SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1999
---------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 0-16130
-------
NORTHLAND CRANBERRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-1583759
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of Incorporation or organization) Identification No.)
800 First Avenue South
P.O. Box 8020
Wisconsin Rapids, Wisconsin 54495-8020
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (715)-424-4444
---------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
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 _____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes _____ No _____
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date:
Class A Common Stock January 12, 2000 19,702,221
- --------------------------------------------------------------------------------
Class B Common Stock January 12, 2000 636,202
- --------------------------------------------------------------------------------
NORTHLAND CRANBERRIES, INC.
FORM 10-Q INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets..........................3
Condensed Consolidated Statements of Income....................4
Condensed Consolidated Statements of Cash Flows................5
Notes to Condensed Consolidated
Financial Statements....................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................7-11
Item 3. Quantitative and Qualitative Disclosure About Market Risk.....11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..............................12
SIGNATURE.....................................................13
- 2 -
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- --------------------------------
NORTHLAND CRANBERRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
(Unaudited)
November 30, August 31,
1999 1999
------------ ----------
Current assets:
Cash and cash equivalents $ 801 $ 769
Accounts and notes receivable 37,018 35,453
Inventories 124,843 97,060
Prepaid expenses 6,141 3,870
Deferred income taxes 4,332 4,332
---------- ----------
Total current assets 173,135 141,484
Property and equipment - at cost 209,847 207,071
Less accumulated depreciation 39,846 37,651
---------- ----------
Property and equipment, net 170,001 169,420
Trademarks, tradenames and goodwill, net 40,813 41,074
Other assets 2,786 2,943
---------- ----------
Total assets $ 386,735 $ 354,921
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 24,257 $ 18,637
Accrued liabilities 21,203 9,925
Current portion of long-term debt 2,354 2,354
---------- ----------
Total current liabilities 47,814 30,916
Long-term debt 162,794 147,797
Deferred income taxes 15,853 15,655
Shareholders' equity:
Common stock - Class A, $.01 par value,
19,702,221 and 19,655,621 shares issued
and outstanding, respectively 197 196
Common stock - Class B, $.01 par value, 636,202
shares issued and outstanding 6 6
Additional paid-in capital 148,977 148,769
Retained earnings 11,094 11,582
---------- ----------
Total shareholders' equity 160,274 160,553
---------- ----------
Total liabilities and shareholders' equity $ 386,735 $ 354,921
========== ==========
See accompanying notes to condensed consolidated financial statements.
- 3 -
NORTHLAND CRANBERRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(Unaudited)
For the three months
ended November 30,
1999 1998
---------- ----------
Revenues $ 74,967 $ 34,236
Cost of sales 51,555 20,357
---------- ----------
Gross profit 23,412 13,879
Costs and expenses:
Selling, general and administrative 19,948 12,364
Interest 2,911 1,303
---------- ----------
Total costs and expenses 22,859 13,667
---------- ----------
Income before income taxes 553 212
Income taxes 232 92
---------- ----------
Net income $ 321 $ 120
========== ==========
Net Income Per Share:
Basic $ 0.02 $ 0.01
========== ==========
Diluted $ 0.02 $ 0.01
========== ==========
See accompanying notes to condensed consolidated financial statements.
- 4 -
NORTHLAND CRANBERRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(Unaudited)
For the three months
ended November 30,
1999 1998
-------------- --------------
Operating activities:
Net income $ 321 $ 120
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization of property and equipment 2,196 1,889
Amortization of tradenames, trademarks and goodwill 361 102
Provision for deferred income taxes 198 84
Changes in assets and liabilities:
Receivables, prepaid expenses and other current
assets (3,836) 389
Inventories (27,783) (26,971)
Accounts payable and accrued liabilities 16,898 13,252
-------------- --------------
Net cash used in operating activities (11,645) (11,135)
Investing activities:
Property and equipment purchases (2,777) (2,177)
Net decrease (increase) in other assets 58 (303)
-------------- --------------
Net cash used in investing activities (2,719) (2,480)
Financing activities:
Net increase in borrowings under revolving credit facilities 15,250 15,150
Payments on long-term debt (253) (784)
Dividends paid (809) (787)
Proceeds from exercise of stock options 208 214
-------------- --------------
Net cash provided by financing activities 14,396 13,793
Net increase in cash and cash equivalents 32 178
Cash and cash equivalents
Beginning of period 769 633
-------------- --------------
End of period $ 801 $ 811
============== ==============
Supplemental disclosures of cash flow information:
Cash paid for:
Interest (net of amount capitalized) $ 2,440 $ 827
Income taxes, net $ 813 $ 405
See accompanying notes to condensed consolidated financial statements.
- 5 -
NORTHLAND CRANBERRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 BASIS OF PRESENTATION
- ------------------------------
The condensed consolidated financial statements included herein have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. In the opinion of the Company, the
foregoing statements contain all adjustments necessary to present fairly the
financial position of the Company as of November 30, 1999, and its results of
operations and cash flows for the three-month periods ended November 30, 1999
and 1998, respectively. The Company's consolidated balance sheet as of August
31, 1999 included herein has been taken from the Company's audited financial
statements of that date included in the Company's latest annual report.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed financial statements can be
read in conjunction with the financial statements and the notes thereto included
in the Company's latest annual report.
The Company periodically reviews long-lived assets to assess recoverability
and impairments will be recognized in operating results if a permanent
diminution in value occurs.
NOTE 2 SUBSEQUENT EVENTS
- --------------------------
On January 5, 2000, we agreed to sell the inventory, raw materials,
contracts and intangible assets comprising our shelf-stable private label juice
business to Cliffstar Corporation. In consideration for these assets, Cliffstar
will give us an unsecured promissory note for $28 million bearing interest at a
rate of 7% per annum (subject to upward adjustment after three years), pay us
approximately $4 million in cash at the closing for inventory transferred to
Cliffstar, pay additional amounts pursuant to an earn out provision over a
period of six years from the closing date (which will be a minimum total of $5
million), and assume certain contractual obligations. At closing, we will enter
into a cranberry supply agreement, a cranberry sauce sales agreement and a
co-packing agreement whereby we will process certain juice products for
Cliffstar on a subcontract basis. Subsequent to the closing, we expect to
receive approximately $2 million per quarter for the remainder of the fiscal
year related to installment payments for additional inventories and payments on
the unsecured note. Our private label juice business represented approximately
$43 million of our $237 million in fiscal 1999 revenues. No plants or equipment
are included in the sale. We intend to close the transaction in February, 2000
or as soon as possible after the satisfaction of certain regulatory
requirements.
- 6 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
GENERAL
On January 5, 2000, we agreed to sell the inventory, raw materials,
contracts and intangible assets comprising our shelf-stable private label juice
business to Cliffstar Corporation. In consideration for these assets, Cliffstar
will give us an unsecured promissory note for $28 million bearing interest at a
rate of 7% per annum (subject to upward adjustment after three years), pay us
approximately $4 million in cash at the closing for inventory transferred to
Cliffstar, pay additional amounts pursuant to an earn out provision over a
period of six years from the closing date (which will be a minimum total of $5
million), and assume certain contractual obligations. At closing, we will enter
into a cranberry supply agreement, a cranberry sauce sales agreement and a
co-packing agreement whereby we will process certain juice products for
Cliffstar on a subcontract basis. Subsequent to the closing, we expect to
receive approximately $2 million per quarter for the remainder of the fiscal
year related to installment payments for additional inventories and payments on
the unsecured note. Our private label juice business represented approximately
$43 million of our $237 million in fiscal 1999 revenues. No plants or equipment
are included in the sale. We intend to close the transaction in February, 2000
or as soon as possible after the satisfaction of certain regulatory
requirements.
On December 30, 1998, we acquired the juice division of Seneca Foods
Corporation for approximately $28.7 million in cash, and assumed certain
liabilities in connection with the acquisition. The assets acquired included an
exclusive license to market and sell all Seneca brand fruit beverages, bottling
and packaging facilities located in New York, North Carolina and Wisconsin, a
distribution center in Michigan, and a receiving station in New York. The
purchase price is subject to a final working capital adjustment that has not
been finalized.
RESULTS OF OPERATIONS
Total revenues for the three months ended November 30, 1999 were $75.0
million, an increase of 119% over revenues of $34.2 million in the prior year's
first quarter. Since the acquisition of the juice division of Seneca was not
completed until the second quarter of fiscal 1999, this increase was primarily
due to sales of Seneca juice products during the first quarter of the current
year. Co-packing production, sales of private label products and sales of
Northland branded products also contributed to the increased revenues. Trade
industry data for the 12-week period ended November 7, 1999 showed that our
Northland brand 100% juice products achieved a 10.9% market share of the
supermarket shelf-stable cranberry beverage category on a national basis, down
from a 12.2% market share for the 12-week period ended November 8, 1998.
However, that decrease was offset by gains in market share as a result of the
successful launch of our Seneca brand cranberry juice product line, resulting in
a total combined market share of supermarket shelf-stable cranberry beverages
for our Northland and Seneca branded product lines of 12.6% for the 12-
- 7 -
week period ended November 7, 1999. We expect that the sale of our private label
business, if completed, will decrease the revenues we will realize in fiscal
2000 from the levels we could have expected had we not sold the private label
business.
Cost of sales for the first quarter of fiscal 2000 was $51.6 million
compared to $20.4 million for the first quarter of fiscal 1999, resulting in
gross margins of 31.2% and 40.5% in each respective period. The decrease in
gross margins in fiscal 2000 was primarily due to our changing product mix.
Fiscal 2000 revenues included a significant amount of lower margin private label
sales and contract co-packing revenues compared to minimal private label sales
and co-packing sales in fiscal 1999. Our gross margins during the remainder of
fiscal 2000 will be dependent upon our product mix and existing market
conditions, but may improve over gross margins in the first fiscal quarter of
2000 as a result of the sale of our private label business and anticipated
increases in Northland and Seneca branded product revenues as a result of our
planned second quarter media and marketing campaign and the continued rollout of
the Seneca brand cranberry juice products.
Selling, general and administrative expenses were $19.9 million, or 26.6%
of total revenues, for the three-month period ended November 30, 1999 compared
to $12.4 million, or 36.1% of total revenues, in the prior year's first fiscal
quarter. This increase in the dollar amount of selling, general and
administrative expenses was primarily attributable to (i) spending to support
the Seneca brand and the launch of a new Seneca line of cranberry juice
products; (ii) expenses in connection with private label and contract co-packing
sales; and (iii) costs related to our aggressive marketing campaign to support
the development and growth of our Northland and Seneca brand products. We do not
expect the sale of our private label business to result in any material changes
in our selling, general and administrative expenses as a percentage of sales.
However, we expect that our selling expenses may increase during the second and
third fiscal quarters as we commence aggressive media and marketing campaigns to
support sales of our branded products. We expect to spend approximately $6
million on this campaign, which will consist generally of television advertising
and in-store promotions.
Interest expense was $2.9 million for the three months ended November 30,
1999 compared to $1.3 million during the same period in fiscal 1999. This
increase generally resulted from increased debt levels to finance the December
1998 acquisition of Seneca's juice business, the March 1999 acquisition of
assets of Clermont, Inc. and to support increased levels of inventories. Net
income and per share earnings for the first quarter of fiscal 2000 were
$321,254, or $0.02 per share, up from fiscal 1999 first quarter net income and
per share earnings of $120,490, or $0.01 per share. Since we generally recognize
lower gross margins on our private label business, we do not expect a material
impact to net income on an ongoing basis as a result of the sale of our private
label business.
As of the date hereof, we have experienced no disruptions in the operation
of our internal information systems or other significant problems as a result of
the transition to the Year 2000. Nevertheless, we may experience such problems
in the future. With the exception of our accounting and distribution/order
tracking functions,
- 8 -
our operations are not heavily dependent on internal computer software or
embedded systems. As a result, based on currently-available information, we
continue to believe that any Year 2000 related disruptions that may occur in the
future will not have a material adverse impact on our results of operations.
However, there can be no assurance that such disruptions will not occur and will
not have a material adverse impact on our results of operations. We will
continue to monitor our exposure as appropriate and intend to act promptly to
resolve any problems that may occur. Additionally, we do not rely heavily on
third party vendors whose potential Year 2000 noncompliance would have a
material adverse effect on our results of operations. We are not aware that of
any of our vendors experienced any disruptions during their transitions to the
year 2000. In fiscal 1997 we replaced our internal accounting and distribution
hardware and software systems at a cost of approximately $350,000. We estimate
that our total additional costs associated with ensuring Year 2000 compliance
amounted to approximately $250,000.
FINANCIAL CONDITION
Net cash used by operating activities was $11.6 million in the first three
months of fiscal 2000 compared to $11.1 million in the same period in fiscal
1999. This increase was the result of increases in current assets and
liabilities in the ordinary course of business during the period. Net of
previously deferred crop costs, we experienced a seasonal increase in inventory
of $27.8 million due to the fall harvest of our crop, our purchase of raw
cranberries from other independent cranberry growers, our purchase of Concord
grapes from an independent growers' cooperative, and increased raw materials and
finished goods inventories to support our expanding branded and private label
juice sales. Accounts payable and other current liabilities increased $16.9
million primarily due to seasonal liabilities for purchased crop. Primarily as a
result of the increase in accounts payable and other current liabilities, our
current ratio decreased to 3.6 to 1.0 from 4.6 to 1.0 at August 31, 1999.
Working capital increased $14.7 million to $125.3 million at November 30, 1999
compared to working capital of $110.6 million at August 31, 1999.
Net cash used for investing activities increased slightly during the
three-month period ended November 30, 1999 to $2.7 million from $2.5 million
during the same period in the prior fiscal year.
Net cash provided by financing activities was $14.4 million in the
three-month period ended November 30, 1999, compared to $13.8 million during the
same period in the prior fiscal year. Our total long term debt increased by
$15.0 million in the first three months of fiscal 2000 primarily due to
increased borrowing on our revolving credit facility to finance our seasonal and
growth working capital needs. Our total debt (including current portion) was
$165.1 million at November 30, 1999 for a total debt-to-equity ratio of 1.03 to
1.00 compared to total debt of $150.2 million and a total debt-to-equity ratio
of 0.94 to 1.00 at August 31, 1999. We utilize our revolving bank credit
facility, together with cash generated from operations, to fund our working
capital requirements throughout the fiscal year. On December 29, 1999 (in the
second quarter of fiscal 2000), we amended our existing credit facility with a
syndicate of regional
- 9 -
banks to increase our revolving line of credit availability by $15 million to
$155 million until March 2002. As of November 30, 1999, the principal amount
outstanding under our revolving credit facility was $139.3 million. We believe
our existing credit facilities, together with cash generated from operations and
payments from the sale of our private label business, will be sufficient to fund
our ongoing operational needs for the remainder of fiscal 2000. We estimate the
sale of our private label business will result in a cash inflow of approximately
$4 million at the closing of the sale related to the sale of certain inventories
and approximately $2 million per quarter for the remainder of the fiscal year
related to installment payments for additional inventories and payments on the
unsecured note we will receive from Cliffstar as partial consideration for the
sale. We intend to use these payments to pay down existing debt levels or to
fund ongoing working capital requirements.
- 10 -
- --------------------------------------------------------------------------------
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
-------------------------------------------------
We make certain "forward-looking statements," in this Form 10-Q, including
statements about our future plans, goals and other events which have not yet
occurred. We intend that these statements will qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of 1995.
You can generally identify these forward-looking statements because the context
of such statements will include words such as "believes," "anticipates,"
"expects," or words of similar import. Whether or not these forward-looking
statements will be accurate in the future will depend on certain risks and
factors including risks associated with (i) development, market share growth and
continued consumer acceptance of our branded juice products; (ii) strategic
actions of our competitors in pricing, marketing and advertising; (iii)
aggressive spending to support our branded products; (iv) the results of the
sale of our private label business; (v) potential actions or marketing orders of
the Cranberry Marketing Committee of the United State Department of Agriculture;
and (vi) agricultural factors affecting our crop and the crop of other North
American growers. You should consider these risks and factors and the impact
they may have when you evaluate our forward-looking statements. We make these
statements based only on our management's knowledge and expectations on the date
of this Form 10-Q. We will not necessarily update these statements or other
information in this Form 10-Q based on future events or circumstances.
- --------------------------------------------------------------------------------
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
- ------------------------------------------------------------------
We have not experienced any material changes in our market risk since
August 31, 1999.
- 11 -
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
a. Exhibits
Exhibits filed with this Form 10-Q report are incorporated herein by
reference to the Exhibit Index accompanying this report.
b. Form 8-K
We did not file any reports on Form 8-K during the quarterly period to
which this Form 10-Q relates.
- 12 -
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned Chief Financial Officer thereunto duly authorized.
NORTHLAND CRANBERRIES, INC.
DATE: January 14, 2000 By: /s/ John Pazurek
----------------------------
John Pazurek
Chief Financial Officer
- 13 -
EXHIBIT INDEX
Exhibit No. Description
(4.1) First Amendment to Credit Agreement and Consent, dated as of May
1, 1999, by and among the Company, various financial institutions
and Firstar Bank Milwaukee, N.A. (now known as Firstar Bank,
N.A.), as Agent.
(4.2) Second Amendment to Credit Agreement and Consent, dated as of
December 29, 1999, by and among the Company, various financial
institutions and Firstar Bank, N.A., as Agent.
(10) Northland Cranberries, Inc. 2000 Incentive Bonus Plan.
(27) Financial Data Schedule
- 14 -