SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-16130
NORTHLAND CRANBERRIES, INC.
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(Exact name of registrant as specified in its charter)
Wisconsin 39-1583759
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(State or other jurisdiction (I.R.S. Employer
of Incorporation or organization) Identification No.)
800 First Avenue South
P.O. Box 8020
Wisconsin Rapids, Wisconsin 54495-8020
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(Address of principal executive offices)
Registrant's telephone number, including area code (715)-424-4444
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date:
Class A Common Stock March 31, 1999 19,721,686
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Class B Common Stock March 31, 1999 636,202
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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 4. Submission of Matters to a Vote of Security Holders...........11
Item 6. Exhibits and Reports on Form 8-K..............................12
SIGNATURE.....................................................13
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NORTHLAND CRANBERRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
(Unaudited)
February 28, August 31,
1999 1998
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Current assets:
Cash and cash equivalents $ 972 $ 633
Accounts and notes receivable 30,104 22,422
Inventories 88,462 43,811
Other 4,144 1,942
Deferred income taxes 2,490 2,490
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Total current assets 126,172 71,298
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Property and equipment - at cost 199,300 181,994
Less accumulated depreciation 33,481 29,795
Net property and equipment 165,819 152,199
Investments and other assets 2,222 2,151
Goodwill and trademarks 37,436 25,224
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Total assets $ 331,649 $ 250,872
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,507 $ 9,995
Accrued liabilities 13,612 7,924
Current portion of long-term debt 3,942 3,892
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Total current liabilities 36,061 21,811
Long-term debt 131,581 64,276
Deferred income taxes 10,929 10,915
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Total liabilities 178,571 97,002
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Shareholders' equity:
Common stock - Class A 192 191
Common stock - Class B 6 6
Additional paid-in capital 145,074 144,477
Retained earnings 7,806 9,196
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Total shareholders' equity 153,078 153,870
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Total liabilities and shareholders' equity $ 331,649 $ 250,872
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See accompanying notes to condensed consolidated financial statements
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NORTHLAND CRANBERRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(Unaudited)
For the 3 months
ended February 28,
1999 1998
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Revenues $ 54,955 $ 30,296
Cost of sales 34,730 17,203
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Gross profit 20,225 13,093
Costs and expenses:
Selling, general and administrative 18,108 10,971
Interest 1,987 1,910
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Total costs and expenses 20,095 12,881
Income before income taxes 130 212
Income taxes 63 97
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Net income $ 67 $ 115
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Basic income per share $ 0.00 $ 0.01
========= =========
Diluted income per share $ 0.00 $ 0.01
========= =========
See accompanying notes to condensed consolidated financial statements
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NORTHLAND CRANBERRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(Unaudited)
For the 6 months
ended February 28,
1999 1998
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Revenues $ 89,337 $ 48,727
Cost of sales 55,234 26,017
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Gross profit 34,103 22,710
Costs and expenses:
Selling, general and administrative 30,470 18,975
Interest 3,290 3,342
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Total costs and expenses 33,760 22,317
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Income before income taxes 343 393
Income taxes 155 176
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Net income $ 188 $ 217
========= =========
Basic income per share $ 0.01 $ 0.02
========= =========
Diluted income per share $ 0.01 $ 0.02
========= =========
See accompanying notes to condensed consolidated financial statements
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NORTHLAND CRANBERRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(Unaudited)
For the 6 months
ended February 28,
1999 1998
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Cash flows from operating activities:
Net income $ 188 $ 217
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 4,174 3,158
Changes in assets and liabilities:
Receivables and other current assets (9,835) (9,281)
Inventories (28,397) (10,960)
Accounts payable and accrued expenses 1,821 4,468
Deferred income taxes 187 128
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Net cash used for operating
activities (31,862) (12,270)
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Investing activities:
Acquisition of business (29,281) 0
Property and equipment additions, net (3,737) (4,265)
Other (518) (120)
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Net cash used for investing
activities (33,536) (4,385)
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Financing activities:
Increase in debt 66,990 17,851
Dividends paid (1,577) (1,104)
Exercise of stock options 359 57
Other (35) (173)
Net cash provided by financing
activities 65,737 16,631
Net increase (decrease) in cash and cash equivalents 339 (24)
Cash and cash equivalents:
Beginning of period 633 231
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End of period $ 972 $ 207
========= =========
Supplemental disclosures of cash flow information: Cash paid for:
Interest (net of amount capitalized) $ 3,178 $ 3,385
========= =========
See accompanying notes to condensed consolidated financial statements
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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 February 28, 1999, and its results of
operations and cash flows for the three- and six-month periods ended February
28, 1999 and 1998, respectively. The Company's consolidated balance sheet as of
August 31, 1998 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 ACQUISITIONS
On December 29, 1998, the Company completed the acquisition of the juice
division of Seneca Foods Corporation. The purchase included bottling and
packaging facilities located in New York, North Carolina and Wisconsin;
warehousing in Michigan; and a grape receiving station in New York. The
preliminary purchase price for the acquisition was approximately $29.3 million
in cash based on the value of "net assets" purchased.
On March 1, 1999, in the Company's fiscal third quarter, the Company
acquired from Congress Financial Corporation (Northwest) certain assets formerly
owned by Clermont, Inc., a producer and seller of cranberry and other fruit
concentrates, for $6.9 million in cash and 367,287 shares of the Company's Class
A Common Stock with a value of $3.0 million on the date of closing.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total revenues for the three months ended February 28, 1999 were $55.0
million, an 81.5% increase over revenues of $30.3 million in the prior year's
second quarter. Revenues for the six-month period ended February 28, 1999
increased 83.4% to $89.3 million from $48.7 million during the same period in
fiscal 1998. The increased fiscal 1999 revenues were primarily due to private
label sales generated by our recently acquired subsidiary, Minot Food Packers,
Inc., and the business activity associated with the former eastern juice
division of Seneca Foods Corporation, which we acquired on December 29, 1998.
Sales of our Northland brand 100% juice products also contributed to the
increased revenues. Trade industry data for the 12-week period ended February
28, 1999, shows that our Northland brand 100% juice products achieved a 12.8%
market share of supermarket shelf-stable cranberry beverages on a national
basis, up slightly from a 12.7% market share for the same period last year. We
continue to experience intense competition in our efforts to develop private
label accounts and sales of concentrate and bulk frozen fruit.
Cost of sales for the second quarter of fiscal 1999 was $34.7 million
compared to $17.2 million for the second quarter of fiscal 1999, resulting in
gross margins of 36.8% and 43.2% in each respective period. Cost of sales for
the six-month period ended February 28, 1999 was $55.2 million compared to $26.0
million in the same period in fiscal 1998 with gross margins of 38.2% and 46.6%,
respectively. The decrease in gross margin in fiscal 1999 was primarily due to
our changing product mix. Fiscal 1999 revenues included a significant amount of
lower margin private label sales due to the acquisition of Minot Food Packers,
Inc. compared to minimal private label sales in fiscal 1998. Our gross margins
during the remainder of fiscal 1999 will be dependent upon our product mix and
existing market conditions.
Selling, general and administrative expenses were $18.1 million, or 33.0%
of total revenues, for the three-month period ended February 28, 1999 compared
to $11.0 million, or 36.2%of total revenues in the prior year's second fiscal
quarter. Selling, general and administrative expenses were $30.5 million, or
34.1% of total revenues, for the six-month period ended February 28, 1999,
compared to $19.0 million, or 38.9% of total revenues, during the same period in
the prior fiscal year. This increase in selling, general and administrative
expenses was primarily attributable to (i) costs related to our aggressive
marketing campaign to support the development and growth of our Northland brand
100% juice products; (ii) expenses to support private label sales generated by
our recently acquired subsidiary, Minot Food Packers, Inc.; and (iii) expenses
to support our newly acquired Seneca brand. We plan to continue to aggressively
promote our juice products throughout the fiscal year.
Interest expense was $2.0 million and $3.3 million for the three- and
six-month periods ended February 28, 1999 compared to $1.9 million and $3.3
million during the same periods in fiscal 1998. Consistent with expectations
given our aggressive promotional activity in support of our branded juice
products, net income and per share earnings for the three- and six-month periods
ended February 28, 1999 were $67,000, or
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT.)
$0.00 per share, and $188,000, or $0.02 per share, respectively, from fiscal
1998 second quarter and first half net income and per share earnings of
$115,000, or $0.01 per share, and $217,000, or $0.02 per share, respectively.
FINANCIAL CONDITION
Net cash used for operating activities was $31.9 million in the first six
months of fiscal 1999 compared to $12.3 million used for operating activities in
the same period in fiscal 1998. Net cash used for operating activities during
the first six months of fiscal 1999 was the result of increases in current
assets and liabilities in the ordinary course of business during the period.
Inventory increased $28.4 million due to the fall harvest of the Company's crop,
the purchase of raw cranberries from other independent cranberry growers and
increased raw materials and finished goods inventories to support increased
branded juice sales. Accounts receivable and other current assets increased $9.8
million primarily due to accounts receivable generated from operating the
recently acquired Seneca juice business. Working capital increased $40.6 million
to $90.1 million at February 28, 1999 compared to working capital of $49.5
million at August 31, 1998. Our current ratio increased to 3.5 to 1.0 from 3.3
to 1.0 at August 31, 1998.
Net cash used for investing activities increased during the six-month
period ended February 28, 1999 to $33.5 million from $4.4 million during the
same period in the prior fiscal year. The increase was principally the result of
the acquisition of the eastern juice division of Seneca Foods Corporation on
December 29, 1998 for approximately $29.3 million.
Net cash provided by financing activities was $65.7 million in the
six-month period ended February 28, 1999, compared to $16.6 million during the
same period in the prior fiscal year. Our debt increased $67.0 million in the
first six months of fiscal 1999 primarily due to financing the acquisition of
the Seneca juice business, and seasonal and growth working capital needs.
Working capital was $90.1 million at February 28, 1999 compared to working
capital of $49.5 million at August 31, 1998. Our total debt (including current
portion) was $135.5 million at February 28, 1999 for a total debt-to-equity
ratio of 0.89 to 1.00 compared to total debt of $68.2 million and a total
debt-to-equity ratio of 0.44 to 1.00 at August 31, 1998. We utilize our
revolving bank credit facility, together with cash generated from operations, to
fund our working capital requirements throughout the fiscal year. On March 15,
1999, we entered into a new credit facility with a syndicate of regional banks
to refinance our existing bank credit facility and increase our revolving line
of credit availability to $140 million until March 2002. As of February 28,
1999, the principal amount outstanding under our new revolving credit facility
was $112.3 million, with an additional $27.7 million available under our credit
facilities. We believe our credit facilities, together with cash generated from
operations, are sufficient to fund our ongoing operational needs over the
remainder of fiscal 1999.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT.)
On December 29, 1998 we completed the acquisition of the juice division
of Seneca Foods Corporation. The purchase included bottling and packaging
facilities located in New York, North Carolina and Wisconsin; a warehouse
facility in Michigan; and a grape receiving station in New York. The purchase
price for the acquisition was approximately $29.3 million in cash, based on the
value of the "net assets" we acquired. The preliminary purchase price was
borrowed under our revolving credit facility.
On March 1, 1999 we acquired certain assets from Congress Financial
Corporation (Northwest) which were formerly owned by Clermont, Inc., a producer
and seller of cranberry and other fruit concentrates, for $6.9 million in cash
and 367,287 shares of Northland's Class A Common Stock with a value of $3.0
million on the date of closing. The assets acquired include a concentrating
facility in Cornelius, Oregon; certain equipment; and inventory consisting of
cranberry and other fruit concentrates.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
-------------------------------------------------
Certain matters discussed in this Form 10Q are "forward-looking
statements," including statements about the Company's future plans, goals
and other events which have not yet occurred. These statements are
intended to qualify for the safe harbors from liability established by
the Private Securities Litigation Reform Act of 1995. They can generally
be identified because the context of such statements will include words
such as "believes," "anticipates," "expects," or words of similar import.
Whether or not these forward-looking statements will be accurate in the
future will depend on certain risks and factors including risks
associated with (I) development, market share growth and continued
consumer acceptance of the Company's branded juice products; (ii)
integration of the operations of Minot Food Packers, Inc., acquired in
fiscal 1998, and the juice division of Seneca Foods Corporation, acquired
on December 29, 1998; (iii) strategic actions of Northland's competitors
in pricing, marketing and advertising; and (iv) agricultural factors
affecting Northland's crop and the crop of other North American growers.
These and other risks and factors that should be considered are further
set forth in the Company's Form S-3 Registration Statement (No. 333-
53173) filed with the Securities and Exchange Commission on May 20, 1998.
Readers should consider these risks and factors and the impact they may
have when evaluating these forward-looking statements. These statements
are based only on management's knowledge and expectations on the date of
this Form 10-Q. The Company will not necessarily update these statements
or other information in this Form 10-Q based on future events or
circumstances.
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of shareholders held on January 6, 1999,
John C. Seramur, Jeffrey J. Jones, John Swendrowski, Patrick F. Brennan, Robert
E. Hawk, LeRoy J. Miles and Pat Richter were elected as directors of the Company
for terms expiring at the 2000 annual meeting of shareholders and until their
successors are duly qualified and elected. As of the November 25, 1998 record
date for the annual meeting, 19,115,484 shares of Class A Common Stock and
636,202 shares of Class B Common Stock were outstanding and eligible to vote. Of
these, 17,807,827 shares of Class A Common Stock and all shares of Class B
Common Stock voted at the meeting in person or by proxy. Class A shares are
entitled to one vote each, while Class B shares are entitled to three votes
each. The following table sets forth certain information with respect to the
election of directors at the annual meeting:
Shares
Name of Nominee Shares Voted For Withholding Authority
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John C. Seramur 19,662,016 54,417
Jeffrey J. Jones 19,665,966 50,467
John Swendrowski 19,661,461 54,972
Patrick F. Brennan 19,662,316 54,117
Robert E. Hawk 19,667,270 49,163
LeRoy J. Miles 19,666,816 49,617
Pat Richter 19,659,386 57,117
The tabulation votes for the election of directors resulted in no broker
non-votes or abstentions.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibits filed with this Form 10-Q report are incorporated herein by
reference to the Exhibit Index accompanying this report.
b. Form 8-K
We filed the following Current Reports on Form 8-K with the Securities
and Exchange Commission during the second quarter of fiscal 1999 and the third
quarter of fiscal 1999 through the date of this Quarterly Report on Form 10-Q:
DATE FILED DATE OF REPORT ITEM
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March 15, 1999 December 30, 1998 Item 7 - Financial Statements
related to the Acquisition of Juice
Division of Seneca Foods
Corporation
January 13, 1999 December 30, 1998 Item 2 - Acquisition of Juice
Division of Seneca Foods
Corporation
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned Chief Financial Officer thereunto duly authorized.
NORTHLAND CRANBERRIES, INC.
DATE: April 14, 1999 By: /s/ John Pazurek
John Pazurek
Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description
(10) Credit Agreement, dated as of March 15, 1999, by and among
Northland Cranberries, Inc., various financial institutions and
Firstar Bank Milwaukee, N.A. as Agent.
(27) Financial Data Schedule