible into 625,000 shares of our common stock any time prior to July 2004 at the election of the holder. We also have the right to convert the preferred stock, but only when the closing price of our common stock has exceeded $12 per share for 30 consecutive trading days. The preferred stock will be redeemed in July 2004 if it is still outstanding. In October and November 2001, we issued an aggregate of $7.5 million of Series E-1 and E-2 Convertible Preferred Stock in two $3.75 million issuances. The Series E-1 and E-2 preferred stock is convertible into an aggregate of 1,000,000 shares of our common stock at any time prior to July 2004 at the election of the holder. We also have the right to convert the Series E-1 and E-2 preferred stock, but only when the closing price of our common stock has exceeded $10.50 per share for 30 consecutive trading days. The preferred stock will be redeemed in July 2004 if still outstanding. As we continue to actively pursue our business strategy, additional financing specifically in connection with our water programs will be required. Responsibility for funding the design, construction and program implementation costs of the capital facilities for the Cadiz Program will, under currently developed principles and terms, be shared by Cadiz and Metropolitan as described below. We plan to use monies to be received from Metropolitan for its initial payment Page 28 for 600,000 acre-feet of groundwater storage as well as other financing arrangements to fund Cadiz' share of the cost of the program capital facilities. 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 $30 million revolving credit agreement guaranteed by Cadiz. In November 2001, Sun World renewed its revolving credit facility through the 2002 growing season with a maturity date of November 2002. Amounts eligible to be borrowed under the revolving credit facility are based upon a borrowing base of eligible accounts receivable and inventory balances. Maximum availability under the revolving credit facility varies throughout the year with a maximum of $30 million available during the peak borrowing periods of April to July. The revolving credit facility is secured by accounts receivable, inventory, and the proceeds thereof, requires Sun World to meet certain financial covenants, and is guaranteed by Cadiz. Amounts borrowed under the facility will accrue interest at either prime plus 1.0% or LIBOR plus 2.50% at our election. As of June 30, 2002, $23.4 million was outstanding under the revolving credit agreement. Additionally, Sun World has an intercompany revolving credit agreement with Cadiz for seasonal working capital needs, as needed. $8.1 million was outstanding under the intercompany revolver as of June 30, 2002. During the second quarter, Cadiz and Sun World entered into an $8 million profit sharing agreement for the 2002 growing season. The agreement calls for Cadiz to receive the first $0.3 million in profits from Sun World's SUPERIOR SEEDLESS table grapes. In addition, Sun World has outstanding $115 million of First Mortgage Notes which will mature on April 15, 2004 and are publicly traded and registered under the Securities Act of 1933. The Sun World notes became 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 Sun World's revolving credit facility, and certain real property pledged to third parties. The Sun World notes are also secured by the guarantee of Cadiz and the pledge by Cadiz of all of the stock of Sun World. The Sun World notes include covenants that do not allow for the payment of dividends by us or by Sun World other than out of cumulative net income. CASH USED FOR OPERATING ACTIVITIES. Cash used for operating activities totaled $30.3 million for the six months ended June 30, 2002, as compared to $23.7 million for the six months ended June 30, 2001. The increase in cash used for operating activities is primarily due to (a) the $6 million received in connection with the Rail-Cycle litigation during 2001, and (b) a larger increase in accounts receivable due to increased sales in 2002. CASH USED FOR INVESTING ACTIVITIES. Cash used for investing activities totaled $3.2 million for the six months ended June 30, 2002, as compared to $2.6 million for the same period in 2001. The increase was primarily due to increased additions for other assets due to Page 29 increased capitalized costs for Sun World's patents and trademarks coupled with other assets declining in 2001 resulting from the Company recovering litigation costs in connection with the settlement of a lawsuit, partially offset by, decreased expenditures for property, plant and equipment and water programs. CASH PROVIDED BY FINANCING ACTIVITIES. Cash provided by financing activities totaled $33.4 million for the six months ended June 30, 2002, consisting primarily of $23.4 million of borrowings under Sun World's revolving credit facility and $10 million of additional borrowings under the Cadiz' revolving credit facility, compared to $22.7 million in 2001. Principal payments on long-term debt totaled $0.4 million for the six months ended June 30, 2002 compared to $1.1 million for the six months ended June 30, 2001. Net proceeds from the exercise of stock options totaled $0.8 million during the six months ended June 30, 2002 and $0.7 million during the six months ended June 30, 2001. OUTLOOK We are actively pursuing the development of our water resources. Specifically, in April 2001, Cadiz and Metropolitan approved definitive economic terms and responsibilities for a 50- year agreement for the Cadiz Program. Under the Cadiz Program, Metropolitan will, during wet years or periods of excess supply, store surplus water from the Colorado River Aqueduct in the groundwater basin underlying our 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 definitive terms will serve as the basis for a final agreement to be executed between Metropolitan and Cadiz. Execution of this final agreement will be subject to completion of the ongoing environmental review process for the Cadiz Program. Key provisions of the approved definitive terms for the Cadiz Program are as follows: * Over the 50-year term of the agreement, Metropolitan will store a minimum of 900,000 acre-feet of Colorado River Aqueduct water in our groundwater basin and purchase up to a minimum of 1,500,000 acre-feet of existing groundwater for transfer during dry years. The Cadiz Program will have the capacity to convey, either for storage or transfer, up to approximately 150,000 acre- feet in any given year. * During storage operations, Metropolitan will pay $50 per acre-foot for put of Colorado River water into storage and $40 per acre-foot for return of Colorado River water from storage, or a total of $90 per acre-foot to cycle water into and out of the basin. These fees will be adjusted by the Consumer Price Index (CPI). * As outlined above, Metropolitan's total minimum commitment for storage is 900,000 acre-feet. Metropolitan will pay for the initial 600,000 acre-feet of put and take activity upon final contract execution and completion of the environmental review process ($54 million before CPI adjustment). Metropolitan will pay for an additional 300,000 acre-feet of put and take activity at the earlier of actual usage or 30,000 acre- foot annual increments during years 5-14 of Cadiz Program operations ($2,700,000 per year before CPI adjustment). * For transfer operations, Metropolitan shall purchase 30,000 acre-feet per year of Page 30 indigenous groundwater for 25 years at a $230 per acre-foot transfer fee, subject to a fair market value adjustment as described below. In addition, Cadiz may elect to either sell up to an additional 30,000 acre-feet per year of indigenous groundwater to third parties in Metropolitan's service area at fair market value, or require Metropolitan to purchase that amount of water at a fixed transfer fee of $230 per acre-foot. Accordingly, Metropolitan's total potential minimum commitment for the life of the Cadiz Program will be 1,500,000 acre-feet of indigenous groundwater. All transfers of indigenous groundwater, whether to Metropolitan or third parties, will be made in accordance with the terms and conditions of a Groundwater Monitoring and Management Plan. * The transfer fee will reflect a "fair market value" adjustment, which shall be determined up to once a year. The transfer fee will be adjusted by one-half of any increase or decrease in the fair market value, above or below the transfer fee currently in place ($230 per acre- foot initially). Each increase or decrease in the transfer fee paid by Metropolitan may not exceed 15%. For example, if the fair market value at the first redetermination is $350 per acre-foot, then the adjusted transfer fee shall be $264 [the lesser of (a) $230 + 50% * ($350-$230) = $290 per acre-foot or (b) $230 * 15% = $264.50 per acre-foot]. * Our right to sell to third parties within Metropolitan's service area includes scheduled access to Metropolitan's system at the rate charged by Metropolitan for conveying water through its aqueduct and pipeline system (the wheeling rate) charged for "as available capacity", plus power costs and any standard water stewardship fee that is uniformly charged to Metropolitan member agencies or third parties. Depending on availability of system capacity, Metropolitan may elect to exchange other water for delivery to our customers and "bank" the water we have sold. * If indigenous water supplies are determined to exceed 1,700,000 acre-feet, Metropolitan shall have the first right of refusal to purchase one-half of that excess yield. * Cadiz groundwater meets all existing federal and state water quality standards. Metropolitan's Colorado River Aqueduct water meets all existing federal and state water quality standards. Metropolitan shall be responsible to ensure, at its expense, that Colorado River Aqueduct water introduced into our groundwater basin shall, at a minimum, meet all existing and potential future federal and state water quality standards applicable to the Colorado River Aqueduct. We shall be responsible to ensure, at our expense, that indigenous groundwater introduced into the Metropolitan delivery system shall at a minimum, meet all existing and potential future federal and state water quality standards. If both indigenous groundwater and stored Colorado River water exceed any future federal or state water quality standard, then the parties will share compliance with the new standard based pro rata on the contribution to exceeding the standard. Page 31 * We have estimated the costs of the Cadiz Program facilities, including spreading basins, extraction wells, conveyance pipeline and a pumping plant, to be approximately $150 million. The parties will equally share these costs. Each party will be responsible for financing its portion of the capital costs. * Metropolitan will be responsible for operational costs of the Cadiz Program. However, we will assume pro rata operational costs associated with the sale of indigenous groundwater to third parties. * Cadiz and Metropolitan shall share equally the capital costs required for mitigation at the outset of the Cadiz Program. Cadiz shall assume the ongoing annual costs of operating the Groundwater Monitoring and Management Plan and of maintaining the right to withdraw water from the basin underlying the Cadiz Program area. Metropolitan and the U.S. Bureau of Land Management, in cooperation with the U.S. Geological Survey and the National Park Service, issued the Final Environmental Impact Report/Environmental Impact Statement for the Cadiz Program in October 2001. In addition, the U.S. Fish and Wildlife Service issued a biological opinion in March 2002, which concluded that the Cadiz Program fully complies with the Endangered Species Act and will not adversely impact the desert tortoise. The next step in the environmental review process is completion of final actions by the U.S. Bureau of Land Management through the issuance of Records of Decision, which are expected to be shortly followed by final actions by Metropolitan. In June 2002, United States Senator Dianne Feinstein introduced an amendment to the Senate's Department of Interior appropriations bill to prohibit the Department from expending funds on the Cadiz Program in fiscal year 2003, which runs from October 1, 2002 to September 30, 2003. This language was not included in the House's version of the bill and, therefore, must still be debated in a Senate/House conference committee. Senator Feinstein appears to continue to have concerns relating to the ability of the Groundwater Monitoring and Management Plan to protect critical environmental resources. The federal, state and local agencies that authored the Management Plan (Bureau of Land Management, National Park Service, United States Geological Survey, County of San Bernardino, Metropolitan and Cadiz) unanimously agreed that critical resources would be protected by implementation of the Management Plan. We will continue to work to address Senator Feinstein's issues and complete the successful permitting and implementation of the Cadiz Program. In addition to the development of our water resources, we are actively involved in further agricultural development and reinvestment in our landholdings. Such development will be systematic and in furtherance of our business strategy to provide for maximization of the value of our assets. We also continually evaluate acquisition opportunities that are complimentary to our current portfolio of water and agricultural resources. In January 2002, we announced an agreement in principle with Kingdom Agricultural Development Company (KADCO) to combine the businesses of Sun World and KADCO. In July 2002, the Company announced that the parties had agreed not to consummate the Page 32 combination of the businesses at this time. Under a project management agreement established in 1999, Sun World continues to manage the development of up to 100,000 acres of agricultural land on behalf of KADCO at its Tushka project in southern Egypt. As part of its compensation under the project management agreement, Sun World has earned and will continue to earn an equity interest in KADCO. Historically, Sun World has serviced its indebtedness and met its seasonal working capital needs using available internal cash, its revolving credit facility and an intercompany revolver with Cadiz. Cadiz has met its ordinary working capital needs through a combination of available internal cash, quarterly management fee payments from Sun World, payments from Sun World under an agricultural lease where Sun World operates Cadiz' 1,600 acres of developed agricultural property at Cadiz, California, Cadiz' revolving credit facility, the exercise of outstanding stock options, and equity placements. Except for the foregoing, additional intercompany cash payments between Sun World and Cadiz are subject to certain restrictions under their current lending arrangements. We may require additional cash beyond the amounts described in this section. We may meet any such future requirements through a variety of means to be determined at the appropriate time. Such means may include equity or debt placements, or the sale or other disposition of assets. Equity placements would be undertaken only to the extent necessary so as to minimize the dilutive effect of any such placements upon our existing stockholders. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information about market risks for the six months ended June 30, 2002 does not differ materially from that discussed under Item 7A of Cadiz' Annual Report on Form 10-K for the year ended December 31, 2001. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ----------------- See "Legal Proceedings" included in Cadiz' Annual Report on Form 10-K for the year ended December 31, 2001 for a complete discussion. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ----------------------------------------- Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES ------------------------------- Not applicable. ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS -------------------------------------------------- Previously reported in Cadiz' Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. Page 33 ITEM 5. OTHER INFORMATION ----------------- Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ------------------------------- A. Exhibits None. B. Reports on Form 8-K We filed a Report on Form 8-K dated July 10, 2002, describing the reaffirmation of the partnership between our Sun World subsidiary and KADCO although the combination of KADCO and Sun World will not be consummated at this time. Page 34 CADIZ INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Cadiz Inc. By: /s/ Keith Brackpool August 14, 2002 -------------------------------- ------------------- Keith Brackpool, Chairman & Date Chief Executive Officer By: /s/ Stanley E. Speer August 14, 2002 -------------------------------- ------------------- Stanley E. Speer Date Chief Financial Officer Page 35 -----END PRIVACY-ENHANCED MESSAGE-----