Cadiz Inc. — FY2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing also reports unaudited fourth-quarter results. Cadiz is a land and water-resource development company with approximately 45,000 acres in California’s eastern San Bernardino County. Its only operating revenues came from agriculture; its principal development focus is the Cadiz Valley Water Conservation, Recovery and Storage Project.
Financial performance and liquidity
| Metric | FY2012 | FY2011 |
|---|---|---|
| Revenue | $0.362 million | $1.019 million |
| Cost of sales | $0.521 million | $1.441 million |
| Operating loss | $13.068 million | $11.234 million |
| Net loss | $19.574 million | $16.837 million |
| Net loss per share, basic and diluted | $1.27 | $1.20 |
| Net cash used for operating activities | $11.400 million | $7.514 million |
| Net cash used for investing activities | $3.289 million | $4.140 million |
| Cash provided by financing activities | $5.004 million | $17.113 million |
At year-end, cash and cash equivalents were $1.685 million, current assets were $2.349 million, and current liabilities were $2.363 million, a $14,000 working-capital deficit. Total assets were $50.518 million; total liabilities were $67.286 million, leaving a stockholders’ deficit of $16.768 million. Year-end debt was approximately $65.3 million before debt discount (reported carrying value: $63.25 million long-term plus $11,000 current). The filing reports fixed-rate debt at December 31, 2012.
For Q4 2012, revenue was $38,000, gross loss was $188,000, operating loss was $4.129 million, net loss was $5.806 million, and basic and diluted loss per share was $0.38.
Changes versus the prior comparable period
- Revenue fell by about 64% year over year, principally because weather damage sharply reduced citrus sales; raisin revenue increased with a larger crop.
- Net loss widened by $2.737 million. General and administrative expense rose to $12.559 million from $10.447 million, reflecting higher legal, consulting, litigation, and pipeline-conversion diligence costs. Net interest expense increased to $6.817 million from $5.704 million.
- Cash used in operations increased by $3.886 million, and year-end cash declined from $11.370 million to $1.685 million. Investing cash outflow decreased to $3.289 million from $4.140 million.
- Stockholders’ equity moved from $1.930 million to a deficit of $16.768 million, principally reflecting the annual loss.
Business developments, outlook, and risks
- Water Project: The proposed first phase is capped at a long-term average of 50,000 acre-feet annually for 50 years; a potential second phase could provide about one million acre-feet of imported-water storage. Santa Margarita Water District certified the Final Environmental Impact Report in July 2012, and San Bernardino County approved the groundwater management plan and project withdrawal in October 2012. Approximately 80% of planned annual supply was under a purchase agreement or participant option; only one participant had converted to a definitive purchase agreement by the filing date.
- Key remaining steps included resolving legal challenges, obtaining Metropolitan Water District action on CRA conveyance, completing design and permitting, finalizing participant agreements, and securing construction financing. Management expected Phase I construction financing to be senior debt secured by project assets, but provided no committed construction-financing amount or timetable.
- In December 2012, Cadiz obtained rights to a 96-mile idle pipeline segment from Cadiz Valley to Barstow for a nominal $1 purchase price, in addition to $1.07 million of prior option payments. The purchase option ran through April 2014; conversion to water use requires further environmental review. A possible $10 million payment from the pipeline seller is conditional on a future regulatory filing.
- Subsequent financing: On March 5, 2013, after year-end, Cadiz refinanced its existing debt with a $30 million senior secured loan at 8% and a $53.5 million convertible bond at 7%, both with no principal or interest payments due before maturity (March 2016 and March 2018, respectively). The bond includes approximately $17.5 million of new working capital and is convertible at $8.05 per share. Management said this funding was expected to cover working-capital needs until mid-2014. Conversion could materially dilute existing shareholders.
- Legal and regulatory exposure: Eight lawsuits challenge project approvals under CEQA; the company could not predict their outcomes. Metropolitan’s action and federal right-of-way questions remained unresolved. Management stated the lawsuits were not expected to have a material adverse financial impact, but project delays, restrictions, or loss of approvals could impair the business plan.
- Financial risk: Cadiz had not generated significant development revenue and continued to incur substantial losses and cash burn. It expects to need additional capital before development programs generate revenue; future financing availability is not assured. Debt is secured by company assets and includes restrictions. The 2013 convertible bonds create potential dilution.
- Agricultural revenue is variable with crop yields, prices, and weather. In 2012, citrus sales were materially affected by weather damage. Management does not expect agriculture to be material once the Water Project is fully operational.
- Management reported effective disclosure controls and internal control over financial reporting; the independent auditor issued an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- Current status and outcome of the eight CEQA lawsuits, remaining approvals, and Metropolitan’s CRA conveyance requirements.
- Execution of definitive water purchase agreements with other participants, project economics, construction cost estimates, financing commitments, and the construction schedule.
- Actual cash runway and additional funding needs relative to management’s mid-2014 estimate, including the terms and availability of project-level financing.
- Debt balances, maturity and payment terms after the March 2013 refinancing, collateral and covenant terms, and potential share dilution from conversion at $8.05.
- Feasibility, permitting, and purchase-option status of the Cadiz–Barstow pipeline, and whether any conditional seller payment is triggered.
- Crop recovery and future agricultural revenue after the 2012 weather-related citrus losses.