SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1999
--------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 0-16130
NORTHLAND CRANBERRIES, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1583759
(State or other jurisdiction (I.R.S. Employer
of Incorporation or organization) Identification No.)
800 First Avenue South
P.O. Box 8020
Wisconsin Rapids, Wisconsin 54495-8020
(Address of principal executive offices)
Registrant's telephone number, including area code (715)-424-4444
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date:
Class A Common Stock June 30, 1999 19,632,871
Class B Common Stock June 30, 1999 636,202
<PAGE>
NORTHLAND CRANBERRIES, INC.
FORM 10-Q INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets.........................3
Condensed Consolidated Statements of Operations.............4-5
Condensed Consolidated Statements of Cash Flow................6
Notes to Condensed Consolidated
Financial Statements.....................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................8-10
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds....................11
Item 6. Exhibits and Reports on Form 8-K.............................12
SIGNATURE....................................................13
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NORTHLAND CRANBERRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
(Unaudited)
May 31, August 31,
1999 1998
----------- ----------
Current assets:
Cash and cash equivalents $ 242 $ 633
Accounts and notes receivable 28,893 22,422
Inventories 102,557 43,811
Other 2,951 1,942
Deferred income taxes 2,646 2,490
----------- ----------
Total current assets 137,289 71,298
----------- ----------
Property and equipment - at cost 204,863 181,994
Less accumulated depreciation 35,441 29,795
----------- ----------
Net property and equipment 169,422 152,199
Investments and other assets 2,835 2,151
Goodwill and trademarks 38,921 25,224
----------- ----------
Total assets $ 348,467 $ 250,872
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,262 $ 9,995
Accrued liabilities 12,275 7,924
Current portion of long-term debt 2,326 3,892
----------- ----------
Total current liabilities 33,863 21,811
Long-term debt 144,897 64,276
Deferred income taxes 12,153 10,915
----------- ----------
Total liabilities 190,913 97,002
----------- ----------
Shareholders' equity:
Common stock - Class A 194 191
Common stock - Class B 6 6
Additional paid-in capital 148,543 144,477
Retained earnings 8,811 9,196
----------- ----------
Total shareholders' equity 157,554 153,870
----------- ----------
Total liabilities and shareholders' equity $ 348,467 $ 250,872
=========== ==========
See accompanying notes to condensed consolidated financial statements
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<PAGE>
NORTHLAND CRANBERRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(Unaudited)
For the 3 months
ended May 31,
1999 1998
----------- ----------
Revenues $ 70,895 $ 26,418
Cost of sales 47,314 14,695
----------- ----------
Gross profit 23,581 11,723
Costs and expenses:
Selling, general and administrative 17,968 9,086
Interest 2,614 1,962
----------- ----------
Total costs and expenses 20,582 11,048
----------- ----------
Income before income taxes 2,999 675
Income taxes 1,184 276
----------- ----------
Net income $ 1,815 $ 399
=========== ==========
Basic income per share $ 0.09 $ 0.03
=========== ==========
Diluted income per share $ 0.09 $ 0.03
=========== ==========
See accompanying notes to condensed consolidated financial statements
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<PAGE>
NORTHLAND CRANBERRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(Unaudited)
For the 9 months
ended May 31,
1999 1998
----------- ----------
Revenues $ 160,232 $ 75,145
Cost of sales 102,548 40,712
----------- ----------
Gross profit 57,684 34,433
Costs and expenses:
Selling, general and administrative 48,438 28,062
Interest 5.904 5,303
----------- ----------
Total costs and expenses 54,342 33,365
----------- ----------
Income before income taxes 3,342 1,068
Income taxes 1,339 452
----------- ----------
Net income $ 2,003 $ 616
=========== ==========
Basic income per share $ 0.10 $ 0.04
=========== ==========
Diluted income per share $ 0.10 $ 0.04
=========== ==========
See accompanying notes to condensed consolidated financial statements
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<PAGE>
NORTHLAND CRANBERRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(Unaudited)
For the 9 months
ended May 31,
1999 1998
----------- ----------
Cash flows from operating activities:
Net income $ 2,003 $ 616
Adjustments to reconcile net income to net
cash used for operating activities:
Depreciation and amortization 6,499 4,788
Changes in assets and liabilities:
Receivables and other current assets (7,296) (3,122)
Inventories (35,613) (14,778)
Accounts payable and accrued expenses 916 2,107
Deferred income taxes 978 452
----------- ----------
Net cash used for operating
activities (32,513) (9,937)
----------- ----------
Investing activities:
Acquisition of business (37,613) 0
Property and equipment additions, net (6,186) (5,430)
Other (494) (318)
----------- ----------
Net cash used for investing
activities (44,293) (5,748)
----------- ----------
Financing activities:
Increase in debt 78,690 17,467
Dividends paid (2,385) (1,657)
Exercise of stock options 359 59
Other (249) (173)
----------- ----------
Net cash provided by financing
activities 76,415 15,696
----------- ----------
Net increase (decrease) in cash and cash equivalents (391) 11
Cash and cash equivalents:
Beginning of period 633 231
----------- ----------
End of period $ 242 $ 242
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest (net of amount capitalized) $ 5,227 $ 4,855
=========== ==========
See accompanying notes to condendsed consolidated financial statements
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<PAGE>
NORTHLAND CRANBERRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. In the opinion of the Company, the
foregoing statements contain all adjustments necessary to present fairly the
financial position of the Company as of May 31, 1999, and its results of
operations and cash flows for the three- and nine-month periods ended May 31,
1999 and 1998, respectively. The Company's consolidated balance sheet as of
August 31, 1998 included herein has been taken from the Company's audited
financial statements of that date included in the Company's latest annual
report.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these condensed financial
statements can be read in conjunction with the financial statements and the
notes thereto included in the Company's latest annual report.
The Company periodically reviews long-lived assets to assess
recoverability and impairments will be recognized in operating results if a
permanent diminution in value were to occur.
NOTE 2 ACQUISITIONS
On December 29, 1998, the Company completed the acquisition of the juice
division of Seneca Foods Corporation. The purchase included bottling and
packaging facilities located in New York, North Carolina and Wisconsin;
warehousing in Michigan; and a grape receiving station in New York. The
preliminary purchase price for the acquisition was approximately $29.3 million
in cash and is subject to subsequent adjustment based on the value of "net
assets" purchased.
On March 1, 1999, the Company acquired from Congress Financial
Corporation (Northwest) certain assets formerly owned by Clermont, Inc., a
producer and seller of cranberry and other fruit concentrates, for $6.9 million
in cash and 367,287 shares of the Company's Class A Common Stock with a value of
approximately $3.0 million on the date of closing.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total revenues for the three months ended May 31, 1999 were $70.9
million, an increase of 168% over revenues of $26.4 million in the prior year's
third quarter. Revenues for the nine-month period ended May 31, 1999 increased
113% to $160.2 million from $75.1 million during the same period in fiscal 1998.
The increased fiscal 1999 revenues were primarily due to sales generated as a
result of our two recently completed major acquisitions, representing sales of
Seneca juice products, private label products and co-packing production. On
December 29, 1998, we acquired the juice division of Seneca Foods Corporation
and in July 1998 we acquired Minot Food Packers, Inc. Sales of our Northland
brand 100% juice products also contributed to the increased revenues. Trade
industry data for the 12-week period ended May 23, 1999 showed that our
Northland brand 100% juice products achieved a 13.4% market share of supermarket
shelf-stable cranberry beverages on a national basis, up from a 12.8% market
share for the previous 12-week period ended February 28, 1999. We continue to
experience intense competition in our efforts to develop private label accounts
and sales of concentrate and bulk frozen fruit.
Cost of sales for the third quarter of fiscal 1999 was $47.3 million
compared to $14.7 million for the third quarter of fiscal 1998, resulting in
gross margins of 33.3% and 44.4% in each respective period. Cost of sales for
the nine-month period ended May 31, 1999 was $102.5 million compared to $40.7
million in the same period in fiscal 1998 with gross margins of 36.0% and 45.8%,
respectively. The decrease in gross margins in fiscal 1999 was primarily due to
our changing product mix. Fiscal 1999 revenues included a significant amount of
lower margin private label sales and contract co-packing revenues compared to
minimal private label sales and no co-packing sales in fiscal 1998. Our gross
margins during the remainder of fiscal 1999 will be dependent upon our product
mix and existing market conditions, but likely will be lower than gross margins
for last year's comparable period.
Selling, general and administrative expenses were $18.0 million, or 25.3%
of total revenues, for the three-month period ended May 31, 1999 compared to
$9.1 million, or 34.4% of total revenues, in the prior year's third fiscal
quarter. Selling, general and administrative expenses were $48.4 million, or
30.2% of total revenues, for the nine-month period ended May 31, 1999, compared
to $28.1 million, or 37.3% of total revenues, during the same period in the
prior fiscal year. This increase in the dollar amount of selling, general and
administrative expenses was primarily attributable to (i) expenses to support
our newly acquired Seneca brand; (ii) expenses to support private label sales
generated by our recently acquired subsidiary, Minot Food Packers, Inc.; and
(iii) costs related to our aggressive marketing campaign to support the
development and growth of our Northland brand 100% juice products. As a result
of the recent market share gains of our Northland 100% juice line, the
acceptance by the grocery trade of our new Seneca cranberry drinks, and current
conditions within the cranberry beverage category, we have decided to accelerate
approximately $5 million of media and trade spending into our fourth quarter of
fiscal 1999 instead of waiting until the first quarter of fiscal 2000 as
previously planned.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT.)
Interest expense was $2.6 million and $5.9 million for the three- and
nine-month periods ended May 31, 1999 compared to $2.0 million and $5.3 million
during the same periods in fiscal 1998. Consistent with expectations given our
aggressive promotional activity in support of our branded juice products, net
income and per share earnings for the three- and nine-month periods ended May
31, 1999 were $1.8 million, or $0.09 per share, and $2.0 million, or $0.10 per
share, respectively, up from fiscal 1998 third quarter and fiscal 1998 net
income and per share earnings of $399,000, or $0.03 per share, and $616,000, or
$0.04 per share, respectively.
With the exception of our accounting and distribution/order tracking
functions, our operations are not heavily dependent on internal computer
software or embedded systems. Our internal accounting and distribution hardware
and software system was replaced in fiscal 1997 at a cost of approximately
$350,000. That system has been fully tested at all of our facilities and we
believe it to be Year 2000 compliant in all material respects.
We do not rely heavily on third party vendors whose potential Year 2000
noncompliance would have a material adverse effect on our results of operations.
As a result, we are not conducting compliance audits of third party vendors for
Year 2000 readiness. While we currently use co-packers to perform some of our
bottling operations, we believe their potential failure to be Year 2000
compliant would not be material to our operations because of availability of
other vendors who can perform similar functions, as well as our ability to
perform our own bottling operations using facilities we acquired in the Minot
and Seneca acquisitions. We also rely on third party vendors to supply us with
plastic bottles, caps and cartons. If these vendors are not Year 2000 compliant,
we may experience temporary decreases in inventory until new vendors are
located. However, we do not believe this would have a material adverse effect on
our results of operations.
FINANCIAL CONDITION
Net cash used for operating activities was $32.5 million in the first
nine months of fiscal 1999 compared to $9.9 million in the same period in fiscal
1998. Net cash used for operating activities during the first nine months of
fiscal 1999 was the result of increases in current assets and liabilities in the
ordinary course of business during the period. Inventory increased $35.6 million
due to the fall harvest of our crop, our purchase of raw cranberries from other
independent cranberry growers and increased raw materials and finished goods
inventories to support our increased branded and private label juice sales.
Accounts receivable and other current assets increased $7.2 million primarily
due to accounts receivable generated from operating the recently acquired Seneca
juice business. Working capital increased $53.9 million to $103.4 million at May
31, 1999 compared to working capital of $49.5 million at August 31, 1998. Our
current ratio increased to 4.1 to 1.0 from 3.3 to 1.0 at August 31, 1998.
Net cash used for investing activities increased during the nine-month
period ended May 31, 1999 to $44.3 million from $5.7 million during the same
period in the prior fiscal year. The increase was principally the result of our
acquisition of Seneca's juice division and our acquisition from Congress
Financial Corporation of certain assets formerly owned by Clermont, Inc.
Net cash provided by financing activities was $76.4 million in the
nine-month period ended May 31, 1999, compared to $15.7 million during the same
period in the prior fiscal year. Our debt increased $78.7 million in the first
nine months of fiscal 1999 primarily due to financing our acquisitions and our
seasonal and growth working capital needs. Our total debt (including current
portion) was $147.2 million at May 31, 1999 for a total debt-to-equity ratio of
0.93 to 1.00 compared to total debt of $68.2 million and a total debt-to-equity
ratio of 0.44 to 1.00 at August 31, 1998. We utilize our revolving bank credit
facility, together with cash generated from operations, to fund our working
capital requirements throughout the fiscal year. On March 15, 1999, we entered
into a new credit facility with a syndicate of regional banks to refinance our
existing bank credit facility
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT.)
and increase our revolving line of credit availability to $140 million until
March 2002. As of May 31, 1999, the principal amount outstanding under our new
revolving credit facility was $120.3 million, with an additional $19.7 million
available under our credit facilities. We believe our existing credit
facilities, together with cash generated from operations, are sufficient to fund
our ongoing operational needs for the remainder of fiscal 1999.
On December 29, 1998 we completed the acquisition of Seneca's juice
division. The purchase included bottling and packaging facilities located in New
York, North Carolina and Wisconsin; a warehouse facility in Michigan; and a
grape receiving station in New York. The preliminary purchase price for the
acquisition was approximately $29.3 million in cash, based on the value of the
"net assets" we acquired. The purchase price was borrowed under our revolving
credit facility.
On March 1, 1999 we acquired certain assets from Congress Financial
Corporation (Northwest) which were formerly owned by Clermont, Inc., a producer
and seller of cranberry and other fruit concentrates, for $6.9 million in cash
and 367,287 shares of Northland's Class A Common Stock with a value of
approximately $3.0 million on the date of closing. The assets acquired include a
concentrating facility in Cornelius, Oregon; certain equipment; and inventory
consisting of cranberry and other fruit concentrates.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Form 10-Q are "forward-looking
statements," including statements about the Company's future plans, goals
and other events which have not yet occurred. These statements are
intended to qualify for the safe harbors from liability established by
the Private Securities Litigation Reform Act of 1995. They can generally
be identified because the context of such statements will include words
such as "believes, "anticipates," "expects," or words of similar import.
Whether or not these forward-looking statements will be accurate in the
future will depend on certain risks and factors including risks
associated with (I) development, market share growth and continued
consumer acceptance of the Company's branded juice products; (ii)
integration of the operations of Minot Food Packers, Inc., acquired in
fiscal 1998, and the juice division of Seneca Foods Corporation, acquired
on December 29, 1998; (iii) strategic actions of Northland's competitors
in pricing, marketing and advertising; and (iv) agricultural factors
affecting Northland's crop and the crop of other North American growers.
These and other risks and factors that should be considered are further
set forth in the Company's Form S-3 Registration Statement (No.
333-53173) filed with the Securities and Exchange Commission on May 20,
1998. Readers should consider these risks and factors and the impact they
may have when evaluating these forward-looking statements. These
statements are based only on management's knowledge and expectations on
the date of this Form 10-Q. The Company will not necessarily update these
statements or other information in this Form 10-Q based on future events
or circumstances.
- --------------------------------------------------------------------------------
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<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SCURITIES AND USE OF PROCEEDS
c. Pursuant to the terms of a Stock Purchase Agreement, dated as of
April 21, 1999, by and among Northland Cranberries, Inc., Potomac
Foods of Virginia, Inc., and the shareholders of Potomac
signatories thereto, we purchased the stock of Potomac for
$400,000 in cash and 90,000 unregistered shares of our Class A
common stock. We issued the stock on April 22, 1999 in reliance on
the exemption from registration contained in Section 4(2) of the
Securities Act of 1933, as amended.
We also issued 500 shares of newly-issued Class A common stock to
Cindi Figg-Currier on April 26, 1999 in consideration of services
Ms. Figg-Currier rendered for us in fiscal 1999. We issued the
stock in reliance on the exemption from registration contained in
Section 4(2) of the Securities Act of 1933, as amended.
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibits filed with this Form 10-Q report are incorporated herein by
reference to the Exhibit Index accompanying this report.
b. Form 8-K
We did not file any reports on Form 8-K during the quarterly period to
which this Form 10-Q relates. On March 15, 1999, we filed an amendment to our
Form 8-K dated December 30, 1998, relating to our acquisition of Seneca's juice
division.
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned Chief Financial Officer thereunto duly authorized.
NORTHLAND CRANBERRIES, INC.
DATE: July 15, 1999 By: /s/ John Pazurek
----------------------------
John Pazurek
Chief Financial Officer
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<PAGE>
EXHIBIT INDEX
Exhibit No. Description
(27) Financial Data Schedule
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF NORTHLAND CRANBERRIES, INC. AS
OF AND FOR THE 9 MONTHS ENDED MAY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> MAY-31-1999
<CASH> 242
<SECURITIES> 0
<RECEIVABLES> 28,893
<ALLOWANCES> 0
<INVENTORY> 102,557
<CURRENT-ASSETS> 137,289
<PP&E> 204,863
<DEPRECIATION> 35,441
<TOTAL-ASSETS> 348,467
<CURRENT-LIABILITIES> 33,863
<BONDS> 144,897
0
0
<COMMON> 200
<OTHER-SE> 148,543
<TOTAL-LIABILITY-AND-EQUITY> 348,467
<SALES> 158,788
<TOTAL-REVENUES> 160,232
<CGS> 102,548
<TOTAL-COSTS> 48,438
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,904
<INCOME-PRETAX> 3,342
<INCOME-TAX> 1,339
<INCOME-CONTINUING> 2,003
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,003
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.10
</TABLE>
