Selected Financial Data
(In thousands, except per share data)
----------------------------------------------------------------------------------------
Five Months Year Ended
Year Ended August 31 Ended March 31(1)
August 31,
Statement of Operations Data: 1999 1998 1997 1996 1995(1) 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Revenues $ 236,841 $ 112,828 $ 47,375 $ 37,608 $ 891 $ 21,784
Cost of sales 152,481 62,475 23,171 16,517 1,401 13,057
- -----------------------------------------------------------------------------------------------------------------------------------
Gross profit (loss) 84,360 50,353 24,204 21,091 (510) 8,727
Costs and expenses:
Selling, general and administrative 66,597 38,752 15,963 7,020 1,908 2,440
Interest 8,565 6,826 4,493 2,657 1,919 3,654
- -----------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 75,162 45,578 20,456 9,677 3,827 6,094
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 9,198 4,775 3,748 11,414 (4,337) 2,633
Income taxes 3,618 1,920 1,516 4,509 (1,689) 1,051
Change in accounting method -- -- -- -- 1,249 --
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 5,580 $ 2,855 $ 2,232 $ 6,905 $ (1,399) $ 1,582
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average shares
outstanding(2) - diluted 20,207 15,266 14,309 13,928 9,394 8,891
Per share data:(2)
Net income (loss) - diluted $ 0.28 $ 0.19 $ 0.16 $ 0.50 $ (0.15) $ 0.18
Cash dividends:(2)
Class A common $ 0.16 $ 0.16 $ 0.16 $ 0.145 $ 0.06 $ 0.14
Class B common $ 0.145 $ 0.145 $ 0.145 $ 0.132 $ 0.055 $ 0.127
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
August 31 March 31(1)
----------------------------------------------------------------------------------------
Balance Sheet Data: 1999 1998 1997 1996 1995 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Current assets $ 141,484 $ 71,298 $ 39,691 $ 18,617 $ 11,740 $ 6,746
Current liabilities 30,916 21,811 11,545 12,067 10,583 10,169
Total assets 354,921 250,872 180,932 145,485 121,745 107,745
Long-term debt 147,797 64,276 83,131 56,978 45,538 55,793
Shareholders' equity 160,553 153,870 76,811 69,059 59,113 34,627
- -----------------------------------------------------------------------------------------------------------------------------------
(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) All share and per share data has been adjusted for our September 3, 1996 two-for-one stock split.
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Results of Operations and Financial Condition
- -------------------------------------------------------------------------------
Results of Operations
General
We started our vertical integration strategy in 1993 by selling our
Northland brand fresh cranberries to supermarkets. In fiscal 1996, we started
manufacturing our own Northland brand 100% juice cranberry blends and introduced
them into distribution in selected Midwestern markets. By the end of fiscal
1997, we had achieved national supermarket distribution for our 100% juice
cranberry blends product line. We entered into the private label cranberry and
fruit juice market in fiscal 1998 when we acquired Minot Food Packers, Inc., a
producer, marketer and distributor of private label cranberry products,
including cranberry sauce, as well as a wide variety of non-cranberry private
label products. In fiscal 1999, we acquired the juice division of Seneca Foods
Corporation, including the right to produce and sell Seneca brand products,
Seneca's TreeSweet and Awake brand names, as well as additional processing,
distribution and receiving facilities. The Seneca acquisition gave us a presence
in the shelf-stable apple and grape juice segments and the retail frozen juice
concentrate category, and also improved our bottling and distribution network,
furthering our ability to perform co-packing operations for other bottled
beverage producers. Our vertical integration strategy, combined with the Minot
and Seneca acquisitions, 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 continued to
increase in fiscal 1999. 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 1999, our Northland 100% juice cranberry blends
were on the shelves of approximately 90% of supermarkets nationwide. The
majority of our revenues during fiscal 1999 were generated from sales of our
branded products, particularly sales of products we acquired through the Seneca
acquisition, as well as expanded private label sales and co-packing revenue as a
result of a full year of operation of our Minot business.
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 blends and
Seneca brand products. In fiscal 1999 and 1998, these expenses totaled
approximately $46.3 million and $26.7 million, respectively. We expect to spend
more in fiscal 2000 on marketing and promotion than in fiscal 1999. We believe
in taking a long-term aggressive approach to building brand name equity for our
Northland and Seneca 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 and add qualified personnel to grow our company 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. For these
reasons, the predictability of our quarterly earnings in fiscal 2000 will be
difficult, and
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Results of Operations and Financial Condition
- -------------------------------------------------------------------------------
comparisons with prior comparative quarters, may not be meaningful. See
"Quarterly Results."
Year 2000
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 at all of our facilities, including
our Minot and Seneca facilities, and we believe it to be Year 2000 compliant in
all material respects. In total, including testing and implementation of our
system at the Minot and Seneca facilities, we spent approximately $250,000 on
ensuring Year 2000 compliance.
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 some of our
bottling operations, we believe the potential failure of our co-packers to be
Year 2000 compliant would not be material to our operations because we perform
the majority of those operations at our own facilities and because of
availability of other vendors who can perform similar functions. We also rely on
third party vendors to supply us with 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.
Market Risk
We do not enter into any material futures, forwards, swaps, options or
other derivative financial instruments for trading or other purposes. Our
primary exposure to market risk is related to changes in interest rates and the
effects those changes may have on our earnings as a result of our long-term
financing arrangements. We manage our exposure to this market risk by monitoring
interest rates and possible alternative means of financing. Our earnings are
affected by changes in short-term interest rates under our revolving credit
agreement, pursuant to which our borrowings bear interest at a variable rate.
Based upon our debt outstanding under our revolving credit agreement as of
August 31, 1999, an increase of 1.0% in market interest rates would increase
interest expense and decrease earnings before income taxes by approximately $1.3
million. This analysis does not take into account any actions we might take in
an effort to mitigate our exposure in the event interest rates were to change
materially. See Note 6 of Notes to Consolidated Financial Statements. The fair
market value of long-term fixed interest rate debt may also be subject to
interest rate risk. Generally, the fair market value of fixed interest rate debt
will increase as interest rates fall and decrease as interest rates rise. Based
upon the respective rates and prepayment provisions of our fixed interest rate
debt, which approximated $22.9 million at August 31, 1999, the carrying amounts
of such debt approximates their fair value.
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Results of Operations and Financial Condition
- -------------------------------------------------------------------------------
Fiscal 1999 Compared to Fiscal 1998
Revenues. Our total revenues for fiscal 1999 increased 110% to $236.8
million from $112.8 million during fiscal 1998. Our increased fiscal 1999
revenues were primarily due to sales of additional branded products acquired
through our Seneca acquisition and a full year of sales of private label
products acquired through our Minot acquisition, as well as increased co-packing
revenue, increased sales of our Northland brand 100% juice products, and initial
sales of our products through the foodservice distribution channels. Industry
data for the 12-week period ended September 12, 1999 indicated that our
Northland juice products were available in approximately 93% of the nation's
30,000 supermarkets and held a 12.8% national market share of supermarket
bottled shelf-stable cranberry beverage dollar sales, up from 11.9% for the
12-week period ended September 13, 1998. In response to trade promotion and
marketing support, our market share reached as high as 14.4% for the 12-week
period ended July 18, 1999. 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. During fiscal 1999, sales of concentrate and
bulk frozen fruit decreased primarily due to our increased use of raw
cranberries to support the production of our branded and non-branded juice
products as well as continued intense price competition resulting from the
recent industry-wide record cranberry harvests. We expect this shift in use of
raw cranberries toward production of our branded and non-branded products, as
well as the intense price competition in the concentrate and frozen fruit
markets, to continue in fiscal 2000.
Cost of Sales. Our cost of sales for fiscal 1999 was $152.5 million
compared to $62.5 million in fiscal 1998, with gross margins of 35.6% and 44.6%,
respectively. The decrease in our gross margin for fiscal 1999 was primarily due
to increased private label and co-packing product mix during fiscal 1999. Our
1998 revenues were more heavily weighted toward higher margin sales of our
branded products.
Selling, General and Administrative. Our selling, general and
administrative expenses were $66.6 million, or 28.1% of total revenues for
fiscal 1998, compared to $38.8 million, or 34.3% of total revenues, during the
prior fiscal year. The 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
and our Seneca brand products. It also included expenses associated with our
launch of a new Seneca line that includes four additional flavors and new
packaging. Additionally, we incurred expenses in fiscal 1999 associated with the
integration of the systems and operations of Minot and Seneca into our own, as
well as increased expenses associated with the addition of personnel and
organizational changes necessary to manage our larger and more diversified
operations resulting from those acquisitions. Fiscal 1999 advertising, promotion
and slotting expenses in support of our branded products totaled $46.3 million.
We plan to continue to aggressively market our branded juice products in fiscal
2000. We also expect our selling, general and administrative expenses to
increase in fiscal 2000 as we continue to expand sales into alternative channels
including mass merchandisers, club stores and convenience stores. However, our
selling, general and administrative expenses as a percentage of revenues should
be similar in fiscal 2000 to fiscal 1999.
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Results of Operations and Financial Condition
- -------------------------------------------------------------------------------
Interest Expense. Interest expense was $8.6 million for fiscal 1999
compared to $6.8 million during fiscal 1998. The increase in our interest
expense was due to increased debt levels during most of the year, which resulted
from funding our Seneca and Minot acquisitions, as well as our March 1999
acquisition of certain assets formerly owned by Clermont, Inc. We also utilized
our revolving credit facility to fund increased levels of inventory and accounts
receivable to support our growing consumer cranberry product business, as well
as seasonal operating activities. See "Financial Condition" below.
Income Tax Expense. We recorded $3.6 million in income tax expense in
fiscal 1999 compared to $1.9 million in fiscal 1998. See Note 11 of Notes to
Consolidated Financial Statements.
Net Income. Net income and per share earnings for fiscal 1999 were $5.6
million and $0.28 per diluted share, up from fiscal 1998 net income and per
share earnings of $2.9 million and $0.19 per diluted share. Weighted average
shares outstanding for fiscal 1999 were 20.2 million compared to 15.3 million
for fiscal 1998. Weighted shares increased in fiscal 1999 because of a full year
of additional shares outstanding from our June 1998 public sale of 5.7 million
Class A shares as well as issuances of Class A shares in connection with the
acquisitions of Minot, Clermont, Inc. and Potomac Foods of Virginia, Inc.
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. 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.
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%,
respectively. 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Results of Operations and Financial Condition
- -------------------------------------------------------------------------------
Selling, General and Administrative. 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 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.
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.
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 5.7 million Class A shares.
FINANCIAL CONDITION
Our net cash used in operating activities in fiscal 1999 was $32.7
million compared to $11.1 million in fiscal 1998. The increase in net cash used
in operating activities during fiscal 1999 was primarily the result of increased
working capital needs related to the Seneca and Minot acquisitions. We also
experienced working capital increases to support our growing juice business and
the expansion of our sales into alternative distribution channels. Our accounts
receivable increased $13.0 million, primarily due to increased branded juice
sales resulting from the Seneca acquisition. Our inventories increased $53.3
million primarily due to the additional inventory levels required to support
production of the branded products we acquired through the Seneca acquisition
and additional cranberries harvested in fiscal 1999. Accounts payable increased
$8.6 million in fiscal 1999 primarily due to the increased purchases of raw
materials inventory to support our growing branded product sales.
Our net cash used in investing activities decreased during fiscal 1999
to $41.0 million from $41.9 million during the prior fiscal year. This decrease
was due to less aggregate cash spending for acquisitions in fiscal 1999 ($31.7
million in connection with the acquisitions of Seneca, Clermont and Potomac)
than in fiscal 1998 ($35.2 million in connection with the acquisition of Minot).
Fiscal 1999 property and equipment additions were $8.3 million compared to total
property and equipment additions of $7.9 million in the prior year. We believe
our internally generated cash flow, supplemented by borrowings available under
our
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Results of Operations and Financial Condition
- -------------------------------------------------------------------------------
credit facilities, will be adequate to meet any necessary capital expenditure
and other operating requirements for fiscal 2000.
Our net cash provided by financing activities in fiscal 1999 was $73.8
million compared to $53.4 million during the prior fiscal year. The increase was
the result of our borrowing $91 million under our new $140 million revolving
credit agreement which we entered into in March 1999. Those borrowings were used
to finance our Seneca and Clermont acquisitions as well as increased working
capital related to the acquisitions and the continued growth in our branded
businesses. See Note 6 of Notes to Consolidated Financial Statements. Working
capital was $110.6 million at August 31, 1999 compared to working capital of
$49.5 million at August 31, 1998. Our total debt (including the current portion)
was $150.2 million at August 31, 1999 for a total debt-to-equity ratio of 0.94
to 1 compared to total debt of $68.2 million and a total debt-to-equity ratio of
0.44 to 1 at August 31, 1998. Depending upon our future sales levels and
relative sales mix of our products during fiscal 2000, we expect our working
capital requirements to fluctuate periodically during fiscal 2000. To help
ensure we have adequate liquidity to fund our working capital requirements, we
entered into a new $140 million credit facility in fiscal 1999. This increase in
our credit availability coupled with expected cash to be generated from sales
should allow us to finance our operational needs as we continue to grow our
brand revenue and market share. As of August 31, 1999, the principal amount
outstanding under our revolving credit facility was $124.1 million, with an
additional $15.9 million available under our credit facility with a syndicate of
regional banks. This credit facility extends until February 28, 2002.
Quarterly Results
We completed acquisitions of Seneca and Minot in fiscal 1999 and 1998,
respectively. As a direct result of these acquisitions, we expanded our brand
offerings with the additions of Seneca, TreeSweet, and Awake brands and acquired
bottling and packaging facilities in New Jersey, New York, North Carolina and
Wisconsin. Additionally, during fiscal 1999 and 1998 we continued our heavy
spending on media advertising, trade and consumer promotion to build the
Northland brand. Since the Seneca acquisition, we have significantly increased
spending to expand the presence of the existing Seneca product lines, to launch
a new line of cranberry cocktail products under the Seneca label and to increase
the presence of our branded products in alternative sales channels including
mass merchandisers, club stores and convenience stores. Our levels of
promotional spending during the future quarterly periods may 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 2000 and will likely cause comparisons with prior quarters
to be unmeaningful.
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Results of Operations and Financial Condition
- -------------------------------------------------------------------------------
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 1999 Fiscal 1998
----------------------------------------------------------------------------------------------------
Aug. 31, May 31, Feb. 28, Nov. 30, Aug. 31, May 31, Feb. 28, Nov. 30,
1999 1999 1999 1998 1998 1998 1998 1997
----------------------------------------------------------------------------------------------------
Revenues $ 76,609 $ 70,895 $ 55,101 $ 34,236 $ 37,684 $ 26,417 $ 30,296 $ 18,431
Income before income taxes 5,856 3,000 130 212 3,707 675 212 181
Net income $ 3,577 $ 1,816 $ 67 $ 210 $ 2,239 $ 399 $ 115 $ 102
Net income per
share-diluted:
Weighted average shares
outstanding 20,430 20,360 19,988 20,152 18,041 14,311 14,288 14,358
Net income per share $ 0.18 $ 0.09 $ 0.00 $ 0.01 $ 0.12 $ 0.03 $ 0.01 $ 0.01
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) strategic actions of our competitors in pricing,
marketing and advertising; and (iii) 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 on 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
principals.
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 and Treasurer and
Chief Executive Officer Chief Financial Officer
Wisconsin Rapids, Wisconsin
October 20, 1999
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, 1999 and 1998, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended August 31, 1999. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1999 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
October 20, 1999
NORTHLAND CRANBERRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1999 and 1998
- --------------------------------------------------------------------------------
ASSETS 1999 1998
Current assets:
Cash and cash equivalents $ 769,126 $ 633,426
Accounts and notes receivable 35,453,371 22,422,072
Inventories 97,059,828 43,810,813
Prepaid expenses 3,869,398 1,941,643
Deferred income taxes 4,332,000 2,489,628
------------- -------------
Total current assets 141,483,723 71,297,582
Property and equipment - net 169,420,178 152,199,477
Tradenames, trademarks and goodwill - net 41,074,130 25,223,568
Other assets 2,943,395 2,151,147
------------- -------------
Total assets $ 354,921,426 $ 250,871,774
============= =============
See notes to consolidated financial statements.
NORTHLAND CRANBERRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1999 and 1998
- -------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
Current liabilities:
Accounts payable $ 18,636,626 $ 9,994,595
Accrued liabilities 9,925,255 7,924,250
Current portion of long-term debt 2,354,000 3,892,000
------------ ------------
Total current liabilities 30,915,881 21,810,845
Long-term debt 147,797,163 64,275,826
Deferred income taxes 15,655,000 10,915,378
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued - -
Common stock:
Class A, $.01 par value, 19,655,621 and 19,072,984
shares issued and outstanding, respectively 196,556 190,730
Class B, $.01 par value, 636,202 shares issued
and outstanding 6,362 6,362
Additional paid-in capital 148,768,724 144,477,226
Retained earnings 11,581,740 9,195,407
------------ ------------
Total shareholders' equity 160,553,382 153,869,725
------------ ------------
Total liabilities and shareholders' equity $354,921,426 $250,871,774
============ ============
See notes to consolidated financial statements.
NORTHLAND CRANBERRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED AUGUST 31, 1999, 1998 AND 1997
- -------------------------------------------------------------------------------
1999 1998 1997
Revenues $236,841,077 $112,828,336 $47,374,827
Cost of sales 152,481,190 62,474,847 23,170,154
------------ ------------ -----------
Gross profit 84,359,887 50,353,489 24,204,673
Costs and expenses:
Selling, general and administrative 66,597,050 38,752,157 15,963,109
Interest 8,564,480 6,826,525 4,493,104
------------ ------------ -----------
Total costs and expenses 75,161,530 45,578,682 20,456,213
------------ ------------ -----------
Income before income taxes 9,198,357 4,774,807 3,748,460
Income taxes 3,618,000 1,920,000 1,516,000
------------ ------------ -----------
Net income $ 5,580,357 $ 2,854,807 $ 2,232,460
============ ============ ===========
Net income per share:
Basic $ 0.28 $ 0.19 $ 0.16
Diluted $ 0.28 $ 0.19 $ 0.16
Shares used in computing net income
Per share:
Basic 20,005,517 14,813,757 13,736,906
Diluted 20,206,512 15,266,162 14,308,845
See notes to consolidated financial statements.
NORTHLAND CRANBERRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 1999, 1998 AND 1997
- ------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
Operating activities:
Net income $ 5,580,357 $ 2,854,807 $ 2,232,460
Adjustments to reconcile net income to net
cash used in operating activities: 7,852,570 6,276,163 4,886,220
Depreciation and amortization of property and equipment 1,305,095 414,512 356,584
Amortization of tradenames, trademarks and goodwill 67,061 10,913 (5,059)
Other 2,473,000 1,416,000 1,516,000
Provision for deferred income taxes
Changes in assets and liabilities (net of effects
of business acquisitions):
Receivables, prepaid expenses
and other current assets (14,807,868) (13,749,395) (5,157,839)
Inventories (30,680,548) (12,328,714) (14,039,660)
Accounts payable and accrued liabilities (4,521,337) 4,001,637 (423,990)
------------- ------------- -------------
Net cash used in operating activities (32,731,670) (11,104,077) (10,635,284)
------------- ------------- -------------
Investing activities:
Acquisitions of businesses (31,700,438) (35,203,177) -
Acquisitions of cranberry operations - - (6,765,513)
Property and equipment purchases (8,333,350) (7,945,506) (8,812,293)
Proceeds from disposals of property and equipment 40,778 103,960 108,841
Net (increase) decrease in other assets (962,778) 1,256,997 1,233,133
------------- ------------- -------------
Net cash used in investing activities (40,955,788) (41,917,726) (14,235,832)
------------- ------------- -------------
Financing activities:
Net increase (decrease) in borrowings under
revolving credit facilities 90,950,000 (16,350,000) 29,800,000
Proceeds from issuance of long-term debt - 1,500,000 2,050,000
Payments on long-term debt (14,122,493) (3,759,881) (5,610,388)
Dividends paid (3,194,024) (2,443,088) (2,190,478)
Net proceeds from common stock offering - 74,481,730 -
Exercise of stock options 475,911 169,118 987,650
Other (286,236) (173,318) (201,467)
------------- ------------- -------------
Net cash provided by financing activities 73,823,158 53,424,561 24,835,317
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 135,700 402,758 (35,799)
Cash and cash equivalents, beginning of year 633,426 230,668 266,467
------------- ------------- -------------
Cash and cash equivalents, end of year $ 769,126 $ 633,426 $ 230,668
============= ============= =============
Supplemental cash flow information
Cash paid (refunded) during the year for:
Interest (net of interest capitalized) $ 8,458,891 $ 6,862,888 $ 4,499,870
Income taxes, net $ 669,700 $ (858,466) $ 525,076
Supplemental disclosures of noncash investing
and financing activities (See Note 2.)
See notes to consolidated financial statements.
NORTHLAND CRANBERRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1999, 1998 AND 1997
- ----------------------------------------------------------------------------------------------------------------------
Additional
Common Stock Paid-In Retained
Class A Class B Capital Earnings
Balances, September 1, 1996 $ 127,343 $ 6,362 $ 60,183,370 $ 8,741,706
Common stock issued for acquisitions of
cranberry operations (269,014 shares) 2,690 - 5,166,930 -
Stock options exercised (204,070 shares) 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 (13,628 shares) 136 - 144,899 -
Tax benefit from exercise of stock options - - 24,083 -
Cash dividends paid:
$.16 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
Common stock issued for acquisitions of
businesses (457,287 shares) 4,573 - 3,466,857 -
Common stock issued for compensation (4,000 shares) 40 - 58,024 -
Stock options exercised (121,350 shares) 1,213 - 474,698 -
Tax benefit from exercise of stock options - - 291,919 -
Cash dividends paid:
$.16 per Class A share - - - (3,101,495)
$.14544 per Class B share - - - (92,529)
Net income - - - 5,580,357
--------- ------- ------------- ------------
Balances, August 31, 1999 $ 196,556 $ 6,362 $ 148,768,724 $ 11,581,740
========= ======= ============= ============
See notes to consolidated financial statements.
NORTHLAND CRANBERRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
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. The Company's vertical integration business strategy includes
marketing and selling its Northland, Seneca, TreeSweet, and Awake brands and
private label cranberry products, fresh, frozen, and dried fruit, and cranberry
concentrate domestically through retail supermarkets and other distribution
channels including international.
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.
Concentration of Credit Risk - The Company manufactures and sells to
wholesale food distributors and retailers throughout the United States. The
Company performs certain credit evaluation procedures and generally sells on
open account. Accounts receivable are stated net of allowances for doubtful
accounts of approximately $600,000 as of August 31, 1999.
Inventories - Inventories, which primarily consist of cranberries,
cranberry and other concentrates, juice, packaging supplies and deferred crop
costs, are stated at the lower of cost or market. Cranberries and cranberry
content of inventories are accounted for using the specific indentification
costing method, which approximates the first-in, first-out ("FIFO") costing
method. All other inventory items are accounted for using the FIFO costing
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.
Tradenames, Trademarks and Goodwill - Tradenames, trademarks and
goodwill (excess of purchase price over fair value of net assets acquired) are
amortized using the
straight-line method, principally over a period of 40 years. Accumulated
amortization was approximately $1,643,000 and $338,000 at August 31, 1999 and
1998, respectively. The Company assesses the carrying value of goodwill at each
balance sheet date.
Long-Lived Assets - The Company periodically evaluates the carrying
value of property and equipment and intangible assets (tradenames, trademarks
and goodwill) in accordance with Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the sum of the expected future
undiscounted cash flows is less than the carrying amount of an asset, a loss is
recognized for the difference between the fair value and carrying value of the
asset.
Income Taxes - The Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes" which requires an asset and
liability approach to financial accounting and reporting for income taxes.
Revenue Recognition - The Company recognizes revenue when product is
shipped.
Net Income Per Share - Net income per share is calculated in accordance
with SFAS No. 128, "Earnings 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.
Segment Information - The Company operates principally in a single
consumer foods line of business, encompassing the growing and selling of
cranberries and cranberry products.
Comprehensive Income - There is no material difference between
comprehensive income and net income for each of the three years in the period
ended August 31, 1999.
Fair Value of Financial Instruments - The Company believes the carrying
amount of its financial instruments (cash and cash equivalents, accounts
receivable, accounts payable, and long-term debt) is a reasonable estimate of
the fair value of such instruments.
Use of 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.
Accounting Standard to Be Adopted - In 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." The Company is currently evaluating the impact of this
statement, as amended by SFAS No. 137, on the consolidated financial statements.
This statement is required to be adopted no later than fiscal 2001.
Reclassifications - Certain amounts previously reported have been
reclassified to conform with the current presentation.
2. ACQUISITIONS
On September 27, 1996, the Company acquired the productive cranberry
bog and certain of the associated assets of John E. McFarland & Sons, Inc. for
$7.9 million. The purchase price was paid through the delivery of $4.9 million
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 $4.4
million. The purchase price was paid through the delivery of $2.2 million in
cash and 100,000 shares of Class A Common Stock.
On July 1, 1998, the Company completed its acquisition of certain net
assets of Minot Food Packers, Inc. ("Minot") for $35.2 million in cash and
136,986 shares of Class A Common Stock. Minot, located in Bridgeton, New Jersey,
produces, markets, sells and distributes a wide variety of private label
cranberry products.
On December 30, 1998, the Company acquired the juice division of Seneca
Foods Corporation ("Seneca") for approximately $28.7 million in cash, and
assumed certain liabilities in connection with the acquisition. The assets
acquired included an exclusive license to market and sell all Seneca brand fruit
beverages, bottling and packaging facilities located in New York, North Carolina
and Wisconsin, a distribution center in Michigan, and a receiving station in New
York. The purchase price is subject to a final working capital adjustment that
has not been finalized.
On March 1, 1999, the Company acquired certain assets of Clermont, Inc.
("Clermont") for $2.6 million in cash, issuance of a $4.4 million note payable
and 367,287 shares of Class A Common Stock. The assets acquired included
cranberries, cranberry and other fruit concentrates, a concentrating facility in
Oregon, and other equipment.
On April 21, 1999, the Company acquired the common stock of Potomac
Foods of Virginia, Inc. ("Potomac") for $0.4 million in cash, $0.4 million of
assumed debt and 90,000 shares of Class A Common Stock. The assets acquired
primarily consisted of the acquisition of certain customer relationships.
The acquisitions were recorded using the purchase method of accounting
and, accordingly, the results of operations of the acquired businesses are
included in the consolidated statements of income from the date of acquisition.
The purchase price of current
year acquisitions 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 unaudited pro forma results of operations, assuming the Seneca and
Minot acquisitions had been consummated as of September 1, 1997, are as follows:
1999 1998
Revenues $272,560,077 $253,340,310
Net income 5,087,357 1,900,674
Net income per share - basic $ 0.25 $ 0.13
Net income per share - diluted $ 0.25 $ 0.12
The unaudited pro forma results are not necessarily indicative of the
actual results of operations that would have occurred had the Seneca and Minot
acquisitions actually been made at the beginning of fiscal 1998. The pro forma
effects of the Clermont and Potomac acquisitions were not significant.
3. INVENTORIES
Inventories at August 31, 1999 and 1998 were as follows:
1999 1998
Raw materials $63,007,239 $18,554,557
Finished goods 20,530,358 13,208,150
Deferred crop costs 13,522,231 12,048,106
----------- -----------
$97,059,828 $43,810,813
=========== ===========
4. PROPERTY AND EQUIPMENT
Property and equipment at August 31, 1999 and 1998 were as follows:
1999 1998
Land $ 10,159,972 $7,972,373
Land improvements 18,919,978 17,521,757
Cranberry vines, bulkheads and
irrigation equipment 83,956,687 80,242,337
Buildings and improvements 36,148,280 26,035,047
Equipment and vehicles 54,126,369 41,098,270
Construction in progress 3,759,400 9,124,637
------------ -----------
Property and equipment - at cost 207,070,686 181,994,421
Less accumulated depreciation
and amortization 37,650,508 29,794,944
------------ -----------
Property and equipment - net $169,420,178 $152,199,477
============ ============
The Company capitalized $0.3, $0.7 and $1.4 million of interest for the
years ended August 31, 1999, 1998 and 1997, respectively.
5. ACCRUED LIABILITIES
Accrued liabilities at August 31, 1999 and 1998 were as follows:
1999 1998
Compensation and other employee benefits $2,687,272 $1,196,427
Trade and consumer promotions 1,934,466 1,042,000
Property taxes 667,719 545,876
Interest 401,054 295,465
Commissions 866,726 967,643
Income taxes 472,867 617,532
Other 2,895,151 3,259,807
--------- ---------
Total accrued liabilities $9,925,255 $7,924,250
========== ==========
6. LONG-TERM DEBT
Long-term debt at August 31, 1999 and 1998 was as follows:
1999 1998
Credit agreements with banks:
Revolving credit facility $124,050,000 $33,100,000
Term credit facilities - 12,046,000
Term loan payable to insurance company with
interest at 8.08% 12,216,179 12,958,962
Term loan payable to insurance company with
interest at 7.86% 8,215,513 8,675,364
Term note with a bank 3,208,334 -
Other obligations 2,461,137 1,387,500
------------ ---------
Total 150,151,163 68,167,826
Less current portion 2,354,000 3,892,000
------------ ---------
Noncurrent portion $147,797,163 $64,275,826
============ ===========
On March 15, 1999, the Company entered into a credit agreement with a
bank that provides for a secured revolving credit facility of $140,000,000. The
revolving credit facility terminates on February 28, 2002. Under the revolving
credit facility the Company, at its option, may borrow at the bank's domestic
rate (prime) or LIBOR plus an applicable rate margin (2%). Amounts currently
outstanding under the agreement bear interest at a weighted average rate of
7.56% at August 31, 1999. The Company must pay a commitment fee of 0.375% of the
unused balance of the credit facility. The amount of unused available borrowings
under the revolving credit facility was $15,950,000 at August 31, 1999. Both the
LIBOR margin and the commitment fee will be adjusted in future periods based on
a debt service ratio, as defined in the agreement.
The 8.08% term loan with an insurance company is payable in semi-annual
installments, including interest, through July 1, 2004.
The 7.86% term loan with an insurance company is payable in semi-annual
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.
The term note with a bank is payable in monthly installments, including
interest, through March 2002, at which time the remaining principal must be
paid. The interest rate on this term note is 1% per annum less than the prime
rate or LIBOR plus an applicable rate margin (2%) at the option of the Company.
The other obligations consist of various term loans with financial
institutions with principal and interest due in various amounts through January
2007.
The debt agreements contain various covenants which include
restrictions on dividends and other distributions to shareholders, repurchases
of stock, and require the Company to maintain and meet certain minimum levels of
shareholders' equity (approximately $153.8 million as of August 31, 1999) and
operating ratios, as defined.
The aggregate scheduled future maturities of long-term debt for the
next five fiscal years ending August 31 and thereafter are as follows:
2000 $ 2,354,000
2001 2,513,000
2002 127,808,000
2003 2,736,000
2004 9,292,000
Thereafter 5,448,163
-------------
Total maturities $ 150,151,163
=============
7. 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.
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 1998, the Company issued 5,715,000 shares of Class A Common
Stock through a public offering resulting in net proceeds of approximately $74.5
million.
At August 31, 1999, 2,441,805 shares of Class A Common Stock were
reserved for issuance under the Company's stock option and 401(k) plans,
conversion of Class B Common Stock to Class A Common Stock and the shelf
registration.
8. STOCK OPTIONS
In 1987, the Company adopted the 1987 Stock Option Plan (the "1987
Plan"), which provides 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:
Number of Weighted Average
Price Range Shares Exercise Price
Outstanding at September 1, 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
Granted 6.69 - 11.13 104,500 9.83
Exercised 2.63 - 7.25 (121,350) 3.92
Cancelled 7.25 - 19.75 (59,296) 14.65
--------------------- ---------- -----
Outstanding at August 31, 1999 $ 2.63 - $19.75 1,007,510 $ 9.97
===================== ========== =======
Shares exercisable at
August 31, 1999 $ 2.63 - $19.75 860,450 $ 9.27
===================== ========== =======
Available for grant after
August 31, 1999 263,044
==========
The following table summarizes information about stock options
outstanding at August 31, 1999:
Options Outstanding Options Exercisable
------------------------------ ------------------------------
Weighted
Shares Average Weighted Shares Weighted
Outstanding Remaining Average Exercisable Average
Range of at August 31, Contractual Exercise at August 31, Exercise
Exercise Prices 1999 Life-Years Price 1999 Price
$ 2.63 - $ 6.00 267,400 1.9 $ 4.17 267,400 $ 4.17
6.01 - 10.00 208,624 4.9 8.17 182,964 8.15
10.01 - 19.75 531,486 7.1 13.60 410,086 13.10
- ------------------- --------- --- ------- ------- -------
$ 2.63 - $19.75 1,007,510 5.2 $ 9.97 860,450 $ 9.27
=================== ========= === ======= ======= =======
The Company has adopted the disclosure-only 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 based 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:
1999 1998 1997
Net income:
As reported $ 5,580,357 $ 2,854,807 $ 2,232,460
Pro forma 5,376,000 2,343,000 2,124,000
Net income per share - diluted:
As reported $ 0.28 $ 0.19 $ 0.16
Pro forma $ 0.27 $ 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 assumptions:
1999 1998 1997
Expected volatility 26.8% 20.4% 34.2%
Risk-free interest rate 5.5% 5.5% 6.2%
Dividend rate during the expected term 2.3778% 1.6410% 0.9300%
Expected life in terms 9.0 9.0 9.0
9. INCOME TAXES
The provision for income taxes for the years ending August 31, 1999,
1998 and 1997 is as follows:
1999 1998 1997
Current provision:
Federal $ 1,145,000 $ 452,000 -
State - 52,000 -
----------- ----------
Total current provision 1,145,000 504,000 -
----------- ----------
Deferred provision:
Federal 1,978,000 1,081,000 $1,274,000
State 495,000 335,000 242,000
----------- ---------- ----------
Total deferred provision 2,473,000 1,416,000 1,516,000
----------- ---------- ----------
Total provision for income taxes $ 3,618,000 $1,920,000 $1,516,000
=========== ========== ===========
A reconciliation of the Federal statutory income tax rate to the
effective income tax rate for the years ending August 31, 1999, 1998 and 1997 is
as follows:
1999 1998 1997
Statutory income tax rate 34.0% 34.0% 34.0%
State income taxes, net of Federal tax benefit 5.2 5.2 5.2
Other - net 0.1 1.0 1.2
----- ----- -----
Effective income tax rate 39.3% 40.2% 40.4%
==== ==== ====
Temporary differences that give rise to deferred income tax assets and
liabilities as of August 31, 1999 and 1998 consist of the following:
1999 1998
Current deferred income tax assets attributable to:
Inventories $3,234,000 $ 1,312,000
Other 793,000 428,000
Income tax loss carryforwards 305,000 750,000
---------- -----------
Net current deferred income tax assets 4,332,000 2,490,000
---------- -----------
Noncurrent deferred income tax assets
(liabilities) attributable to:
Property and equipment (20,755,000) (15,908,000)
AMT credits and other income tax loss carryforwards 5,324,000 4,704,000
Other (224,000) 288,000
----------- ------------
Net noncurrent deferred income tax liabilities $(15,655,000) $(10,916,000)
============ ============
At August 31, 1999, the Company has net operating loss carryforwards of
approximately $1,040,000 for Federal income tax purposes which expire at various
dates through 2013 and has net operating loss carryforwards for state income tax
purposes of approximately $1,760,000 which expire at various dates through 2019.
10. 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.
11. 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, 1999 and 1998 was approximately $1,483,000 and
$1,326,000, respectively. Rental payments are based on 20 percent of gross cash
receipts from agricultural production, subject to certain minimums which are
dependent upon the state-wide average crop yield. Rent expense for the years
ended August 31, 1999, 1998 and 1997 was approximately $368,000, $268,000 and
$263,000, respectively.
On September 5, 1991 the Company entered into a net lease with
Equitable Life Assurance Society of the United States ("Equitable") for the
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
future minimum annual payments on such lease aggregate $401,000 through 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 agreement also provides for payments to Cranberry Hills of 25% of
the premises income, if any, during the term of the lease with Equitable. The
amount expensed in fiscal 1999, 1998 and 1997 was approximately $95,000, $0 and
$86,000, respectively.
The above 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.
12. SUPPLY CONTRACTS
The Company has entered into multiple-year crop purchase contracts with
approximately 55 independent cranberry growers pursuant to which the Company has
contracted to purchase all of the cranberry crop produced on 1,995 planted acres
owned by these growers.
13. 401(k) RETIREMENT PLANS
The Company has 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 $572,000,
$182,000 and $127,000 to this plan in fiscal 1999, 1998 and 1997, respectively.
The Company also has a 401(k) profit sharing plan that covers
substantially all non-union employees of Minot. In accordance with plan
provisions, the Company may make discretionary contributions. No amounts were
contributed to the plan in fiscal 1999 or 1998.
14. SIGNIFICANT CUSTOMERS
In fiscal year 1997, the Company had sales to one customer of
approximately $5,797,000, or 12%, of net sales. In fiscal years 1998 and 1999,
the Company did not have sales to any one customer exceeding 10% of net sales.
* * * * * *