SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended August 31, 2001
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 0-16130
Northland Cranberries, Inc.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1583759
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 First Avenue South
P. O. Box 8020
Wisconsin Rapids, Wisconsin 54495-8020
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (715) 424-4444
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Class A Common
Stock, $.01 par value
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of November 30, 2001:
$3,313,344
Number of shares issued and outstanding of each of the registrant's classes of
common stock as of November 30, 2001:
Class A Common Stock, $.01 par value: 49,826,455 shares
PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED HEREIN BY REFERENCE:
Proxy Statement for 2002 annual meeting of shareholders (to be filed with the
Commission under Regulation 14A within 120 days after the end of the
registrant's fiscal year and, upon such filing, to be incorporated by reference
into Part III, to the extent indicated therein).
We adopted Emerging Issues Task Force ("EITF") Issue No. 00-14, "Accounting
for Certain Sales Incentives" and Issue No. 00-25, "Accounting for Consideration
from a Vendor to a Retailer in Connection with the Purchase or Promotion of the
Vendor's Products," effective in the fourth quarter of fiscal 2001. Under these
new accounting standards, sales incentives provided to retailers (which we refer
to as "trade spending and slotting") and consumer coupons are reported as a
reduction in net revenues. Prior to adoption of these new accounting standards,
we reported these costs as selling, general and administrative expenses. We
reclassified our prior year consolidated financial statements to conform to
these new requirements.
In the section of Item 7 of our Annual Report on Form 10-K for the year
ended August 31, 2001 titled "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Quarterly Results," we presented a table to
show the amounts reclassified as a reduction in net revenues from selling,
general and administrative expenses to reflect the accounting changes described
in the preceding paragraph. We subsequently determined that the amounts
reclassified for each quarter of fiscal 2001 were inaccurate. The
reclassification error had no effect on the amount of income (loss) before taxes
or net income (loss) for any quarter. The reclassification error only impacted
the unaudited fiscal 2001 quarterly information for net revenue, gross profit
(loss) and selling, general and administrative expenses and did not impact the
amounts we reported in our consolidated statement of operations for the year
ended August 31, 2001. As a result, Item 7 of our Annual Report on form 10-K for
the year ended August 31, 2001 is amended to present in the section titled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results," the corrected amounts and to include quarterly
selling, general and administrative expense amounts for fiscal 2001 and 2000,
not previously provided.
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations.
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Results of Operations
General
During fiscal 2001, we continued to experience substantial difficulty
generating sufficient cash flow to meet our obligations on a timely basis. We
failed to make certain scheduled monthly interest payments under our revolving
credit facility, and were not in compliance with several provisions of our
former revolving credit agreement and other long-term debt agreements as of the
end of the fiscal year. We were often delinquent on various payments to third
party trade creditors and others. The industry-wide cranberry oversupply
continued to negatively affect cranberry prices. Continued heavy price and
promotional discounting by Ocean Spray and other regional branded competitors
throughout fiscal 2001, combined with our inability to fund a meaningful
marketing campaign, resulted in lost distribution and decreased market share of
our products in various markets. We had reached the maximum in our line of
credit and were not able to obtain any additional financing. As a result of
these and other factors, we incurred a large net loss for fiscal 2001. Some of
these other factors included:
o An oversupply of cranberries resulting from three consecutive nationwide
bumper crops culminating with the 1999 harvest, followed by what we believe
was an inadequate volume regulation under the USDA cranberry marketing
order for the 2000 crop year, resulted in continued large levels of excess
cranberry inventories held by us and other industry participants. As a
result, the per barrel price for cranberries continued to decline through
the first quarter of fiscal 2001 and, while the per barrel price has
subsequently increased, it has not recovered to the extent we anticipated.
As a result of these factors, our cost to grow the fall 2001 crop and the
cost of on-hand inventories, including costs to be incurred, were in excess
of market value, and we determined that it was necessary to write down the
carrying value of our cranberry inventory by approximately $17.6 million in
the fourth quarter of fiscal 2001. See "--Fiscal 2001 compared to Fiscal
2000-Cost of Sales."
o We sold our private label sauce business and a related manufacturing
facility to Clement Pappas in June 2001 in a cash transaction. Our private
label sauce business and co-packing sold from the
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facility generated net revenues of approximately $7.8 million, $14.1
million and $9.0 million in fiscal 2001, 2000 and 1999, respectively. See
"--Fiscal 2001 Compared to 2000-Revenues."
o In the fourth quarter of fiscal 2001, as a result of the deterioration in
the long-term prospects for the cranberry growing and processing industry
over the summer due, in part, to the implementation of what we believe was
another inadequate volume regulation under a USDA cranberry marketing order
for the 2001 calendar year crop, continued large levels of excess cranberry
inventories held by us and other industry participants, forecasted future
cranberry market prices for the next several years, as well as continued
reductions in our anticipated cranberry and cranberry concentrate usage
requirements related to our recent decline in revenues and market share, we
decided to restructure our operations and identify various long-lived
assets to be disposed of, and we concluded that the estimated future cash
flows of our long-lived assets were below the carrying value of such
assets. Accordingly, during the quarter, we recorded an impairment charge
of approximately $80.1 million related to writedowns to assets held for
sale, property and equipment held for use, and goodwill and other
intangible assets in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." See "--Fiscal 2001
Compared to 2000--Writedown of Long-Lived Assets Held for Sale."
Although we were successful in retaining distribution in many markets, the
lack of sufficient working capital limited our ability to promote our products.
We reached the point where we felt it was imperative to reach an agreement with
our then-current bank group and to refinance our bank debt, or else we believed
we were faced with liquidating or reorganizing the company in a bankruptcy
proceeding in which our creditors would have likely received substantially less
value than we felt they could receive in a restructuring transaction and our
shareholders would have likely been left holding shares with no value.
On November 6, 2001, we consummated the Restructuring. Generally speaking,
in the Restructuring, Sun Northland entered into certain Assignment, Assumption
and Release Agreements with members of our then-current bank group which gave
Sun Northland, or its assignee, the right to acquire our indebtedness held by
members of our then-current bank group in exchange for a total of approximately
$38.4 million in cash, as well as our issuance of a promissory note in the
principal amount of approximately $25.7 million and 7,618,987 Class A shares to
certain bank group members which decided to continue as our lenders after the
Restructuring. Sun Northland did not provide the foregoing consideration to our
former bank group; instead, Sun Northland entered into the Purchase Agreement
with us, pursuant to which Sun Northland assigned its rights to those
Assignment, Assumption and Release Agreements to us and gave us $7.0 million in
cash, in exchange for (i) 37,122,695 Class A shares, (ii) 1,668,885 Series A
Preferred shares (each of which will convert automatically into 25 Class A
shares upon adoption of an amendment to our articles of incorporation increasing
our authorized Class A shares, and each of which currently has 25 votes), and
(iii) 100 shares of our newly created Series B Preferred Stock. which were
subsequently transferred to a limited liability company controlled by our Chief
Executive Officer. Using funding provided by our new secured lenders and Sun
Northland, we acquired a substantial portion of our outstanding indebtedness
from the members of our then-current bank group (under the terms of the
Assignment, Assumption and Release Agreements that were assigned to us by Sun
Northland) in exchange for the consideration noted above, which resulted in the
forgiveness of approximately $81.5 million (for financial reporting purposes) of
our outstanding indebtedness (or approximately $89.0 million of the aggregate
principal and interest due the then-current bank group as of the date of the
Restructuring). We also issued warrants to acquire an aggregate of 5,086,106
Class A shares to Foothill Capital Corporation and Ableco Finance LLC, which
warrants are immediately exercisable and have an exercise price of $.01 per
share.
As a result of the Restructuring, Sun Northland controls approximately
94.4% of our total voting power through (i) the Class A shares and Series A
Preferred shares we issued to Sun Northland, and (ii) the additional 7,618,987
Class A shares over which Sun Northland exercises voting control pursuant to a
Stockholders' Agreement that we entered into with Sun Northland and other
shareholders in connection with the Restructuring. Assuming conversion of the
Series A Preferred shares and full vesting over time of the
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options to acquire Class A shares that we issued to key employees in the
Restructuring, Sun Northland owns approximately 77.5% of our fully-diluted Class
A shares.
We believe that the Restructuring will provide us with sufficient working
capital and new borrowing capacity to once again aggressively market and support
the sale of our Northland and Seneca brand juice products in fiscal 2002.
Additionally, we adopted Emerging Issues Task Force ("EITF") Issue No.
00-14, "Accounting for Certain Sales Incentives" and Issue No. 00-25,
"Accounting for Consideration from a Vendor to a Retailer in Connection with the
Purchase or Promotion of the Vendor's Products," effective in the fourth quarter
of fiscal 2001. Under these new accounting standards, the cost of sales
incentives provided to retailers (which we refer to as "trade spending and
slotting") and consumer coupons are reported as a reduction in net revenues. We
previously reported these costs as selling, general and administrative expenses.
We reclassified prior year consolidated financial statements to conform to the
new requirements, and as a result, approximately $59.2 million and $35.6 million
of amounts previously reported as selling, general and administrative expenses
during the years ended August 31, 2000 and 1999, respectively, have been
reclassified and reported as a reduction of net revenues.
With our new debt and equity capital structure following the Restructuring,
we feel we are in a position to build on the operational improvements we put in
place in fiscal 2001. Our focus for fiscal 2002 is on improving our cash
position and results of operations through a balanced marketing approach with an
emphasis on profitable growth.
Fiscal 2001 Compared to Fiscal 2000
Net Revenues. Our total net revenues decreased 39.2% to $125.8 million in
fiscal 2001 from $207.0 million in fiscal 2000. The decrease resulted primarily
from (i) reduced sales of Northland and Seneca branded products, which we
believe resulted primarily from our change in promotional and pricing strategies
and reduced marketing spending; (ii) reduced co-packing revenue from a major
customer that during the first quarter of fiscal 2001 switched from an
arrangement where we purchased substantially all of the ingredients and sold the
customer finished product to a fee for services performed arrangement; (iii) the
sale of our private label juice business in March 2000; and (iv) the sale of our
cranberry sauce business and a manufacturing facility in June 2001, which
reduced co-packing revenue and revenue from cranberry sauce sales. Trade
spending, slotting and consumer coupons, which is reported as a reduction of net
revenues instead of as a selling, general and administrative expense (see
"--General," above), was down 72.0% to $16.6 million in fiscal 2001 from $59.2
million in fiscal 2000.
Industry data indicated that, for the 12-week period ended September 9,
2001, our Northland brand 100% juice products achieved a 6.0% market share of
the supermarket shelf-stable cranberry beverage category on a national basis,
down from a 10.9% market share for the 12-week period ended September 10, 2000.
Market share of our Seneca brand cranberry juice product line for the same
period decreased from approximately 2.7% to approximately 0.4%, resulting in a
total combined market share of supermarket shelf-stable cranberry beverages for
our Northland and Seneca branded product lines of approximately 6.4% for the
12-week period ended September 9, 2001, down from approximately 13.6% for the
12-week period ended September 10, 2000. We anticipate our sales and market
share in the first quarter of fiscal 2002 will continue to reflect decreases
from the prior year. However, with the equity capital we received in the
Restructuring, we plan to increase advertising spending in the remaining
quarters of fiscal 2002, and we anticipate our new spending levels will help to
reverse the declining sales and market share trends for our Northland and Seneca
brands in fiscal 2002.
Cost of Sales. Our cost of sales for fiscal 2001 was $115.5 million
compared to $253.4 million in fiscal 2000, resulting in gross margins of 8.2%
and (22.4)%, respectively. The decrease in cost of sales resulted primarily from
reduced sales of Northland and Seneca branded products, the elimination of costs
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associated with production of private label juice products and reduced costs for
reduced sauce and co-packing revenues. Additionally, the decrease resulted from
the change during the first quarter of fiscal 2001 in our arrangement with a
significant co-packing customer from an arrangement where we purchased
substantially all of the ingredients and sold the customer finished product to a
fee for services performed arrangement. The improved margins in fiscal 2001 were
also favorably impacted by improved manufacturing efficiencies and cost
controls.
We continue to participate in a highly competitive industry characterized
by aggressive pricing policies, changing demand patterns and downward pressures
on gross margins resulting from an excess supply of raw cranberries and
cranberry concentrate, which has resulted in prices paid to growers which are
generally less than production costs. Because our cost to grow the fall 2001
crop and the cost of on-hand inventories, including costs to be incurred, was in
excess of market value, we wrote down the carrying value of our cranberry
inventory by approximately $17.6 million in the fourth quarter of fiscal 2001,
and by approximately $57.4 million in fiscal 2000. These charges were also based
on management's best estimates of future product sale prices and consumer demand
patterns. In fiscal 2000, we also recognized a restructuring charge of $1.9
million related to costs associated with closing our Bridgeton, New Jersey plant
and associated employee termination related costs. Our gross profit without
taking into account the effects of these items would have been $27.9 million and
$12.9 million in fiscal 2001 and fiscal 2000, respectively, which would have
resulted in gross margins of 22.2% in fiscal 2001 and 6.2% in fiscal 2000.
Selling, General and Administrative Expenses. Our selling, general and
administrative expenses were $25.5 million, or 20.3% of net revenues, in fiscal
2001, compared to $53.7 million, or 25.9% of net revenues, in fiscal 2000. The
$28.2 million reduction in our selling, general and administrative expenses in
fiscal 2001 was primarily due to (i) a general lack of available cash to fund a
meaningful advertising campaign, which resulted in significant reductions in
advertising and other marketing and sales promotion expenses compared to fiscal
2000 (in which we incurred greater marketing and promotional expenses to support
the Seneca brand and the launch of a new Seneca line of cranberry juice
products, as well as undertook an aggressive marketing campaign to support
development and growth of our Northland brand products); (ii) significant
revisions to our trade promotional practices to reflect our new focus away from
growing sales and market share and toward more profitable operations; (iii) a
reduction in personnel costs resulting from our restructuring efforts; and (iv)
a reduction in personnel costs and selling commissions resulting from our
alliance with Crossmark. The decrease in our selling, general and administrative
expenses was partially offset by increases in outside professional fees incurred
in connection with developing a "turnaround" plan for our operations,
negotiating the terms of our credit facilities with our lenders, related
covenant defaults and forbearance agreements, and continuing efforts to seek
additional or alternative debt and equity financing.
We expect that selling, general and administrative expenses will increase
in fiscal 2002 primarily as a result of increased advertising as well as fees
for financial advisory services under our new management services agreement with
an affiliate of Sun Northland, partially offset by further planned reductions in
expenses related to our continuing internal restructuring efforts.
Writedown of Long-Lived Assets and Assets Held for Sale. We periodically
evaluate the carrying value of property and equipment and intangible assets in
accordance with SFAS No. 121. Long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the assets' carrying
values may not be recoverable. In the fourth quarter of fiscal 2001, for the
reasons discussed above under "--General," we restructured our operations and
identified certain long-lived assets to be held for sale. We also concluded that
the estimated future cash flows of our long-lived assets were below the carrying
value of such assets. Accordingly, during the fourth quarter of fiscal 2001 and
in accordance with SFAS No. 121, we recorded an impairment charge of
approximately $80.1 million related to writedowns to assets held for sale,
property and equipment held for use, and goodwill and other intangible assets.
During the year ended August 31, 2000, we recorded an impairment writedown of
$6.0 million related to a closed facility that is held for sale (see Notes 6 and
7 of Notes to Consolidated Financial Statements).
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Gain (Loss) on Disposal of Property and Equipment. In fiscal 2001, we
recognized a $2.1 million gain associated with the sale of the net assets of our
private label sauce business and a manufacturing facility in Mountain Home,
North Carolina, as well as certain property and equipment. In fiscal 2000, we
recorded a $2.2 million gain associated with the sale of the net assets of our
private label juice business and certain property and equipment.
Interest Expense. Our interest expense was $18.9 million for fiscal 2001,
compared to $14.6 million in fiscal 2000. The increase in our interest expense
was due to increased debt levels between periods and higher interest rates
during 2001 due in part to revised terms of our revolving credit facility as a
result of our defaults thereunder. The weighted average interest rate on our
borrowings for fiscal 2001 was approximately 10.6%. See "Financial Condition"
below. We expect that, as a result of significant debt forgiveness in the
Restructuring as well as the generally more favorable terms of our new secured
debt arrangements, interest expense will decline in fiscal 2002.
Interest Income. Our interest income was $2.7 million in fiscal 2001 and
$1.4 million in fiscal 2000. Interest income was recognized primarily as a
result of an unsecured, subordinated promissory note we received in connection
with the sale of our private label juice business in March 2000.
Income Tax Benefit (Expense). In 2001 we recognized income tax benefits of
$34.9 million. Of this amount, $2.1 million resulted from certain refunds
received in 2001 related to farm loss carrybacks. The balance resulted from the
recognition of a tax benefit of $32.8 million for certain net operating loss
carryforwards expected to be utilized for financial reporting purposes during
the first quarter of fiscal 2002 related to forgiveness of certain indebtedness
(see Notes 9 and 14 of Notes to Consolidated Financial Statements). In fiscal
2000, we recorded a tax benefit of $12.0 million. Future deferred income tax
benefits of approximately $38.4 million have not been recognized at August 31,
2001 because of concerns with respect to realization of those benefits. The
"change of ownership" provisions of the Tax Reform Act of 1986 will
significantly restrict the utilization of all net operating loss and tax credit
carryforwards that remain after the debt and equity restructuring. See Note 11
of Notes to Consolidated Financial Statements.
Fiscal 2000 Compared to Fiscal 1999
Net Revenues. Our total net revenues for fiscal 2000 increased 2.8% to
$207.0 million from $201.3 million during fiscal 1999. The private label juice
business, which we sold to Cliffstar, had revenues of approximately $23.6
million and $40.3 million for the years ended August 31, 2000 and 1999,
respectively. The increased revenues for fiscal 2000 were primarily due to the
effects of a full year of sales of our Seneca branded products, which we
acquired on December 30, 1998, as well as increases over the prior year period
in our co-packing sales and sales to the foodservice channels, all offset by the
loss of revenue related to the private label juice business that we sold.
Industry data indicated that, for the 12-week period ended September 10,
2000, 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 12.8% market share for the 12-week period ended September 12, 1999.
Market share of our Seneca brand cranberry juice product line for the same
period increased from approximately 0.6% to approximately 2.7%, resulting in a
total combined market share of supermarket shelf-stable cranberry beverages for
our Northland and Seneca branded product lines of approximately 13.6% for the
12-week period ended September 10, 2000, up from approximately 13.4% for the
12-week period ended September 12, 1999.
During fiscal 2000, sales of concentrate and bulk frozen fruit decreased
primarily due to continued intense price competition resulting from the recent
industry-wide record cranberry harvests. Co-packing sales increased in fiscal
2000 primarily as a result of increasing volume with established customers.
Trade spending, slotting and consumer coupons, which are deducted from net
revenues, increased from $35.6 million in 1999 to $59.2 million in 2000.
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Cost of Sales. Our cost of sales for fiscal 2000 was $253.4 million
compared to $152.5 million in fiscal 1999, with gross margins of (22.4)% and
24.2%, respectively. The increase was primarily the result of a pre-tax lower of
cost or market inventory adjustment of $57.4 million and a $1.9 million pre-tax
restructuring charge, consisting primarily of plant closing and employee
termination related costs at our Bridgeton, New Jersey manufacturing facility.
The closing was intended to improve profitability by eliminating overcapacity
and streamlining production operations. Cost of sales without taking into
account the effects of these items would have been $194.1 million for the year
ended August 31, 2000, which would have resulted in a gross margin of 6.2%. In
addition to these charges, cost of sales increased primarily as a result of (i)
charges for inventory obsolescence as a result of the introduction of new
products including our 27% Solution; (ii) expenses associated with the operation
of marshes on which management decided, as a result of the federal marketing
order, not to grow cranberries in fiscal 2000; (iii) the inclusion of a full
year of sales of Seneca brand products; and (iv) changing product mix, including
increased lower margin co-packing sales. The decrease in our gross margin for
fiscal 2000 was primarily due to the lower of cost or market inventory
adjustment, the restructuring charge and industry pricing pressure.
Selling, General and Administrative Expenses. Our selling, general and
administrative expenses were $53.7 million, or 25.9%, of net revenues for fiscal
2000, compared to $31.0 million, or 15.4% of net revenues, during the prior
fiscal year. The increase in our selling, general and administrative expenses
was attributable primarily to (i) continued aggressive promotional and marketing
strategies intended to support the development and growth of our Northland brand
100% juice products and our Seneca brand products in an increasingly competitive
marketplace; (ii) costs associated with problems encountered in the conversion
of our internal information systems; (iii) expenses associated with the process
of exploring strategic alternatives and preparing a turnaround plan for our
operations; and (iv) expenses associated with the national introduction of our
new easy grip bottle. Fiscal 2000 advertising expenses in support of our branded
products totaled $14.1 million compared to $10.6 million in fiscal 1999. In
addition, in the fourth quarter of fiscal 2000, we also took a $0.4 million
restructuring charge related to employee termination benefits in connection with
the restructuring of our sales organization as a result of our agreement with
Crossmark.
Gain (Loss) on Disposals of Business and Property and Equipment. In fiscal
2000, we recognized a $2.2 million gain associated with the sale of the net
assets of our private label juice business and certain property and equipment.
Interest Expense. Interest expense was $14.6 million for fiscal 2000
compared to $8.6 million during fiscal 1999. The increase in our interest
expense was due to increased debt levels during most of the year, which resulted
from funding previous acquisitions and increased working capital needs, as well
as certain costs related to, and increased interest rates on, our revolving
credit facility following renegotiation of the terms of the facility in the
third quarter. We also utilized our revolving credit facility to fund increased
levels of inventory, accounts receivable and operating losses, as well as
seasonal operating activities.
Interest Income. In fiscal 2000, we recognized $1.4 million in interest
income associated with a $28 million unsecured, subordinated promissory note we
received in connection with the sale of our private label juice business.
Income Tax Benefit (Expense). Due to our net loss, we realized a $12
million income tax benefit in fiscal 2000. We also provided for a valuation
allowance of $30.8 million for deferred income tax assets, as it was more likely
that not that such assets would not be realized. In fiscal 1999, we recorded
income tax expense of $3.6 million.
Financial Condition
Fiscal 2001. In fiscal 2001 (prior to the Restructuring), net cash provided
by operating activities was $4.7 million, compared to net cash used in operating
activities in fiscal 2000 of $30.9. The $74.5 million net loss for 2001 included
non-cash charges of (i) $80.1 million for writedowns of long-lived
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assets; (ii) $17.6 million of inventory lower of cost or market adjustments; and
(iii) $9.7 million in depreciation and amortization. Receivables, prepaid
expenses and other current assets decreased $10.3 million from August 31, 2000
as a result of declining revenue levels, which provided us additional cash to
pay down accounts payable and accrued liabilities. Inventory decreased $5.6
million, net of the $17.6 million non-cash lower of cost or market adjustment,
due primarily to reduced raw materials and finished goods inventories caused by
fewer distribution centers and improved inventory management. Working capital
increased $173.1 million to $31.6 million at August 31, 2001 from a deficiency
of $(141.5) million at August 31, 2000. This improvement was due primarily to
the classification at fiscal year end of amounts outstanding under our debt
arrangements as long-term in accordance with our new financing arrangements
secured on November 6, 2001 and certain obligations which were subsequently
forgiven or exchanged for common stock. In addition, we recognized a $32.8
million current deferred income tax asset that is expected to be realized during
the first quarter of fiscal 2002. Our current ratio exclusive of the current
deferred income tax asset increased to 1.0 to 1.0 at August 31, 2001 from 0.4 to
1.0 at August 31, 2000.
At August 31, 2000 and throughout fiscal year 2001, we were in default
under our loan agreements, had no borrowing capacity under our revolving credit
facility, operated under forbearance agreements with our major secured lenders
and generally experienced an extremely difficult cash flow situation.
Additionally, we are currently in default under the terms of our grower
contracts (see Note 13 of notes to Consolidated Financial Statements). In
September 2000, we were unable to make certain payments due to the growers under
the terms of the contracts and we notified the growers of our intention to defer
payments required under the contracts for the 2000 calendar year crop. The
contracted growers did, however, harvest and deliver their 2000 and 2001
calendar year crops to us and we made all the rescheduled payments required by
the contracts through August 31, 2001. We are in process of pursuing amended
payment terms under the contracts and are seeking waivers from the growers.
Net cash provided by investing activities was $14.8 million in fiscal 2001
compared to $4.0 million in fiscal 2000. Collections on the note receivable from
Cliffstar were $1.8 million in fiscal 2001 versus $0.3 million in fiscal 2000.
Property and equipment purchases decreased from $5.4 million in fiscal 2000 to
$0.4 million in fiscal 2001. Proceeds from disposals of businesses, property and
equipment and assets held for sale was $13.4 million in fiscal 2001 compared to
$8.7 million in fiscal 2000, and consisted primarily of the sale of the private
label sauce business and Mountain Home, North Carolina manufacturing facility in
fiscal 2001, and the sale of our private label juice business in fiscal 2000.
Our net cash used in financing activities was $18.2 million in fiscal 2001
compared to net cash provided by financing activities of $26.3 million in fiscal
2000. We repaid $15.7 million of principal on our revolving credit facility in
2001, primarily from proceeds from disposals of the private label sauce business
and related property and equipment. In fiscal 2000, we borrowed an additional
$31.0 million on this bank revolving credit facility which brought us up to the
maximum available credit limit. In fiscal 2000 we paid dividends on our common
stock of $2.4 million; however, we suspended dividend payments on our common
stock indefinitely following the third quarter dividend payment in fiscal 2000.
Subsequent to the Restructuring. As part of the Restructuring, we entered
into an Amended and Restated Credit Agreement with certain members of our former
bank group which evidences, among other things, our obligation to repay the
revised term loan of approximately $25.7 million that we issued to those
creditors in the Restructuring. Payments on the revised term loan are due
monthly based on the prime interest rate, as defined, plus 1% (6% as of November
6, 2001) applied against the outstanding stated principal balance, with an
additional $1.7 million payable on November 6, 2002 and additional monthly
payments of approximately $133,000 due commencing on December 1, 2003 and
continuing to through October 1, 2006, with a final payment of approximately
$19.3 million due on November 1, 2006. The revised term loan is collateralized
by specific assets, and we are required to make certain mandatory prepayments to
the extent of any net proceeds received from the sale of such assets or to the
extent that a note received in connection with the sale of such assets, or
assets previously sold, is collected. The future cash payments required under
the Restructured Bank Note are to be applied against the adjusted carrying value
of the Restructured Note, with
8
generally no interest expense recognized for financial reporting purposes, in
accordance with SFAS No. 15, as long as we make the scheduled payments in
accordance with the Restructured Bank Note and there are no changes to the
interest rate.
Additionally, we entered into a Loan and Security Agreement on November 6,
2001 with Foothill Capital Corporation and Ableco Finance LLC. Under this loan
agreement, Foothill and Ableco provided us with two term loans, each in the
principal amount of $10 million, and a new $30 million revolving credit
facility. The term loans and the credit facility mature and/or expire on
November 6, 2006, and interest accrues on the outstanding principal balance
thereunder at the greater of 7.0% or the prime rate, as defined, plus 1%.
Quarterly principal payments of $625,000, plus additional principal payments
equal to (i) the quarterly principal payments received on Cliffstar's promissory
note in excess of $625,000 and (ii) all earnout payments received under the
asset purchase agreement between us and Cliffstar, are due on the first term
loan. Monthly principal payments of $166,667 are due on the second term loan.
The debt is collateralized by specific assets.
In addition to the Restructuring, we also restructured and modified the
terms of approximately $20.7 million in outstanding borrowings under two term
loans with an insurance company, consolidating those two term loans into one new
note with a stated principal amount of approximately $19.1 and a stated interest
rate of 5% for the first two years of the note, increasing by 1% annually
thereafter, with a maximum interest rate of 9% in the sixth and final year. The
note is payable in monthly installments of approximately $186,000 commencing
December 1, 2001, adjusted periodically as the stated interest rate increases,
with a final payment of approximately $11.6 million due November 1, 2007. The
effective interest rate to be recognized for financial reporting purposes will
approximate 4.5%. The note is collateralized by specific assets.
We also renegotiated the terms of our unsecured debt arrangements with
certain of our larger unsecured creditors, resulting in the cancellation of
approximately $3.5 million of additional indebtedness previously owing to those
creditors that will be recognized as an extraordinary gain, net of legal fees,
other direct costs and income taxes, in the first quarter of fiscal 2002.
We also issued fee notes to Foothill and Ableco in the aggregate principal
amount of $5 million, which are payable in full on November 6, 2006. The fee
notes will be discounted for financial reporting purposes and charged to
operations as additional interest expense over the terms of the related debt.
As also required by the Purchase Agreement, we entered into a Management
Services Agreement with Sun Capital Partners Management, LLC, an affiliate of
Sun Northland, pursuant to which Sun Capital Partners Management, LLC will
provide various financial and management consulting services to us in exchange
for an annual fee (which is paid in quarterly installments) equal to the greater
of $400,000 or 6% of our EBITDA (as defined therein), provided that the fee may
not exceed $1 million a year unless approved by a majority of our directors who
are not affiliates of Sun Capital Partners Management, LLC. This agreement
terminates on the earlier of November 6, 2008 or the date on which Sun Northland
and its affiliates no longer own at least 50% of our voting power.
We anticipate that we will recognize an extraordinary gain on the
forgiveness of indebtedness of approximately $83.5 million during the first
quarter of fiscal 2002, net of our best estimate of the amount of legal fees and
other direct costs incurred and the estimated fair value of the Class A shares
issued to the banks in the Restructuring. For financial reporting purposes, the
$83.5 million anticipated gain on the forgiveness of indebtedness will be
reported net of income taxes, which are estimated to approximate $32.8 million,
resulting in a net extraordinary gain of approximately $50.7 million. Such
estimated amounts are expected to be known and finalized by the date we report
our consolidated operating results for the first quarter of fiscal 2002.
The extraordinary gain, combined with the additional equity contributed by
Sun Capital, the common stock issued to the participating banks and the warrants
issued to Foothill and Abelco is estimated to provide us with approximately
$57.4 million of additional stockholders' equity which was received during the
first quarter of our fiscal 2002.
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As of November 30, 2001, we had outstanding borrowings of $9.9 million
under our $30 million revolving credit facility with Foothill and Ableco. We
believe that we will be able to fund our ongoing operational needs for the
remainder of fiscal 2002, and the foreseeable future through (i) cash generated
from operations; (ii) financing available under our revolving credit facility
with Foothill and Ableco; (iii) intended actions to reduce our near-term working
capital requirements; and (iv) additional measures to reduce costs and improve
cash flow from operations.
As of November 30, 2001, we were in compliance with all of our new debt
arrangements.
Pro-Forma Financial Position. We have set forth below an unaudited,
pro-forma condensed consolidated balance sheet which reflects our pro-forma
financial position on August 31, 2001 as if the Restructuring occurred on that
date. The information in the table does not represent historical data and is not
presented in conformity with accounting principles generally accepted in the
United States of America. Rather, it is intended solely to provide a brief
summary of what our financial position would have been on August 31, 2001 had
the Restructuring occurred on that date. You should not rely on this information
as indicative of what our actual financial position will be at any future date.
Pro-Forma Condensed Consolidated Balance Sheet
(unaudited)
Assets: August 31, 2001
Current Assets $ 51,300
Long-Term Assets 101,100
-----------
Total Assets $ 152,400
===========
Liabilities and Shareholders' Equity:
Current Liabilities $ 52,930
Long-Term Debt 65,570
-----------
Total Liabilities 118,500
Shareholders' Equity 33,900
-----------
Total Liabilities and Shareholders' Equity $ 152,400
===========
After giving effect to the Restructuring, our pro-forma condensed
consolidated balance sheet as of August 31, 2001 reflects total debt (including
the current portion) of $97.1 million for a total debt to equity ratio on a
pro-forma basis of 2.9 to 1.0 compared to total debt of $181.0 million and debt
to equity ratio of 3.4 to 1.0 at August 31, 2000. Our current ratio on a
pro-forma basis decreased to 1.0 to 1.0 from 1.6 to 1.0 at August 31, 2001 based
on our actual financial position.
We arrived at the information reflected in the pro-forma condensed
consolidated balance sheet presented above by reflecting various adjustments
resulting from the Restructuring as if the Restructuring had occurred on August
31, 2001. These adjustments included (i) our new financing with Foothill and
Ableco; (ii) the restructuring of our former bank debt; (iii) the equity
investment by Sun Northland; (iv) the restructuring of our debt with an
insurance company; and (v) settlements of various other vendor obligations. In
addition, we reflected all transaction costs incurred in the Restructuring and
the tax impacts of the Restructuring. Finally, we revised the current and
long-term portion of debt to the amounts that would have existed had the
Restructuring occurred on August 31, 2001.
Depending upon our future sales levels and relative sales mix of products
during fiscal 2002, we expect our working capital requirements to fluctuate
periodically during fiscal 2002.
10
Quarterly Results
Our quarterly results in fiscal 2001 varied significantly from comparative
quarters in the prior fiscal year and from quarter to quarter during fiscal
2001:
Net revenues continued to decline in fiscal 2001. This trend was directly
related to our actions to refocus our trade promotional strategies to emphasize
profitability, as opposed to generating revenue growth, and our lack of media
advertising due to our cash position.
Our significant losses before income taxes in the fourth quarter of fiscal
2001 resulted from a $17.6 million lower of cost or market inventory adjustment
and an $80.1 million charge for impairment of long-lived assets and assets held
for sale. The second quarter of fiscal 2000 included a $27.0 million lower of
cost or market inventory adjustment, and the fourth quarter of fiscal 2000
included a $30.4 million lower of cost or market inventory adjustment and
additional charges, including an $8.3 million charge associated with certain
internal restructuring efforts, which included an impairment charge of $6.0
million.
Our quarterly results will likely continue to fluctuate in fiscal 2002 and
will likely cause comparisons with prior quarters to be unmeaningful, largely
because (i) while we anticipate significant increases in marketing and trade
promotional spending during future quarterly periods, such spending may vary
based on then current market and competitive conditions and other factors; (ii)
we anticipate revenues to increase even as we focus our promotional strategies
on returning to profitable operations; and (iii) we expect to continue to
realize cost savings from our internal restructuring efforts.
The following table contains unaudited selected historical quarterly
information, which includes adjustments, consisting only of normal recurring
adjustments (except for (i) during the quarter ended August 31, 2001, we
recorded an inventory lower of cost or market adjustment of $17.6 million to
cost of sales and an $80.1 million charge for impairment of long-lived assets
and assets held for sale; (ii) during the quarter ended February 29, 2000, we
recorded an inventory lower of cost or market adjustment of $27.0 million to
cost of sales; (iii) during the quarter ended August 31, 2000, we recorded a
lower of cost or market inventory adjustment of $30.4 million, a $6.0 million
charge for impairment of long-lived assets and assets held for sale, and a
restructuring charge of $1.9 million to cost of sales and $0.4 million to
selling, general and administrative expenses; (iv) during the quarters ended
August 31, 2001 and May 31, 2000, we recognized gains on the disposals of
certain private label businesses and related property and equipment of $1.7
million and $2.1 million, respectively; and (v) during the quarter ended August
31, 2001, we recorded an income tax benefit of $32.8 million related to certain
net operating loss carryforwards which will be utilized to offset debt
forgiveness income as a result of the Restructuring), that we considered
necessary for a fair presentation:
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Fiscal Quarters Ended
(In thousands, except per share data)
Fiscal 2001 Fiscal 2000
--------------------------------------------- ---------------------------------------------
Aug. 31, May 31, Feb. 28, Nov. 30, Aug. 31, May 31, Feb. 29, Nov. 30,
2001 2001 2001 2000 2000 2000 2000 1999
--------- --------- --------- --------- --------- --------- --------- ---------
Net revenues (1) $ 27,378 $ 27,333 $ 29,405 $ 41,710 $ 33,997 $ 52,675 $ 58,703 $ 61,645
Gross profit (loss) (1) (13,341) 6,498 7,327 9,846 (55,482) 13,353 (14,338) 10,090
Selling, general and
administrative expenses $ (7,629) $ (5,178) $ (6,638) $ (6,077) $(13,664) $(16,683) $(16,682) $ (6,625)
Writedowns of long-lived
assets and assets held
for sale (1) (80,125) (6,000)
(Loss) income before taxes (103,742) (2,406) (3,445) 188 (78,602) (4,410) (34,512) 553
Net (loss) income $(70,942) $ (2,406) $ (1,353) $ 188 $(79,846) $ (4,410) $(21,036) $ 321
Net income per
share-diluted: (2)
Weighted average shares
outstanding 5,085 5,085 5,085 5,085 5,085 5,085 5,085 5,076
Net (loss) income per
share $ (13.95) $ (0.47) $ (0.27) $ 0.04 $ (15.70) $ (0.87) $ (4.14) $ 0.06
Cash dividends per
share: (2)
Per Class A share 0.160 0.160 0.160
Per Class B share 0.145 0.145 0.145
(1) Amounts previously reported have been reclassified to conform with the new accounting standards adopted in the fourth
quarter with respect to accounting for sales incentives provided to retailers (which we refer to as trade spending
and slotting) and consumer coupons as described in Note 1 of Notes to Consolidated Financial Statements. The cost of
such items, which were previously reported as selling, general and administrative expenses, have been reclassified
and reported as reductions in net revenues. Certain other amounts previously reported have been reclassified to
conform to the current presentation.
(2) All share and per share data has been restated to give effect to our November 5, 2001 one-for-four reverse stock
split. Effective following the third quarter dividend payment in fiscal 2000, we indefinitely suspended dividend
payments on our common stock.
Certain amounts previously reported have been reclassified as discussed in footnote (1) to the table above. The
following table sets forth a reconciliation of such previously reported amounts.
Fiscal Quarters Ended
(In thousands)
Fiscal 2001 Fiscal 2000
--------------------------------------------- ---------------------------------------------
Aug. 31, May 31, Feb. 28, Nov. 30, Aug. 31, May 31, Feb. 29, Nov. 30,
2001 2001 2001 2000 2000 2000 2000 1999
--------- --------- --------- --------- --------- --------- --------- ---------
Net revenues as previously
reported $ 30,281 $ 32,447 $ 44,762 $ 61,206 $ 61,417 $ 68,621 $ 74,967
Reclassification adjustments (2,948) (3,042) (3,052) (27,209) (8,742) (9,918) (13,322)
Net revenues as reported $ 27,378 $ 27,333 $ 29,405 $ 41,710 $ 33,997 $ 52,675 $ 58,703 $ 61,645
Gross profit (loss) as
previously reported $ 10,599 $ 11,960 $ 14,603 $(34,273) $ 22,095 $ (4,420) $ 23,412
Reclassification adjustments (4,101) (4,633) (4,757) (21,209) (8,742) (9,918) (13,322)
Gross profit (loss) as
reported $(13,341) $ 6,498 $ 7,327 $ 9,846 $(55,482) $ 13,353 $(14,338) $ 10,090
Selling, general and
administrative expenses $ (9,279) $(11,271) $(10,834) $(40,873) $(25,425) $(26,600) $(19,947)
Reclassification adjustments 4,101 4,633 4,757 27,209 8,742 9,918 13,322
Selling, general and
administrative expenses
as reported $ (7,629) $ (5,178) $ (6,638) $ (6,077) $(13,664) $(16,683) $(16,682) $(6,625)
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Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this amendment to
report to be signed on its behalf by the undersigned, thereunto duly authorized.
NORTHLAND CRANBERRIES, INC.
Date: January 23, 2002 By: /s/ John Swendrowski
------------------------------------
John Swendrowski
Chairman of the Board and
Chief Executive Officer
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