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
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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