SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended August 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 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 of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 First Avenue South
P. O. Box 8020
Wisconsin Rapids, Wisconsin 54495-8020
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (715) 424-4444
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Class A Common
Stock, $.01 par value
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of November 24, 1999:
$115,731,621
Number of shares issued and outstanding of each of the registrant's classes of
common stock as of November 24, 1999:
Class A Common Stock, $.01 par value: 19,702,221 shares
Class B Common Stock, $.01 par value: 636,202 shares
PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED HEREIN BY REFERENCE:
Proxy Statement for 2000 annual meeting of shareholders scheduled to be held
January 5, 2000 (incorporated by reference into Part III, to the extent
indicated therein).
1999 Annual Report to Shareholders (incorporated by reference into Parts II and
IV, to the extent indicated therein).
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PART I
Special Note Regarding Forward-Looking Statements
We make certain "forward-looking statements" in this Form 10-K, such
as statements about our future plans, goals and other events which have not yet
occurred. We intend that these statements will qualify for the safe harbors from
liability provided by the Private Securities Litigation Reform Act of 1995. You
can generally identify these forward-looking statements because we use words
such as we "believe," "anticipate," "expect" or similar words when we make them.
Whether or not these forward-looking statements will be accurate in the future
will depend on certain risks and factors including, without limitation, risks
associated with (i) the development, market share growth and continued consumer
acceptance of our branded juice products; (ii) the level of expenditures to
build the brand name equity and consumer awareness of our Northland, Seneca and
other branded product lines; (iii) strategic actions of our competitors in
pricing, marketing and advertising; (iv) agricultural factors affecting our
crop; and (v) the industry-wide supply of cranberries. You should consider these
risks and factors and the impact they may have when you evaluate our
forward-looking statements. We make these statements based only on our knowledge
and expectations on the date of this Form 10-K. We will not necessarily update
these statements or other information in this Form 10-K based on future events
or circumstances. Please read this entire Form 10-K to better understand our
business and the risks associated with our operations.
Item 1. Business.
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General
We are a grower, processor and marketer of cranberries and branded and
private label cranberry products and fruit beverages. Our products include:
o Northland brand 100% juice cranberry blends, which we sell through
supermarkets, drug store chains, mass merchandisers, club stores, foodservice
outlets and convenience stores;
o Seneca and TreeSweet bottled and canned fruit beverages, including
apple, grape, cranberry and orange juice products, and frozen juice concentrate
products, including apple, grape, cranberry and orange juice products;
o private label cranberry and other fruit drinks and other cranberry
products, which we sell to retail and wholesale customers for sale under their
own labels;
o Northland brand fresh cranberries, which we sell to retail and
wholesale customers;
o Awake frozen orange-flavored concentrate; and
o cranberry juice concentrate, cranberry sauce, single-strength
cranberry juice and frozen and whole sliced cranberries, which we sell to
industrial and ingredient customers.
We began our business in 1987 as a cranberry grower and member of the
Ocean Spray Cranberries, Inc. marketing cooperative. In 1993, we left Ocean
Spray and introduced Northland brand fresh cranberries. In October 1995, we
introduced our family of Northland 100% juice cranberry blends. By June 1997, we
had successfully achieved national distribution. In July 1998, we acquired Minot
Food Packers, Inc., a manufacturer of private label cranberry and other fruit
products. In fiscal 1999, we acquired the juice division of Seneca Foods
Corporation, including the right to produce and sell Seneca brand products,
Seneca's TreeSweet and Awake brand names, as well as additional processing,
distribution and
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receiving facilities. As of September 12, 1999, our Northland branded juice
products were available in all 50 states and in approximately 90% of
supermarkets nationwide according to data compiled by Information Resources,
Inc. ("IRI").
We had several important achievements in fiscal 1999. Included among
them:
o we surpassed $236 million in total revenues, an increase of 110%
over fiscal 1998;
o we achieved a 12.8% dollar market share in the shelf-stable
cranberry beverage market according to IRI data for the 12-weeks ended September
12, 1999, and were as high as 14.4% for the 12-weeks ended July 18, 1999;
o we acquired the juice division of Seneca, giving us a presence in
the shelf-stable apple and grape juice segments and the retail frozen juice
concentrate category, improving our bottling and distribution network and
furthering our ability to perform co-packing operations for other bottled
beverage producers;
o we completed the integration of the administration and operations of
Minot and Seneca;
o we successfully launched an enhanced Seneca juice product line which
includes four new cranberry-flavored drinks, calcium fortification and a
user-friendly, easy-grip bottle; and
o we expanded our non-branded operations to focus on private label,
contract packing, foodservice and industrial/ingredients sales, and increased
our efforts to sell our products in alternative sales channels such as mass
merchandisers, convenience stores and club stores.
Several important factors contributed to the significant revenue and
asset growth we achieved in fiscal 1999. Most significantly, we acquired several
facilities from Seneca and had eight months of sales of Seneca, TreeSweet and
Awake brand products included in fiscal 1999 total revenues. Also included in
fiscal 1999 revenues was a full year of co-packing and private label revenue
realized from our operation of the former Minot business. In fiscal 1999 we also
acquired Potomac Foods of Virginia, Inc., a broker of fruit juice concentrates
and other fruit products. We also purchased certain assets formerly owned by
Clermont, Inc. including a concentrating facility in Cornelius, Oregon, certain
equipment and inventory consisting of cranberry and other fruit concentrates.
Finally, in addition to sales of Seneca brand products, we again experienced
increased sales of our Northland 100% juice cranberry blends.
We intend to continue growing our business in the next fiscal year by
focusing our strategic efforts on:
o increasing spending on our national marketing efforts, including
continued national television advertising, to heighten consumer awareness of our
branded products and how they are different from our competitors' products;
o continuing our sales and trade promotion plan;
o continuing to pursue alternative sales channels for our products,
such as club stores and foodservice providers like restaurants, hospitals and
schools;
o strengthening our national food broker network; and
o completing the national rollout of our enhanced line of Seneca
cranberry drinks.
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In addition to producing and selling cranberry and other fruit
products, we are the world's largest cranberry grower, with 25 cranberry
producing marshes and 2,549 planted acres owned or operated in Wisconsin and
Massachusetts as of November 24, 1999. As of that date, we also maintained
multi-year crop purchase contracts with 55 independent cranberry growers to
purchase all of the cranberries harvested from an aggregate of 1,995 planted
acres.
Branded Products
Products
Our family of Northland 100% juice cranberry blends is our primary
branded product. We introduced Northland 100% juice cranberry blends in late
1995 and achieved national distribution in the summer of 1997. As of September
12, 1999, our Northland 100% juice cranberry blends were available in all 50
states and in about 90% of supermarkets nationwide. We currently produce and
sell eight flavors, including traditional cranberry, cranberry apple, cranberry
raspberry, cranberry grape, cranberry peach, cranberry cherry, cranberry
blackberry and cranberry strawberry. We have four bottle sizes available in
general distribution, including 64-ounce and 46-ounce plastic bottles in
supermarkets and 128-ounce plastic bottles and 16-ounce plastic bottle
multi-packs in warehouse clubs. We intend to introduce a new 12-ounce size in
convenience stores in early 2000.
As a result of the Seneca acquisition, we now produce and sell several
varieties of Seneca, TreeSweet and Awake brand products. Our primary Seneca
brand products include shelf-stable bottled apple juice and 100% apple juice
frozen concentrate. Seneca 100% apple juice frozen concentrate was the number
one selling frozen apple juice brand in the nation in 1998 and is available in
approximately 80% of the nation's supermarkets as of our fiscal year end. In
fiscal 1999, we launched an enhanced Seneca shelf-stable apple and white grape
juice product line that includes new labeling, a consumer-friendly easy-grip
bottle and calcium fortification. We also introduced four new Seneca brand
cranberry drinks, including cranberry cocktail, cranberry apple, cranberry
raspberry and cranberry grape. This cranberry drink product line was available
in approximately 33% of supermarkets nationwide as of the fiscal year end
according to IRI data. The new cranberry products were designed to compete
against other non-premium cranberry drink brands and to complement the Northland
brand of 100% juice products. We also sell bottled and canned fruit beverages,
including apple, grape and orange juice products, and frozen juice concentrate
products, including apple, grape, cranberry and orange juice products, under the
TreeSweet label, and frozen orange-flavored concentrate under the Awake label.
In addition to Northland 100% juice cranberry blends and our Seneca,
TreeSweet and Awake branded products, we also grow and package Northland brand
fresh cranberries and sell them in 12-ounce plastic bags mainly to food
retailers and wholesalers during the fall.
Marketing
Our principal consumer marketing strategy for our family of Northland
100% juice cranberry blends is to highlight the differences in flavor and juice
content between Northland brand 100% juice cranberry blends and many of the
competing products of Ocean Spray and others which have less than 100% juice.
Our marketing strategy includes:
o media advertising
- we used a national television advertising campaign in
fiscal 1999 designed to appeal to and be seen by our target audience and to
gain their awareness of our product, its 100%
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juice content, and the lesser juice content of many of our competitors'
products. We will continue advertising on television in fiscal 2000 by
again buying advertising time on daytime network shows and cable networks.
We also utilized a new national magazine advertising campaign in fiscal
1999. We spent approximately $9 million on these types of media advertising
in fiscal 1999 and intend to spend approximately $8-10 million on these
types of media advertising in fiscal 2000. We intend to utilize a portion
of that expense on consumer research to improve our awareness of consumer
tastes and preferences; and
o sales promotion
- we offer coupons to attract first-time buyers and give
people who already drink Northland 100% juice cranberry blends incentive to
purchase more of our products. In fiscal 2000, we intend to add the
distribution of free samples in stores and in health clubs to our
promotional program. We anticipate that our fiscal 2000 sales promotions
will be consistent with fiscal 1999 levels.
In fiscal 1999, we redesigned the Northland 100% juice label with the
intention of making the Northland name more visible on the bottle and making the
100% juice content of the product more prominently shown. In fiscal 2000, we
intend to introduce a more user friendly, easy-grip bottle to our family of
Northland 100% juice products.
Our branded juice marketing efforts are coordinated by our
President-Branded Division, our Vice President-Marketing, three brand marketing
managers and support staff personnel. Additionally, we established an integrated
customer marketing department in fiscal 1999, consisting of teams specifically
dedicated to the areas of category management, customer planning, forecasting
and trade funds management. We also upgraded our information systems to improve
our analysis of syndicated data, trade spending management and sales
forecasting. We also employ our own creative services department, including a
manager and three graphic designers, to help in marketing and promotional
efforts, and use the services of an advertising agency to help us develop our
marketing strategies.
Sales
Dollar sales of shelf-stable cranberry beverages continued to increase
in fiscal 1999, and we anticipate they will continue to increase in fiscal 2000.
We hope to realize increased sales of our branded juice products by:
o continuing to expand sales of our Northland and Seneca brand
products into alternative distribution channels such as supercenters, mass
merchandisers, club stores and drug stores
- in fiscal 1999, we made progress in introducing our brands into
new distribution channels. We intend to introduce a new 12-ounce
single-serve bottle into convenience stores and other distribution channels
in fiscal 2000;
o continuing our trade promotion plan
- on a periodic basis, we offer discounts on our products to
retailers and wholesalers to temporarily reduce the price of our products
to consumers and to obtain store display features and retail
advertisements. These efforts help to increase our product visibility and
offer the consumer savings on our products. We anticipate that we will
continue these trade promotion activities in fiscal 2000 at similar levels
as fiscal 1999, and we expect to take advantage of trade promotional
opportunities provided by our increased product offerings; and
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o continuing to increase distribution of our branded products into
certain regional supermarkets where our products are not yet available.
In fiscal 1999, in order to improve broker network management in
supermarket sales, we divided our national sales territories among three area
directors. We also established a national accounts sales team to develop the
club store, mass merchandiser, convenience store and chain drug store channels.
With the planned increase in consumer marketing spending discussed in
"Marketing," above, we expect to spend approximately $60-70 million on
advertising, promotion and slotting expenses in support of our brands in fiscal
2000. We use the term "slotting" to refer to fees that we pay to retailers in
order to secure space on their shelves for our products. In fiscal 1999, we
spent approximately $46 million on advertising, promotion and slotting.
Our branded juice sales are coordinated by our Vice President-Sales
and three area directors, as well as a sales coordinator and ten regional sales
managers. In addition to their experience with our branded products to date,
many of our sales staff personnel have prior sales experience working for
companies such as ConAgra, Inc., H.J. Heinz Company, Campbell's Soup Company,
RJR Nabisco and Welch's. Our sales staff directs distribution and sale of our
branded juice products through a network of independent food brokers throughout
the United States.
Competition
The consumer cranberry product market is large and very competitive.
Based on industry data, retail supermarket bottled shelf-stable cranberry
beverage sales were approximately $800 million for the 52-weeks ended September
12, 1999. The shelf-stable cranberry beverage market is significantly larger if
you include all sales channels as opposed to just supermarkets. Most of the
markets in which we compete are dominated by Ocean Spray. Ocean Spray is an
agricultural marketing cooperative which has certain protections under federal
anti-trust laws. Ocean Spray has over 700 member-growers, accounting for
approximately 70% of all cranberries grown in North America. Based on IRI data,
for the 12-weeks ended September 12, 1999, Ocean Spray products represented
approximately 50.6% of the supermarket shelf-stable cranberry beverage market,
down from approximately 58.8% for the 12-weeks ended September 13, 1998. We had
the second largest market share for the 12-weeks ended September 12, 1999 with
12.8%.
Northland 100% juice cranberry blends compete with:
o Ocean Spray's branded cranberry juice products;
o branded cranberry juice products of other producers;
o private label cranberry juice products; and
o other juice and beverage products.
Our Northland branded juice products are 100% juice cranberry blends.
Many of our competitors' products are made up of much less than 100% juice. For
example, Ocean Spray's Cranberry Juice Cocktail contains only up to 27%
cranberry juice with the remainder being water and high fructose corn syrup.
Like Ocean Spray, many other competitors' juices use sugar or corn syrup
additives as sweeteners. We believe that we have an advantage over many of our
competitors due to the perceived benefits of our 100% juice products. We also
believe that the continued success of our branded juice products will depend on
whether consumers will continue to think highly of its quality and taste
compared to that of our competitors' products.
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Northland 100% juice cranberry blends are premium-priced products. Our
products compete mainly with other premium-priced branded cranberry beverages,
but also with private label products which are usually lower priced.
We expect that Ocean Spray will continue to compete aggressively
against our 100% juice cranberry blend products, possibly by increasing
advertising of its 100% juice product line, reducing product pricing, increasing
its trade promotions or other actions. Ocean Spray has significantly more
experience in the fruit juice markets than we do, as well as greater brand name
recognition and greater marketing and distribution resources. We cannot be
certain that we will be successful in competing against Ocean Spray.
The addition of the products we acquired in the Seneca acquisition
allowed us to compete for the first time in fiscal 1999 in the markets for
frozen juice concentrate and shelf-stable canned fruit juices and drinks. Our
principal competitors in the frozen juice concentrate market include several
established brand names such as Welch's, TreeTop and Tropicana. Our principal
competitors in the market for shelf-stable canned fruit juices and drinks
include Mott's and Minute Maid. Many of these competitors have greater brand
name recognition and greater marketing and distribution resources than we do.
Ocean Spray does not compete in either the frozen juice concentrate market or
the shelf-stable canned fruit juice market.
Non-Branded Products
Products and Services
In addition to our branded products we discussed above, we also sell
several non-branded products and services. Our non-branded products generally
include:
o private label and foodservice cranberry juice cocktail and blended
cranberry juice products;
o private label and foodservice apple, orange, pineapple, grape,
grapefruit and lemon juice;
o industrial cranberry concentrate;
o jellied and whole cranberry sauce;
o frozen and whole sliced cranberries;
o single-strength cranberry juice;
o sports drinks; and
o ready-to-drink teas.
Our major non-branded products are private label cranberry juice,
particularly cranberry juice cocktail and blended cranberry juice products, and
other fruit juices. We use the term "private label" to refer to products which
we manufacture and sell to customers who sell those products to consumers under
their own non-branded labels. In fiscal 1999, we substantially increased sales
of private label cranberry sauce over fiscal 1998 levels. We were able to
realize substantially increased sales of private label products in fiscal 1999
primarily as a result of a full year of operations of the business we acquired
from Minot and approximately eight months of operations of the business we
acquired from Seneca.
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We established our foodservice business in fiscal 1999 by expanding on
the established foodservice customer base we acquired in the Seneca acquisition.
Our foodservice business manufactures and markets juice and cranberry sauce
products in industry-specific packaging to businesses and public institutions
such as restaurants, hotels, airlines, schools and hospitals. We offer our
foodservice products in a variety of sizes and package them under our own Meadow
Valley label, the customer's own label, or under our other brand labels such as
Northland, Seneca or TreeSweet.
In addition to our foodservice business, we also offer frozen
cranberries, single-strength cranberry juice, cranberry concentrate, fruit
purees and northeastern Concord grape and other juice concentrates to
industrial/ingredients customers. We expanded our industrial/ingredients
operations in fiscal 1999 through the acquisition of an additional concentrate
facility in Cornelius, Oregon as well as the acquisition of Potomac Foods of
Virginia, Inc., a broker of fruit juices and other fruit products, and the
addition of associated management personnel.
In addition to sales of non-branded products we described above, we
also offer certain services to our customers through our non-branded operations.
The most significant of those services in fiscal 1999 was co-packing. We use the
term "co-packing" to refer to the manufacture of products for other marketing
companies for eventual distribution and sale under those entities' labels. Our
acquisition of Minot gave us our first bottling facility along with bottling
expertise. That expertise and bottling facility, combined with Minot's
established customer base and the facilities and customer base we acquired in
the Seneca acquisition, allowed us to recognize substantially increased revenues
from providing co-packing services to customers in fiscal 1999. Continued growth
of our co-packing services represents a key element in our overall business
strategy.
Marketing and Sales
Our marketing and sales efforts for our non-branded products are
different from our efforts for our branded products. This is mainly because we
market our branded products directly to the consumer, while we sell non-branded
products to retail and other customers who then either market those products
under their own labels or use those products to make other consumer products. As
a result, our non-branded marketing efforts do not include media advertising or
other traditional branded product marketing support. Rather, we market our
private label products three primary ways:
o We compete on the basis of strong historical supplier
relationships and quality assurance. Many sellers of private label products
maintain relationships with their historical suppliers. The Minot and
Seneca acquisitions provided us with a longstanding private label customer
base. Because we are able to perform our own bottling operations, we can
also provide better quality assurance to our private label customers.
o We offer product variety to retail customers. Since we work
with retail buyers on an ongoing basis, we are able to supply some of their
private label fruit juice needs as well as their branded juice needs. We
provide category management opportunities to retailers through our wide
variety of branded and private label juice and other fruit products.
o We compete on the basis of price. Many private label juice
products are low-cost national brand name alternatives that appeal to
consumers who typically buy lower-priced products. As a result, private
label suppliers must be low cost providers. We believe we may have a
competitive advantage in private label markets over many of our competitors
because we grow most of our own cranberries. As a result, we have
historically had a lower cost for our cranberries. Additionally, our
strategic plant locations that are close to our customers allows for
reduced freight costs.
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In addition, we have expanded and intend to continue expanding our
sales efforts into new sales channels such as foodservice providers and club
stores. To better manage this process, we undertook a internal restructuring in
fiscal 1998, creating separate organizational structures for private label, club
stores/mass merchandisers, foodservice and contract packing relations, all of
which report to our non-branded group president. We further realigned our
operating infrastructure in fiscal 1999, adding additional personnel to support
increased sales of our non-branded products.
Most of our non-branded revenues resulted from sales of private label
products and performing co-packing services in fiscal 1999. We also
substantially increased revenues generated from the sale of private label
cranberry sauce. Sales of other non-branded products, such as single-strength
cranberry juice and frozen cranberries, did not have a material impact on our
revenues in fiscal 1999. We intend to continue to pursue sales opportunities for
our non-branded products in the foodservice and industrial/ingredients markets
in fiscal 2000.
Competition
Competition in private label is based mainly on price. Also, the
private label markets are characterized by longstanding relationships between
retailers and private label manufacturers, and by retailers who are reluctant to
approve new manufacturers and vendors. As a result, before we acquired Minot and
Seneca, we were largely unsuccessful in our attempts to compete in private
label. The acquisition of Minot and Seneca provided us with an established base
of private label customers, and we were able to compete in fiscal 1999 in the
market for private label cranberry juice, sauce, other processed cranberry
products and other private label fruit juices with a small number of other
private label manufacturers, including primarily Clement Pappas & Co. and
Cliffstar Corporation. These and other private label processors have significant
experience in the private label fruit juice and processed cranberry products
markets and have established bottling operations and customer bases. We may not
be successful in competing against certain major independent processors.
Private label cranberry products also compete against branded
cranberry products. Our private label products may not be able to compete
successfully against private label products of other suppliers, or the branded
products of Ocean Spray or others.
We also compete for the sale of cranberry concentrate, single-strength
cranberry juice and frozen whole and sliced cranberries to industrial customers,
such as food processors and foodservice companies. In fiscal 1999, cranberry
concentrate was our principal industrial product in terms of sales volume. Our
industrial customer base includes several major food processing firms. We
believe our own ability to grow and internally process cranberries allows us to
offer a reliable supply of high quality, competitively priced cranberry products
to our industrial customers.
Manufacturing
Processing and Bottling
An important part of our business strategy is our ability to process
our grown and purchased cranberries, as well as our ability to bottle our own
branded and private label products. We now own four bottling and packaging
facilities. All of these facilities have complete PET bottling capabilities. In
addition to production and dry warehousing, all of these facilities also have
cold storage for ingredients and bulk ingredient handling capability. Freezer
storage for ingredients and finished product is available at all locations
except Jackson, Wisconsin. We also augment our warehouse capacity with outside
contract facilities.
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We utilize these bottling facilities, and the others we describe
below, at different stages in the processing and bottling of cranberries and
cranberry-based products. For example:
o raw cranberries are brought to our receiving stations. We own a
150,000 square foot receiving station and fresh fruit packaging facility in
Wisconsin Rapids, Wisconsin and a 49,000 square foot receiving station in
Massachusetts. These receiving stations, along with contract receiving
facilities in Wisconsin and Oregon, clean and sort raw cranberries;
o after sorting, the cranberries we sell as fresh fruit during
the fall are stored in temperature-controlled facilities until they are
packaged and distributed for sale. Cranberries we use to make our juice and
other cranberry products are cleaned, sorted and stored in our freezer
facilities around the country, including our 65,000 square foot freezer
facility in Wisconsin Rapids and our 63,000 square foot freezer facility in
Bridgeton, New Jersey, or at independent freezer facilities, until they are
sent to one of our processing plants;
o frozen raw cranberries are pressed and concentrated at one of
our processing plants in Wisconsin Rapids, Wisconsin, Cornelius, Oregon or
Mountain Home, North Carolina. The resulting concentrated cranberry juice
is stored frozen and then shipped either to bulk ingredient customers or to
a Northland owned or contracted bottling facility. The Bridgeton, New
Jersey plant presses cranberries into single strength juice used in private
label or branded bottle juice products. These multiple pressing and
concentrating locations allow the processing of cranberries in all of the
key growing areas around the country; and
o our grape receiving station in Portland, New York receives and
consolidates grape deliveries from our contractual relationship with
Westfield Maid Cooperative, a cooperative of Concord grape growers in the
Lake Erie grape belt. After receiving, the grapes are then shipped to our
7,000 square-foot grape processing plant in Dundee, New York where they are
pressed into grape juice. The grape juice is stored in owned and contracted
refrigerated storage and converted throughout the year to grape juice
concentrate for sale to bulk ingredient customers, or are used in bottled
and frozen juice products.
While we now have a substantial company owned manufacturing network,
strategic contract packaging facilities are still employed on the west coast to
effectively service our growing presence in that market. Packaging contracts
exist in Los Angeles, Yuba City and Ventura, California, and Prosser,
Washington.
Distribution Network
We have an internal transportation department that contracts with
independent carriers to distribute our products to various grocery stores and
retail outlets. We currently have 11 distribution centers owned or under
contract, including our distribution center in Bridgeton, New Jersey, the
distribution center and warehouse in Eau Claire, Michigan that we acquired
through the Seneca acquisition, as well the processing plants in Jackson, Dundee
and Mountain Home that we acquired through the Seneca acquisition which also act
as distribution centers. We also utilize owned and contracted warehouse
facilities at strategic locations throughout the country. We believe that our
distribution centers and warehouse locations, combined with the strategic
locations of our current co-packers, lowers our freight and production costs, as
well as allows for timely response to customer demands.
Agricultural Operations
An important factor in successfully implementing our business
strategy, and one of the major differences between us and many of our
competitors, is our ability to grow a significant and reliable
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supply of cranberries on our owned or leased properties. We are the world's
largest cranberry grower, with 25 owned or operated properties and approximately
2,549 planted acres in Wisconsin and Massachusetts as of November 24, 1999. In
the fall of 1998 (i.e., fiscal 1999), we harvested approximately 392,000 barrels
from 2,423 acres, the second largest harvest in our history. The large harvest
was due in part to the maturation of hybrid high-yield cranberry vines which we
planted in our expansion program in prior years.
To supplement our own internal supply of cranberries, we also contract
with other cranberry growers in Wisconsin and Oregon to purchase their crop. In
fiscal 1999, we bought approximately 190,000 barrels of cranberries from other
growers and acquired additional barrels through the acquisitions that we
completed during the fiscal year. As of November 24, 1999, we maintain
multi-year crop purchase contracts with 55 independent cranberry growers to
purchase all of the cranberries harvested from an aggregate of 1,995 planted
acres. None of these contracts expires in fiscal 2000. The ability to harvest
our own fruit in both Wisconsin and Massachusetts, combined with the contracted
acreage, provides us with geographical diversity in our crop and spreads our
agricultural risk. We expect the quantity of cranberries purchased under these
contracts to increase in future years as the contracted marsh acreage matures
and becomes more productive. However, we cannot be certain that these contracts
will be renewed when they expire.
We have increased our planted acreage over time mainly through marsh
acquisitions and our own internal planting program. From August 1987 through
November 24, 1999, we added, through acquisitions or leases, a total of 20 marsh
properties. During this period, our total planted acreage has increased 656%,
from 337 acres to 2,549 acres. We did not acquire any additional marsh
properties in fiscal 1999.
The quality and quantity of cranberries produced in any given year is
dependent upon certain factors which we have little control over. For example,
extremes in temperature, rainfall levels, storms and hail, or crop infestations
can all adversely impact the production in any crop year. While we make efforts
to reduce the potential adverse effects that these factors may have on our
internal crop, our cranberry production remains subject to these agricultural
factors.
We also have crop insurance coverage for all of our marshes which is
subsidized by the federal government. These policies help insure against bad
weather and other contingencies which may affect our crop. They generally insure
us for at least 50% of the average crop yield on each marsh over the past 10
years.
Regulation
Cranberry Products Regulation
The production, packaging, labeling, marketing and distribution of our
fresh cranberries and cranberry juice products are 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. We believe we have complied, and will be able to comply, in
all material respects with such rules, regulations and laws.
Environmental and Other Governmental Regulation
It can be difficult under federal laws for cranberry growers and other
developers to obtain permits to create new cranberry marshes in wetlands in the
United States. To do so, such growers must generally observe a "no net loss" of
wetlands policy. That is, they must show that the proposed development activity
will not result in a loss of wetland acreage, or they must restore the
functional value of
-11-
<PAGE>
acreage they propose to disturb. Given this strict requirement, as well as
strict water quality legislation in Wisconsin and Massachusetts, we believe it
is currently unlikely that we, or other cranberry growers or developers in North
America, will be able to secure permits for cranberry marsh development or
expansion in wetland acreage. However, we and other growers or developers may
renovate existing wetland acreage from time to time and replant older cranberry
vine varieties with higher-yielding vine varieties. Also, certain developers
have begun to create upland cranberry marshes, which are marshes that are not on
wetland acreage. We do not know whether upland marshes, if successful, will
increase the available supply of cranberries in the future.
Pursuant to permits previously received, in the past several years
certain growers have planted, cultivated, and developd new cranberry-producing
acreage in several states and abroad, particularly in Canada. Many of these
previously planted acres have recently become productive or should become
productive in the near future.
We are currently taking steps to clean up certain contamination caused
by underground storage tanks at one of our marshes in Wisconsin, one in
Massachusetts and at our plant site in Cornelius, Orgeon. We have removed the
tanks, or in the case of the Cornelius plant, the tank had already been removed
prior to our purchase of the property. All of the sites have been reported to
the appropriate state regulatory agencies. Our clean-up activities are subject
to state supervision. Based on information available as of August 31, 1999, we
believe most of the costs of such activities will be covered by state
reimbursement funds (except in the case of the Massachusetts property), or
claims against the prior owners of the properties. We do not expect to incur
material liabilities as a result of these activities.
The Wisconsin Department of Natural Resources approved regulations
which became effective in May 1998 and which amended parts of the Wisconsin
Administrative Code to make it easier to obtain the DNR's approval to maintain
existing cranberry marshes and to obtain state water quality certification to
conduct activities in wetlands under a federal permit. However, as a result of
the continued federal restrictions on wetland development and the long lead-time
associated with the planting and maturation of cranberry vines, we do not expect
the regulations to materially affect the supply of cranberries in Wisconsin in
the near term.
The Cranberry Marketing Committee ("CMC") of the United States
Department of Agriculture ("USDA") has the authority to recommend that the
Secretary of the USDA impose harvest volume restrictions on cranberry growers if
the CMC believes that there will be an oversupply of cranberries for the coming
marketing year. The USDA has not imposed such restrictions since 1971. However,
following the two most recent record crop years, there has been a significant
increase in the available supply of cranberries.
Given this current supply, the CMC is in the process of considering
the implementation of a grower volume regulation for the 2000 crop year. A
volume regulation would restrict the number of cranberries that growers may
deliver to a processor. The intent of the regulation would be an attempt to
align the supply of cranberries with existing demand. As both a grower and a
processor of cranberries, we don't currently anticipate that such a volume
regulation would have a material adverse affect on our results of operations in
the near term.
We don't expect environmental or other governmental legislation or
regulation to have a material effect on our capital expenditures, results of
operations or competitive position, other than as we have described above.
-12-
<PAGE>
Seasonality
Before fiscal 1997, our business was very seasonal because we sold
most of our crop to cranberry processors. Now that we have evolved from a
cranberry grower to a consumer products company, we expect to reduce the
seasonality of our business because we will offer our products for sale
throughout the entire year. We do expect, however, that our results of
operations will continue to fluctuate from quarter to quarter depending mainly
upon the level of media advertising and other promotional expenditures in any
given quarter.
Materials and Supplies
We buy bottles, caps, flavorings, juices and packaging either from our
co-packers or independent third parties. We get most of the materials and
supplies necessary for growing and cultivating cranberries, including water and
sand, from our own marshes. We purchase and expect to continue purchasing most
of our fertilizer and pesticides from our subsidiary, Wildhawk, Inc. We purchase
the rest of the raw materials and supplies, including the materials used to
package our fresh fruit, from various sources.
If necessary, we believe we would be able to find other sources for
raw materials and supplies without a material delay or adverse effect on our
business.
Trademarks and Formulae
We own the Northland, TreeSweet, Awake and Minot trademarks, which are
registered in the United States Patent and Trademark Office. We have also
entered into a 99-year license agreement with Seneca which allows us to market
and sell Seneca brand juice and concentrate. The Northland and Seneca trademarks
are important in the sale of our branded cranberry juice and other fruit juice
and fruit products.
We use proprietary flavor formulations to make our cranberry blends.
We protect the confidentiality of these formulations by requiring co-packers to
enter into confidentiality agreements with us.
Employees
As of August 31, 1999, we had 942 full-time employees, as compared to
212 as of August 31, 1998. In addition to our full-time employees, we hired:
o approximately 90 seasonal workers during the 1999 crop cultivation
season;
o approximately 285 seasonal workers to harvest our crop; and
o approximately 120 seasonal employees to operate the cranberry
processing facility in Wisconsin Rapids from September through December 1998.
We have entered into collective bargaining agreements with unions
representing the former Minot employees in New Jersey. Those agreements cover
about 240 employees and expire on May 14, 2001. We have also entered into a
collective bargaining agreement with a union representing the former Seneca
employees in Jackson, Wisconsin. That agreement covers about 102 employees and
expires on December 28, 2001. We believe our current relationships with our
employees, both union and non-union, are good.
-13-
<PAGE>
Item 2. Properties
- ------ ----------
In Wisconsin Rapids, Wisconsin we own three office buildings,
including our corporate headquarters, an office building near our processing
plant and the Northland Conference Center. We also own a 150,000 square foot
receiving station and fresh fruit packaging facility located on 40 acres which
we use to clean and store processed and fresh cranberries. Also in Wisconsin
Rapids, we own a 16,000 square foot juice concentrating facility.
In Bridgeton, New Jersey, we own a 299,000 square foot facility that
includes 81,000 square feet of production area and dry warehousing of 137,000
square feet.
In Dundee, New York, we own a bottling and packaging plant totaling
152,000 square feet, including 46,000 square feet of production area and 58,000
square feet of dry warehouse.
Our bottling and packaging facility in Mountain Home, North Carolina
totals 223,000 square feet, including 64,000 square feet of production area and
122,000 square feet of dry warehouse.
In Jackson, Wisconsin, we own a bottling facility totaling 187,000
square feet including 109,000 square feet of production area and 62,000 square
feet of dry warehouse.
We own a 46,000 square foot pressing and juice concentrating facility
and dry warehouse in Cornelius, Oregon.
In Eau Claire, Michigan, we own a 79,000 square foot storage facility
and distribution center.
We own a 1,800 square foot grape receiving station in Portland, New
York.
We also own a 49,000 square foot receiving station located on a
seven-acre parcel of land adjacent to the Hanson Division bogs in Massachusetts.
In addition to our facilities, we own 22 cranberry marshes and lease
another three. We have set forth in the following table information about each
of our 25 cranberry marshes as of November 24, 1999. We own all of these marshes
in fee simple (or we lease them, in either case as indicated below), subject to
mortgages (except for the Dandy Creek, Nantucket and Hills Division Marshes and
one of the two marshes in each of the Associate and Crawford Creek Divisions).
All of our marshes have storage buildings and repair shops for machinery, trucks
and harvest and irrigation equipment. Each also has a house on site or close to
the site which serves as the marsh manager's residence. Many of our marshes also
have residences for assistant marsh managers. We believe that all of our
facilities are suitable and adequate for our existing needs.
-14-
<PAGE>
<TABLE>
<CAPTION>
Marsh Division Name and Location November 24, 1999
- -------------------------------- --------------------------- Calendar Year
Approximate Approximate Acquired
Marsh Acres Planted Acres or Leased
----------- ------------- ---------
<S> <C> <C> <C>
Associates Division (two marshes), Jackson County, Wisconsin..... 4,198 159 1983/1996
Meadow Valley Division, Jackson County, Wisconsin................ 2,150 77 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........................... 473 212 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 (two marshes), Wood County, Wisconsin........... 569 85 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.... 2,025 322 1993
Yellow River (two marshes), Juneau County, Wisconsin............. 1,714 252 1994
Dandy Creek, Monroe County, Wisconsin............................ 350 55 1996
Manitowish Waters (two marshes), Vilas County, Wisconsin......... 345 182 1996
--- ---
Total......................................................... 23,207 2,549
====== =====
</TABLE>
Item 3. Legal Proceedings.
- ------ -----------------
As of the date hereof, we are not a party to any legal proceedings
which, in our opinion, would have a material adverse effect on our results of
operations or financial condition if they were determined unfavorably to us.
Item 4. Submission of Matters to a Vote of Shareholders.
- ------ -----------------------------------------------
We did not submit any matters to a vote of our shareholders during the
fourth quarter of fiscal 1999.
-15-
<PAGE>
Executive Officers
------------------
As of November 24, 1999, each of our executive officers is identified
below together with information about each officer's age, current position with
us and employment history for at least the past five years:
Name Age Current Position
- ---- --- ----------------
John Swendrowski 51 Chairman of the Board and
Chief Executive Officer
Robert E. Hawk 44 Group President - Non-Branded Divisions
Scott R. Corriveau 41 Branded Division President
John A. Pazurek 50 Vice President - Finance, Treasurer and
Chief Financial Officer
David J. Lukas 57 Senior Vice President - Administration,
Secretary and Corporate Counsel
William J. Haddow 51 Vice President - Purchasing and
Logistics
Steven E. Klus 53 Manufacturing Division President
Ricke A. Kress 48 Private Label Division President
John B. Stauner 37 Agricultural Operations Division President
Robert M. Wilson 43 Industrial/Ingredients Division President
John Swendrowski originally founded Northland in 1987 and has served
as our Chief Executive Officer since that time.
Robert E. Hawk was appointed Group President-Non-Branded Divisions in
August 1998. Before that, he served as our Executive Vice President since
October 1996; Vice President - Sales, Marketing and Special Projects since
January 1993; and Vice President - Operations since January 1989.
Scott R. Corriveau became our Branded Division President in December
1998. Before that, Mr. Corriveau held sales and marketing positions with Cadbury
Beverages PLC, based in London, England, since 1989. His positions with Cadbury
Beverages included Vice President, Sales and Customer Marketing of the Dr.
Pepper/7Up Premier Beverages Division since 1997 and Vice President, Customer
Marketing of the Mott's U.S.A. Division since 1995.
John A. Pazurek is a certified public accountant who joined us as
Controller and Principal Accounting Officer in May 1987. In May 1990, he was
promoted to Vice President-Finance and in August 1993 he was promoted to
Treasurer. In October 1996, Mr. Pazurek was also appointed Chief Financial
Officer.
David J. Lukas has been with us since April 1992 when he joined us as
Vice President of Human Resources and Corporate Counsel. In May 1995 he was
promoted to Secretary and in August 1996 to Vice President-Administration. In
September 1998, he was promoted to Senior Vice President-Administration,
Secretary and Corporate Counsel. Before joining us, he practiced law in
Wisconsin Rapids for over 20 years.
Bill Haddow was named Vice President - Purchasing and Logistics in
September 1998. Before that, he served as Vice President-Purchasing,
Transportation and Budget since October 1996; Vice President-Purchasing and
Transportation from May 1993; and Assistant Vice President-Purchasing from 1989.
-16-
<PAGE>
We named Steve Klus our Manufacturing Division President in September
1998. He joined us in April 1996 as the Director of Strategic Product Planning.
He was appointed Vice President-Manufacturing in October 1996. Before that, he
served as President-Eastern Division of Seneca Foods Corporation in New York
from May 1990.
Ricke Kress was appointed Private Label Division President in November
1998. Prior to that time, he held several positions with Seneca Foods
Corporation, including serving as its Senior Vice President - Technical Services
since June 1997, President-Juice Division since October 1995 and Senior Vice
President-Operations since June 1994.
John Stauner became our Agricultural Division President in September
1998. Before that, he was our Vice President-Agricultural Operations since
October 1996; Vice President-Operations from May 1995; and Assistant Vice
President of Operations since we were formed in 1987.
Robert M. Wilson joined us as our Industrial-Ingredients Division
President in April 1999 when we purchased Potomac Foods of Virginia, Inc., a
broker of fruit juices and other fruit products. Before that, he was the
President and owner of Potomac Foods of Virginia, Inc., since 1986.
Our executive officers 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.
-17-
<PAGE>
PART II
-------
Item 5. Market for the Company's Common Equity and Related Shareholder
---------------------------------------------------------------------
Matters.
-------
Sale Price Range of Class A Common Stock (1)
- --------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
- --------------------------------------------------------------------------------
Fiscal Year Ended August 31, 1999
High $15.00 $14.06 $9.56 $9.19
Low $8.75 $7.38 $6.44 $6.56
Fiscal Year Ended August 31, 1998
High $21.25 $16.50 $19.13 $16.13
Low $13.00 $12.63 $12.75 $9.63
- ---------------
1. The range of sale prices listed for each quarter includes intra-day trading
prices as reported on The Nasdaq Stock Market. These quotations represent
inter-dealer prices, without retail mark-up, mark-down, or commissions, and
may not necessarily represent actual transactions.
On November 24, 1999, there were approximately 12,700 beneficial
shareholders for the shares of our Class A Common Stock and two shareholders of
record for the shares of our Class B Common Stock. Shares of our Class A Common
Stock trade on The Nasdaq Stock Market under the symbol CBRYA. No public market
exists for the shares of our Class B Common Stock.
See Item 6 for information on cash dividends paid on our Common Stock.
On November 23, 1999, the last sale price of shares of our Class A Common Stock
was $6.28 per share.
Item 6. Selected Financial Data.
- ------ -----------------------
Pursuant to Instruction G, we have incorporated the information
required by this Item by reference from information under the caption "Selected
Financial Data" and "Notes to Consolidated Financial Statements" in our 1999
Annual Report to Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------ ----------------------------------------------------------------------
Results of Operations.
---------------------
Pursuant to Instruction G, we have incorporated the information
required by this Item by reference from information under the caption
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" in our Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
- ------- ----------------------------------------------------------
Pursuant to Instruction G, we have incorporated the information
required by this Item by reference from information under the caption
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" in our Annual Report.
-18-
<PAGE>
Item 8. Financial Statements and Supplementary Data.
- ------ -------------------------------------------
Pursuant to Instruction G, we have incorporated by reference our
Consolidated Balance Sheets as of August 31, 1999 and 1998, our Consolidated
Statements of Earnings, Cash Flows and Shareholders' Equity for the years ended
August 31, 1999, 1998 and 1997, together with the related Notes to Consolidated
Financial Statements (including supplementary financial data) from information
under the captions having substantially the same titles in the Annual Report. We
have also incorporated certain information required by this Item by reference
from information under the caption "Management's Discussion and Analysis of
Results of Operations and Financial Condition-Quarterly Results" in our Annual
Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------ ----------------------------------------------------------------------
Financial Disclosure.
--------------------
None.
-19-
<PAGE>
PART III
--------
Item 10. Directors and Executive Officers of the Company.
- ------- -----------------------------------------------
Pursuant to Instruction G, we have incorporated the information
required by this Item with respect to directors by reference to the information
set forth under the caption "Election of Directors" in our definitive proxy
statement for our 2000 annual meeting of shareholders filed with the Commission
pursuant to Regulation 14A on November 23, 1999. The information required by
Item 405 of Regulation S-K is also incorporated by reference to the information
set forth under the caption "Other MattersCSection 16(a) Beneficial Ownership
Reporting Compliance" in the Proxy Statement. The required information with
respect to executive officers appears at the end of Part I of this Form 10-K.
Item 11. Executive Compensation.
- ------- ----------------------
Pursuant to Instruction G, we have incorporated the information
required by this Item by reference to the information set forth under the
caption "Executive Compensation" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------- --------------------------------------------------------------
Pursuant to Instruction G, we have incorporated the information
required by this Item by reference to the information set forth under the
caption "Stock Ownership of Management and Others" in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
- ------- ----------------------------------------------
Pursuant to Instruction G, we have incorporated the information
required by this Item by reference to the information set forth under the
caption "Other Matters-Certain Transactions" in the Proxy Statement.
-20-
<PAGE>
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
- ------- ---------------------------------------------------------------
(a)(1) We have incorporated by reference the financial statements of
Northland Cranberries, Inc., consisting of our consolidated balance sheets as of
August 31, 1999 and 1998, consolidated statements of earnings, cash flows and
shareholders' equity for the fiscal years ended August 31, 1999, 1998 and 1997,
notes to consolidated financial statements and independent auditors' report,
from information under the captions having substantially the same titles in our
Annual Report.
(a)(2) Schedule II, Valuation and Qualifying Accounts, is filed
herewith. We have omitted other schedules because they are not required or not
applicable, or the information required to be shown is included in our financial
statements and related notes.
(a)(3) The exhibits we have filed herewith or incorporated by
reference herein are set forth on the attached Exhibit Index.*
(b) We did not file any Current Reports on Form 8-K with the
Securities and Exchange Commission during the fourth quarter of fiscal 1999.
* We will furnish to shareholders the Exhibits to this Form 10-K, including
long-term debt instruments disclosed in Exhibit 4.5, on request and advance
payment of a fee of $0.20 per page, plus mailing expenses. Requests for
copies should be addressed to John A. Pazurek, Chief Financial Officer,
Northland Cranberries, Inc., 800 First Avenue South, P.O. Box 8020,
Wisconsin Rapids, Wisconsin 54495-8020.
-21-
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
NORTHLAND CRANBERRIES, INC.
Date: November 24, 1999 By: /s/ John Swendrowski
--------------------------------
John Swendrowski
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed on November 24, 1999 below by the
following persons on behalf of the Company and in the capacities indicated.
By: /s/ John Swendrowski By: /s/ John C. Seramur
----------------------------------- ----------------------------------
John Swendrowski John C. Seramur
Chairman of the Board, Director
Chief Executive Officer and Director
By: /s/ John A. Pazurek By: /s/ LeRoy J. Miles
----------------------------------- ----------------------------------
John A. Pazurek LeRoy J. Miles
Vice President-Finance, Treasurer, Director
Chief Financial Officer and
Chief Accounting Officer
By: /s/ Jeffrey J. Jones By: /s/ Robert E. Hawk
----------------------------------- ----------------------------------
Jeffrey J. Jones Robert E. Hawk
Director Group President - Non-Branded
Divisions and Director
By: /s/ Patrick F. Brennan By: /s/ Pat Richter
----------------------------------- ----------------------------------
Patrick F. Brennan Pat Richter
Director Director
-22-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of Northland Cranberries, Inc.:
We have audited the consolidated financial statements of Northland Cranberries,
Inc. and subsidiaries as of August 31, 1999 and 1998 and for each of the three
years in the period ended August 31, 1999, and have issued our report thereon
dated October 20, 1999. Such financial statements and report are included in
your 1999 Annual Report to Shareholders and are incorporated herein by
reference. Our audits also included the consolidated financial statement
schedule of Northland Cranberries, Inc. and subsidiaries, listed in Item 14.
This consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
Deloitte & Touche LLP
Milwaukee, Wisconsin
October 20, 1999
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Description Year ended August 31,
- ----------- --------------------
1999 1998 1997
---- ---- ----
Valuation accounts deducted in balance sheet from
assets to which they apply -
Accounts receivable - allowance for losses:
Balances at beginning of period $ - $ - $ -
Additions - Charged to expense 600,000
Deductions - Bad debts written off, net of recoveries
------------------------
Balances at end of period $600,000 $ - $ -
========================
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ---------- -----------
2 Asset Purchase Agreement, dated as of December 2, 1998, by and between
the Company and Seneca Foods Corporation. [Incorporated by reference
to Exhibit 2.0 to the Company's Current Report on Form 8-K.]
3.1 Articles of Incorporation, as amended, dated January 8, 1997.
[Incorporated by reference to Exhibit 3.4 to the Company's Form 10-K
for the fiscal year ended August 31, 1996.]
3.2 By-Laws of the Company, as amended and restated. [Incorporated by
reference to Exhibit 3.3 to the Company's Form 10-K for the fiscal
year ended August 31, 1998.]
4.1 Secured Promissory Note, dated as of June 14, 1989, issued by the
Company to The Equitable Life Assurance Society of the United States.
[Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K
dated July 7, 1989.]
4.2 Mortgage and Security Agreement, dated as of June 14, 1989, from the
Company to The Equitable Life Assurance Society of the United States.
[Incorporated by reference to Exhibit 10.2 to the Company's Form 8-K
dated July 7, 1989.]
4.3 Mortgage and Security Agreement dated July 9, 1993, between the
Company and The Equitable Life Assurance Society of the United States.
[Incorporated by reference to Exhibit 4.8 to the Company's Form 10-Q
dated November 12, 1993.]
4.4 Modification Agreement, dated as of July 9, 1993, between the Company
and The Equitable Life Assurance Society of the United States.
[Incorporated by reference to Exhibit 4.9 to the Company's Form 10-Q
dated November 12, 1993.]
4.5 Credit Agreement, dated as of March 15, 1999, by and among the
Company, various financial institutions Firstar Bank, N.A. (formerly
Firstar Bank Milwaukee, N.A.), as Agent. [Incorporated by reference to
Exhibit 10 to the Company's Form 10-Q for the quarter ended February
28, 1999.]
4.6 Secured Promissory Note, dated July 9, 1993, between the Company and
The Equitable Life Assurance Society of the United States.
[Incorporated by reference to Exhibit 4.23 to the Company's Form 10-K
for the fiscal year ended March 31, 1995.]
E-1
<PAGE>
4.7 Stock Pledge, dated July 9, 1993, between the Company and The
Equitable Life Assurance Society of the United States. [Incorporated
by reference to Exhibit 4.24 to the Company's Form 10-K for the fiscal
year ended March 31, 1995.]
Other than as set forth in Exhibits 4.1 through 4.7, the Company has
numerous instruments which define the rights of holders of long-term
debt. These instruments, primarily security agreements and mortgages,
were entered into in connection with debt financing provided by
Firstar Bank, N.A., and are disclosed in the Credit Agreement filed as
Exhibit 4.5 to this Form 10-K. The Company will furnish a copy of any
of such instruments to the Commission upon request.
*10.1 1987 Stock Option Plan, dated June 2, 1987, as amended. [Incorporated
by reference to Exhibit 10.5 to the Company's Form 10-K for the fiscal
year ended December 31, 1987.]
*10.2 Forms of Stock Option Agreement, as amended, under 1987 Stock Option
Plan. [Incorporated by reference to Exhibit 10.6 to the Company's Form
10-K for the fiscal year ended December 31, 1987.]
*10.3 Form of Modification Agreement, dated as of April 16, 1996, between
the Company and each of John A. Pazurek, John B. Stauner, John
Swendrowski, William J. Haddow and Robert E. Hawk, modifying Stock
Option Agreements previously entered into between the parties.
[Incorporated by reference to Exhibit 10.3 to the Company's Form 10- K
for the fiscal year ended August 31, 1996.]
*10.4 1989 Stock Option Plan, as amended. [Incorporated by reference to
Exhibit 4.4 to the Company's Form S-8 Registration Statement (Reg. No.
33-32525).]
*10.5 Forms of Stock Option Agreements under the 1989 Stock Option Plan, as
amended. [Incorporated by reference to Exhibits 4.5-4.8 to the
Company's Form S-8 Registration Statement (Reg. No. 33-32525).]
*10.6 1995 Stock Option Plan, as amended. [Incorporated by reference to
Exhibit 10.6 to the Company's Form 10-K for the fiscal year ended
August 31, 1997.]
*10.7 Form of Stock Option Agreements under the 1995 Stock Option Plan, as
amended. [Incorporated by reference to Exhibit 10.7 to the Company's
Form 10-K for the fiscal year ended August 31, 1996.]
10.8 Lease Agreement dated September 5, 1991 between The Equitable Life
Assurance Society of the United States and the Company. [Incorporated
by reference to Exhibit 10.13 to the Company's Form 10-K for the
fiscal year ended March 31, 1992.]
10.9 Agreement dated September 5, 1991 between the Company and Cranberry
Hills Partnership. [Incorporated by reference to Exhibit 10.14 to the
Company's Form 10-K for the fiscal year ended March 31, 1992.]
E-II
<PAGE>
10.10 Lease, dated March 31, 1994 between Nantucket Conservation Foundation,
Inc. and the Company. [Incorporated by reference to Exhibit 10.11 to
the Company's Form 10-K for the fiscal year ended March 31, 1994.]
*10.11 Key Executive Employment and Severance Agreement, dated as of May 8,
1992, between the Company and John Swendrowski. [Incorporated by
reference to Exhibit 10.25 to the Company's Form 10-K for the fiscal
year ended March 31, 1992.]
*10.12 Key Executive Employment and Severance Agreement, dated as of December
7, 1998, between the Company and Scott Corriveau.
*10.13 Letter Agreement, dated as of December 7, 1998, by and between the
Company and Scott Corriveau.
*10.14 Employment Agreement, dated as of July 1, 1998, by and between the
Company, Minot Food Packers, Inc. and Michael A. Morello.
[Incorporated by reference to Exhibit 10.2 to the Company's Current
Report on Form 8-K dated July 1, 1998.]
*10.15 Registration Rights Agreement, dated as of July 1, 1998, by and
between the Company and Michael A. Morello. [Incorporated by reference
to Exhibit 10.1 to the Company's Current Report on Form 8-K dated July
1, 1998.]
*10.16 Northland Cranberries, Inc. 1999 Incentive Bonus Plan. [Incorporated
by reference to Exhibit 10.14 to the Company's Form 10-K for the
fiscal year ended August 31, 1998.]
13 Portions of the 1999 Annual Report to Shareholders expressly
incorporated by reference into this Form 10-K.
21 Subsidiaries of the Company.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
99 Definitive Proxy Statement for the Company's 2000 annual meeting of
shareholders scheduled to he held on January 5, 2000 (previously filed
with the Commission under Regulation 14A on November 23, 1999 and
incorporated by reference herein to extent indicated in this Form
10-K).
* This exhibit is a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of
Form 10-K.
E-III
KEY EXECUTIVE EMPLOYMENT AND SEVERANCE AGREEMENT
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THIS AGREEMENT, made and entered into as of the 7th day of December,
1998, by and between NORTHLAND CRANBERRIES, INC., a Wisconsin corporation
("Company"), and SCOTT R. CORRIVEAU ("Executive").
W I T N E S S E T H:
WHEREAS, the Executive is employed by the Company as its President -
Branded Division, and the Executive's services in such capacities are critical
to the continued successful conduct of the business of the Company;
WHEREAS, the Company recognizes that circumstances in which a change in
control of the Company occurs, through acquisition or otherwise, are highly
disruptive and will cause uncertainty about the Executive's future employment
with the Company without regard to the Executive's competence or past
contributions and that such uncertainty may materially adversely affect the
Company;
WHEREAS, the Company and the Executive are desirous that any proposal
for a change in control or acquisition of the Company will be considered by the
Executive objectively, with reference only to the best interests of the Company
and its shareholders and without undue regard for the Executive's personal
interests; and
WHEREAS, the Executive will be in a better position to consider the
Company's and its shareholders' best interests if the Executive is afforded
reasonable security, as provided in this Agreement, against altered conditions
of employment which could result from any such change in control or acquisition.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements hereinafter set forth, the parties hereto mutually
covenant and agree as follows:
1. Definitions.
-----------
(a) Act. For purposes of this Agreement, the term "Act" means the
Securities Exchange Act of 1934, as amended.
(b) Affiliate and Associate. For purposes of this Agreement, the terms
"Affiliate" and "Associate" shall have the respective meanings ascribed to such
terms in Rule 12b-2 of the General Rules and Regulations of the Act.
(c) Beneficial Owner. For purposes of this Agreement, a Person shall be
deemed to be the "Beneficial Owner" of any securities:
(i) which such Person or any of such Person's Affiliate or
Associates has the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding, or upon the exercise of
conversion rights, exchange rights, rights,
<PAGE>
warrants or options, or otherwise; provided, however, that a Person
shall not be deemed the Beneficial Owner of, or to beneficially own
securities tendered pursuant to a tender or exchange offer made by or
on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase.
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose
of or "beneficial ownership" of (as determined pursuant to Rule 13d-3
of the General Rules and Regulations under the Act), including
pursuant to any agreement, arrangement or understanding; provided,
however, that a Person shall not be deemed the Beneficial Owner of, or
to beneficially own, any security under this subparagraph (ii) as a
result of an agreement, arrangement or understanding to vote such
security if the agreement, arrangement or understanding: (A) arises
solely from a revocable proxy or consent given to such Person in
response to a public proxy or consent solicitation made pursuant to,
and in accordance with, the applicable rules and regulations under the
Act and (B) is not also then reportable on a Schedule 130 under the
Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy as described in Subsection 1(c) (ii)
above) or disposing of any voting securities of the Company.
(d) Cause. "Cause" for termination by the Company of the Executive's
employment after a Change of Control of the Company shall, for purposes of this
Agreement, be limited to (i) the engaging by the Executive in intentional
conduct not taken in good faith which has caused demonstrable and serious
financial injury to the Company, as evidenced by a determination in a binding
and final judgment, order or decree of a court or administrative agency of
competent jurisdiction, in effect after exhaustion or lapse of all rights of
appeal, in an action, suit or proceeding, whether civil, criminal,
administrative or investigative; (ii) conviction of a felony (as evidenced by
binding and final judgment, order, or decree of a court of competent
jurisdiction, in effect after exhaustion or lapse of all rights of appeal) which
substantially impairs the Executive's ability to perform his duties or
responsibilities; and (iii) continuing willful and unreasonable refusal by the
Executive to perform the Executive's duties or responsibilities (unless
significantly changed without the Executive's consent).
(e) Change in Control of the Company. For purposes of this Agreement, a
"Change in Control of the Company shall mean a change in control of a nature
that would be required to be reported in response to Item 6(e) of Schedule 14A
of Regulation 14A promulgated under the Act. Without limiting the inclusiveness
of the definition in the preceding sentence, a Change in Control of the Company
shall be deemed to have occurred if:
(i) any Person (other than any employee benefit plan of the
Company or of any subsidiary of the Company or any Person organized,
appointed or established pursuant to the terms of any such benefit
plan) is or becomes the Beneficial Owner of securities of the Company
representing at least 30% of the combined voting
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power of the Company's then outstanding securities or 30% of the
Company's then outstanding Class A Common Stock;
(ii) two or more of the members of the Board are not
Continuing Directors;
(iii) there shall be consummated (x) any consolidation or
merger of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of the Company's
capital stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of
the Company's capital stock immediately prior to the merger have the
same proportionate ownership of capital stock of the surviving
corporation immediately after the merger, or (y) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the
Company; or
(iv) the shareholders' of the Company approve any plan or
proposal for the liquidation or dissolution of the Company.
(f) Continuing Director. For purposes of this Agreement, the term
"Continuing Director" means any member of the Board of Directors of the Company
who was a member of such Board on the date hereof and any successor of a
Continuing Director who is recommended to succeed a Continuing Director by a
majority of the Continuing Directors then on such Board.
(g) Code. For purposes of this Agreement, the term "Code" means the
Internal Revenue Code of 1986, including any amendments thereto or successor tax
codes thereof.
(h) Covered Termination. For purposes of this Agreement, the term
"Covered Termination" means any termination of the Executive's employment where
the Termination Date is any date on or prior to the end of the Employment
Period.
(i) Employment Period. For purposes of this Agreement, the term
"Employment Period" means a period commencing on the date of a Change in Control
of the Company, and ending at 11:59 p.m. Milwaukee time on the third anniversary
of such date.
(j) Good Reason. For purposes of this Agreement, the Executive shall
have a "Good Reason" for termination of employment after a Change in Control of
the Company in the event of:
(i) any breach of this Agreement by the Company, including
specifically any breach by the Company of its agreements contained in
Sections 4, 5 or 6 hereof;
(ii) the removal of the Executive from, or any failure to
reelect the Executive to, any of the positions held with the Company on
the date of the Change in Control of the Company or any other positions
with the Company to which the
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<PAGE>
Executive shall thereafter be elected or assigned, except in the event
that such removal or failure to reelect relates to the termination by
the Company of the Executive's employment for Cause or by reason of
disability pursuant to Section 12 hereof;
(iii) a good faith determination by the Executive that there
has been a significant adverse change, without the Executive's written
consent, in the Executive's working conditions or status with the
Company from such working conditions or status in effect immediately
prior to the Change in Control of the Company, including but not
limited to (A) a significant change in the nature or scope of the
Executive's authority, powers, functions, duties or responsibilities,
or (B) a reduction in the level of support services, staff, secretarial
and other assistance, office space and accoutrements; or
(iv) failure by the Company to obtain the Agreement referred
to in Section 17(a) hereof as provided therein.
(k) Person. For purposes of this Agreement, the term "Person" shall
mean any individual, firm, partnership, corporation or other entity, including
any successor (by merger or otherwise) of such entity, or a group of any of the
foregoing acting in concert.
(l) Termination Date. For purposes of this Agreement, except as
otherwise provided in Section 10(b) and Section 17(a) hereof, the term
"Termination Date" means (i) if the Executive's employment is terminated by the
Executive's death, the date of death; (ii) if the Executive's employment is
terminated by reason of voluntary early retirement, as agreed in writing by the
Company and the Executive, the date of such early retirement which is set forth
in such written agreement; (iii) if the Executive's employment is terminated by
reason of disability pursuant to Section 12 hereof, the earlier of thirty (30)
days after the Notice of Termination is given or one day prior to the end of the
Employment Period; (iv) if the Executive's employment is terminated by the
Executive voluntarily (other than for Good Reason), the date the Notice of
Termination is given; and (v) if the Executive's employment is terminated by the
Company (other than by reason of disability pursuant to Section 12 hereof) or by
the Executive for Good Reason, the earlier of thirty (30) days after the Notice
of Termination is given or one day prior to the end of the Employment Period.
Notwithstanding the foregoing,
(A) If termination is by the Company for Cause pursuant to Section
1(d)(iii) of this Agreement and if the Executive has cured the conduct
constituting such Cause as described by the Company in its Notice of Termination
within such thirty (30) day or shorter period, then the Executive's employment
hereunder shall continue as if the Company had not delivered its Notice of
Termination.
(B) If the Company shall give a Notice of Termination for Cause or by
reason of disability and the Executive in good faith notifies the Company that a
dispute exists concerning the termination within the fifteen (15) day period
following receipt thereof, then the Executive may elect to continue his
employment during such dispute and the Termination Date shall be determined
under this paragraph. If the Executive so elects and it is thereafter determined
that Cause or disability (as the case may be) did exist, the Termination Date
shall be the earlier of (1) the date on which the dispute is finally determined,
either (x) by mutual written agreement of the parties or (y) in accordance with
Section 22 hereof, (2) the date of
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<PAGE>
the Executive's death, or (3) one day prior to the end of the Employment Period.
If the Executive so elects and it is thereafter determined that Cause or
disability (as the case may be) did not exist, then the employment of the
Executive hereunder shall continue after such determination as if the Company
had not delivered its Notice of Termination and there shall be no Termination
Date arising out of such Notice. In either case, this Agreement continues, until
the Termination Date, if any, as if the Company had not delivered the Notice of
Termination except that, if it is finally determined that the Company properly
terminated the Executive for the reason asserted in the Notice of Termination,
the Executive shall in no case be entitled to a Termination Payment (as
hereinafter defined) arising out of events occurring after the Company delivered
its Notice of Termination.
(C) If the Executive shall in good faith give a Notice of Termination
for Good Reason and the Company notifies the Executive that a dispute exists
concerning the termination within the fifteen (15) day period following receipt
thereof, then the Executive may elect to continue his employment during such
dispute and the Termination Date shall be determined under this paragraph. If
the Executive so elects and it is thereafter determined that Good Reason did
exist, the Termination Date shall be the earlier of (1) the date on which the
dispute is finally determined, either (x) by mutual written agreement of the
parties or (y) in accordance with Section 22 hereof, (2) the date of the
Executive's death or (3) one day prior to the end of the Employment Period. If
the Executive so elects and it is thereafter determined that Good Reason did not
exist, then the employment of the Executive hereunder shall continue after such
determination as if the Executive had not delivered the Notice of Termination
asserting Good Reason and there shall be no Termination Date arising out of such
Notice. In either case, this Agreement continues, until the Termination Date, if
any, as if the Executive had not delivered the Notice of Termination except
that, if it is finally determined that Good Reason did exist, the Executive
shall in no case be denied the benefits described in Sections 8(b) and 9 hereof
(including a Termination Payment) based on events occurring after the Executive
delivered his Notice of Termination.
(D) If an opinion is required to be delivered pursuant to Section 9(b)
hereof and such opinion shall not have been delivered, the Termination Date
shall be the earlier of the date on which such opinion is delivered or one day
prior to the end of the Employment Period.
(E) Except as provided in Paragraphs (B) and (C) above, if the party
receiving the Notice of Termination notifies the other party that a dispute
exists concerning the termination within the fifteen (15) day period following
receipt thereof and it is finally determined that the reason asserted in such
Notice of Termination did not exist, then (1) if such Notice was delivered by
the Executive, the Executive will be deemed to have voluntarily terminated his
employment and (2) if delivered by the Company, the Company will be deemed to
have terminated the Executive other than by reason of death, disability or
Cause.
2. Termination or Cancellation Prior to Change in Control. The Company
and the Executive shall each retain the right to terminate the employment of the
Executive at any time prior to a Change in Control of the Company. In the event
the Executive's employment is terminated prior to a Change in Control of the
Company, this Agreement shall be terminated and cancelled and of no further
force and effect and any and all rights and obligations of the parties hereunder
shall cease.
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<PAGE>
3. Employment Period. If a Change in Control of the Company occurs when
the Executive is employed by the Company, the Company will continue thereafter
to employ the Executive during the Employment Period, and the Executive will
remain in the employ of the Company, in accordance with and subject to the terms
and provisions of this Agreement.
4. Duties. During the Employment Period, the Executive shall, in the
same capacities and positions held by the Executive at the time of the Change in
Control of the Company or in such other capacities and positions as may be
agreed to by the Company and the Executive in writing, devote the Executive's
best efforts and all of the Executive's business time, attention and skill to
the business and affairs of the Company, as such business and affairs now exist
and as they may hereafter be conducted. The services which are to be performed
by the Executive hereunder are to be rendered in the same metropolitan area in
which the Executive was employed at the time of such Change in Control of the
Company, or in such other place or places as shall be mutually agreed upon in
writing by the Executive and the Company from time to time. Without the
Executive's consent the Executive shall not be required to be absent from such
metropolitan area more than forty-five (45) days in any twelve (12) month
period.
5. Compensation. During the Employment Period, the Executive shall be
compensated as follows:
(a) The Executive shall receive, at such intervals and in accordance
with such standard policies of the Company as may be in effect immediately prior
to the Change in Control of the Company, an annual base salary in cash
equivalent of not less than the Executive's annual base salary as in effect
immediately prior to the Change in Control of the Company (which base salary
shall, unless otherwise agreed in writing by the Executive, include the current
receipt by the Executive of any amounts which, prior to the Change in Control of
the Company, the Executive had elected to defer, whether such compensation is
deferred under Section 401(k) of the Code or otherwise), subject to adjustment
as hereinafter provided.
(b) The Executive shall, at such intervals and in accordance with such
standard policies as may be in effect immediately prior to the Change in Control
of the Company, be reimbursed for any and all monies advanced in connection with
the Executive's employment for reasonable and necessary expenses incurred by the
Executive on behalf of the Company, including travel expenses.
(c) The Executive shall be included, to the extent eligible thereunder
(which eligibility shall not be conditioned on the Executive's salary grade or
on any other requirement which excludes persons of comparable status to the
Executive unless such exclusion was in effect for such plan or an equivalent
plan immediately prior to the Change in Control of the Company), in any and all
plans providing benefits for the Company's salaried employees in general,
including but not limited to group life insurance, hospitalization, medical
dental, profit sharing and stock bonus plans; provided, that, in no event shall
the aggregate level of benefits under such plans in which the Executive is
included be less than the aggregate level of benefits under plans of the Company
of the type referred to in this Section 5(c) in which the Executive was
participating immediately prior to the Change in Control of the Company.
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(d) The Executive shall annually be entitled to not less than the
amount of paid vacation and not fewer than the number of paid holidays to which
the Executive was entitled annually immediately prior to the Change in Control
of the Company or such greater amount of paid vacation and number of paid
holidays as may be made available annually to other executives of the Company of
comparable status and position to the Executive.
(e) The Executive shall be included in all plans providing additional
benefits to executives of the Company of comparable status and position to the
Executive, including but not limited to deferred compensation, split-dollar life
insurance, supplemental retirement, stock option, stock appreciation, stock
bonus, cash bonus and similar or comparable plans; provided, that, in no event
shall the aggregate level of benefits under such plans be less than the
aggregate level of benefits under plans of the Company of the type referred to
in this Section 5(e) in which the Executive was participating immediately prior
to the Change in Control of the Company.
6. Annual Compensation Adjustments. During the Employment Period, the
Board of Directors of the Company (or an appropriate committee thereof) will
consider and appraise, at least annually, the contributions of the Executive to
the Company's operating efficiency, growth, cash flow from operations and
operating profits, and, in accordance with the Company's practice prior to the
Change in Control of the Company, due consideration shall be given to the upward
adjustment of the Executive's base compensation rate, at least annually,
commensurate with (i) increases generally given to other executives of the
Company of comparable status and position to the Executive, and (ii) as the
scope of the Company's operations or the Executive's duties expand.
7. Termination For Cause or Without Good Reason. If there is a Covered
Termination for Cause or due to the Executive's voluntarily terminating his
employment other than for Good Reason (any such terminations to be subject to
the procedures set forth in Section 13 hereof), then the Executive shall be
entitled to receive only Accrued Benefits pursuant to Section 9(a) hereof.
8. Termination Giving Rise to a Termination Payment. (a) If there is a
Covered Termination by the Executive for Good Reason, or by the Company other
than by reason of (i) death, (ii) disability pursuant to Section 12 hereof, or
(iii) Cause, then the Executive shall be entitled to receive, and the Company
shall promptly pay, Accrued Benefits pursuant to Section 9(a) hereof and, in
lieu of further base salary for periods following the Termination Date, as
liquidated damages and severance pay, the Termination Payment pursuant to
Section 9(b) hereof.
(b) If there is a Covered Termination and the Executive is entitled to
Accrued Benefits and the Termination Payment, then the Executive shall be
entitled to the following additional benefits:
(i) The Executive shall receive, at the expense of the
Company, outplacement services on an individualized basis provided by a
nationally recognized executive placement firm selected by the Company.
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(ii) Until the earlier of third anniversary of the Termination
Date or such time as the Executive has obtained new employment and is
covered by benefits which in the aggregate are at least equal in value
to the following benefits the Executive shall continue to be covered,
at the expense of the Company, by the same or equivalent life
insurance, hospitalization, medical and dental coverage as was required
hereunder with respect to the Executive immediately prior to the date
the Notice of Termination is given.
9. Payments Upon Termination.
(a) Accrued Benefits. For purposes of this Agreement, the Executive's
"Accrued Benefits" shall include the following amounts, payable as described
herein: (i) all base salary for the time period ending with the Termination
Date; (ii) reimbursement for any and all monies advanced in connection with the
Executive's employment for reasonable and necessary expenses incurred by the
Executive on behalf of the Company for the time period ending with the
Termination Date; (iii) any and all other cash earned through the Termination
Date and deferred at the election of the Executive or pursuant to any deferred
compensation plan then in effect; (iv) a lump sum payment of the bonus or
incentive compensation otherwise payable to the Executive with respect to the
year in which termination occurs under all bonus or incentive compensation plan
or plans of the Company in which the Executive is a participant; and (v) all
other payments and benefits to which the Executive may be entitled as
compensatory fringe benefits or under the terms of any benefit plan of the
Company, including severance payments under the Company's severance policies and
practices as in effect immediately prior to the Change in Control of the
Company. Payment of Accrued Benefit shall be made promptly in accordance with
the Company's prevailing practice with respect to Subsections (i) and (ii) or,
with respect to Subsections (iii), (iv) and (v), pursuant to the terms of the
benefit plan or practice establishing such benefits.
(b) Termination Payment. The Termination Payment shall be an amount
equal to the average of the Executive's annual base salary over the five (5)
fiscal years of the Company immediately prior to the Change in Control of the
Company. The Termination Payment shall be paid to the Executive in cash no later
than ten (10) business days after the Termination Date. The Executive shall not
be required to mitigate the amount of the Termination Payment by securing other
employment or otherwise, nor will such Payment be reduced by reason of the
Executive securing other employment or for any other reason.
It is the intention of the Company and the Executive that no portion of
the Termination Payment, Accrued Benefits or any other payment or benefit under
this Agreement, or payments to or for the benefit of the Executive under any
other agreement or plan of the Company, regardless of whether such payment or
benefit was paid or provided for prior to the Covered Termination (herein all
collectively referred to as the "Total Payments"), be deemed to be an "excess
parachute payment" as defined in Section 280G of the Code. It is agreed that the
present value of the Total Payments and any other payments to or for the benefit
of the Executive in the nature of compensation, receipt of which are contingent
on the change of control of the Company and to which Section 280G of the Code or
any successor provision thereto applies (in the aggregate "Total Benefits")
shall not exceed an amount equal to one dollar less than the maximum amount
which the Executive may receive without
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becoming subject to the tax imposed by Section 4999 of the Code or any successor
provision (the "Excise Tax") or which the Company may pay without loss of
deduction under Section 280G(a) of the Code or any successor provision thereto.
Present value for purposes of this Agreement shall be calculated in accordance
with Section 280G(d)(4) of the Code or any successor provision thereto. Within
forty-five (45) days following a Covered Termination or notice by either party
to the other of its belief that there is a payment or benefit due the Executive
which will result in an excess parachute payment, the Executive and the Company,
at the Company's expense, shall obtain the opinion of such legal counsel (the
opinion of legal counsel need not to be unqualified), and certified public
accountants as the Executive may choose, which sets forth (a) the amount of the
Base Period Income of the Executive, (b) the present value of Total Benefits,
and (c) the amount and present value of any excess parachute payments. In the
event that such opinions determine that there would be an excess parachute
payment, the Termination Payment or any other payment determined by such counsel
to be includible in the Total Benefits, shall be reduced or eliminated as
specified by the Executive in writing delivered to the Company within thirty
(30) days of his receipt of such opinions or, if the Executive fails to so
notify the Company, then as the Company shall reasonably determine, so that
under the bases of calculation set forth in such opinions the Total Benefits
paid to the Executive shall be an amount equal to one dollar less than the
maximum amount which the Executive may receive without becoming subject to the
Excise Tax (the "Reduced Amount"). For purposes of this Agreement, the term
"Base Period Income" shall be an amount equal to the Executive's "annualized
includible compensation" from the Company for the "base period" as defined in
Sections 280G(d)(1) and (2) of the Code or any successor provisions thereto. In
the event that the provisions of Sections 280G and 4999 of the Code or any
successor provision are repealed without succession this provision shall be of
no further force or effect.
As a result of the uncertainty in the application of Section 280G of
the Code at the time of the initial determination by legal counsel and
accountants as provided in this provision, it is possible that amounts will have
been paid or distributed by the Company to or for the benefit of the Executive
pursuant to this Agreement which should not have been so paid or distributed
("Over-payment") or that additional amounts which will have not been paid or
distributed by the Company to or for the benefit of the Executive pursuant to
this Agreement could have been so paid or distributed ("Underpayment"), in each
case, consistent with the calculation of the Reduced Amount hereunder. In the
event that such legal counsel, based upon the assertion of a deficiency by the
Internal Revenue Service against the Company or the Executive which such legal
counsel believes has a high probability of success or other controlling
precedent or substantial authority, determines that an Overpayment has been
made, any such Overpayment paid or distributed by the Company to or for the
benefit of the Executive shall be treated for all purposes as a loan to the
Executive which the Executive shall repay to the Company together with interest
at the applicable federal rate provided for in Section 7872(f)(2) of the Code;
provided, however, that no amount shall be payable by the Executive to the
Company if and to the extent such payment would not reduce the amount which is
subject to the excise tax under Section 4999 of the Code. In the event that such
legal counsel, based upon controlling precedent or other substantial authority,
determines that an Underpayment has occurred, any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive together
with interest at the applicable federal rate provided for in Section 7872(f)(2)
of the Code.
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10. Death. (a) Except as provided in Section 10(b) hereof, in the event
of a Covered Termination due to the Executive's death, the Executive's estate,
heirs and beneficiaries shall receive all the Executive's Accrued Benefits
through the Termination Date.
(b) In the event the Executive dies after a Notice of Termination is
given (i) by the Company, other than by reason of disability, or (ii) by the
Executive for Good Reason, the Executive's estate, heirs and beneficiaries shall
be entitled to the benefits described in Section 10(a) hereof and, subject to
the provisions of this Agreement, to such Termination Payment as the Executive
would have been entitled to had the Executive lived. For purposes of this
Subsection 10(b), the Termination Date shall be the earlier of thirty (30) days
following the giving of the Notice of Termination or one day prior to the end of
the Employment Period, subject to delay pursuant to Section 1(1) hereof.
11. Retirement. If, during the Employment Period, the Executive and the
Company shall execute an agreement providing for the early retirement of the
Executive from the Company, or the Executive shall otherwise give notice that he
is voluntarily choosing to retire early from the Company, the Executive shall
receive Accrued Benefits through the Termination Date; provided, that if the
Executive's employment is terminated by the Executive for Good Reason or by the
Company other than by reason of death, disability or Cause and the Executive
also, in connection with such termination, elects voluntary early retirement,
the Executive shall also be entitled to receive a Termination Payment pursuant
to Section 9(b) hereof.
12. Termination for Disability. If, during the Employment Period, as a
result of the Executive's disability due to physical or mental illness or injury
(regardless of whether such illness or injury is job-related), the Executive
shall have been absent from the Executive's duties hereunder on a full-time
basis for six (6) consecutive months and, within thirty (30) days after the
Company notifies the Executive in writing that it intends to terminate the
Executive's employment (which notice shall not constitute the Notice of
Termination contemplated below), the Executive shall not have returned to the
performance of the Executive's duties hereunder on a full-time basis, the
Company may terminate the Executive's employment pursuant to a Notice of
Termination given in accordance with Section 13 hereof. In the event the
Executive's employment is terminated on account of the Executive's disability in
accordance with this Section, the Executive shall receive Accrued Benefits in
accordance with Section 9(a) hereof and shall remain eligible for all benefits
provided by any long term disability programs of the Company in effect at the
time of such termination.
13. Termination Notice and Procedure. Any Covered Termination by the
Company or the Executive shall be communicated by written Notice of Termination
to the Executive, if such Notice is given by the Company, and to the Company, if
such Notice is given by the Executive, all in accordance with the following
procedures and those set forth in Section 23 hereof:
(a) If such termination is for disability, Cause or Good Reason, the
Notice of Termination shall indicate in reasonable detail the facts and
circumstances alleged to provide a basis for such termination.
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(b) Any Notice of Termination by the Company shall have been approved,
prior to the giving thereof to the Executive, by a resolution duly adopted by a
majority of the directors of the Company (or any successor corporation) then in
office.
(c) The Executive shall have thirty (30) days, or such longer period as
the Company may determine to be appropriate, to cure any conduct or act, if
curable, alleged to provide grounds for termination of the Executive's
employment for Cause under this Agreement.
(d) The recipient of the Notice of Termination shall personally deliver
or mail in accordance with Section 23 hereof written notice of any dispute
relating to such Notice of Termination to the party giving such Notice within
fifteen (15) days after receipt thereof. After the expiration of such fifteen
(15) days, the contents of the Notice of Termination shall become final and not
subject to dispute.
14. Confidentiality Obligations of the Executive; Noncompetition.
(a) During and following the Executive's employment by the Company, the
Executive shall hold in confidence and not directly or indirectly disclose or
use or copy or make lists of any confidential information or proprietary data of
the Company, except to the extent authorized in writing by the Board of
Directors of the Company or required by any court or administrative agency,
other than to an employee of the Company or a person to whom disclosure is
reasonably necessary or appropriate in connection with the performance by the
Executive of duties as an executive of the Company. Confidential information
shall not include any information known generally to the public or any
information of a type not otherwise considered confidential by persons engaged
in the same business or a business similar to that of the Company. All records,
files, documents and materials, or copies thereof, relating to the business of
the Company which the Executive shall prepare, or use, or come into contact
with, shall be and remain the sole property of the Company and shall be promptly
returned to the Company upon termination of employment with the Company.
(b) The Executive agrees that, in the event of a Covered Termination in
which the Executive has or will receive a Termination Payment, for a period of
one year after the Termination Date or until the end of the Employment Period,
whichever is shorter, the Employee shall not, within the State of Wisconsin or
the Commonwealth of Massachusetts, except as permitted by the Company's prior
written consent (which shall not be reasonably withheld), participate in the
management of any business which is a direct and substantial competitor of the
Company. The ownership of less than five percent of any class of securities of
any corporation listed on a national securities exchange or regularly traded
over the counter even though such corporation may be a competitor of the Company
as specified above, shall not be deemed as constituting a financial interest in
such competitor.
15. Expenses and Interest. If, after a Change in Control of the
Company, a good faith dispute arises with respect to the enforcement of the
Executive's rights under this Agreement or if any legal or arbitration
proceeding shall be brought in good faith to enforce or interpret any provision
contained herein, or to recover damages for breach hereof, the Executive shall
recover from the Company any reasonable attorneys' fees and necessary costs and
disbursements incurred as a result of such dispute, legal or arbitration
proceeding
-11-
<PAGE>
("Expenses"), and prejudgment interest on any money judgment or arbitration
award obtained by the Executive calculated at the rate of interest announced by
Firstar Bank Milwaukee, from time to time as its prime or base lending rate from
the date that payments to him should have been made under this Agreement. Within
ten (10) days after the Executive's written request therefor, the Company shall
pay to the Executive, or such other person or entity as the Executive may
designate in writing to the Company, the Executive's reasonable Expenses in
advance of the final disposition or conclusion of any such dispute, legal or
arbitration proceeding.
16. Payment Obligations Absolute. The Company's obligation during and
after the Employment Period to pay the Executive the amounts and to make the
benefit and other arrangements provided herein shall be absolute and
unconditional and shall not be affected by any circumstances, including, without
limitations, any setoff, counterclaim, recoupment, defense or other right which
the Company may have against him or anyone else. Except as provided in Section
15 of this Agreement, all amounts payable by the Company hereunder shall be paid
without notice or demand. Except as provided in Subsection 9(b) of this
Agreement, each and every payment made hereunder by the Company shall be final,
and the Company will not seek to recover all or any part of such payment from
the Executive, or from whomsoever may be entitled thereto, for any reason
whatsoever.
17. Successors. (a) If the Company sells, assigns or transfers all or
substantially all of its business and assets to any Person, or if the Company
merges into or consolidates or otherwise combines with any Person, then the
Company shall assign all of its right, title and interest in this Agreement as
of the date of such event to such Person, and the Company shall cause such
Person, by written agreement in form and substance reasonably satisfactory to
the Executive, to expressly assume and agree to perform from and after the date
of such assignment all of the terms, conditions and provisions imposed by this
Agreement upon the Company. Failure of the Company to obtain such agreement
shall be a breach of this Agreement constituting "Good Reason" hereunder, except
that for purposes of implementing the foregoing, the date upon which such
transfer or other succession becomes effective shall be deemed the Termination
Date. In case of such assignment by the Company and of assumption and agreement
by such Person, as used in this Agreement, "Company" shall thereafter mean such
Person which executes and delivers the agreement provided for in this Section 17
or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law, and this Agreement shall inure to the benefit of
and be enforceable by such Person. The Executive shall, in his discretion, be
entitled to proceed against any or all of such Persons, any Person which
theretofore was such a successor to the Company (as defined in the first
paragraph of this Agreement) and the Company (as so defined) in any action to
enforce any rights of the Executive hereunder. Except as provided in this
Subsection, this Agreement shall not be assignable by the Company. This
Agreement shall not be terminated by the voluntary or involuntary dissolution of
the Company.
(b) This Agreement and all rights of the Executive shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, heirs and beneficiaries. All amounts
payable to the Executive under Sections 7, 8, 9, 10, 11 and 12 hereof if the
Executive had lived shall be paid, in the event of the Executive's death, to the
Executive's estate, heirs and representatives.
-12-
<PAGE>
18. Severability. The provisions of this Agreement shall be regarded as
divisible, and if any said provisions or any part hereof are declared invalid or
unenforceable by a court of competent jurisdiction, the validity and
enforceability of the remainder of such provisions or parts hereof and the
applicability thereof shall not be affected thereby.
19. Amendment. This Agreement may not be amended or modified at any
time except by written instrument executed by the Company and the Executive.
20. Withholding. The Company shall be entitled to withhold from amounts
to be paid to the Executive hereunder any federal, state or local withholding or
other taxes or charges which it is from time to time required to withhold;
provided, that the amount so withheld shall not exceed the minimum amount
required to be withheld by law. The Company shall be entitled to rely on an
opinion of nationally recognized tax counsel if any question as to the amount or
requirement of any such withholding shall arise.
21. Certain Rules of Construction. No party shall be considered as
being responsible for the drafting of this Agreement for the purpose of applying
any rule construing ambiguities against the drafter or otherwise. No draft of
this Agreement shall be taken into account in construing this Agreement. Any
provision of this Agreement which requires an agreement in writing shall be
deemed to require that the writing in question be signed by the Executive and an
authorized representative of the Company.
22. Governing Law; Resolution of Disputes. This Agreement and the
rights and obligations hereunder shall be governed by and construed in
accordance with the laws of the State of Wisconsin. Any dispute arising out of
his Agreement shall, at the Executive's election, be determined by arbitration
under the rules of the American Arbitration Association then in effect or by
litigation. Whether the dispute is to be settled by arbitration or litigation,
the venue for the arbitration or litigation shall be Wisconsin Rapids, Wisconsin
or, at the Executive's election, if the Executive is no longer residing or
working in the Wisconsin Rapids, Wisconsin metropolitan area, in the judicial
district encompassing the city in which the Executive resides. The parties
consent to personal jurisdiction in each trial court in the selected venue
having subject matter jurisdiction notwithstanding their residence or situs, and
each party irrevocably consents to service of process in the manner provided
hereunder for the giving of notices.
23. Notice. Notices given pursuant to this Agreement shall be in
writing and, except as otherwise provided by Section 13(d) hereof, shall be
deemed given when actually received by the Executive or actually received by the
Company's Secretary or any officer of the Company other than the Executive. If
mailed, such notices shall be mailed by United States registered or certified
mail, return receipt requested, addressee only, postage prepaid, if to the
Company, to Northland Cranberries, Inc., Attention: Secretary, 800 First Avenue
South, P.O. Box 8020, Wisconsin Rapids, Wisconsin 54495-8020, or if to the
Executive, at the address set forth below the Executive's signature to this
Agreement, or to such other address as the party to be notified shall have
theretofore given to the other party in writing.
24. No Waiver. No waiver by either party at any time of any breach by
the other party of, or compliance with, any condition or provision of this
Agreement to be
-13-
<PAGE>
performed by the other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same time or any prior or subsequent time.
25. Headings. The headings herein contained are for reference only and
shall not affect the meaning or interpretation of any provision of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
NORTHLAND CRANBERRIES, INC.
By /s/ John Swendrowski
----------------------------------
John Swendrowski
Chairman of the Board
and Chief Executive Officer
EXECUTIVE
/s/ Scott R. Corriveau
------------------------------------
Scott R. Corriveau
[NORTHLAND CRANBERRIES, INC. LETTERHEAD]
JOHN SWENDROWSKI
CHAIRMAN & CEO
December 7, 1998
Mr. Scott R. Corriveau
617 Fallen Branch Drive
McKinney, Texas 75070
Dear Scott:
This letter will confirm your employment at-will as President-Branded
Division of Northland Cranberries, Inc. (the "Company") effective as of today.
Your salary will be $200,000 per year subject to upward adjustment. You will be
entitled to participate in benefit plans applicable to similarly-situated
executive officers of the Company prior to your resignation or termination. In
the event your employment is terminated by the Company without "just cause," as
defined below, you will be entitled to a lump sum payment in cash from the
Company within 5 days of the effective date of such termination equal to your
annual salary at the time of such termination divided by two (but in no event
less than $100,000). Additionally, you agree that if you are terminated or
resign, you will not engage in business activities which compete with the
Company for a period of six months from the date of your termination or
resignation.
For purposes of this letter, "just cause" shall include (i) your
engaging in conduct which has (a) caused financial injury to the Company, (b)
caused injury to the Company's reputation, or (c) violated Company policy with
regard to discrimination or harassment; (ii) your conviction of a felony; and
(iii) your continuing willful and unreasonable refusal to perform your duties or
responsibilities as specified by the Board of Directors or me.
Sincerely,
/s/ John Swendrowski
------------------------------------
John Swendrowski
Chairman and CEO
Agreed to and Accepted this 7th day of December, 1998
/s/ Scott R. Corriveau
- --------------------------------
Scott R. Corriveau
Selected Financial Data
<TABLE>
<CAPTION>
(In thousands, except per share data)
----------------------------------------------------------------------------------------
Five Months Year Ended
Year Ended August 31 Ended March 31(1)
August 31,
Statement of Operations Data: 1999 1998 1997 1996 1995(1) 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 236,841 $ 112,828 $ 47,375 $ 37,608 $ 891 $ 21,784
Cost of sales 152,481 62,475 23,171 16,517 1,401 13,057
- -----------------------------------------------------------------------------------------------------------------------------------
Gross profit (loss) 84,360 50,353 24,204 21,091 (510) 8,727
Costs and expenses:
Selling, general and administrative 66,597 38,752 15,963 7,020 1,908 2,440
Interest 8,565 6,826 4,493 2,657 1,919 3,654
- -----------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 75,162 45,578 20,456 9,677 3,827 6,094
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 9,198 4,775 3,748 11,414 (4,337) 2,633
Income taxes 3,618 1,920 1,516 4,509 (1,689) 1,051
Change in accounting method -- -- -- -- 1,249 --
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 5,580 $ 2,855 $ 2,232 $ 6,905 $ (1,399) $ 1,582
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average shares
outstanding(2) - diluted 20,207 15,266 14,309 13,928 9,394 8,891
Per share data:(2)
Net income (loss) - diluted $ 0.28 $ 0.19 $ 0.16 $ 0.50 $ (0.15) $ 0.18
Cash dividends:(2)
Class A common $ 0.16 $ 0.16 $ 0.16 $ 0.145 $ 0.06 $ 0.14
Class B common $ 0.145 $ 0.145 $ 0.145 $ 0.132 $ 0.055 $ 0.127
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
August 31 March 31(1)
----------------------------------------------------------------------------------------
Balance Sheet Data: 1999 1998 1997 1996 1995 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current assets $ 141,484 $ 71,298 $ 39,691 $ 18,617 $ 11,740 $ 6,746
Current liabilities 30,916 21,811 11,545 12,067 10,583 10,169
Total assets 354,921 250,872 180,932 145,485 121,745 107,745
Long-term debt 147,797 64,276 83,131 56,978 45,538 55,793
Shareholders' equity 160,553 153,870 76,811 69,059 59,113 34,627
- -----------------------------------------------------------------------------------------------------------------------------------
(1) We changed our fiscal year end from March 31 to August 31, beginning after a five-month interim transitional period
ending on August 31, 1995.
(2) All share and per share data has been adjusted for our September 3, 1996 two-for-one stock split.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Results of Operations and Financial Condition
- -------------------------------------------------------------------------------
Results of Operations
General
We started our vertical integration strategy in 1993 by selling our
Northland brand fresh cranberries to supermarkets. In fiscal 1996, we started
manufacturing our own Northland brand 100% juice cranberry blends and introduced
them into distribution in selected Midwestern markets. By the end of fiscal
1997, we had achieved national supermarket distribution for our 100% juice
cranberry blends product line. We entered into the private label cranberry and
fruit juice market in fiscal 1998 when we acquired Minot Food Packers, Inc., a
producer, marketer and distributor of private label cranberry products,
including cranberry sauce, as well as a wide variety of non-cranberry private
label products. In fiscal 1999, we acquired the juice division of Seneca Foods
Corporation, including the right to produce and sell Seneca brand products,
Seneca's TreeSweet and Awake brand names, as well as additional processing,
distribution and receiving facilities. The Seneca acquisition gave us a presence
in the shelf-stable apple and grape juice segments and the retail frozen juice
concentrate category, and also improved our bottling and distribution network,
furthering our ability to perform co-packing operations for other bottled
beverage producers. Our vertical integration strategy, combined with the Minot
and Seneca acquisitions, changed us from being strictly a cranberry grower who
basically sold all of our harvested raw cranberries once every year, into a
grower, processor and marketer of a broad variety of cranberry juice products,
other cranberry products and non-cranberry juices and drinks.
Sales of our Northland 100% juice cranberry blends continued to
increase in fiscal 1999. We think this was mostly the result of our marketing
and promotional campaign and our increased shelf presence in more supermarkets
nationwide. By the end of fiscal 1999, our Northland 100% juice cranberry blends
were on the shelves of approximately 90% of supermarkets nationwide. The
majority of our revenues during fiscal 1999 were generated from sales of our
branded products, particularly sales of products we acquired through the Seneca
acquisition, as well as expanded private label sales and co-packing revenue as a
result of a full year of operation of our Minot business.
As is customary in our industry, we have spent and expect to continue
to spend substantial amounts on marketing and promotion in order to make our
products available in more supermarkets, increase our market share and build
brand name recognition for our Northland brand 100% juice cranberry blends and
Seneca brand products. In fiscal 1999 and 1998, these expenses totaled
approximately $46.3 million and $26.7 million, respectively. We expect to spend
more in fiscal 2000 on marketing and promotion than in fiscal 1999. We believe
in taking a long-term aggressive approach to building brand name equity for our
Northland and Seneca brand products. This means that we may decide to spend even
more money this coming year than currently anticipated to build our brand name
awareness and add qualified personnel to grow our company if we believe such
increased spending levels will ultimately benefit our product sales and
profitability. These increased levels of spending will likely adversely affect,
and may result in substantial volatility for, our quarterly earnings. For these
reasons, the predictability of our quarterly earnings in fiscal 2000 will be
difficult, and
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Results of Operations and Financial Condition
- -------------------------------------------------------------------------------
comparisons with prior comparative quarters, may not be meaningful. See
"Quarterly Results."
Year 2000
With the exception of our accounting and distribution/order tracking
functions, our operations are not heavily dependent on internal computer
software or embedded systems. Our internal accounting and distribution hardware
and software system was replaced in fiscal 1997 at a cost of approximately
$350,000. That system has been fully tested at all of our facilities, including
our Minot and Seneca facilities, and we believe it to be Year 2000 compliant in
all material respects. In total, including testing and implementation of our
system at the Minot and Seneca facilities, we spent approximately $250,000 on
ensuring Year 2000 compliance.
We do not rely heavily on third party vendors whose potential Year 2000
noncompliance would have a material adverse effect on our results of operations.
As a result, we are not conducting compliance audits of third party vendors for
Year 2000 readiness. While we currently use co-packers to perform some of our
bottling operations, we believe the potential failure of our co-packers to be
Year 2000 compliant would not be material to our operations because we perform
the majority of those operations at our own facilities and because of
availability of other vendors who can perform similar functions. We also rely on
third party vendors to supply us with bottles, caps and cartons. Failure of
these vendors to be Year 2000 compliant could result in temporary decreases in
inventory until new vendors are located. However, we do not believe this would
have a material adverse effect on our results of operations.
Market Risk
We do not enter into any material futures, forwards, swaps, options or
other derivative financial instruments for trading or other purposes. Our
primary exposure to market risk is related to changes in interest rates and the
effects those changes may have on our earnings as a result of our long-term
financing arrangements. We manage our exposure to this market risk by monitoring
interest rates and possible alternative means of financing. Our earnings are
affected by changes in short-term interest rates under our revolving credit
agreement, pursuant to which our borrowings bear interest at a variable rate.
Based upon our debt outstanding under our revolving credit agreement as of
August 31, 1999, an increase of 1.0% in market interest rates would increase
interest expense and decrease earnings before income taxes by approximately $1.3
million. This analysis does not take into account any actions we might take in
an effort to mitigate our exposure in the event interest rates were to change
materially. See Note 6 of Notes to Consolidated Financial Statements. The fair
market value of long-term fixed interest rate debt may also be subject to
interest rate risk. Generally, the fair market value of fixed interest rate debt
will increase as interest rates fall and decrease as interest rates rise. Based
upon the respective rates and prepayment provisions of our fixed interest rate
debt, which approximated $22.9 million at August 31, 1999, the carrying amounts
of such debt approximates their fair value.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Results of Operations and Financial Condition
- -------------------------------------------------------------------------------
Fiscal 1999 Compared to Fiscal 1998
Revenues. Our total revenues for fiscal 1999 increased 110% to $236.8
million from $112.8 million during fiscal 1998. Our increased fiscal 1999
revenues were primarily due to sales of additional branded products acquired
through our Seneca acquisition and a full year of sales of private label
products acquired through our Minot acquisition, as well as increased co-packing
revenue, increased sales of our Northland brand 100% juice products, and initial
sales of our products through the foodservice distribution channels. Industry
data for the 12-week period ended September 12, 1999 indicated that our
Northland juice products were available in approximately 93% of the nation's
30,000 supermarkets and held a 12.8% national market share of supermarket
bottled shelf-stable cranberry beverage dollar sales, up from 11.9% for the
12-week period ended September 13, 1998. In response to trade promotion and
marketing support, our market share reached as high as 14.4% for the 12-week
period ended July 18, 1999. We believe our increased branded juice sales and
increased market share over the last year were primarily due to our aggressive
branded product marketing campaign. During fiscal 1999, sales of concentrate and
bulk frozen fruit decreased primarily due to our increased use of raw
cranberries to support the production of our branded and non-branded juice
products as well as continued intense price competition resulting from the
recent industry-wide record cranberry harvests. We expect this shift in use of
raw cranberries toward production of our branded and non-branded products, as
well as the intense price competition in the concentrate and frozen fruit
markets, to continue in fiscal 2000.
Cost of Sales. Our cost of sales for fiscal 1999 was $152.5 million
compared to $62.5 million in fiscal 1998, with gross margins of 35.6% and 44.6%,
respectively. The decrease in our gross margin for fiscal 1999 was primarily due
to increased private label and co-packing product mix during fiscal 1999. Our
1998 revenues were more heavily weighted toward higher margin sales of our
branded products.
Selling, General and Administrative. Our selling, general and
administrative expenses were $66.6 million, or 28.1% of total revenues for
fiscal 1998, compared to $38.8 million, or 34.3% of total revenues, during the
prior fiscal year. The increase in our selling, general and administrative
expenses was primarily attributable to our ongoing aggressive marketing campaign
to support the development and growth of our Northland brand 100% juice products
and our Seneca brand products. It also included expenses associated with our
launch of a new Seneca line that includes four additional flavors and new
packaging. Additionally, we incurred expenses in fiscal 1999 associated with the
integration of the systems and operations of Minot and Seneca into our own, as
well as increased expenses associated with the addition of personnel and
organizational changes necessary to manage our larger and more diversified
operations resulting from those acquisitions. Fiscal 1999 advertising, promotion
and slotting expenses in support of our branded products totaled $46.3 million.
We plan to continue to aggressively market our branded juice products in fiscal
2000. We also expect our selling, general and administrative expenses to
increase in fiscal 2000 as we continue to expand sales into alternative channels
including mass merchandisers, club stores and convenience stores. However, our
selling, general and administrative expenses as a percentage of revenues should
be similar in fiscal 2000 to fiscal 1999.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Results of Operations and Financial Condition
- -------------------------------------------------------------------------------
Interest Expense. Interest expense was $8.6 million for fiscal 1999
compared to $6.8 million during fiscal 1998. The increase in our interest
expense was due to increased debt levels during most of the year, which resulted
from funding our Seneca and Minot acquisitions, as well as our March 1999
acquisition of certain assets formerly owned by Clermont, Inc. We also utilized
our revolving credit facility to fund increased levels of inventory and accounts
receivable to support our growing consumer cranberry product business, as well
as seasonal operating activities. See "Financial Condition" below.
Income Tax Expense. We recorded $3.6 million in income tax expense in
fiscal 1999 compared to $1.9 million in fiscal 1998. See Note 11 of Notes to
Consolidated Financial Statements.
Net Income. Net income and per share earnings for fiscal 1999 were $5.6
million and $0.28 per diluted share, up from fiscal 1998 net income and per
share earnings of $2.9 million and $0.19 per diluted share. Weighted average
shares outstanding for fiscal 1999 were 20.2 million compared to 15.3 million
for fiscal 1998. Weighted shares increased in fiscal 1999 because of a full year
of additional shares outstanding from our June 1998 public sale of 5.7 million
Class A shares as well as issuances of Class A shares in connection with the
acquisitions of Minot, Clermont, Inc. and Potomac Foods of Virginia, Inc.
Fiscal 1998 compared to Fiscal 1997
Revenues. Our total revenues for fiscal 1998 increased 138% to $112.8
million from $47.4 million during fiscal 1997. Our increased fiscal 1998
revenues were due to substantially increased sales of our Northland brand 100%
juice products. Industry data for the 12-week period ended September 13, 1998
indicated that our Northland juice products were available in approximately 84%
of the nation's 30,000 supermarkets and held an 11.9% national market share of
supermarket bottled shelf-stable cranberry beverage dollar sales, up from 5.8%
for the 12-week period ended September 14, 1997. In response to trade promotion
and marketing support, our market share reached as high as 14.2% for the 12-week
period ended March 29, 1998. We believe our increased branded juice sales and
increased market share over the last year were primarily due to our aggressive
branded product marketing campaign. As anticipated, as a result of the Minot
acquisition, during the last two months of fiscal 1998, our sales of private
label products increased as we were able to continue Minot's historical level of
private label product sales. During fiscal 1998, we continued to experience
intense price competition in our efforts to sell concentrate and bulk frozen
fruit. As a result, sales of these products were substantially below our
initially budgeted expectations.
Cost of Sales. Our cost of sales for fiscal 1998 was $62.5 million
compared to $23.2 million in fiscal 1997, with gross margins of 44.6% and 51.1%,
respectively. The decrease in our gross margin for fiscal 1998 was primarily due
to our heavy branded sales product mix during fiscal 1998. Our 1997 revenues
were more heavily weighted toward higher margin fresh fruit and concentrate
sales at substantially higher pricing levels.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Results of Operations and Financial Condition
- -------------------------------------------------------------------------------
Selling, General and Administrative. Our selling, general and
administrative expenses were $38.8 million, or 34.3%, of total revenues for
fiscal 1998, compared to $16.0 million, or 33.7% of total revenues, during the
prior fiscal year. This increase in our selling, general and administrative
expenses was primarily attributable to our ongoing aggressive marketing campaign
to support the development and growth of our Northland brand 100% juice
products. Fiscal 1998 advertising, promotion and slotting expenses in support of
our branded products totaled $26.7 million.
Interest Expense. Interest expense was $6.8 million for fiscal 1998
compared to $4.5 million during fiscal 1997. The increase in our interest
expense was due to increased debt levels during most of the year, which resulted
from funding increasing levels of inventory and accounts receivable to support
our growing consumer cranberry product business, as well as seasonal operating
activities.
Income Tax Expense. We recorded $1.9 million in income tax expense in
fiscal 1998 compared to $1.5 million in fiscal 1997. See Note 11 of Notes to
Consolidated Financial Statements.
Net Income. Net income and per share earnings for fiscal 1998 were $2.9
million and $0.19 per diluted share, up from fiscal 1997 net income and per
share earnings of $2.2 million and $0.16 per diluted share. Weighted average
shares outstanding for fiscal 1998 were 15.3 million compared to 14.3 million
for fiscal 1997. Weighted shares increased in fiscal 1998 because of our June
1998 public sale of 5.7 million Class A shares.
FINANCIAL CONDITION
Our net cash used in operating activities in fiscal 1999 was $32.7
million compared to $11.1 million in fiscal 1998. The increase in net cash used
in operating activities during fiscal 1999 was primarily the result of increased
working capital needs related to the Seneca and Minot acquisitions. We also
experienced working capital increases to support our growing juice business and
the expansion of our sales into alternative distribution channels. Our accounts
receivable increased $13.0 million, primarily due to increased branded juice
sales resulting from the Seneca acquisition. Our inventories increased $53.3
million primarily due to the additional inventory levels required to support
production of the branded products we acquired through the Seneca acquisition
and additional cranberries harvested in fiscal 1999. Accounts payable increased
$8.6 million in fiscal 1999 primarily due to the increased purchases of raw
materials inventory to support our growing branded product sales.
Our net cash used in investing activities decreased during fiscal 1999
to $41.0 million from $41.9 million during the prior fiscal year. This decrease
was due to less aggregate cash spending for acquisitions in fiscal 1999 ($31.7
million in connection with the acquisitions of Seneca, Clermont and Potomac)
than in fiscal 1998 ($35.2 million in connection with the acquisition of Minot).
Fiscal 1999 property and equipment additions were $8.3 million compared to total
property and equipment additions of $7.9 million in the prior year. We believe
our internally generated cash flow, supplemented by borrowings available under
our
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Results of Operations and Financial Condition
- -------------------------------------------------------------------------------
credit facilities, will be adequate to meet any necessary capital expenditure
and other operating requirements for fiscal 2000.
Our net cash provided by financing activities in fiscal 1999 was $73.8
million compared to $53.4 million during the prior fiscal year. The increase was
the result of our borrowing $91 million under our new $140 million revolving
credit agreement which we entered into in March 1999. Those borrowings were used
to finance our Seneca and Clermont acquisitions as well as increased working
capital related to the acquisitions and the continued growth in our branded
businesses. See Note 6 of Notes to Consolidated Financial Statements. Working
capital was $110.6 million at August 31, 1999 compared to working capital of
$49.5 million at August 31, 1998. Our total debt (including the current portion)
was $150.2 million at August 31, 1999 for a total debt-to-equity ratio of 0.94
to 1 compared to total debt of $68.2 million and a total debt-to-equity ratio of
0.44 to 1 at August 31, 1998. Depending upon our future sales levels and
relative sales mix of our products during fiscal 2000, we expect our working
capital requirements to fluctuate periodically during fiscal 2000. To help
ensure we have adequate liquidity to fund our working capital requirements, we
entered into a new $140 million credit facility in fiscal 1999. This increase in
our credit availability coupled with expected cash to be generated from sales
should allow us to finance our operational needs as we continue to grow our
brand revenue and market share. As of August 31, 1999, the principal amount
outstanding under our revolving credit facility was $124.1 million, with an
additional $15.9 million available under our credit facility with a syndicate of
regional banks. This credit facility extends until February 28, 2002.
Quarterly Results
We completed acquisitions of Seneca and Minot in fiscal 1999 and 1998,
respectively. As a direct result of these acquisitions, we expanded our brand
offerings with the additions of Seneca, TreeSweet, and Awake brands and acquired
bottling and packaging facilities in New Jersey, New York, North Carolina and
Wisconsin. Additionally, during fiscal 1999 and 1998 we continued our heavy
spending on media advertising, trade and consumer promotion to build the
Northland brand. Since the Seneca acquisition, we have significantly increased
spending to expand the presence of the existing Seneca product lines, to launch
a new line of cranberry cocktail products under the Seneca label and to increase
the presence of our branded products in alternative sales channels including
mass merchandisers, club stores and convenience stores. Our levels of
promotional spending during the future quarterly periods may vary based on then
current market and competitive conditions and company-specific factors. These
and other factors will likely cause our quarterly results to continue to
fluctuate in fiscal 2000 and will likely cause comparisons with prior quarters
to be unmeaningful.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Results of Operations and Financial Condition
- -------------------------------------------------------------------------------
The following table contains unaudited selected historical quarterly
information, which includes adjustments, consisting only of normal recurring
adjustments, that we consider necessary for a fair presentation:
<TABLE>
<CAPTION>
Fiscal Quarters Ended
(In thousands, except per share data)
Fiscal 1999 Fiscal 1998
----------------------------------------------------------------------------------------------------
Aug. 31, May 31, Feb. 28, Nov. 30, Aug. 31, May 31, Feb. 28, Nov. 30,
1999 1999 1999 1998 1998 1998 1998 1997
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 76,609 $ 70,895 $ 55,101 $ 34,236 $ 37,684 $ 26,417 $ 30,296 $ 18,431
Income before income taxes 5,856 3,000 130 212 3,707 675 212 181
Net income $ 3,577 $ 1,816 $ 67 $ 210 $ 2,239 $ 399 $ 115 $ 102
Net income per
share-diluted:
Weighted average shares
outstanding 20,430 20,360 19,988 20,152 18,041 14,311 14,288 14,358
Net income per share $ 0.18 $ 0.09 $ 0.00 $ 0.01 $ 0.12 $ 0.03 $ 0.01 $ 0.01
Cash dividends per share:
Per Class A share 0.040 0.040 0.040 0.040 0.040 0.040 0.040 0.040
Per Class B share 0.036 0.036 0.036 0.036 0.036 0.036 0.036 0.036
</TABLE>
Special Note Regarding Forward-Looking Statements
We make certain "forward-looking statements" in this Annual Report,
such as statements about our future plans, goals and other events which have not
yet occurred. We intend that these statements will qualify for the safe harbors
from liability provided by the Private Securities Litigation Reform Act of 1995.
You can generally identify these forward-looking statements because we use words
such as we "believe," "anticipate," "expect" or similar words when we make them.
Whether or not these forward-looking statements will be accurate in the future
will depend on certain risks and factors including risks associated with (i)
development, market share growth and continued consumer acceptance of our
branded juice products; (ii) strategic actions of our competitors in pricing,
marketing and advertising; and (iii) agricultural factors affecting our crop.
You should consider these risks and factors and the impact they may have when
you evaluate our forward-looking statements. We make these statements based only
on our knowledge and expectations on the date of this Annual Report. We will not
necessarily update these statements or other information in this Annual Report
based on future events or circumstances. Please read this entire Annual Report
to better understand our business and the risks associated with our operations.
<PAGE>
Management's Responsibility for Financial Statements
To Our Shareholders:
The Management of Northland Cranberries, Inc. is responsible for
ensuring that the financial statements and other statistical and financial
information in this report about the Company give a fair and accurate financial
picture of the Company in all material respects. In preparing this material, we
make judgments and estimates that conform with generally accepted accounting
principals.
The Company has internal accounting systems of control that are
designed to provide reasonable assurances that our assets are safeguarded and
that transactions are handled as authorized and are accurately recorded in our
books, enabling us to prepare reliable financial statements. Although no
cost-effective internal control system can preclude all errors or
irregularities, we believe Northland's established program provides the
reasonable assurance noted.
An audit committee of Northland's directors, none of whom are Company
employees, meets periodically with and reviews reports of Northland's
independent public accountants, and recommends such action as it deems
appropriate. The audit committee and our independent accountants have
unrestricted access to each other, with or without the presence of operating
management representatives.
/s/ John Swendrowski /s/ John Pazurek
--------------------------- -----------------------
John Swendrowski John Pazurek
Chairman of the Board and Treasurer and
Chief Executive Officer Chief Financial Officer
Wisconsin Rapids, Wisconsin
October 20, 1999
<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 subsidiaries as of August 31, 1999 and 1998, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended August 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Northland Cranberries, Inc.
and subsidiaries as of August 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1999 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
October 20, 1999
<PAGE>
NORTHLAND CRANBERRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1999 and 1998
- --------------------------------------------------------------------------------
ASSETS 1999 1998
Current assets:
Cash and cash equivalents $ 769,126 $ 633,426
Accounts and notes receivable 35,453,371 22,422,072
Inventories 97,059,828 43,810,813
Prepaid expenses 3,869,398 1,941,643
Deferred income taxes 4,332,000 2,489,628
------------- -------------
Total current assets 141,483,723 71,297,582
Property and equipment - net 169,420,178 152,199,477
Tradenames, trademarks and goodwill - net 41,074,130 25,223,568
Other assets 2,943,395 2,151,147
------------- -------------
Total assets $ 354,921,426 $ 250,871,774
============= =============
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
NORTHLAND CRANBERRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1999 and 1998
- -------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
<S> <C> <C>
Current liabilities:
Accounts payable $ 18,636,626 $ 9,994,595
Accrued liabilities 9,925,255 7,924,250
Current portion of long-term debt 2,354,000 3,892,000
------------ ------------
Total current liabilities 30,915,881 21,810,845
Long-term debt 147,797,163 64,275,826
Deferred income taxes 15,655,000 10,915,378
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued - -
Common stock:
Class A, $.01 par value, 19,655,621 and 19,072,984
shares issued and outstanding, respectively 196,556 190,730
Class B, $.01 par value, 636,202 shares issued
and outstanding 6,362 6,362
Additional paid-in capital 148,768,724 144,477,226
Retained earnings 11,581,740 9,195,407
------------ ------------
Total shareholders' equity 160,553,382 153,869,725
------------ ------------
Total liabilities and shareholders' equity $354,921,426 $250,871,774
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NORTHLAND CRANBERRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED AUGUST 31, 1999, 1998 AND 1997
- -------------------------------------------------------------------------------
1999 1998 1997
Revenues $236,841,077 $112,828,336 $47,374,827
Cost of sales 152,481,190 62,474,847 23,170,154
------------ ------------ -----------
Gross profit 84,359,887 50,353,489 24,204,673
Costs and expenses:
Selling, general and administrative 66,597,050 38,752,157 15,963,109
Interest 8,564,480 6,826,525 4,493,104
------------ ------------ -----------
Total costs and expenses 75,161,530 45,578,682 20,456,213
------------ ------------ -----------
Income before income taxes 9,198,357 4,774,807 3,748,460
Income taxes 3,618,000 1,920,000 1,516,000
------------ ------------ -----------
Net income $ 5,580,357 $ 2,854,807 $ 2,232,460
============ ============ ===========
Net income per share:
Basic $ 0.28 $ 0.19 $ 0.16
Diluted $ 0.28 $ 0.19 $ 0.16
Shares used in computing net income
Per share:
Basic 20,005,517 14,813,757 13,736,906
Diluted 20,206,512 15,266,162 14,308,845
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
NORTHLAND CRANBERRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 1999, 1998 AND 1997
- ------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
Operating activities:
<S> <C> <C> <C>
Net income $ 5,580,357 $ 2,854,807 $ 2,232,460
Adjustments to reconcile net income to net
cash used in operating activities: 7,852,570 6,276,163 4,886,220
Depreciation and amortization of property and equipment 1,305,095 414,512 356,584
Amortization of tradenames, trademarks and goodwill 67,061 10,913 (5,059)
Other 2,473,000 1,416,000 1,516,000
Provision for deferred income taxes
Changes in assets and liabilities (net of effects
of business acquisitions):
Receivables, prepaid expenses
and other current assets (14,807,868) (13,749,395) (5,157,839)
Inventories (30,680,548) (12,328,714) (14,039,660)
Accounts payable and accrued liabilities (4,521,337) 4,001,637 (423,990)
------------- ------------- -------------
Net cash used in operating activities (32,731,670) (11,104,077) (10,635,284)
------------- ------------- -------------
Investing activities:
Acquisitions of businesses (31,700,438) (35,203,177) -
Acquisitions of cranberry operations - - (6,765,513)
Property and equipment purchases (8,333,350) (7,945,506) (8,812,293)
Proceeds from disposals of property and equipment 40,778 103,960 108,841
Net (increase) decrease in other assets (962,778) 1,256,997 1,233,133
------------- ------------- -------------
Net cash used in investing activities (40,955,788) (41,917,726) (14,235,832)
------------- ------------- -------------
Financing activities:
Net increase (decrease) in borrowings under
revolving credit facilities 90,950,000 (16,350,000) 29,800,000
Proceeds from issuance of long-term debt - 1,500,000 2,050,000
Payments on long-term debt (14,122,493) (3,759,881) (5,610,388)
Dividends paid (3,194,024) (2,443,088) (2,190,478)
Net proceeds from common stock offering - 74,481,730 -
Exercise of stock options 475,911 169,118 987,650
Other (286,236) (173,318) (201,467)
------------- ------------- -------------
Net cash provided by financing activities 73,823,158 53,424,561 24,835,317
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 135,700 402,758 (35,799)
Cash and cash equivalents, beginning of year 633,426 230,668 266,467
------------- ------------- -------------
Cash and cash equivalents, end of year $ 769,126 $ 633,426 $ 230,668
============= ============= =============
Supplemental cash flow information
Cash paid (refunded) during the year for:
Interest (net of interest capitalized) $ 8,458,891 $ 6,862,888 $ 4,499,870
Income taxes, net $ 669,700 $ (858,466) $ 525,076
Supplemental disclosures of noncash investing
and financing activities (See Note 2.)
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NORTHLAND CRANBERRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1999, 1998 AND 1997
- ----------------------------------------------------------------------------------------------------------------------
Additional
Common Stock Paid-In Retained
Class A Class B Capital Earnings
<S> <C> <C> <C> <C>
Balances, September 1, 1996 $ 127,343 $ 6,362 $ 60,183,370 $ 8,741,706
Common stock issued for acquisitions of
cranberry operations (269,014 shares) 2,690 - 5,166,930 -
Stock options exercised (204,070 shares) 2,041 - 1,544,984 -
Tax benefit from exercise of stock options - - 993,517 -
Cash dividends paid:
$.16 per Class A share - - - (2,097,949)
$.14544 per Class B share - - - (92,529)
Net income - - - 2,232,460
--------- ------- ------------ ------------
Balances, August 31, 1997 132,074 6,362 67,888,801 8,783,688
Net proceeds from common stock
offering (5,715,000 shares) 57,150 - 74,424,580 -
Common stock issued for acquisition of
business (136,986 shares) 1,370 - 1,994,863 -
Stock options exercised (13,628 shares) 136 - 144,899 -
Tax benefit from exercise of stock options - - 24,083 -
Cash dividends paid:
$.16 per Class A share - - - (2,350,559)
$.14544 per Class B share - - - (92,529)
Net income - - - 2,854,807
--------- ------- ------------- ------------
Balances, August 31, 1998 190,730 6,362 144,477,226 9,195,407
Common stock issued for acquisitions of
businesses (457,287 shares) 4,573 - 3,466,857 -
Common stock issued for compensation (4,000 shares) 40 - 58,024 -
Stock options exercised (121,350 shares) 1,213 - 474,698 -
Tax benefit from exercise of stock options - - 291,919 -
Cash dividends paid:
$.16 per Class A share - - - (3,101,495)
$.14544 per Class B share - - - (92,529)
Net income - - - 5,580,357
--------- ------- ------------- ------------
Balances, August 31, 1999 $ 196,556 $ 6,362 $ 148,768,724 $ 11,581,740
========= ======= ============= ============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NORTHLAND CRANBERRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature of Operations - The business of Northland Cranberries, Inc. (the
"Company") consists principally of growing and selling cranberries and cranberry
products. The Company's vertical integration business strategy includes
marketing and selling its Northland, Seneca, TreeSweet, and Awake brands and
private label cranberry products, fresh, frozen, and dried fruit, and cranberry
concentrate domestically through retail supermarkets and other distribution
channels including international.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Cash Equivalents - Cash equivalents include amounts due from banks and
highly liquid debt instruments purchased with maturities of three months or
less.
Concentration of Credit Risk - The Company manufactures and sells to
wholesale food distributors and retailers throughout the United States. The
Company performs certain credit evaluation procedures and generally sells on
open account. Accounts receivable are stated net of allowances for doubtful
accounts of approximately $600,000 as of August 31, 1999.
Inventories - Inventories, which primarily consist of cranberries,
cranberry and other concentrates, juice, packaging supplies and deferred crop
costs, are stated at the lower of cost or market. Cranberries and cranberry
content of inventories are accounted for using the specific indentification
costing method, which approximates the first-in, first-out ("FIFO") costing
method. All other inventory items are accounted for using the FIFO costing
method. Deferred crop costs consist of those costs related to the growing of the
crop which will be harvested in the following fiscal year.
Property and Equipment - Property and equipment are stated at cost,
less depreciation and amortization using the straight-line method over the
estimated useful lives. The costs related to the development of new productive
cranberry beds are capitalized during the development period until commercial
production is achieved (generally the fifth growing season after planting).
Amounts included in construction in progress include construction costs of beds,
dikes and ditches, irrigation systems, and costs associated with vine clippings
planted. In addition, during the development period, certain direct and indirect
operating costs are capitalized in construction in progress. The Company
depreciates buildings, land improvements, cranberry vines, bulkheads and
irrigation equipment over 30-40 years and other depreciable assets over 5-10
years.
Tradenames, Trademarks and Goodwill - Tradenames, trademarks and
goodwill (excess of purchase price over fair value of net assets acquired) are
amortized using the
<PAGE>
straight-line method, principally over a period of 40 years. Accumulated
amortization was approximately $1,643,000 and $338,000 at August 31, 1999 and
1998, respectively. The Company assesses the carrying value of goodwill at each
balance sheet date.
Long-Lived Assets - The Company periodically evaluates the carrying
value of property and equipment and intangible assets (tradenames, trademarks
and goodwill) in accordance with Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the sum of the expected future
undiscounted cash flows is less than the carrying amount of an asset, a loss is
recognized for the difference between the fair value and carrying value of the
asset.
Income Taxes - The Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes" which requires an asset and
liability approach to financial accounting and reporting for income taxes.
Revenue Recognition - The Company recognizes revenue when product is
shipped.
Net Income Per Share - Net income per share is calculated in accordance
with SFAS No. 128, "Earnings Per Share." Basic net income per share is computed
by dividing net income by the weighted average number of common shares
outstanding. Diluted net income per share is computed by dividing net income by
the weighted average number of common shares outstanding increased by the number
of dilutive potential common shares based on the treasury stock method.
Segment Information - The Company operates principally in a single
consumer foods line of business, encompassing the growing and selling of
cranberries and cranberry products.
Comprehensive Income - There is no material difference between
comprehensive income and net income for each of the three years in the period
ended August 31, 1999.
Fair Value of Financial Instruments - The Company believes the carrying
amount of its financial instruments (cash and cash equivalents, accounts
receivable, accounts payable, and long-term debt) is a reasonable estimate of
the fair value of such instruments.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
<PAGE>
Accounting Standard to Be Adopted - In 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." The Company is currently evaluating the impact of this
statement, as amended by SFAS No. 137, on the consolidated financial statements.
This statement is required to be adopted no later than fiscal 2001.
Reclassifications - Certain amounts previously reported have been
reclassified to conform with the current presentation.
2. ACQUISITIONS
On September 27, 1996, the Company acquired the productive cranberry
bog and certain of the associated assets of John E. McFarland & Sons, Inc. for
$7.9 million. The purchase price was paid through the delivery of $4.9 million
cash and 169,014 shares of Class A Common Stock.
On December 30, 1996, the Company acquired the productive cranberry bog
and certain of the associated assets of Vanatta Cranberry Company LLC for $4.4
million. The purchase price was paid through the delivery of $2.2 million in
cash and 100,000 shares of Class A Common Stock.
On July 1, 1998, the Company completed its acquisition of certain net
assets of Minot Food Packers, Inc. ("Minot") for $35.2 million in cash and
136,986 shares of Class A Common Stock. Minot, located in Bridgeton, New Jersey,
produces, markets, sells and distributes a wide variety of private label
cranberry products.
On December 30, 1998, the Company acquired the juice division of Seneca
Foods Corporation ("Seneca") for approximately $28.7 million in cash, and
assumed certain liabilities in connection with the acquisition. The assets
acquired included an exclusive license to market and sell all Seneca brand fruit
beverages, bottling and packaging facilities located in New York, North Carolina
and Wisconsin, a distribution center in Michigan, and a receiving station in New
York. The purchase price is subject to a final working capital adjustment that
has not been finalized.
On March 1, 1999, the Company acquired certain assets of Clermont, Inc.
("Clermont") for $2.6 million in cash, issuance of a $4.4 million note payable
and 367,287 shares of Class A Common Stock. The assets acquired included
cranberries, cranberry and other fruit concentrates, a concentrating facility in
Oregon, and other equipment.
On April 21, 1999, the Company acquired the common stock of Potomac
Foods of Virginia, Inc. ("Potomac") for $0.4 million in cash, $0.4 million of
assumed debt and 90,000 shares of Class A Common Stock. The assets acquired
primarily consisted of the acquisition of certain customer relationships.
The acquisitions were recorded using the purchase method of accounting
and, accordingly, the results of operations of the acquired businesses are
included in the consolidated statements of income from the date of acquisition.
The purchase price of current
<PAGE>
year acquisitions has been allocated to the assets acquired and liabilities
assumed based upon preliminary estimates of fair values. The Company does not
believe that the final purchase price allocation will differ significantly from
the preliminary purchase price allocation.
The unaudited pro forma results of operations, assuming the Seneca and
Minot acquisitions had been consummated as of September 1, 1997, are as follows:
1999 1998
Revenues $272,560,077 $253,340,310
Net income 5,087,357 1,900,674
Net income per share - basic $ 0.25 $ 0.13
Net income per share - diluted $ 0.25 $ 0.12
The unaudited pro forma results are not necessarily indicative of the
actual results of operations that would have occurred had the Seneca and Minot
acquisitions actually been made at the beginning of fiscal 1998. The pro forma
effects of the Clermont and Potomac acquisitions were not significant.
3. INVENTORIES
Inventories at August 31, 1999 and 1998 were as follows:
1999 1998
Raw materials $63,007,239 $18,554,557
Finished goods 20,530,358 13,208,150
Deferred crop costs 13,522,231 12,048,106
----------- -----------
$97,059,828 $43,810,813
=========== ===========
<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment at August 31, 1999 and 1998 were as follows:
1999 1998
Land $ 10,159,972 $7,972,373
Land improvements 18,919,978 17,521,757
Cranberry vines, bulkheads and
irrigation equipment 83,956,687 80,242,337
Buildings and improvements 36,148,280 26,035,047
Equipment and vehicles 54,126,369 41,098,270
Construction in progress 3,759,400 9,124,637
------------ -----------
Property and equipment - at cost 207,070,686 181,994,421
Less accumulated depreciation
and amortization 37,650,508 29,794,944
------------ -----------
Property and equipment - net $169,420,178 $152,199,477
============ ============
The Company capitalized $0.3, $0.7 and $1.4 million of interest for the
years ended August 31, 1999, 1998 and 1997, respectively.
5. ACCRUED LIABILITIES
Accrued liabilities at August 31, 1999 and 1998 were as follows:
1999 1998
Compensation and other employee benefits $2,687,272 $1,196,427
Trade and consumer promotions 1,934,466 1,042,000
Property taxes 667,719 545,876
Interest 401,054 295,465
Commissions 866,726 967,643
Income taxes 472,867 617,532
Other 2,895,151 3,259,807
--------- ---------
Total accrued liabilities $9,925,255 $7,924,250
========== ==========
<PAGE>
6. LONG-TERM DEBT
Long-term debt at August 31, 1999 and 1998 was as follows:
1999 1998
Credit agreements with banks:
Revolving credit facility $124,050,000 $33,100,000
Term credit facilities - 12,046,000
Term loan payable to insurance company with
interest at 8.08% 12,216,179 12,958,962
Term loan payable to insurance company with
interest at 7.86% 8,215,513 8,675,364
Term note with a bank 3,208,334 -
Other obligations 2,461,137 1,387,500
------------ ---------
Total 150,151,163 68,167,826
Less current portion 2,354,000 3,892,000
------------ ---------
Noncurrent portion $147,797,163 $64,275,826
============ ===========
On March 15, 1999, the Company entered into a credit agreement with a
bank that provides for a secured revolving credit facility of $140,000,000. The
revolving credit facility terminates on February 28, 2002. Under the revolving
credit facility the Company, at its option, may borrow at the bank's domestic
rate (prime) or LIBOR plus an applicable rate margin (2%). Amounts currently
outstanding under the agreement bear interest at a weighted average rate of
7.56% at August 31, 1999. The Company must pay a commitment fee of 0.375% of the
unused balance of the credit facility. The amount of unused available borrowings
under the revolving credit facility was $15,950,000 at August 31, 1999. Both the
LIBOR margin and the commitment fee will be adjusted in future periods based on
a debt service ratio, as defined in the agreement.
The 8.08% term loan with an insurance company is payable in semi-annual
installments, including interest, through July 1, 2004.
The 7.86% term loan with an insurance company is payable in semi-annual
installments, including interest, through August 1, 2008. The interest rate will
be adjusted in fiscal year 2003, as determined by the insurance company, but the
adjusted rate will not exceed 2.25% over the then five-year treasury bond yield.
The term note with a bank is payable in monthly installments, including
interest, through March 2002, at which time the remaining principal must be
paid. The interest rate on this term note is 1% per annum less than the prime
rate or LIBOR plus an applicable rate margin (2%) at the option of the Company.
<PAGE>
The other obligations consist of various term loans with financial
institutions with principal and interest due in various amounts through January
2007.
The debt agreements contain various covenants which include
restrictions on dividends and other distributions to shareholders, repurchases
of stock, and require the Company to maintain and meet certain minimum levels of
shareholders' equity (approximately $153.8 million as of August 31, 1999) and
operating ratios, as defined.
The aggregate scheduled future maturities of long-term debt for the
next five fiscal years ending August 31 and thereafter are as follows:
2000 $ 2,354,000
2001 2,513,000
2002 127,808,000
2003 2,736,000
2004 9,292,000
Thereafter 5,448,163
-------------
Total maturities $ 150,151,163
=============
7. SHAREHOLDERS' EQUITY
The Company is authorized to issue 5,000,000 shares of preferred stock
with a par value of $.01.
The authorized common stock of the Company consists of 60,000,000
shares of Class A Common Stock and 4,000,000 shares of Class B Common Stock.
Outstanding Class B shares are convertible into Class A shares on a one-for-one
basis at anytime. The shares of Class A Common Stock are entitled to one vote
per share and the shares of Class B Common Stock are entitled to three votes per
share. Holders of Class A Common Stock are entitled to receive cash dividends
equal to at least 110% of any cash dividends paid on the shares of Class B
Common Stock. However, cash dividends may be paid on Class A Common Stock
without a concurrent cash dividend being paid on the Class B Common Stock. If at
any time the outstanding shares of Class B Common Stock fall below 2% of the
outstanding shares of Class A Common Stock, they will be automatically converted
into Class A Common Stock.
On July 22, 1996, the Company filed a Form S-4 Registration Statement
("shelf registration") with the Securities and Exchange Commission. The
Registration Statement covers up to 1,000,000 shares of Class A Common Stock of
the Company which may be issued from time to time in connection with
acquisitions by the Company of businesses or properties, or interests therein.
In June 1998, the Company issued 5,715,000 shares of Class A Common
Stock through a public offering resulting in net proceeds of approximately $74.5
million.
<PAGE>
At August 31, 1999, 2,441,805 shares of Class A Common Stock were
reserved for issuance under the Company's stock option and 401(k) plans,
conversion of Class B Common Stock to Class A Common Stock and the shelf
registration.
8. STOCK OPTIONS
In 1987, the Company adopted the 1987 Stock Option Plan (the "1987
Plan"), which provides for the issuance of 275,000 shares of Class A Common
Stock options to certain executive officers and key employees. Stock options
granted under the 1987 Plan are exercisable at a price equal to market value on
the date of grant for a period determined by the Board of Directors, not to
exceed 10 years.
In fiscal 1990, the Company adopted the 1989 Stock Option Plan (the
"1989 Plan"), which provides for the issuance of 600,000 shares of Class A
Common Stock options to key employees and non-employee directors of the Company.
Stock options granted under the 1989 Plan are exercisable at a price established
by the Board of Directors which shall not be less than 85% of the market value
on the date of grant for a period determined by the Board of Directors, not to
exceed 10 years.
During 1995, the Company adopted the 1995 Stock Option Plan (the "1995
Plan"), which provides for the issuance of 800,000 shares of Class A Common
Stock to key employees and non-employee directors of the Company. Stock options
granted under the 1995 Plan are exercisable at a price established by the
Compensation and Stock Option Committee, which shall not be less than 100% of
the fair market value on the date of grant for a period determined by the
Compensation and Stock Option Committee, not to exceed 10 years.
<PAGE>
The status of the stock option plans was as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Price Range Shares Exercise Price
<S> <C> <C> <C>
Outstanding at September 1, 1996 $ 2.63 - $17.75 1,069,154 $ 6.70
Granted 12.94 - 18.50 61,500 17.48
Exercised 3.75 - 10.88 (204,070) 4.84
Cancelled 7.25 - 18.50 (10,800) 12.56
--------------------- ---------- -----
Outstanding at August 31, 1997 2.63 - 18.50 915,784 7.77
Granted 9.75 - 19.75 187,000 17.98
Exercised 2.63 - 8.75 (13,628) 4.34
Cancelled 7.25 - 19.75 (5,500) 16.18
--------------------- ---------- -----
Outstanding at August 31, 1998 2.63 - 19.75 1,083,656 9.57
Granted 6.69 - 11.13 104,500 9.83
Exercised 2.63 - 7.25 (121,350) 3.92
Cancelled 7.25 - 19.75 (59,296) 14.65
--------------------- ---------- -----
Outstanding at August 31, 1999 $ 2.63 - $19.75 1,007,510 $ 9.97
===================== ========== =======
Shares exercisable at
August 31, 1999 $ 2.63 - $19.75 860,450 $ 9.27
===================== ========== =======
Available for grant after
August 31, 1999 263,044
==========
</TABLE>
The following table summarizes information about stock options
outstanding at August 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------ ------------------------------
Weighted
Shares Average Weighted Shares Weighted
Outstanding Remaining Average Exercisable Average
Range of at August 31, Contractual Exercise at August 31, Exercise
Exercise Prices 1999 Life-Years Price 1999 Price
<S> <C> <C> <C> <C> <C>
$ 2.63 - $ 6.00 267,400 1.9 $ 4.17 267,400 $ 4.17
6.01 - 10.00 208,624 4.9 8.17 182,964 8.15
10.01 - 19.75 531,486 7.1 13.60 410,086 13.10
- ------------------- --------- --- ------- ------- -------
$ 2.63 - $19.75 1,007,510 5.2 $ 9.97 860,450 $ 9.27
=================== ========= === ======= ======= =======
</TABLE>
The Company has adopted the disclosure-only requirements of SFAS No.
123, "Accounting for Stock-Based Compensation." The Company has elected to
continue to follow the provisions of Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees" and its related interpretations;
accordingly, no compensation cost has been reflected in the financial statements
for its stock option plans. Had compensation cost for the
<PAGE>
Company's stock option plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of SFAS 123,
the Company's net income and net income per share would have been reduced to the
pro forma amounts indicated below:
1999 1998 1997
Net income:
As reported $ 5,580,357 $ 2,854,807 $ 2,232,460
Pro forma 5,376,000 2,343,000 2,124,000
Net income per share - diluted:
As reported $ 0.28 $ 0.19 $ 0.16
Pro forma $ 0.27 $ 0.16 $ 0.15
For the purpose of these disclosures, the fair value of each
option granted was estimated on the date of grant using the Black-Scholes option
pricing model with the following assumptions:
1999 1998 1997
Expected volatility 26.8% 20.4% 34.2%
Risk-free interest rate 5.5% 5.5% 6.2%
Dividend rate during the expected term 2.3778% 1.6410% 0.9300%
Expected life in terms 9.0 9.0 9.0
9. INCOME TAXES
The provision for income taxes for the years ending August 31, 1999,
1998 and 1997 is as follows:
1999 1998 1997
Current provision:
Federal $ 1,145,000 $ 452,000 -
State - 52,000 -
----------- ----------
Total current provision 1,145,000 504,000 -
----------- ----------
Deferred provision:
Federal 1,978,000 1,081,000 $1,274,000
State 495,000 335,000 242,000
----------- ---------- ----------
Total deferred provision 2,473,000 1,416,000 1,516,000
----------- ---------- ----------
Total provision for income taxes $ 3,618,000 $1,920,000 $1,516,000
=========== ========== ===========
<PAGE>
A reconciliation of the Federal statutory income tax rate to the
effective income tax rate for the years ending August 31, 1999, 1998 and 1997 is
as follows:
1999 1998 1997
Statutory income tax rate 34.0% 34.0% 34.0%
State income taxes, net of Federal tax benefit 5.2 5.2 5.2
Other - net 0.1 1.0 1.2
----- ----- -----
Effective income tax rate 39.3% 40.2% 40.4%
==== ==== ====
Temporary differences that give rise to deferred income tax assets and
liabilities as of August 31, 1999 and 1998 consist of the following:
1999 1998
Current deferred income tax assets attributable to:
Inventories $3,234,000 $ 1,312,000
Other 793,000 428,000
Income tax loss carryforwards 305,000 750,000
---------- -----------
Net current deferred income tax assets 4,332,000 2,490,000
---------- -----------
Noncurrent deferred income tax assets
(liabilities) attributable to:
Property and equipment (20,755,000) (15,908,000)
AMT credits and other income tax loss carryforwards 5,324,000 4,704,000
Other (224,000) 288,000
----------- ------------
Net noncurrent deferred income tax liabilities $(15,655,000) $(10,916,000)
============ ============
At August 31, 1999, the Company has net operating loss carryforwards of
approximately $1,040,000 for Federal income tax purposes which expire at various
dates through 2013 and has net operating loss carryforwards for state income tax
purposes of approximately $1,760,000 which expire at various dates through 2019.
10. RELATED PARTY
In November 1997, the Company purchased a 40,000 square foot office
building for $1,150,000 from a company whose majority owner is also the
Company's Chairman of the Board and Chief Executive Officer.
11. LEASE COMMITMENTS
On April 10, 1990, the Company acquired leasehold interests in two
cranberry marshes in Nantucket, Massachusetts. On March 31, 1994, the Company
entered into an agreement which extended the original lease term through
November 30, 2003. The
<PAGE>
unamortized cost of the leasehold interests are being amortized over the
extended lease term on a straight-line basis. Accumulated amortization of the
leasehold interests at August 31, 1999 and 1998 was approximately $1,483,000 and
$1,326,000, respectively. Rental payments are based on 20 percent of gross cash
receipts from agricultural production, subject to certain minimums which are
dependent upon the state-wide average crop yield. Rent expense for the years
ended August 31, 1999, 1998 and 1997 was approximately $368,000, $268,000 and
$263,000, respectively.
On September 5, 1991 the Company entered into a net lease with
Equitable Life Assurance Society of the United States ("Equitable") for the
Cranberry Hills cranberry marsh, which Equitable purchased on May 3, 1991 from
Cranberry Hills Partnership ("Cranberry Hills"), a partnership controlled by the
Company's CEO and two former directors. The lease, which expires December 31,
2000, provides for rent payments of $285,000 in year one and increasing to
$381,000 in year nine with a final payment of $215,000 on June 1, 2000. The
future minimum annual payments on such lease aggregate $401,000 through June 1,
2000. The lease grants the Company a right of first refusal to purchase the
leased premises or to renew the lease on terms Equitable is prepared to accept
from a bona fide third party.
The agreement also provides for payments to Cranberry Hills of 25% of
the premises income, if any, during the term of the lease with Equitable. The
amount expensed in fiscal 1999, 1998 and 1997 was approximately $95,000, $0 and
$86,000, respectively.
The above does not include any amounts for potential minimum payments
under the Nantucket leasehold interest described above, because such amounts, if
any, are not presently determinable.
12. SUPPLY CONTRACTS
The Company has entered into multiple-year crop purchase contracts with
approximately 55 independent cranberry growers pursuant to which the Company has
contracted to purchase all of the cranberry crop produced on 1,995 planted acres
owned by these growers.
13. 401(k) RETIREMENT PLANS
The Company has a 401(k) savings plan that covers substantially all
full-time employees. The Company contributes amounts based on employee
contributions under this plan. The Company contributed approximately $572,000,
$182,000 and $127,000 to this plan in fiscal 1999, 1998 and 1997, respectively.
The Company also has a 401(k) profit sharing plan that covers
substantially all non-union employees of Minot. In accordance with plan
provisions, the Company may make discretionary contributions. No amounts were
contributed to the plan in fiscal 1999 or 1998.
<PAGE>
14. SIGNIFICANT CUSTOMERS
In fiscal year 1997, the Company had sales to one customer of
approximately $5,797,000, or 12%, of net sales. In fiscal years 1998 and 1999,
the Company did not have sales to any one customer exceeding 10% of net sales.
* * * * * *
Subsidiaries of Northland Cranberries, Inc.
Wildhawk, Inc., a Wisconsin corporation
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-32525, 33-62723 and 333-01557 on Form S-8 and Registration Statement No.
333-08563 on Form S-4 of our reports dated October 20, 1999, appearing in and
incorporated by reference in the Annual Report on Form 10-K of Northland
Cranberries, Inc. for the year ended August 31, 1999.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
November 24, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
FINANCIAL STATEMENTS OF NORTHLAND CRANBERRIES, INC. AS OF AND FOR THE
TWELVE MONTHS ENDED AUGUST 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1999
<PERIOD-END> AUG-31-1999
<CASH> 769,126
<SECURITIES> 0
<RECEIVABLES> 36,053,371
<ALLOWANCES> (600,000)
<INVENTORY> 97,059,828
<CURRENT-ASSETS> 141,483,723
<PP&E> 207,070,686
<DEPRECIATION> (37,650,508)
<TOTAL-ASSETS> 354,921,426
<CURRENT-LIABILITIES> (30,915,881)
<BONDS> (147,797,163)
0
0
<COMMON> (202,918)
<OTHER-SE> (160,350,464)
<TOTAL-LIABILITY-AND-EQUITY> (354,921,426)
<SALES> (236,841,077)
<TOTAL-REVENUES> (236,841,077)
<CGS> 152,481,190
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 480,528
<INTEREST-EXPENSE> 8,564,480
<INCOME-PRETAX> (9,198,357)
<INCOME-TAX> 3,618,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,580,357)
<EPS-BASIC> 0.28
<EPS-DILUTED> 0.28
</TABLE>
