UNITED STATES
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 (NO FEE REQUIRED)
For the Quarter Ended June 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission File No. 1-6442
ORANGE-CO, INC.
(Exact name of registrant as specified in its charter)
FLORIDA
(State or other jurisdiction of incorporation or organization)
59-0918547
(IRS Employer Identification Number)
2020 U.S. Highway 17 South, P. O. Box 2158, Bartow, Florida 33830
(Address of principal executive offices)
(941) 533-0551
(Registrant's telephone no.)
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 XX No
Number of shares outstanding of common stock, $.50 par value, as of
August 13, 1999: 10,309,975 shares
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ORANGE-CO, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets 3
June 30, 1999 (unaudited) and September 30, 1998 (audited)
Consolidated Statements of Operations (unaudited) 4
Nine and Three Months ended June 30, 1999 and 1998
Consolidated Statements of Cash Flows (unaudited) 5
Nine Months ended June 30, 1999 and 1998
Notes to Consolidated Financial Statements (unaudited) 6-9
ITEM 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 10-16
ITEM 3. Quantitive and Qualitative Disclosure about
Market Risk 17
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
-2-
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORANGE-CO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, September 30,
1999 1998
ASSETS (unaudited) (audited)
<S> <C> <C>
Current assets:
Cash and short-term investments $ 350 $ 841
Receivables 11,015 8,621
Advances on fruit purchases - 879
Inventories 68,930 50,482
Deferred income tax 2,837 2,476
Prepaid and other 225 57
---------- ---------
Total current assets 83,357 63,356
---------- ---------
Property and equipment, net 126,659 126,992
---------- ---------
Other assets:
Excess of cost over net assets of
acquired companies 10,365 10,647
Notes receivable 1,060 1,196
Other 6,769 6,171
---------- ---------
Total other assets 18,194 18,014
---------- ---------
Total assets $ 228,210 $208,362
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note Payable $ 3,000 $ -
Current installments on long-term debt 3,702 3,753
Accounts payable 3,126 5,697
Accrued liabilities 9,188 11,690
---------- ---------
Total current liabilities 19,016 21,140
Deferred income taxes 23,352 23,129
Other liabilities 1,666 1,502
Long-term debt 75,290 54,901
---------- ---------
Total liabilities 119,324 100,672
---------- ---------
Stockholders' equity:
Preferred stock, $.10 par value,
10,000,000 shares authorized; none issued - -
Common stock, $.50 par value, 30,000,000
shares authorized, 10,349,399 issued 5,175 5,175
Capital in excess of par value 71,417 71,417
Retained earnings 32,668 31,472
---------- ---------
109,260 108,064
Less:
Treasury stock, at cost: 39,424 shares
at June 30, 1999 and September 30, 1998 (374) (374)
---------- ----------
Total stockholders' equity 108,886 107,690
---------- ----------
Total liabilities and stockholders'
equity $ 228,210 $ 208,362
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
-3-
<TABLE>
<CAPTION>
ORANGE-CO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE AND THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(unaudited)
(in thousands except for per share data)
Nine Months Three Months
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Sales $97,536 $88,934 $32,191 $31,418
Cost of sales 87,201 85,598 29,454 26,557
-------- -------- -------- --------
Gross profit 10,335 3,336 2,737 4,861
Other costs and expenses, net:
Selling, general and
administrative (5,178) (4,162) (1,866) (1,471)
Gain on disposition of
property and equipment 36 122 36 -
Other (287) (264) (203) -
Interest (2,984) (2,389) (1,100) (799)
-------- -------- -------- -------
Income(loss) before income taxes 1,922 (3,357) (396) 2,591
Income tax expense(benefit) 726 (1,154) (179) 935
-------- -------- -------- --------
Net income(loss) $ 1,196 $(2,203) $ (217) $ 1,656
======== ======== ======== ========
Net income(loss)per common share,
basic and diluted: $ .12 $ (.21) $ (.02) $ .16
======== ======== ======== ========
Average number of common shares
outstanding, basic and diluted 10,310 10,310 10,310 10,310
======== ======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
-4-
<TABLE>
<CAPTION>
ORANGE-CO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 1998
(unaudited)
(in thousands)
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income(loss) $ 1,196 $ (2,203)
--------- ---------
Adjustments to reconcile net income(loss) to net
cash used for operating activities:
Depreciation and amortization 5,932 5,229
(Decrease) in deferred income taxes (138) (1,155)
(Gain) on disposition of property and
equipment and other (36) (122)
Change in assets & liabilities:
(Increase) in receivables (2,394) (4,611)
Decrease in advances on fruit purchases 879 440
(Increase) in inventory (18,448) (8,607)
(Increase)decrease in prepaid and other (165) 490
(Decrease)increase in accounts payable and
accrued liabilities (5,190) 2,731
Increase in income taxes payable 117 523
Other, net 148 33
--------- ---------
Total adjustments (19,295) (5,049)
--------- ---------
Net cash used for operating activities (18,099) (7,252)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property & equipment 187 859
Decrease in note & mortgage receivables 136 -
Additions to property & equipment (5,052) (6,263)
Increase in other assets (1,001) (602)
--------- ---------
Net cash used for investing activities (5,730) (6,006)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of treasury stock - 3
Proceeds from short-term debt 3,000 -
Proceeds from long-term debt 20,338 12,678
--------- ---------
Net cash provided by financing activities 23,338 12,681
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (491) (577)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 841 1,009
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 350 $ 432
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
-5-
ORANGE-CO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. MANAGEMENT'S OPINION
The Consolidated Financial Statements include the accounts of
Orange-co, Inc. and Subsidiaries (the "Company"), after elimination
of material intercompany accounts and transactions.
In the opinion of the management of the Company, the
accompanying financial statements reflect adjustments, consisting
only of normal recurring adjustments unless otherwise disclosed,
which are necessary to present fairly the financial position,
results of operations and cash flows for the periods presented:
- Unaudited Consolidated Balance Sheet at June 30, 1999
- Audited Consolidated Balance Sheet at September 30, 1998
- Unaudited Consolidated Statements of Operations for the nine
and three month periods ended June 30, 1999 and 1998
- Unaudited Consolidated Statements of Cash Flows for the nine
month periods ended June 30, 1999 and 1998
2. NOTES PAYABLE AND LONG-TERM DEBT
As of June 30, 1999, the Company had access to a $50 million
working capital credit facility payable in April 2001. Accordingly,
the balance at June 30, 1999 was classified as long-term debt. This
facility is collateralized by most of the Company's current assets.
The outstanding balance at June 30, 1999 was approximately
$47,140,000 leaving approximately $460,000 additionally
available to be borrowed under a borrowing base calculation of this
facility. The interest rate on this facility is variable based
upon the financial institution's cost of funds plus a margin.
Additionally, as of June 30, 1999 the Company had a $10 million
short-term capital revolving credit facility. As of June 30, 1999
the outstanding balance on this facility was $3 million. The
interest rate on this facility is variable based upon the financial
institution's cost of funds plus a margin.
As of June 30, 1999, the Company's outstanding long-term debt
(including the $47,140,000 balance on the working capital line of
credit facility) was approximately $78,992,000 of which $3,702,000
matures in the next twelve months and the remainder matures at
various times over the subsequent nine years.
Interest paid, net of amounts capitalized, was approximately
$3,003,000 and $2,412,000 for the nine months ended June 30, 1999
and 1998, respectively. Interest capitalized was approximately
$317,000 and $401,000 for the nine months ended June 30, 1999 and
1998, respectively.
The Company is exposed to interest changes primarily as a
result of its variable rate credit facility and its long-term, fixed-
rate debt used to finance the Company's activities. The Company's
interest rate risk management objective is to limit any unfavorable
impact of interest rate changes on earnings and cash flows and to
lower its overall borrowing costs. To achieve its objectives, the
-6-
Company borrows at both fixed and variable rates on its long-term
debt and is currently a party to an interest rate swap agreement on
a portion of its variable rate credit facility, which provides for a
fixed rate of 5.07% per annum on a notional amount of $10 million.
The interest rate differential is reflected as an adjustment to
interest expense over the life of the swaps.
The following table represents information for all interest
rate swaps at June 30, 1999. The notional amount does not
necessarily represent amounts exchanged by the parties and,
therefore, is not a direct measure of the exposure of the Company.
The fair value approximates the cost to settle the outstanding
contract.
Notional Amount Fair Value Carrying Value Unrecognized Gain
$10,000,000 $90,771 $-0- $90,771
Certain mortgage agreements contain loan covenants. At June
30, 1999 the Company was out of compliance with a loan covenant
related to its debt to equity ratio. The Company received a waiver
from the financial institution on this covenant for a period that,
in Management's judgment, will allow the Company to achieve compliance
and, therefore, avoid early repayment of this loan. (See Management's
Discussion and Analysis - Liquidity and Capital Resources.)
Additionally, the Company filed a report on Form 8-K on July
23, 1999 disclosing a potential change of control. Such a change of
control would subject substantially all of the Company's outstanding
long-term and short-term debt to call provisions contained in the
debt instruments. (See Management's Discussion and Analysis -
Liquidity and Capital Resources.)
3. INVENTORIES
<TABLE>
<CAPTION>
The major components of inventory are summarized as follows (in thousands):
June 30, September 30,
1999 1998
<S> <C> <C>
Finished goods $56,556 $35,390
Fruit-on-tree 9,401 11,099
Other 2,973 3,993
------- -------
Total $68,930 $50,482
======= =======
</TABLE>
As of June 30, 1999 the Company held futures contracts as hedge
positions for frozen concentrated orange juice ("FCOJ"). The net
futures positions totaled approximately $9,797,000 with unrealized
losses of approximately $545,000. Exposure to off-balance sheet
risk related to these positions results from market fluctuations of
FCOJ future prices relative to the Company's open positions. As of
June 30, 1999 cash deposits with brokers totaled approximately
$957,000 and vary with market price fluctuations.
-7-
4. OTHER
Substantially all sales are to entities that market citrus
beverages and related products. During the nine and three month
periods ended June 30, 1999, the Company had two customers who
individually accounted for approximately 22.4% and 19.9%, and 23.7%
and 17.8% of total sales for the respective periods. During the
nine and three month periods ended June 30, 1998, the Company had
two customers who individually accounted for approximately 19.7% and
14.5%, and 20.1% and 16.7% of total sales for the respective
periods.
5. INCOME TAXES
Income tax expense is calculated using the asset and liability
method prescribed by Statement of Financial Accounting Standards No.
109 "Accounting for Income Taxes" ("FAS No. 109"). Under this
method deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences
are expected to be recovered or settled. Under FAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax
rates or a deferred tax asset valuation reserve is recognized in
income in the period that includes the enactment or revaluation
date.
<TABLE>
<CAPTION>
Income tax expense (benefit) for the nine and three month periods
ended June 30, 1999 and 1998, consists of the following (in
thousands):
Nine Months Three Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Current:
Federal income tax $ 727 $ - $ 4 $ -
State income tax 137 - 1 -
-------- -------- ------- -------
Total $ 864 $ - $ 5 $ -
-------- -------- ------- -------
Deferred:
Federal income tax
(benefit)expense $ (125) $(1,043) $ (167) $ 845
State income tax
(benefit)expense (13) (111) (17) 90
-------- -------- -------- -------
Total $ (138) $(1,154) $ (184) $ 935
-------- -------- ------- -------
Total provision for income
tax expense(benefit) $ 726 $(1,154) $ (179) $ 935
======== ======== ======= =======
</TABLE>
-8-
<TABLE>
<CAPTION>
Following is a reconciliation of the expected income tax expense
(benefit) computed at the U.S. Federal statutory rate of 34% and the
actual income tax expense (benefit) for the nine and three month
periods ended June 30, 1999 and 1998 (in thousands):
Nine Months Three Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Expected income tax
expense(benefit) $ 653 $(1,141) $ (135) $ 881
Increase(decrease)resulting from:
Permanent items and other 20 44 (32) (1)
State income taxes, and other,
net of federal tax benefit 53 (57) (12) 55
------- -------- ------- ------
Total provision for income
tax expense(benefit) $ 726 $(1,154) $ (179) $ 935
======= ======== ======= ======
</TABLE>
6. APPLICATION OF ACCOUNTING STANDARDS
In June 1998 the Financial Accounting Standards Board ("FASB")
issued SFAS No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 requires that an
entity recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at
fair value. Under the comprehensive income reporting method adopted
under SFAS 130 "Reporting Comprehensive Income", gains or losses
resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective
in achieving offsetting changes in fair value or cash flows. SFAS
133 is effective for interim and annual periods beginning after June
15, 1999. The Company is currently evaluating, and has not yet
determined, the effect that the adoption of SFAS 133 will have on
its financial statements.
In June 1999, the FASB issued SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of
FASB Statement No. 133, an Amendment of FASB Statement No. 133". SFAS
No. 137 amends the effective date of SFAS No. 133 to all financial
quarters of all years beginning after June 15, 2000.
The FASB recently issued SFAS 131, "Disclosures about Segments
of an Enterprise and Related Information", which is effective for
the Company's fiscal year beginning October 1, 1998. Under SFAS 131
the basis for determining an enterprise's operating segments is the manner
in which management operates the businesses. The Company plans to adopt
these disclosures as of the end of the current fiscal year as provided for
in the application requirement of SFAS 131.
-9-
ORANGE-CO, INC. AND SUBSIDIARIES
PART I - ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1999 versus Fiscal 1998
The following is management's discussion and analysis of
significant factors that have affected the Company's operations
during the periods included. It compares the Company's operations
for the nine and three month periods ended June 30, 1999 to
operations for the nine and three month periods ended June 30, 1998.
The following table reflects changes in sales, cost of sales and
gross profit by division and other changes in the Statements of
Operations through net income (loss) between the respective periods.
<TABLE>
<CAPTION>
Nine Months (YTD) and Three Months (QTR) Ended June 30, 1999
versus Nine Months (YTD) and Three Months (QTR) Ended June 30, 1998
Increases/(Decreases)
(in thousands)
Sales Cost of Sales Net Change
YTD QTR YTD QTR YTD QTR
<S> <C> <C> <C> <C> <C> <C>
Beverage Division $9,189 $ 865 $2,175 $3,007 $ 7,014 $(2,142)
Grove Management
Division (587) (92) (572) (110) (15) 18
------- ------- ------- ------- -------- --------
Total $8,602 $ 773 $1,603 $2,897 6,999 (2,124)
======= ======= ======= =======
Other costs and expenses net:
Selling, general and administrative (1,016) (395)
Gain on disposition of property and equipment (86) 36
Other (23) (203)
Interest (595) (301)
-------- --------
Income(loss) before income taxes 5,279 (2,987)
Provision for income taxes (1,880) 1,114
-------- --------
Net income(loss) $ 3,399 $(1,873)
======== ========
</TABLE>
SALES
Sales for the nine and three month periods ended June 30, 1999
increased approximately $8,602,000 and approximately $773,000
respectively, compared to the same periods in the prior year. The
Beverage Division accounted for the principal increases for the nine
and three month periods with increases in sales of approximately
$9,189,000 and $865,000, respectively. Grove Management Division
sales decreased by approximately $587,000 and $92,000 for the
current nine and three month respective periods compared to the same
periods in the prior year.
BEVERAGE DIVISION The Beverage Division sales increased
approximately $9,189,000 and $865,000 in the current nine and three
month periods respectively compared to the same periods in the prior
year as a result of offsetting increases and decreases in volumes
and prices. The effects of these changes are quantified below.
Revenues from the sale of the Company's bulk citrus juice
products increased approximately $3,286,000 during the current nine
month period and decreased approximately $1,038,000 during the
current three month period compared to the same periods in the prior
year. As part of the increase during the current nine month period,
revenues from increased prices of bulk citrus juice products sold
-10-
increased approximately $12,634,000. However, this increase in prices
during the current nine month period was partially offset by decreased
volume for bulk citrus juice products of approximately $9,348,000
compared to the same period in the prior year. During the current
three month period a decrease in volume resulted in a decrease in revenues
of approximately $2,439,000 for bulk citrus juice products compared to
the same period in the prior year. However, increased prices of bulk
citrus juice products sold during the current three month period increased
revenues approximately $1,401,000 compared to the same period in the prior
year.
As the Company entered the 1998-99 season, the United States
Department of Agriculture ("USDA") announced in October 1998 an
estimated Florida orange crop of approximately 190,000,000 boxes of
round oranges. The final crop was 185,700,000 boxes of round
oranges, which represents a significant decrease from the 1997-98
crop of 244,000,000 boxes and the 1996-97 crop of 226,200,000 boxes.
This significant decrease has had the effect of increasing prices
for bulk citrus juices throughout the first three quarters of fiscal
1999 compared to the same periods in the prior year.
Sales of the Company's packaged citrus juice products increased
approximately $5,966,000 and $1,607,000 during the current nine and
three month respective periods compared to the same periods in the
prior year. Contributing to these increases in revenues were higher
prices for the packaged citrus juice products sold during the
current nine and three month periods of approximately $466,000 and
$562,000 respectively. Additionally, there were increases in volumes
of approximately $5,500,000 and $1,045,000 during the current nine
and three month respective periods.
The Company's non-orange packaged juices and drink base product
sales decreased approximately $312,000 and $221,000 during the
current nine and three month periods compared to the same periods in
the prior year. Of these decreases, lower prices of these products
accounted for decreases in revenues of approximately $765,000 and
$547,000 during the current nine and three month periods. Partially
offsetting these price decreases were increases in volume of
approximately $453,000 and $326,000 during the current nine and
three month respective periods compared to the same periods in
the prior year.
Revenues from the sale of the Company's citrus by-products,
including feed, pulp cells, and citrus oils, increased approximately
$630,000 and $886,000 during the current nine and three month
periods compared to the same periods in the prior year. Of these
increases, revenues from by-products increased approximately
$626,000 and $377,000 during the current nine and three month
periods as a result of higher prices for by-products sold compared
to the same periods in the prior year. Additionally, revenues from
the sale of by-products increased approximately $4,000 and $509,000
during the current respective nine and three month periods due to
increased volume of by-products sold compared to the same periods in
the prior year.
Storage, handling, processing citrus for customers under
contract, and other revenues decreased approximately $381,000 and
$369,000 during the current nine and three month periods
respectively compared to the same periods in the prior year. These
decreases were due primarily to decreases in the volume of these
services performed compared to the same periods in the prior year.
-11-
GROVE MANAGEMENT DIVISION Grove Management Division sales decreased
approximately $587,000 and $92,000 for the current nine and three
month periods respectively compared to the same periods in the prior
year. The principal decrease in revenues of approximately $837,000
and $166,000 during the current nine and three month periods
resulted principally from a reduction in harvesting and grove
caretaking services performed. However, partially offsetting these
decreases were increases during the current nine and three month
periods in revenues of approximately $250,000 and $74,000 primarily
as a result of increases in the prices of fruit sold to third party
packers and processors.
GROSS PROFIT
Gross profit for the current nine and three month periods ended
June 30, 1999 increased approximately $6,999,000 and decreased
approximately $2,124,000 respectively compared to the same periods
in the prior year. The principal increase of approximately
$7,014,000 during the current nine month period and the principal
decrease of approximately $2,142,000 during the current three month
period occurred in the Beverage Division. Gross profit for the
Grove Management Division decreased during the current nine month
period by approximately $15,000 and increased by approximately
$18,000 during the current three month period compared to the same
periods in the prior year.
BEVERAGE DIVISION Gross profit of the Beverage Division increased
approximately $7,014,000 and decreased approximately $2,142,000
during the current nine and three month respective periods compared
to the same periods in the prior year. These changes were the
result of numerous offsetting increases and decreases in volumes,
prices, costs of production and combinations thereof. The effects
of these changes are quantified below.
Sales of bulk citrus juice products contributed to the increase
in gross profit during the current nine month period of
approximately $7,812,000 compared to the same period in the prior
year. Of this increase approximately $12,634,000 resulted from the
previously mentioned increased prices for these products. However,
during the current nine month period gross profit decreased
approximately $4,822,000 principally as a result of higher costs of
raw fruit and concentrate used in the production of bulk citrus
juice products. Gross profit from the sale of bulk citrus products
decreased approximately $1,451,000 during the current three month
period compared to the same period in the prior year. Of this
decrease approximately $2,085,000 resulted from higher costs of raw
fruit and concentrate. Additionally, decreased volumes of bulk
citrus products sold during the current three month period decreased
gross profit by approximately $767,000 compared to the same period
in the prior year. Partially offsetting these decreases was an
increase of approximately $1,401,000 due to the previously mentioned
higher prices during the current three month period compared to the
same period of the prior year.
The Company utilizes the FCOJ futures market to hedge fruit
inventory, anticipated requirements and sales commitments of FCOJ.
The effects of this hedging activity, if any, are reflected in sales
or in the cost of inventories and flow through the Consolidated
Statements of Operations as the associated products are sold. As of
June 30, 1999 the Company held contracts for FCOJ futures with
unrealized losses of approximately $545,000 which would have been
realized if said positions had been prematurely liquidated on that
date. These unrealized losses are based upon the closing market
prices of equivalent futures obligations and do not necessarily
represent prices at which the Company expects to sell the FCOJ.
-12-
The table below provides information about the Company's FCOJ
futures contracts, that are sensitive to changes in commodity
prices, specifically FCOJ prices. The table presents the total
dollar contract amount by expected maturity dates. Contract amounts
are used to calculate the contractual payments of FCOJ to be
exchanged under the futures contracts. Contractual cash flows from
these derivative financial instruments, if executed at maturity,
would be as follows at June 30, 1999:
Contractual
Cash Flows
Inflows/(Outflows) Maturity Date
FCOJ Futures (Net long) $(9,797,000) July - November 1999
The contractual cash flows from the derivatives are based upon
the execution of the underlying futures contracts and do not
necessarily represent actual cash flows when the futures contracts
mature or otherwise terminate.
Gross profit on sales of packaged citrus juice products decreased
approximately $1,533,000 and $630,000 during the current nine and
three month respective periods compared to the same periods in the
prior year. Higher costs of production during the current nine and
three month periods accounted for decreases in gross profit of
approximately $1,999,000 and $1,192,000 respectively. Partially
offsetting these decreases during the current nine and three month
periods, gross profit increased approximately $466,000 and $562,000
respectively as a result of the previously mentioned higher prices.
Gross profit from the sale of the Company's non-orange packaged
juices and drink base products increased approximately $1,231,000
and $416,000 during the current nine and three month respective
periods compared to the same periods in the prior year. Gross
profit increased approximately $1,996,000 and $963,000 during the
current nine and three month periods as a result of lower costs of
production. Partially offsetting these increases were decreases
in gross profit of approximately $765,000 and $547,000 during the
current nine and three month periods respectively as a result of the
previously mentioned price decreases.
Gross profit from citrus by-products, including feed, pulp cells,
and citrus oils, increased approximately $242,000 during the current
nine month period and decreased approximately $113,000 during the
current three month period. The previously mentioned higher prices
for by-products sold during the current nine and three month periods
resulted in increases in gross profit of approximately $626,000 and
$377,000 during the respective current periods compared to the same
periods in the prior year. During the current nine and three month
periods higher costs of production for by-products sold resulted in
decreases in gross profit of approximately $384,000 and $490,000
respectively.
Gross profit from storage, handling, and other activities
decreased by approximately $388,000 and $364,000 during the current
nine and three month periods principally due to a decrease in the
volume of these services compared to the same periods in the prior
year.
During the current nine month period gross profit decreased by
approximately $350,000 principally as a result of the partial
settlement of an insurance claim related to the recovery of
operating expenses in the first quarter of the prior year which were
incurred as a result of an involuntary conversion of certain
inventory. In July 1997, a storm containing strong winds damaged a
product storage warehouse and some inventory. The insurance
recoveries for these losses were made in fiscal 1998. There was
no comparable payment in the current period.
-13-
GROVE MANAGEMENT DIVISION Grove Management Division gross profit
decreased approximately $15,000 and increased approximately $18,000
during the current nine and three month periods respectively
compared to the same periods in the prior year. The primary
decreases of approximately $225,000 and $13,000 in gross profit
during the current nine and three month periods resulted from the
combination of a reduction in the volume of caretaking and
harvesting services along with higher costs to provide these
services. However, partially offsetting the decrease in the current
nine month period was an increase in gross profit of approximately
$210,000 resulting from an increase in the price of fruit sold to
third party packers and processors. The primary increase of
approximately $31,000 in gross profit during the current three month
period resulted from an increase in the volume of fruit sold.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased
approximately $1,016,000 and approximately $395,000 for the current
nine and three month periods respectively compared to the same
periods in the prior year. Of the increase in the current nine
month period, approximately $219,000 was due to an increase in
salary and benefit costs, and $797,000 resulted from an increase in
other costs. In the current three month period an increase of
approximately $78,000 was due to an increase in salary and benefit
costs, and an increase of approximately $317,000 resulted from an
increase in other costs.
GAIN/(LOSS) ON DISPOSITION OF PROPERTY AND EQUIPMENT
The decreased gain on the disposition of property and equipment
of approximately $86,000 for the current nine month period ending
June 30, 1999 compared to the same period in the prior year was
principally due to the gain from insurance proceeds on damage to the
product storage warehouse in fiscal year 1998 for where there was no
comparable event in the same period of fiscal year 1999. The
increased gain on disposition of property and equipment of
approximately $36,000 during the current three month period resulted
primarily from the disposal of commercial properties not used in
citrus production.
OTHER EXPENSE
Other expenses increased approximately $23,000 and $203,000
during the current nine and three month periods respectively as
compared to the same periods in the prior year. These increases
resulted primarily from increased amortization costs.
INTEREST EXPENSE
Interest expense increased approximately $595,000 and $301,000
during the current nine and three month respective periods compared
to the same periods in the prior year. The primary increases of
approximately $852,000 and $518,000 for the current nine and three
month periods were due to increases in the average outstanding debt.
During the current nine and three month periods increases of
approximately $84,000 and $60,000 were due to decreases in
capitalized interest. Also, during the current nine and three month
periods, increases of approximately $51,000 and $17,000 were due to
increases in other interest charges. Offsetting these increases
were decreases of approximately $392,000 and $294,000 for the
current nine and three month periods which resulted from decreases
in interest rates.
-14-
LIQUIDITY AND CAPITAL RESOURCES
The Company's Bartow processing plant normally operates from
early November through late May or June. While the plant is in
operation, the inventory of processed juice increases to a level
which will cover anticipated sales until the following November when
the plant begins operation again. The Company's working capital
credit facility is generally utilized to finance these inventories.
Borrowings under this credit facility normally peak in late May or
June. The Company began processing activities for the 1998-99
season in November.
The Company's ability to generate cash adequate to meet its
needs, including the financing of its inventories and trade
receivables, has been supported primarily by cash flow from
operations and periodic borrowings under its primary $50 million
credit facility. This facility is principally secured by
substantially all of the Company's current assets. The outstanding
balance at June 30, 1999 was approximately $47,140,000. The
interest rate is variable based upon the financial institution's
cost of funds plus a margin. The terms of the agreement call for
repayment of the principal amount in April 2001; accordingly, it is
classified as long-term debt. The Company anticipates that the
working capital facility will be adequately serviced with cash
proceeds from operations.
Additionally, as of June 30, 1999 the Company had a $10 million
short-term capital revolving credit facility. As of June 30, 1999
the outstanding balance on this facility was $3 million. The
interest rate on this facility is variable based upon the financial
institution's cost of funds plus a margin.
Current assets increased approximately $20,001,000 as of June 30,
1999 compared to September 30, 1998. The principal component of
this was an increase in inventories of approximately $18,448,000 due
to the seasonal accumulation of inventories. The Company's accounts
receivable balance increased approximately $2,394,000 during the
nine months ending June 30, 1999 due principally to increased sales.
Additionally, there was a decrease in cash and short-term
investments of approximately $491,000. Advances on fruit purchases
decreased approximately $879,000 as the Company processed the
purchased fruit and collected these advances. Other current assets
increased approximately $168,000 and deferred tax assets increased
approximately $361,000.
Current liabilities decreased approximately $2,124,000 during the
first nine months of fiscal 1999 compared to September 30, 1998.
This decrease was principally due to a decrease of approximately
$3,175,000 in accrued expenses associated with fruit purchases.
Additionally, there was a decrease in accounts payable and other
accrued expenses of approximately $1,898,000. There was also a
decrease of $51,000 in the current portion of long-term debt.
Offsetting these decreases was a $3,000,000 increase in the note
payable.
At June 30, 1999 the Company's outstanding long-term debt was
approximately $75,290,000 including the working capital facility of
approximately $47,140,000. In addition current installments of long-
term debt were approximately $3,702,000 with the remaining amounts
due on various dates over the subsequent nine years. The Company
anticipates that amounts due over the next twelve months will be
paid out of working capital. At June 30, 1999 the Company was out
of compliance with one loan covenant related to its debt to equity
ratio. This lender has waived this requirement for a period that,
in management's judgment, will allow the Company to achieve
compliance and, therefore, avoid early repayment of this loan.
On July 14, 1999 Ben Hill Griffin, Inc. and Ben Hill Griffin,
III, collectively holding the majority interest of 52.4% of the
Company's outstanding shares, entered into a letter of intent with
Reservoir Capital Group, LLC ("Reservoir") to sell these shares of
Orange-co, Inc. to Reservoir.
-15-
Also on July 14, 1999, the Company joined in the signing of a non-
binding letter of agreement with Ben Hill Griffin, Inc., Ben Hill
Griffin, III, and Pasco Acquisitions, Inc. ("Pasco") to sell the
processing plant and beverage and food service assets of the Company
to Pasco if Reservoir or its affiliates complete the acquisition of
the outstanding shares of the Company.
The Company filed a report on Form 8-K on July 23, 1999
disclosing the aforementioned potential change in control (see Exhibits
and Reports on Form 8-K - Item 6) of the Company. Such a change in
control would subject substantially all of the Company's outstanding
long-term and short-term debt to the call provisions contained in the
debt instruments. The Company has entered into discussions with these
lenders for the purpose of establishing an orderly transition if the
contemplated transactions are completed.
During the first nine months of the current fiscal year, capital
expenditures of approximately $222,000 were made for the
installation of new irrigation systems on 2,265 acres of Company-
owned groves. Also, costs of caring for newly planted citrus trees
in the amount of approximately $1,189,000 were capitalized, and
expenditures of approximately $540,000 were made for grove
operations equipment. Additionally, expenditures of approximately
$3,101,000 were made during the same period primarily for the
purpose of improving the efficiency of the Bartow processing
facility.
OTHER SIGNIFICANT EVENTS
In October 1998 the United States Department of agriculture
("USDA") announced a Florida crop estimate of approximately
190,000,000 boxes of round oranges for the 1998-99 season. The
final Florida crop of 185,700,000 boxes of round oranges was a
significant decrease from the 1997-98 Florida crop of 244,000,000
boxes.
The inability of computers, software and other equipment
utilizing microprocessors to recognize and properly process date
fields containing a two-digit year is commonly referred to as the
Year 2000 Compliance issue. As the year 2000 approaches, such
systems may be unable to accurately process certain date-based
information.
During the past four fiscal years, the Company has been
improving and updating its computer systems to enhance the
efficiency of its production, processing, marketing, sales
and management systems. It has concurrently addressed the
"Year 2000" issue. Management believes that the new systems will be
completed in fiscal 1999 and that the Company's systems will then
also be in compliance with "Year 2000" issues. While the Company is
communicating with certain key suppliers and customers to determine
their Year 2000 readiness, there can be no assurance that the
failure of such third parties to adequately address their respective
Year 2000 issues will not have a material adverse effect on the
Company's business, financial condition and results of operations.
The total cost to the Company of these Year 2000 Compliance
activities has not been estimated since they have been addressed
concurrently with the computer updating effort which has been in
process for four years. It is, therefore, not considered to be
material to the Company's financial position or results of
operations in any given year. These costs and the date on which the
Company plans to complete the Year 2000 modification and testing
processes are based on management's best estimates, which were
derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third-party
modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved, and actual results
could differ from those plans.
-16-
PART I - ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company engages in the use of FCOJ futures and interest rate
swaps for other than trading purposes. For information about the
market risk associated with FCOJ futures see "Management's
Discussion and Analysis - Gross Profit" and "Notes to the
Consolidated Financial Statements - Note 3". For information about
market risk on the Company's interest rate swap see "Notes to the
Consolidated Financial Statements - Note 2".
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT
A. Exhibit No.
27 Financial Data Schedule (Electronic Filing Only)
B. Reports on Form 8-K
On July 14, 1999 the Company issued a press release describing a
potential change of control including the elements contained in
the related letters of intent. On July 23, 1999 the Company
filed a Form 8-K with these letters of intent and the press
release attached as exhibits and are incorporated herein by
reference.
DESCRIPTION
Exhibit 10.34 Letter of Intent from Reservoir Capital Group,
LLC to Ben Hill Griffin, Inc. and Ben Hill
Griffin, III, dated July 14, 1999
Exhibit 10.35 Letter of Intent between Pasco Acquisition,
Inc. and Ben Hill Griffin, Inc. and Ben Hill
Griffin, III, dated July 14, 1999
Exhibit 99.4 Press Release dated July 15, 1999, entitled
"Orange-co, Inc. Announces Potential Change of
Control"
-17-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934 the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ORANGE-CO, INC.
(Registrant)
Date: August 16, 1999 By: /s/ Gene Mooney
------------------------------------
Gene Mooney
President and
Chief Operating Officer
Date: August 16, 1999 By: /s/ Dale A. Bruwelheide
------------------------------------
Dale A. Bruwelheide
Vice President, Chief Financial Officer,
and Principal Accounting Officer
-18-
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