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 May 31, 1997
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 of (I.R.S. Employer Identification No.)
Incorporation or organization)
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 June 30, 1997 13,204,620
Class B Common Stock June 30, 1997 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 . . . . 4-5
Condensed Consolidated Statements of Cash Flow . . . . . . 6
Notes to Condensed Consolidated
Financial Statements . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 8-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 11
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . 12
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NORTHLAND CRANBERRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
(Unaudited)
May 31, August 31,
1997 1996
Current assets:
Cash and cash equivalents $ 186 $ 266
Accounts and notes receivable 8,635 2,631
Investments 1,260 1,260
Inventories 21,787 12,414
Other 1,460 922
Deferred income taxes 1,124 1,124
------- -------
Total current assets 34,452 18,617
------- -------
Property and equipment - at cost 159,959 141,098
Less accumulated depreciation 22,189 18,609
------- -------
Net property and equipment 137,770 122,489
Investments 58 1,260
Leasehold interests, net 1,079 1,197
Other 2,770 1,922
------- -------
Total assets $ 176,129 $ 145,485
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,458 $ 2,593
Accrued liabilities 5,099 5,914
Current portion of long-term
obligations 3,603 3,560
------- -------
Total current liabilities 10,160 12,067
Long-term obligations 79,669 56,978
Deferred income taxes 8,017 7,381
------- -------
Total liabilities 97,846 76,426
------- -------
Shareholders' equity:
Common stock - Class A 132 127
Common stock - Class B 6 6
Additional paid-in capital 67,788 60,184
Retained earnings 10,357 8,742
------- -------
Total shareholders' equity 78,283 69,059
------- -------
Total liabilities and
shareholders' equity $ 176,129 $ 145,485
======= =======
See accompanying notes to condensed consolidated financial statements
NORTHLAND CRANBERRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(Unaudited)
For the 3 months
ended May 31,
1997 1996
Revenues $10,377 $6,675
Cost of sales 5,060 2,772
------- -------
Gross profit 5,317 3,903
Costs and expenses:
Selling, general and administrative 3,676 1,808
Interest 1,247 660
------- -------
Total costs and expenses 4,923 2,468
------- -------
Income before income taxes 394 1,435
Income taxes 169 580
------- -------
Net income $ 225 $ 855
======= =======
Net income per common share (based
on 14,281,691 and 13,792,156
weighted average common shares
outstanding, respectively): $ 0.02 $ 0.06
======= =======
NORTHLAND CRANBERRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(Unaudited)
For the 9 months
ended May 31,
1997 1996
Revenues $34,810 $32,359
Cost of sales 16,233 13,748
------- -------
Gross profit 18,577 18,611
Costs and expenses:
Selling, general and administrative 10,010 4,108
Interest 3,156 1,998
------- -------
Total costs and expenses 13,166 6,106
------- -------
Income before income taxes 5,411 12,505
Income taxes 2,157 4,931
------- -------
Net income $ 3,254 $ 7,574
======= =======
Net income per common share (based
on 14,293,406 and 13,753,408
weighted average common shares
outstanding, respectively): $ 0.23 $ 0.55
======= =======
NORTHLAND CRANBERRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(Unaudited)
For the 9 months
ended May 31,
1997 1996
Cash flows from operating activities:
Net income $3,254 $7,574
Adjustments to reconcile net income to
net cash provided by (used for)
operating activities:
Depreciation and amortization 3,792 2,942
Changes in assets and liabilities:
Receivables and other current
assets (6,542) (3,082)
Inventories (9,373) (2,549)
Accounts payable and accrued
liabilities (1,496) 1,673
Deferred income taxes 1,631 2,888
-------- --------
Net cash provided by (used
for) operating activities (8,734) 9,446
-------- --------
Investing activities:
Acquisitions of cranberry operations (7,025) (2,050)
Property and equipment additions, net (6,603) (9,863)
Investments 1,202 1,259
Other (810) (332)
-------- --------
Net cash used for investing
activities (13,236) (10,986)
-------- --------
Financing activities:
Increase (decrease) in debt 22,734 (1,798)
Dividends paid (1,639) (1,391)
Net proceeds from common
stock offering -- 4,016
Exercise of stock options 985 --
Other (190) 534
-------- --------
Net cash provided by
financing activities 21,890 1,361
-------- --------
Net decrease in cash and
cash equivalents (80) (179)
Cash and cash equivalents:
Beginning of period 266 361
-------- --------
End of period $ 186 $ 182
======== ========
Supplemental disclosures of cash
flow information:
Cash paid for:
Interest (net of amount capitalized) $ 2,698 $ 1,548
======== ========
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 May 31, 1997,
and its results of operations and cash flows for the three- and nine-month
periods ended May 31, 1997 and 1996, respectively. The Company's
consolidated balance sheet as of August 31, 1996 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 were to occur.
NOTE 2 STOCK SPLIT
On June 26, 1996, the Company's Board of Directors authorized a
two-for-one stock split effected in the form of a 100% stock dividend
distributed on September 3, 1996, to shareholders of record on August 15,
1996. Shareholders' equity has been adjusted by reclassifying from
additional paid-in capital to common stock the par value of the additional
shares arising from the split. In addition, all references in the
financial statements to share and per share amounts for periods prior to
the distribution of the stock dividend have been restated to retroactively
reflect the stock dividend.
NOTE 3 ACQUISITIONS
On September 27, 1996, the Company acquired a 108-acre cranberry
property located in northern Wisconsin. The total cost of the acquisition
was $4.9 million in cash and 169,014 shares of the Company's Class A
Common Stock. On December 30, 1996, the Company acquired a 73-acre
cranberry property located in central Wisconsin. The total cost of the
acquisition was $2.2 million in cash and 100,000 shares of the Company's
Class A Common Stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total revenues for the three months ended May 31, 1997 were
$10.4 million compared to $6.7 million in the prior year's quarter. Total
revenues for the nine months ended May 31, 1997 were $34.8 million
compared to $32.4 million during the same period in the prior fiscal year.
Sales of the Company's Northland 100% juice cranberry blends continued to
increase during the fiscal 1997 third quarter as the Company continued its
national product roll-out strategy and also experienced sales growth in
existing markets, resulting in increased fiscal 1997 revenues. In April
1997 the Company announced that its pending acquisition of a private label
juice bottler and distributor was abruptly and unexpectedly terminated by
the seller for undisclosed reasons, apparently unrelated to Northland or
the terms and conditions of the acquisition. The completion of this
acquisition would have immediately established Northland as a very
significant supplier of private label cranberry juice products. Based on
its expectations that this acquisition would be consumated, the Company
took a number of actions to conserve its supply of cranberries and to
delay its own entry into the private label cranberry juice market. The
sudden and unexpected termination of the planned acquisition resulted in
the Company's inability to convert a significant amount of raw frozen
fruit inventory into revenues during the reporting period. That inventory
currently remains in the Compnay's freezer and will contribute to future
revenues as it is utilized in the production of the Company's branded
juice, cranberry juice concentrate and other value added products.
For the three- and nine-month periods ended May 31, 1997, cost
of sales were $5.1 million and $16.2 million, respectively, or 48.8% and
46.6% of total revenues for each respective period. During the same
periods in fiscal 1996, cost of sales were $2.8 million and $13.7 million,
respectively, or 41.5% and 42.5% of total revenues for each respective
period. As the Company continues the implementation of its "marsh to
market" business strategy, its product mix is changing from only selling
raw fruit to marketing and selling value-added processed cranberry
products. As a result of the substantially changed nature of the
Company's business and product mix, cost of sales comparisons between
periods are not particularly meaningful or informative.
For the three- and nine-month periods ended May 31, 1997,
selling, general and administrative expenses were $3.7 million and $10.0
million, respectively, or 35.4% and 28.8% of total revenues for each
respective period. During the same three- and nine-month periods in
fiscal 1996, selling, general and administrative expenses were $1.8
million and $4.1 million, respectively, or 27.1% and 12.7% of total
revenues for each respective period. This expected increase between years
in selling, general and administrative expenses was primarily attributable
to costs related to the ongoing implementation of the Company's "marsh to
market" business strategy, including the continued rollout of its branded
juice product line. The Company has committed to a major national media
campaign and other significant promotional activities in support of its
branded juice rollout in the fiscal 1997 fourth quarter. As the Company
continues the national roll-out of its juice products, it is likely that
selling, general and administrative expenses, as a percentage of total
revenue, will increase.
Interest expense was $1.2 million for the three-month period
ended May 31, 1997 compared to $660,000 during the same period in fiscal
1996. For the nine months ended May 31, 1997, interest expense was $3.2
million compared to $2.0 million during the same period in fiscal 1996.
The increase in interest expense was due to increased debt levels, which
resulted from funding marsh acquisitions, property and equipment additions
and seasonal operating activities.
The Company reported fiscal 1997 third quarter net income of
$225,000, or $0.02 per share . Fiscal 1996 third quarter net income was
$855,000, or $0.06 per share (on a post-stock split basis). For the nine-
months ended May 31, 1997, the Company reported net income of $3.3
million, or $0.23 per share. Fiscal 1996 net income was $7.6 million, or
$0.55 per share. Because of the actions taken by the Company to conserve
its supply of cranberries and to delay its entry into the private label
cranberry juice markets, in anticipation that the acquisition of the
private label juice bottler and distributor would be completed, the
Company is reporting lower than expected revenues and, as a result,
substantially lower than expected fiscal 1997 earnings. Fiscal 1997
fourth quarter promotional spending to support the national rollout of the
Company's branded juice product line is expected to further reduce
earnings and is anticipated to result in a net loss for that period,
although the Company will still report a profit for the fiscal year.
FINANCIAL CONDITION
Net cash used in operating activities of $8.7 million in the
first nine months of fiscal 1997, compared to $9.4 million provided by
operating activities in the same period in fiscal 1996, is the result of
the Company's changing business nature and lower than expected third
quarter earnings. In fiscal 1996, the Company presold the majority of its
crop under fixed price contracts to cranberry product processors in its
first quarter and received full payment for the sales in its third
quarter. Under the Company's "marsh to market" business strategy, the
Company stored the majority of its fiscal 1997 crop supply in its freezer
facility to support sales throughout its fiscal year, resulting in
significant increases in inventory and accounts receivable at May 31,
1997. The Company's current ratio was 3.39 to 1.00 at May 31, 1997
compared to a current ratio of 1.54 to 1.00 at August 31, 1996.
Net cash used for investing activities increased during the
nine-month period ended May 31, 1997 to $13.2 million from $11.0 million
during the same period in the prior fiscal year. The increase in fiscal
1997 investing activities was due primarily to the Company's acquisition
of two cranberry properties during the nine-month period ended May 31,
1997. On September 27, 1996 the Company acquired a 108-acre cranberry
property located in northern Wisconsin. The total cost of the acquisition
was $4.9 million in cash and 169,014 shares of the Company's Class A
Common Stock. On December 30, 1996, the Company acquired a 73-acre
cranberry property located in central Wisconsin. The total cost of the
acquisition was $2.2 million in cash and 100,000 shares of the Company's
Class A Common Stock. Other fiscal 1997 property and equipment additions
were $6.6 million compared to property and equipment additions of $9.9
million in fiscal 1996.
Net cash provided by financing activities was $21.9 million in
the nine-month period ended May 31, 1997, compared to $1.4 million during
the same period in the prior fiscal year. The increase was primarily due
to a $22.7 million increase in the Company's long-term debt. The
Company's debt increased as a result of financing the $7.1 million cash
portion of its fiscal 1997 cranberry marsh acquisitions, $6.6 million in
property and equipment additions and $9.0 million for seasonal operating
activities. The Company's total debt (including current portion) was
$83.3 million at May 31, 1997 for a total debt-to-equity ratio of 1.06 to
1 compared to total debt of $60.5 million and a total debt-to-equity ratio
of 0.88 to 1 at August 31, 1996. The Company utilizes its revolving bank
credit facility, together with cash generated from operations, to fund its
working capital requirements throughout its fiscal year. As of May 31,
1997, the principal amount outstanding under the Company's revolving
credit facility was $37.0 million, with an additional $8.0 million
available under its credit facilities with a syndicate of regional banks
until September 1999. The Company believes its credit facilities,
together with cash generated from operations, are sufficient to fund its
ongoing operational needs over the remainder of fiscal 1997.
On May 8, 1997, the Company entered an agreement in principle to
acquire the stock of Atoka Cranberries, Inc. Atoka, based in Quebec,
Canada, has a total of 424 planted cranberry acres in various stages of
maturity on 2,700 acres of land. The purchase price of the transaction is
U.S. $28.5 million, payable $13 million in cash, with the remainder in
Northland convertible notes. The notes will bear interest at 7%, mature
and be payable in five years and will be convertible into one share of
Northland Class A Common Stock for each $20 of principal amount, or an
aggregate of 775,000 current shares upon full conversion (approximately 5%
of current fully dilutive post conversion shares).
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Management's
Discussion and Analysis of Financial Condition and
Results of Operations are "forward-looking statements"
intended to qualify for the safe harbors from
liability established by the Private Securities
Litigation Reform Act of 1995. These forward-looking
statements can generally be identified as such because
the context of the statement will include such words
as the Company "believes," "anticipates," "expects,"
or words of similar import. Similarly, statements
that describe the company's future plans, objectives
or goals are also forward-looking statements. Such
forward-looking statements are subject to certain
risks and uncertainties which are described in close
proximity to such statements and which could cause
actual results to differ materially from those
currently anticipated. Shareholders, potential
investors and other readers are urged to consider
these factors carefully in evaluating the forward-
looking statements and are cautioned not to place undo
reliance on such forward-looking statements. The
forward-looking statements made herein are only made
as of the date of this Form 10-Q and the Company
undertakes no obligation to publicly update such
forward-looking statements to reflect subsequent
events or circumstances.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 3.1 - Amendments to the By-Laws of Northland
Cranberries, Inc.
Exhibit 3.2 - By-Laws of Northland Cranberries, Inc., as Amended
Exhibit 27 - Financial Data Schedule
b. Form 8-K
No reports on Form 8-K were filed by the Company during the
quarterly period to which this Form 10-Q relates.
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: July 14, 1997 By: /s/ John Pazurek
John Pazurek
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Description
3.1 Amendments to the By-Laws of Northland Cranberries, Inc.
3.2 By-Laws of Northland Cranberries, Inc., as Amended
27 Financial Data Schedule