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, 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 as 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
----- -----
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act).
Yes X No
----- -----
The number of shares outstanding of each of the registrant's
classes of common stock at November 13, 2002 was 36,405,799
shares of common stock, par value $0.01.
CADIZ INC.
INDEX
For the Nine Months Ended September 30, 2002 Page
PART I - FINANCIAL INFORMATION
1. Cadiz Inc. Consolidated Financial Statements
Statement of Operations for the three months
ended September 30, 2002 and 2001. . . . . . . . . . . .3
Statement of Operations for the nine months
ended September 30, 2002 and 2001. . . . . . . . . . . .4
Balance Sheet as of September 30, 2002 and
December 31, 2001. . . . . . . . . . . . . . . . . . . .5
Statement of Cash Flows for the nine months
ended September 30, 2002 and 2001. . . . . . . . . . . .6
Statement of Stockholders' Equity for the
nine months ended September 30, 2002. . . . . . . . . . 7
Notes to the Consolidated Financial Statements. . . . . . 8
Sun World International, Inc. Consolidated Financial Statements
Statement of Operations for the three months
ended September 30, 2002 and 2001. . . . . . . . . . . .20
Statement of Operations for the nine months ended
September 30, 2002 and 2001. . . . . . . . . . . . . . .21
Balance Sheet as of September 30, 2002
and December 31, 2001. . . . . . . . . . . . . . . . . .22
Statement of Cash Flows for the nine months
ended September 30, 2002 and 2001. . . . . . . . . . . .23
Statement of Stockholder's Equity for the
nine months ended September 30, 2002. . . . . . . . . . 24
Notes to the Consolidated Financial Statements. . . . . . 25
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . 26
3. Quantitative and Qualitative Disclosures
about Market Risk. . . . . . . . . . . . . . . . . . . . 39
4. Disclosure Controls and Procedures. . . . . . . . . . . . 39
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . 40
CADIZ INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
For the Three Months
Ended September 30,
($ in thousands except per share data) 2002 2001
---- ----
Revenues $ 64,280 $ 48,683
------- -------
Costs and expenses:
Cost of sales 47,460 41,072
General and administrative 4,029 3,189
Removal of underperforming crops 4,137 222
Depreciation and amortization 3,793 4,379
------- -------
Total costs and expenses 59,419 48,862
------- -------
Operating profit (loss) 4,861 (179)
Interest expense, net 5,390 4,909
------- -------
Net loss before income taxes (529) (5,088)
Income tax benefit (106) (8)
------- -------
Net loss (423) (5,080)
Less: Preferred stock dividends 281 113
Imputed dividend on preferred stock 246 74
------- -------
Net loss applicable to common stock $ (950) $ (5,267)
======== =========
Basic and diluted net loss per
common share $ (0.03) $ (0.15)
======== =========
Basic and diluted weighted
average shares outstanding 36,363 35,890
======== =========
See accompanying notes to the consolidated financial statements.
CADIZ INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
For the Nine Months
Ended September 30,
($ in thousands except per share data) 2002 2001
---- ----
Revenues $ 95,093 $ 76,425
Special litigation recovery - 7,929
------- -------
Total revenues and special
litigation recovery 95,093 84,354
------- -------
Costs and expenses:
Cost of sales 70,561 64,457
General and administrative 11,499 9,702
Non-recurring compensation expense - 5,537
Removal of underperforming crops 4,137 222
Depreciation and amortization 6,248 6,943
------- -------
Total costs and expenses 92,445 86,861
------- -------
Operating profit (loss) 2,648 (2,507)
Interest expense, net 15,858 14,374
------- -------
Net loss before income taxes (13,210) (16,881)
Income tax (benefit) expense (80) 23
------- -------
Net loss (13,130) (16,904)
Less: Preferred stock dividends 844 338
Imputed dividend on preferred stock 738 220
------- -------
Net loss applicable to common stock $(14,712) $(17,462)
======== ========
Basic and diluted net loss
per common share $ (0.41) $ (0.49)
======== ========
Basic and diluted weighted average
shares outstanding 36,249 35,787
======== ========
See accompanying notes to the consolidated financial statements.
CADIZ INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, December 31,
($ in thousands) 2002 2001
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 3,057 $ 1,458
Accounts receivable, net 13,878 6,327
Inventories 15,952 13,027
Prepaid expenses and other 1,308 788
------- --------
Total current assets 34,195 21,600
Property, plant, equipment and
water programs, net 159,252 165,297
Other assets 11,938 11,378
------- --------
$205,385 $ 198,275
======== =========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,196 $ 11,758
Accrued liabilities 10,465 5,680
Bank overdraft - 410
Revolving credit facility - -
Long-term debt, current portion (Note 8) 39,264 4,960
------- --------
Total current liabilities 62,925 22,808
Long-term debt 116,188 141,429
Deferred income taxes 5,447 5,447
Other liabilities 1,661 930
Commitments and contingencies
Series D redeemable convertible
preferred stock - $0.01 par value:
5,000 shares authorized; shares
issued and outstanding -
5,000 at September 30, 2002 and
December 31, 2001 4,463 4,243
Series E-1 and E-2 redeemable convertible
preferred stock - $0.01 par value:
7,500 shares authorized; shares issued
and outstanding - 7,500 at
September 30, 2002 and December 31, 2001 6,233 5,715
Stockholders' equity:
Common stock - $0.01 par value;
70,000,000 shares authorized; shares
issued and outstanding 36,388,394
at September 30, 2002 and 36,070,834 at
December 31, 2001 364 361
Additional paid-in capital 156,296 152,404
Accumulated deficit (148,192) (135,062)
------- --------
Total stockholders' equity 8,468 17,703
------- --------
$205,385 $ 198,275
======== =========
See accompanying notes to the consolidated financial statements.
CADIZ INC.
Consolidated Statement of Cash flows (Unaudited)
For the Nine Months
Ended September 30,
2002 2001
---- ----
($ in thousands)
Cash flows from operating activities:
Net loss $ (13,130) $ (16,904)
Adjustments to reconcile net loss
from operations to cash used for
operating activities:
Depreciation and amortization 10,493 9,230
Gain on sale of assets (61) (371)
Removal of underperforming crops 4,138 222
Land received in litigation recovery - (2,000)
Shares of KADCO stock earned for services (938) (938)
Compensation charge for deferred stock units 452 418
Non-recurring compensation expense - 5,537
Changes in operating assets and liabilities:
Increase in accounts receivable (7,551) (6,518)
Increase in inventories (3,990) (1,460)
Increase in prepaid expenses and other (520) (135)
Increase in accounts payable 1,437 5,039
Increase in accrued liabilities 5,059 2,774
Increase in other liabilities 26 10
-------- --------
Net cash used for operating activities (4,585) (5,096)
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (567) (1,387)
Additions to developing crops (1,803) (2,448)
Additions to water programs (693) (1,020)
Proceeds from disposal of property,
plant and equipment 111 398
(Increase) decrease in other assets (631) 202
-------- --------
Net cash used for investing activities (3,583) (4,255)
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of stock 772 1,571
Principal payments on long-term debt (595) (1,275)
Net proceeds from short-term debt 10,000 4,600
Decrease in bank overdraft (410) -
-------- --------
Net cash provided by financing activities 9,767 4,896
-------- --------
Net increase (decrease) in cash
and cash equivalents 1,599 (4,455)
Cash and cash equivalents,
beginning of period 1,458 4,768
-------- --------
Cash and cash equivalents, end of period $ 3,057 $ 313
========= ========
See accompanying notes to the consolidated financial statements.
CADIZ INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
For the Nine Months Ended September 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 177,490 2 770 - 772
Issuance and
repricing of
warrants to a
lender - - 3,797 - 3,797
Preferred stock
dividend - - (844) - (844)
Payment of
preferred stock
dividends with
common stock 140,070 1 907 - 908
Imputed dividend
from warrants
and deferred
beneficial
conversion
feature - - (738) - (738)
Net loss - - - (13,130) (13,130)
-------- ----- ------- --------- --------
Balance as of
September 30, 2002 36,388,394 $ 364 $ 156,296 $(148,192) $ 8,468
========== ===== ========= ========= ========
See accompanying notes to the consolidated financial statements.
CADIZ INC.
NOTES TO THE CONSOLIDATED FINANICAL 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 nine month periods ended September 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 latest Form 10-K for a discussion of the
Company's accounting policies.
NOTE 2 - INVENTORIES
- --------------------
Inventories consist of the following (in thousands):
September 30, December 31,
2002 2001
---- ----
Growing crops $ 8,156 $ 10,174
Harvested product 5,180 218
Materials and supplies 2,616 2,635
------- -------
$15,952 $ 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, as
amended, and are publicly traded. The First Mortgage Notes are
secured by a first lien (subject to certain permitted liens) on
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 First
Mortgage Notes mature April 15, 2004, but are redeemable at the
option of Sun World, in whole or in part, at any time on or after
April 15, 2001. The First Mortgage Notes include covenants which
restrict Cadiz' ability to receive distributions from Sun World.
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 nine months ended September 30, 2002 and
2001 for the Company is as follows (in thousands):
Consolidating Statement
of Operations Information
Three Months Ended Sun
September 30, 2002 Cadiz World Eliminations Consolidated
----- ----- ------------ ------------
Revenues $ 741 $ 64,276 $ (737) $ 64,280
------ -------- ------- --------
Costs and expenses:
Cost of sales 23 47,799 (362) 47,460
General and
administrative 1,841 2,563 (375) 4,029
Removal of
underperforming crops 1,016 3,121 - 4,137
Depreciation and
amortization 287 3,506 - 3,793
------ -------- ------- --------
Total costs and expenses 3,167 56,989 (737) 59,419
------ -------- ------- --------
Operating profit (loss) (2,426) 7,287 - 4,861
Income from affiliate 3,366 - (3,366) -
Interest expense, net 1,363 3,691 336 5,390
------ -------- ------- --------
Net income (loss)
before income taxes (423) 3,596 (3,702) (529)
Income tax benefit - (106) - (106)
------ -------- ------- --------
Net income (loss) (423) 3,702 (3,702) (423)
Less:
Preferred
stock dividends 281 - - 281
Imputed dividend on
preferred stock 246 - - 246
------ -------- ------- --------
Net income (loss)
applicable
to common stock $ (950) $ 3,702 $ (3,702) $ (950)
====== ======= ======== =========
Consolidating Statement
of Operations Information
Nine months Ended Sun
September 30, 2002 Cadiz World Eliminations Consolidated
----- ----- ------------ ------------
Revenues $1,623 $ 95,082 $ (1,612) $ 95,093
------ -------- -------- ---------
Costs and expenses:
Cost of sales 80 71,045 (564) 70,561
General and
administrative 5,718 6,906 (1,125) 11,499
Removal of
underperforming crops 1,016 3,121 - 4,137
Depreciation and
amortization 758 5,490 - 6,248
------ -------- -------- ---------
Total costs and expenses 7,572 86,562 (1,689) 92,445
------ -------- -------- ---------
Operating profit (loss) (5,949) 8,520 77 2,648
Loss from affiliate (3,426) - 3,426 -
Interest expense, net 3,753 11,785 320 15,858
------ -------- -------- ---------
Net loss before
income taxes (13,128) (3,265) 3,183 (13,210)
Income tax (benefit)
expense 2 (82) - (80)
------ -------- -------- ---------
Net loss (13,130) (3,183) 3,183 (13,130)
Less: Preferred
stock dividends 844 - - 844
Imputed dividend on
preferred stock 738 - - 738
------ -------- -------- ---------
Net loss applicable to
common stock $(14,712) $(3,183) $ 3,183 $ (14,712)
======== ======= ======== ==========
Consolidating
Balance Sheet Information Sun
September 30, 2002 Cadiz World Eliminations Consolidated
----- ----- ------------ ------------
ASSETS
Current assets:
Cash and cash
equivalents $ 2,166 $ 891 $ - $ 3,057
Accounts receivable,
net 290 13,588 - 13,878
Due from affiliate 7,652 - (7,652) -
Inventories - 16,077 (125) 15,952
Prepaid expenses
and other 603 705 - 1,308
------- -------- --------- ---------
Total current assets 10,711 31,261 (7,777) 34,195
Due from affiliate 6,000 - (6,000) -
Property, plant,
equipment and
water programs, net 40,391 118,861 - 159,252
Other assets 4,019 7,919 - 11,938
------- -------- --------- ---------
$ 61,121 $158,041 $ (13,777) $ 205,385
======== ======== ========= ==========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,023 $12,173 $ - $ 13,196
Accrued liabilities 859 9,606 - 10,465
Due to affiliate - 7,652 (7,652) -
Revolving credit facility - - - -
Long-term debt,
current portion 33,789 5,475 - 39,264
------- -------- --------- ---------
Total current
liabilities 35,671 34,906 (7,652) 62,925
Due to affiliate - 6,000 (6,000) -
Long-term debt - 116,188 - 116,188
Deferred income taxes - 5,447 - 5,447
Other liabilities 593 1,068 - 1,661
Losses in excess of
investment in affiliate 5,014 - (5,014) -
Series D redeemable
preferred stock 4,463 - - 4,463
Series E-1 and E-2
redeemable preferred
stock 6,233 - - 6,233
Stockholders' equity:
Common stock 364 - - 364
Additional paid-in
capital 156,296 37,954 (37,954) 156,296
Accumulated deficit (147,513) (43,522) 42,843 (148,192)
------- -------- --------- ---------
Total stockholders'
equity 9,147 (5,568) 4,889 8,468
------- -------- --------- ---------
$ 61,121 $158,041 $ (13,777) $ 205,385
======== ======== ========= =========
Consolidating Statement of
Cash Flow Information
Nine Months Ended Sun
September 30, 2002 Cadiz World Eliminations Consolidated
----- ----- ------------ ------------
Net cash (used for)
provided by
operating activities $(7,046) $ 2,461 $ - $ (4,585)
------- -------- --------- ---------
Cash flows from
investing activities:
Additions to property,
plant and equipment (177) (390) - (567)
Additions to
developing crops (21) (1,782) - (1,803)
Additions to water
programs (658) (35) - (693)
Proceeds from disposal
of property, plant and
equipment - 111 - 111
Decrease (increase) in
other assets 221 (852) - (631)
------- -------- --------- ---------
Net cash used for
investing activities (635) (2,948) - (3,583)
------- -------- --------- ---------
Cash flows from
financing activities:
Net proceeds from
issuance of stock 772 - - 772
Principal payments
on long-term debt - (595) - (595)
Borrowings from
intercompany
revolver, net (915) 915 - -
Net proceeds from
short-term debt 10,000 - - 10,000
Decrease in bank
overdrafts (410) - - (410)
------- -------- --------- ---------
Net cash provided by
financing activities 9,447 320 - 9,767
------- -------- --------- ---------
Net increase (decrease)
in cash and cash
equivalents 1,766 (167) - 1,599
Cash and cash equivalents,
beginning of period 400 1,058 - 1,458
------- -------- --------- ---------
Cash and
cash equivalents,
end of period $ 2,166 $ 891 $ - $ 3,057
======= ======= ========= =========
Consolidating
Balance Sheet Information Sun
December 31, 2001 Cadiz 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
======= ======== ========= =========
Consolidating Statement
of Operations Information
Three Months Ended Sun
September 30, 2001 Cadiz World Eliminations Consolidated
----- ----- ------------ ------------
Revenues $ 471 $ 48,687 $ (475) $ 48,683
------- -------- --------- ---------
Costs and expenses:
Cost of sales 29 41,143 (100) 41,072
General and
administrative 1,292 2,272 (375) 3,189
Removal of
underperforming crops 222 - - 222
Depreciation and
amortization 284 4,095 - 4,379
------- -------- --------- ---------
Total costs and
expenses 1,827 47,510 (475) 48,862
------- -------- --------- ---------
Operating profit (loss) (1,356) 1,177 - (179)
Loss from affiliate (2,865) - 2,865 -
Interest expense, net 859 3,889 161 4,909
------- -------- --------- ---------
Net loss before
income taxes (5,080) (2,712) 2,704 (5,088)
Income tax benefit - (8) - (8)
------- -------- --------- ---------
Net loss (5,080) (2,704) 2,704 (5,080)
Less: Preferred
stock dividends 113 - - 113
Imputed dividend on
preferred stock 74 - - 74
------- -------- --------- ---------
Net loss applicable
to common stock $(5,267) $ (2,704) $ 2,704 $ (5,267)
======= ======== ========= =========
Consolidating Statement
of Operations Information
Nine Months Ended Sun
September 30, 2001 Cadiz World Eliminations Consolidated
----- ----- ------------ ------------
Revenues $ 1,425 $ 76,425 $ (1,425) $ 76,425
Special litigation
recovery 7,929 - - 7,929
------- -------- --------- ---------
Total revenues
and special
litigation recovery 9,354 76,425 (1,425) 84,354
------- -------- --------- ---------
Costs and expenses:
Cost of sales 90 64,667 (300) 64,457
General and
administrative 4,073 6,754 (1,125) 9,702
Non-recurring
compensation expense 2,584 2,953 - 5,537
Removal of
underperforming crops 222 - - 222
Depreciation and
amortization 857 6,086 - 6,943
------- -------- --------- ---------
Total costs and expenses 7,826 80,460 (1,425) 86,861
Operating profit (loss) 1,528 (4,035) - (2,507)
Loss from affiliate (16,070) - 16,070 -
Interest expense, net 2,360 11,805 209 14,374
------- -------- --------- ---------
Net loss before
income taxes (16,902) (15,840) 15,861 (16,881)
Income tax expense 2 21 - 23
------- -------- --------- ---------
Net loss (16,904) (15,861) 15,861 (16,904)
Less: Preferred
stock dividends 338 - - 338
Imputed dividend
on preferred stock 220 - - 220
------- -------- --------- ---------
Net loss applicable
to common stock $(17,462) $ (15,861) $ 15,861 $ (17,462)
======== ========= ========= =========
Consolidating Statement of
Cash Flow Information
Nine Months Ended Sun
September 30, 2001 Cadiz World Eliminations Consolidated
----- ----- ------------ ------------
Net cash provided by
(used for) operating
activities $ 891 $ (5,987) $ - $ (5,096)
------- -------- --------- ---------
Cash flows from
investing activities:
Additions to property,
plant and equipment (58) (1,329) - (1,387)
Additions to
developing crops (85) (2,363) - (2,448)
Additions to
water programs (1,020) - - (1,020)
Proceeds from disposal
of property, plant
and equipment 1 397 - 398
(Increase) decrease in
other assets (307) 509 - 202
------- -------- --------- ---------
Net cash used for
investing activities (1,469) (2,786) - (4,255)
------- -------- --------- ---------
Cash flows from
financing activities:
Net proceeds from
issuance of stock 1,571 - - 1,571
Principal payments
on long-term debt (250) (1,025) - (1,275)
Borrowings from
intercompany
revolver, net (3,841) 3,841 - -
Net proceeds from
short-term borrowings - 4,600 - 4,600
------- -------- --------- ---------
Net cash (used for)
provided by
financing activities (2,520) 7,416 - 4,896
------- -------- --------- ---------
Net decrease in cash
and cash equivalents (3,098) (1,357) - (4,455)
Cash and cash equivalents,
beginning of period 3,099 1,669 - 4,768
------- -------- --------- ---------
Cash and cash equivalents,
end of period $ 1 $ 312 $ - $ 313
======= ======== ========= =========
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.
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 Groundwater Storage and Dry-Year
Supply Program (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 4.0 million shares and 2.1 million
shares for the three months ended September 30, 2002 and 2001,
respectively. For the nine months ended September 30, 2002 and
2001, weighted average shares outstanding would have increased by
approximately 4.6 million shares and 2.2 million shares,
respectively.
NOTE 7 - RECENT ACCOUNTING PRONOUNCEMENTS
- -----------------------------------------
In April 2002, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standard (SFAS)
No. 145, Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13 and Technical Corrections.
This Statement rescinds SFAS No. 4, Reporting Gains and Losses
from Extinguishment of Debt, SFAS No. 64, Extinguishments of Debt
Made to Satisfy Sinking Fund Requirements and SFAS No. 44,
Accounting for Intangible Assets of Motor Carriers. Also, this
Statement amends SFAS No. 13, Accounting for Leases and other
existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability
under changed conditions. The provisions of this Statement
related to the rescission of SFAS No. 4 shall be applied in
fiscal years beginning after May 15, 2002. The provision
relating to SFAS No. 13 shall be effective for transactions
occurring after May 15, 2002. All other provisions of this
Statement shall be effective for financial statements issued on
or after May 15, 2002. The Company does not believe it will have
a material impact on its financial position or results of its
operations.
In June 2002, the FASB issued SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. This
Statement addresses financial reporting for costs associated with
exits or disposal activities and nullifies Emerging Issues Task
Force (EITF) Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." The
provisions of this Statement are effective for exit or disposal
activities initiated after December 31, 2002. The Company does
not believe it will have a material impact on its financial
position or results of its operations.
NOTE 8 - SUBSEQUENT EVENTS
- --------------------------
On October 8, 2002, the Board of Directors of the
Metropolitan Water District of Southern California (Metropolitan)
voted not to adopt the Metropolitan staff's recommendation to
approve the terms and conditions of the right-of-way grant issued
by the U.S. Department of the Interior for the Cadiz Program by a
vote of 47.11% in favor and 47.36% against the recommendation.
Instead, the Board approved an alternative motion to reject the
terms and conditions of the right-of-way grant and to not proceed
with the Cadiz Program by a vote of 50.25% in favor and 44.22%
against. The terms and conditions of the right-of-way grant
issued by the U.S. Department of Interior was part of their
Record of Decision issued upon approval of the Final
Environmental Impact Statement for the Cadiz Program in August
2002, the final step in the federal environmental review process
for the Cadiz Program.
Irrespective of Metropolitan's actions, Southern
California's need for water storage and supply programs has not
abated. Cadiz management believes there are several different
scenarios to maximize the value of this water resource,
all of which are under current evaluation. These alternatives
may have different anticipated capital requirements and
implementation periods than the previously disclosed contractual
arrangements for the Cadiz Program. Consequently, the Company
has taken prompt action to extend the maturity dates of its
outstanding debt at the Cadiz level.
As of September 30, 2002, Cadiz had approximately $10.1
million outstanding under a senior term loan facility and $25
million under a $25 million revolving credit facility with the
same lender, ING Capital LLC (ING). In October 2002, the
Company reached an agreement with ING for a three-year extension
of the maturity date of both loans to January 31, 2006.
With this extension, ING will hold warrants to purchase
7,425,000 shares of Cadiz common stock at an exercise price of
$0.01 per share of which 5,000,000 will be newly issued warrants.
Further, ING's right to convert $10 million of the revolving
credit facility into 1,250,000 shares of our stock, is extended
until January 31, 2006. As such, ING will have the right to
acquire in the aggregate approximately 18% of the Company's
outstanding capital stock on a fully diluted basis. ING will
also hold pre-emptive rights as to future capital raising equity
issuances as long as its loans are outstanding and it holds
beneficial ownership of at least 6,100,000 shares of our stock.
This extension agreement with ING is subject to execution of
definitive documentation. The estimated value of the new
warrants, warrant modifications and modification of conversion
items will be accounted for as a cost of extending the debt and
will be amortized over the extension period.
The interest rate on both ING loans, as extended, will be 8%
per annum in cash or, at the Company's election, 4% per annum in
cash plus 8% per annum in kind, in each case payable quarterly.
Additionally, in October 2002, the Company entered into an
agreement with the holders of all outstanding Series D, Series E-
1 and Series E-2 preferred stock which will allow the Company, at
any time prior to December 31, 2002, to amend the terms of each
such Series in order to extend the mandatory redemption date to
July 2006. Upon the filing of the amendment, the conversion
price into which Series D, Series E-1 and Series E-2 stock may be
converted into Cadiz common stock will be reduced to $5.25 per
share. The Company expects to effectuate this amendment following the
execution of definitive documentation for the extension of the
ING loans. The estimated value of the modification to the
conversion terms will be accounted for as a beneficial conversion
feature and amortized as a deemed dividend over the mandatory
redemption period.
Sun World will require its annual revolving credit facility
for the 2003 growing season. Sun World estimates that it will also
require approximately $15 million in additional financing beyond
that available under the revolving credit facility to bridge the
gap that occurs from April to June between borrowing levels
historically allowed for by Sun World's revolving credit facility
and cash needed to fund farming expenses. Approximately $5 million
of these amounts are expected to be used to retire an unsecured
$5 million loan due December 31, 2002.
Sun World expects that in order to obtain its annual
revolving credit facility for the 2003 growing season it will be
required to provide adequate assurances to its lender of Sun
World's ability to obtain this additional $15 million in funding.
Cadiz' outstanding loan facilities also require that Sun World
continue to maintain its revolving credit facility.
Sun World believes that it will be able to borrow this
additional funding on commercially reasonable terms if it is able to
reach certain arrangements with the holders of the First Mortgage
Notes. Sun World is currently in discussion with holders to allow
for this new funding and, although no assurances can be given,
believes the consent of holders can be obtained upon terms
acceptable both to Sun World and the consenting note holders.
Should the required consent of note holders not be obtained, Sun
World will look to obtain this additional funding in a manner
that does not require the consent.
The Company's ability to operate is dependent on our ability
to successfully obtain the working capital funding noted above. The
unaudited consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The
financial statements do not include any adjustments that might be
necessary if it is unable to continue as a going concern or that
may result from the outcome of any of these uncertainties.
However, although no assurances can be given, we remain confident
that we will be able to obtain this funding.
SUN WORLD INTERNATIONAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Three Months Ended
September 30,
($ in thousands) 2002 2001
---- ----
Revenues $ 64,276 $ 48,687
-------- --------
Costs and expenses:
Cost of sales 47,799 41,143
General and administrative 2,563 2,272
Removal of underperforming crops 3,121 -
Depreciation and amortization 3,506 4,095
-------- --------
Total costs and expenses 56,989 47,510
-------- --------
Operating profit 7,287 1,177
Interest expense, net 3,691 3,889
-------- --------
Net income (loss) before income taxes 3,596 (2,712)
Income tax benefit (106) (8)
-------- --------
Net income (loss) $ 3,702 $ (2,704)
======== ========
See accompanying notes to the consolidated financial statements.
SUN WORLD INTERNATIONAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Nine Months Ended
September 30,
($ in thousands) 2002 2001
---- ----
Revenues $ 95,082 $ 76,425
--------- --------
Costs and expenses:
Cost of sales 71,045 64,667
General and administrative 6,906 6,754
Non-recurring compensation expense - 2,953
Removal of underperforming crops 3,121 -
Depreciation and amortization 5,490 6,086
--------- --------
Total costs and expenses 86,562 80,460
--------- --------
Operating profit (loss) 8,520 (4,035)
Interest expense, net 11,785 11,805
--------- --------
Net loss before income taxes (3,265) (15,840)
Income tax (benefit) expense (82) 21
Net loss $ (3,183) $ (15,861)
========= ==========
See accompanying notes to the consolidated financial statements.
SUN WORLD INTERNATIONAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)
Consolidated Balance Sheet
(Unaudited)
September 30, December 31,
($ in thousands) 2002 2001
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 891 $ 1,058
Accounts receivable, net 13,588 6,326
Inventories 16,077 13,229
Prepaid expenses and other 705 578
--------- --------
Total current assets 31,261 21,191
Property, plant, equipment,
and water programs, net 118,861 124,031
Other assets 7,919 6,946
--------- --------
Total assets $ 158,041 $152,168
========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 12,173 $ 10,428
Accrued liabilities 9,606 4,889
Due to parent, current portion 7,652 11,254
Revolver credit facility - -
Long-term debt, current portion 5,475 4,960
--------- --------
Total current liabilities 34,906 31,531
Due to parent, long-term 6,000 -
Long-term debt 116,188 116,697
Deferred income taxes 5,447 5,447
Other liabilities 1,068 559
Commitments and contingencies
Stockholder's equity:
Common stock, $0.01 par value,
300,000 shares authorized;
42,000 shares issued
and outstanding - -
Additional paid-in capital 37,954 38,273
Accumulated deficit (43,522) (40,339)
--------- --------
Total stockholder's equity (5,568) (2,066)
--------- --------
Total liabilities and
stockholder's equity $ 158,041 $152,168
========= ========
See accompanying notes to the consolidated financial statements.
SUN WORLD INTERNATIONAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30,
($ in thousands) 2002 2001
Cash flows from operating activities:
Net loss $ (3,183) $ (15,861)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 6,370 6,899
Gain on disposal of assets (61) (376)
Removal of underperforming crops 3,121 -
Shares of KADCO stock earned for services (938) (938)
Compensation charge for deferred stock units 230 222
Non-recurring compensation expense - 2,953
Changes in operating assets and liabilities:
Increase in accounts receivable (7,262) (6,426)
Increase in inventories (3,913) (1,460)
Increase in prepaid expenses and other (127) (235)
Increase in accounts payable 1,745 4,952
Increase in accrued liabilities 4,970 2,770
Increase in due to parent 1,483 1,497
Increase in other liabilities 26 16
--------- ---------
Net cash provided by (used for)
operating activities 2,461 (5,987)
--------- ---------
Cash flows from investing activities:
Additions to property, plant,
equipment, and water programs (425) (1,329)
Additions to developing crops (1,782) (2,363)
Proceeds from disposal of property,
plant and equipment 111 397
(Increase) decrease in other assets (852) 509
--------- ---------
Net cash used for investing activities (2,948) (2,786)
--------- ---------
Cash flows from financing activities:
Principal payments on long-term debt (595) (1,025)
Borrowings from intercompany revolver, net 915 3,841
Proceeds from short-term borrowings - 4,600
--------- ---------
Net cash provided by financing activities 320 7,416
--------- ---------
Net decrease in cash and cash equivalents (167) (1,357)
Cash and cash equivalents at
beginning of period 1,058 1,669
--------- ---------
Cash and cash equivalents at end of period $ 891 $ 312
========= =========
See accompanying notes to the consolidated financial statements.
SUN WORLD INTERNATIONAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (UNAUDITED)
For the Nine Months Ended September 30, 2002
($ in thousands)
Additional Total
Common Stock Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------- ------ --------- --------- ------
Balance as of
December 31, 2001 42,000 $ - $ 38,273 $ (40,339) $ (2,066)
Revaluation of
derivative for
warrants - - (319) - (319)
Net loss - - - (3,183) (3,183)
------- ------ ------- --------- --------
Balance as of
September 30,
2002 42,000 $ - $ 37,954 $ (43,522) $ (5,568)
======= ====== ======== ========== ========
See accompanying notes to the consolidated financial statements.
CADIZ INC.
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. Certain reclassifications have been made
to the prior period to conform to the current period
presentation. The results of operations for the three and nine
month periods ended September 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 Cadiz' latest Form 10-K for a discussion
of Sun World's accounting policies.
NOTE 2 - INVENTORIES
- --------------------
Inventories consist of the following (in thousands):
September 30, December 31,
2002 2001
---- ----
Growing crops $ 8,281 $ 10,376
Harvested product 5,180 218
Materials and supplies 2,616 2,635
-------- --------
$ 16,077 $ 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.
NOTE 4 - SUBSEQUENT EVENTS
- --------------------------
Sun World will require its annual revolving credit facility
for the 2003 growing season. Sun World estimates that it will also
require approximately $15 million in additional financing beyond
that available under the revolving credit facility to bridge the
gap that occurs from April to June between borrowing levels
historically allowed for by Sun World's revolving credit
facility and cash needed to fund farming expenses. Approximately
$5 million of these amounts are expected to be used to retire an
unsecured $5 million loan due December 31, 2002.
Sun World expects that in order to obtain its annual
revolving credit facility for the 2003 growing season it will be
required to provide adequate assurances to its lender of Sun
World's ability to obtain this additional $15
million in funding. Cadiz' outstanding loan facilities also
require that Sun World continue to maintain its revolving credit
facility.
Sun World believes that it will be able to borrow this
additional funding on commercially reasonable terms if it is able to
reach certain arrangements with the holders of the First Mortgage
Notes. Sun World is currently in discussion with holders to allow
for this new funding and, although no assurances can be given,
believes the consent of holders can be obtained upon terms
acceptable both to Sun World and the consenting note holders.
Should the required consent of note holders not be obtained, Sun
World will look to obtain this additional funding in a manner
that does not require this consent.
Sun World's ability to operate is dependent on our ability
to successfully obtain the working capital funding noted above. The
unaudited consolidated financial statements have been prepared
assuming Sun World will continue as a going concern. The
financial statements do not include any adjustments that might be
necessary if it is unable to continue as a going concern or that
may result from the outcome of any of these uncertainties.
However, although no assurances can be given, we remain confident
that we will be able to obtain this funding.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (UNAUDITED)
OVERVIEW
CADIZ GROUNDWATER STORAGE AND DRY-YEAR SUPPLY PROGRAM
In 1997, we commenced discussions with the Metropolitan
Water District of Southern California (Metropolitan) in order to
develop principles and terms for a long-term agreement for a
joint venture water storage and supply program on and under our
Cadiz, California property. In July 1998, Cadiz and
Metropolitan approved the Principles and Terms for Agreement for
the Cadiz Groundwater Storage and Dry-Year Supply Program (the
Cadiz Program). At the same time, Cadiz and Metropolitan
authorized preparation of a final agreement based on these
principles and initiated the environmental review process for
the Cadiz Program. Following extensive negotiations with Cadiz
to further refine and finalize these basic principles,
Metropolitan's Board of Directors approved definitive economic
terms and responsibilities at their April 2001 board meeting.
The Cadiz Program definitive economic terms were to serve as the
basis for a final agreement to be executed between Metropolitan
and Cadiz, subject to the then-ongoing environmental review
process.
Under the Cadiz Program, during wet years or periods of
excess supply, surplus water from the Colorado River Aqueduct
would be stored 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, would be extracted and
delivered, via a conveyance pipeline, back to the aqueduct.
On August 29, 2002, the U.S. Department of Interior approved
the Final Environmental Impact Statement for the Cadiz Program
and issued its Record of Decision, the final step in the federal
environmental review process for the Cadiz Program. The Record
of Decision amends the California Desert Conservation Area Plan
for an exception to the utility corridor element and offered to
Metropolitan a right-of-way grant necessary for the construction
and operation of the Cadiz Program.
On September 17, 2002, the Metropolitan Subcommittee on
Rules and Ethics scheduled a series of meetings in October and
November 2002 to consider (a) acceptance of the Record of
Decision and the terms and conditions of the right-of-way grant,
(b) certification of the environmental documentation for the
Cadiz Program under state law, and (c) the final agreement
between Cadiz and Metropolitan.
On October 8, 2002, Metropolitan's Board considered
acceptance of the Record of Decision and the terms and conditions
of the right-of-way grant. The Board voted not to adopt
Metropolitan staff's recommendation to approve the terms and
conditions of the right-of-way grant issued by the Department of
the Interior for the Cadiz Program by a vote of 47.11% in favor
and 47.36% against the recommendation. Instead, the Board voted
for an alternative motion to reject the terms and conditions of
the right-of-way grant and to not proceed with the Cadiz Program
by a vote of 50.25% in favor and 44.22% against.
Irrespective of Metropolitan's actions, Southern
California's need for water storage and supply programs has not
abated. We believe there are several different scenarios to
maximize the value of this water resource, all of which are under
current evaluation.
RESULTS OF OPERATIONS
The financial statements set forth herein as of and for the
nine months ended September 30, 2002 and 2001 reflect the results
of operations for the Company and its wholly-owned subsidiary,
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 Sun World including
its international expansion; and (b) the operations of our water
development activities. 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, but provide a higher
operating margin than the other Sun World divisions.
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 maximize value from our Cadiz, California land and
water resources in light of the Metropolitan Water District of
Southern California's October 8, 2002 decision to not proceed
with the Cadiz Program; price, yield and seasonality fluctuations
in our agricultural operations; our ability to obtain extensions
on currently outstanding debt; and our ability to obtain new
financings as needed to meet our ongoing working capital needs.
See additional discussion under the heading "Certain Trends and
Uncertainties" in Item 7 of our Annual Report on Form 10-K
for the year ended December 31, 2001.
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS
ENDED SEPTEMBER 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
September 30,
-------------
2002 2001
---- ----
Divisional net income (loss):
Farming $ 4,092 $ (2,378)
Packing 7,077 5,805
Marketing 3,225 2,374
Proprietary product development 1,727 1,246
-------- --------
16,121 7,047
General and administrative 3,330 2,625
Removal of underperforming crops 4,137 222
Depreciation and amortization 3,793 4,379
Interest expense 5,390 4,909
Income tax benefit (106) (8)
-------- --------
Net loss $ (423) $ (5,080)
======== ========
FARMING OPERATIONS. Net profit from farming operations
totaled $4.1 million for the three months ended September 30,
2002 compared to a net loss of $2.4 million for the three months
ended September 30, 2001. Farming results during the third
quarter of 2002 and 2001 were derived primarily from the harvest
of table grapes and stonefruit from the San Joaquin Valley
operations and table grapes from the Coachella Valley operations.
During the quarter ended September 30, 2002, farming
results were favorably impacted primarily due to the return of
the Coachella and Mexico table grape harvest to their normal time
periods which enabled most of this production to be harvested and
sold prior to the harvest in the San Joaquin Valley. In 2001,
there was a two-week weather-related delay in the table grape
harvests in Coachella and Mexico which caused an overlap with the
early table grape harvests in the San Joaquin Valley. This overlap
created downward pressure on F.O.B. prices. Average F.O.B. prices for
table grapes for the quarter were 16% higher than in the prior
year. Additionally, Sun World experienced higher table grape
production due to higher yields and due to leasing some
additional organic acreage for the 2002 farming season. Sun
World sold 3.1 million boxes during the 2002 quarter compared to
2.7 million boxes in 2001. Results were also favorably impacted
by higher plum yields coupled with increased F.O.B. prices. Sun
World sold 0.7 million boxes of plums during the third quarter
compared to 0.5 million in 2001 with average F.O.B. prices
increasing by 3% compared to 2001. Sun World also experienced an
increase in farming profits for peppers due to a 45% increase in
units sold, partially offset by, a 6% decrease in F.O.B. prices.
Market conditions for wine grapes remained soft in 2002 as
average F.O.B. prices declined by 14% from 2001. Sun World has
commenced removing all of its remaining wine grape acreage
following the completion of the harvest. Results were favorably
impacted by the continued strong performance of Sun World's
proprietary SUPERIOR SEEDLESS(R) and MIDNIGHT BEAUTY(R) table
grapes and BLACK DIAMOND(R) plums coupled with the removal of
certain underperforming crops at the conclusion of the 2001
season. Sun World continues to achieve a price premium for its
proprietary table grape and stonefruit products compared to
competing commercially available varieties. Revenues from
farming operations totaled $52.8 million for the 2002 quarter
compared to $39.3 million for the 2001 quarter. Farming expenses
totaled $48.7 million in the 2002 quarter compared to $41.7
million in the 2001 quarter.
PACKING OPERATIONS. Sun World's packing and handling
facilities contributed revenues of $12.2 million offset by $5.1
million of expenses for net income of $7.1 million for the
quarter ended September 30, 2002 compared to revenues of $10.3
million, expenses of $4.5 million, and net income of $5.8 million
for the quarter ended September 30, 2001. The increase in profits
was primarily due to increased plum units packed and handled in
2002 as compared to 2001. Units packed during the quarter totaled
1.3 million in 2002 compared to 1.0 million in 2001. at the end
of last year and the Company's decision to field pack Coachella
watermelons in 2001 to reduce costs Units handled for the third
quarter totaled 4.5 million for both 2002 and 2001.
MARKETING OPERATIONS. Marketing revenues of $6.0 million
were offset by marketing expenses of $2.8 million resulting in
net income of $3.2 million for the third quarter of 2002.
Marketing revenues of $3.6 million were offset by marketing
expenses of $1.2 million for net income of $2.4 million for the
third quarter of 2001. The increase in marketing revenues was
due primarily to higher F.O.B. prices on table grapes and
stonefruit. 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.
partially offset by a 10% increase in average marketing
commissions per unit primarily resulting from higher F.O.B.
prices for southern table grapes and watermelons. During the
three months ended September 30, 2002, Sun World sold 5.3 million
units, consisting primarily of Sun World-grown table grapes,
peppers and stonefruit as well as table grapes, citrus and
watermelons from domestic third party growers compared to 5.0
million units sold during the three months ended September 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. Additionally, Sun World
continues to expand its licensing program with key strategic
partners worldwide to introduce, trial and produce Sun World's
proprietary varieties, which provides Sun World with a long-term
annual revenue stream based upon a royalty fee for each box of
proprietary fruit sold during the life of the tree or vine.
During the three months ended September 30, 2002, net income from
proprietary product development was $1.7 million consisting of
revenues of $2.4 million offset by expenses of $0.7 million. For
the three months ended September 30, 2001, net income was $1.2
million consisting of revenues of $1.8 million offset by expenses
of $0.6 million. The increase in proprietary product development
net income is primarily due to a $0.5 million increase in
intercompany royalties due to higher yields and F.O.B. prices for
Sun World's proprietary table grapes and plum varieties.
GENERAL AND ADMINISTRATIVE EXPENSES. General and
administrative expenses during the three months ended September
30, 2002 totaled $3.3 million compared to $2.6 million for the
three months ended September 30, 2001. The increase in general
and administrative expenses is primarily due to increased
employee related expenses as well as costs related to exploring
water development opportunities in the Middle East.
REMOVAL OF UNDERPERFORMING CROPS. Management has decided to
remove approximately 1,900 acres of underperforming crops
consisting of 200 acres from the Cadiz ranch and 1,700 acres from
Sun World's ranches. The crops removed include approximately 100
acres of juice grapes and 100 acres of citrus at the Cadiz ranch
and 500 acres of wine grapes, 300 acres of raisin grapes, 400
acres of stonefruit, 400 acres of citrus, and 100 acres of table
grapes from Sun World's operations. The Company recorded a
charge of $4.1 million in connection with the removal of these
crops.
In September 2001, management decided to remove
approximately 40 acres of citrus at the Cadiz ranch that had
historically incurred losses. The Company recorded a non-cash
charge of $0.2 million in connection with the removal of these
crops.
DEPRECIATION AND AMORTIZATION. Depreciation and
amortization expense during the three months ended September 30,
2002 totaled $3.8 million compared to $4.4 million for the three
months ended September 30, 2001. The reduction in depreciation
expense is due primarily to crop removals and the timing of
crops being harvested and sold. The late Coachella table grape
harvests in 2001 resulted in increased depreciation expense
during the third quarter of 2001 as compared to 2002.
INTEREST EXPENSE, NET. Net interest expense totaled $5.4
million compared to $4.9 million for the three months ended
September 30, 2002 and 2001. The following table summarizes the
components of net interest expense for the two periods (in
thousands):
Three Months Ended
September 30
-----------
2002 2001
---- ----
Interest on outstanding debt - Sun World $ 3,634 $ 3,714
Interest on outstanding debt - Cadiz 289 309
Amortization of financing costs 1,483 902
Interest income (16) (16)
-------- -------
$ 5,390 $ 4,909
======== =======
The increase in interest on outstanding debt during the
second quarter of 2002 is primarily due to amortization of
warrants issued for the extension and increase in the Cadiz
credit facilities in the first quarter of 2002, partially offset
by the impact of lower rates on the Company's variable rate debt.
Financing costs, which include legal fees and warrants, are
amortized over the life of the debt agreement.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS
ENDED SEPTEMBER 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 by the
Company which are not included within the divisional results (in
thousands):
Nine Months Ended
September 30
-------------
2002 2001
---- ----
Divisional net income (loss):
Farming $ 6,754 $ (1,832)
Packing 8,753 7,267
Marketing 4,173 2,760
Proprietary product development 3,045 2,199
--------- ---------
22,725 10,394
General and administrative 9,692 8,128
Special litigation - (7,929)
Non-recurring compensation expense - 5,537
Removal of underperforming crops 4,137 222
Depreciation and amortization 6,248 6,943
Interest expense, net 15,858 14,374
Income tax (benefit) expense (80) 23
--------- ---------
Net loss $ (13,130) $ (16,904)
========= =========
FARMING OPERATIONS. Net profit from farming operations
totaled $6.8 million for the nine months ended September 30, 2002
compared to a net loss of $1.8 million for the nine months ended
September 30, 2001. Farming revenues were $74.8 million and
farming expenses were $68.0 million for the nine months ended
September 30, 2002 compared to farming revenues of $60.6 million
and farming expenses of $62.4 million for 2001. Farming results
were favorably impacted by the timing of the table grape harvest
in Coachella and Mexico returning to normal as opposed to the
harvest starting two weeks late in 2001, which created an overlap
with the early table grape harvests in the San Joaquin valley.
Year-to-date average F.O.B. prices for table grapes were 17%
higher than the prior year. Additionally, Sun World experienced
increased table grape production due to increased yields and due
to leasing some additional organic table grape acreage for the
2002 season. Sun World sold 3.7 million boxes for the nine
months ended September 30, 2002 compared to 3.4 million boxes
during the same period in 2001. Results were also favorably
affected by increased plum yields as plum units sold were 41%
higher in 2002 than in 2001. Sun World also experienced a 45%
increase in F.O.B. prices for peppers, partially offset by an 11%
reduction in prices for wine grapes. Results were favorably
impacted by the continued strong performance of Sun World's
proprietary SUPERIOR SEEDLESS(R) and MIDNIGHT BEAUTY(R) table
grapes and BLACK DIAMOND(R) plums as production increased and
F.O.B. prices remained strong coupled with the removal of certain
underperforming crops at the conclusion of the 2001 season. Sun
World continues to achieve a price premium for its proprietary
table grape and stonefruit products compared to competing
commercially available varieties.
PACKING OPERATIONS. Sun World's packing and handling
facilities contributed $8.8 million in profit during the nine
months ended September 30, 2002 and $7.3 million during the nine
months ended September 30, 2001. Packing and handling revenue
for these operations of $19.1 million was offset by $10.3 million
of expenses for the nine months ended September 30, 2002.
Revenues totaled $17.4 million offset by expenses of $10.1
million for the nine months ended September 30, 2001. Sun World
packed 2.4 million units during the nine months ended September
30, 2002 compared to 2.3 million units for the nine months ended
September 30, 2001. For the nine months ended September 30,
2002, Sun World handled 7.4 million units compared to 7.1 million
units in 2001. The increase in units packed and handled was due
primarily to increased production of table grapes, plums, and
peppers. Units packed and handled during the nine months ended
September 30, 2002 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
table grapes, stonefruit, citrus, and peppers from the San
Joaquin Valley.
MARKETING OPERATIONS. During the nine months ended
September 30, 2002, a total of 8.3 million units were sold
consisting primarily of Sun World-grown table grapes, peppers and
watermelons from the Coachella Valley; table grapes and citrus
from domestic third party growers; and Sun World-grown table
grapes, stonefruit, citrus, and peppers from the San Joaquin
Valley. These unit sales resulted in marketing revenue of $9.9
million. Marketing expenses totaled $5.7 million for the nine
months ended September 30, 2002 resulting in net income from
marketing operations of $4.2 million. During the nine months
ended September 30, 2001, 8.0 million units were marketed
resulting in revenues of $6.0 million offset by expenses of $3.2
million for net income of $2.8 million. The increase in
revenues, marketing profits and units sold was primarily due to
increased F.O.B. prices for table grapes, plums and peppers.
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. Additionally, Sun World
continues to expand its licensing program with key strategic
partners worldwide to introduce, trial and produce Sun World's
proprietary varieties, which provides Sun World with a long-term
annual revenue stream based upon a royalty fee for each box of
proprietary fruit sold during the life of the tree or vine.
During the nine months ended September 30, 2002, net income from
proprietary product development was $3.0 million consisting of
revenues of $4.8 million offset by expenses of $1.8 million. For
the nine months ended September 30, 2001, net income was $2.2
million consisting of revenues of $3.8 million offset by expenses
of $1.6 million. The increase in proprietary product development
net income was primarily due to a $0.5 million increase in
intercompany royalties due to increased yields and higher F.O.B.
prices and a $0.5 million increase in international royalties due
primarily to improved table grape yields for acreage under
license coupled with a delay in the South Africa 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 nine months ended September 30,
2002 totaled $9.7 million compared to $8.1 million for the 2001
period. The increase was primarily due to higher employee
related costs coupled with $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 Bernardino County primarily adjacent to
the Cadiz Program property. The settlement resulted in net
proceeds recognized of $7.9 million for the nine months ended
September 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.
REMOVAL OF UNDERPERFORMING CROPS. Management has decided to
remove approximately 1,900 acres of underperforming crops
consisting of 200 acres from the Cadiz ranch and 1,700 acres from
Sun World's ranches. The crops removed include approximately 100
acres of juice grapes and 100 acres of citrus at the Cadiz ranch
and 500 acres of wine grapes, 300 acres of raisin grapes, 400
acres of stonefruit, 400 acres of citrus, and 100 acres of table
grapes from Sun World's operations. The Company recorded a non-
cash charge of $4.1 million in connection with the removal of
these crops.
In September 2001, management decided to remove
approximately 40 acres of citrus at the Cadiz ranch. Cadiz
recorded a charge of $0.2 million in connection with the removal
of these crops.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and
amortization expense for the nine months ended September 30, 2002
totaled $6.2 million compared to $6.9 million during the same
period in 2001. The decrease in depreciation was due to the
timing of crops being harvested and sold coupled with certain
assets becoming fully depreciated during the past year.
INTEREST EXPENSE, NET. Net interest expense totaled $15.9
million compared to $14.4 million for the nines months ended
September 30, 2002 and 2001. The following table summarizes the
components of net interest expense for the two periods (in
thousands):
Nine Months Ended
September 30
------------
2002 2001
---- ----
Interest on outstanding debt - Sun World $ 10,925 $ 11,086
Interest on outstanding debt - Cadiz 719 1,109
Amortization of financing costs 4,243 2,287
Interest income (29) (108)
-------- -------
$ 15,858 $ 14,374
======== ========
The increase in interest on outstanding debt for the nine
months ended September 30, 2002 is primarily due to amortization
of warrants issued for the extension and increase in the Cadiz
credit facilities in the first quarter of 2002, partially offset
by the impact of lower rates on the Company's variable 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. On October 8, 2002 Metropolitan voted
to not proceed with the Cadiz Program. Irrespective of
Metropolitan's actions, Southern California's need for water
storage and supply programs has not abated. Cadiz management
believes there are several different scenarios to maximize the
value of this water resource, all of which are under current
evaluation. These alternatives may have different anticipated
capital requirements and implementation periods than the previously
disclosed contractual arrangements for the Cadiz Program.
Consequently, the Company has taken prompt action to
extend the maturity dates of its outstanding debt at the Cadiz
level.
As of September 30, 2002, Cadiz had approximately $10.1
million outstanding under a senior term loan facility and $25
million under a $25 million revolving credit facility with the
same lender, ING. In October 2002, the Company reached an
agreement with ING for a three-year extension of the maturity
date of both loans to January 31, 2006.
With this extension, ING will hold warrants to purchase
7,425,000 shares of Cadiz common stock at an exercise price of
$0.01 per share of which 5,000,000 will be newly issued warrants.
Further, ING's right to convert $10 million of the revolving credit
facility into 1,250,000 shares of our stock, is extended until
January 31, 2006. As such, ING will have the right to acquire in
the aggregate approximately 18% of the Company's outstanding capital
stock on a fully diluted basis. ING will also hold pre-emptive
rights as to future capital raising equity issuances as long as
its loans are outstanding and it holds beneficial ownership of at
least 6,100,000 shares of our stock. This extension agreement with
ING is subject to execution of definitive documentation.
The interest rate on both ING loans, as extended, will be 8%
per annum in cash or, at our election, 4% per annum in cash plus
8% per annum in kind, in each case payable quarterly.
In December 2000, we issued $5 million of Series D
Convertible Preferred Stock, originally convertible into 625,000
shares of our common stock at the option of the holders and
mandatorily redeemable in July 2004 if then 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
was originally convertible into an aggregate of 1,000,000 shares
of our common stock at the option of the holders and mandatorily
redeemable in July 2004 if then still outstanding. In October
2002 we entered into an agreement with the holders of all
outstanding Series D, Series E-1 and Series E-2 preferred stock
which will allow us, at any time prior to December 31, 2002, to
amend the terms of each such Series in order to extend the
mandatory redemption date to July 2006. Upon the filing of the
amendment, the conversion price into which Series D, Series E-1
and Series E-2 stock may be converted into our common stock will
be reduced to $5.25 per share. We expect to effectuate this
amendment following the execution of definitive documentation for
the extension of the ING loans.
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 primarily through a $30
million revolving credit agreement guaranteed by Cadiz.
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
accrue interest at either prime plus 1.0% or LIBOR plus 2.50% at
our election. As of September 30, 2002, there were no amounts
outstanding under the revolving credit agreement.
In a typical growing season, there is a three-month period
from April to June during which Sun World needs more working
capital funding than it is allowed to borrow under the borrowing
base in its revolving credit facility. This occurs in the
earlier part of the season when Sun World is expending cash to
grow the crops, but only borrowing 50% of this amount under its
revolving credit facility. Sun World maintains an intercompany
revolving credit agreement with Cadiz which Sun World has
utilized in past years to supplement its internal cash resources
in order to meet its working capital needs during such periods.
As of September 30, 2002, $12.2 million was outstanding under the
intercompany revolver. Sun World also borrowed $5 million from
an unaffiliated third party on an unsecured basis in December
2000 in order to provide additional working capital support.
This $5 million debt matures at the end of 2002.
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 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 $4.6 million for the nine months ended
September 30, 2002, as compared to cash used for operating
activities of $5.1 million for the nine months ended September
30, 2001. The decrease in cash used for operating activities was
primarily due to improved operating results in 2002.
CASH USED FOR INVESTING ACTIVITIES. Cash used for investing
activities totaled $3.6 million for the nine months ended
September 30, 2002, as compared to $4.3 million for the same
period in 2001. The decrease was primarily due to reduced
capital expenditures offset by increased additions to other
assets due to increased capitalized costs related to Sun World's
patents and trademarks.
CASH PROVIDED BY FINANCING ACTIVITIES. Cash provided by
financing activities totaled $9.8 million for the nine months
ended September 30, 2002 consisting primarily of $10 million of
borrowings under the Cadiz revolving credit facility. Borrowings
were down from prior year due to the monies received from the
Rail-Cycle and Rayo water litigation settlements. For the same
period in 2001, cash provided by financing activities totaled
$4.9 million consisting primarily of $4.6 million of borrowings
under the Sun World revolving credit facility. No amounts were
outstanding under the Sun World revolver in 2002 due to the
improved operating performance. Principal payments on long-term
debt totaled $0.6 million for the nine months ended September 30,
2002 compared to $1.3 million for the nine months ended September
30, 2001. Net proceeds from the exercise of stock options
totaled $0.7 million during the nine months ended September 30,
2002 and $1.6 million for the nine months ended September 30,
2001.
OUTLOOK
CADIZ. Our ongoing working capital requirements at the
Cadiz level will depend in large part upon the process which we
follow in maximizing value from our land and resource holdings.
Until Metropolitan's actions on October 8, 2002, we had expected
that the Cadiz Program would be implemented upon the previously
negotiated terms, and we had structured our financing
arrangements with a view to such implementation. As a result of
Metropolitan's actions, we are actively evaluating alternatives
which may have different anticipated capital requirements and
implementation periods than the previously disclosed contractual
arrangements for the Cadiz Program. The extension of our
Cadiz debt, as described previously, is anticipated to provide
adequate time to maximize the value of our water resources.
Over the next twelve months, Cadiz expects to fund its
working capital needs through a combination of 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,
and repayments by Sun World of amounts advanced by Cadiz under
the intercompany revolver. Except for the foregoing, additional
intercompany cash payments between Sun World and Cadiz are
subject to certain restrictions under their current lending
arrangements.
Depending upon the alternative implemented for the Cadiz
Program and the availability of payments from Sun World, we may
require additional cash from other sources. We may meet any
such requirements through a variety of means to be determined at
the appropriate time. Such means may include the sale or other
disposition of assets or, should market conditions permit, equity
or debt placements.
SUN WORLD. 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. During the next twelve months,
Sun World estimates that it will require approximately $15 million
in additional financing beyond that historically available under
its primary revolving credit facility in order to service its
working capital needs. Of these amounts, approximately $5 million
is expected to be used to retire the unsecured $5 million loan
due December 31, 2002. Sun World does not expect this additional
financing to be supplied by Cadiz, either by way of the
intercompany revolver or through capital contributions. As a
consequence, Sun World must obtain this additional financing from
outside sources in order to meet its working capital requirements
during 2003.
Sun World expects that in order to obtain its annual
revolving credit facility for the 2003 growing season it will be
required to provide adequate assurances to its lender of Sun
World's ability to obtain this additional $15 million in funding.
Cadiz' outstanding loan facilities also require that Sun World
continue to maintain its revolving credit facility.
Sun World believes that it will be able to borrow this
additional funding on commercially reasonable terms if it is able to
reach certain arrangements with the holders of the First Mortgage
Notes. Sun World is currently in discussion with holders to allow
for this new funding and, although no assurances can be given,
believes the consent of holders can be obtained upon terms
acceptable both to Sun World and the consenting note holders.
Should the required consent of note holders not be obtained, Sun
World will look to obtain this additional funding in a manner that
does to require this consent.
The Company's ability to operate is dependent on our
ability to successfully obtain the working capital funding noted
above. However, although no assurances can be given, we remain
confident that we will be able to obtain this funding.
Sun World expects that, starting in 2004, it will be able to
service its indebtedness and meet its seasonal working capital
needs relying only upon available internal cash and its revolving
credit facility. During the last several years, Sun World has
been engaged in an ongoing strategic redeployment of its asset
base designed to maximize Sun World's long term return on
capital. From 1997 through 2002 Sun World invested approximately
$24 million primarily in new proprietary and niche permanent
crops which are now coming into commercial production. Sun World
has also removed approximately 5,000 acres of underperforming
permanent crops from production during this time period.
Proprietary crops command a higher price premium and are less
subject to market volatility than non-proprietary crops. Sun
World is also expanding its proprietary product licensing and
service operations, which produce cash flow without significant
capital investment.
Therefore, in future periods, Sun World expects to:
* Increase cash flow from sales and licensing of higher
margin proprietary crops;
* Expand farming, packing and marketing arrangements with
licensees;
* Reduce the need for new crop development spending, which
has averaged approximately $4 million per year since
1997; and
* Obtain approximately $10 million over the next three
years from sales of idle land, the proceeds of which will
be used to reduce debt.
Sun World expects cash generated by the foregoing to be
sufficient, starting in 2004, to obviate the need for further
advances by Cadiz or third parties in support of its working
capital requirements.
CRITICAL ACCOUNTING POLICIES
There are no material changes to the critical accounting
estimates discussed in our Annual Report on Form 10-K for the
year ended December 31, 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information about market risks for the nine months ended
September 30, 2002 does not differ materially from that discussed
under Item 7A of our Annual Report on Form 10-K for the year ended
December 31, 2001.
ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the
Company carried out an evaluation, under the supervision and with
the participation of the Company's management, including the
Company's Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based on that evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that the Company's
disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company
that is required to be included in the Company's periodic SEC
filings. There were no significant changes in internal controls
or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See "Legal Proceedings" included in the Company's latest
Form 10-K for a complete discussion.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended September 30, 2002, we issued
25,000 shares of common stock and 350,000 previously issued
warrants vested due to the fact that we did not pay off all or
part of our outstanding term and revolving loans by July 31,
2002. The exercise price per share of the warrants has been
reduced to $4.06 and their expiration date is August 1, 2005. If
the loans are not repaid in full by January 30, 2003, the
exercise price of the warrants will be reduced to $0.01.
On July 15, 2002, we issued 23,798 shares of common stock to
the holders of Series D, Series E-1 and Series E-2 Preferred
Stock in lieu of cash dividends, as permitted by the terms of the
preferred stock.
The issuances of the common stock and warrants described
above were not registered under the Securities Act of 1933, as
amended. We believe that the issuances were exempt from the
registration requirements of the Securities Act by virtue of
Section 4(2) of the Securities Act as the transactions did not
involve public offerings, the number of investors was limited,
the investors were provided with information about us, and we
placed restrictions on resale of the securities. The stock
dividend shares were registered for resale on a Form S-3
registration statement in February 2002.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
Exhibit 10.1 Security Agreement between Cadiz Inc.
and Keith Brackpool
B. REPORTS ON FORM 8-K
1. We filed a report on Form 8-K dated August 29,
2002 reporting that the Department of the Interior
approved the Final Impact Statement for the Cadiz
Groundwater Storage and Dry-Year Supply Program
and issued its Record of Decision ("ROD"). The
issuance of the ROD marked the final step in the
federal environmental review process for the Cadiz
Program.
2. We filed a report on Form 8-K on October 8, 2002
reporting that the Board of Directors of the
Metropolitan Water District of Southern California
voted not to approve the terms and conditions of
the right-of-way grant issued by the Department of
the Interior for the Cadiz Program and voted to not
proceed with the Cadiz Program.
3. We filed a report on Form 8-K on October 18, 2002
reporting the execution of an agreement which sets
forth the terms of a three-year extension of the
maturity date for outstanding $35 million of
senior secured loans with ING Capital LLC.
Additionally, we reported that we entered into an
agreement with the holders of the $12.5 million of
our preferred stock to extend the mandatory
redemption date until July 2006.
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, 2002
------------------------------ -----------------
Keith Brackpool, Chairman and Date
Chief Executive Officer
By: /s/ Stanley E. Speer November 14, 2002
------------------------------ -----------------
Stanley E. Speer Date
Chief Financial Officer
CERTIFICATION
I, Keith Brackpool, Chairman and Chief Executive Officer,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Cadiz Inc.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and
other financial information included in this quarterly report,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and
for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-
14) for the registrant and we have:
a) Designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report (the
"Evaluation Date"); and
c) Presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation of the Evaluation Date.
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a) All significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Keith Brackpool
------------------------------
Keith Brackpool, Chairman and
Chief Executive Officer
CERTIFICATION
I, Stanley E. Speer, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Cadiz Inc.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and
other financial information included in this quarterly report,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and
for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-
14) for the registrant and we have:
a) Designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report (the
"Evaluation Date"); and
c) Presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation of the Evaluation Date.
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a) All significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Stanley E. Speer
------------------------------
Stanley E. Speer
Chief Financial Officer