<PAGE>
Filed Pursuant to Rule 424(b)(4)
File No. 033-60823
2,000,000 SHARES
[LOGO]
CLASS A COMMON STOCK
All of the shares of Class A Common Stock offered hereby are being sold by
the Company. The Company's Class A Common Stock, $.01 par value, is traded on
the Nasdaq National Market under the symbol "CBRYA." On August 8, 1995, the last
reported bid price of the Class A Common Stock was $14.25 per share. See "Price
Range of Class A Common Stock and Dividends."
The Company has two classes of common stock, the Class A Common Stock being
offered hereby and Class B Common Stock. On all matters on which shareholders
are entitled to vote, the holders of Class A Common Stock are entitled to one
vote per share and the holders of Class B Common Stock are entitled to three
votes per share. The Company must pay cash dividends on its shares of Class A
Common Stock at least equal to 110% of any cash dividends payable on the shares
of Class B Common Stock. The Class A Common Stock also has certain prior rights
to liquidation proceeds. See "Description of Capital Stock."
------------------------
SEE "RISK FACTORS" STARTING ON PAGE 7.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share................................ $14.25 $0.785 $13.465
Total (3)................................ $28,500,000 $1,570,000 $26,930,000
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting offering expenses payable by the Company estimated at
$450,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
300,000 additional shares of Class A Common Stock to cover over-allotments,
if any. If the over-allotment option is exercised in full, the total Price
to Public, Underwriting Discounts and Commissions and Proceeds to Company
will be $32,775,000, $1,805,500 and $30,969,500, respectively. See
"Underwriting."
------------------------
The Class A Common Stock is being offered severally by the Underwriters
when, as and if delivered to and accepted by the Underwriters subject to prior
sale and to certain other conditions. It is expected that delivery of the shares
of Class A Common Stock will be made on or about August 14, 1995.
<TABLE>
<S> <C>
DAIN BOSWORTH PIPER JAFFRAY INC.
Incorporated
</TABLE>
THE DATE OF THIS PROSPECTUS IS AUGUST 9, 1995.
<PAGE>
[CHART]
Northland markets and sells its NORTHLAND brand fresh cranberries in
supermarkets in the United States, Canada and Europe.
As a continuation of its "from marsh to market" vertical integration business
strategy, Northland plans to begin marketing and selling NORTHLAND brand premium
cranberry juice on a limited basis. The Company currently is developing its
cranberry juice formulae and packaging.
In June 1995, Northland commenced construction of a $4.5 million cranberry juice
concentrating addition to its Wisconsin Rapids, Wisconsin facility. Scheduled
for completion in May 1996, this new addition will allow Northland to
concentrate annually up to 400,000 barrels of cranberries.
Cranberries harvested by Northland for processing on a flooded marsh are
mechanically removed from the vines and then collected and transported to the
Company's cleaning facilities.
NORTHLAND-REGISTERED TRADEMARK- is a registered trademark of Northland
Cranberries, Inc.
------------------------
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMPANY'S CLASS
A COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A
UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO CONTAINED OR
INCORPORATED BY REFERENCE ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION. UNLESS THE CONTEXT INDICATES OTHERWISE, THE
TERMS "COMPANY" AND "NORTHLAND" INCLUDE THE CURRENT SUBSIDIARY AND PREDECESSOR
LIMITED PARTNERSHIPS OF NORTHLAND CRANBERRIES, INC.
THE COMPANY
Northland Cranberries, Inc. is the world's largest cranberry grower, with
more planted acres of cranberries owned or leased than any other grower. Since
immediately prior to the Company's initial public stock offering in 1987 through
the fall of 1994, the Company's initial business strategy of growth through
marsh acquisition, leasing and planting has increased its planted acreage by
568% and its barrels produced by 424%. Northland owns or leases 2,257 planted
acres of cranberries at 21 marsh locations which produced 254,000 barrels in
1994, representing approximately 5% of the total cranberries harvested and
approximately 24% of all of the cranberries harvested by independent growers
last year. Under contracts which expire after the fall 1995 harvest, the Company
currently sells substantially all of its crop harvested for processing to two
independent fruit juice and sauce processors for their packaging and resale as
private label cranberry juice and sauce. Northland also sells its own NORTHLAND
brand fresh cranberries.
As a continuation of its "from marsh to market" vertical integration
business strategy commenced in 1993, Northland intends to begin marketing and
selling its own NORTHLAND brand cranberry juice, sauce and other processed
consumer cranberry products. Northland also intends to pursue strategic
alliances with one or more co-packers to develop, market and sell private label
cranberry juice, sauce and other processed cranberry products. Northland
believes that by directly controlling the production, distribution and marketing
of its crop as value-added processed consumer cranberry products it can
significantly increase its revenues and profits beyond those currently realized
from selling substantially all of its cranberry crop for processing under fixed
price supply agreements. To implement its strategy, Northland intends to take
the following actions:
- Introduce NORTHLAND brand premium cranberry juice products beginning in
the fall of 1995 on a limited basis into selected Midwest and other
markets.
- Expand the geographic distribution of its NORTHLAND brand premium
cranberry juice products beginning in 1996 and thereafter introduce other
NORTHLAND brand processed cranberry products and begin pursuing alliances
with various co-packers to develop, market and sell private label
cranberry products.
- Continue to expand its NORTHLAND brand fresh cranberry production and
sales.
- Continue to explore international distribution opportunities for all of
its consumer cranberry products.
In preparation for this next step of its vertical integration strategy, the
Company commenced construction in June 1995 of a $4.5 million cranberry juice
concentrating facility. Scheduled for completion in May 1996, this new facility
will enable Northland to concentrate juice from up to 400,000 barrels of raw
cranberries annually. In addition, Northland intends to enter into one or more
co-packing arrangements with third party bottlers to begin producing and
packaging the Company's cranberry juice and other processed cranberry products
for retail consumer sale under the NORTHLAND label.
3
<PAGE>
Northland believes that two supply and demand characteristics of the
cranberry market favor its position as the world's largest independent grower
and will help it to more effectively enter such market.
First, the supply of raw cranberries is limited, a market condition the
Company believes will persist for at least the next several years. This limited
supply is due to the combination of federal and state environmental regulations
which currently restrict the development of wetlands (the preferred growing
habitat for cranberries), and the long lead-time (approximately 5 1/2 years) and
significant capital cost (approximately $35,000-$40,000 per acre) required to
develop new marshes to full production. Compounding this circumstance, the
Company believes that the current demand for cranberry products exceeds the
limited supply and that this demand will continue to increase, based in part on
perceived consumer trends towards buying more nutritious and healthful foods and
beverages. (Cranberry juice was cited by a 1994 study conducted by Brigham and
Women's Hospital and Harvard Medical School as contributing to reduced risk of
urinary tract infection among women.) The Company also believes that continued
heavy advertising expenditures and expanded new cranberry product offerings
introduced by well-recognized consumer food products and beverage companies like
Ocean Spray Cranberries, Inc. and, to a lesser extent, Tropicana Products, Inc.,
Welch Food Inc., Coca Cola Foods, Inc., Chiquita Brands International, Inc. and
Veryfine Products, Inc. will continue to increase consumer demand for both
branded, as well as private label, cranberry products.
The second market factor is that Ocean Spray, an agricultural marketing
cooperative of over 700 cranberry growers, dominates the markets for both the
supply of raw cranberries (where it controlled approximately 75%-80% of the
North American market in 1994) and the sale of cranberry products (where it
controlled approximately 60% of the United States market in 1994). The Company
believes that Ocean Spray's dominant market position limits the ability of
actual and potential brand name competitors to build a strong cranberry beverage
business because Ocean Spray can limit the amount of cranberry supply that it
makes available to such competitors. Ocean Spray's control of the overall
cranberry supply also limits the availability of raw cranberries to the
independent (I.E., non-Ocean Spray) market. The Company believes that the
independent market for raw cranberries and private label cranberry products is
largely controlled by the two fruit juice and sauce processors to whom Northland
currently sells substantially all of its crop harvested for processing. The
Company, therefore, believes its crop can effectively be redirected into the
Company's own processed cranberry products and that the relative total supply of
cranberry products will not increase as a result of its entry into direct sales
of cranberry juice, sauce and other value-added processed consumer products.
As a result of the limited cranberry supply, strong demand and Ocean Spray's
market dominance, Northland believes its ability to internally provide itself
with a reliable supply of cranberries provides it with a competitive advantage
over other independent and non-Ocean Spray branded cranberry product processors
and marketers. The Company believes its internal cranberry supply will help
support its sustained entry into the consumer cranberry products market. In an
attempt to supplement its internal supply, the Company has entered into
multi-year crop purchase agreements to purchase up to approximately 50,000 to
75,000 barrels of cranberries each year from other independent growers beginning
in fiscal 1996.
As a result of Northland's plans to begin selling processed consumer
cranberry products in fiscal 1996, the Company has decided to change its fiscal
year end from March 31 to August 31. This change is being made in order to align
the Company's fiscal year with the anticipated new annual business cycle
expected to result from the Company's implementation of its current business
strategy.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered................ 2,000,000 shares
Class A Common Stock to be outstanding after
the offering............................... 6,010,613 shares (1)(2)
Class B Common Stock outstanding............ 318,101 shares (2)
Use of proceeds............................. To reduce debt, support the Company's plans to
enter the processed consumer cranberry
products market and for general corporate
purposes.
Current annual dividend rate on Class A
Common Stock............................... $0.28 per share (3)
Nasdaq National Market symbol............... CBRYA
<FN>
------------------------
(1) Not including (i) the shares of Class A Common Stock issuable upon
conversion of 318,101 shares of Class B Common Stock described in note (2)
below; (ii) 372,143 shares subject to issuance upon the exercise of
currently outstanding stock options; (iii) 100,000 shares subject to
issuance pursuant to the terms of a $3.0 million promissory note due March
31, 1996, convertible at the option of the holders at an effective
conversion rate of $30 per share; and (iv) an undeterminable number of
shares expected to be issuable annually beginning in fiscal 1996 in
unregistered transactions at $10 in value per useable barrel actually
purchased by the Company (currently not anticipated to exceed in the
aggregate approximately $500,000 to $750,000 in value per year based on
contracts entered into as of the date of this Prospectus), as partial
payment for cranberry purchases by the Company under crop purchase
agreements. See "Description of Capital Stock," "Management -- Stock
Options Under Existing Plans," Note 7 of Notes to Consolidated Financial
Statements and "Business -- Products; Raw Cranberries."
(2) Shares of Class B Common Stock are convertible on a share-for-share basis
into Class A shares at the option of the holders.
(3) Northland's cash dividends on its Class A Common Stock are currently paid
quarterly at the rate of $0.07 per share. See "Price Range of Class A
Common Stock and Dividends."
</TABLE>
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND STATISTICAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31, (1)
-----------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA (2):
Revenues................................................ $21,784 $18,051 $13,000 $12,624 $11,260
Gross profit............................................ 8,727 9,300 6,655 6,017 5,270
Selling, general and administrative expense............. 2,440 2,046 1,474 1,321 1,096
Interest expense........................................ 3,654 2,394 2,028 2,764 2,738
------- ------- ------- ------- -------
Income before income taxes.............................. 2,633 4,860 3,153 1,932 1,436
Income taxes............................................ 1,051 1,917 1,210 768 567
------- ------- ------- ------- -------
Net income.............................................. $ 1,582 $ 2,943 $ 1,943 $ 1,164 $ 869
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Net income per share.................................... $ 0.36 $ 0.67 $ 0.51 $ 0.40 $ 0.31
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Weighted average shares outstanding..................... 4,445,425 4,417,387 3,818,356 2,876,923 2,822,829
SELECTED STATISTICAL DATA:
Total planted acres..................................... 2,257 1,982 1,500 1,433 1,234
Acres harvested......................................... 1,813 1,519 1,114 958 828
Barrels produced........................................ 254,000 192,000 130,000 167,000 124,000
Barrels per harvested acre.............................. 140 126 117 174 150
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1995 (1)
-------------------------
AS ADJUSTED
ACTUAL (3)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets......................................................................... $ 6,746 $ 6,746
Current liabilities.................................................................... 10,169 9,169
Total assets........................................................................... 107,745 107,745
Long-term obligations.................................................................. 55,793 30,313
Shareholders' equity................................................................... 34,627 61,107
<FN>
------------------------------
(1) The Company is changing its fiscal year end from March 31 to August 31,
beginning after a five- month interim transitional period ending on August
31, 1995. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition -- General; Change of Fiscal Year End."
(2) See "Management's Discussion and Analysis of Results of Operations and
Financial Condition -- General; Presentation of Certain Financial Statement
Information" for a discussion of the reformatting of certain line items in
the statement of income. During the periods presented, the Company has made
business acquisitions, which affect the comparability between periods of
the information set forth. See Note 2 of Notes to Consolidated Financial
Statements.
(3) Reflects the sale of the Class A Common Stock offered hereby and the
Company's application of the estimated net proceeds of this offering. See
"Capitalization" and "Use of Proceeds."
</TABLE>
6
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN
EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING SHARES OF THE CLASS A
COMMON STOCK OFFERED HEREBY.
CURRENT BUSINESS STRATEGY
The Company's current strategy to begin marketing and selling value-added
processed consumer cranberry products involves substantial risk and there can be
no assurance that the Company will be successful in implementing this strategy.
Even if the strategy does prove initially successful, there can be no assurance
that Northland will be able to manage or sustain such success. Important to the
success of Northland's strategy is its belief that the demand for cranberry
products will exceed the available supply of raw cranberries for at least the
next several years and that the redirection of its own internal supply of raw
cranberries (and the raw cranberries it intends to purchase from other growers)
into its own cranberry products will not increase the overall supply of consumer
cranberry products. If the Company's assessment of the cranberry market is
incorrect, the Company's internal cranberry supply may not create the benefits
and competitive advantages currently anticipated by the Company, which could
have a material adverse effect on its results of operations and financial
condition. See "-- Cranberry Market; Supply and Demand" below.
While the Company has key employees who have experienced the product
introduction and sale of its NORTHLAND brand fresh cranberries, the Company's
management and employees have limited experience and expertise in the consumer
beverage and fruit products businesses. Although the Company has hired a Branded
Products Manager with juice and beverage industry experience and intends to hire
additional qualified personnel with such experience, there can be no assurance
that the Company will be able to successfully hire additional qualified
personnel or, if hired, retain and integrate such personnel into the Company's
operations.
Northland's current strategy, together with its current intended product mix
and market focus, is likely to evolve as it gains greater experience in the
processed consumer cranberry products market and there can be no assurance that
Northland's current plans and strategy as described in this Prospectus will not
change substantially. Northland's processed consumer cranberry product
introductions are subject to the risks of consumer acceptance of the Company's
product quality and appearance and may involve substantial initial promotional
costs, price discounting and difficulties in being allocated shelf space in
supermarkets, mass merchandisers and convenience stores, any or all of which
circumstances may affect adversely the Company's results of operations and
financial condition. Although the Company believes that successful
implementation of its strategy will ultimately result in increased revenues and
profitability, the Company may incur significant unexpected costs and delays, as
well as substantial competition, as a result of pursuing its current strategy or
any resulting strategy. The Company has planned its entry into the processed
cranberry products markets to largely coincide with the March 31, 1996
expiration of its three-year supply agreements ("Supply Agreements") with two
independent private label fruit juice and sauce processors, Clement Pappas &
Co., Inc. ("Pappas") and Cliffstar Corporation ("Cliffstar"). As a result,
substantial delays in successfully entering these markets, particularly if they
occur after the fall 1996 harvest, may result in the Company carrying
substantial quantities of unsold inventories of cranberries or cranberry
products. This circumstance could have a material adverse effect on the
Company's results of operations and financial condition. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition --
General; Current Business Strategy."
EXPIRATION OF SUPPLY AGREEMENTS
On March 31, 1996 (after the Company delivers its fall 1995 harvest), the
Supply Agreements will expire by their own terms. Under the Supply Agreements,
the Company has delivered substantially all of its cranberry crop harvested for
processing at per barrel all cash prices substantially above the prices paid by
Ocean Spray Cranberries, Inc. ("Ocean Spray") to its member-owners. Deliveries
under the Supply Agreements must meet certain minimum quality standards, certain
of which are subject to discretionary interpretation. Since the three-year
Supply Agreements provided for the negotiation of the terms of a one-year
extension of the contract after the end of the first contract year, the Company
initiated negotiations with Pappas and Cliffstar regarding extension of the
Supply Agreements after the end of the first year of the contracts and at
various times thereafter. However, based on Pappas' and Cliffstar's positions
taken in such negotiations, the Company does not believe it could extend or
7
<PAGE>
renew the Supply Agreements on their current favorable terms. Pappas and
Cliffstar will continue to be customers of the Company under the Supply
Agreements through the time of payment for the fall 1995 harvest and it is
possible the Company's announced strategy could affect adversely its current
relationships with Pappas and Cliffstar. There can be no assurance that the
Company will be able to realize future net per barrel proceeds in amounts or on
terms as favorable to the Company as realized under the Supply Agreements. Such
an occurrence could materially adversely affect the Company's results of
operations and financial condition.
CRANBERRY MARKET; SUPPLY AND DEMAND
An oversupply of cranberries could have a depressing effect on the pricing
of raw cranberries and consumer cranberry products. According to data published
by the Cranberry Marketing Committee of the United States Department of
Agriculture ("CMC"), the production of raw cranberries in North America
increased to 5.2 million barrels in 1994 from 3.9 million barrels in 1986 and
the acres of cranberries harvested over such period in North America increased
to 34,315. The Company anticipates that the supply of raw cranberries will
continue to increase over the next several years, principally due to the
maturation of new acreage planted in the United States as a result of growers
obtaining permits prior to the enactment in 1990 of the current regulations
restricting the further new development of wetland acreage. See "Business --
Regulation; Environmental Regulation." However, apart from the anticipated
general trend toward increasing supply, annual cranberry production can
fluctuate significantly from year to year depending on agricultural conditions,
which can cause dramatic increases or decreases in the overall annual supply of
raw cranberries. According to CMC data, approximately 1,002 and 568 new acres of
cranberries in 1995 and 1996, respectively (of which 99 and 158 acres are
attributable to the Company), are expected to mature in the United States to the
point of allowing harvesting. After 1996, the Company anticipates that
additional maturing acreage in the United States will decrease significantly due
to the impact of current regulations which became effective in 1990 and
restricted the issuance of new permits to allow the further commercial
development of wetland acreage. However, there can be no assurance that future
federal or state legislation easing the current regulatory restrictions on
wetland development will not be enacted. See "Business -- Regulation;
Environmental Regulation." Moreover, although the Company believes that new
commercial development of cranberry acreage has been limited in Canada because
of its federal "no net loss of wetlands" policy (which has also been adopted by
most provinces), there is no available data on the extent of new cranberry
acreage development in Canada. Such development could be substantial.
Additionally, to date, substantially all of the world's raw cranberries have
been grown in North America. In recent years, however, increased attention has
been directed at attempts to grow cranberries in locations outside North America
and on non-wetland properties. Over the longer term, there can be no assurance
that cranberry production outside North America or on non-wetland properties
will not become significant. See "Business -- Supply and Demand Dynamics of the
Cranberry Markets."
The Company believes that the demand for cranberry products has also
increased substantially over recent years and has generally exceeded the supply
of raw cranberries. While the Company believes that the demand for cranberry
products at current market prices will continue to exceed the supply of raw
cranberries for the next several years, there can be no assurance that the
supply of raw cranberries will not increase to meet or exceed market demand or
that demand will not decline. Ocean Spray has publicly stated that it believes
an oversupply of raw cranberries in the independent cranberry market may be
imminent principally as a result of the anticipated maturing of recently planted
new high-yielding hybrid vines in North America. However, the CMC at its March
1, 1995 meeting determined that a grower allocation program would not be
warranted based on projections of cranberry production, acreage, utilization and
inventories, which the Company believes indicates that cranberry supply should
not exceed demand for the 1995 growing season. Moreover, the April 30, 1995
quarterly report of the CMC indicated that cranberry sales for the eight-month
period then ended increased by almost 25.0% to 3.5 million barrels compared to
the prior year's eight-month period. Increasing demand for cranberry products,
however, may depend on continued heavy advertising expenditures and expanded new
cranberry product introductions by Ocean Spray and other branded juice product
companies. Additionally, changes in consumer perceptions of the relative
healthfulness or safety of cranberries generally could have a material adverse
effect on the demand for consumer cranberry products and result in significant
changes in cranberry prices.
8
<PAGE>
COMPETITION
GENERAL
The markets in which the Company has competed and will compete are large and
very competitive. Many of the Company's current and prospective competitors have
substantially greater financial, marketing, production and/or distribution
resources than the Company and, except in the areas of cranberry growing and
fresh fruit sales, substantially more experience in the production, marketing,
distribution and sale of cranberry and other consumer products. The Company will
be subject to substantial competition with respect to the sale of consumer
cranberry products, the sale of fresh cranberries and, to a lesser extent, the
purchase of raw cranberries. Moreover, the competitive success of the Company's
products will depend on consumers' perceptions of their quality and appearance
as compared to competitive products.
RAW CRANBERRY MARKET
Ocean Spray dominates the raw cranberry market. Ocean Spray is an
agricultural marketing cooperative that enjoys limited protection under the
United States anti-trust laws. Over 700 cranberry growers are member-growers of
Ocean Spray, representing approximately 75%-80% of all cranberry production in
North America. According to information from the CMC, of the 5.2 million barrels
of cranberries produced in North America in 1994, approximately 4.2 million
barrels were delivered to Ocean Spray by its member-growers, with the remainder
being produced and sold by independent (I.E., non-Ocean Spray) growers.
Northland will compete in the market for purchasing raw cranberries with other
independent cranberry product handlers and processors for the raw cranberries of
other independent growers. Although Ocean Spray has not accepted any new member-
growers in recent years, the Company could also experience competition for the
purchase of raw cranberries from Ocean Spray if Ocean Spray were to begin
accepting new member-growers. The Company believes that competition for the
purchase of raw cranberries in the independent market may increase as a result
of the Company pursuing its current business strategy.
BRANDED PRODUCTS MARKET
Ocean Spray also dominates the branded consumer cranberry products market.
Ocean Spray's highly recognizable brand name cranberry products accounted for
approximately 60% of the sales of cranberry products in 1994 in the United
States, based on industry data. For its fiscal year ended August 31, 1994, Ocean
Spray reported total sales of $1.2 billion ($892 million in cranberry related
products) and total assets of $695 million. The Company fully anticipates that
Ocean Spray will react to counter Northland's intended entry into the branded
cranberry juice and processed cranberry products markets through one or more
competitive responses. Ocean Spray has significantly more experience in the
fruit juice and branded processed cranberry products markets, substantially
greater brand name recognition and substantially greater marketing, distribution
and financial resources than the Company. There can be no assurance that the
Company will be successful in competing against Ocean Spray even on a limited
regional basis.
PRIVATE LABEL CRANBERRY PRODUCTS MARKET
The market for private label cranberry juice, sauce and other processed
cranberry products has been supplied primarily by Pappas and Cliffstar, as well
as a limited number of other independent raw cranberry brokers and private label
juice processors and marketers. While the Company is willing to discuss entering
into a strategic alliance with Pappas or Cliffstar to jointly enter the private
label cranberry market, based on past discussions with such parties, the Company
believes it is unlikely it will be able to enter into such an alliance with
either Pappas or Cliffstar. Therefore, the Company could be competing directly
or indirectly with Pappas and Cliffstar in the private label market beginning in
1996. Pappas and Cliffstar have significant experience in the private label
fruit juice and processed cranberry products markets and have well established
co-packing and bottling operations, distributor networks and customer bases that
may be greater than those of the Company or other co-packers that may enter into
an alliance with Northland. There can be no assurance that the Company will be
successful in competing directly or indirectly against Pappas or Cliffstar.
Moreover, private label cranberry products in general compete against branded
cranberry products and, in particular,
9
<PAGE>
the branded cranberry products of Ocean Spray. There can be no assurance that
any private label processed cranberry products of the Company or its allied
co-packers will be able to successfully compete against the similar branded
products of Ocean Spray or others.
FRESH CRANBERRY MARKET
The Company already experiences significant direct competition from Ocean
Spray in the fresh cranberry market. Ocean Spray has significantly greater
marketing, distribution and financial resources than the Company and there can
be no assurance that the Company will be able to continue to compete
successfully against Ocean Spray in the fresh fruit market.
SEASONALITY; CHANGE OF FISCAL YEAR
The Company's business historically has been extremely seasonal. Similar to
most other nondiversified agricultural crop growers, the Company has recognized
its crop sales revenues (which constituted 86.3% of the Company's fiscal 1995
total revenues) at the time of annual harvest in the fall of each year. As a
result of this extreme seasonality, the Company typically has recognized net
losses for its quarters ended March 31 and June 30 and recently only nominal net
income in its quarter ended September 30. Because the Company's results of
operations have been significantly dependent upon the results of the Company's
annual harvest, its results for interim fiscal periods have not been considered
indicative of those to be expected for a full year or for other interim periods.
Since the Company will continue to sell substantially all of its cranberry crop
harvested for processing under the Supply Agreements in fiscal 1996, this
extreme seasonality is expected to continue until such time as the Company
begins to sell substantial quantities of processed consumer cranberry products.
The Company does not expect this to occur before fiscal 1997, although the
Company plans to begin introducing and selling branded cranberry juice and other
processed cranberry products on a limited basis starting in fiscal 1996. While
the Company believes that successful implementation of its strategy will
ultimately reduce the extreme seasonality of its current business, there can be
no assurance that this will be the case and, in any event, it is expected that
the Company's results of operations will continue to experience significant
seasonality as a result of the traditionally heavier consumer demand for juice
products during the summer months and the increased Thanksgiving and Christmas
season holiday demand for fresh cranberries and other processed cranberry
products. Moreover, due to the changing nature of the Company's business over
the next two years, it is likely that initial comparisons of quarterly or annual
results to the prior fiscal year's comparative periods will not be meaningful or
informative during fiscal 1996 or 1997. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition -- General."
In view of the Company's strategy to begin marketing and selling value-added
processed consumer cranberry products, the Company is changing its fiscal year
end from March 31 to August 31 in order to correspond the Company's fiscal year
with the anticipated new annual business cycle expected to result from the
implementation of its strategy. Also, the change in fiscal year end should best
match the cost and expenses associated with growing each year's crop with the
expected revenues to be generated from the anticipated sales of the consumer
products produced from such crop. As a result of the changing fiscal year end,
the Company will report its results of operations and financial condition for
its interim quarter ending on June 30, 1995 and for the five-month interim
transitional period ending on August 31, 1995. Consistent with the seasonality
of its current business as described above, the Company expects to report net
losses from operations for both interim transitional periods. After August 31,
1995, the Company will report its results of operations and financial condition
for the fiscal quarters ending on November 30, February 28 or 29 and May 31 of
each fiscal year, and for its fiscal year ending on August 31. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition --
General; Change of Fiscal Year End."
AGRICULTURAL FACTORS; CROP INSURANCE
Northland's cranberry production and current results of operations are
subject to the variable effects of weather, crop disease, insect infestation,
animal damage, hail and storm damage and water adequacy. These factors can also
affect the storage and selling quality of Northland's crop, as well as the
quantity and quality of raw cranberries to be purchased by the Company from
other growers.
10
<PAGE>
Significant reductions in annual per acre yields can result from any of these
factors being unfavorable on the Company's marshes and such reductions can have,
and have had, a material adverse effect on the Company's results of operations.
As a result, the Company's crop yields and production on its individual marshes
and on an aggregate basis can and do fluctuate widely from year to year. For
example, although the Company's fall 1994 harvest was a record for Northland,
its yields per acre in Wisconsin were substantially below internal expectations
because of unusual weather conditions experienced late in the Wisconsin growing
season and significant damage from hail storms at two of its marshes in northern
Wisconsin. Similarly, yields for Northland's fall 1993 crop were also affected
adversely by abnormally cold weather throughout the growing season.
Additionally, weather conditions and the other agricultural factors described
above have delayed by approximately one growing season the development and
maturation of Northland's recently planted cranberry vines. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition --
Results of Operations" and "Business -- Marsh Operations; Agricultural Risks in
Production."
While the Company's present federal multi-peril crop insurance coverage
provides protection against reduced harvests resulting from adverse growing
conditions and hail and storm damage, such policies insure only up to 75% of the
previous 10 years' average historical yield from the affected marsh and will
reimburse the Company at an effective rate of $55 per barrel of insured lost
production this crop year (substantially below the price which could have been
received by actually harvesting and delivering or selling such barrel). These
reimbursement rates do not and will not take into account or cover the
increasing yields expected from newly maturing acreage or the anticipated higher
per barrel proceeds which the Company may otherwise achieve by selling its
cranberries as fresh fruit or as branded or private label consumer products.
These insurance policies also do not cover destruction or spoilage of the
Company's crop after its harvest. For example, these policies did not insure the
Company against the losses it incurred from the abnormally high crop storage
spoilage rate which the Company experienced in the last fiscal year.
Additionally, for the second consecutive year, the Company did not purchase
separate stand-alone crop hail insurance coverage this growing season because of
its high quoted premium costs and limited coverage. While the Company believes
that this has been and is a cost-effective decision, the absence of such excess
stand-alone coverage may increase the Company's risk of crop loss from hail
damage on its Wisconsin marshes. See "Business -- Marsh Operations; Crop
Insurance."
DEPENDENCE ON KEY PERSONNEL; MANAGEMENT ADDITIONS
The Company is dependent on certain key management personnel, particularly
its President and Chief Executive Officer, John Swendrowski. The Company does
not maintain key man life insurance on, or have employment agreements for
current employment with, any of its management personnel. In order to implement
its current strategy, the Company recently hired a Branded Products Manager, and
the Company intends to hire within the next year additional qualified management
personnel (including a Private Label Products Manager) with juice or beverage
industry experience. The Company's future success will depend, in part, on its
ability to retain and integrate its new management personnel into the Company's
operations. See "Management."
PROCESSING AND DELIVERY
The Company's principal processing and storage facility is located in
Wisconsin Rapids, Wisconsin. The Company's new concentrating facility is being
built as an addition to its existing Wisconsin Rapids facility. The Company also
operates a smaller processing facility in Hanson, Massachusetts for its
Massachusetts-grown cranberry crop. In the event of a fire or other natural
disaster, regulatory actions or other causes, particularly if such incidents
occurred during or shortly after the annual fall cranberry harvest, the
Company's inventory of cranberries at such affected facility would be subject to
loss and the Company might be unable to receive and process harvested berries at
such facility, provide concentrate to its co-packers (if the event affected the
Wisconsin Rapids facility) or process or ship fresh cranberries from such
facility. Although the Company has business interruption insurance believed to
cover most such circumstances, such an interruption of business could materially
and adversely affect the Company's results of operations.
11
<PAGE>
In order to implement its current strategy, the Company expects to enter
into contractual arrangements with various providers of materials and services
required to produce, package, market and distribute the Company's processed
cranberry products, such as co-packers, food and beverage brokers and
transportation companies. Based upon the Company's existing contacts within
these industries and the current conditions in these industries, the Company
believes that it will be able to locate and conclude negotiations with such
providers so as to implement successfully its strategy to enter the processed
cranberry products market. There can be no assurance, however, that the Company
will be able to successfully conclude any such negotiations with suitable
providers on a timely basis or on satisfactory terms. Also, because the Company
has only limited established relationships for obtaining these materials or
services, the Company is subject to a greater risk that such materials or
service providers will be unreliable or otherwise unsatisfactory or that the
Company will experience start-up problems or delays. Moreover, especially during
the initial phase of implementing its current strategy, the Company is likely to
rely upon one provider or a limited number of providers with respect to any
required service or type of material, either for a specific geographical area or
for the Company's entire processed product line. If the Company is heavily
dependent upon one or more such providers, poor performance by or the loss of
any such provider could have a material adverse effect on the Company's results
of operations, especially in the short-term.
REGULATION
As a result of the significant regulatory restrictions in the United States
governing the development of wetlands (the preferred growing habitat for
cranberries), it is unlikely the Company, or any other cranberry growers or
developers in the United States, in the near future will be able to cost-
effectively secure additional permits for further significant cranberry marsh
expansion on wetland properties. While a recent legislative proposal adopted by
the United States House of Representatives attempts to ease these restrictions
in certain respects, in its current form such legislation does not preempt state
regulation of wetlands development and, therefore, may not significantly affect
current restrictions in the United States. The Company is unable to predict the
likelihood of enactment of such legislation, what form the proposed legislation
may finally take or what impact any such enacted legislation will have on the
ability to develop new cranberry marshes. If the current proposal is enacted in
a manner which would materially ease restrictions on the development of
cranberry marshes, it could lead to an increase in long-term cranberry supply
which, if not exceeded by demand, could have a depressing effect on the pricing
of cranberries and cranberry products. While the Government of Canada and most
of Canada's provinces have "no net loss" policies restricting the development of
wetlands, the impact of such policies on development of wetlands for cranberry
production is uncertain. See "-- Cranberry Market; Supply and Demand" above.
The production, packaging, labeling, marketing and distribution of the
Company's fresh cranberries and planned processed consumer cranberry products
are and will be subject to the rules and regulations of various federal, state
and local food and health agencies, including the United States Food and Drug
Administration, the United States Department of Agriculture, the Federal Trade
Commission and the Environmental Protection Agency. The Company believes it has
and will be able to comply in all material respects with such rules, regulations
and laws. However, there can be no assurance that future compliance with such
rules, regulations and laws will not have a material adverse effect on the
Company's results of operations and financial condition. See "Business --
Regulation; Cranberry Product Regulation."
Under the provision of the Agricultural Marketing Agreement Act, a Cranberry
Marketing Order was adopted in 1974. This order established the CMC, which is
charged with developing a domestic marketing policy by March 1 of each year and
making recommendations concerning the allowable supply of cranberries for such
year. If the CMC determines that the supply and demand of cranberries will
result in unstable market conditions for the forthcoming crop year, the CMC can
recommend that the United States Secretary of Agriculture implement a grower
allocation program pursuant to the Cranberry Marketing Order. The provisions
available for such implementation permit the Secretary to regulate the amount of
cranberries which "handlers," such as Ocean Spray, Cliffstar, Pappas and the
Company, can accept from growers for domestic marketing. The CMC's jurisdiction
is limited to
12
<PAGE>
areas within the United States. Therefore, the Company believes that any such
order would not affect international allocations or sales. The CMC has never
recommended that the Secretary implement an allocation program. However, similar
provisions in effect prior to 1974 enabling the Secretary to limit the marketing
of cranberries were implemented on three occasions, most recently in 1971. As of
March 1, 1995, the consensus of the CMC was that an allocation program would not
be warranted for the 1995 crop year. However, there can be no assurance that the
CMC will not change its recommendation for 1995 or determine that the relative
supply and demand characteristics require such a grower allocation program in
the future, and that, therefore, limitations on the amount of cranberries
produced and allotments on growers would be imposed. If such limitations or
allotments are imposed on growers, they could have a material adverse effect on
the Company's results of operations and financial condition. See "Business --
Regulation; Other Regulatory Matters."
CONCENTRATION OF OWNERSHIP; ANTI-TAKEOVER CONSIDERATIONS
As of May 31, 1995, the current directors and executive officers of the
Company in the aggregate controlled 29.7% of the combined voting power of the
Class A and Class B Common Stock, including all of the outstanding shares of
Class B Common Stock. After the offering, the Company's current directors and
officers will continue to control in the aggregate 21.5% of such voting power.
The shares of Class B Common Stock are entitled to three votes per share on all
matters submitted to a vote of shareholders and the shares of Class A Common
Stock are entitled to one vote per share on all such matters. After the
offering, John Swendrowski, the President and Chief Executive Officer of the
Company, will continue to control (both personally and through a voting trust
and shareholders agreement) 16.2% of the combined voting power of the Class A
and Class B Common Stock. See "Description of Capital Stock" and "Stock
Ownership of Management and Others."
The voting power of the Company's Class A and Class B Common Stock
controlled by the Company's directors and officers in the aggregate, along with
the existence of the Class B Common Stock, the voting trust and the shareholders
agreement, as well as the Board of Directors' ability to issue, without
shareholder approval, Preferred Stock upon such terms and conditions as it may
determine and additional Class A Common Stock, could preclude, or make it more
difficult to effect, an acquisition of the Company which is not on terms
acceptable to the Company's Board of Directors and management. Additionally, the
foregoing could also have the effect of enhancing the ability of the Board of
Directors and management to maintain their positions with the Company. See
"Description of Capital Stock."
As described under "Description of Capital Stock -- Certain Statutory
Provisions," the Wisconsin Business Corporation Law contains several statutory
provisions which could also have the effect of discouraging non-negotiated
takeover proposals for the Company or impeding a business combination between
the Company and a major shareholder of the Company. Such provisions include (i)
limiting the voting power of certain shares of certain public corporations which
are held by a person in excess of 20% of the corporation's voting power to 10%
of the full voting power of such excess shares; (ii) requiring a super-majority
vote of shareholders, in addition to any vote otherwise required, to approve
certain business combinations not meeting certain adequacy of price standards;
and (iii) prohibiting certain business combinations between a corporation and a
major shareholder for a period of three years, unless such acquisition has been
approved by the corporation's board of directors prior to the time such major
shareholder became a 10% beneficial owner of shares or under certain other
circumstances.
POSSIBLE STOCK PRICE VOLATILITY
The Company believes that factors such as regulatory changes allowing the
further commercial development of wetland acreage, significant changes in the
relative supply and demand for cranberries, the Company's fall 1995 harvest
results, the Company's initial experience upon entering into the processed
consumer cranberry products market, significant quarterly fluctuations in the
Company's financial results and sales of a significant number of shares of Class
A Common Stock into the market by existing shareholders or the Company, together
with general stock market or economic conditions, could adversely affect or
cause significant volatility in the market price of the Class A Common Stock.
See "Price Range of Class A Common Stock and Dividends."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from its sale of the Class A Common Stock
offered hereby, after deducting underwriting discounts and commissions and
estimated offering expenses, are estimated to be $26.5 million ($30.5 million if
the Underwriters' overallotment option is exercised in full).
The Company intends to use approximately $18.0 million of the net proceeds
of this offering to repay the principal and accrued interest outstanding under
the Company's acquisition credit facility with a syndicate of regional banks.
The remainder of the net proceeds will be used to support the Company's entry
into the processed consumer cranberry products market and for other general
corporate purposes. Any additional funds necessary to finance the Company's
pursuit of its current strategy will be derived from the Company's results of
operations or drawn from its available credit facilities. Pending such uses, the
Company will apply the remaining net proceeds of this offering to reduce
outstanding amounts under its revolving line of credit facility. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Financial Condition."
The principal amount outstanding under the acquisition variable rate credit
facility is $18.0 million. As of the date of this Prospectus, this outstanding
amount bears interest at a weighted average annual interest rate of 8.6%.
Substantially all of the acquisition line matures in May 1996; provided, that
after repayment of the outstanding amounts under the acquisition line from the
net proceeds of this offering, $10.0 million will be made available to the
Company thereunder until August 1997. Borrowings under the acquisition credit
facility were utilized by the Company to fund the $5.0 million cash portion of
the purchase price for Northland's acquisition of the Yellow River cranberry
marshes in September 1994, $10.0 million to pay related seller promissory notes
which matured in April and May 1995 and $3.0 million to partially finance the
Company's June 7, 1995 exercise of its option to purchase its leased Hanson
Division marsh and related assets. See "Business -- Properties." As of the date
of this Prospectus, the principal amount outstanding under the Company's
revolving credit facility is $11.5 million. This variable rate facility bears
interest, as of the date hereof, at a weighted average annual interst rate of
8.1% and matures on August 31, 1997. Funds drawn on the revolving credit
facility have been used by the Company to support ongoing working capital and
capital expenditure requirements. Under both credit facilities interest is
payable at the Company's option at the bank's domestic rate plus 0.5%, the
bank's offered rate, or an adjusted LIBOR rate, plus an applicable rate margin
(1.75% and 2.5% for the revolving credit facility and acquisition credit
facility, respectively). See "Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Financial Condition."
14
<PAGE>
CAPITALIZATION
The following table sets forth the current liabilities and capitalization of
the Company as of March 31, 1995, and as adjusted to give effect to the sale of
the 2,000,000 Class A Common Stock offered hereby and the Company's application
of the estimated net proceeds therefrom as set forth above under "Use of
Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1995
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current liabilities, including current
portion of long-term obligations (1).......................................... $ 10,169 $ 9,169
--------- -----------
--------- -----------
Long-term obligations, less current portion (1)................................ $ 55,793 $ 30,313
Shareholders' equity:
Preferred Stock, $.01 par value: 5,000,000 shares
authorized; no shares issued or outstanding................................. -- --
Common Stock:
Class A, $.01 par value: 10,000,000 shares authorized (2); 4,010,613 shares
issued and outstanding (6,010,613 shares issued, as adjusted) (3)......... 40 60
Class B, $.01 par value: 2,000,000 shares authorized;
318,101 shares issued and outstanding..................................... 3 3
Additional paid-in capital................................................... 28,908 55,368
Retained earnings............................................................ 5,676 5,676
--------- -----------
Total shareholders' equity................................................. 34,627 61,107
--------- -----------
Total capitalization..................................................... $ 90,420 $ 91,420
--------- -----------
--------- -----------
<FN>
------------------------
(1) On June 6, 1995, the Company entered into amended credit facilities with a
syndicate of regional banks pursuant to which the Company refinanced its
revolving credit facility, term credit facility and acquisition credit
facility, resulting in an increase in current liabilities of $3.0 million
and long-term obligations of $1.1 million. Such additional borrowings were
used to partially fund the Company's exercise of its option to purchase its
previously leased Hanson Division marsh and related assets. See
"Management's Discussion and Analysis of Results of Operations and Finan-
cial Condition -- Financial Condition."
(2) The Company's Board of Directors has approved an increase in the authorized
number of Class A shares from 10,000,000 to 20,000,000, subject to
shareholder approval at the Company's scheduled August 18, 1995 annual
shareholders meeting. See "Description of Capital Stock -- Relative Rights
and Limitations."
(3) Not including (i) the shares of Class A Common Stock issuable upon
conversion of 318,101 shares of Class B Common Stock, which are convertible
on a share-for-share basis at the option of the holders; (ii) 372,143
shares subject to issuance upon the exercise of currently outstanding stock
options; (iii) 100,000 shares subject to issuance pursuant to the terms of
a $3.0 million promissory note due on March 31, 1996, convertible at the
option of the holders at an effective conversion rate of $30 per share; and
(iv) an undeterminable number of shares expected to be issuable annually
beginning in fiscal 1996 in unregistered transactions at $10 in value per
useable barrel actually purchased by the Company (currently not anticipated
to exceed in the aggregate approximately $500,000 to $750,000 in value per
year based on contracts entered into as of the date of this Prospectus), as
partial payment for cranberry purchases by the Company under crop purchase
agreements. See "Description of Capital Stock," "Management -- Stock
Options Under Existing Plans," Note 7 of Notes to Consolidated Financial
Statements and "Business -- Products; Raw Cranberries."
</TABLE>
15
<PAGE>
PRICE RANGE OF CLASS A COMMON STOCK AND DIVIDENDS
The Company's Class A Common Stock is traded on the Nasdaq National Market
under the symbol "CBRYA." The following table sets forth for the periods
indicated the high and low last sale prices, as reported on the Nasdaq National
Market, of the Company's Class A Common Stock and the cash dividends declared
thereon. See "Selected Consolidated Financial and Statistical Data" for
information on dividends paid on the Company's Class B Common Stock. See the
cover page of this Prospectus for the last bid price of the Class A Common Stock
on the date prior to the date of this Prospectus.
<TABLE>
<CAPTION>
HIGH LOW CASH DIVIDENDS
--------- --------- ---------------
<S> <C> <C> <C>
QUARTER OR PERIOD ENDED
FISCAL 1994 (1)
June 30, 1993.............................................................. $ 17.00 $ 13.75 $ 0.20
September 30, 1993......................................................... 19.75 15.50 0.05
December 31, 1993.......................................................... 19.50 17.50 0.05
March 31, 1994............................................................. 18.75 15.75 0.05
FISCAL 1995
June 30, 1994.............................................................. $ 19.00 $ 16.25 $ 0.07
September 30, 1994......................................................... 20.25 16.25 0.07
December 31, 1994.......................................................... 19.00 12.50 0.07
March 31, 1995............................................................. 16.25 12.25 0.07
TRANSITIONAL PERIOD (2)
June 30, 1995.............................................................. $ 16.25 $ 14.25 $ 0.07
August 31, 1995 (through August 8, 1995)................................... 15.50 14.00 0.05
<FN>
------------------------
(1) In August 1993, the Company changed its method of dividend payment from
annual to quarterly. As a result, the fiscal 1994 dividends set forth above
include an annual dividend of $0.20 per Class A share paid in June 1993,
plus three quarterly dividends of $0.05 per Class A share paid in each of
September 1993, December 1993 and March 1994.
(2) As a result of the Company's changing fiscal year, the Company will report
a three-month interim transitional quarter ending on June 30, 1995 and a
five-month interim transitional period ending on August 31, 1995 before
commencing its 1996 fiscal year beginning on September 1, 1995 and ending
on August 31, 1996. After August 31, 1995, the Company will report fiscal
quarters ending on November 30, February 28 or 29, May 31 and August 31 of
each fiscal year. See "Risk Factors -- Seasonality; Change of Fiscal Year"
and "Management's Discussion and Analysis of Results of Operations and
Financial Condition -- General; Change of Fiscal Year End."
</TABLE>
The Company intends to continue paying regular quarterly cash dividends,
subject to declaration thereof by the Board of Directors. However, as a result
of the Company's change in fiscal year and corresponding new fiscal quarterly
periods, the timing of the Company's quarterly dividend payments, subject to
declaration thereof by the Board of Directors, is expected to be adjusted to
correspond to the Company's new fiscal quarters, beginning with the first
quarter of fiscal 1996. An interim two-month transitional period cash dividend
of $0.05 and $0.0455 on its Class A Common Stock and Class B Common Stock,
respectively, was paid on August 1, 1995 to shareholders of record as of the
close of business on July 20, 1995. Purchasers of shares of Class A Common Stock
offered hereby will not be eligible to receive such cash dividend on the shares
purchased in this offering. It is not anticipated that the Board will consider
declaring another cash dividend until late in the first quarter of fiscal 1996.
The declaration of dividends will continue to depend principally upon the
Company's results of operations and financial condition. For a description of
the restrictions on dividends under the Company's credit agreements, see Note 7
of Notes to Consolidated Financial Statements. See also "Description of Capital
Stock -- Preferred Stock."
The Company's Articles of Incorporation provide that the Company must pay
cash dividends on its outstanding Class A Common Stock at least equal to 110% of
any cash dividends declared on its Class B Common Stock. See "Description of
Capital Stock."
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND STATISTICAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected consolidated financial and
statistical data for the Company at and for each of the five years in the period
ended March 31, 1995. The statement of income data in the table for the three
years ended March 31, 1995, and the balance sheet data as of March 31, 1995 and
1994, have been derived from the Company's consolidated financial statements
appearing elsewhere herein, which have been audited by Deloitte & Touche LLP,
independent auditors. The statement of income data in the table for the two
years ended March 31, 1992, and the balance sheet data as of March 31, 1993,
1992 and 1991, have been derived from the Company's audited consolidated
financial statements which are not included herein. The following data should be
read in conjunction with the Company's consolidated financial statements, the
related notes thereto and "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31, (1)
-----------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA (2):
Revenues................................................ $21,784 $18,051 $13,000 $12,624 $11,260
Cost of sales........................................... 13,057 8,751 6,345 6,607 5,990
--------- --------- --------- --------- ---------
Gross profit............................................ 8,727 9,300 6,655 6,017 5,270
Costs and expenses:
Selling, general and administrative................... 2,440 2,046 1,474 1,321 1,096
Interest.............................................. 3,654 2,394 2,028 2,764 2,738
--------- --------- --------- --------- ---------
Total costs and expenses................................ 6,094 4,440 3,502 4,085 3,834
--------- --------- --------- --------- ---------
Income before income taxes.............................. 2,633 4,860 3,153 1,932 1,436
Income taxes............................................ 1,051 1,917 1,210 768 567
--------- --------- --------- --------- ---------
Net income............................................ $ 1,582 $ 2,943 $ 1,943 $ 1,164 $ 869
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares outstanding..................... 4,445,425 4,417,387 3,818,356 2,876,923 2,822,829
Per share data:
Net income............................................ $ 0.36 $ 0.67 $ 0.51 $ 0.40 $ 0.31
Cash dividends (3):
Class A common...................................... 0.28 0.35 0.16 0.12 0.12
Class B common...................................... 0.2544 0.3185 0.1450 0.1090 0.1090
SELECTED STATISTICAL DATA:
Total planted acres..................................... 2,257 1,982 1,500 1,433 1,234
Acres harvested......................................... 1,813 1,519 1,114 958 828
Barrels produced........................................ 254,000 192,000 130,000 167,000 124,000
Barrels per harvested acre.............................. 140 126 117 174 150
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, (1)
--------------------------------------------
1995 1994 1993 1992 1991
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets.......................... $ 6,746 $ 5,598 $ 8,309 $ 6,802 $ 5,237
Current liabilities..................... 10,169 4,485 4,949 4,056 3,499
Total assets............................ 107,745 83,074 67,703 59,606 53,934
Long-term obligations................... 55,793 38,945 25,098 37,294 33,548
Shareholders' equity.................... 34,627 33,126 31,572 16,633 15,631
<FN>
------------------------------
(1) The Company is changing its fiscal year end from March 31 to August 31,
beginning after a five-month interim transitional period ending on August
31, 1995. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition -- General; Change of Fiscal Year End."
(2) See "Management's Discussion and Analysis of Results of Operations and
Financial Condition -- General; Presentation of Certain Financial Statement
Information" for a discussion of the reformatting of certain line items in
the statement of income, including cost of sales, gross profit and selling,
general and administrative expenses. During the periods presented, the
Company has made business acquisitions, which affect the comparability
between periods of the information set forth. See Note 2 of Notes to
Consolidated Financial Statements.
(3) In August 1993, Northland changed its method of dividend payment from
annual to quarterly. As a result, the fiscal 1994 dividends stated above
include the annual dividend of $0.20 per Class A share and $0.182 per Class
B share, paid in June 1993, plus three quarterly dividends of $0.05 per
Class A share and $0.0455 per Class B share, paid in September 1993,
December 1993 and March 1994. See "Price Range of Class A Common Stock and
Dividends."
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
CURRENT BUSINESS STRATEGY
As a continuation of its "from marsh to market" vertical integration
business strategy commenced in 1993, Northland intends to begin marketing and
selling value-added cranberry juice, sauce and other processed consumer
cranberry products. Northland believes that, by controlling the production,
distribution and marketing of its crop as processed cranberry products, it can
significantly enhance its revenues and profitability. Northland believes that
pursuing this strategy will provide it with the best opportunity for maximizing
its long-term growth potential beyond its current focus of selling substantially
all of its cranberry crop for processing under fixed price supply agreements.
Since the Company will continue to deliver substantially all of its fall 1995
cranberry crop harvested for processing to two independent fruit juice and sauce
processors, Northland intends to implement its current strategy in phases over
the next two fiscal years. First, in addition to expanding its NORTHLAND brand
fresh cranberry sales, beginning in the fall of 1995, Northland plans on
introducing NORTHLAND brand premium cranberry juice products on a limited basis
into selected Midwest and other markets. After the Company's new concentrating
plant is operational in the spring of 1996, Northland plans on supplementing its
branded product sales by pursuing strategic alliances with one or more
co-packers to develop, market and sell private label processed cranberry
products. Next, the Company intends to expand the geographic distribution of its
NORTHLAND brand premium cranberry juice products, as well as the variety of
consumer processed products which it may offer. To support these product
introductions and expansions, Northland has supplemented its own internal crop
supply by entering into contracts to purchase up to approximately 50,000 to
75,000 barrels of cranberries annually from other independent growers, beginning
in the fall of 1995. In addition, the Company is presently beginning to devise
an international sales strategy and hold discussions with European and other
international food and beverage distributors, although the Company does not
expect international sales to constitute a significant percentage of its
revenues in fiscal 1996. The Company's current strategy is likely to evolve as
it gains greater experience in the processed consumer cranberry products market
and, as a result, its current strategy, plans and expectations may change
substantially. As described more fully below, as a result of the anticipated
changing nature of the Company's business from pursuing its strategy, the
Company is changing its fiscal year end from March 31 to August 31, beginning
after a five-month interim transitional period ending on August 31, 1995.
The Company expects that the changing nature of its business will result in
significant differences in certain statement of income line item comparisons
between reporting periods and, in particular, to prior periods when the Company
did not sell a significant, or any, amount of consumer cranberry products. As
the Company begins to sell increasing amounts of its consumer cranberry
products, the Company expects that its revenues, as well as its selling, general
and administrative expenses and cost of sales, will begin to increase
significantly. Additionally, as an evolving consumer products company, beginning
in fiscal 1996, the Company will begin to carry increasing inventories,
including inventories of raw cranberries (valued at the average cost of growing
and harvesting the crop plus the cost of cranberries purchased from others) and
cranberry products. Inventories are expected to be at their highest levels after
the end of the Company's new fiscal first quarter (ending November 30),
reflecting the raw cranberries harvested and purchased during the first quarter.
Since the Company has planned its entry into the processed cranberry products
markets to largely coincide with the March 31, 1996 expiration of its existing
Supply Agreements with two independent private label fruit juice and sauce
processors, substantial delays or difficulties in successfully entering these
markets may result in the Company carrying substantial quantities of unsold
inventories of cranberries and cranberry products, particularly if such delays
or difficulties occur after the Company's fall 1996 harvest. The Company will
also reflect on its balance sheet an increasing amount of accounts receivable
relating to its anticipated sale of consumer cranberry products. These accounts
receivable are likely to be at their highest levels during the Company's new
first and second fiscal quarters (ending November 30 and February 28 or 29,
respectively) after the seasonal sale of the Company's fresh cranberries and the
expected holiday seasonality of other processed cranberry product sales. The
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<PAGE>
Company believes its current credit facilities, together with cash generated
from operations, will be sufficient during the interim transitional period and
fiscal 1996 to support these expected increased working capital requirements.
The Company believes that successful implementation of its current strategy
will result in increasing profitability over the long-term. However, in the
near-term and particularly in fiscal 1996, Northland's processed consumer
cranberry product introductions will be subject to the risk of consumer
acceptance of the Company's product quality and appearance and may involve
substantial initial promotional costs, price discounting and difficulties in
being allocated shelf space in supermarkets, mass merchandisers and convenience
stores, any or all of which circumstances may affect adversely the Company's
results of operations and financial condition. Moreover, especially during the
initial phase of implementing its current strategy, the Company is likely to
rely upon one provider or a limited number of providers with respect to any
required service or type of material, either for a specific geographical area or
for the Company's entire processed product line. If the Company is heavily
dependent upon one or more such providers, poor performance by or the loss of
any such provider could have a material adverse effect on the Company's results
of operations, especially in the short-term. The Company may also experience
significant unexpected costs and delays, as well as substantial competition, as
a result of pursuing its current strategy or any resulting strategy.
The Company expects that its entry into the processed consumer cranberry
products market will require substantial initial product development, marketing,
distribution and promotional expenditures. Additionally, in order to support its
entry into the consumer cranberry products market, the Company has entered into
multi-year crop purchase contracts pursuant to which it contracted to purchase
up to approximately 50,000 to 75,000 barrels of cranberries each year beginning
in fiscal 1996. Ten dollars of the per barrel purchase price under such
contracts will be payable in Northland stock, with the remainder in cash. In
fiscal 1996, the cash portion of these crop purchases may be at least in part
funded from proceeds of this offering. The Company believes that its available
borrowing capacity under its revolving credit facility and acquisition credit
facility, cash generated from cranberry sales and the funds generated from this
offering will be sufficient to satisfy its ongoing operating needs and fund its
initial entry into the consumer cranberry products market in the transitional
interim period and fiscal 1996. Assuming completion of this offering and
application of the resulting net proceeds as contemplated herein, the Company
believes it will have approximately $18.0 million in available borrowing
capacity under its revolving credit facility and an additional $10.0 million
under its acquisition credit facility which can be used to support the carrying
of the Company's crop or the purchase of fruit.
SEASONALITY AND QUARTERLY RESULTS
As shown in the table below, the Company's current business is extremely
seasonal. Similar to most other nondiversified agricultural crop growers, the
Company currently recognizes its crop sales revenues, which constituted 86.3% of
the Company's fiscal 1995 revenues, at the time of harvest in the fall of each
year. The Company has typically recognized net losses for each of its historical
quarters ended March 31 and June 30 and has recently recognized only nominal net
income in its historical quarter ended September 30. Therefore, the Company's
results of operations have been significantly dependent upon the results of its
annual harvest and results for interim fiscal periods have not been considered
indicative of those to be expected for a full year or for other interim periods.
The following table contains unaudited selected historical quarterly
information, which includes all adjustments, consisting only of normal recurring
adjustments, that the Company considers necessary for a fair presentation:
<TABLE>
<CAPTION>
FISCAL QUARTERS ENDED
-------------------------------------------------------------------------------
DEC. JUNE DEC. JUNE
MARCH 31, 31, SEPT. 30, 30, MARCH 31, 31, SEPT. 30, 30,
1995 1994 1994 1994 1994 1993 1993 1993
--------- ------ --------- ------- --------- ------ --------- ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............ $ 40 $17,322 $3,302 $ 1,120 $ 202 $13,969 $2,219 $1,661
Income (loss) before
income taxes....... (3,482) 7,310 157 (1,352) (2,345) 7,456 94 (345)
Net income (loss)... (2,121) 4,440 88 (825) (1,435) 4,532 58 (212)
Net income (loss)
per share.......... $ (0.47) $ 0.99 $ 0.02 $ (0.19) $ (0.32) $ 1.02 $ 0.01 $(0.05)
</TABLE>
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<PAGE>
The successful implementation of the Company's strategy ultimately is
expected to reduce the extreme seasonality of its current business, although the
Company may continue to experience a significant degree of seasonality in its
results of operations because of the expected traditional increased retail
consumer demand for juice products during the summer months and the typical
holiday seasonality of the sale of fresh cranberries, as well as cranberry juice
and other processed cranberry products. Since the Company will continue to sell
substantially all of its cranberry crop harvested for processing under the
Supply Agreements in fiscal 1996, its results of operations will remain
extremely seasonal until it begins selling substantial quantities of cranberry
juice products. This is not anticipated to occur until fiscal 1997, although the
Company plans to start introducing its NORTHLAND brand processed consumer
cranberry products during fiscal 1996. Moreover, due to the changing nature of
the Company's business, it is likely that initial comparisons of quarterly
results during fiscal 1996 and fiscal 1997 to the prior fiscal year's
comparative periods will not be particularly meaningful or informative.
CHANGE OF FISCAL YEAR END
In view of the expected changing nature of the Company's business, the
Company is changing its fiscal year end from March 31 to August 31 in order to
correspond the Company's fiscal year with the Company's expected new annual
business cycle from pursuing its current business strategy. The Company also
believes its new fiscal year will best match the costs and expenses associated
with growing each year's cranberry crop with the revenues expected to be
generated from the anticipated sales of the consumer products produced from such
crop. As a result of its new fiscal year end, the Company will report its
results of operations and financial condition for its interim transitional
quarter ending on June 30, 1995 and for the five-month interim transitional
period ending on August 31, 1995. Consistent with the seasonality of its current
business, the Company expects to report net losses from operations for both
interim transitional periods. After August 31, 1995, the Company will report its
results of operations and financial condition for the fiscal quarters ending on
November 30, February 28 or 29 and May 31 of each fiscal year, and for its
fiscal year ending August 31.
PRESENTATION OF CERTAIN FINANCIAL STATEMENT INFORMATION
As a result of the expected changing nature of Northland's business over the
next two fiscal years, the Company has decided to reformat certain of the line
items set forth in its statement of income in order to begin reporting the cost
of sales and gross profits relating to its expected consumer cranberry product
sales. To facilitate comparative period-to-period review of such statements,
these reformatting changes have been applied retroactively to the consolidated
statements of income contained herein. Given the Company's current business
emphasis, the Company believes that the cost of sales and gross profit amounts
set forth in the statements contained herein may not be particularly meaningful
or informative measures of the Company's performance compared to its future
results or to the results of other consumer products companies. However, the
Company believes this data will become more meaningful and informative as the
Company begins to sell more consumer cranberry products. Additionally, as a
result of the Company's changing fiscal year end and in order to best reflect
the actual cost of the Company's inventory of grown and harvested cranberries,
the Company intends to defer from November 1 of each fiscal year to the related
August 31 fiscal year end the statement of income recognition of the direct
costs of growing each annual crop during such period and to include those
deferred crop growing costs as part of the inventory cost of the Company's
cranberries harvested in September and October. Statement of income recognition
of the direct growing and harvesting costs from September 1 through October 30
will also be deferred and such costs will be added to the cost of the inventory
of the associated crop harvested during such period. The Company's prior
practice had been to accumulate deferred crop growing costs from April 1 to
October 30 of each fiscal year and to match those costs with the sale of the
berries harvested in the fall of that year, while the Company then expensed such
costs incurred from November 1 to the March 31 year end of each fiscal year. It
is expected that this change in accounting application will be made on a
cumulative basis and will be entirely recognized for prior periods by the
Company for financial reporting purposes during the five-month interim
transitional period ending August 31, 1995. The Company believes that the
cumulative effect of such change in accounting application will reduce the net
loss otherwise expected to occur in such period.
20
<PAGE>
RESULTS OF OPERATIONS
FISCAL 1995 COMPARED TO FISCAL 1994
REVENUES. Revenues in fiscal 1995 increased 20.7% to $21.8 million from
$18.1 million in fiscal 1994. The increase in fiscal 1995 revenues was due to a
29.7% increase in cranberry sales. Sales of cranberries accounted for 86.3% and
80.3% of revenues in fiscal years 1995 and 1994, respectively. In fiscal 1995,
the Company harvested 254,000 barrels of cranberries from 1,703 fully productive
acres and 110 partially productive acres. The three Yellow River marshes in
Wisconsin, which were acquired in September 1994, accounted for 214 of the acres
harvested in fiscal 1995. In fiscal 1994, the Company harvested 192,000 barrels
of cranberries from 1,452 fully productive acres and 67 partially productive
acres. The two Hanson Division marshes in Massachusetts, which were leased in
September 1993, accounted for 348 of the acres harvested in fiscal 1994. Adverse
weather conditions in Wisconsin resulted in significantly lower than expected
harvested barrels in each respective year and generally have also slowed the
maturation process of the Company's expansion plantings. As partial compensation
for the weather-related damage to its crop, the Company received crop insurance
proceeds of $1.1 million in fiscal 1995 and $1.2 million in fiscal 1994.
Substantially all of the barrels harvested by the Company for processing in
fiscal 1995 were sold to two independent fruit juice and sauce processors at an
average price of approximately $67.50 per barrel as required under its Supply
Agreements with such processors. The Supply Agreements, which expire after the
Company's 1995 fall harvest deliveries, require the Company to deliver up to
222,000 barrels of cranberries at a base purchase price of $68.00 per barrel in
fiscal 1996. The Company also was required in fiscal 1995 to deliver a portion
of the crop harvested from its newly acquired Yellow River marshes to Ocean
Spray at prices lower than those which could have been obtained under the Supply
Agreements. This contractual obligation, which was assumed by the Company as
part of the acquisition, has now expired. Fresh fruit sales to North American
and European markets were $5.5 million in fiscal 1995 compared to $4.3 million
in fiscal 1994. Fiscal 1995 revenues and sales of consumer packaged fresh fruit
were impacted adversely by an abnormally high fresh fruit spoilage rate at the
Company's Wisconsin Rapids storage facility. Although the high spoilage rate was
largely caused by unusual weather conditions experienced late in the Wisconsin
growing season, the Company has purchased specialized equipment and adopted new
procedures to try to minimize the extent of any reoccurrence of this
circumstance.
Revenues from the sale of cranberry vines and chemicals and fertilizer
constituted only 6.5% of the Company's revenue in fiscal 1995 and are expected
to become even less significant as the Company pursues its current business
strategy. As anticipated, vines sales decreased by 40.5% to $713,000 in fiscal
1995 from $1.2 million in fiscal 1994. The Company estimates that vine sales
during its interim transitional period from April 1, 1995 to August 31, 1995
will be approximately $100,000, based on advance purchase orders received as of
May 31, 1995. The Company believes that vine sales, and the market for mowed
vines generally, will continue to be limited principally as a result of current
regulatory restrictions on the further development of cranberry beds on
wetlands. Revenues from Wildhawk sales of fertilizer and chemicals in fiscal
1995 were $701,000, an increase of 24.2% from $564,000 in fiscal 1994. The
Company expects Wildhawk sales revenues in fiscal 1996 to remain at relatively
the same level as fiscal 1995 revenues.
In addition to the payments to be received from deliveries under the Supply
Agreements, revenues in fiscal 1996 will be impacted by the relative level of
success the Company experiences in entering the processed cranberry products
market and from its increasing emphasis on expanding its fresh cranberry sales.
COST OF SALES. Cost of sales increased $4.3 million, or 49.2%, to $13.1
million in fiscal 1995 from $8.8 million in fiscal 1994. The Company's gross
margin in fiscal 1995 was 40.1%, compared to 51.5% in fiscal 1994. The increase
in cost of sales in fiscal 1995 was primarily due to costs associated with the
increase in the Company's number of productive acres and the increase in fresh
fruit production. Since September 1993, when the Company leased its Hanson
Division marshes, the Company's productive acres have increased by 63.1% through
acquisitions and the maturing of some of the
21
<PAGE>
Company's internally planted expansion acreage. The Company's productive acreage
will further increase in fiscal 1996 as a result of the continued maturing of
additional portions of its expansion acreage. The Company's planned May 1996
start-up of its concentrating facility will also likely result in increasing
cost of sales in fiscal 1996, as will the Company's intended entry into the
branded consumer processed cranberry products market.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense was $2.4 million in fiscal 1995, a 19.2% increase from
$2.0 million in fiscal 1994. The increase was primarily due to costs associated
with the Company's growth in productive acreage and expanded fresh fruit
marketing efforts. As a percent of revenues, selling, general and administrative
expense was 11.2% and 11.3% in each respective fiscal year. The Company's
planned initial entry into the branded consumer cranberry products market is
likely to result in substantial initial marketing, promotion, distribution and
selling expenses in fiscal 1996.
INTEREST EXPENSE. Fiscal 1995 interest expense was $3.7 million, a 52.6%
increase over fiscal 1994 interest expense of $2.4 million. The increase was due
to financing costs associated with funding the Company's September 1993
cranberry marsh lease and September 1994 cranberry marsh acquisitions. The
Company does not believe that interest expense will be significantly reduced in
fiscal 1996 from fiscal 1995 levels.
INCOME TAX EXPENSE. The Company recorded $1.1 million in income tax expense
in fiscal 1995, compared to $1.9 million in fiscal 1994. As a result of
alternative minimum tax liabilities, $268,000 in income taxes were paid in
fiscal 1995 compared to $1.9 million in fiscal 1994. As of March 31, 1995, the
Company had net operating loss carry forwards for federal and state income tax
purposes of $6.5 million remaining to offset against future taxable income. See
Note 10 of Notes to Consolidated Financial Statements.
NET INCOME. Net income for fiscal 1995 was $1.6 million, or $0.36 per
share, a 46.3% decrease from fiscal 1994 net income of $2.9 million, or $0.67
per share. Weighted average common shares outstanding for fiscal 1995 were
4,445,000 compared to 4,417,000 for fiscal 1994. In fiscal 1996, assuming
successful completion of this offering, weighted average common shares
outstanding will increase substantially.
FISCAL 1994 COMPARED TO FISCAL 1993
REVENUES. Revenues in fiscal 1994 increased 38.9% to $18.1 million from
$13.0 million in fiscal 1993. The increase in fiscal 1994 revenues over fiscal
1993 was due principally to an increase in the barrels of cranberries harvested
by the Company and higher per barrel pricing. The sale of cranberries accounted
for 80.3% and 62.6% of revenues in fiscal years 1994 and 1993, respectively. In
fiscal 1994, the Company harvested 192,000 barrels of cranberries from 1,452
fully productive acres and 67 partially productive acres. The two Hanson
Division marshes in Massachusetts, which were leased in September 1993,
accounted for 348 of the acres harvested in fiscal 1994. In fiscal 1993, the
Company harvested 130,000 barrels of cranberries from 963 fully productive acres
and 151 partially productive acres. Adverse weather conditions resulted in
significantly lower than expected harvested barrels in each year. As partial
compensation for the weather-related damage to its crop, the Company received
crop insurance proceeds of $1.2 million in fiscal 1994 and $2.7 million in
fiscal 1993.
After terminating its marketing agreement with Ocean Spray, the Company sold
its entire fiscal 1994 crop to the independent market. The Company sold
substantially all of its fiscal 1994 crop harvested for processing as juice and
sauce under its Supply Agreements with two independent fruit juice and sauce
processors at average prices of approximately $67.00 per barrel. The remainder
was marketed as NORTHLAND brand fresh fruit for holiday sale in the United
States and Canadian markets.
Vines sales were $1.2 million in fiscal 1994, up 9.8% from $1.1 million
recognized in fiscal 1993. Revenues from Wildhawk sales of fertilizer and
chemicals in fiscal 1994 were $564,000, a decrease of 30.5% from $812,000 in
fiscal 1993. This decrease was the result of continued adverse customer
reactions to the Company's termination of its membership in the Ocean Spray
cooperative.
22
<PAGE>
COST OF SALES. Cost of sales increased $2.5 million, or 37.9%, to $8.8
million in fiscal 1994 from $6.3 million in fiscal 1993. Gross margin was 51.5%
and 51.2% in fiscal 1994 and fiscal 1993, respectively. The increase in the cost
of sales was primarily due to a 36.4% increase in productive acres and costs
associated with the start-up and operation of the Company's new receiving
station and fresh fruit packaging facility. However, cost of sales as a percent
of revenues was 48.5% and 48.8% in 1994 and 1993, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense was $2.0 million in fiscal 1994, a 38.8% increase from
$1.5 million in fiscal 1993. The increase was primarily due to the costs
associated with the Company's growth in productive acreage and introduction of
the Company's NORTHLAND brand fresh fruit. As a percent of revenues, selling,
general and administrative expense was 11.3% in both fiscal 1994 and 1993.
INTEREST EXPENSE. Fiscal 1994 interest expense was $2.4 million, an 18.1%
increase over fiscal 1993 interest expense of $2.0 million. The increase was due
to financing costs associated with borrowings to fund the Company's September
1993 cranberry marsh leasing acquisition.
INCOME TAX. The Company recorded $1.9 million in income tax expense in
1994, compared to $1.2 million in fiscal 1993. As a result of alternative
minimum tax liabilities, $1.9 million in income taxes were paid in fiscal 1994
and $70,000 in income taxes were paid by the Company in fiscal 1993.
NET INCOME. Net income for fiscal 1994 was $2.9 million, a 51.5% increase
over fiscal 1993 net income of $1.9 million. Net income per common share
increased 31.4% to $0.67 per share in fiscal 1994 compared to $0.51 per share in
fiscal 1993. Net income per share increased by a smaller percentage than net
income due to the effect on weighted average common shares outstanding of taking
into account, for all of fiscal 1994, the 1,380,000 shares of Class A Common
Stock issued by the Company in August 1992. Such shares were only outstanding
for a portion of fiscal 1993. Weighted average common shares outstanding for
fiscal 1994 were 4,417,000 compared to 3,818,000 for fiscal 1993.
FINANCIAL CONDITION
The Company's total equity increased to $34.6 million at March 31, 1995
compared to $33.1 million at the end of fiscal 1994. The Company's total
long-term obligations (including current portion) at fiscal 1995 year-end were
$61.6 million for a total debt-to-equity ratio of 1.8 to 1, compared to total
long-term obligations (including current portion) of $40.9 million and a
debt-to-equity ratio of 1.2 to 1 at March 31, 1994. Total debt increased by
$20.7 million in fiscal 1995 as a result of financing $18.0 million for the
acquisition of cranberry properties and $2.7 million for other property and
equipment additions. The estimated net proceeds of this offering of $26.5
million will be used to reduce debt, as described below, support the Company's
entry into the consumer cranberry products market and for other general
corporate purposes. The Company's pro forma debt-to-equity ratio at March 31,
1995 would have been 0.6 to 1, assuming completion of this offering by such date
and application of the resulting net proceeds as contemplated herein.
On August 31, 1994, the Company refinanced its then existing revolving bank
debt with a new banking institution. Terms of the new agreement included
increasing the Company's available credit facilities from $19.0 million to $32.0
million. As of March 31, 1995, $14.0 million was outstanding under these credit
facilities. See Note 7 of Notes to Consolidated Financial Statements. On June 6,
1995, the Company entered into amended credit facilities with a syndicate of
regional banks pursuant to which the Company refinanced its revolving credit
facility, term credit facility and acquisition credit facility, resulting in an
increase in the Company's available credit from $32.0 million to $58.0 million
at interest rates ranging from the principal lending bank's reference rate plus
50 basis points to LIBOR plus 250 basis points. As a result of such amendments,
the credit amounts available to the Company from such banks were increased under
Northland's (i) revolving credit facility from $17.0 million to $21.0 million;
(ii) term credit facility from $5.0 million to $19.1 million; and (iii)
acquisition credit facility from $10.0 million to $18.0 million. The new credit
facilities mature on August 31, 1997. Borrowings of $14.7 million under the new
facilities were used to fund the Company's exercise of its option in June 1995
to purchase its previously leased Hanson Division marsh and related assets. The
Company intends to use a substantial majority of the estimated net proceeds of
this
23
<PAGE>
offering to repay the entire $18.0 million of principal currently outstanding
under the Company's acquisition credit facility. After repayment of the
acquisition credit facility, $10.0 million will be available to the Company
thereunder through August 1997. The Company's ability to use the proceeds of the
acquisition credit facility is restricted to the purchase of or investment in
cranberry businesses, the carrying of its crop or the purchase of fruit.
The Company's current ratio was 0.67 to 1 at March 31, 1995, compared to
1.25 to 1 at March 31, 1994. The lower comparative current ratio at March 31,
1995 was partially due to $3.0 million of short-term borrowing then outstanding
which was incurred to fund the Company's September 1994 Yellow River marsh
acquisitions. As a result of the extreme seasonality of its business, the
Company does not believe that its current ratio or its underlying stated working
capital at its March 31, 1995 fiscal year end is a meaningful indication of the
Company's liquidity. As of March 31 of each fiscal year, the Company has
historically carried no significant amounts of inventories and by such date all
of the Company's accounts receivable from its crop sold for processing under the
Supply Agreements have been paid in cash, with the resulting cash received from
such payments used to reduce indebtedness. The Company utilizes its revolving
bank credit facility, together with cash generated from operations, to fund its
working capital requirements throughout its growing season.
Net cash provided by operating activities in fiscal 1995 decreased 42.4% to
$5.6 million from $9.8 million in fiscal 1994. The decrease principally was a
result of changes in cash flows related to accounts receivable between fiscal
years, as well as decreased net income. The increase in accounts receivable was
caused by receivables outstanding from Ocean Spray from fall 1995 crop
deliveries made to it by the Company from the Yellow River marsh. Depreciation
expense also increased between fiscal years as a result of increased capital
expenditures in fiscal 1995.
Net cash used for investing activities increased in fiscal 1995 by 30.5% to
$12.6 million from $9.6 million in fiscal 1994. The increase was principally the
result of the payment of the cash portion of the Company's September 1994 Yellow
River marsh acquisitions and other property and equipment additions. Property
and equipment additions in fiscal 1995 included (i) $3.9 million to expand the
Company's fresh fruit handling facilities; (ii) $2.3 million to complete the
construction and planting of 40 new cranberry producing acres and to cultivate
and maintain 350 pre-productive expansion acres; and (iii) $2.5 million for
other fixed asset additions and upgrades. The Company's current capital budget
for similar items in the interim transitional period and fiscal 1996 is
approximately $7.5 million. Additionally, in June 1995, the Company started
constructing a new 16,300 square-foot fruit concentrate manufacturing facility
at its Wisconsin Rapids location. Scheduled for completion in May 1996, the new
facility will have the capacity to annually convert 400,000 barrels of
cranberries into concentrate. Total costs of the facility are estimated at $4.5
million. The Company's interim transitional period and fiscal 1996 debt service
and capital expenditure obligations will be funded by borrowings under the
Company's amended June 1995 credit facilities and cash generated from
operations.
Net cash provided by financing activities increased in fiscal 1995 to $6.5
million from $318,000 in fiscal 1994, reflecting principally $14.4 million of
proceeds from long-term debt, reduced by $6.6 million of payments on long-term
debt. In fiscal 1995, the Company paid principal and interest payments of
approximately $2.0 million and $1.1 million due under its respective $17.0
million and $10.5 million fixed rate loan agreements with a life insurance
company. The prior fiscal year the Company borrowed $10.5 million in long-term
debt and repaid $8.5 million.
24
<PAGE>
BUSINESS
COMPANY BACKGROUND
Northland Cranberries, Inc. was organized in 1987 as the successor to the
marsh operations of five limited partnerships. The Company currently is the
world's largest cranberry grower, with more planted acres of cranberries owned
or leased than any other grower. Since immediately prior to the Company's
initial public stock offering in August 1987 through the fall of 1994, the
Company's business strategy of growth through marsh acquisition, leasing and
planting has increased its planted acreage by 568% and its barrels produced by
424%. Northland owns or leases 2,257 planted acres of cranberries at 21 marsh
locations which produced 254,000 one hundred pound barrels in 1994, representing
approximately 5% of the total cranberries harvested and approximately 24% of all
of the cranberries harvested by independent growers last year. Although the
Company may in the future acquire or lease additional cranberry marshes to
further enhance its internal raw cranberry supply, Northland intends to focus on
entering into additional contracts for the purchase of other independent
growers' cranberries.
The Company currently sells substantially all of its crop to two independent
fruit juice and sauce processors for their packaging and resale principally as
private label cranberry juice and sauce pursuant to the Supply Agreements which
expire after the 1995 harvest. The Company grows and packages its own NORTHLAND
brand fresh cranberries which are sold through commissioned wholesale produce
distributors and brokers and directly to retail grocery companies for resale to
consumers in supermarkets in North America and Europe. In addition, Northland
sells cranberry vines to other growers and, through its subsidiary, Wildhawk,
Inc., provides specialized chemical and fertilizer products and crop management
services to cranberry growers. Revenues from the sale of cranberry vines and
chemicals and fertilizer constituted only 6.5% of the Company's revenues in
fiscal 1995 and are expected to become even less significant as the Company
pursues its current business strategy. See "Management's Discussion and Analysis
of Results of Operations and Financial Condition -- Results of Operations."
Northland was the largest member-grower of Ocean Spray by acreage owned or
leased until the Company terminated its membership in the cooperative as of
August 31, 1993 in order to enter into the more favorable Supply Agreements with
Pappas and Cliffstar. Ocean Spray was established in 1930 and markets a wide
line of cranberry-related products, including cranberry and cranberry blend
juices and drinks, sauces, sweetened dried cranberries, candies and fresh
berries. Pappas and Cliffstar sell their private label cranberry juice and sauce
products principally to the wholesale and retail supermarket and convenience
store industries. The Supply Agreements expire on March 31, 1996, after payment
for the Company's 1995 harvest deliveries. See "-- Products; Raw Cranberries"
below.
CURRENT BUSINESS STRATEGY
As a continuation of its "from marsh to market" vertical integration
business strategy commenced in 1993, Northland intends to begin marketing and
selling its own NORTHLAND brand cranberry juice, sauce and other processed
consumer cranberry products. Northland also intends to pursue strategic
alliances with one or more co-packers to develop, market and sell private label
cranberry juice, sauce and other processed cranberry products. Northland
believes that by directly controlling the production, distribution and marketing
of its crop as value-added processed consumer cranberry products it can
significantly increase its revenues and profits beyond those currently realized
from selling substantially all of its cranberry crop for processing under fixed
price supply agreements. To
25
<PAGE>
implement its strategy, Northland intends to take the following actions:
- Introduce NORTHLAND brand premium cranberry juice products beginning in
the fall of 1995 on a limited basis into selected Midwest and other
markets.
- Expand the geographic distribution of its NORTHLAND brand premium
cranberry juice products beginning in 1996 and thereafter introduce other
NORTHLAND brand processed cranberry products and begin pursuing alliances
with various co-packers to develop, market and sell private label
cranberry products.
- Continue to expand its NORTHLAND brand fresh cranberry production and
sales.
- Continue to explore international distribution opportunities for all of
its consumer cranberry products.
In preparation for this next step of its vertical integration strategy, the
Company commenced construction in June 1995 of a $4.5 million cranberry juice
concentrating facility. Scheduled for completion in May 1996, this new facility
will enable Northland to concentrate juice from up to 400,000 barrels of raw
cranberries annually. In addition, Northland intends to enter into one or more
co-packing arrangements with third party bottlers to begin producing and
packaging the Company's cranberry juice and other processed cranberry products
for retail consumer sale under the NORTHLAND label.
Important to the success of Northland's strategy is its belief that the
demand for cranberry products will continue to exceed the available supply of
raw cranberries for at least the next several years and that the redirection of
its own supply of raw cranberries (and the raw cranberries it will purchase from
other growers) into Northland's own cranberry products will not increase the
overall supply of consumer cranberry products. Northland believes this
circumstance will greatly facilitate Northland's direct entry into the processed
consumer cranberry products market and will help create initial market demand
for its products. See, however, "Risk Factors -- Current Business Strategy" and
"Risk Factors -- Cranberry Market; Supply and Demand."
The Company believes that, because of excess bottling industry capacity, it
can efficiently outsource its branded juice and processed consumer product
processing to one or more regional co-packers for a per case fee. The Company is
currently negotiating co-packing and bottling arrangements to prepare, produce,
package and warehouse its branded consumer cranberry products and intends to
enter into such arrangements in the future. Co-packers will be carefully
selected and monitored by the Company to help ensure the high quality and safety
of its products. Consistent with industry practice, the Company anticipates that
it may be required to commit in advance to purchase certain minimum goods and
services from its selected co-packers. The Company intends to contract with
transportation companies to deliver its concentrate to its co-packers and ship
its branded products from its co-packers to its distributors. The Company's
distributors will then deliver the branded products to supermarket wholesalers
or retailers. See, however, "Risk Factors -- Processing and Delivery."
Northland presently employs two individuals, its Vice President-Sales,
Marketing and Special Projects and its recently-hired Branded Products Manager,
in addition to its President and Chief Executive Officer, who will coordinate
the introduction, marketing and sale of the Company's processed consumer
cranberry products. Northland intends to hire within the next year additional
qualified personnel, including a Private Label Products Manager, with juice or
beverage industry experience, particularly to handle national account sales. The
Company has also retained the services of market research companies and is in
the process of retaining an outside advertising firm with significant experience
in the beverage industry. The Company intends to use a mix of consumer and trade
promotions to introduce and market its products in supermarkets, mass
merchandisers and convenience stores. Northland believes that through its
existing fresh fruit distribution contacts it can enter into satisfactory
commissioned arrangements with other food and beverage brokers and
26
<PAGE>
grocery wholesalers in order to effectively distribute its consumer cranberry
products in supermarkets, mass merchandisers and convenience stores in targeted
market areas of North America. The Company intends to enter into branded product
distribution arrangements in the near future. Based on its successful limited
introduction of fresh cranberries into European markets last fall, the Company
also believes that opportunities exist for the distribution of Northland's
cranberry juice and other consumer cranberry products in Europe and in other
international markets. The Company is presently beginning to devise an
international sales strategy and hold discussions with European and other
international food and beverage distributors.
CONSUMER CRANBERRY PRODUCTS INDUSTRY OVERVIEW
The consumer cranberry products industry is comprised principally of fruit
beverages and, based on available industry data, exceeded $1.1 billion in sales
in 1994. The fruit beverage industry is generally divided into fruit juice (made
from 100% juice) and fruit drinks and cocktails (made from less than 100%, but
greater than 10%, juice mixed with other dilutive ingredients). Cranberry
beverage products, including Ocean Spray's, are typically categorized as fruit
drinks and cocktails. These categories (fruit juices and fruit drinks and
cocktails) can be further segmented into refrigerated juices and juice drinks
and cocktails, frozen concentrates and shelf-stable products. The refrigerated
segment includes fresh juices and juice drinks and cocktails as well as products
that are pasteurized or made from concentrates. Concentrates are made primarily
through a boiling or evaporation process and are sold to consumers in frozen
concentrate form. Shelf-stable products are sold at room temperature and have
been stabilized by preservatives, heat processing and/or special packaging to
prevent spoilage.
Total fruit beverage gallonage has been increasing over the past decade and
the Company believes that growth prospects remain strong because, despite its
recent growth, the fruit beverage category represents only one-fourth of the
soft drink market in terms of both gallonage and per capita consumption. In
1993, volume in the category increased 4.3% to 3.1 billion gallons. Data for
1994 is not yet available. According to industry data, the fruit beverage market
volume is projected to grow at compound annual rates of 4.5% over the next five
years. In 1993, fruit juice sales represented 63.6% of total fruit beverage
gallonage and an estimated $7.6 billion (64.9%) of total retail sales of fruit
beverages, while fruit drink sales represented 36.4% of total fruit beverage
gallonage and an estimated $4.1 billion (35.1%) of total retail sales of fruit
beverages. Over the past 10 years overall cranberry beverage sales have
increased, while within this trend fruit drink sales have been gaining market
share and fruit juice sales have been losing market share.
27
<PAGE>
As illustrated in the table below, in 1994 orange juice sales led the fruit
beverage market for supermarket sales with a 34% market share, followed by apple
and by cranberry/cranberry blends, each with approximately 9% market shares.
<TABLE>
<CAPTION>
MARKET
SHARE OF
SUPERMARKET
JUICE CATEGORY (1) SALES
----------------------------------- 1994 -----------
SUPERMARKET
SALES(2)
-----------
(In
millions)
<S> <C> <C>
Orange............................. $2,810 34%
Apple.............................. 733 9
Cranberry blends................... 414 5
Cranberry drinks and cocktails..... 361 4
Grapefruit......................... 348 4
Vegetable/tomato................... 340 4
Grape.............................. 271 3
Pineapple.......................... 94 1
Prune.............................. 89 1
Lemon/lime......................... 88 1
Nectar............................. 80 1
Other juice blends................. 346 5
Other juice drinks and cocktails... 2,233 28
----------- ---
Total market....................... $8,207 100%
----------- ---
----------- ---
<FN>
------------------------
(1) Source: A.C. NIELSEN and other industry sources.
(2) Represents sales in supermarkets with greater than $2 million in annual
sales.
</TABLE>
Cranberry beverages are typically sold as shelf-stable cranberry juice
cocktail, shelf-stable cranberry blended fruit drinks (cranberries blended with
one or more combinations of fruits, including apples, raspberries, strawberries
and grapes) and frozen concentrate. Other consumer cranberry products include
canned cranberry sauce, seasonal fresh cranberries (sold during the Thanksgiving
and Christmas holiday season), frozen concentrate, sweetened dried cranberries
and cranberry-based candies and condiments. Within the consumer retail cranberry
products market, the industry can be divided between branded products, which
principally includes Ocean Spray's highly recognizable branded products, and the
private label products of supermarket chains and mass merchandisers. Branded
products are sold by the manufacturer under a specific brand name directly to
supermarket wholesalers and retailers, while private label sales involve sales
to major supermarket chains and other food distributors who then market the
products under their own labels.
SUPPLY AND DEMAND DYNAMICS OF THE CRANBERRY MARKETS
SUPPLY
The market for consumer cranberry products is characterized by a supply of
raw cranberries that is more limited than most other fruits. These supply
limitations are principally the result of current regulatory restrictions in the
United States strictly limiting significant commercial expansion of wetland
acreage, together with the long lead-time (approximately 5 1/2 years) and
significant capital costs (approximately $35,000-$40,000 per acre) needed to
bring new cranberry acreage to full production. Temperate wetland areas
indigenous to North America are the preferred growing habitat for cranberries,
due to their acidic, peat-based soil. Cranberries are grown principally in
Massachusetts, Wisconsin, New Jersey, Oregon, Washington, Maine, Rhode Island
and several regions of Canada. Massachusetts and Wisconsin are the two largest
cranberry producing states and accounted for 37.3% and 31.0%, respectively, of
the 1994 North American fall cranberry harvest.
28
<PAGE>
The following data from the CMC shows in cranberry production in the United
States and Canada since 1988:
<TABLE>
<CAPTION>
CROP YEAR
---------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
UNITED STATES:
Barrels produced............................ 4,667,482 3,909,085 4,103,005 4,173,779 3,403,442 3,732,117 4,065,859
Acres harvested............................. 31,279 31,613 29,564 28,310 27,494 27,236 26,776
Barrels per acre............................ 149.2 126.0 138.8 147.4 128.8 137.0 151.9
CANADA:
Barrels produced............................ 572,830 374,013 463,667 426,010 379,782 254,927 287,009
Acres harvested............................. 3,036 2,815 2,739 3,485 3,580 3,275 (1)
Barrels per acre............................ 188.7 132.9 169.3 122.2 106.1 77.8 (1)
TOTAL NORTH AMERICA:
Barrels produced............................ 5,240,312 4,283,098 4,566,672 4,599,789 3,783,224 3,987,044 4,352,868
<FN>
------------------------------
(1) Data for Canada not available prior to 1989.
</TABLE>
The Company anticipates that the supply of cranberries will continue to
increase over the next several years principally due to the maturation of new
acreage planted in the United States as a result of growers obtaining permits
immediately prior to the enactment in 1990 of the current regulations
restricting the further new development of wetland acreage. See "-- Regulation;
Environmental Regulation" below. However, apart from the anticipated general
trend toward increasing supply, annual cranberry production can fluctuate
significantly from year to year depending on agricultural conditions, which can
cause dramatic increases or decreases in the overall annual supply of raw
cranberries. See "-- Marsh Operations; Agricultural Risks in Production" below.
According to CMC data, approximately 1,002 and 568 new acres of cranberries in
the United States are expected to begin to mature to the point of allowing
harvesting in 1995 and 1996, respectively. Of the new acres listed above as
expected to begin to be harvested in 1995 and 1996, 99 and 158 are the Company's
acres, respectively. After 1996, the Company anticipates that additional
maturing acreage in the United States will decrease significantly due to the
impact of current regulations which became effective in 1990 and restricted the
issuance of new permits to allow the further commercial development of wetland
acreage. However, there can be no assurance that future federal or state
legislation easing the current regulatory restrictions on wetland development
will not be enacted. See "-- Regulation; Environmental Regulation" below.
Moreover, although the Company believes that new commercial development of
cranberry acreage has been limited in Canada because of the "no net loss of
wetlands" policy adopted by the federal and most provincial governments, data on
new maturing planted acreage in Canada is not available. According to the CMC,
there have been no significant imports of cranberries from countries other than
Canada through the 1994 harvest. In the past there have been imports of
concentrate mislabeled as cranberry concentrate, but the Company believes that
actions have been taken by the Food and Drug Administration and United States
Customs to deter this activity in the future. See "Risk Factors -- Cranberry
Market; Supply and Demand."
DEMAND
Based on the latest CMC data available, sales of barrels of raw cranberries
processed into consumer cranberry products increased 25% to 3.5 million barrels
for the period beginning September 1, 1994 and ending April 30, 1995 compared to
the eight-month period beginning September 1, 1993 and ending April 30, 1994.
Although cranberry beverage products constitute a substantial majority of the
processed consumer cranberry market, cranberry products are also sold in the
form of sauce, fresh cranberries, sweetened dried cranberries, cranberry
condiments, candy and various other forms.
The Company believes the demand for cranberry products has been increasing
largely as a result of perceived consumer trends towards buying more nutritious
and healthful foods and beverages, coupled with heavy advertising expenditures
and expanded new cranberry product offerings introduced by companies such as
Ocean Spray and, to a lesser extent, Tropicana Products, Inc., Welch Food Inc.,
Coca-Cola Foods, Inc., Chiquita Brands International, Inc. and Veryfine
Products, Inc. The Company believes that these advertising expenditures and
product offerings have not only increased
29
<PAGE>
demand for the specific products advertised, but they have also contributed to
the increase in demand for all types of branded as well as private label
cranberry products. Since cranberry products are predominately purchased by
older consumers, the Company believes the demand for cranberry products has also
been enhanced by the aging demographic trends in the United States.
Additionally, the Company believes that market potential for the sale of fresh
and processed cranberry products in international markets may equal or exceed
the domestic market for such products and that, because of the limited supply of
cranberries, these markets have yet to be developed. Moreover, the Company
believes that, because of the limited supply of cranberries, significant
introductions of potential new processed consumer cranberry products (E.G.,
dried sweetened cranberries) have been delayed in the past by Ocean Spray and
others. The Company believes that market demand for such types of non-juice
processed cranberry products has yet to be fully developed. There can be no
assurance that the Company can take advantage of these perceived opportunities.
OCEAN SPRAY
Ocean Spray dominates both the market for the supply of raw cranberries
(where it controlled approximately 75%-80% of the market in 1994) and the sale
of cranberry products (where it controlled approximately 60% of the market in
1994). Ocean Spray is an agricultural marketing cooperative that enjoys limited
protection under the United States anti-trust laws. Over 700 cranberry growers
are member-growers of Ocean Spray. The Company believes that of the 5.2 million
barrels of cranberries produced in North America in 1994, approximately 4.2
million barrels were delivered to Ocean Spray by its member-growers, with the
remainder being produced and sold by independent growers.
The cranberry products market includes Ocean Spray branded, other branded
and private label retail beverages, Ocean Spray food service and other branded
and private label food service beverages, as well as frozen cranberry juice
concentrate. Ocean Spray also sells concentrate as ingredients to producers of
other branded cranberry beverages. The Company believes that the combined retail
market share of these companies in the cranberry juice category in 1994 was less
than 15%. The Company believes that Ocean Spray's strong market position limits
the ability of actual and potential brand name competitors to build a strong
cranberry beverage business because Ocean Spray can limit the amount of
cranberry supply that is made available to such direct competitors. Moreover,
Ocean Spray's dominance of the cranberry supply also limits the supply available
to the independent market.
PRODUCTS
RAW CRANBERRIES
The market for raw cranberries is dominated by Ocean Spray, whose
member-growers accounted for approximately 75%-80% of raw cranberry production
in 1994. The independent market is comprised of almost 400 growers with planted
acreage ranging from less than an acre to the 2,257 acres operated by the
Company.
The Supply Agreements require Pappas and Cliffstar to purchase up to an
aggregate maximum of 222,000 barrels of Northland's fall 1995 crop harvested for
processing. The Supply Agreements expire on March 31, 1996. The base cash price
per barrel payable for cranberries delivered in fiscal 1996 will be $68.00, with
the potential for up to an additional $1.00 per barrel color incentive bonus.
The Company's crop harvested for processing is delivered promptly after
harvesting. Deliveries must meet certain minimum quality standards, certain of
which are subject to discretionary interpretation. Pappas and Cliffstar will
continue to be customers of the Company under the Supply Agreements through
payment for the Company's fall 1995 harvest and it is possible that the
Company's announced strategy may affect adversely its current business
relationships with Pappas and Cliffstar. The entire purchase price for
cranberries delivered by Northland must be paid by the processors in cash by the
March 31 following delivery. To secure their payment obligations under the
Supply Agreements, Pappas and Cliffstar each delivered letters of credit on June
30, 1995 aggregating $13.6 million to secure all or substantially all of their
respective base purchase price payment obligations. See "Risk Factors --
Expiration of Supply Agreements" and "Risk Factors -- Competition."
30
<PAGE>
In addition to its own internal supply of cranberries, the Company has
entered into multiple-year crop purchase contracts with independent cranberry
growers pursuant to which Northland has contracted to purchase up to a potential
aggregate of approximately 50,000 to 75,000 barrels per year, beginning in
fiscal 1996. Ten dollars of the per barrel purchase price payable to each
delivering grower will be payable by Northland through the delivery in
unregistered transactions of such number of shares of Class A Common Stock
having an equivalent value. The Company believes these crop purchase agreements
will further enhance its supply advantage over other independent cranberry juice
processors and marketers. See, however, "Risk Factors -- Current Business
Strategy" and "Risk Factors -- Cranberry Market; Supply and Demand."
BRANDED PROCESSED CRANBERRY PRODUCTS
The principal sales category for branded processed cranberry products is
supermarket shelf-stable. In addition to the supermarket shelf-stable sales
category, branded processed cranberry products are also sold from the frozen and
refrigerated supermarket display locations.
The market for branded cranberry juice and other processed cranberry
products is dominated by Ocean Spray. As a result of the limited supply of raw
cranberries and Ocean Spray's current control of approximately 75%-80% of the
available supply, the Company believes there are only a limited number of
national brand name lines of cranberry juice and other processed cranberry
products available to consumers as alternatives to Ocean Spray's wide line of
branded processed cranberry products. Northland believes it can take advantage
of this perceived opportunity to offer NORTHLAND brand premium juice and other
processed cranberry products in limited competition with Ocean Spray's line
beginning in fiscal 1996. Northland believes it will be able to compete
successfully against Ocean Spray on a limited regional basis based on
Northland's ability to utilize its internal supply to offer health-conscious
consumers a premium cranberry juice product line. With the assistance of an
independent consulting and laboratory firm, the Company is currently evaluating
and developing its premium cranberry juice product formulae. The Company is also
developing its product design and packaging. The Company intends to explore
other branded processed consumer cranberry products, including sauce, sweetened
dried cranberries, condiments, candies and other products.
Initial marketing and sale of the Company's NORTHLAND brand premium
cranberry juice products will be on a limited basis to selected Midwest and
other markets. The Company is currently exploring and negotiating co-packing
arrangements with third party processors and bottlers to prepare, package,
warehouse and ship its products. Initial distribution will likely be through
commissioned food and beverage brokers or through direct sales to supermarket
chains, mass merchandisers or food wholesalers. See "-- Current Business
Strategy" above.
The Company believes materials and supplies (including juice and concentrate
from other fruits, natural extracts and other flavorings, fructose, corn syrup,
glass, plastic, cans, caps and labels) necessary to prepare, process, package
and distribute its intended new processed consumer cranberry products will be
available from multiple alternative sources. The Company's purchases of other
fruit juices, concentrates and ingredients may be subject to seasonal and other
price fluctuations and supply availability. The Company currently has not
entered into any agreements to obtain such other fruit juices, concentrates,
ingredients, materials or supplies.
31
<PAGE>
PRIVATE LABEL PROCESSED CRANBERRY PRODUCTS
Based on industry data and its knowledge of the industry, the Company
believes that Pappas and Cliffstar together accounted for a substantial majority
of the sales of private label cranberry products to supermarkets and mass
merchandisers in 1994.
The principal sales category for private label cranberry products (as with
branded cranberry products) is supermarket shelf-stable. In addition to the
supermarket shelf-stable sales category, a significant amount of private label
processed cranberry products are also sold by drug store chains, mass
merchandisers and club retail outlets.
Based on industry data, the Company believes that total cranberry product
market sales in 1994 were in excess of $1.1 billion. The Company believes that
private label product sales represent less than 15% of such sales, compared to
30% or more in other juice categories, such as orange and apple juice. In
particular, private label cranberry juice products constituted only
approximately 10% of the sales of the cranberry juice blends market in 1994. See
"-- Consumer Cranberry Products Industry Overview" above.
Due to the unusual supply and demand dynamics for cranberries and cranberry
products, the dominance of only one major brand, Ocean Spray, and the Company's
belief that the private label market of the cranberry juice category is
relatively underdeveloped, the Company believes that an opportunity exists for
it ultimately to utilize its large internal supply of cranberries to work with
third party bottlers to develop, market and sell private label processed
cranberry products beginning in fiscal 1997. Important to the Company's strategy
is its belief that the overall supply of cranberry products will not increase as
a result of the Company redirecting its supply of cranberries (and the
cranberries it intends to purchase from other growers) away from existing
independent private label cranberry product processors and into Northland's own
processed consumer cranberry products. See "-- Current Business Strategy" above.
Products in the private label market are typically sold under the label of
local supermarket chains or mass merchandisers in direct retail competition with
similar branded cranberry products. Typically sold at a price discount to
similar branded products, private label parity quality products generally can be
more profitable to the supermarket chains or mass merchandisers than similar
branded products.
FRESH CRANBERRIES
Fresh cranberries are sold seasonally during the fall and winter of each
year for retail consumption in connection with the Thanksgiving and Christmas
holidays. Although virtually all fresh cranberries are sold in North America,
the Company believes, based on its recent experience and industry contacts, that
there is significant potential for increasing fresh cranberry sales in Europe
and other international markets. Northland believes that sales by Ocean Spray of
its branded fresh cranberries accounted for approximately 65% of total 1994
barrels of fresh cranberries sold. According to the CMC, fresh cranberry
production as a percentage of total cranberry production has declined from 19%
in 1981 (479,600 barrels) to less than 5% in 1994 (249,324 barrels). The Company
believes that this decrease has not been a result of declining consumer demand,
but rather a result of Ocean Spray's emphasis on directing its limited supply of
cranberries to increase its branded cranberry juice product sales volume, rather
than its fresh fruit sales. The Company also believes that many of Ocean Spray's
member-growers (most of whom own marshes of 40 acres or less) choose not to grow
and deliver fresh cranberries because of the added growing, harvesting and
processing costs associated with producing fresh cranberries. The Company
believes there is an opportunity for it to increase its production and sales of
NORTHLAND brand fresh cranberries to help satisfy consumer demand for fresh
cranberries above current industry production levels.
32
<PAGE>
The Company began packaging and selling fresh cranberries in 12-ounce
polyurethane bags under its NORTHLAND brand name in the fall of 1993 as its
initial step towards directly selling its own value-added cranberry products.
The Company has significantly increased its pre-holiday season fresh fruit
marketing efforts since 1993 and, despite disappointing fall 1994 harvest
results and an abnormally high spoilage rate for its stored cranberries, the
Company sold $5.5 million of fresh cranberries during the 1994 holiday season.
The Company sold $4.3 million of fresh cranberries during the 1993 Thanksgiving
and Christmas seasons. Northland sells its fresh fruit in North American
supermarkets primarily through commissioned wholesale produce distributors and
brokers and direct to certain retail grocery companies. Northland intends to
continue emphasizing this value-added aspect of its business by harvesting,
packaging and selling an increasing amount of fresh cranberries over the 1995
holiday season. The Company believes its efforts in this area will be enhanced
by its recent hiring of a Branded Products Manager. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition -- Results of
Operations."
Fresh cranberries are harvested with specialized equipment which picks the
cranberries off the vine and deposits them into small bins. These pickers may be
small walk-behind models or larger rider units, depending on marsh
characteristics. Once harvested, the berries are placed in storage crates. The
entire process is designed to minimize fruit damage to ensure optimum fruit
quality. The fruit is stored in a temperature-controlled facility until needed
for packing. The berries are cleaned and sorted for size, color and quality and
grading is done with electronic and mechanical devices, as well as by hand. The
sorted berries are then packaged in 12-ounce polyurethane bags and shipped
direct to food brokers, wholesalers or supermarkets. When compared with
processed fruit, the harvesting and handling of fresh fruit is much more labor
intensive. Extra personnel are needed both in the field and at the packaging
facility.
The Company supports its fresh fruit sales program through the operation of
its 106,000 square foot fruit receiving station and fresh fruit handling and
packing facility in Wisconsin Rapids, Wisconsin. Completed in September 1993,
the fresh fruit portion of the Wisconsin Rapids facility is capable of cleaning,
drying and electronically color sorting incoming fresh fruit. The facility
includes three 15,000 square foot humidity controlled coolers to store fresh
fruit until packaging and distribution. Due to market demand for fresh packed
cranberries, the Company expanded its fresh fruit packing facility in fiscal
1995. The Company also operates a smaller fresh fruit receiving and cleaning
facility in Hanson, Massachusetts for its Massachusetts-grown fresh cranberry
crop. Once sorted and cleaned, the Company's Massachusetts fresh fruit is
shipped to Wisconsin Rapids for processing and distribution. See "-- Properties"
below.
VINES AND WILDHAWK PRODUCTS
The Company solicits and receives requests from other existing cranberry
growers and new growers to purchase various quantities of the Company's
high-yielding vine varieties. The Company also has mowed vines for replanting on
its internal expansion acreage. Cranberry vines may be cut or "mowed" and then
replanted on new or existing acreage to create new or renovated cranberry
marshes. Although mowing prevents the harvesting of berries from such acres for
that season, the mowed acres grow back and typically produce a modest crop in
the year after mowing and a normal crop in the second year after mowing.
Typically, an acre of cranberries will yield an average of six to 10 tons of
vines for resale or replanting. The Company mowed 59, 70 and 66 acres in fiscal
1995, 1994 and 1993, respectively, and received vine sale proceeds of $713,000,
$1.2 million and $1.1 million, respectively. At May 31, 1995, the Company had
vine purchase orders from third parties which it believed to be firm for
approximately $100,000. The Company believes that the potential for vine sales
by it and other growers will continue to be severely limited for the foreseeable
future, principally as a result of current regulatory restrictions on the
further development of wetlands for cranberry cultivation. However, a potential
for limited vine sales exists for use in replanting existing acres or for
developing cranberry marshes on non-wetland properties or in foreign countries.
See "Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Results of Operations."
33
<PAGE>
The Company's wholly-owned subsidiary, Wildhawk, is in the business of
selling chemicals and fertilizer, as well as providing crop management services,
to cranberry growers. During fiscal years 1995, 1994 and 1993, Wildhawk
recognized revenues of $701,000, $564,000 and $812,000, respectively. The
Company anticipates that Wildhawk sales in fiscal 1996 will continue to
generally remain at or around fiscal 1995 levels as a result of the substantial
number of Ocean Spray member-growers which continue to buy their chemical and
fertilizer products from other suppliers. Wildhawk sales have not had, and are
not expected to have, a material impact on the Company's net income. The Company
also obtains the chemicals and fertilizer it uses in its own growing operations
from Wildhawk. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Results of Operations."
COMPETITION
GENERAL
By pursuing its current business strategy, Northland's cranberry juice and
other processed cranberry products will compete generally with other beverages
and processed consumer fruit products of all kinds, including soft drinks, iced
tea, fruit juices and drinks and bottled water, as well as against the branded
and private label cranberry products of other national, regional and local
cranberry product processors and marketers. Branded products compete against
private label products and vice versa.
RAW CRANBERRIES
Ocean Spray dominates the raw cranberry market, controlling between
approximately 75%-80% of the North American supply of cranberries. Prior to
August 31, 1993, Northland sold all of its raw cranberries to Ocean Spray. Since
its fall 1993 harvest, the Company has sold substantially all of its cranberries
harvested for processing to Pappas and Cliffstar under the Supply Agreements at
prices substantially above the prices paid by Ocean Spray to its member-growers.
As a result of the Company's intended entry into the processed consumer products
market, the Company has entered into contracts to purchase up to approximately
50,000 to 75,000 barrels of cranberries annually from other independent growers.
With the redirection of its cranberry supply (and the cranberry supply intended
to be purchased from other growers) away from Pappas and Cliffstar and into its
own products, the Company believes that competition and pricing for raw
cranberries within the independent market will increase. The Company will
compete in the market for purchasing raw cranberries from other independent
growers with other independent cranberry processors. Although Ocean Spray has
not accepted new member-growers into its cooperative for several years, the
Company could also experience competition for the purchase of raw cranberries
from Ocean Spray if Ocean Spray were to begin accepting new growers. See "Risk
Factors -- Competition."
BRANDED CRANBERRY PRODUCTS
Ocean Spray dominates the branded cranberry products market. Ocean Spray's
highly recognizable brand name cranberry products accounted for approximately
60% of all sales of United States cranberry juice products in 1994, based on
industry data. The Company fully anticipates that Ocean Spray will react to
counter Northland's intended fiscal 1996 limited entry into the branded
processed consumer cranberry products market through one or more competitive
responses. The Company believes that the primary basis of competition with Ocean
Spray will be price, brand name recognition, packaging, promotion, range of
product line and reliability of supply. Ocean Spray has significantly more
experience in the branded processed consumer cranberry products market,
substantially greater brand name recognition and substantially greater
marketing, distribution and financial resources than the Company. The Company
intends to compete with Ocean Spray on a limited basis by offering
health-conscious consumers a premium cranberry juice line. There can be no
assurance that the Company will be able to compete successfully against Ocean
Spray even on a limited regional basis or that consumers will perceive the
Company's juice products as being of higher quality. See "Risk Factors --
Competition."
34
<PAGE>
PRIVATE LABEL CRANBERRY PRODUCTS
The principal competitors in the independent market for private label
cranberry juice and sauce products are Pappas and Cliffstar, together with a
limited number of other raw cranberry brokers and private label juice processors
and marketers. Pappas and Cliffstar will continue to be customers of the Company
under the Supply Agreements through the Company's fall 1995 harvest and it is
possible that the Company's announced strategy may affect adversely its current
business relationships with Pappas and Cliffstar. While the Company has held
discussions, and is willing to hold further discussions, about entering into a
strategic alliance with Pappas or Cliffstar to jointly enter into the private
label cranberry market, based on past discussions with such parties, the Company
believes it is unlikely it will be able to enter into an alliance with either
Pappas or Cliffstar. If the Company enters into such an alliance with one or
more co-packers other than Pappas or Cliffstar, then the Company believes that
Pappas and Cliffstar may react to counter Northland or its allied co-packer's
private label processed cranberry products through one or more competitive
responses. The Company believes that the primary basis of competition will be
product availability, price and reliability of supply. Pappas and Cliffstar have
substantial experience in the private label fruit juice and private label
processed cranberry products markets and have well established processing and
bottling facilities, distribution networks and customer bases. Although the
Company believes its internal supply of cranberries will provide it with a
competitive advantage over Pappas, Cliffstar and other independent cranberry
juice processors and marketers, there can be no assurance that it will be
successful in directly or indirectly developing, marketing and selling private
label cranberry products in competition with those of Pappas, Cliffstar or such
independent processors and marketers.
FRESH CRANBERRIES
The Company currently competes with Ocean Spray and other independent
growers and shippers in the fresh fruit market. Competition is based on price,
quality and delivery. Ocean Spray has substantially greater financial and
marketing resources than the Company and no assurance can be given that the
Company will be able to expand its sale of fresh cranberries.
MARSH OPERATIONS
GENERAL
The annual cranberry growing season generally begins in late April to early
May when the cranberry vines emerge from their winter dormant status and begin
new spring growth. During this period, many cultivation practices are performed
to prepare the vines for the coming growing season.
As the cranberry continues its initial growth through the month of May, the
vines typically will develop unopened flowers (referred to as "hooks") along the
vine stem. Hooks will typically begin to bloom in mid-June until mid-July.
During the bloom period, commercial bee hives are introduced on the marsh to
facilitate pollination of the numerous developing cranberry flowers. The first
berries typically appear in mid-July.
When the blossoms begin to drop and form berries, fertilizer is usually
applied to ensure a good "set" of berries and to provide for rapid berry growth.
The remainder of the growing season is devoted to maturing the fruit and
developing reproductive buds for the next year's crop. Bud development typically
begins in late-July, with the bud forming on the top of the current year's vine
growth.
Fruit maturation generally begins in August and the crop is usually ready to
harvest by the end of September. Harvest methods vary according to the final
intended use of the fruit. Processed berries, which are used for juices and
sauce, are harvested with a machine called a "beater." The beater has a round
reel which rotates in the vines after the bed has been flooded with water. This
action knocks the berries off of their vines and the free berries then float to
the surface. The floating cranberries are then corralled and sheparded by
floating booms on the flooded bed and elevated to waiting trucks for transfer to
the on-site berry cleaning facility. After cleaning, the berries are shipped via
semi-truck to the processors' receiving stations for grading and freezing or
immediate processing.
35
<PAGE>
Fresh fruit, which is sold directly as whole fruit, is harvested with a
variety of picking machines which pick the fruit off the vine in a much gentler
fashion to help ensure optimum fruit quality. The berries are then refrigerated
and stored in crates for future packing and shipment to the retail consumer
market.
After harvest, preparations are made to help ensure the vines withstand the
winter in good condition. The vines now enter dormancy, turning from a green
color to a dark red. In November and December, when the first harshly cold
weather generally occurs, the Wisconsin marshes are again flooded to form a
layer of ice above the dormant vines. This ice protects the vines from harsh
cold and dehydration. After a six-12 inch layer of ice has formed, the remaining
water underlying the ice is drained to allow the vine to continue to oxygenate.
Several floodings during the course of the winter may be necessary to ensure
adequate protection. Massachusetts operations are similar in most respects.
The winter months are a period for equipment repairs and preparations for
the next growing season. The only cultivation practice performed during this
period is sanding. A producing bed is usually sanded every three to four years
with about an inch of sand. The sand is applied directly on the ice with dump
trucks and, in the spring, the ice melts and the sand settles under the vines.
This practice promotes new reproductive growth by burying and rooting long
vegetative growth. Sanding is also an effective means of insect and disease
control. Generally, Massachusetts operations conduct sanding during winter
flooding periods.
Each of the Company's properties typically has a marsh manager and one or
two assistant marsh managers whose responsibilities include monitoring the crop,
deciding on crop management strategies and implementing and supervising the work
on a year-round basis. In addition, each marsh is monitored by a marsh
coordinator who acts as an intermediary between marsh operations and the
Company's corporate office. Each marsh coordinator is generally responsible for
the oversight of two or three marshes and provides weekly marsh status reports
to corporate office personnel. During the spring, two or three additional
part-time workers are generally hired on each marsh. Harvest also requires extra
labor to help ensure the crop is harvested before inclement weather begins.
Typically six to 10 extra laborers per marsh are used throughout the harvest
period, which usually lasts until the end of October.
In the spring of 1994, the Company completed its five-year internal
expansion project involving the planting and development of approximately 455
new cranberry producing acres. The total capitalized cost of this project
through March 31, 1995 was $15.8 million (or approximately $35,000 per acre,
with additional associated costs to be incurred as a result of the continuing
maturation of non-mature planted acres). The Company's expansion acres have all
been planted with high-yielding cranberry vine varieties, which have the
potential to yield an average of over 200 barrels per acre upon full maturity
under favorable growing conditions. Upon full maturity, the Company expects
these high-yielding vine varieties to increase its harvest results and its
average per acre yields, subject to favorable growing conditions and other
agricultural factors. See "-- Agricultural Risks in Production" below. As of
March 31, 1995, approximately 71.8% of the Company's total planted acreage was
planted with high-yielding vine varieties. The Company believes this initiative
has now positioned it to benefit from anticipated increasing internal cranberry
production as its expansion planted acreage begins to mature and become
productive.
The Company, through its six-member in-house operations staff, conducts
internal and external efforts to increase cranberry yields and berry quality,
improve vine durability and longevity. The Company employs an individual with a
PhD in horticulture to direct the Company's research and development efforts.
36
<PAGE>
The Company currently obtains a significant amount of its materials and
supplies necessary for growing and cultivating of its own cranberries from
resources, including water and sand, located on its own marshes. The Company
also expects to continue purchasing substantially all of its fertilizer and
pesticides from its Wildhawk subsidiary. The remainder of the Company's raw
materials and supplies for growing cranberries are purchased on the open market
from various sources. The Company believes it would, if necessary, be able to
locate additional and alternative sources for any raw materials and supplies
without a material delay or adverse effect on its business.
Not all of Northland's planted acreage is at full production in any given
year. Newly planted vines historically reach full productivity in the sixth
harvest after initial spring planting (approximately 5 1/2 years). For the first
three harvests after planting, no significant amounts of cranberries can be
harvested from newly planted acreage. Newly planted high-yielding vine varieties
can generally yield up to 50 barrels per acre in the fourth harvest after
planting and up to 150 barrels per acre in the fifth harvest after planting.
Thereafter, such hybrid acreage has the potential to average over 200 barrels
per acre, depending upon growing conditions and other agricultural factors.
Weather conditions and other agricultural factors, however, may affect adversely
the development and maturation of newly planted cranberry vines. Additionally,
actual yields are subject to significant variation depending upon growing
conditions and cultivation practices. The Company believes that the particularly
adverse weather conditions experienced in Wisconsin during the past three crop
years have slowed by about one year the normal maturation process of its
expansion acreage planted before and during such years.
During fiscal 1995, 22.0% of the Company's planted acreage was not yet fully
productive (considering acreage on which vines were mowed as being fully
productive). In addition, 3.3% of the Company's fully productive acreage was
mowed to produce vine clippings for the Company's own use or for sale to other
growers and, therefore, was not harvestable in fiscal 1995. The Company
anticipates that an additional approximately 257 new acres should begin to be
harvested in crop years 1995 and 1996 (approximately 99 acres in 1995 and 158
acres in 1996).
37
<PAGE>
The following table shows certain information regarding the Company's
cranberry marshes and production for the crop years indicated. The percentages
indicated in the table are percentages of the Company's total planted acres for
that crop year.
<TABLE>
<CAPTION>
CROP YEAR
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1990
1994 1993 1992 1991 (13
(21 MARSHES) (18 MARSHES) (15 MARSHES) (15 MARSHES) MARSHES)
---------------------- ---------------------- ---------------------- ---------------------- ---------
Acres newly planted or
replanted
(nonproductive)(1)..... 54 (2.4 )% 140 (7.1 )% 69 (4.6 )% 76 (5.2 )% 110
Acres mowed
(nonproductive)(2)..... 59 (2.6 ) 70 (3.5 ) 66 (4.4 ) 71 (4.9 ) 63
Acres one year old
(nonproductive)........ 158 (7.0 ) 69 (3.5 ) 74 (4.9 ) 110 (7.7 ) 45
Acres two years old
(nonproductive)........ 99 (4.4 ) 74 (3.7 ) 110 (7.3 ) 67 (4.7 ) 142
Acres three years old
(minimally
productive)............ 74 (3.3 ) 110 (5.6 ) 67 (4.5 ) 151 (10.6 ) 46
Acres four years old
(partially
productive)............ 110 (4.9 ) 67 (3.4 ) 151 (10.1 ) 54 (3.8 ) 86
Acres five years old
(fully productive)..... 1,703 (75.4 ) 1,452 (73.2 ) 963 (64.2 ) 904 (63.1 ) 742
--------- ----------- --------- ----------- --------- ----------- --------- ----------- ---------
Total planted
acres.............. 2,257 (100.0 )% 1,982 (100.0 )% 1,500 (100.0 )% 1,433 (100.0 )% 1,234
--------- ----------- --------- ----------- --------- ----------- --------- ----------- ---------
--------- ----------- --------- ----------- --------- ----------- --------- ----------- ---------
Total acres
harvested (3) 1,813 1,519 1,114 958 828
Total barrels of
production......... 254,000 192,000 130,000 167,000 124,000
Average gross barrel
yield per harvested
acre (3)............... 140 126 117 174 150
Average barrel yield per
harvested acre
including crop
insurance equivalent
barrels (4)............ 149 137 156 186 188
<CAPTION>
<S> <C> <C> <C> <C> <C>
1989 1988
(11 MARSHES) (9 MARSHES)
---------------------- ----------------------
Acres newly planted or
replanted
(nonproductive)(1)..... (8.9 )% 45 (5.1 )% 15 (2.3 )%
Acres mowed
(nonproductive)(2)..... (5.1 ) 27 (3.1 ) 15 (2.3 )
Acres one year old
(nonproductive)........ (3.7 ) 32 (3.7 ) 4 (0.6 )
Acres two years old
(nonproductive)........ (11.5 ) 42 (4.8 ) 7 (1.0 )
Acres three years old
(minimally
productive)............ (3.7 ) 56 (6.4 ) 15 (2.3 )
Acres four years old
(partially
productive)............ (7.0 ) 9 (1.1 ) 34 (5.1 )
Acres five years old
(fully productive)..... (60.1 ) 658 (75.8 ) 570 (86.4 )
----------- --------- ----------- --------- -----------
Total planted
acres.............. (100.0 )% 869 (100.0 )% 660 (100.0 )%
----------- --------- ----------- --------- -----------
----------- --------- ----------- --------- -----------
Total acres
harvested (3) 668 604
Total barrels of
production......... 121,000 110,000
Average gross barrel
yield per harvested
acre (3)............... 181 182
Average barrel yield per
harvested acre
including crop
insurance equivalent
barrels (4)............ 209 195
<FN>
----------------------------------------
(1) Subsequent to the 1993 crop year, the Company planted 40 new acres of
cranberries in Wisconsin and abandoned 52 marginally-productive acres on
its Nantucket marshes.
(2) Only nonproductive in year mowed.
(3) Includes only acres which are at least four years old and which have not
otherwise been mowed.
(4) In crop years 1994, 1993, 1992, 1991, 1990, 1989 and 1988 crop insurance
proceeds approximated 15,973, 15,546, 43,432, 11,357, 30,084, 18,866 and
7,834 equivalent barrels, respectively, based on the net per barrel
proceeds received by the Company in each crop year.
</TABLE>
The data indicated in the table above reflects the significant adverse impact
that poor weather conditions have had on the Company's yields per acre over the
past three crop years, and the decreasing offsetting benefits received in the
last two crop years from the Company's policies of crop insurance. Such adverse
weather has generally slowed the maturing of the Company's expansion acres by
about one growing season. Although strictly dependent upon weather and other
growing conditions, there can be no assurance that the trend of poor weather
conditions will not continue. See "-- Marsh Operations; Agricultural Risks in
Production" and "-- Marsh Operations; Crop Insurance" below for changes in the
Company's crop insurance coverage which began in the 1994 crop year. See also
"Risk Factors -- Agricultural Factors; Crop Insurance."
AGRICULTURAL RISKS IN PRODUCTION
GENERAL. Cranberries are typically grown on marshes containing one acre or
larger earthen structures called "bogs" or "beds," surrounded by dikes, ditches
and water storage areas, all of which are connected to an irrigation system.
This integrated water management unit is used to (i) irrigate the cranberry bogs
for protection against freezing temperatures and to maintain the correct soil
and plant moisture requirements and (ii) either flood the cranberry bogs for
harvesting or cover the cranberry bogs with six to 12 inches of ice during the
winter to provide dormant vine protection. Due to these water requirements, a
cranberry bed often includes extensive supporting acreage of wetlands, ponds and
uplands, as well as the cultivated beds themselves. The Company has almost
20,000 acres supporting its planted acreage.
38
<PAGE>
GENERAL WEATHER CONDITIONS. Unseasonably low temperatures and excessive
precipitation can adversely affect the production of a cranberry marsh.
Unseasonably low temperatures reduce the amount of solar heat received by vines.
This may result in inadequate "setting" of flowers into berries and lead to the
production of smaller berries. In addition, low temperatures requiring
sprinkling to counter frost, together with prolonged periods of rainfall, could
result in excess watering inhibiting root development, plant nutrition and
increasing the likelihood of disease. Adverse general weather conditions over
the past three growing seasons have reduced significantly the Company's harvest
results.
AVAILABILITY OF WATER. An extensive, secure source of water is required for
the operation of a cranberry marsh because of the large quantities of water
needed throughout the year for irrigating, frost protecting and flooding the
bogs. The Company's marshes contain small lakes, streams and hundreds of acres
of marsh and swamplands from which water can be drawn or pumped. The marshes
contain irrigation and pumping systems which connect the bogs to the sources of
water. The water supply has historically been adequate for the Company's needs,
including the near drought conditions in Wisconsin during the summer of 1988
(although Northland's crop was adversely affected by heat and other factors
associated with these conditions), and the Company believes that its water
supply will continue to be adequate in future years. However, factors or events
beyond the control of the Company, such as the contamination of all or a portion
of the water supply, increased demands for water due to development of
surrounding properties and additional or more severe extended periods of
drought, could result in a shortage of water to the Company's marshes. Such
water shortages could result in decreased yields or damage to or even loss of
many of the affected marsh's cranberry vines.
PEST MANAGEMENT. In 1989, the Company instituted an integrated pest
management ("IPM") program in an effort to monitor disease, insects and weed
populations which are detrimental to the cranberry crop. Prior to 1989, the
Company principally relied on scheduled applications of pesticides to control
insects and fungus. The IPM program involves extensive monitoring of the
cranberry bogs so that pesticides are only applied in measured quantities when
crop diseases or pest populations are at a point of doing significant damage to
the crop, rather than systematically applying pesticides at regular intervals.
The Company believes that the IPM program has significantly reduced the volume
of pesticides applied to the Company's cranberry bogs. In addition, the Company
is experimenting with biological methods of pest control. All pesticides applied
by the Company are approved by the United States Environmental Protection
Agency, the Wisconsin Department of Agriculture and the Massachusetts Department
of Food and Agriculture.
The Company's marshes currently do not suffer from any material adverse
effects relating to crop diseases, insects or other pests.
FROST. All of the Company's bogs are equipped with a sprinkler and pump
system which is used for irrigation purposes to maintain proper soil and plant
moisture levels. In addition, since the bogs are located in low-lying areas
particularly susceptible to frosts throughout the growing season, the sprinkler
systems are also used to spray the cranberry vines with a fine mist when there
is a danger of frost. If a severe frost occurs prior to harvest, the bogs are
flooded to cover the vines completely with water. Nevertheless, because of the
potential for inadequate warnings, diesel engine or electrical power failures,
human error, unexpected frost severity or lack of time and manpower, frost
damage to the berries and/or vines may occur. In such an event, the affected
marsh may be subject to a partial or complete loss of its annual crop and even
permanent damage to its vines, regardless of the precautions the Company
employs.
HAIL DAMAGE. Depending on the annual growth stage of the cranberry, hail
damage can seriously affect the production of a cranberry marsh. Vines are most
susceptible to damage from blossom (June) to harvest (October). Measures to
remedy hail damage utilized by the Company include fungicide applications to
prevent fruit rot and fertilizer applications to revitalize damaged vines. Hail
damage has historically only affected the Company's Wisconsin marshes.
39
<PAGE>
CROP INSURANCE
The Company maintains federally-subsidized multi-peril crop insurance
coverage for all of its marshes. Such policies insure against unavoidable loss
of production resulting from adverse weather conditions (including hail), fire,
insects, plant disease, wildlife, human tampering and malicious damage to the
bogs and the failure of an irrigation system water supply due to an unavoidable
cause. Each of the multi-peril policies has coverage periods of 12 months and
insures up to 75%, the maximum coverage currently available, of the previous 10
years' average crop yield on the covered marsh's insured acreage at an effective
rate for fiscal 1995 of $55 per barrel of insured lost production (rather than
the price which could have been received by actually harvesting and delivering
or selling such barrel). These reimbursement rates do not and will not take into
account or cover the anticipated higher per barrel proceeds which the Company
may achieve by selling its cranberries as fresh fruit or as branded or private
label juice products, nor do these insurance policies cover destruction or
spoilage of the Company's crop after its harvest. For example, these policies
did not insure the Company against the losses it incurred from the abnormally
high percentage of spoilage of its stored cranberries which the Company
experienced last fiscal year.
INTERNATIONAL INITIATIVE
In May 1993, Northland planted approximately 7.5 acres with 21 tons of its
various high-yielding cranberry vine varieties on acidic peat bogs in Ireland.
The bogs are controlled by Bord na Mona, an Irish state-owned enterprise. Bord
na Mona provided the land and the labor to construct the bogs and provides daily
on-site bog management for the project. Northland provides construction and
equipment design supervision and crop management services for the project. If
the project is ultimately successful, Northland and Bord na Mona have the option
to enter into a joint venture to develop a minimum of 500 additional acres of
cranberry beds, plus additional supporting acreage. While current indications
are that the planted vines will successfully sustain cranberry growth, it still
is too early in the maturation process to judge the potential yield capabilities
(if any) of these vines. Due to the length of time for cranberry beds to mature,
the Company does not anticipate that the project will have any material impact
on the Company, if at all, until at least fiscal 1997 when a determination may
be made to develop additional acres. Even if a determination is then made to
develop additional acreage, it would be at least four years from the date of
planting before the Company could begin realizing revenues from cranberry sales
from such plantings. There can be no assurances that this project will be
successful.
TRADEMARK AND FORMULAE
The Company owns the NORTHLAND-Registered Trademark- trademark, which is
registered in the United States Patent and Trademark Office. The NORTHLAND
trademark is important to the Company in the sale of its branded fresh
cranberries. As the Company introduces NORTHLAND brand processed consumer
cranberry products, the NORTHLAND trademark is expected to become an even more
important franchise right of the Company. Upon development of its processed
consumer cranberry product formulae, such formulae are expected to be
protectable as trade secrets of the Company. The Company intends to take
appropriate measures, such as entering into confidentiality agreements with its
co-packers and certain employees, to maintain the secrecy and proprietary nature
of its formulae.
EMPLOYEES
As of May 31, 1995, the Company had 99 full-time employees. The Company also
hired 112 additional part-time workers during the 1994 summer crop cultivation
season, and an additional 229 part-time workers for the 1994 crop harvesting
season. In addition to the part-time employees hired for cultivating and
harvesting cranberries, the Company hired 178 part-time employees to operate the
Company's cranberry processing and packaging facility from September through
December 1994. None of the Company's employees are unionized. The Company
believes its relationship with its employees is very good.
40
<PAGE>
The Company believes that its entry into the processed consumer cranberry
products market will require the hiring over the next several years of between
three to four additional marketing and sales personnel, including a Private
Label Products Manager, and an additional six accounting and administrative
personnel. See "Risk Factors -- Dependence Upon Key Personnel; Management
Additions."
LITIGATION
From time to time the Company is involved in litigation relating to claims
arising from its operation in the normal course of business or otherwise. As of
the date of this Prospectus, the Company is not a party to any legal
proceedings, the adverse outcome of which individually or in the aggregate, in
the Company's opinion, would have a material adverse effect on the Company's
results of operations or financial condition.
The Company believes that its entry into the consumer cranberry products
market will increase the likelihood that it may become subject from time to time
in the ordinary course of business to potential product liability or similar
claims. The Company believes it has obtained adequate insurance coverage against
most such types of anticipated potential claims.
REGULATION
ENVIRONMENTAL REGULATION
Temperate wetlands indigenous to certain parts of North America are the
traditional preferred growing habitat for cranberries due to the weather
conditions, acidic peat-based soil and the extensive water availability needed
for successfully cultivating cranberries. In the United States, wetlands are
regulated primarily by the Clean Water Act and the 1989 regulations on wetlands
published jointly by the United States Departments of Interior and Agriculture,
the United States Army Corps of Engineers and the United States Environmental
Protection Agency ("EPA"). The primary goal of these regulations is to ensure
that there will be "no net loss" of wetlands in the United States. To obtain
permits to create new cranberry bogs, cranberry growers and other developers are
generally required by the Army Corps of Engineers to restore the functional
values of disturbed wetland acreage in an amount equal to at least 100% of the
acreage intended for the development of new cranberry bogs, depending on the
type of wetland impacted. As a result of these current laws, it is unlikely the
Company, or any other cranberry growers or other developers in the United States
will be able to cost-effectively secure additional permits for further
significant cranberry marsh development or expansion of wetland properties
(although the Company and other growers or developers may renovate existing
developed wetlands acreage from time to time and replant older cranberry vine
varieties with higher-yielding vine varieties). The Government of Canada, as
well as most of Canada's provinces, also have a "no net loss" policy on wetland
conservation, although the impact of such policy on the commercial development
of wetlands for cranberry production is uncertain.
On May 16, 1995, the United States House of Representatives passed H.R. 961,
a bill which, if enacted, would significantly reduce and/or eliminate federal
regulatory protection of United States wetlands. The bill provides for an
entirely new system of wetlands classification under which the level of federal
regulation would vary in accordance with the deemed ecological value of the
area. The bill also substantially expands the list of activities which are
exempt from wetlands permit requirements, some of which relate to cranberry
growing. According to the United States Department of Interior, the bill would
eliminate federal regulatory protection for up to 50% of the United States
wetlands and reduce or eliminate such regulations on 80% of the remaining
acreage. The Company is unable to predict the likelihood of enactment of the
legislation, what form the proposed legislation may finally take or, because of
the significant state regulations governing the development of wetlands, what
impact the new bill will have on the ability to develop new cranberry bogs. If
the bill is enacted in a manner which would materially ease restrictions on the
development of cranberry bogs, it could lead to an increase in long-term
cranberry supply which, if not exceeded by demand, could have a depressing
effect on the proceeds per barrel recognized by the Company. See "Risk
Factors--Cranberry Market; Supply and Demand."
41
<PAGE>
The State of Wisconsin has statutory water quality standards which must be
satisfied before a permit may be issued to develop wetland property in the
state. The proponent of the wetland development must show that the development
will not have a significant adverse impact on the functional values or water
quality of the affected wetlands and will not have other significant adverse
environmental consequences. Only then will development of the wetland be
allowed. The Company believes these statutory standards make it extremely
difficult to obtain a permit to plant new cranberry acreage on wetland
properties in Wisconsin. Massachusetts has substantially similar water quality
standards limiting the development of wetlands in Massachusetts.
As a distributor of fertilizer, pesticides and other chemical products,
Wildhawk is subject to various federal, state and local licensing and reporting
requirements and regulations. None of such requirements and regulations
currently has a material effect on the Company's (or Wildhawk's) capital
expenditures, results of operations or competitive position.
All pesticides used in the cultivation of cranberries are subject to
re-registration and relabeling requirements with the EPA to meet certain worker
protection standards. Under the EPA's regulations, prior to April 1, 1995, all
such pesticides had to be relabeled, restricted entry intervals will be required
and new warnings, both written and oral, must be added to current directives.
EPA regulations also provide for decontamination sites, employee training,
cleaning and maintenance of personal protective equipment, emergency assistance,
and safety posters of specific pesticide information. The Company believes that
it is in material compliance with all current regulations.
As a result of the significantly more expansive testing and research data
now required by the EPA to relabel pesticides for particular uses, the Company
anticipates that the manufacturers of certain pesticides may determine from a
cost-benefit perspective not to pursue relabeling such products for use on
cranberries. Although the Company believes it might be able to obtain a
so-called "local need" permit from the State of Wisconsin to allow continued use
on its Wisconsin marshes of certain important pesticides which are not relabeled
by the EPA for use on cranberries, there can be no assurance that certain
important pesticides will not be determined ineligible for use in cultivating
cranberries, which could consequently reduce per acre yields.
Three of the Company's Wisconsin marshes are the subject of various types of
activities intended to remediate ground and/or water contamination caused by
previously removed underground storage tanks used by the prior owners of such
properties. All of such circumstances have been reported to the appropriate
state regulatory agencies and are subject to state supervised remediation plans.
Based on information available as of May 31, 1995, the Company believes a
substantial portion of the aggregate costs of such remedial activities will be
covered by state reimbursement funds or indemnification claims against the
properties' prior owners and that resulting liabilities incurred by the Company
will not be material.
Other than as set forth above, the Company does not expect existing federal,
state or local environmental legislation to have a material effect on its
capital expenditures, results of operations or competitive position.
OTHER REGULATORY MATTERS
In 1937, Congress enacted the Agricultural Marketing Agreement Act which
permitted producers to establish, under a limited federal antitrust exemption,
federal marketing orders which determine the volume of agricultural product
allowed to reach the market in a given season, the rate of product flow to the
market and the minimum quality standards for the product. Under the provision of
the Agricultural Marketing Agreement Act, a Cranberry Marketing Order was
adopted in 1974. This order established the CMC, which is charged with
developing a marketing policy by March 1 of each year and making recommendations
concerning the allowable supply of cranberries for such year. The CMC is
comprised of eight members serving for two-year terms. As of March 31, 1995,
four Ocean Spray representatives, three independent processor representatives
and one representative chosen from the public at large were serving on the CMC.
42
<PAGE>
If two-thirds of the members of the CMC determine that the supply and demand
of cranberries will result in unstable market conditions for the forthcoming
crop year, the CMC can recommend that the Secretary of Agriculture implement a
domestic grower allocation program pursuant to the Cranberry Marketing Order.
The provisions available for such implementation permit the Secretary to
regulate the amount of cranberries which "handlers," such as Ocean Spray,
Cliffstar and Pappas, can accept from growers for domestic marketing. The CMC
has never recommended that the Secretary implement an allocation program.
However, similar provisions in effect prior to 1974 enabling the Secretary to
limit the marketing of cranberries were implemented on several occasions, most
recently in 1971. The CMC's jurisdiction is limited to areas within the United
States. Therefore the Company believes that implementation of a Cranberry
Marketing Order would not affect Canadian cranberry production or international
cranberry sales.
The CMC, at its March 1, 1995 meeting, determined that a grower allocation
program would not be warranted based on projections of cranberry production,
acreage, utilization and inventories, which the Company believes indicates that
cranberry supply should not exceed demand for the 1995 growing season. However,
there can be no assurance that the CMC will not change its recommendation for
1995 or determine that the supply of cranberries will exceed demand in future
years, and that, therefore, limitations on the amount of cranberries produced
and allotments on growers would be imposed. If such limitations or allotments
are imposed on growers, they could have a material adverse effect on the
Company's results of operations and financial condition. See "Risk Factors--
Regulation."
CRANBERRY PRODUCT REGULATION
The production, labeling, marketing and distribution of the Company's fresh
cranberries and planned processed cranberry consumer products are and will be
subject to the rules and regulations of various federal, state and local food
and health agencies, including the Food and Drug Administration, the Department
of Agriculture, the Federal Trade Commission and the Environmental Protection
Agency. The principal federal laws that regulate the Company's fresh cranberry
business and will regulate its planned processed cranberry products business
include: (i) the Food, Drug and Cosmetic Act of 1938, which ensures that foods
and beverages are produced under sanitary conditions and are properly labeled;
(ii) the Federal Insecticide, Fungicide and Rodenticide Act, which ensures that
pesticides used on food and beverage ingredients are registered with and
approved by the Environmental Protection Agency; (iii) the Fair Packaging and
Labeling Act, which regulates trade practices and requires that consumers
receive information regarding the quality and value of products; (iv) the
National Label Education Act, which regulates information which must be included
in food and beverage labels; and (v) the Federal Trade Commission Act, which
regulates methods of competition, advertising and trade practices. The Company
believes it has and will be able to comply in all material respects with such
rules, regulations and laws, although there can be no assurance that future
compliance with such rules, regulations and laws will not have a material
adverse affect on the Company's results of operations and financial condition.
PROPERTIES
The Company owns its corporate offices in Wisconsin Rapids, Wisconsin which
consist of 12,300 square feet of office space on five acres of land. The Company
recently completed a 4,300 square foot expansion of its offices at a cost of
approximately $500,000. The Company also owns a 5,700 square foot building in
Wisconsin Rapids which is used by certain members of its administrative and
operational staff.
The Company owns a 106,000 square foot receiving station and fresh fruit
packaging facility on 40 acres in Wisconsin Rapids. The facility is used to
clean and store the Company's processed cranberries. The facility is also used
to clean, store, sort and package the Company's fresh fruit. The facility
includes a 30,000 square foot cranberry receiving station and fresh fruit
packaging operation,
43
<PAGE>
31,000 square feet of freezer warehousing and 45,000 square feet of refrigerated
storage. The Company leases the 31,000 square foot freezer to a general storage
company on a long-term lease arrangement. The lessee also provides the
refrigeration services necessary to maintain the refrigerated storage portion of
the facility for the Company. In fiscal 1995, the Company completed the
expansion of its receiving and packaging plant to accommodate additional fresh
fruit production.
In June 1995, the Company began the construction of a 16,300 square foot
juice concentrating facility addition to the Company's current plant site in
Wisconsin Rapids. It is anticipated that the juice concentrating facility, which
will provide Northland with the capacity to concentrate over 400,000 barrels
annually, will be completed by May 1996 at a total cost of approximately $4.5
million. There can be no assurance that the Company will not experience
additional start-up costs and delays in being able to concentrate cranberries.
The Company owns a 49,000 square foot cranberry receiving station and
freezer facility located on a seven-acre parcel of land adjacent to the Hanson
Division bogs. This facility is used for the storage and maintenance of the
Company's Massachusetts cranberry crop.
The following table sets forth specific information about each of the
Company's 21 cranberry marshes as of May 31, 1995. All of the Company's marshes
are owned in fee simple or leased as indicated below, subject to mortgages
(except for its Fifield, Nantucket and Hills Division marshes). All of the
Company's marshes have storage buildings and repair shops for machinery, trucks
and harvest and irrigation equipment maintained at the marshes. Each of the
Company's marshes has a house or houses on site or in close proximity to the
site which serve as the marsh manager's residence and most of the Company's
marshes also have residences for assistant marsh managers.
<TABLE>
<CAPTION>
MAY 31, 1995 CALENDAR
--------------------------- YEAR
APPROXIMATE APPROXIMATE ACQUIRED OR
MARSH DIVISION NAME AND LOCATION MARSH ACRES PLANTED ACRES LEASED
--------------------------------------------------------------------------- ------------ ------------- -----------
<S> <C> <C> <C>
Associates Division, Jackson County, Wisconsin............................. 3,400 86 1983
Meadow Valley Division, Jackson County, Wisconsin.......................... 2,150 76 1984
Fifield Division, Price County, Wisconsin.................................. 2,460 196 1985
Three Lakes Division, Oneida County, Wisconsin............................. 1,542 82 1985
Chittamo Division, Douglas and Washburn Counties, Wisconsin................ 620 55 1985
Biron Division, Wood County, Wisconsin..................................... 473 213 1987
Warrens Division, Monroe County, Wisconsin................................. 160 63 1987
Trego Division, Washburn County, Wisconsin................................. 1,715 96 1988
Gordon Division, Douglas County, Wisconsin................................. 880 149 1988
Mather Division, Juneau County, Wisconsin.................................. 2,500 148 1989
Nekoosa Division, Wood County, Wisconsin................................... 463 43 1989
Nantucket Division (two marshes), Nantucket County, Massachusetts
(leased).................................................................. 737 211 1990
Crawford Creek Division (two marshes), Jackson County, Wisconsin........... 304 135 1991
Hills Division, Jackson County, Wisconsin (leased)......................... 465 70 1991
Hanson Division (two marshes), Plymouth County, Massachusetts.............. 2,025 348 1993
Yellow River (three marshes), Wood and Juneau Counties, Wisconsin.......... 1,820 286 1994
------------ -----
Total.................................................................. 21,714 2,257
------------ -----
------------ -----
</TABLE>
All of the Company's foregoing current facilities are suitable and adequate
for the Company's existing needs, except that, depending upon the extent of crop
purchases effected by the Company and
44
<PAGE>
its own harvest results, the Company may determine to rent additional
refrigerated or freezer crop storage capacity. The Company is a Wisconsin
corporation with its headquarters located at 800 First Avenue South, Wisconsin
Rapids, Wisconsin 54494.
On September 13, 1993, the Company entered into an interim lease with United
Cape Cod Cranberry Limited Partnership ("UCCC") pursuant to which the Company
conditionally agreed to acquire two cranberry bogs in Hanson, Massachusetts
covering approximately 2,025 acres, with approximately 348 planted acres and a
49,000 square foot cranberry receiving station and freezer adjacent to the bogs.
The acquisition was contingent upon UCCC obtaining a court approved agreement
with the United States EPA to release certain of the acreage subject to
acquisition from ongoing litigation instituted by the EPA alleging noncompliance
with wetlands regulations in the construction and development of such acreage by
a prior owner. Pending such a court approved agreement with the EPA, the Company
agreed to lease the bogs and associated assets. The agreement with the EPA and
UCCC was signed on January 11, 1995. As a result of that agreement, the Company
agreed to surrender 286.2 acres of the total 2,025 acres of the acquired bogs
for the following purposes: (i) 12.6 acres of previously abandoned bog will
revert naturally back to wetlands; (ii) 264 acres of unspoiled cedar swamp were
preserved as conservation land for the creation of a wildlife sanctuary; and
(iii) a wetland restoration/creation project will affect 26 acres of support and
bog land located on Bog 18. The Company completed the acquisition of the Hanson
bogs on June 7, 1995.
The Company also entered into an agreement with UCCC and its bank to acquire
a 47-acre cranberry bog adjacent to the Hanson marshes (herein called "Bog 9"),
contingent upon the issuance of a final written determination by the
Massachusetts Department of Environmental Protection that the hazardous
substances previously identified on Bog 9 have been remediated in accordance
with Massachusetts law. The purchase price for Bog 9 is $1.6 million. The
acquisition agreement will terminate on the earlier of five years from the date
thereof or the date on which the Company purchases Bog 9 pursuant to such
agreement.
45
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Each of the current directors and executive officers of the Company is
identified below together with information as of May 31, 1995 with respect to
each person's age, current position with the Company and a brief description of
their business experience for at least the past five years. The Company's 1995
annual meeting of shareholders is scheduled to be held on August 18, 1995 and
all of the currently serving directors indicated in the table below are being
nominated by the Board of Directors for re-election by the shareholders at the
annual meeting. The record date for the annual meeting was June 29, 1995 and the
purchasers of the shares of Class A Common Stock offered hereby will not be
eligible to vote such purchased shares at the shareholders meeting.
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION
--------------------- --- ----------------------------------------------------
<S> <C> <C>
John Swendrowski 47 President, Chief Executive Officer and Director
Robert E. Hawk 40 Vice President - Sales, Marketing and Special
Projects, President of Wildhawk, Inc. and Director
John A. Pazurek 46 Vice President - Finance and Treasurer
Gerald J. Bach 52 Vice President - Manufacturing
David J. Lukas 53 Vice President - Human Resources and Corporate
Counsel
William J. Haddow 47 Vice President - Purchasing and Transportation
John S. Wilson 45 Vice President - East Coast Operations
John B. Stauner 33 Vice President - Operations
LeRoy J. Miles 60 Secretary and Director
Patrick F. Brennan 63 Director
Jeffrey J. Jones 42 Director
John C. Seramur 53 Director
Jerold D. Kaminski 38 Director
</TABLE>
Mr. Swendrowski founded the Company and assumed his current positions in May
1987. Prior to forming the Company, Mr. Swendrowski was the organizer and
syndicator of investment interests, and a general partner, in each of the five
limited partnerships which were combined into the Company as part of its initial
public stock offering in August 1987.
Mr. Hawk was appointed Vice President - Sales, Marketing and Special
Projects in January 1993. Prior thereto he served as Vice President - Operations
for four years. Prior to joining the Company in January 1989, Mr. Hawk served as
the President, Treasurer and sole shareholder of Wildhawk, Inc. from its
inception in August 1983 until the Company acquired Wildhawk, Inc. in January
1989.
Mr. Pazurek is a certified public accountant and joined the Company as
Controller and Principal Accounting Officer at its inception in May 1987. In May
1990, Mr. Pazurek was promoted to Vice President - Finance and in August 1993 he
was promoted to Treasurer. Prior to joining the Company, Mr. Pazurek was a
senior staff accountant with the Wisconsin Rapids, Wisconsin certified public
accounting firm of Keller & Yoder from 1983 to 1987.
Mr. Bach was appointed Vice President - Manufacturing in January 1995. Prior
thereto, he served as Vice President - Operations for over two years. Prior to
joining the Company in December 1992, Mr. Bach served as Receiving Station
Manager and field representative for Ocean Spray for eight years.
Mr. Lukas joined the Company on April 1, 1992. Prior thereto, he practiced
law with the Wisconsin Rapids, Wisconsin law firm of Lukas & Panek and its
predecessors for over 21 years.
46
<PAGE>
Mr. Haddow was promoted to his current position in May 1993. Prior thereto,
he served as Assistant Vice President - Purchasing for four years. Prior to
joining the Company in 1989, Mr. Haddow was a sales representative for a midwest
trucking service.
Mr. Wilson joined the Company in October 1993 and was promoted to Vice
President - East Coast Operations in May 1994. Prior thereto, he served as
Manager - Grower Services at Ocean Spray in Lakeville, Massachusetts from 1988.
Mr. Stauner was promoted to Vice President - Operations in May 1995. Prior
thereto, he served as Assistant Vice President of Operations since the Company's
inception in May 1987.
Mr. Miles has been an executive officer of the Company since its inception
in May 1987. Effective December 31, 1994, Mr. Miles retired as the Company's
Executive Vice President.
Mr. Brennan has been President and Chief Executive Officer of Consolidated
Papers, Inc., a manufacturer of coated printer paper, located in Wisconsin
Rapids, Wisconsin, since October 1993. Prior thereto, he served as President and
Chief Operating Officer for five years, Executive Vice President for over one
year and Corporate Vice President for three years. He has served as a director
of Consolidated Papers, Inc. since February 1987. Mr. Brennan has been a
director of Betz Laboratories, Inc., Trevose, Pennsylvania, a manufacturer of
specialty chemicals, since December 1992.
Mr. Jones has been a partner in the law firm of Foley & Lardner, Milwaukee,
Wisconsin, since January 1987, and has been associated with such firm since
1978. Foley & Lardner has been the Company's general legal counsel since the
Company's formation and served as general legal counsel to the Company's
predecessor limited partnerships.
Mr. Seramur has been President and Chief Executive Officer of First
Financial Bank, FSB, a savings bank holding company, located in Stevens Point,
Wisconsin, since 1977 and a director thereof since 1966. He has also been the
President and a director of First Financial Corporation, a subsidiary of First
Financial Bank, since its formation in 1983.
Mr. Kaminski has been the Director of Marketing for the Food Service
Division of General Mills Corporation, since September 1993. Prior thereto, Mr.
Kaminski served as Marketing Director of the Goldmedal Division of General Mills
Corporation from September 1991 to September 1993 and as Marketing Manager of
the Goldmedal Division of General Mills Corporation from February 1989 to
September 1991.
Lawrence R. Kem, a director of the Company since its inception in May 1987,
retired from the Board of Directors on May 17, 1995 and is not listed in the
table above. Mr. Kem decided to retire from the Board as a result of being
unable to fulfill his obligations as a director because of other personal
obligations.
The executive officers of the Company are generally elected annually by the
Board of Directors after the annual meeting of shareholders. Each executive
officer holds office until his successor has been duly qualified and elected or
until his earlier death, resignation or removal. As a result of the Company's
change of fiscal year end from March 31 to August 31, the Company's next annual
shareholders meeting, after its scheduled August 18, 1995 annual meeting, is not
expected to be held until January 1997.
47
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid by the Company for its last three fiscal years to the Company's Chief
Executive Officer and certain other executive officers of the Company, including
all those who earned over $100,000 in fiscal 1995. The persons named in the
table below are hereinafter sometimes referred to as the "named executive
officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
STOCK
ANNUAL COMPENSATION OPTION
FISCAL ------------------------ GRANTS ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS (SHARES) COMPENSATION (1)
-------------------------------------- --------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
John Swendrowski 1995 $ 300,000 $ 0 8,000 $ 0
President and Chief 1994 275,000 135,250 0 0
Executive Officer 1993 250,000 125,000 20,000 0
Robert E. Hawk 1995 108,000 0 4,000 0
Vice President - Sales, 1994 100,000 31,000 0 75,000
Marketing and Special Projects 1993 90,000 21,951 5,000 75,000
John A. Pazurek 1995 83,000 0 4,000 0
Vice President - Finance and 1994 70,000 21,700 0 0
Treasurer 1993 62,500 15,000 5,000 0
<FN>
------------------------
(1) Amounts set forth represent payments to Mr. Hawk under his noncompetition
agreement with the Company entered into in connection with the Company's
January 1989 acquisition of Wildhawk. Such agreement expired in January
1994.
</TABLE>
As a result of the Company's disappointing fiscal 1995 financial results, no
bonuses were paid to the Company's executive officers and annual base salary
raises were limited to only reflect inflation and growth of individual
responsibilities.
STOCK OPTIONS UNDER EXISTING PLANS
The Company maintains both a 1987 Stock Option Plan ("1987 Plan") and a 1989
Stock Option Plan ("1989 Plan") permitting the grant of stock options to
purchase shares of Class A Common Stock to key employees, including executive
officers of the Company and, in the case of the 1989 Plan, nonemployee
directors. The maximum number of shares of Class A Common Stock for which
options could have been granted under the 1987 Plan and 1989 Plan was 137,500
and 300,000, respectively. As of May 31, 1995, an aggregate of 372,143 shares
were subject to issuance upon the exercise of stock options granted under the
1987 Plan and 1989 Plan. As a result of the expired availability of shares
available for option grants under the 1987 Plan and the limited availability of
shares to support additional stock option grants under the 1989 Plan, on May 17,
1995 the Board of Directors adopted a 1995 Stock Option Plan (the "1995 Plan"),
subject to approval by the Company's shareholders at the Company's next annual
meeting scheduled for August 18, 1995. See "-- Proposed 1995 Stock Option Plan"
below. As indicated above, the record date for such annual meeting was June 29,
1995 and the purchasers of the Class A Common Stock offered hereby will not be
eligible to vote such purchased shares at the meeting. The 1987 Plan and the
1989 Plan are, and if approved by the Company's shareholders the 1995 Plan will
be, administered by the Compensation and Stock Option Committee of the Board of
Directors, consisting of Messrs. Seramur (Chairman), Jones and Brennan.
48
<PAGE>
The following table sets forth information concerning the grant of stock
options during fiscal 1995 to the named executive officers.
OPTION GRANTS IN 1995 FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
PERCENTAGE OF STOCK PRICE
SHARES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO ALL EXERCISE FOR OPTION TERM (3)
OPTIONS EMPLOYEES IN PRICE (2) EXPIRATION ----------------------
NAME GRANTED (1) 1995 FISCAL YEAR (PER SHARE) DATE 5% 10%
---------------------- ----------- ----------------- ----------- ---------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
John Swendrowski 8,000 17.4% $ 17.50 May 19, 2004 $ 71,760 $ 197,200
Robert E. Hawk 4,000 8.7% 17.50 May 19, 2004 35,880 98,600
John A. Pazurek 4,000 8.7% 17.50 May 19, 2004 35,880 98,600
<FN>
------------------------
(1) The options reflected in the table are nonqualified stock options under the
Internal Revenue Code and were granted on May 19, 1994. The exercise price
of each option granted was equal to 100% of the fair market value of the
Class A shares on the date of grant. Although options may be granted under
the Company's 1989 Stock Option Plan at not less than 85% of the fair
market value of a Class A share on the date of grant, the Committee has
never granted options having an exercise price of less than 100% of the
fair market value of the Class A shares on the option grant date. The
options granted to the named executive officers above vested immediately
upon grant and must be exercised prior to 10 years after the date of grant.
(2) The exercise price of options may be paid in cash, by delivering previously
issued Class A shares or any combination thereof.
(3) The potential realizable values set forth under the columns represent the
difference between the stated option exercise price and the market value of
the Class A Common Stock based on certain assumed rates of stock price
appreciation and assuming that the options are exercised on their stated
expiration date; the potential realizable values set forth do not take into
account applicable tax and expense payments which may be associated with
such option exercises. Actual realizable value, if any, will be dependent
on the future stock price of the Class A Common Stock on the actual date of
exercise, which may be earlier than the stated expiration date. The 5% and
10% assumed rates of stock price appreciation over the 10-year exercise
period of the options used in the table above are mandated by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future price of the Class A Common Stock on
any date. There can be no assurances that the stock price appreciation
rates for the Class A Common Stock assumed for purposes of this table will
actually be achieved. See the cover page of this Prospectus for the last
sale price of the Class A Common Stock on the date prior to the date of
this Prospectus.
</TABLE>
49
<PAGE>
The following table sets forth certain information with respect to the named
executive officers concerning their unexercised stock options held as of the end
of fiscal 1995. No options were exercised by the named executive officers in
fiscal 1995.
AGGREGATED OPTION 1995 FISCAL YEAR END VALUE TABLE
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING OPTIONS IN-THE-MONEY OPTIONS
AT END OF FISCAL 1995 (1) AT END OF FISCAL 1995 (2)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------------- ----------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C>
John Swendrowski 108,000 -- $ 742,500 --
Robert E. Hawk 44,000 -- 308,750 --
John A. Pazurek 29,000 -- 193,000 --
<FN>
------------------------
(1) The options reflected in the table are nonqualified stock options under the
Internal Revenue Code. The exercise price of each option granted was equal
to 100% of the fair market value (last bid price) of the Class A shares on
the date prior to the date of grant. Although options may be granted under
the Company's 1989 Stock Option Plan at not less than 85% of the fair
market value of a Class A share on the date prior to the date of grant, the
Committee has never granted options having an exercise price of less than
100% of the fair market value of the Class A shares on the date prior to
the option grant date. The options granted to Messrs. Swendrowski and Hawk
vested immediately upon grant and must be exercised prior to 10 years after
the date of grant and are currently exercisable. Mr. Pazurek has received
some options which vest immediately and others which vest over time;
however, all of the options listed above are currently vested. Certain of
the options set forth above (granted in 1987) provide for tax offset
bonuses to be paid upon exercise of such options in order to reimburse the
named executive officers for the income taxes incurred thereby as a result
of such option exercise. The table above does not include 6,000, 3,000 and
3,000 shares subject to immediately exercisable options granted to each of
Messrs. Swendrowski, Hawk and Pazurek in May 1995. See "Stock Ownership of
Management and Others -- Share Ownership."
(2) The dollar values were calculated by determining the difference between the
fair market value of the underlying Class A shares and the various
applicable exercise prices of the named executive officers' outstanding
options at the end of fiscal 1995. See the cover page of this Prospectus
for the last reported sale price of the Company's Class A shares on the
date prior to the date of this Prospectus.
</TABLE>
PROPOSED 1995 STOCK OPTION PLAN
At its meeting on May 17, 1995, the Company's Board of Directors adopted a
1995 Stock Option Plan ("1995 Plan"), subject to its approval by the Company's
shareholders at the 1995 annual meeting of shareholders scheduled to be held on
August 18, 1995. As indicated above, the record date for being eligible to vote
at such annual meeting was June 29, 1995 and the purchasers of the Class A
Common Stock offered hereby will not be eligible to vote such purchased shares
at the meeting. The 1995 Plan authorizes the granting to key employees of stock
options, which may be either incentive stock options or nonqualified stock
options. The 1995 Plan also provides for annual, automatic grants of
nonqualified stock options to each non-employee director of the Company. The
1995 Plan provides that up to a total of 400,000 Class A shares (subject to
adjustment to prevent dilution) will be available for the granting of options
thereunder. The exercise price per Class A share subject to an option granted to
a key employee under the 1995 Plan will be determined by the Committee, provided
that the exercise price may not be less than 100% of the fair market value of a
Class A share on the date of grant. The term of an option granted to a key
employee under the 1995 Plan will be as determined by the Committee, provided
that the term of an option may not exceed 10 years. Options granted to key
employees under the 1995 Plan will become exercisable in such manner and within
such period or periods and in such installments or otherwise as determined by
the Committee. The 1995 Plan also
50
<PAGE>
provides that each non-employee director will, on the last day of each fiscal
year, automatically be granted an option to purchase that number of Class A
shares equal to the amount of directors fees paid to the non-employee director
for such fiscal year, divided by the fair market value of a Class A share on
such date. The option price per share of any option granted to a non-employee
director must be 100% of the market value of the Class A share on the date of
grant. Options granted to non-employee directors will terminate on the earlier
of (a) five years after the date of grant; (b) six months after the non-employee
director ceases to be a director of the Company by reason of death, disability
or retirement after obtaining age 65; or (c) immediately upon the non-employee
director ceasing to be a director of the Company for any reason other than
death, disability or retirement. No options have yet been granted under the 1995
Plan.
BONUS PLAN
The Company maintains a Restated 1992 Executive Incentive Bonus Plan ("Bonus
Plan"). Under the Bonus Plan, the Company's net income per share must increase
by more than 10% over the prior fiscal year's net income per share in order for
bonuses to be paid to selected executive officers or key employees. In addition,
since the Company's Board of Directors viewed fiscal 1995's disappointing
financial results as an aberration largely caused by events outside of the
Company's control, the Board amended the Bonus Plan on May 17, 1995 so that
bonuses will only be payable for fiscal 1996 (September 1, 1995 through August
31, 1996) to executive officers or key employees if the Company's fiscal 1996
net income per share exceeds fiscal 1994 net income per share ($0.67) by more
than 10%. Without this amendment, bonuses would have been payable under the
Bonus Plan for fiscal 1996 if the Company's net income per share exceeded fiscal
1995 net income per share ($0.36) by more than 10%. The Bonus Plan also provides
that the Committee will not be restricted in otherwise providing for
discretionary bonuses outside the Bonus Plan.
SEVERANCE AGREEMENT
The Company has a severance agreement with Mr. Swendrowski which provides
that, following a "change in control" of the Company (as defined in the
severance agreement), Mr. Swendrowski will be employed for three years in the
same position, performing equivalent duties, and at the same location as in
effect immediately prior to the change of control. During such employment
period, Mr. Swendrowski is entitled to receive a salary based upon his
compensation rate in effect at the date of change of control (subject to
increase) and to be included in the Company's benefit plans available to other
key employees. If, during the employment period, (i) Mr. Swendrowski's
employment is terminated by the Company, other than for "cause" (as defined in
the severance agreement) or his disability or (ii) his duties are changed
substantially without his written consent and Mr. Swendrowski terminates his
employment as a result, then in either case he will be entitled to receive a
lump sum severance payment equal to three times his average base salary over the
five years prior thereto, plus the other benefits due under the agreement.
51
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT AND OTHERS
SHARE OWNERSHIP
The following table sets forth certain information as of May 31, 1995
regarding the beneficial ownership of each class of Common Stock held by (i)
each current director and named executive officer of the Company; (ii) all
current directors and executive officers of the Company as a group; and (iii)
each person or entity known to the Company to be the beneficial owner of more
than 5% of either class of Common Stock. All of the persons or entities listed
below are believed by the Company to have sole voting and investment power over
the Common Stock identified as beneficially owned, except as indicated otherwise
in the footnotes to the table.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
BENEFICIALLY BENEFICIALLY
OWNED OWNED PERCENTAGE OF
NAME OF INDIVIDUAL OR ENTITY AND PERCENTAGE AND PERCENTAGE AGGREGATE
OR NUMBER IN GROUP OF CLASS (1) OF CLASS (1) VOTING POWER
-------------------------------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
John Swendrowski (2) 194,174(3) 318,101(4) 22.6%
(4.6%) (100%)
LeRoy J. Miles (2) 50,673(5) 161,231(6) 1.0%(7)
(1.3%) (50.7%)
Robert E. Hawk 205,103(8) -- 4.1%
(5.1%)
John A. Pazurek 33,017(9) -- *
*
John C. Seramur 30,443(10) -- *
*
Jeffrey J. Jones 10,795(11) -- *
*
Patrick F. Brennan 3,374(12) -- *
*
Jerold D. Kaminski -- -- --
All current directors and executive officers 611,866 318,101 29.7%
as a group (14 persons) (13) (14.2%) (100%)
OTHER FIVE PERCENT HOLDERS
State of Wisconsin Investment Board (14) 374,000 -- 7.5%
(9.3%)
David L. Babson & Company, Inc. (15) 423,700 -- 8.5%
(10.6%)
<FN>
------------------------
* Denotes less than 1%.
(1) The outstanding Class B shares are convertible on a share-for-share basis
into Class A shares at any time at the discretion of each holder. As a
result, a holder of Class B shares is deemed to beneficially own an equal
number of Class A shares. However, in order to avoid overstatement of the
aggregate beneficial ownership of shares of both classes of the Company's
Common Stock, the Class A shares reported in the table do not include Class
A shares which may be acquired upon the conversion of Class B shares.
Similarly, the respective percentages of outstanding Class A shares
reported in the table have been determined with respect to the total number
of Class A shares outstanding on the date of this Prospectus, excluding
Class A shares which may be issued upon conversion of Class B shares.
</TABLE>
52
<PAGE>
<TABLE>
<S> <C>
(2) All of the Class B shares beneficially owned by Mr. Miles have been
deposited into a voting trust ("Voting Trust"), pursuant to which Mr.
Swendrowski has sole voting power over all of such shares. The terms of the
Voting Trust are more particularly described below under "-- Voting Trust."
The address for Mr. Swendrowski is 800 First Avenue South, Wisconsin
Rapids, Wisconsin.
(3) The Class A shares listed include (i) 59,826 shares owned directly by Mr.
Swendrowski or members of his immediate family; (ii) 114,000 shares which
Mr. Swendrowski has the right to acquire upon the exercise of vested stock
options; and (iii) 20,348 shares otherwise beneficially owned by a former
director, which are subject to a shareholders agreement ("Shareholders
Agreement") pursuant to which Mr. Swendrowski has an irrevocable proxy to
vote in his sole discretion all shares subject to the Shareholders
Agreement.
(4) The Class B shares listed include (i) 156,870 shares owned directly by Mr.
Swendrowski; (ii) 143,999 shares held by Cranberries Limited, Inc. ("CLI"),
a corporation owned by Messrs. Swendrowski and Miles and controlled by Mr.
Swendrowski; and (iii) 17,232 Class B shares otherwise beneficially owned
by Mr. Miles. The Class B shares held by CLI and those otherwise
beneficially owned by Mr. Miles are being held in the Voting Trust. CLI's
only material assets are its Class B shares listed above.
(5) The Class A shares listed include (i) 10,176 shares owned directly by Mr.
Miles; (ii) 39,000 shares which Mr. Miles has the right to acquire upon the
exercise of vested stock options; and (iii) 1,497 shares held for the
account of Mr. Miles' wife.
(6) The Class B shares listed include the 143,999 shares currently held by CLI
in the Voting Trust, which are deemed to be beneficially owned by Mr. Miles
as an officer and shareholder of CLI. Such shares are also included under
the number of Class B shares deemed to be beneficially owned by Mr.
Swendrowski. See note (5) above.
(7) Since all of the Class B shares beneficially owned by Mr. Miles are being
held in the Voting Trust, Mr. Miles has power to vote shares only
representing 1.0% of the aggregate voting power of both classes of the
Company's Common Stock.
(8) The Class A shares listed include (i) 158,103 shares owned directly by Mr.
Hawk or his wife and (ii) 47,000 shares which Mr. Hawk has the right to
acquire upon the exercise of vested stock options.
(9) Includes 32,000 Class A shares which Mr. Pazurek has the right to acquire
upon the exercise of vested stock options.
(10) Includes 2,343 Class A shares which Mr. Seramur has the right to acquire
upon the exercise of vested stock options.
(11) Includes 2,292 Class A shares which Mr. Jones has the right to acquire upon
the exercise of vested stock options.
(12) Includes 1,424 Class A shares which Mr. Brennan has the right to acquire
upon the exercise of vested stock options.
(13) In determining the aggregate beneficial ownership of Class A shares and
Class B shares, respectively, for all directors and executive officers as a
group, shares which are deemed to be beneficially owned by more than one
person have been counted only once to avoid overstatement. The number of
Class A shares listed includes 306,459 shares which certain executive
officers and directors have the right to acquire upon the exercise of
vested stock options.
(14) Except to the extent information is believed to be otherwise known by the
Company, the information given is as of or about February 13, 1995 as
reported by the State of Wisconsin Investment Board ("SWIB") in its
Amendment Number 4 to Schedule 13G filed with the Securities and Exchange
Commission and the Company. The address for SWIB is Lake Terrace, 121 East
Wilson Street, Madison, Wisconsin 53703.
(15) Except to the extent information is believed to be otherwise known by the
Company, the information given is as of or about February 10, 1995 as
reported by David L. Babson & Company, Inc. ("Babson & Co.") in its
Amendment No. 2 to Schedule 13G filed with the Securities and Exchange
Commission. The address of Babson & Co. is One Memorial Drive, Cambridge,
Massachusetts 02142-1300.
</TABLE>
53
<PAGE>
VOTING TRUST
In order to help ensure the future continuity and stability of the
management of the Company, Messrs. Swendrowski, Miles and each of their wives
are parties to a voting trust agreement designating Mr. Swendrowski as the sole
trustee of the voting trust created thereunder ("Voting Trust"). As of the date
of this Prospectus, a total of 161,231 Class B shares are subject to the Voting
Trust, constituting approximately 9.7% of the combined aggregate voting power of
both classes of the Company's Common Stock.
Under the Voting Trust, Mr. Swendrowski, as trustee, is vested with the
exclusive right to vote the deposited shares in his sole discretion on all
matters on which such shares are entitled to vote. The depositors, however,
retain the power to sell, transfer or dispose of such deposited shares subject
to the limitations described below. Additionally, the depositors are entitled to
receive all cash dividends or other distributions (other than in capital stock
of the Company) declared and paid on the deposited shares.
The deposited shares may only be withdrawn from the Voting Trust by a
depositor prior to the
expiration or termination of the Voting Trust if the depositor (i) receives a
bona fide offer to purchase any or all of his deposited shares from an
unaffiliated third party; (ii) proposes to effect a sale of his deposited shares
on the open market pursuant to a brokers' transaction; or (iii) pledges his
trust certificates evidencing deposited shares to a pledgee as collateral
security for indebtedness due such pledgee and thereafter such pledgee notifies
the trustee of its foreclosure on such pledge. If any of such events occur, the
affected deposited shares may be withdrawn from the Voting Trust subject to
certain prior rights of the trustee to purchase such deposited shares. Deposited
shares may also be withdrawn if the consent is obtained of the trustee and
holders of interests in shares representing two-thirds of the voting power of
all deposited shares.
The Voting Trust is scheduled to terminate June 8, 1997, but is subject to
extension for additional 10-year periods by vote of a majority of the votes of
shares held in the Voting Trust. The trustee is not entitled to receive any
remuneration (other than reimbursement for costs upon termination of the Voting
Trust) for serving as such under the Voting Trust. The Voting Trust may be
terminated or amended at any time upon the approval of the trustee and the
affirmative vote of two-thirds of the then deposited shares (voted by the
depositors).
DESCRIPTION OF CAPITAL STOCK
RELATIVE RIGHTS AND LIMITATIONS
The Company's authorized capital stock currently consists of 10,000,000
shares of Class A Common Stock, $.01 par value, 2,000,000 shares of Class B
Common Stock, $.01 par value, and 5,000,000 shares of Preferred Stock, $.01 par
value. A total of 4,010,613 shares of Class A Common Stock and 318,101 shares of
Class B Common Stock were outstanding at May 31, 1995. None of the Preferred
Stock has been issued. On June 21, 1995, the Company's Board of Directors
approved an increase in the authorized number of Class A shares from 10,000,000
to 20,000,000, subject to shareholder approval at the Company's 1995 annual
meeting of shareholders scheduled to be held on August 18, 1995. The record date
for being eligible to vote shares at such annual meeting was June 29, 1995 and
the purchasers of the Class A Common Stock offered hereby will not be eligible
to vote such purchased shares at the meeting.
The outstanding shares of Class A and Class B Common Stock are, and the
shares of Class A Common Stock to be issued and sold by the Company in this
offering will be, fully paid and nonassessable, except as provided in Section
180.0622(2)(b) of the Wisconsin Business Corporation Law ("WBCL"), which in
general provides for personal liability on the part of shareholders in an amount
up to the par value of shares owned for the unpaid wages of employees, but not
exceeding six months' service in any one case. A Wisconsin trial court decision
interpreted this statute to extend liability up
54
<PAGE>
to the original issue price, rather than the stated par value, of shares
purchased. While this decision was affirmed by the Wisconsin Supreme Court, the
precedential value of such affirmation is uncertain due to an equally divided
court.
First Bank Trust Company, Milwaukee, Wisconsin is the transfer agent for the
Class A Common Stock. As of May 31, 1995, there were 640 holders of record of
Class A Common Stock and approximately 2,200 beneficial owners of Class A
shares, including shares held by brokers and nominees.
The principal relative rights, privileges and limitations of the Company's
shares of Class A and Class B Common Stock and Preferred Stock are summarized
below. The following description of the Company's classes of capital stock does
not purport to be complete and is subject to, and qualified in its entirety by,
reference to the Company's Articles of Incorporation, as amended.
CLASS A AND CLASS B COMMON STOCK
The following discussion of the characteristics of the shares of Class A and
Class B Common Stock is qualified in its entirety by reference to the
description below of the Company's authorized but unissued Preferred Stock,
which could be issued with certain preferential rights over the shares of Class
A and Class B Common Stock.
The Class A shares are entitled to one vote per share and the Class B shares
are entitled to three votes per share on all matters presented to the Company's
shareholders. The holders of the Class A and Class B Common Stock will vote
together as a single class on all such matters presented to shareholders, except
that the Class A and Class B Common Stock will also each vote separately as a
class when required by the WBCL. See "-- Certain Statutory Provisions" below. A
total of 161,231 of the Class B shares owned beneficially by Messrs. Swendrowski
and Miles, respectively, are subject to the terms of the Voting Trust which
provides Mr. Swendrowski with discretionary power to vote such shares. An
additional 20,348 Class A shares beneficially owned by a former director and a
corporation owned by him are subject to the shareholders agreement containing
similar terms. See "Stock Ownership of Management and Others -- Voting Trust."
Holders of shares 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. See "Price Range of Class A Common Stock and Dividends."
Holders of Class B shares are entitled to receive cash dividends when and as
declared by the Board of Directors from funds legally available therefor under
the WBCL. Cash dividends may be paid on the Class A shares without a concurrent
cash dividend being paid on the Class B shares. Pursuant to the Company's
Articles of Incorporation, the Board of Directors must pay a dividend or
distribution other than in cash on the Class A shares in the same amount as any
such noncash dividend or distribution paid on the Class B shares. Each class of
Common Stock is entitled to receive shares of the same respective class issued
pursuant to stock dividends, stock splits and combinations in the same per share
proportion as that distributed on the other class of Common Stock.
The shares of Class A Common Stock have no conversion privileges. The shares
of Class B Common Stock are convertible at the option of the holder thereof, at
any time, into shares of Class A Common Stock on a share-for-share basis.
Additionally, the outstanding shares of Class B Common Stock will be
automatically converted into Class A shares on a share-for-share basis if, at
any time, the outstanding shares of Class B shares fall below 2% of the
outstanding Class A shares.
Upon liquidation, dissolution or winding up of the Company, after payment of
all liabilities due creditors of the Company, the holders of the shares of Class
A Common Stock are entitled to receive $1.00 per share (subject to equitable
adjustment in the event of stock splits and other similar events) before any
payment or distribution may be made to holders of the shares of Class B Common
Stock. Thereafter, holders of the shares of Class B Common Stock are entitled to
receive $1.00 per share (subject to similar adjustment) before any further
payment or distribution is made to the holders of
55
<PAGE>
the Class A Common Stock. Thereafter, holders of the Class A shares and Class B
shares share on a pro rata basis in all payments or distributions made upon
liquidation, dissolution or winding up of the Company.
There are no restrictions contained in the Articles of Incorporation on
additional issuances of shares of Class A Common Stock by the Company. However,
the Company may not issue any additional shares of shares of Class B Common
Stock (other than pursuant to stock dividends and stock splits as described
above) without the approval of a majority of the votes represented by the
outstanding shares of Class A and Class B Common Stock voting together as a
single class.
The holders of Class A and Class B Common Stock have no redemption
privileges or preemptive rights. All of the outstanding shares of Class A and
Class B Common Stock are, and the shares of Class A Common Stock offered by the
Company hereby when issued and paid for will be, validly issued, fully paid and
nonassessable, except as provided in Section 180.0622(2)(b) of the WBCL.
PREFERRED STOCK
There are 5,000,000 shares of Preferred Stock authorized by the Company's
Articles of Incorporation, none of which have been issued. The Company's Board
of Directors is authorized to issue from time to time, without shareholder
authorization, in one or more designated series, Preferred Stock with such
redemption, exchange, conversion, dividend, liquidation and voting rights as may
be specified in the particular series. Dividends on any series of Preferred
Stock are to be cumulative from the date of issuance, payable at such rate and
at such times as designated by the Board of Directors for that series. No
dividends or other distributions are to be payable on the shares of Class A and
Class B Common Stock unless dividends are paid in full on the Preferred Stock
and all sinking fund obligations for the Preferred Stock, if any, are fully
funded. In the event of a liquidation or dissolution of the Company, the issued
shares of Preferred Stock would have priority over the shares of Class A and
Class B Common Stock to receive the amount specified in each particular series
out of the remaining assets of the Company. Additionally, the Board of Directors
has authority, to the maximum extent permitted by the WBCL, to fix and determine
the relative rights and preferences of each series of Preferred Stock. The
issuance of one or more series of Preferred Stock could have an adverse effect
on certain rights, including voting rights, of the holders of shares of Class A
and Class B Common Stock. The Company has no current plans or intention to issue
shares of Preferred Stock.
CERTAIN STATUTORY PROVISIONS
Under the WBCL, a separate class vote would generally be required to approve
an amendment to the Company's Articles of Incorporation (including an amendment
made as part of a proposed merger or other reorganization) if the amendment
would change in a manner prejudicial to the outstanding holders of a class, the
designations, preferences, limitations or other rights of the shares of the
class, and in certain other circumstances.
Section 180.1150 of the WBCL provides that, unless otherwise provided in a
corporation's articles of incorporation, the voting power of shares of an
"issuing public corporation" (which is defined as a Wisconsin corporation having
more than 500 shareholders of record, at least 100 of whom are residents of the
State of Wisconsin), which are held by any person in excess of 20% of the voting
power of the issuing public corporation's shares, shall be limited to 10% of the
full voting power of such excess shares. This statutory voting restriction is
not applicable to shares acquired (i) directly from the Company; (ii) pursuant
to an agreement entered into prior to the time that the Company was an issuing
public corporation; (iii) in a transaction incident to which shareholders of the
Company vote to restore the full voting power of such shares; and (iv) under
certain other circumstances. The Company's Articles of Incorporation provide
that the shares of Class B Common Stock will not be subject to the voting
restrictions of Section 180.1150.
Except as may otherwise be provided by law, the requisite affirmative vote
of shareholders to approve certain significant corporate actions, including a
merger or share exchange with another
56
<PAGE>
corporation, sale of all or substantially all of the corporate property and
assets, or voluntary liquidation of the Company, is a majority of all the votes
entitled to be cast on the transaction by each voting group of outstanding
shares entitled to vote thereon. Sections 180.1130 through 180.1134 of the WBCL
provide generally that, in addition to the vote otherwise required by the WBCL
or the articles of incorporation of an "issuing public corporation," certain
business combinations not meeting certain adequacy-of-price standards specified
in the statute must be approved by (i) the holders of at least 80% of the votes
entitled to be cast and (ii) two-thirds of the votes entitled to be cast by the
corporation's outstanding voting shares owned by persons other than a
"significant shareholder" who is a party to the transaction or an affiliate or
associate thereof. Section 180.1130 defines "business combination" to include,
subject to certain exceptions, a merger or share exchange of the issuing public
corporation (or any subsidiary thereof) with, or the sale or other disposition
of substantially all assets of the issuing public corporation to, any
significant shareholder or affiliate thereof. "Significant shareholder" is
defined generally to mean a person that is the beneficial owner of 10% or more
of the voting power of the outstanding voting shares of the issuing public
corporation.
Sections 180.1140 through 180.1145 of the WBCL prohibit certain "business
combinations" between a "resident domestic corporation," such as the Company,
and a person beneficially owning 10% or more of the outstanding voting stock of
such corporation (an "interested shareholder") within three years after the date
such person became a 10% beneficial owner, unless the business combination or
the acquisition of such stock has been approved before the stock acquisition
date by the corporation's board of directors. After such three-year period, a
business combination with the interested shareholder may be consummated only
with the approval of the holders of a majority of the voting stock not
beneficially owned by the interested shareholder, unless the combination
satisfies certain adequacy-of-price standards intended to provide a fair price
for shares held by non-interested shareholders.
The above sections of the WBCL, along with the certain exceptions therefrom
contained in the Company's Articles of Incorporation and the ability to issue
additional shares of Class A Common Stock or Preferred Stock without further
shareholder approval (subject to any requirements necessary to maintain the
quotation of the Class A shares on the Nasdaq National Market) could have the
effect, among others, of discouraging takeover proposals for the Company or
impeding a business combination between the Company and a major shareholder of
the Company.
57
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom Dain Bosworth Incorporated and Piper Jaffray
Inc. are acting as representatives (the "Representatives"), have severally
agreed to purchase an aggregate of 2,000,000 shares of Class A Common Stock from
the Company at the Price to Public set forth on the cover page of this
Prospectus, less underwriting discounts and commissions, in the amounts set
forth opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES TO
BE
UNDERWRITER PURCHASED
--------------------------------------------------------------------------------- -----------
<S> <C>
Dain Bosworth Incorporated....................................................... 770,000
Piper Jaffray Inc................................................................ 770,000
Robert W. Baird & Co. Incorporated............................................... 50,000
William Blair & Company.......................................................... 50,000
The Chicago Corporation.......................................................... 50,000
Kemper Securities, Inc........................................................... 50,000
McDonald & Company Securities, Inc............................................... 50,000
Principal Financial Securities, Inc.............................................. 50,000
Rauscher Pierce Refsnes, Inc..................................................... 50,000
Tucker Anthony Incorporated...................................................... 50,000
Frederick & Company, Inc......................................................... 20,000
John G. Kinnard and Company Incorporated......................................... 20,000
WR Lazard, Laidlaw & Luther...................................................... 20,000
Total.......................................................................... 2,000,000
-----------
-----------
</TABLE>
The nature of the Underwriters' obligations under the Underwriting Agreement
is such that all shares of Class A Common Stock offered hereby, excluding shares
covered by the over-allotment option granted to the Underwriters, must be
purchased if any are purchased. The Underwriting Agreement provides that the
obligations of the several Underwriters thereunder are subject to a number of
conditions, including the accuracy of the representations and warranties of, and
the performance of the covenants and obligations by, the Company under the
Underwriting Agreement, the delivery of certificates of officers, a letter of
independent auditors, opinions of counsel and other conditions customary in
transactions of this type.
The Company has been advised by the Representatives that the several
Underwriters propose to offer the shares of Class A Common Stock to the public
initially at the Price to Public set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not in excess of $0.46
per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $0.10 per share to other dealers. The Price to
Public and concessions and reallowances to dealers may be changed by the
Underwriters.
The Company has granted the Underwriters an option, exercisable within 30
days of the date of this Prospectus, to purchase up to 300,000 additional shares
of Class A Common Stock to cover over-allotments, if any. If the Underwriters
exercise their over-allotment option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares to be purchased by each of them, as shown in
the foregoing table, bears to the 2,000,000 shares of Class A Common Stock
offered hereby. The Underwriters may exercise such option solely to cover
over-allotments in connection with the sale of the 2,000,000 shares of Class A
Common Stock offered hereby.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities that may be incurred in connection with the sale of the
Class A Common Stock, including certain liabilities under the Securities Act of
1933, as amended ("Securities Act"). Such indemnification may be limited or
unavailable in certain circumstances, including where legally unavailable.
58
<PAGE>
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
The Company and its executive officers and directors have agreed that, for a
period of 180 days after the date of this Prospectus, they will not offer, sell
or otherwise dispose of any shares of Class A Common Stock, in the open market
or otherwise, without the prior written consent of the Underwriters, other than
issuances by the Company of Class A Common Stock upon exercise of employee stock
options, conversions of Class B shares or other convertible securities, pursuant
to crop purchase agreements or in connection with business acquisition
transactions.
In connection with this offering, the Underwriters (who are qualified
registered market makers on the Nasdaq National Market) may engage in passive
market making transactions in the Class A Common Stock of the Company on the
Nasdaq National Market in accordance with Rule 10b-6A under the Securities
Exchange Act of 1934, as amended ("Exchange Act"), during the two business day
period before commencement of offers or sales of the Class A Common Stock
offered hereby. Passive market making consists of displaying bids on the Nasdaq
National Market limited by the bid prices of independent market makers and
purchases limited by such prices. Net purchases by a passive market maker on
each day are limited to a specified percentage of the passive market maker's
average daily trading volume in the Class A Common Stock during a specified
prior period and must be discontinued when such limit is reached. Passive market
making may stabilize the market price of the Class A Common Stock at a level
above that which might otherwise prevail and, if commenced, may be discontinued
at any time.
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company by Foley & Lardner, Milwaukee, Wisconsin, and for
the Underwriters by Faegre & Benson Professional Limited Liability Partnership,
Minneapolis, Minnesota. Faegre & Benson will rely on the opinion of Foley &
Lardner as to matters of Wisconsin law. Jeffrey J. Jones, a partner of Foley &
Lardner, is a director of the Company. Foley & Lardner has from time to time
performed legal services for Dain Bosworth Incorporated and certain other
Underwriters.
EXPERTS
The consolidated financial statements as of March 31, 1995 and 1994 and for
each of the three years in the period ended March 31, 1995 included and
incorporated by reference in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports, which are included
and incorporated by reference herein, and have been so included and incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission ("Commission"). Such
reports, proxy statements and other information filed by the Company with the
Commission may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the following regional offices of the Commission: Chicago Regional
Office, Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and New York Regional Office, Seven World Trade Center,
13th Floor, New York, New York 10049. Copies of such material may also be
obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
This Prospectus does not contain all the information set forth in the
Registration Statement to which this Prospectus relates and the exhibits thereto
which the Company has filed with the Commission under the Securities Act and to
which reference is hereby made.
59
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission pursuant to the Exchange
Act (File No. 0-16130) are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for its fiscal year ended March
31, 1995.
2. The Company's Form 8-K dated June 21, 1995.
3. All other reports filed by the Company with the Commission pursuant to
Section 13(a) or 15(d) of the Exchange Act since March 31, 1995 and prior to the
date of this Prospectus.
All documents filed by the Company pursuant to Sections 13(a) or 15(d) of
the Exchange Act subsequent to the end of the fiscal year covered by the
above-referenced Annual Report and prior to the date of this Prospectus are
incorporated by reference in this Prospectus. Any statement contained in a
document incorporated or deemed to be incorporated herein by reference shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, on the written or oral request of any such person, a copy of any or
all of the documents referred to above which have been or may be incorporated in
this Prospectus by reference, other than exhibits to such documents (unless such
exhibits are specifically incorporated by reference therein). Requests should be
directed to Brian P. Taber, Investor and Public Relations Manager, Northland
Cranberries, Inc., 800 First Avenue South, Wisconsin Rapids, Wisconsin 54494
(telephone number (715) 424-4444).
60
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets at March 31, 1995 and 1994..................................................... F-3
Consolidated Statements of Income for the Years Ended March 31, 1995, 1994 and 1993........................ F-4
Consolidated Statements of Cash Flows for the Years Ended March 31, 1995, 1994 and 1993.................... F-5
Consolidated Statements of Shareholders' Equity for the Years Ended March 31, 1995, 1994 and 1993.......... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
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 subsidiary as of March 31, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended March 31, 1995. 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
subsidiary at March 31, 1995 and 1994, and the results of their operations and
their cash flows for each of the three years in the period ended March 31, 1995,
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Milwaukee, Wisconsin
June 6, 1995
F-2
<PAGE>
NORTHLAND CRANBERRIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------
1995 1994
---------------- ----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................... $ 223,373 $ 650,254
Accounts and notes receivable............................................... 1,854,810 880,306
Investments................................................................. 1,259,548 1,259,548
Inventories................................................................. 853,216 408,010
Prepaid expenses............................................................ 1,249,010 821,490
Deferred income taxes....................................................... 1,305,802 1,578,446
---------------- ----------------
Total current assets.................................................... 6,745,759 5,598,054
PROPERTY AND EQUIPMENT, net................................................... 95,191,248 70,260,895
INVESTMENTS................................................................... 2,519,097 3,778,645
OTHER......................................................................... 3,288,647 3,436,745
---------------- ----------------
TOTAL ASSETS............................................................ $ 107,744,751 $ 83,074,339
---------------- ----------------
---------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
MARCH 31,
----------------------------------
1995 1994
---------------- ----------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable............................................................ $ 1,982,520 $ 713,118
Accrued liabilities......................................................... 2,384,165 1,845,569
Current portion of long-term obligations.................................... 5,802,000 1,926,000
---------------- ----------------
Total current liabilities............................................... 10,168,685 4,484,687
LONG-TERM OBLIGATIONS......................................................... 55,792,764 38,945,173
DEFERRED INCOME TAXES......................................................... 7,156,755 6,518,927
LEASE COMMITMENTS
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued... -- --
Common stock:
Class A, $.01 par value, 4,010,613 and 3,936,983 shares issued,
respectively............................................................. 40,106 39,370
Class B, $.01 par value, 318,101 shares issued and outstanding............ 3,181 3,181
Additional paid-in capital.................................................. 28,907,593 27,799,231
Retained earnings........................................................... 5,675,667 5,287,208
---------------- ----------------
34,626,547 33,128,990
Less cost of treasury stock, 500 Class A shares............................. -- 3,438
---------------- ----------------
34,626,547 33,125,552
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............................. $ 107,744,751 $ 83,074,339
---------------- ----------------
---------------- ----------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
NORTHLAND CRANBERRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES......................................................... $ 21,783,966 $ 18,051,355 $ 13,000,066
COST OF SALES.................................................... 13,057,275 8,751,220 6,345,342
-------------- -------------- --------------
GROSS PROFIT..................................................... 8,726,691 9,300,135 6,654,724
COSTS AND EXPENSES:
Selling, general and administrative............................ 2,439,978 2,046,389 1,474,401
Interest....................................................... 3,654,006 2,393,792 2,027,618
-------------- -------------- --------------
Total costs and expenses................................... 6,093,984 4,440,181 3,502,019
-------------- -------------- --------------
INCOME BEFORE INCOME TAXES....................................... 2,632,707 4,859,954 3,152,705
INCOME TAXES..................................................... 1,051,000 1,917,000 1,210,000
-------------- -------------- --------------
NET INCOME....................................................... $ 1,581,707 $ 2,942,954 $ 1,942,705
-------------- -------------- --------------
-------------- -------------- --------------
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE................ $ 0.36 $ 0.67 $ 0.51
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
NORTHLAND CRANBERRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------------------------
1995 1994 1993
--------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................... $ 1,581,707 $ 2,942,954 $ 1,942,705
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 3,094,708 2,235,881 1,796,255
Gain on disposal of property and equipment.................. (8,331) (17,640) (30,420)
Gain on investments......................................... -- (199,507) --
Changes in assets and liabilities:
Receivables, prepaid expenses and other current assets.... (1,350,824) 3,986,128 1,507,125
Inventories............................................... (445,206) (197,955) 78,383
Accounts payable and accrued liabilities.................. 1,847,874 986,426 (80,297)
Deferred income taxes..................................... 910,000 42,000 1,140,126
--------------- -------------- --------------
Net cash provided by operating activities................. 5,629,928 9,778,287 6,353,877
--------------- -------------- --------------
INVESTING ACTIVITIES:
Property and equipment additions.............................. (8,716,881) (10,587,053) (6,461,288)
Proceeds on disposals of property and equipment............... 65,695 37,913 116,912
Acquisitions of cranberry operations.......................... (5,046,097) -- (2,988,184)
Net decrease (increase) in investments........................ 1,259,548 1,185,535 (480,148)
Other......................................................... (145,412) (276,952) (40,602)
--------------- -------------- --------------
Net cash used for investing activities.................... (12,583,147) (9,640,557) (9,853,310)
--------------- -------------- --------------
FINANCING ACTIVITIES:
Proceeds from long-term debt.................................. 14,350,000 10,500,000 --
Payments on long-term debt.................................... (6,626,409) (8,538,179) (9,261,434)
Dividends paid................................................ (1,193,248) (1,476,894) (452,876)
Net proceeds from common stock offering....................... -- -- 13,332,058
Exercise of stock options..................................... 85,633 56,601 27,750
Other......................................................... (89,638) (223,786) (127,098)
--------------- -------------- --------------
Net cash provided by financing activities................. 6,526,338 317,742 3,518,400
--------------- -------------- --------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............ (426,881) 455,472 18,967
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.................... 650,254 194,782 175,815
--------------- -------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR.......................... $ 223,373 $ 650,254 $ 194,782
--------------- -------------- --------------
--------------- -------------- --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest (net of interest capitalized)...................... $ 3,323,440 $ 2,297,007 $ 2,100,205
Income taxes................................................ 268,000 1,879,000 70,000
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES (See Notes 2,3,4,7 and 11)
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
NORTHLAND CRANBERRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN RETAINED TREASURY
CLASS A CLASS B CAPITAL EARNINGS STOCK
--------- --------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
BALANCES, April 1, 1992...................... $ 25,462 $ 3,181 $ 14,337,378 $ 2,331,319 $ (64,375)
Net proceeds from common stock offering.... 13,800 -- 13,318,258 -- --
Common stock issued for acquisition of land
and payment for services (8,500 shares)... -- -- 22,363 -- 60,937
Stock options exercised.................... 30 -- 27,720 -- --
Tax benefit from exercise of stock
options................................... -- -- 6,470 -- --
Cash dividends paid:
$.16 per Class A share................... -- -- -- (406,751) --
$.145 per Class B share.................. -- -- -- (46,125) --
Net income................................. -- -- -- 1,942,705 --
--------- --------- -------------- -------------- ----------
BALANCES, March 31, 1993..................... 39,292 3,181 27,712,189 3,821,148 (3,438)
Stock options exercised.................... 78 -- 56,523 -- --
Tax benefit from exercise of stock
options................................... -- -- 30,519 -- --
Cash dividends paid:
$.35 per Class A share................... -- -- -- (1,375,579) --
$.3185 per Class B share................. -- -- -- (101,315) --
Net income................................. -- -- -- 2,942,954 --
--------- --------- -------------- -------------- ----------
BALANCES, March 31, 1994..................... 39,370 3,181 27,799,231 5,287,208 (3,438)
Common stock issued for acquisition of
cranberry marshes (62,500 shares)......... 625 -- 986,874 -- --
Stock options exercised.................... 111 -- 82,084 -- 3,438
Tax benefit from exercise of stock
options................................... -- -- 39,404 -- --
Cash dividends paid:
$.28 per Class A share................... -- -- -- (1,112,324) --
$.2544 per Class B share................. -- -- -- (80,924) --
Net income................................. -- -- -- 1,581,707 --
--------- --------- -------------- -------------- ----------
BALANCES, March 31, 1995..................... $ 40,106 $ 3,181 $ 28,907,593 $ 5,675,667 $ 0
--------- --------- -------------- -------------- ----------
--------- --------- -------------- -------------- ----------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
NORTHLAND CRANBERRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Northland Cranberries, Inc. (the "Company") was organized for the purpose of
acquiring and operating cranberry marshes. Prior to August 31, 1993 the Company
was a member-grower in the Ocean Spray Cranberries, Inc. marketing cooperative
("Ocean Spray"), and the Company sold substantially all its cranberry production
to Ocean Spray. On August 31, 1993, the Company's cooperative marketing
agreement with Ocean Spray terminated (see Note 4). The following is a summary
of the significant accounting policies which are applied in preparing the
Company's financial statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Wildhawk, Inc. ("Wildhawk"). Wildhawk provides
chemicals, fertilizers and crop management services to cranberry growers. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
CASH EQUIVALENTS
Cash equivalents include amounts due from banks and highly liquid debt
instruments purchased with maturities of three months or less.
INVENTORIES
Inventories, which consist of cranberries, packaging supplies and fertilizer
and chemical products, are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less depreciation and
amortization computed on 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 estimated useful lives
are 30-40 years for buildings, land improvements, cranberry vines, bulkheads and
irrigation equipment, and 5-10 years for other depreciable assets.
GOODWILL
Goodwill is being amortized on the straight-line method over 40 years.
Accumulated amortization at March 31, 1995 and 1994 was $163,393 and $139,693,
respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires an asset and liability approach to financial accounting and reporting
for income taxes.
REVENUES
The Company realizes revenues from principally three sources: cranberry crop
production, sales of vine clippings to other growers and fertilizer and chemical
sales from Wildhawk to other growers. The Company carries insurance against crop
losses due to hail damage and other perils. Existing beds
F-7
<PAGE>
NORTHLAND CRANBERRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
of mature vines on the Company's marshes may be mowed and the vine clippings
sold to other growers. The mowing of vines for sale does not damage the vine
root; however, mowed beds do not produce a harvestable crop until the next
growing season.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share is computed based upon the
weighted average number of common shares and common equivalent shares (stock
options) outstanding during the year (4,445,425, 4,417,387 and 3,818,356 for the
years ended March 31, 1995, 1994 and 1993, respectively).
RECLASSIFICATIONS
Certain reclassifications have been made to the fiscal 1994 and fiscal 1993
consolidated financial statements to conform to those used in fiscal 1995.
2. ACQUISITIONS
On September 13, 1994, the Company entered into two agreements to acquire
three productive cranberry bogs and certain of the associated assets of Yellow
River Cranberry Company and Wolfe Cranberry Company for $18,000,000 plus 62,500
shares of Class A Common Stock. The purchase price was paid through the delivery
of $5,000,000 cash and 62,500 shares of Class A Common Stock upon closing and
the issuance of $13,000,000 in promissory notes (see Note 7).
The acquisitions were recorded using the purchase method of accounting and,
accordingly, the results of operations of the acquired businesses are included
in the statements of income from the date of acquisition. Had the acquisitions
occurred on April 1, 1993, and giving effect to adjustments for depreciation,
interest and income taxes, the pro forma revenues, net income and net income per
share would have been approximately $21,784,000, $19,712,000, $1,114,000,
$2,555,000, $.25 and $.57, respectively, for the years ended March 31, 1995 and
1994 (unaudited). The pro forma information does not purport to be indicative of
the results that actually would have been obtained if the combined operations
had been conducted during the periods presented and is not intended to be a
projection of future results.
3. PROPERTY AND EQUIPMENT
Property and equipment at March 31 were as follows:
<TABLE>
<CAPTION>
1995 1994
---------------- --------------
<S> <C> <C>
Land........................................................ $ 7,399,550 $ 6,692,047
Land improvements........................................... 10,101,369 6,800,177
Cranberry vines, bulkheads and irrigation equipment......... 47,052,318 32,707,011
Buildings and improvements.................................. 10,940,579 8,759,240
Equipment and vehicles...................................... 16,877,710 11,680,353
Construction in progress.................................... 16,277,779 14,185,599
---------------- --------------
108,649,305 80,824,427
Less accumulated depreciation and amortization.............. 13,458,057 10,563,532
---------------- --------------
$ 95,191,248 $ 70,260,895
---------------- --------------
---------------- --------------
</TABLE>
The Company capitalized $1,065,164, $1,130,248 and $1,001,911 of interest
for the years ended March 31, 1995, 1994 and 1993, respectively. During fiscal
1994, the Company entered into a lease for
F-8
<PAGE>
NORTHLAND CRANBERRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
3. PROPERTY AND EQUIPMENT (CONTINUED)
certain property and equipment which was recorded as a capital lease in the
amount of $10,265,800. Property and equipment includes assets acquired under
capital leases of $10,810,198 at March 31, 1995 and 1994. Related amounts
included in accumulated depreciation and amortization are $458,608 and $192,495,
respectively.
4. INVESTMENTS AND MAJOR CUSTOMERS
On August 31, 1993, the Company terminated its membership in Ocean Spray by
not renewing its cooperative marketing agreement. The Company entered into
three-year supply agreements to deliver substantially all of its annual crop to
two independent fruit processors beginning with the fall 1993 harvest.
Upon termination of the cooperative marketing agreement, Ocean Spray common
stock held by the Company was converted into Ocean Spray 4% preferred stock of
equal value and both the preferred stock and notices of allocation are being
redeemed over a five-year period. Remaining payments of $1,259,548 will be
received in annual installments through fiscal year 1998.
Investments of Ocean Spray stock and notices of allocation held at March 31
were as follows:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Ocean Spray 4% preferred stock.................................. $ 2,125,275 $ 2,833,700
Notices of allocation........................................... 1,653,370 2,204,493
------------- -------------
3,778,645 5,038,193
Less current portion............................................ 1,259,548 1,259,548
------------- -------------
$ 2,519,097 $ 3,778,645
------------- -------------
------------- -------------
</TABLE>
5. OTHER ASSETS
Other assets at March 31 were as follows:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Leasehold interests, net........................................ $ 1,420,945 $ 1,577,297
Goodwill, net................................................... 791,285 814,985
Accounts and notes receivable, noncurrent....................... -- 51,200
Other........................................................... 1,076,417 993,263
------------- -------------
$ 3,288,647 $ 3,436,745
------------- -------------
------------- -------------
</TABLE>
6. ACCRUED LIABILITIES
Accrued liabilities at March 31 were as follows:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Interest........................................................ $ 923,909 $ 593,342
Property taxes.................................................. 511,039 329,271
Compensation.................................................... 177,970 358,046
Lease payments.................................................. 395,974 298,628
Other........................................................... 375,273 266,282
------------- -------------
$ 2,384,165 $ 1,845,569
------------- -------------
------------- -------------
</TABLE>
F-9
<PAGE>
NORTHLAND CRANBERRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
7. NOTES PAYABLE AND LONG-TERM OBLIGATIONS
Long-term debt at March 31 was as follows:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Credit agreement with a bank:
Revolving credit facility.................................. $ 4,350,000 --
Acquisition credit facility................................ 5,000,000 --
Term loan.................................................. 4,642,857 --
Term loan payable to insurance company with interest at 8.69%
and 10.84% at March 31, 1995 and 1994, respectively......... 15,113,131 $ 15,575,908
Term loan payable to insurance company with interest at
7.85%....................................................... 10,024,293 10,347,495
Capital lease obligation..................................... 9,265,800 10,265,800
Mortgage notes with interest at 6%........................... 13,000,000 --
Other........................................................ 198,683 4,681,970
-------------- --------------
61,594,764 40,871,173
Less current portion......................................... 5,802,000 1,926,000
-------------- --------------
$ 55,792,764 $ 38,945,173
-------------- --------------
-------------- --------------
</TABLE>
On August 31, 1994, the Company entered into a credit agreement with a bank
which provides for a $17,000,000 secured revolving credit facility, a $5,000,000
secured term note, and a $10,000,000 secured acquisition credit facility. The
revolving credit facility and acquisition credit facility terminate on August
31, 1997, however the Company may request annual extensions. Loans under the
acquisition credit facility are due one year from the date of issuance or on
August 31, 1997, if earlier. Payments under the term loan are due in nine
semiannual installments of $357,143 beginning February 28, 1995 with a final
installment of $1,785,713 due on August 31, 1999. If the Company does not extend
the termination date of the revolving credit facility, all amounts outstanding
under the term loan become payable on the revolving credit facility termination
date. Interest on the outstanding loans under the facilities are payable at the
bank's domestic rate, the bank's offered rate, or an adjusted LIBOR rate plus an
applicable rate margin (1.25%, 2.0% and 2.0% for the revolving credit facility,
term note and acquisition credit facility, respectively), at the option of the
Company. Interest rates in effect at March 31, 1995 range from 7.69% to 9.0%.
The Company must pay a commitment fee of .25% per annum on the average daily
unused amount of the revolving credit facility and .125% per annum on the daily
unused amount of the acquisition credit facility. The amount of unused available
borrowings under the credit facilities was $17,650,000 at March 31, 1995.
The agreement was subsequently amended on June 6, 1995 to provide for a
secured revolving credit facility of $21,000,000, three secured term credit
facilities in the amounts of $4,600,000, $4,000,000 and $10,500,000 and a
secured acquisition credit facility of $18,000,000 through May 24, 1996 and
$10,000,000 thereafter.
In September 1994, the Company issued $13,000,000 of mortgage notes in
connection with the acquisition of three cranberry bogs (see Note 2). Interest
on the notes is payable at a rate of 6%. Principal payments under the notes are
due $2,000,000 on April 7, 1995, $8,000,000 on May 31, 1995 and $3,000,000 on
March 31, 1996. The mortgage notes due on April 7, 1995 and May 31, 1995 have
F-10
<PAGE>
NORTHLAND CRANBERRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
7. NOTES PAYABLE AND LONG-TERM OBLIGATIONS (CONTINUED)
been classified as long-term as they were repaid with proceeds from borrowings
under the secured acquisition credit facility. The principal payments due March
31, 1996 are convertible into 100,000 shares of the Company's Class A Common
Stock at the option of the note holders.
The 8.69% term loan with an insurance company is payable in semiannual
installments, including interest, through July 1, 2004. In accordance with the
loan agreement, the interest rate of the loan was adjusted on July 1, 1994 from
10.84% to 8.69%. The interest rate will be adjusted again in fiscal year 2000,
as determined by the insurance company, but the adjusted rate will not exceed
2.25% over the then five-year treasury bond yield.
The 7.85% term loan with an insurance company is payable in semiannual
installments, including interest, through August 1, 2008. The interest rate will
be adjusted in fiscal years 1999 and 2004, as determined by the insurance
company, but the adjusted rate will not exceed 2.25% over the then five-year
treasury bond yield.
The capital lease obligation was recorded pursuant to the Company's interim
lease with United Cape Cod Cranberry Limited Partnership (see Note 11).
On March 31, 1994, the Company had a revolving credit agreement with a bank
expiring April 30, 1995 which provided for two revolving credit facilities up to
a maximum of $13,500,000 and $5,500,000. This credit agreement was refinanced in
August 1994.
Substantially all assets of the Company are pledged as collateral for its
borrowings. The agreements require, among other things, that the Company
maintain a certain level of shareholders' equity ($31,000,000 at March 31,
1995), debt-to-equity ratio and "fixed charge coverage ratio", as defined. In
addition, the agreements place restrictions on the repurchase of stock and do
not allow total cash dividend payments or other distributions, as defined, in
any fiscal year to exceed 50% of the Company's net income for such fiscal year.
During fiscal 1995, the dividend paid exceeded 50% of the Company's net income,
however such noncompliance was waived by the lender.
The aggregate scheduled future maturities of long-term obligations for the
next five fiscal years ending March 31 are as follows:
<TABLE>
<S> <C>
1996.......................... $ 5,802,000
1997.......................... 17,703,000
1998.......................... 9,625,000
1999.......................... 1,652,000
2000.......................... 1,250,000
</TABLE>
8. 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 10,000,000 shares of
Class A Common Stock and 2,000,000 shares of Class B Common Stock, which are
convertible into Class A shares on a one-for-one basis at any time. 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
F-11
<PAGE>
NORTHLAND CRANBERRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
8. SHAREHOLDERS' EQUITY (CONTINUED)
Stock without a concurrent cash dividend being paid on the Class B Common Stock.
If at any time the outstanding shares of Class B Common Stock fall below 2% of
the outstanding shares of Class A Common Stock, they will be automatically
converted into Class A Common Stock.
In August 1992, the Company issued 1,380,000 shares of Class A Common Stock
through a public offering resulting in net proceeds of approximately
$13,332,000.
At March 31, 1995, 833,182 shares of Class A Common Stock were reserved for
issuance under the Company's stock option plans, conversion of Class B Common
Stock to Class A Common Stock and mortgage notes issued in connection with
acquisitions.
9. STOCK OPTIONS
In fiscal 1990, the Company adopted the 1989 Stock Option Plan (the "1989
Plan"), which provides for the issuance of 300,000 shares of Class A Common
Stock options to key employees and directors of the Company. In 1987, the
Company adopted the 1987 Stock Option Plan (the "1987 Plan"), which provides for
the issuance of 137,500 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, but not to exceed 10 years. 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, but not to
exceed 10 years for incentive stock options, as defined.
The status of the stock option plans at March 31 was as follows:
<TABLE>
<CAPTION>
NUMBER OF PRICE
SHARES RANGE
----------- ------------------
<S> <C> <C>
Outstanding at April 1, 1992.................................. 279,490 $ 5.25 - $11.00
Granted..................................................... 75,509 10.75 - 14.75
Exercised................................................... (3,000) 9.25
Cancelled................................................... (8,000) 5.25 - 7.75
----------- ------------------
Outstanding at March 31, 1993................................. 343,999 5.25 - 14.75
Granted..................................................... 8,132 17.25 - 18.75
Exercised................................................... (7,789) 5.25 - 10.75
Cancelled................................................... (4,200) 5.25 - 10.75
----------- ------------------
Outstanding at March 31, 1994................................. 340,142 5.25 - 18.75
Granted..................................................... 48,517 15.50 - 17.50
Exercised................................................... (11,630) 5.25 - 14.75
Cancelled................................................... (4,886) 5.25 - 17.25
----------- ------------------
Outstanding at March 31, 1995................................. 372,143 $ 5.25 - $18.75
----------- ------------------
----------- ------------------
Shares exercisable at March 31, 1995.......................... 325,226 $ 5.25 - $18.75
----------- ------------------
----------- ------------------
</TABLE>
F-12
<PAGE>
NORTHLAND CRANBERRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
10. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Currently payable --
Federal........................................ $ 141,000 $ 1,875,000 $ 70,000
Deferred:
Federal........................................ 721,000 (338,000) 896,000
State.......................................... 189,000 380,000 244,000
------------- ------------- -------------
910,000 42,000 1,140,000
------------- ------------- -------------
$ 1,051,000 $ 1,917,000 $ 1,210,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities as of March 31 consist of the
following:
<TABLE>
<CAPTION>
1995 1994
-------------- -------------
<S> <C> <C>
Deferred tax assets:
Tax loss carryforwards....................................... $ 2,539,000 $ 1,795,000
AMT tax credits and other carryforwards...................... 2,008,000 1,972,000
-------------- -------------
4,547,000 3,767,000
-------------- -------------
Deferred tax liabilities:
Cranberry sales.............................................. 986,000 815,000
Depreciation and amortization................................ 9,411,000 7,892,000
-------------- -------------
10,397,000 8,707,000
-------------- -------------
Net deferred tax liability..................................... $ 5,850,000 $ 4,940,000
-------------- -------------
-------------- -------------
</TABLE>
At March 31, 1995, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $6,475,000 expiring in varying
amounts from 2005 through 2010.
A reconciliation of the Federal statutory income tax rate to the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Statutory tax rate............................................... 34.0% 34.0% 34.0%
State income taxes, net of Federal tax benefit................... 5.3 5.2 5.4
Other, net....................................................... .6 .2 (.8)
--- --- ---
Effective tax rate............................................... 39.9% 39.4% 38.6%
--- --- ---
--- --- ---
</TABLE>
11. LEASE COMMITMENTS
On September 13, 1993, the Company entered into a lease ("Interim Lease")
pursuant to which the Company conditionally agreed to acquire two productive
cranberry bogs and certain of the associated assets of United Cape Cod Cranberry
Limited Partnership ("UCCC"). The acquisition is contingent upon certain
conditions including UCCC obtaining a court-approved agreement with the United
States Environmental Protection Agency ("EPA") to release certain acreage being
acquired from ongoing litigation instituted by the EPA. Pending obtaining such a
court-approved agreement with the EPA the Company agreed to lease the bogs and
associated assets on an interim basis. The term of the Interim Lease extends
until the Company acquires the assets. The purchase price for the
F-13
<PAGE>
NORTHLAND CRANBERRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
11. LEASE COMMITMENTS (CONTINUED)
assets will be approximately $14,700,000. During fiscal 1995, the issues related
to the EPA were satisfactorily resolved and the Company completed the purchase
in early fiscal 1996. Under the Interim Lease, the Company paid all operating
expenses associated with the assets and semi-annual lease payments on September
1 and March 1 of each lease year. After the first lease year, each semi-annual
lease payment was accompanied by a $500,000 nonrefundable purchase price deposit
on the assets. Lease payments and nonrefundable purchase price deposits of
$2,372,438 and $1,078,420 were made during the years ended March 31, 1995 and
1994, respectively. Assets under the lease which were not contingent upon an
agreement with the EPA were recorded similar to a capital lease with the assets
and related obligation recorded at the estimated purchase price of $10,685,000.
The acres which were contingent upon an agreement with the EPA (approximately
119 acres) have not been recorded on the balance sheet. The costs associated
with leasing these acres have been charged to rent expense.
During fiscal 1994, the Company entered into an agreement to lease the
freezer portion of their cold storage facility to another Company ("Lessee").
Lease payments of $115,236 are to be received annually through October 1, 2008
and a payment of $1.00 is due on October 1, 2009 and 2010. The lessee purchased
and installed the refrigeration system in the cold storage facility and will
lease a portion of this system back to the Company. Payments of $50,304 are due
annually through October 1, 2008 and a payment of $1.00 is due on October 1,
2009 and 2010. The Company has guaranteed that the annual revenues the lessee
will receive from the operation of the freezer will equal or exceed guaranteed
operating expenses, as defined in the agreement. The Company has the right to
terminate the lease on September 30, 2000 or September 30, 2005. If the lease is
terminated on one of these dates a termination fee of $225,000 or $112,500,
respectively, must be paid to the lessee. The lessee has the right to terminate
the lease on September 30, 1996 or on September 30 of any operating year
thereafter without any termination fees. Upon termination of the lease agreement
by either party, the Company is required to purchase the refrigeration system
from the lessee.
On August 31, 1992, the Company exercised its option purchase agreements
with Crawford Creek Cranberry Co., Inc. and White Creek Cranberry Corporation to
acquire substantially all of the assets of the marshes for $3,051,000 cash.
On September 5, 1991 the Company entered into a net lease with Equitable
Life Assurance Society of the United States ("Equitable") for Cranberry Hills
premises, a cranberry marsh, which Equitable purchased on May 3, 1991 from
Cranberry Hills Partnership ("Cranberry Hills"), a partnership controlled by the
Company's president and two directors. The lease, which expires December 31,
2000, provides for rent payments of $284,625 in year one and increasing to
$380,875 in year nine with a final payment of $214,906 on June 1, 2000. The
lease grants the Company a right of first refusal to purchase the leased
premises or to renew the lease on terms Equitable is prepared to accept from a
bona fide third party. The purchase agreement also provides for payments to
Cranberry Hills of 25% of the premises income, if any, during the term of the
lease with Equitable. The amount expensed in fiscal 1995, 1994 and 1993 was
$8,973, $86,999 and $11,623, respectively.
On April 10, 1990, the Company acquired leasehold interests in two cranberry
marshes in Nantucket, Massachusetts. The leasehold interests were being
amortized over the remaining seven-year lease term. On March 31, 1994 the
Company entered into a new agreement which extends the 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. The effect of
amortizing the leasehold interests over the extended lease term is a decrease in
annual amortization expense of approximately $275,000 in fiscal 1994.
Accumulated amortization of the leasehold interests at March 31, 1995 and
F-14
<PAGE>
NORTHLAND CRANBERRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
11. LEASE COMMITMENTS (CONTINUED)
1994 was $786,176 and $628,293, 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 March 31, 1995, 1994 and 1993 was $338,984, $240,514
and $99,639, respectively.
The future minimum annual payments on noncancellable operating lease
agreements for land, buildings and vehicles for fiscal years ending March 31,
are as follows:
<TABLE>
<S> <C>
1996........................... $ 937,000
1997........................... 926,000
1998........................... 950,000
1999........................... 678,000
2000........................... 421,000
Thereafter..................... 642,000
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$4,554,000
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</TABLE>
The above table does not include any amounts for potential minimum payments
under the Nantucket leasehold interest described above, because such amounts, if
any, are not presently determinable.
12. RELATED PARTY TRANSACTIONS
Prior to fiscal 1993, the Company leased three "hired hand" residences
located near its Nantucket marsh which were owned by a former director of the
Company. Two of these residences were purchased by the Company in fiscal 1993
for $425,000. Rental expense for these residences totaled $21,600 in fiscal 1994
and $41,381 in fiscal 1993.
On May 25, 1993, the Company purchased an office building from Cranberries
Limited for $80,000. Cranberries Limited is a S-Corp controlled by the Company's
president.
The Company sold approximately $35,000 and $314,000 of vine clippings from
its Wisconsin marshes to former directors of the Company in fiscal 1994 and
1993, respectively.
The Company purchased approximately $155,000 of irrigation equipment in
fiscal 1993 from a corporation controlled by one of the Company's former
directors.
F-15
<PAGE>
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NO DEALER, SALESPERSON OR ANY OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION OR IN
ANY CIRCUMSTANCES WHERE SUCH OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT INFORMATION IN THIS PROSPECTUS IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
Use of Proceeds................................ 14
Capitalization................................. 15
Price Range of Class A Common Stock and
Dividends..................................... 16
Selected Consolidated Financial and Statistical
Data.......................................... 17
Management's Discussion and Analysis of Results
of Operations and Financial Condition......... 18
Business....................................... 25
Management..................................... 46
Stock Ownership of Management and Others....... 52
Description of Capital Stock................... 54
Underwriting................................... 58
Legal Matters.................................. 59
Experts........................................ 59
Available Information.......................... 59
Incorporation of Certain Information by
Reference..................................... 60
Index to Consolidated Financial Statements..... F-1
</TABLE>
2,000,000 SHARES
[LOGO]
CLASS A COMMON STOCK
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PROSPECTUS
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DAIN BOSWORTH
Incorporated
PIPER JAFFRAY INC.
AUGUST 9, 1995
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