Selected Financial Data
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
----------------------------------------------------------------------------------------
Five Months
Year Ended August 31 Ended Fiscal Years Ended March 31(1)
Statement of Operations Data: August 31,
------------------------- ------------------------------
1998 1997 1996 1995(1) 1995 1994
- ---------------------------------------- --------------- ---------------- ---------------- ------------- -------------- ------------
Revenues $ 112,828 $ 47,375 $ 37,608 $ 891 $ 21,784 $ 18,051
Cost of sales 62,475 23,171 16,517 1,401 13,057 8,751
- ---------------------------------------- --------------- --------------- -------------- --------------- -------------- -------------
Gross profit (loss) 50,353 24,204 21,091 (510) 8,727 9,300
Costs and expenses:
Selling, general and administrative 38,752 15,963 7,020 1,908 2,440 2,046
Interest 6,826 4,493 2,657 1,919 3,654 2,394
- ---------------------------------------- --------------- --------------- -------------- --------------- -------------- -------------
Total costs and expenses 45,578 20,456 9,677 3,827 6,094 4,440
- ---------------------------------------- --------------- --------------- -------------- --------------- -------------- -------------
Income (loss) before income taxes
and change in accounting method 4,775 3,748 11,414 (4,337) 2,633 4,860
Income taxes 1,920 1,516 4,509 (1,689) 1,051 1,917
Change in accounting method -- -- -- 1,249 -- --
- ---------------------------------------- --------------- --------------- -------------- --------------- -------------- -------------
Net income (loss) $ 2,855 $ 2,232 $ 6,905 $ (1,399) $ 1,582 $ 2,943
- ---------------------------------------- --------------- --------------- -------------- --------------- -------------- -------------
Weighted average shares
outstanding(3) - diluted 15,266,162 14,308,845 13,927,820 9,393,656 8,890,850 8,834,774
Per share data:(3)
Net income (loss) - diluted $ 0.19 $ 0.16 $ 0.50 $ (0.15) $ 0.18 $ 0.33
Cash dividends:(2)
Class A common $ 0.16 $ 0.16 $ 0.145 $ 0.06 $ 0.14 $ 0.175
Class B common $ 0.145 $ 0.145 $ 0.132 $ 0.055 $ 0.127 $ 0.159
- ---------------------------------------- --------------- --------------- -------------- --------------- -------------- -------------
- ---------------------------------------- ------------------------------- -------------- ----------- -- -------------- --------------
August 31 March 31(1)
---------------------------------------------------------- -- -----------------------------
Balance Sheet Data: 1998 1997 1996 1995 1995 1994
- ---------------------------------------- ---------------- -------------- -------------- ----------- -- -------------- --------------
Current assets $ 71,298 $ 39,691 $ 18,617 $ 11,740 $ 6,746 $ 5,598
Current liabilities 21,811 11,545 12,067 10,583 10,169 4,485
Total assets 250,872 180,932 145,485 121,745 107,745 83,074
Long-term debt 64,276 83,131 56,978 45,538 55,793 38,945
Shareholders' equity 153,870 76,811 69,059 59,113 34,627 33,125
- ---------------------------------------- ---------------- -------------- -------------- ----------- -- -------------- --------------
(1) We changed our fiscal year end from March 31 to August 31, beginning
after a five-month interim transitional period ending on August 31,
1995.
(2) In August 1993, we changed our mode of dividend payment from annual to
quarterly. As a result, the fiscal 1994 dividends stated above include
the annual dividend of $0.20 per Class A share and $0.182 per Class B
share, paid in June 1993, plus three quarterly dividends of $0.05 per
Class A share and $0.0455 per Class B share, paid in September 1993,
December 1993 and March 1994.
(3) All share and per share data has been adjusted for our September 3,
1996 stock split. See Note 2 of Notes to Consolidated Financial
Statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Results of Operations and Financial Condition
- --------------------------------------------------------------------------------
Results of Operations
General
We started our marsh to market vertical integration strategy in 1993 by
selling our Northland brand fresh cranberries to supermarkets; and in fiscal
1996, we started manufacturing and distributing our own Northland brand 100%
Juice Cranberry Blends. We introduced our Northland brand 100% Juice Cranberry
Blends into selected Midwestern markets and by the end of fiscal 1997, we had
achieved national supermarket distribution for our product line. This strategy
has changed us from being strictly a cranberry grower who basically sold all of
our harvested raw cranberries once every year, into a grower, processor and
marketer of a broad variety of cranberry juice products, other cranberry
products and non-cranberry juices and drinks.
Sales of our Northland 100% juice cranberry blends began increasing
substantially in fiscal 1998. We think this was mostly the result of our
marketing and promotional campaign and our increased shelf presence in more
supermarkets nationwide. By the end of fiscal 1998, our Northland 100% juice
cranberry blends were on the shelves of approximately 84% of supermarkets
nationwide, compared to about 60% at the end of fiscal 1997. The growth of our
brand during fiscal 1998, coupled with intense price competition for our sale of
cranberry concentrate and other industrial cranberry products, resulted in the
majority of our revenues during fiscal 1998 being generated from branded juice
sales. In order to better balance our product mix between branded and private
label sales, on July 1, 1998, we acquired Minot Food Packers, Inc. Located in
Bridgeton, New Jersey, Minot produces, markets, sells and distributes primarily
private label cranberry products, including cranberry sauce, as well as a wide
variety of non-cranberry private label products. For its fiscal year ended June
30, 1997, Minot reported sales of approximately $41 million. The acquisition
should also reduce the adverse impact on our results of operations which we have
experienced from difficult market conditions for the sale of cranberry
concentrate and other industrial cranberry products.
During the first quarter of fiscal 1999, we entered into an agreement
with Seneca Foods Corporation to purchase most of the assets of Seneca's juice
division for between $30 to $35 million, dependent upon the division's level of
working capital at closing. Although the proposed acquisition is subject to
various conditions, if completed, we will buy Seneca's TreeSweet and Awake brand
names, as well as three processing plants, a distribution center and a receiving
station. We will also purchase the right to sell Seneca brand fruit juice
beverages. For its year ended March 31, 1998, net revenues from the Seneca
beverage lines we plan to buy totaled approximately $105 million. If completed,
we believe this acquisition will give us a presence in the shelf-stable apple
and grape juice segments and will allow us to enter the retail frozen juice
concentrate category. We also expect the Seneca acquisition to make our bottling
and distribution network more efficient and to further our ability to perform
co-packing operations for other bottled beverage producers.
As is customary in our industry, we have spent and expect to continue
to spend substantial amounts on marketing and promotion in order to make our
products available in
more supermarkets, increase our market share and build brand name recognition
for our Northland brand 100% juice cranberry blend products. In fiscal 1997 and
1998, these expenses totaled about $9.0 million and $26.7 million, respectively.
We expect to spend more in fiscal 1999 on marketing and promotion than in fiscal
1998. We believe in taking a long-term aggressive approach to building brand
name equity for our Northland brand products. This means that we may decide to
spend even more money this coming year than currently anticipated to build our
brand name awareness, add qualified personnel to grow our company and integrate
our new acquisitions if we believe such increased spending levels will
ultimately benefit our product sales and profitability. These increased levels
of spending will likely adversely affect, and may result in substantial
volatility for, our quarterly earnings. Moreover, the Minot acquisition and the
potential Seneca acquisition will likely also result in difficulties, added
costs and delays in integrating, transitioning and managing these acquisitions.
Also, we may not fully realize expected synergies and cost savings from these
acquisitions in fiscal 1999. These costs and difficulties may also reduce our
reported quarterly earnings during fiscal 1999. For these reasons, the
predictability of our quarterly earnings in fiscal 1999 will be difficult, and
comparisons with prior comparative quarters, may not be meaningful. See
"Quarterly Results."
With the exception of our accounting and distribution/order tracking
functions, our operations are not heavily dependent on internal computer
software or embedded systems. Our internal accounting and distribution hardware
and software system was replaced in fiscal 1997 at a cost of approximately
$350,000. That system has been fully tested and we believe it to be Year 2000
compliant in all material respects. We have spent approximately $40,000 to date
in implementing and testing that same system at the Minot facilities, and expect
that process to be completed in early 1999 without additional material
expenditures. If we complete the Seneca acquisition, we will implement our
accounting and distribution hardware and software system at Seneca's facilities.
We are in the process of ascertaining the costs of such implementation, and
currently anticipate those costs will be approximately $250,000.
We do not rely heavily on third party vendors whose potential Year 2000
noncompliance would have a material adverse effect on our results of operations.
As a result, we are not conducting compliance audits of third party vendors for
Year 2000 readiness. While we currently use co-packers to perform bottling
operations, we believe their potential failure to be Year 2000 compliant would
not be material to our operations because of availability of other vendors who
can perform similar functions, as well as our ability to perform our own
bottling operations using Minot facilities and, if the Seneca acquisition is
completed, Seneca facilities. We also rely on third party vendors to supply us
with plastic bottles, caps and cartons. Failure of these vendors to be Year 2000
compliant could result in temporary decreases in inventory until new vendors are
located. However, we do not believe this would have a material adverse effect on
our results of operations.
Fiscal 1998 Compared to Fiscal 1997
Revenues. Our total revenues for fiscal 1998 increased 138% to $112.8
million from $47.4 million during fiscal 1997. Our increased fiscal 1998
revenues were due to substantially
increased sales of our Northland brand 100% juice products. Industry data for
the 12-week period ended September 13, 1998 indicated that our Northland juice
products were available in approximately 84% of the nation's 30,000 supermarkets
and held an 11.9% national market share of supermarket bottled shelf-stable
cranberry beverage dollar sales, up from 5.8% for the 12-week period ended
September 14, 1997. In response to trade promotion and marketing support, our
market share reached as high as 14.2% for the 12-week period ended March 29,
1998. We believe our increased branded juice sales and increased market share
over the last year were primarily due to our aggressive branded product
marketing campaign. As anticipated, as a result of the Minot acquisition, during
the last two months of fiscal 1998, our sales of private label products
increased as we were able to continue Minot's historical level of private label
product sales. Closing the Seneca acquisition should also result in our
recognizing substantial additional revenue in fiscal 1999. During fiscal 1998,
we continued to experience intense price competition in our efforts to sell
concentrate and bulk frozen fruit. As a result, sales of these products were
substantially below our initially budgeted expectations. We expect this intense
price competition to continue in fiscal 1999.
Cost of Sales. Our cost of sales for fiscal 1998 was $62.5 million
compared to $23.2 million in fiscal 1997, with gross margins of 44.6% and 51.1%.
The decrease in our gross margin for fiscal 1998 was primarily due to our heavy
branded sales product mix during fiscal 1998. Our 1997 revenues were more
heavily weighted toward higher margin fresh fruit and concentrate sales at
substantially higher pricing levels. We expect our gross margins to continue to
decrease in fiscal 1999 as a result of our increased sales of private label
products. It is also likely that our sales of Seneca's products in fiscal 1999
will further reduce margins.
Selling, General and Administrative Expenses. Our selling, general and
administrative expenses were $38.8 million, or 34.3%, of total revenues for
fiscal 1998, compared to $16.0 million, or 33.7% of total revenues, during the
prior fiscal year. This planned increase in our selling, general and
administrative expenses was primarily attributable to our ongoing aggressive
marketing campaign to support the development and growth of our Northland brand
100% juice products. Fiscal 1998 advertising, promotion and slotting expenses in
support of our branded products totaled $26.7 million. We plan to continue to
aggressively market our branded juice products in fiscal 1999. We also expect
our selling, general and administrative expenses to increase in fiscal 1999
because of our acquisition of the Minot and Seneca businesses and our continued
hiring of additional qualified personnel to manage our growth. However, because
we anticipate revenues to substantially increase, our selling, general and
administrative expenses as a percentage of revenues should be lower in fiscal
1999 than in fiscal 1998.
Interest Expense. Interest expense was $6.8 million for fiscal 1998
compared to $4.5 million during fiscal 1997. The increase in our interest
expense was due to increased debt levels during most of the year, which resulted
from funding increasing levels of inventory and accounts receivable to support
our growing consumer cranberry product business, as well as seasonal operating
activities. We expect our debt level to increase during fiscal 1999 from its
1998 fiscal year end level as we fund the potential Seneca acquisition and our
anticipated increased working capital requirements. See "Financial Condition"
below.
Income Tax Expense. We recorded $1.9 million in income tax expense in
fiscal 1998 compared to $1.5 million in fiscal 1997. See Note 11 of Notes to
Consolidated Financial Statements.
Net Income. Net income and per share earnings for fiscal 1998 were $2.9
million and $0.19 per diluted share, up from fiscal 1997 net income and per
share earnings of $2.2 million and $0.16 per diluted share. Weighted average
shares outstanding for fiscal 1998 were 15.3 million compared to 14.3 million
for fiscal 1997. Weighted shares increased in fiscal 1998 because of our June
1998 public sale of 5.72 million Class A shares.
Fiscal 1997 compared to Fiscal 1996
Revenues. Our revenues in fiscal 1997 were $47.4 million, a $9.8
million, or 26.0% increase, from $37.6 million in fiscal 1996. The increase in
our fiscal 1997 revenues was primarily the result of increased sales of our
Northland brand 100% juice products due to the national rollout of our branded
juice line. By the end of fiscal 1997, we had increased the distribution of our
branded juice products to approximately 60% of supermarkets nationwide, compared
to approximately 13% at the end of fiscal 1996. Our market share of United
States supermarket shelf-stable cranberry beverages grew from 0.9% for the
12-week period ending September 8, 1996 to 5.8% for the 12-week period ending
September 14, 1997.
Cost of Sales. Our cost of sales increased $6.7 million, or 40.3%, to
$23.2 million in fiscal 1997, from $16.5 million in fiscal 1996. Our gross
margin in fiscal 1997 was 51.1%, compared to 56.1% in fiscal 1996. The decrease
in gross margin in fiscal 1997 was due to higher inventory costs on a per barrel
basis, our changing product mix and increased price competition for concentrate
sales. Our crop growing costs are relatively fixed on a per acre basis, leaving
the size of the crop harvested as the principal variable factor in determining
our inventory carrying costs on a per barrel basis. Due to our smaller than
expected fiscal 1997 crop, our inventory carrying costs per barrel increased,
resulting in increased cost of sales and a reduced gross margin percentage.
Selling, General and Administrative Expenses. Our selling, general and
administrative expenses were $16.0 million in fiscal 1997, compared to $7.0
million in fiscal 1996. As a percent of revenues, selling, general and
administrative expenses increased to 33.7% in fiscal 1997 from 18.7% in fiscal
1996. The increase was due primarily to our national rollout of our branded
juice products. Fiscal 1997 advertising, promotion and slotting expenses in
support of our branded juice rollout totaled $9.0 million.
Interest Expense. Our fiscal 1997 interest expense was $4.5 million, a
$1.8 million increase from fiscal 1996 interest expense of $2.7 million. The
increase in our interest expense was due to increased debt levels as a result of
funding property and equipment additions and working capital necessary to fund
the full implementation of our marsh to market business strategy.
Income Tax Expense. We recorded $1.5 million in income tax expense in
fiscal 1997 compared to $4.5 million in fiscal 1996. See Note 11 of Notes to
Consolidated Financial Statements.
Net Income. Our net income for fiscal 1997 was $2.2 million, compared
to fiscal 1996 net income of $6.9 million. Net income per diluted common share
was $0.16 in fiscal 1997, compared to net income per diluted common share of
$0.50 in fiscal 1996. Weighted average common shares outstanding for fiscal 1997
were 14.3 million compared to 13.9 million for fiscal 1996.
Financial Condition
Our net cash used for operating activities in fiscal 1998 was $11.1
million compared to $10.6 million in fiscal 1997. The increased net cash used
for our operating activities during fiscal 1998 was the result of working
capital increases to support our growing juice business and the continuing
evolving nature of our business into a consumer products company. Our accounts
receivable increased $15.4 million, primarily due to increased branded juice
sales, fourth quarter concentrate sales and the addition of Minot accounts
receivable. Our inventories increased $17.4 million due to the carryover of
significant inventory because of lower than expected concentrate and industrial
product sales during fiscal 1998, as well as the addition of Minot's inventory.
Accounts payable increased $6.2 million in fiscal 1998 primarily due to
purchases of raw materials inventory to support our growing branded product
sales as well as the addition of Minot accounts payable. Also, our depreciation
and amortization (a noncash expense), increased by $1.4 million, or 27.6%, due
to property and equipment additions.
Our net cash used for investing activities increased during fiscal 1998
to $41 .9 million from $14.2 million during the prior fiscal year. This increase
was due to the $35.2 million purchase price of the Minot acquisition. Fiscal
1998 property and equipment additions were $7.9 million compared to total
property and equipment additions of $8.8 million in the prior year. The
potential Seneca division acquisition is expected to cost between $30 and $35
million, depending upon the division's level of working capital at closing, and
should be closed during the second quarter of fiscal 1999. We plan to pay for
the acquisition by borrowing on our revolving line of credit and by issuing
Seneca $3.0 million of our Class A common stock. Northland's capital expenditure
budget for fiscal 1999 (exclusive of the potential Seneca acquisition) is $7.0
million and will be funded from cash generated from operations and borrowings
under our credit line.
Our net cash provided by financing activities in fiscal 1998 was $53.4
million compared to $24.8 million during the prior fiscal year. The increase was
the result of our receiving $74.5 million of net proceeds from our June public
stock sale, less the repayment of $20.1 million of long-term debt out of such
proceeds. Working capital was $49.5 million at August 31, 1998 compared to
working capital of $28.1 million at August 31, 1997. Our total debt (including
current portion) was $68.2 million at August 31, 1998 for a total debt-to-equity
ratio of 0.44 to 1 compared to total debt of $86.8 million and a total
debt-to-equity ratio of 1.13 to 1 at August 31, 1997. Depending upon our future
sales levels and relative sales mix of our products during fiscal 1999 and the
addition of Seneca and Minot business, our working capital requirements and our
debt levels are expected to materially increase during fiscal 1999. To help
ensure we have adequate liquidity to fund these anticipated increased
requirements, we have negotiated a $15 million increase in our revolving credit
facility. This increase in our credit availability coupled with expected cash to
be generated from product sales, should allow us to finance our operational
needs as we continue to grow our brand name and integrate the Minot acquisition
and the potential Seneca division acquisition. As of August 31, 1998, the
principal amount outstanding under our revolving credit facility was $33.1
million, with an additional $41.9 million available under our credit facility
with a syndicate of regional banks until December 2000. As described above,
about $30 to $35 million of such availability will be used to fund the potential
Seneca division purchase.
Quarterly Results
During fiscal 1998 and 1997, we continued our heavy spending on media
advertising and trade and consumer promotion to build the Northland brand. We
plan to continue our aggressive marketing and promotional campaign to build a
strong presence in the branded juice market and to further accelerate the growth
of our Northland brand 100% juice blends. Our levels of promotional spending
during future quarterly periods will vary based on then current market and
competitive conditions and company-specific factors. These and other factors
will likely cause our quarterly results to continue to fluctuate in fiscal 1999
and will likely cause comparisons with prior quarters to be unmeaningful.
The following table contains unaudited selected historical quarterly
information, which includes adjustments, consisting only of normal recurring
adjustments, that we consider necessary for a fair presentation:
Fiscal Quarters Ended
(In thousands, except per share data)
Fiscal 1998 Fiscal 1997
--------------------------------------------------- --------------------------------------------------
Aug. 31, May 31, Feb. 28, Nov. 30, Aug. 31, May 31, Feb. 29, Nov. 30,
1998 1998 1998 1997 1997 1997 1997 1996
----------- ------------ ------------ ------------- ------------ ------------ ------------ -----------
Revenues $ 37,684 $ 26,417 $ 30,296 $ 18,431 $ 12,565 $ 10,377 $ 13,513 $ 10,920
Income (loss) before
income taxes 3,707 675 212 181 (1,662) 394 2,531 2,485
Net income (loss) $ 2,239 $ 399 $ 115 $ 102 $ (1,021) $ 225 $ 1,526 $ 1,502
Net income (loss) per
share-diluted:
Weighted average shares
outstanding 18,041 14,311 14,288 14,358 14,350 14,282 14,402 14,196
Net income (loss) per share $ 0.12 $ 0.03 $ 0.01 $ 0.01 $ (0.07) $ 0.02 $ 0.11 $ 0.11
Cash dividends per share:
Per Class A share 0.040 0.040 0.040 0.040 0.040 0.040 0.040 0.040
Per Class B share 0.036 0.036 0.036 0.036 0.036 0.036 0.036 0.036
Special Note Regarding Forward-Looking Statements
We make certain "forward-looking statements" in this Annual Report,
such as statements about our future plans, goals and other events which have not
yet occurred. We intend that these statements will qualify for the safe harbors
from liability provided by the Private Securities Litigation Reform Act of 1995.
You can generally identify these forward-looking statements because we use words
such as we "believe," "anticipate," "expect" or similar words when we make them.
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) integration of the operations of Minot Food
Packers, Inc., which we acquired in fiscal 1998; (iii) the consummation of the
pending acquisition of the juice division of Seneca Foods Corporation; (iv)
strategic actions of our competitors in pricing, marketing and advertising; and
(v) agricultural factors affecting our crop. 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 knowledge and
expectations on the date of this Annual Report. We will not necessarily update
these statements or other information in this Annual Report based an future
events or circumstances. Please read this entire Annual Report to better
understand our business and the risks associated with our operations.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
To Our Shareholders:
The management of Northland Cranberries, Inc. is responsible for
ensuring that the financial statements and other statistical and financial
information in this report about the Company give a fair and accurate financial
picture of the Company in all material respects. In preparing this material, we
make judgments and estimates that conform with generally accepted accounting
principles.
The Company has internal accounting systems of control that are
designed to provide reasonable assurances that our assets are safeguarded and
that transactions are handled as authorized and are accurately recorded in our
books, enabling us to prepare reliable financial statements. Although no
cost-effective internal control system can preclude all errors or
irregularities, we believe Northland's established program provides the
reasonable assurance noted.
An audit committee of Northland's directors, none of whom are Company
employees, meets periodically with and reviews reports of Northland's
independent public accountants, and recommends such action as it deems
appropriate. The audit committee and our independent accountants have
unrestricted access to each other, with or without the presence of operating
management representatives.
/s/ John Swendrowski /s/ John Pazurek
John Swendrowski John Pazurek
Chairman of the Board Treasurer and
And Chief Executive Officer Chief Financial Officer
Wisconsin Rapids, Wisconsin
October 15, 1998
INDEPENDENT AUDITORS' REPORT
To the Shareholders
and Board of Directors of Northland Cranberries, Inc.:
We have audited the accompanying consolidated balance sheets of
Northland Cranberries, Inc. and subsidiaries as of August 31, 1998 and 1997, and
the related consolidated statements of earnings, shareholders' equity and cash
flows for each of the three years in the period ended August 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Northland Cranberries, Inc.
and subsidiaries as of August 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1998 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Milwaukee, Wisconsin
October 15, 1998
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended August 31, 1998, 1997 and 1996
Consolidated Balance Sheets
August 31, 1998 and 1997
Assets 1998 1997
- ----------------------------------------------------------------------- --------------------- ----------------------
Current assets:
Cash and cash equivalents $ 633,426 $ 230,668
Accounts and notes receivable 22,422,072 6,995,595
Investments -- 1,259,548
Inventories 43,810,813 26,454,087
Prepaid expenses 1,941,643 1,715,351
Deferred income taxes 2,489,628 3,035,486
- ----------------------------------------------------------------------- --------------------- ----------------------
Total current assets 71,297,582 39,690,735
Property and equipment, net 152,199,477 138,273,041
Investments and other assets 2,151,147 2,234,624
Goodwill, net 25,223,568 734,010
- ----------------------------------------------------------------------- --------------------- ----------------------
Total assets $ 250,871,774 $ 180,932,410
- ----------------------------------------------------------------------- --------------------- ----------------------
Liabilities and Shareholders' Equity
- ----------------------------------------------------------------------- --------------------- ----------------------
Current liabilities:
Accounts payable $ 9,994,595 $ 3,806,261
Accrued liabilities 7,924,250 4,091,661
Current portion of long-term obligations 3,892,000 3,647,000
- ----------------------------------------------------------------------- --------------------- ----------------------
Total current liabilities 21,810,845 11,544,922
Long-term obligations 64,275,826 83,130,707
Deferred income taxes 10,915,378 9,445,856
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued -- --
Common stock:
Class A, $.01 par value, 19,085,484 and 13,219,370
shares issued and outstanding, respectively 190,730 132,074
Class B, $.01 par value, 636,202 shares
issued and outstanding 6,362 6,362
Additional paid-in capital 144,477,226 67,888,801
Retained earnings 9,195,407 8,783,688
- ----------------------------------------------------------------------- --------------------- ----------------------
153,869,725 76,810,925
- ----------------------------------------------------------------------- --------------------- ----------------------
Total liabilities and shareholders' equity $ 250,871,774 $ 180,932,410
- ----------------------------------------------------------------------- --------------------- ----------------------
See notes to consolidated financial statements.
Consolidated Statements of Earnings
Years Ended August 31, 1998, 1997 and 1996
1998 1997 1996
- ----------------------------------------------------- ---------------------- ---------------------- ----------------------
Revenues $ 112,828,336 $ 47,374,827 $ 37,607,845
Cost of sales 62,474,847 23,170,154 16,516,785
- ----------------------------------------------------- ---------------------- ---------------------- ----------------------
Gross profit 50,353,489 24,204,673 21,091,060
Costs and expenses:
Selling, general and administrative 38,752,157 15,963,109 7,020,416
Interest 6,826,525 4,493,104 2,657,067
- ----------------------------------------------------- ---------------------- ---------------------- ----------------------
Total costs and expenses 45,578,682 20,456,213 9,677,483
- ----------------------------------------------------- ---------------------- ---------------------- ----------------------
Income before income taxes 4,774,807 3,748,460 11,413,577
Income taxes 1,920,000 1,516,000 4,509,000
- ----------------------------------------------------- ---------------------- ---------------------- ----------------------
Net income $ 2,854,807 $ 2,232,460 $ 6,904,577
- ----------------------------------------------------- ---------------------- ---------------------- ----------------------
Net income per share:
Basic $ 0.19 $ 0.16 $ 0.52
Diluted $ 0.19 $ 0.16 $ 0.50
Shares used in computing net income per share:
Basic 14,813,757 13,736,906 13,311,004
Diluted 15,266,162 14,308,845 13,927,820
- ----------------------------------------------------- ---------------------- ---------------------- ----------------------
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
Years Ended August 31, 1998, 1997 and 1996
1998 1997 1996
- -------------------------------------------------------------------------- ------------------ ------------------ -------------------
Operating activities:
Net income $ 2,854,807 $ 2,232,460 $ 6,904,577
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 6,690,675 5,242,804 4,151,448
Loss (gain) on disposal of property and
equipment 10,913 (5,059) (25,236)
Changes in assets and liabilities (net of effects of business
acquisition):
Receivables, prepaid expenses and
other current assets (13,749,395) (5,157,839) (2,256,715)
Inventories (12,328,714) (14,039,660) (4,715,542)
Accounts payable and accrued liabilities 4,001,637 (423,990) 4,031,250
Deferred income taxes 1,416,000 1,516,000 1,289,000
- -------------------------------------------------------------------------- ------------------ ------------------ -------------------
Net cash (used in) provided by
operating activities (11,104,077) (10,635,284) 9,378,782
- -------------------------------------------------------------------------- ------------------ ------------------ -------------------
Investing activities:
Property and equipment purchases (7,945,506) (8,812,293) (14,480,765)
Proceeds from disposals of property and equipment 103,960 108,841 152,065
Acquisition of business (35,203,177) -- --
Acquisitions of cranberry operations -- (6,765,513) (7,279,818)
Net decrease in investments 1,259,548 1,259,548 1,259,548
Other (132,551) (26,415) (214,018)
- -------------------------------------------------------------------------- ------------------ ------------------ -------------------
Net cash (used for) investing activities (41,917,726) (14,235,832) (20,562,988)
- -------------------------------------------------------------------------- ------------------ ------------------ -------------------
Financing activities:
Proceeds from long-term debt 1,500,000 31,850,000 15,000,000
Payments on long-term debt (20,109,881) (5,610,388) (6,053,365)
Dividends paid (2,443,088) (2,190,478) (1,923,429)
Net proceeds from common stock offering 74,481,730 -- 4,016,192
Exercise of stock options 169,118 987,650 76,400
Other (173,318) (201,467) (25,819)
- -------------------------------------------------------------------------- ------------------ ------------------ -------------------
Net cash provided by financing activities 53,424,561 24,835,317 11,089,979
- -------------------------------------------------------------------------- ------------------ ------------------ -------------------
Net increase (decrease) in cash and cash equivalents 402,758 (35,799) (94,227)
Cash and cash equivalents, beginning of year 230,668 266,467 360,694
- -------------------------------------------------------------------------- ------------------ ------------------ -------------------
Cash and cash equivalents, end of year $ 633,426 $ 230,668 $ 266,467
- -------------------------------------------------------------------------- ------------------ ------------------ -------------------
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest (net of interest capitalized) $ 6,862,888 $ 4,499,870 $ 2,716,788
Income taxes (refund), net (858,466) 525,076 2,768,000
Supplemental disclosures of noncash investing
and financing activities (See Notes 3 and 5.)
- -------------------------------------------------------------------------- ------------------ ------------------ -------------------
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended August 31, 1998, 1997 and 1996
Common Stock
---------------------------------- Additional
Paid-in Retained
Class A Class B Capital Earnings
- ------------------------------------------------------- ---------------- ----------------- ------------------ ------------------
Balances, August 31, 1995 $ 60,106 $ 3,181 $ 55,288,726 $ 3,760,558
Net proceeds from common stock
offering (300,000 shares) 3,000 -- 4,013,192 --
Common stock issued for acquisition of
cranberry marsh (16,807 shares) 168 -- 399,832 --
Common stock issued for cranberries
purchased (29,443 shares) 294 -- 417,796 --
Stock options exercised 103 -- 76,297 --
Tax benefit from exercise of stock options -- -- 54,380 --
Effect of two-for-one stock split 63,672 3,181 (66,853) --
Cash dividends paid:
$.145 per Class A share -- -- -- (1,839,610)
$.13175 per Class B share -- -- -- (83,819)
Net income -- -- -- 6,904,577
- ------------------------------------------------------- ---------------- ----------------- ------------------ ------------------
Balances, August 31, 1996 127,343 6,362 60,183,370 8,741,706
Common stock issued for acquisition of
cranberry marshes (269,014 shares) 2,690 -- 5,166,930 --
Stock options exercised 2,041 -- 1,544,984 --
Tax benefit from exercise of stock options -- -- 993,517 --
Cash dividends paid:
$.16 per Class A share -- -- -- (2,097,949)
$.14544 per Class B share -- -- -- (92,529)
Net income -- -- -- 2,232,460
- ------------------------------------------------------- ---------------- ----------------- ------------------ ------------------
Balances, August 31, 1997 132,074 6,362 67,888,801 8,783,688
Net proceeds from common stock
offering (5,715,000 shares) 57,150 -- 74,424,580 --
Common stock issued for acquisition of
business (136,986 shares) 1,370 -- 1,994,863 --
Stock options exercised 136 -- 144,899 --
Tax benefit from exercise of stock options -- -- 24,083 --
Cash dividends paid:
$.l6 per Class A share -- -- -- (2,350,559)
$.14544 per Class B share -- -- -- (92,529)
Net income -- -- -- 2,854,807
- ------------------------------------------------------- ---------------- ----------------- ------------------ ------------------
Balances, August 31, 1998 $ 190,730 $ 6,362 $ 144,477,226 $ 9,195,407
- ------------------------------------------------------- ---------------- ----------------- ------------------ ------------------
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended August 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
1. Nature of Business and Summary of Significant Accounting Policies
Nature of Operations -- The business of Northland Cranberries, Inc.
(the "Company") consists principally of growing and selling cranberries and
cranberry products. In fiscal 1996, the Company sold substantially all of its
crop harvested for processing to two independent fruit juice and sauce
processors for their packaging and resale as private label cranberry juice and
sauce, pursuant to contracts which expired on March 31, 1996. In 1993 the
Company first implemented its "marsh to market" vertical integration business
strategy when it began selling its own Northland brand fresh cranberries. In
fiscal 1996 the Company continued to further this business strategy with the
introduction of its own Northland brand 100% juice cranberry blends. The
Company's vertical integration business strategy includes marketing and selling
frozen fruit, cranberry concentrate and processed branded and private label
cranberry products. The Company primarily sells its products throughout the
United States, although it also sells fresh fruit and cranberry concentrate in
Europe.
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Cash Equivalents -- Cash equivalents include amounts due from banks and
highly liquid debt instruments purchased with maturities of three months or
less.
Inventories -- Inventories, which primarily consist of cranberries,
juice, concentrates, packaging supplies, fertilizer and chemical products and
deferred crop costs, are stated at the lower of cost or market using the
first-in, first-out (FIFO) method. Deferred crop costs consist of those costs
related to the growing of the crop which will be harvested in the following
fiscal year.
Property and Equipment -- Property and equipment are stated at cost,
less depreciation and amortization using the straight-line method over the
estimated useful lives. The costs related to the development of new productive
cranberry beds are capitalized during the development period until commercial
production is achieved (generally the fifth growing season after planting).
Amounts included in construction in progress include construction costs of beds,
dikes and ditches, irrigation systems and costs associated with vine clippings
planted. In addition, during the development period, certain direct and indirect
operating costs are capitalized in construction in progress. The company
depreciates buildings, land improvements, cranberry vines, bulkheads and
irrigation equipment over 30-40 years, and other depreciable assets over 5-10
years.
Goodwill -- Goodwill is amortized using the straight-line method over
40 years. Accumulated amortization was approximately $338,000 and $221,000 at
August 31, 1998 and 1997, respectively. The Company assesses the carrying value
of goodwill at each balance
sheet date. Consistent with Statement of Financial Accounting Standard ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," such assessments include, as appropriate, a
comparison of the estimated future nondiscounted cash flows anticipated to be
generated during the remaining amortization period of the goodwill to the net
carrying value of goodwill. The Company recognizes diminution in value of
goodwill, if any, on a current basis.
Income Taxes -- The Company accounts for income taxes in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" which requires an asset and liability approach to financial accounting
and reporting for income taxes.
Fair Value of Financial Instruments -- The Company believes the
carrying amount of its financial instruments (cash and cash equivalents,
accounts receivable, accounts payable, and notes payable) is a reasonable
estimate of the fair value of these instruments.
Revenue Recognition -- The Company recognizes revenue when product is
shipped.
Net Income Per Share -- Basic net income per share is computed by
dividing net income by the weighted average number of common shares outstanding.
Diluted net income per share is computed by dividing net income by the weighted
average number of common shares outstanding increased by the number of dilutive
potential common shares based on the treasury stock method. During fiscal 1998,
the Company adopted SFAS No. 128, "Earnings Per Share," and accordingly all net
income per share amounts for all periods presented have been restated.
Accounting Standards To Be Adopted -- In 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income,"
and SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information." These statements are required to be adopted in fiscal 1999. In
1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits," and SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." These statements are required to be adopted
in fiscal 1999 and 2000, respectively. The Company is currently in the process
of evaluating the accounting and disclosure effects of these Statements.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications -- Certain amounts previously reported have been
reclassified to conform with the current presentation.
2. Stock Split
On June 26, 1996, the Company's Board of Directors authorized a
two-for-one stock split 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 number of shares, per
share amounts, stock option data and market prices of the Company's stock have
been restated.
3. Acquisitions
On March 15, 1996, the Company acquired the productive cranberry bog
and certain of the associated assets of Mariposa II Cranberries for $3,050,000.
The purchase price was paid through the delivery of $2,050,000 cash and the
issuance of a $1,000,000 promissory note. This promissory note was paid during
June 1996.
On July 8, 1996, the Company acquired the productive cranberry bog and
certain of the associated assets of the Koller Cranberry Company for $4,900,000.
The purchase price was paid through the delivery of $4,400,000 cash and 16,807
shares of Class A Common Stock.
On September 27, 1996, the Company acquired the productive cranberry
bog and certain of the associated assets of John E. McFarland & Sons, Inc. for
$7,850,000. The purchase price was paid through the delivery of $4,850,000 cash
and 169,014 shares of Class A Common Stock.
On December 30, 1996, the Company acquired the productive cranberry bog
and certain of the associated assets of Vanatta Cranberry Company LLC for
$4,350,000. The purchase price was paid through the delivery of $2,175,000 cash
and 100,000 shares of Class A Common Stock.
On July 1, 1998, the Company completed its acquisition of Minot Food
Packers, Inc. ("Minot") for $35.4 million in cash and $2.0 million in Class A
Common Stock. Minot, located in Bridgeton, New Jersey, produces, markets, sells
and distributes a wide variety of private label cranberry products.
The acquisitions were recorded using the purchase method of accounting
and, accordingly, the results of operations of the acquired businesses are
included in the statements of earnings from the date of acquisition. The
purchase price of Minot has been allocated to the assets acquired and
liabilities assumed based upon preliminary estimates of fair values. The Company
does not believe that the final purchase price allocation will differ
significantly from the preliminary purchase price allocation. The pro forma
effects of the fiscal 1996 and 1997 acquisitions were not significant. The
unaudited pro forma results of operations, assuming the Minot acquisition had
been consummated as of September 1, 1996, are as follows:
1998 1997
-------------------- -----------------
Net sales $ 147,312,310 $ 89,026,866
Net income 3,776,674 3,340,333
Net income per share - basic $ 0.22 $ 0.20
Net income per share - diluted 0.21 0.19
-------------------- -----------------
The unaudited pro forma results are not necessarily indicative of the
actual results of operations that would have occurred had the acquisition
actually been made at the beginning of fiscal 1997.
4. Inventories
Inventories at August 31, 1998 and 1997 were as follows:
1998 1997
------------------- -------------------
Raw materials $ 18,554,557 $ 6,274,305
Finished goods 13,208,150 9,001,810
Deferred crop costs 12,048,106 11,177,972
------------------- -------------------
$ 43,810,813 $ 26,454,087
=================== ===================
5. Property And Equipment
Property and equipment at August 31, 1998 and 1997 were as follows:
1998 1997
------------------- ------------------
Land $ 7,972,373 $ 7,548,486
Land improvements 17,521,757 14,709,554
Cranberry vines, bulkheads
and irrigation equipment 80,242,337 72,153,272
Buildings and improvements 26,035,047 17,627,758
Equipment and vehicles 41,098,270 33,428,680
Construction in progress 9,124,637 16,397,639
------------------- ------------------
181,994,421 161,865,389
Less accumulated depreciation
and amortization 29,794,944 23,592,348
------------------- ------------------
$ 152,199,477 $ 138,273,041
=================== ==================
The Company capitalized $736,106, $1,398,092 and $1,531,405 of interest
for the years ended August 31, 1998, 1997, 1996, respectively.
6. Investments And Other Assets
Investments and other assets at August 31, 1998 and 1997 were as
follows:
1998 1997
-------------------- -------------------
Leasehold interests, net $ 881,512 $ 1,039,395
Other 1,269,635 1,195,229
-------------------- -------------------
$ 2,151,147 $ 2,234,624
==================== ===================
7. Accrued Liabilities
Accrued liabilities at August 31, 1998 and 1997 were as follows:
1998 1997
------------------- -----------------
Compensation and other $ 1,196,427 $ 1,038,134
employee benefits
Property taxes 545,876 469,832
Interest 295,465 331,828
Commissions 967,643 320,733
Income taxes 617,532 181,976
Other 4,301,307 1,749,158
------------------- -----------------
$ 7,924,250 $ 4,091,661
=================== =================
8. Notes Payable And Long-Term Obligations Long-term debt at August 31,
1998 and 1997 was as follows:
1998 1997
-------------------- ------------------
Credit agreement with a bank:
Revolving credit facility $ 33,100,000 $ 41,500,000
Acquisition credit facility -- 7,950,000
Secured term credit facility(1) 1,840,000 2,760,000
Secured term credit facility(2) 2,856,000 3,428,000
Secured term credit facility(3) 7,350,000 8,400,000
Term loan payable to insurance
company with interest at 8.69% 12,958,962 13,641,173
Term loan payable to insurance
company with interest at 7.86% 8,675,364 9,098,534
Term loan with a bank 1,387,500 --
-------------------- ------------------
68,167,826 86,777,707
Less current portion 3,892,000 3,647,000
-------------------- ------------------
$ 64,275,826 $ 83,130,707
==================== ==================
On August 31, 1994, the Company entered into a credit agreement with a
bank, which was subsequently amended on June 7, 1995, November 4, 1996 and
October 3, 1997 and provides for a secured revolving credit facility of
$75,000,000 and three secured term credit facilities. The revolving credit
facility terminates on December 31, 2000. However, the Company may request
annual extensions. If the Company does not extend the termination date of the
revolving credit facility, all amounts outstanding under the term loans become
payable on the revolving credit facility termination date. Interest on amounts
outstanding under the revolving credit facility is payable at the bank's
domestic rate, the bank's offered rate, or an adjusted LIBOR rate plus an
applicable rate margin at the option of the Company.
Interest on amounts outstanding under the secured term credit
facilities and secured acquisition credit facility is payable at the bank's
domestic rate, the bank's offered rate, or an adjusted LIBOR plus an applicable
rate margin, at the option of the Company. The first secured term credit
facility is payable in semiannual installments of $460,000 plus interest (at
LIBOR plus 2.5%, 8.152% at August 31, 1998) and matures in May 2000. The second
secured term credit facility is payable in semiannual installments of $286,000
plus interest (at LIBOR plus 2.50%, 8.152% at August 31, 1998) with a final
payment of $1,998,000 at maturity in May 2000. The third secured term credit
facility is payable in semiannual installments of $525,000 plus interest (at
LIBOR plus 2.5%, 8.152% at August 31, 1998) with a final payment of $5,250,000
at maturity in June 2000. The Company must pay a commitment fee of .125% per
annum on the average daily unused amount of the revolving credit facility and
the acquisition credit facility. The amount of unused available borrowings under
the amended credit facilities was $41,900,000 at August 31, 1998.
The 8.69% term loan with an insurance company is payable in semiannual
installments, including interest, through July 1, 2004. The interest rate will
be adjusted again in fiscal year 1999, as determined by the insurance company,
but the adjusted rate will not exceed 2.25% over the then five-year treasury
bond yield.
The 7.86% term loan with an insurance company is payable in semiannual
installments, including interest, through August 1, 2008. The interest rate will
be adjusted in fiscal year 2003, as determined by the insurance company, but the
adjusted rate will not exceed 2.25% over the then five-year treasury bond yield.
Substantially all assets of the Company are pledged as collateral for
its borrowings. The Company's loan agreements require, among other things, that
the Company maintain a certain level of shareholders' equity ($78,000,000 at
August 31, 1998), debt-to-equity ratio and "fixed charge coverage ratio", as
defined. In addition, the agreements place restrictions on the repurchase of
stock and do not allow total cash dividend payments or other distributions, as
defined, in any fiscal year to exceed 50% of the Company's net income for such
fiscal year.
The aggregate scheduled future maturities of long-term obligations for
the next five fiscal years ending August 31 are as follows:
1999 $ 3,892,000
2000 10,956,000
2001 34,664,000
2002 1,685,000
2003 1,816,000
Thereafter 15,154,826
----------------------------
$68,167,826
============================
9. Shareholders' Equity
The Company is authorized to issue 5,000,000 shares of preferred stock
with a par value of $.01.
The authorized common stock of the company consists of 60,000,000
shares of Class A Common Stock and 4,000,000 shares of Class B Common Stock.
Outstanding Class B shares are convertible into Class A shares on a one-for-one
basis at anytime. The shares of Class A Common Stock are entitled to one vote
per share and the shares of Class B Common Stock are entitled to three votes per
share. Holders of Class A Common Stock are entitled to receive cash dividends
equal to at least 110% of any cash dividends paid on the shares of Class B
Common Stock. However, cash dividends may be paid on Class A Common Stock
without a concurrent cash dividend being paid on the Class B Common Stock. If at
any time the outstanding shares of Class B Common Stock fall below 2% of the
outstanding shares of Class A Common Stock, they will be automatically converted
into Class A Common Stock.
In August 1995, the Company issued 2,000,000 shares of Class A Common
Stock through a public offering resulting in net proceeds of approximately
$26,401,000. The Company issued an additional 300,000 shares of Class A Common
Stock in September 1995
pursuant to the underwriters exercise of their over-allotment option granted in
connection with the August public stock offering, resulting in net proceeds of
approximately $4,016,000.
On July 22, 1996, the Company filed a Form S-4 Registration Statement
("shelf registration") with the Securities and Exchange Commission. The
Registration Statement covers up to 1,000,000 shares of Class A Common Stock of
the Company which may be issued from time to time in connection with
acquisitions by the Company of businesses or properties, or interests therein.
In June and July 1998, the Company issued 5,715,000 shares of Class A
Common Stock through a public offering resulting in the net proceeds of
approximately $74,482,000.
At August 31, 1998, 2,809,092 shares of Class A Common Stock were
reserved for issuance under the Company's stock option plans, conversion of
Class B Common Stock to Class A Common Stock and the shelf registration.
10. Stock Options
In 1987, the Company adopted the 1987 Stock Option Plan (the "1987
Plan"), which provided for the issuance of 275,000 shares of Class A Common
Stock options to certain executive officers and key employees. Stock options
granted under the 1987 Plan are exercisable at a price equal to market value on
the date of grant for a period determined by the Board of Directors, not to
exceed 10 years.
In fiscal 1990, the Company adopted the 1989 Stock Option Plan (the
"1989 Plan"), which provides for the issuance of 600,000 shares of Class A
Common Stock options to key employees and non-employee directors of the Company.
Stock options granted under the 1989 Plan are exercisable at a price established
by the Board of Directors which shall not be less than 85% of the market value
on the date of grant for a period determined by the Board of Directors, not to
exceed 10 years.
During 1995, the Company adopted the 1995 Stock Option Plan (the "1995
Plan"), which provides for the issuance of 800,000 shares of Class A Common
Stock to key employees and non-employee directors of the Company. Stock options
granted under the 1995 Plan are exercisable at a price established by the
Compensation and Stock Option Committee, which shall not be less than 100% of
the fair market value on the date of grant for a period determined by the
Compensation and Stock Option Committee, not to exceed 10 years.
The status of the stock option plans was as follows:
Weighted
Average
Price Number Exercise
Range of Shares Price
---------------------------------- --------------------------- ----------------
Outstanding at September 1,1995 $2.63 -- $ 9.38 824,052 $ 5.22
Granted 10.88 -- 17.75 273,662 10.95
Exercised 2.63 -- 8.75 (20,560) 3.72
Cancelled 3.88 -- 8.75 (8,000) 6.96
------------- ------ ------------- --------------------------- ----------------
Outstanding at August 31, 1996 2.63 -- 17.75 1,069,154 6.70
Granted 12.94 -- 18.50 61,500 17.48
Exercised 3.75 -- 10.88 (204,070) 4.84
Cancelled 7.25 -- 18.50 (10,800) 12.56
------------- ------ ------------- --------------------------- ----------------
Outstanding at August 31, 1997 2.63 -- 18.50 915,784 7.77
Granted 9.75 -- 19.75 187,000 17.98
Exercised 2.63 -- 8.75 (13,628) 4.34
Cancelled 7.25 -- 19.75 (5,500) 16.18
------------- ------ ------------- --------------------------- ----------------
Outstanding at August 31, 1998 $2.63 -- $19.75 1,083,656 $ 9.57
============= ====== ============= =========================== ================
Shares exercisable at August 31, 1998 $2.63 -- $19.75 949,636 $ 8.49
============= ====== ============= =========================== ================
308,248
Available for grant after August 31, 1998 ===========================
The following table summarizes information about stock options
outstanding at August 31, 1998:
Options Outstanding Options Exercisable
-------------------------------------- -----------------------------------
Weighted
Shares Average Weighted Shares Weighted
Outstanding at Remaining Average Exercisable at Average
Range of August 31, 1998 Contractual Exercise August 31, 1998 Exercise
Exercise Prices Life - Years Price Price
- ------------------------- ------------------- -------------------- ----------------- ------------------- ---------------
$2.63 - $ 6.00 387,150 2.3 $ 4.08 387,150 $ 4.08
6.01 - 10.00 194,844 5.5 8.13 176,124 8.12
10.01 - 19.75 501,662 7.8 14.36 386,362 13.08
- -------------- ---------- ------------------- -------------------- ----------------- ------------------- ---------------
$2.63 - $19.75 1,083,656 5.4 $ 9.57 949,636 $ 8.49
============== ========== =================== ==================== ================= =================== ===============
In fiscal 1997, the Company adopted the disclosure requirements of SFAS
No. 123, "Accounting for Stock-Based Compensation". The Company has elected to
continue to follow the provisions of Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees" and its related interpretations;
accordingly, no compensation cost has been reflected in the financial statements
for its stock option plans. Had compensation cost for the Company's stock option
plans been determined on the fair value at the grant dates for awards
under those plans consistent with the method of SFAS 123, the Company's net
income and net income per share would have been reduced to the pro forma amounts
indicated below:
1998 1997
-------------------- -----------------
Net Income:
As reported $2,855,000 $2,232,000
Pro forma $2,343,000 $2,124,000
Net Income per share - diluted:
As reported $ 0.19 $ 0.16
Pro forma $ 0.16 $ 0.15
For the purpose of these disclosures, the fair value of each option
granted was estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions: expected
volatility of 20.4%; risk-free interest rate of 5.5%; 1.641% dividend rate
during the expected term; and an expected life of 9 years.
11. Income Taxes
The provision for income taxes is as follows:
August 31, August 31, August 31,
1998 1997 1996
---------------------------------------------------------
Currently payable:
Federal $ 452,000 $ -- $2,997,000
State 52,000 -- 223,000
---------------------------------------------------------
504,000 -- 3,220,000
---------------------------------------------------------
Deferred:
Federal 1,081,000 1,274,000 944,00
State 335,000 242,000 345,000
---------------------------------------------------------
1,416,000 1,516,000 1,289,000
---------------------------------------------------------
$1,920,000 $1,516,000 $4,509,000
=========================================================
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities as of August 31, 1998 and 1997
consist of the following:
1998 1997
------------------- ----------------
Deferred tax assets:
Tax loss carryforwards $ 893,000 $ 2,979,000
AMT tax credits and other
carryforwards 6,206,000 3,552,000
Other 396,000 --
------------------- ----------------
7,495,000 6,531,000
------------------- ----------------
Deferred tax liabilities:
Cranberry sales 13,000 299,000
Depreciation and amortization 15,908,000 12,642,000
------------------- ----------------
15,921,000 12,941,000
------------------- ----------------
Net deferred tax liability $ 8,426,000 $ 6,410,000
=================== ================
At August 31, 1998, the Company has net operating loss carryforwards
for Federal income tax purposes of approximately $2,277,000 which expire at
various dates through 2013.
A reconciliation of the Federal statutory income tax rate to the
effective income tax rate is as follows:
August 31, 1998 August 31, 1997 August 31, 1996
-----------------------------------------------------------------
Statutory tax rate 34.0% 34.0% 34.0%
State income taxes, net
of Federal tax benefit 5.2 5.2 5.2
Other, net 1.0 1.2 0.3
-----------------------------------------------------------------
Effective tax rate 40.2% 40.4% 39.5%
=================================================================
12. Related Party
In November 1997, the Company purchased a 40,000 square foot office
building for $1,150,000 from a company whose majority owner is also the
Company's Chairman of the Board and Chief Executive Officer.
13. Lease Commitments
On April 10, 1990, the Company acquired leasehold interests in two
cranberry marshes in Nantucket, Massachusetts. On March 31, 1994, the Company
entered into an agreement which extended the original lease term through
November 30, 2003. The unamortized cost of the leasehold interests are being
amortized over the extended lease term on a straight-line basis. Accumulated
amortization of the leasehold interests at August 31, 1998 and 1997 was
approximately $1,326,000 and $1,168,000, respectively. Rental payments are based
on 20 percent of gross cash receipts from agricultural production, subject to
certain minimums which are dependent upon the statewide average crop yield. Rent
expense for the years ended August 31, 1998, 1997 and 1996 was approximately
$268,000, $263,000 and $261,000, respectively.
On September 5, 1991 the Company entered into a net lease with
Equitable Life Assurance Society of the United States ("Equitable") for
Cranberry Hills cranberry marsh, which Equitable purchased on May 3, 1991 from
Cranberry Hills Partnership ("Cranberry Hills"), a partnership controlled by the
Company's CEO and two former directors. The lease, which expires December 31,
2000, provides for rent payments of $285,000 in year one and increasing to
$381,000 in year nine with a final payment of $215,000 on June 1, 2000. The
lease grants the Company a right of first refusal to purchase the leased
premises or to renew the lease on terms Equitable is prepared to accept from a
bona fide third party. The purchase agreement also provides for payments to
Cranberry Hills of 25% of the premises income, if any, during the term lease
with Equitable. The amount expensed in fiscal 1998, 1997 and 1996 was
approximately $0, $86,000 and $64,000, respectively.
The future minimum annual payments on noncancelable operating lease
agreements for the next two fiscal years ending August 31 are as follows:
1999 $371,000
2000 401,000
---------------------------
$772,000
===========================
The above table does not include any amounts for potential minimum
payments under the Nantucket leasehold interest described above, because such
amounts, if any, are not presently determinable.
14. Supply Contracts
The Company has entered into multiple-year crop purchase contracts with
27 independent cranberry growers pursuant to which the Company has contracted to
purchase all of the cranberry crop produced on 1,557 planted acres owned by
these growers.
15. 401(k) Retirement Plans
Effective January 1, 1996, the Company established a 401(k) savings
plan that covers substantially all full-time employees. The Company contributes
amounts based on employee contributions under this plan. The Company contributed
approximately $182,000, $127,000 and $63,000, to this plan in fiscal 1998, 1997
and 1996, respectively.
The Company also has a 401(k) profit sharing plan that covers
substantially all nonunion employees of Minot. In accordance with plan
provisions, the Company may make discretionary contributions. No amounts were
contributed to the plan in fiscal 1998.
16. Significant Customers
As discussed in Note 1, the Company had supply agreements to sell the
majority of its products to two independent fruit juice and sauce processors.
After delivery of the 1995 crop, these agreements expired.
In fiscal 1997, the Company had sales to one customer of approximately
$5,797,000, or 12%, of net sales. In fiscal year 1998, the Company did not have
sales to any one customer exceeding 10% of net sales.
17. Subsequent Event
In August 1998, the Company entered into a letter of intent agreement
to purchase the juice division of Seneca Foods Corporation. The purchase will
include bottling and packaging facilities located in New York, North Carolina
and Wisconsin; warehousing in Michigan; and a grape receiving station in New
York. The final purchase price is expected to be between $30 and $35 million.
Total revenues of the business to be acquired for the fiscal year ended March
31, 1998 were approximately $105 million.