-----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, Al7drV4RPUbj7ZUMoMhVBjQA/bslTDxm29E466TruQannXDIIH0g3/AicyadzN34 UEAAoIKej+RuXLRQzWO6/w== /in/edgar/work/0000912057-00-050045/0000912057-00-050045.txt : 20001115 0000912057-00-050045.hdr.sgml : 20001115 ACCESSION NUMBER: 0000912057-00-050045 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CADIZ INC CENTRAL INDEX KEY: 0000727273 STANDARD INDUSTRIAL CLASSIFICATION: [0700 ] IRS NUMBER: 770313235 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-12114 FILM NUMBER: 767858 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: CADIZ LAND CO INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: PACIFIC AGRICULTURAL HOLDINGS INC DATE OF NAME CHANGE: 19920602 FORMER COMPANY: FORMER CONFORMED NAME: ARIDTECH INC DATE OF NAME CHANGE: 19880523 10-Q 1 a2030829z10-q.txt FORM 10-Q 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 $0.01. CADIZ INC. - -------------------------------------------------------------------------------- INDEX
- -------------------------------------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 PAGE - -------------------------------------------------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION 1. CONSOLIDATED FINANCIAL STATEMENTS A. Statement of Operations For the Three Months Ended September 30, 2000 and 1999..................................3 B. Statement of Operations For the Nine Months Ended September 30, 2000 and 1999...................................4 C. Balance Sheet As of September 30, 2000 and December 31, 1999..........................................5 D. Statement of Cash Flows For the Nine Months Ended September 30, 2000 and 1999...................................6 E. Statement of Stockholders' Equity For the Nine Months Ended September 30, 2000............................................7 F. Notes.......................................................................................8 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................................................................9 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........................................18 PART II - OTHER INFORMATION...................................................................................18
2 CADIZ INC. - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------- FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 1999 - ------------------------------------------------------------------------------------------------------------- ($ IN THOUSANDS EXCEPT PER SHARE DATA) 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 ================ ===================
See accompanying notes to the consolidated financial statements. 3 CADIZ INC. - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 - ---------------------------------------------------------------------------------------------------------------- ($ IN THOUSANDS EXCEPT PER SHARE DATA) 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 =========== ===========
See accompanying notes to the consolidated financial statements. 4 CADIZ INC. - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEET
- -------------------------------------------------------------------------------------------------------------- (UNAUDITED) SEPTEMBER 30, DECEMBER 31, ($ IN THOUSANDS) 2000 1999 - -------------------------------------------------------------------------------------------------------------- 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 =========== ===========
See accompanying notes to the consolidated financial statements. 5 CADIZ INC. - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 - -------------------------------------------------------------------------------------------------------------- ($ IN THOUSANDS) 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 =========== ===========
See accompanying notes to the consolidated financial statements 6 CADIZ INC. - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 - -------------------------------------------------------------------------------------------------------------------- ($ IN THOUSANDS) ADDITIONAL TOTAL COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS' SHARES AMOUNT CAPITAL DEFICIT EQUITY Balance as of December 31, 1999 35,166,661 $ 352 $ 136,200 $ (86,882) $ 49,670 Exercise of stock options 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 ============ ======= =========== ============ ============
See accompanying notes to the consolidated financial statements. 7 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):
SEPTEMBER 30, DECEMBER 31, 2000 1999 ----------- ----------- 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 =========== ===========
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 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 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):
THREE MONTHS ENDED SEPTEMBER 30, ----------------------------- 2000 1999 ----------- ----------- 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 =========== ===========
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 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 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):
THREE MONTHS ENDED SEPTEMBER 30, ----------------------------- 2000 1999 ----------- ----------- 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 =========== ===========
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):
NINE MONTHS ENDED SEPTEMBER 30 ----------------------------- 2000 1999 ----------- ----------- 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) =========== ===========
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 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 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):
NINE MONTHS ENDED SEPTEMBER 30 2000 1999 ----------- ----------- 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 =========== ===========
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 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 15 CADIZ INC. - -------------------------------------------------------------------------------- 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. 16 CADIZ INC. - -------------------------------------------------------------------------------- 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. 17 CADIZ INC. - -------------------------------------------------------------------------------- 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 18 CADIZ INC. - -------------------------------------------------------------------------------- 1. Exhibit 27 - Financial Data Schedule B. REPORTS ON FORM 8-K None 19 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 NOVEMBER 14, 2000 ------------------------------------------------ ----------------- Keith Brackpool, President and Date Chief Executive Officer and Director By: /s/ STANLEY E. SPEER NOVEMBER 14, 2000 ------------------------------------------------ ----------------- Stanley E. Speer Date Chief Financial Officer 20 EX-27 2 a2030829zex-27.txt EXHIBIT 27 (FDS)
5 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 548 0 15,204 (635) 14,596 30,424 203,741 (35,051) 212,283 52,037 117,999 0 0 354 35,774 212,283 90,240 90,240 75,064 75,064 16,241 0 14,401 (15,466) 0 (15,466) 0 0 0 (15,466) (.44) 0
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