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 February 29, 2000
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 AND 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________to ________
Commission File Number 0-16130
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NORTHLAND CRANBERRIES, INC.
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(Exact name of registrant as specified in its charter)
Wisconsin 39-1583759
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
800 First Avenue South
P.O. Box 8020
Wisconsin Rapids, Wisconsin 54495-8020
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(Address of Principal Executive Offices)
Registrant's telephone number, including area code (715) 424-4444
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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 April 13, 2000 19,702,221
Class B Common Stock April 13, 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 Operations...................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.......................... 7-9
Item 3. Quantitative and Qualitative Disclosure About
Market Risk...................................................10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..............11
Item 6. Exhibits and Reports on Form 8-K.................................12
SIGNATURE.................................................................13
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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NORTHLAND CRANBERRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
(Unaudited)
February 29, August 31,
2000 1999
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Current assets:
Cash and cash equivalents $ 62 $ 769
Accounts and notes receivable 28,772 35,453
Inventories 107,150 97,060
Prepaid expenses 6,384 3,870
Deferred income taxes 2,313 4,332
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Total current assets 144,681 141,484
Property and equipment - at cost 212,276 207,071
Less accumulated depreciation 42,137 37,651
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Property and equipment, net 170,139 169,420
Trademarks, tradenames and goodwill, net 40,073 41,074
Other assets 2,763 2,943
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Total assets $ 357,656 $ 354,921
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,887 $ 18,637
Accrued liabilities 12,307 9,925
Current portion of long-term debt 2,540 2,354
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Total current liabilities 48,734 30,916
Long-term debt 170,495 147,797
Deferred income taxes -- 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 (accumulated deficit) (10,753) 11,582
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Total shareholders' equity 138,427 160,553
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Total liabilities and shareholders' equity $ 357,656 $ 354,921
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See accompanying notes to the condensed financial statements.
3
NORTHLAND CRANBERRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(Unaudited)
For the three For the six
months ended months ended
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
------------ ------------ ----------- ------------
Revenues $68,621 $54,955 $143,588 $89,337
Cost of sales 73,041 34,730 124,596 55,234
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Gross profit (loss) (4,420) 20,225 18,992 34,103
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Costs and expenses:
Selling, general and administrative 26,600 18,108 46,547 30,470
Interest 3,492 1,987 6,403 3,290
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Total costs and expenses 30,092 20,095 52,950 33,760
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Income (loss) before income taxes (34,512) 130 (33,958) 343
Income taxes (benefit) (13,476) 63 (13,244) 155
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Net income (loss) $(21,036) $ 67 $(20,714) $ 188
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Net income (loss) per share:
Basic $ (1.04) $ 0.00 $ (1.02) $ 0.01
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Diluted $ (1.04) $ 0.00 $ (1.02) $ 0.01
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See accompanying notes to the condensed consolidated financial statements.
4
NORTHLAND CRANBERRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(Unaudited)
For the six months ended
February February
29, 2000 28, 1999
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Operating activities:
Net income(loss) $ (20,714) $ 188
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization of property and equipment 4,487 3,681
Amortization of tradenames, trademarks and goodwill 1,252 493
Provision (benefit) for deferred income taxes (13,636) 187
Inventory lower of cost or market adjustment 27,000 --
Changes in assets and liabilities
(net of effects of business acquisition):
Receivables and prepaid expenses 4,166 (9,835)
Inventories (38,046) (28,397)
Accounts payable and accrued liabilities 19,140 1,821
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Net cash used in operating activities (16,351) (31,862)
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Investing activities:
Acquisition of business -- (29,281)
Property and equipment purchases (4,471) (3,737)
Other (546) (518)
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Net cash used in investing activities (5,017) (33,536)
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Financing activities:
Net increase in borrowings under revolving credit facilities 23,300 68,450
Payments on long-term debt (1,227) (1,460)
Dividends paid (1,621) (1,577)
Proceeds from exercise of stock options 209 359
Other -- (35)
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Net cash provided by financing activities 20,661 65,737
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Net (decrease) increase in cash and cash equivalents (707) 339
Cash and cash equivalents
Beginning of period 769 633
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End of period $ 62 $ 972
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Supplemental cash flow information:
Cash paid for:
Interest (net of amounts capitalized) $ 6,067 $ 3,178
Income taxes, net $ 846 $ 12
See accompanying notes to the condensed consolidated financial statements.
5
NORTHLAND CRANBERRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 BASIS OF PRESENTATION
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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 February 29, 2000, the results of its
operations for the three-month and six-month periods ended February 29, 2000 and
February 28, 1999, respectively, and its cash flows for the six-month periods
ended February 29, 2000 and February 28, 1999, 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
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GENERAL
On March 8, 2000, after the end of our fiscal second quarter, we sold the
inventory, raw materials, contracts and intangible assets comprising our private
label juice business to Cliffstar Corporation in return for Cliffstar's
promissory note for $28 million, bearing interest at a rate of 10% per annum,
and approximately $6.3 million in cash related to inventory transferred to
Cliffstar on the closing date. We are also entitled to receive approximately $4
million in installment payments over the remainder of fiscal 2000 for cranberry
concentrate sold to Cliffstar. We may also receive additional amounts pursuant
to an earn out provision over a period of six years from the closing date. We
also entered into a co-packing agreement with Cliffstar pursuant to which we
will process certain juice products for Cliffstar, as well as a cranberry
purchase agreement pursuant to which Cliffstar will purchase cranberries from us
for use in its juice products. No plants or equipment were included in the sale.
Our private label juice business represented approximately $43 million of the
Company's $237 million in fiscal 1999 revenues and approximately $19 million of
the Company's $144 million in revenues for the first six months of fiscal 2000.
As a result of the sale, we expect to realize an after-tax gain of approximately
$1.2 million, or approximately $0.06 per share, in the third quarter of fiscal
2000.
On March 30, 2000, the Cranberry Marketing Committee forwarded a
recommendation to the U.S. Secretary of Agriculture to invoke a marketing order
that would limit the amount of fruit that could be harvested and delivered to
handlers during the domestic 2000 crop year. The recommendation consisted of a
maximum producer allotment of approximately 85% of a grower's average historical
harvest. The recommendation, if approved, would limit the total 2000 cranberry
crop to approximately 5.4 million barrels. We cannot determine whether or to
what extent this order, if adopted, would impact our results of operations.
RESULTS OF OPERATIONS
Total revenues for the three months ended February 29, 2000 were $68.6
million, a 24.9% increase over revenues of $55.0 million in the prior year's
second quarter. Revenues for the six-month period ended February 29, 2000
increased 60.7% to $143.6 million from $89.3 million during the same period in
fiscal 1999. The increased revenues were primarily due to the effects of a full
six months of sales of our Seneca branded products, as well as increases over
the prior year period in our co-packing sales and sales to the foodservice
channels. Trade industry data for the 12-week period ended February 27, 2000
showed that our Northland brand 100% juice products achieved an 11.1% market
share of the supermarket shelf-stable cranberry beverage category on a national
basis, down from a 12.8% market share for the 12-week period ended February 28,
1999. However, that decrease was offset by gains in market share as a result of
our 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 13.6% for the
12-week period ended February 27, 2000.
In the second quarter of fiscal 2000, we took a $27.0 million pre-tax,
non-cash, lower of cost or market charge to cost of sales which resulted in
reducing the carrying value of our cranberry inventory to market value. The
charge amounted to an $0.81 per share loss on an after-tax basis. The write-down
was required under generally accepted accounting principles as a result of (i)
the rapid decline in per-barrel prices of cranberries from $85 only two years
ago to around $20 or less today caused by three straight industry record
cranberry crops; (ii) our historical fixed price cranberry crop purchase
contracts with other growers that locked in these higher prices to growers who
delivered their cranberries to us; and (iii) the increased levels of competitive
price discounting and selling activities necessary to sell product in the
marketplace. We have revised our cranberry crop purchase agreements so that our
cranberry crop purchase pricing now adjusts to correspond with then current
cranberry market prices. Additionally, the Cranberry Marketing Committee has
recently recommended a federal marketing order for adoption which, if adopted,
could reduce the industry-wide cranberry crop for the year 2000 from the levels
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS (CONT.)
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that would have otherwise existed. We cannot determine whether or to what extent
this marketing order, if adopted, would impact our results of operations. We
expect that the inventory write-down will reduce the cost of sales of our
branded cranberry juice products, positively impacting gross margins in the
future.
Cost of sales for the second quarter of fiscal 2000 was $73.0 million
compared to $34.7 million for the second quarter of fiscal 1999, resulting in
gross margins of (6.4)% and 36.8% in each respective period. Cost of sales for
the six-month period ended February 29, 2000 was $124.6 million compared to
$55.2 million in the same period in fiscal 1999, yielding gross margins of 13.2%
and 38.2%, respectively. Cost of sales without taking into account the effects
of the inventory write-down would have been $46.0 million and $97.6 million for
the three- and six-month periods ended February 29, 2000, which would have
resulted in gross margins of 32.9% and 32.0%, respectively. The decrease in
gross margin in fiscal 2000 was primarily due to the lower of cost or market
inventory write-down. We expect that our gross margins during the remainder of
fiscal 2000 should be higher due to lower cost of goods sold resulting from the
inventory write-down and the recent sale of our private label juice business.
However, our gross margins will continue to be dependent upon our relative
product mix and competitive market conditions.
Additionally, in the second quarter of fiscal 2000, we took a pre-tax $3.8
million charge to earnings (selling, general and administrative expense) in
order to provide for certain uncollectible accounts receivable related to
unauthorized customer deductions and discounts. The charge amounted to an
approximate $0.11 per share loss on an after-tax basis. We intend to continue to
pursue collection of these amounts where it is cost effective to do so.
Selling, general and administrative expenses were $26.6 million, or 38.8%
of total revenues, for the three-month period ended February 29, 2000 compared
to $18.1 million, or 33.0% of total revenues in the prior year's second fiscal
quarter. Selling, general and administrative expenses were $46.5 million, or
32.4% of total revenues, for the six-month period ended February 29, 2000,
compared to $30.5 million, or 34.1% of total revenues, during the same period in
the prior fiscal year. This increase in selling, general and administrative
expenses was primarily attributable to (i) the provision for uncollectible
accounts receivable discussed above; (ii) costs related to our aggressive
marketing campaign to support the development and growth of our Northland brand
100% juice products and Seneca brand juice products; (iii) expenses to support
our Seneca brand; (iv) one-time unanticipated expenses associated with the
national introduction of our new easy grip bottle; and (v) other increased
expenses and materials costs. We expect to continue to spend heavily on support
and development of our brand through the remainder of fiscal 2000 in light of
the expected continued heavy price discounting and promotional activity by our
competition.
Interest expense was $3.5 million and $6.4 million for the three- and
six-month periods ended February 29, 2000 compared to $2.0 million and $3.3
million during the same periods in fiscal 1999. The increase in our interest
expense was largely due to increased debt levels during the three-and six-month
periods as a result of funding previous acquisitions and increased working
capital needs.
Net loss and per share loss for the three- and six-month periods ended
February 29, 2000 were $21,036,000, or $1.04 per share, and $20,714,000, or
$1.02 per share, respectively, compared to fiscal 1999 second quarter and first
six months' net income and per share earnings
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS (CONT.)
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of $67,000, or $0.00 per share, and $188,000, or $0.01 per share, respectively.
Approximately $16.5 million of the net after-tax loss was attributable to the
non-cash inventory market write-down. Approximately $2.3 million of the net
after-tax loss was attributable to the provision for uncollectible receivables
related to unauthorized customer deductions and discounts. Approximately $2.2
million and $1.9 million of the net loss was attributable to operations in the
three- and six-month periods ended February 29, 2000, respectively.
FINANCIAL CONDITION
Net cash used for operating activities was $16.4 million in the first six
months of fiscal 2000 compared to $31.9 million used for operating activities in
the same period in fiscal 1999. Net cash used for operating activities during
the first six months of fiscal 2000 was the result of increases in current
assets exceeding increases in current liabilities during the period. Inventory
increased $11.0 million, net of the $27.0 million non-cash lower of cost or
market adjustment, due primarily 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 juice sales. Accounts
receivable and other current assets decreased $4.2 million primarily due to
changes in collection practices and reduced sales. Accounts payable and accrued
liabilities increased $19.1 million due primarily to increased inventory levels
and marketing spending. Working capital decreased $14.6 million to $95.9 million
at February 29, 2000 compared to working capital of $110.5 million at August 31,
1999. Our current ratio decreased to 3.0 to 1.0 from 4.6 to 1.0 at August 31,
1999.
Net cash used for investing activities decreased during the six-month
period ended February 29, 2000 to $5.0 million from $33.5 million during the
same period in the prior fiscal year. The decrease was principally the result of
the acquisition of the Seneca juice business in fiscal 1999.
Net cash provided by financing activities was $20.7 million in the
six-month period ended February 29, 2000, compared to $65.7 million during the
same period in the prior fiscal year. Our debt increased $22.1 million in the
first six months of fiscal 2000 primarily due to cash used in operations and
purchases of property and equipment. Our total debt (including current portion)
was $173.0 million at February 29, 2000 for a total debt-to-equity ratio of 1.25
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. As of February 29, 2000, the
principal amount outstanding under our new revolving credit facility was $147.4
million, with an additional $7.6 million available under our credit facilities.
Effective in the second quarter of fiscal 2000, we obtained a waiver from our
syndicate of bsnks of certain covenant defaults under our credit facility that
resulted primarily from the write-down of inventory. Additionally, we agreed to
modification of certain covenants related to our performance in the third and
fourth quarters of this fiscal year. We believe we will likely need to continue
to renegotiate the terms of our credit facility prior to the end of this fiscal
year. We believe that our credit facilities, together with cash generated from
operations and our intended actions to reduce our near-term working capital
requirements, should be sufficient to fund our ongoing operational needs for the
upcoming third fiscal quarter.
9
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
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We make certain "forward-looking statements," in this Form 10-Q, including
statements about our future plans, goals and other events that 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) the ultimate adoption and implementation
of marketing orders of the Cranberry Marketing Committee of the United States
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.
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We have not experienced any material changes in our market risk since
August 31, 1999.
10
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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At the Company's annual meeting of shareholders held on January 5, 2000,
John C. Seramur, Jeffrey J. Jones, John Swendrowski, Patrick F. Brennan, Robert
E. Hawk, LeRoy J. Miles and Pat Richter were elected as directors of the Company
for terms expiring at the 2001 annual meeting of shareholders and until their
successors are duly qualified and elected. As of the November 19, 1999 record
date for the annual meeting, 19,702,221 shares of Class A Common Stock and
636,202 shares of Class B Common Stock were outstanding and eligible to vote. Of
these, 17,753,177 shares of Class A Common Stock and all shares of Class B
Common Stock voted at the meeting in person or by proxy. Class A shares are
entitled to one vote each, while Class B shares are entitled to three votes
each. The following table sets forth certain information with respect to the
election of directors at the annual meeting:
Shares
Name of Nominee Shares Voted For Withholding Authority
--------------- ---------------- ---------------------
John C. Seramur 19,484,480 177,303
Jeffrey J. Jones 19,486,537 175,246
John Swendrowski 19,484,847 176,936
Patrick F. Brennan 19,485,300 176,483
Robert E. Hawk 19,480,558 181,225
LeRoy J. Miles 19,486,102 175,681
Pat Richter 19,477,815 183,968
11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
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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. We filed the following reports on Form 8-K
during the third quarter of fiscal 2000 through the date of this Quarterly
Report on Form 10-Q:
Date Filed Date of Report Item
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March 8, 2000 March 7, 2000 Item 5 - Announcement of
Retention of Investment
Bankers, Earnings Charge and
Earnings Results
March 23, 2000 March 8, 2000 Item 2 - Disposition of Private
Label Juice Business
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: April 14, 2000 By: /s/ John Pazurek
--------------------
John Pazurek
Chief Financial Officer
13
EXHIBIT INDEX
Exhibit No. Description
4.1 Collateral Pledge Agreement, dated April 13, 2000.
4.2 Third Amendment to Credit Agreement and Limited
Waiver, dated effective February 29, 2000, by and among
Northland Cranberries, Inc., various financial institutions
and Firstar Bank, N.A., as agent.
27 Financial Data Schedule
14