SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2000
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 AND 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to ________
Commission File Number 0-16130
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NORTHLAND CRANBERRIES, INC.
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(Exact name of registrant as specified in its charter)
Wisconsin 39-1583759
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
800 First Avenue South
P.O. Box 8020
Wisconsin Rapids, Wisconsin 54495-8020
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(Address of Principal Executive Offices)
Registrant's telephone number, including area code (715) 424-4444
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ___ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date:
Class A Common Stock January 12, 2000 19,702,221
Class B Common Stock January 12, 2000 636,202
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NORTHLAND CRANBERRIES, INC.
FORM 10-Q INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements........................................... 3
Condensed Consolidated Balance Sheets.......................... 3
Condensed Consolidated Statements of Operations................ 4
Condensed Consolidated Statements of Cash Flows................ 5
Notes to Condensed Consolidated Financial Statements........... 6-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................15-22
Item 3. Quantitative and Qualitative Disclosure About
Market Risk................................................. 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 23
Item 3. Defaults Upon Senior Securities................................ 23
Item 5. Other Information.............................................. 23
Item 6. Exhibits and Reports on Form 8-K............................... 24
SIGNATURE...................................................... 24
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<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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NORTHLAND CRANBERRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
(Unaudited)
November 30, August 31,
2000 2000
----------- ----------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 468 $ 164
Accounts receivable 15,703 20,650
Current portion of note receivable and accounts receivable - other 8,069 7,787
Refundable income taxes 1,081 1,102
Inventories 48,302 48,201
Prepaid expenses 1,145 908
Assets held for sale 6,645 6,645
----------- ----------
Total current assets 81,413 85,457
Note receivable, less current portion 25,500 26,000
Property and equipment - net 151,142 153,119
Intangible assets - net 18,980 19,193
Other assets 466 466
----------- ----------
Total assets $ 277,501 $ 284,235
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 22,628 $ 31,357
Accrued liabilities 20,585 18,489
Current maturities of long-term debt 17,643 12,643
Long-term debt classified as a current liability 159,284 164,459
----------- ----------
Total current liabilities 220,140 226,948
Long-term debt, less current maturities 3,813 3,927
----------- ----------
Total liabilities 223,953 230,875
----------- ----------
Shareholders' equity:
Common stock - Class A, $.01 par value,
19,702,221 shares issued and outstanding 197 197
Common stock - Class B, $.01 par value,
636,202 shares issued and outstanding 6 6
Additional paid-in capital 148,977 148,977
Accumulated deficit (95,632) (95,820)
----------- ----------
Total shareholders' equity 53,548 53,360
----------- ----------
Total liabilities and shareholders' equity $ 277,501 $ 284,235
=========== ==========
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
NORTHLAND CRANBERRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(Unaudited)
<CAPTION>
For the three months
ended November 30,
2000 1999
--------- ----------
<S> <C> <C>
Revenues $ 44,762 $ 74,967
Cost of sales 30,159 51,555
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Gross profit 14,603 23,412
Selling, general and administrative expenses 10,834 19,948
Gain on disposals of property and equipment (410) -
--------- ---------
Income from operations 4,179 3,464
Interest expense 4,685 2,911
Interest income (694) -
--------- ---------
Income before income taxes 188 553
Income taxes - 232
--------- ---------
Net income $ 188 $ 321
========= =========
Net income per share:
Basic $ 0.01 $ 0.02
Diluted $ 0.01 $ 0.02
Shares used in computing net income per share:
Basic 20,338,423 20,304,702
Diluted 20,338,423 20,338,423
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
NORTHLAND CRANBERRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(Unaudited)
<CAPTION>
For the three months
ended November 30,
2000 1999
---- ----
Operating activities:
<S> <C> <C>
Net income $ 188 $ 321
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization of property and equipment 2,115 2,196
Amortization of intangible assets 213 361
Provision for deferred income taxes - 198
Gain on disposals of property and equipment (410) -
Changes in assets and liabilities:
Receivables, prepaid expenses and other current assets 4,699 (3,836)
Inventories (101) (27,783)
Accounts payable and accrued liabilities (6,633) 16,898
--------- ---------
Net cash provided by (used in) operating activities 71 (11,645)
--------- ---------
Investing activities:
Collection on note receivable 250 -
Property and equipment purchases (183) (2,777)
Proceeds from disposals of property and equipment 455 -
Net decrease in other assets - 91
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Net cash provided by (used in) investing activities 522 (2,686)
--------- ---------
Financing activities:
Net increase in borrowings under revolving credit facilities - 15,250
Payments on long-term debt (289) (253)
Dividends paid - (809)
Proceeds from exercise of stock options - 175
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Net cash (used in) provided by financing activities (289) 14,363
--------- ---------
Net increase in cash and cash equivalents 304 32
Cash and cash equivalents, beginning of period 164 769
--------- ---------
Cash and cash equivalents, end of period $ 468 $ 801
========= =========
See notes to condensed consolidated financial statements.
</TABLE>
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NORTHLAND CRANBERRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared by Northland Cranberries, Inc. (collectively with its
subsidiaries, the "Company") pursuant to the rules and regulations of the
Securities and Exchange Commission and reflect normal and recurring
adjustments, which are, in the opinion of the Company, considered necessary
to present fairly the financial position of the Company as of November 30,
2000 and August 31, 2000 and its related results of operations and cash
flows for the three months ended November 30, 2000 and 1999. As permitted
by these regulations, these condensed consolidated financial statements do
not include all information required by accounting principles generally
accepted in the United States of America to be included in an annual set of
financial statements; however, the Company believes that the disclosures
are adequate to make the information presented not misleading. The
Company's condensed consolidated balance sheet as of August 31, 2000 was
derived from the Company's latest audited consolidated financial
statements. It is suggested that the accompanying condensed consolidated
financial statements be read in conjunction with the latest audited
consolidated financial statements and the notes thereto included in the
Company's latest Annual Report on Form 10-K.
Going Concern - The accompanying condensed consolidated financial
statements have been prepared on a going concern basis, which contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of business. Recent production levels of cranberries in the United
States have been in excess of demand and usage which has resulted in an
industry-wide excess of supply of frozen cranberries and cranberry
concentrate. Prices paid to growers for raw cranberries are currently below
production costs for many growers. In July 2000, the United States
Department of Agriculture ("USDA") adopted a federal marketing order which
is designed to reduce the industry-wide cranberry crop from levels of that
of the past three years. The Company currently operates in a marketplace
that has experienced increased levels of competitive price discounting and
selling activities as the industry responds to the excess cranberry supply
levels. In addition, Federal legislation signed on October 27, 2000
provides for an aggregate of approximately $20 million in direct payments
to certain growers with funds from the Commodity Credit Corporation ("CCC")
and approximately $30 million in funding for the USDA to purchase cranberry
products for school lunch and other meal programs. Management expects to
receive approximately $1.1 million in direct payments from the CCC in
fiscal 2001 and is currently evaluating its alternatives with respect to
participating in the USDA cranberry product purchase programs. During the
year ended August 31, 2000, the Company incurred a net loss of
approximately $105 million. As shown in the condensed consolidated
financial statements and for the reasons stated below, as of November 30,
2000, the Company's current liabilities exceeded its current assets by
approximately $138.7 million and the Company was not in compliance with
several provisions of certain long-term debt
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agreements. These factors, among others, raise substantial doubt that the
Company will be able to continue as a going concern.
The condensed consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern.
As described in Note 3, the Company has not made interest payments on the
revolving credit facility since August 31, 2000, and did not make a $5.0
million principal payment due November 30, 2000, and the Company was not in
compliance with several provisions of its revolving credit agreement and
other long-term debt agreements as of and for the three months ended
November 30, 2000 and the year ended August 31, 2000. The Company has
entered into a forbearance agreement with the syndicate of banks providing
the revolving credit facility which provides for deferral of principal and
interest payments on the revolving credit facility until February 12, 2001
as long as the Company is in compliance with the forbearance agreement.
Accordingly, as also described in Note 3, because the lenders have not
waived these covenant defaults, the balance of the revolving credit
facility and long-term debt agreements have been classified as a current
liability. Under the terms of the Company's debt agreements, the lenders
have the ability to call all outstanding principal and interest thereunder
due and payable in the relative short-term. In addition, the Company is not
in compliance with the terms of its grower contracts. The Company's
continuation as a going concern is dependent upon its ability to generate
sufficient cash flow to meet its obligations on a timely basis, to comply
with the terms and covenants of its financing agreements, to obtain
additional financing or refinancing as may be required, and ultimately to
attain successful operations. Management is continuing its efforts to
obtain additional funds through additional equity and debt financing, to
reduce costs and related near-term working capital requirements and to
explore various strategic alternatives related to the sale of all or a
portion of the Company's assets or common stock so the Company can meet its
obligations and sustain its operations. Despite these efforts, management
cannot provide assurance that the Company will be able to obtain additional
financing or that cash flows from operations will be sufficient to allow it
to meet its obligations.
Long-Lived Assets - The Company periodically evaluates the carrying value
of property and equipment and intangible assets 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 using an asset and
liability approach which generally requires the recognition of deferred
income tax assets and liabilities based on the expected future income tax
consequences of events that have previously been recognized in the
Company's financial statements or tax returns. In addition, a valuation
allowance is recognized if it is more likely than not that some or all of
the deferred income tax assets will not be realized. There was no provision
for income taxes for the three months ended November 30,
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2000 as the Company realized a benefit of approximately $64,000 related to
the utilization of certain deferred income tax assets (primarily net
operating loss carryforwards) for which a valuation allowance had been
provided for.
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America 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.
New Accounting Standards - In June 1998, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." In June 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities," SFAS 133 and SFAS 138 establish accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts and hedging activities. The Company
adopted SFAS 133 and SFAS 138 effective September 1, 2000. The Company's
adoption of SFAS 133 and SFAS 138 had no significant effect on the
Company's consolidated financial statements as the Company does not use
derivative financial instruments and is not involved in hedging activities.
In May 2000, the Emerging Issues Task Force ("EITF") issued EITF No. 00-14,
"Accounting for Certain Sales Incentives." The Company is currently
evaluating the impact of this statement on its consolidated financial
statements. This statement is required to be adopted no later than the
fourth quarter of fiscal 2001.
Reclassifications - Certain amounts previously reported have been
reclassified to conform with the current presentation.
2. DISPOSITION OF BUSINESS AND RELATED LEGAL PROCEEDINGS
On March 8, 2000, the Company sold the net assets of its private label
juice business to Cliffstar Corporation ("Cliffstar"), pursuant to an asset
purchase agreement ("Asset Purchase Agreement"), dated January 4, 2000. The
private label juice business assets sold consisted primarily of finished
goods and work-in-process inventories, raw materials inventories consisting
of labels and ingredients that relate to customers of the private label
juice business (other than cranberry juice and cranberry juice
concentrates), certain trademarks and goodwill, contracts relating to the
purchase of raw materials inventory and the sale of products, and 135,000
gallons of cranberry juice concentrate. No plants or equipment were
included in the sale. Cliffstar also assumed certain obligations under
purchased contracts. In connection with the sale, the Company received from
Cliffstar an unsecured, subordinated promissory note for $28 million
(non-cash investing activity) which will be amortized over six years and
which bears interest at a rate of 10% per annum.
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Additionally, Cliffstar is contractually obligated to make certain annual
earn-out payments to the Company for a period of six years from the closing
date based generally on operating profit from Cliffstar's sale of cranberry
juice products. The Company also entered into certain related agreements
with Cliffstar, including among them a co-packing agreement pursuant to
which Cliffstar contracted for specified quantities of Cliffstar juice
products to be packed by the Company during each year of the period in
which Cliffstar is making earn-out payments to the Company.
The private label juice business had revenues of approximately $12.5
million for the three months ended November 30, 1999. The Company
recognized gross profit of approximately $2.3 million on such revenues
during the three months ended November 30, 1999. Information with respect
to selling, general and administrative expenses with respect to the private
label juice business is not available, as the Company's accounting system
does not segregate such expenses by type of product.
On July 7, 2000, Cliffstar filed suit against the Company in the United
States District Court, Western District of New York, alleging, among other
things, that the Company breached certain representations and warranties in
the Asset Purchase Agreement. That lawsuit was subsequently dismissed, and
on July 31, 2000, the Company filed a lawsuit against Cliffstar in the
Northern District of Illinois, which was later amended on October 10, 2000.
The lawsuit arises out of the sale of the net assets of the Company's
private label juice business to Cliffstar in the transaction that closed on
March 8, 2000. The Company claims that (1) Cliffstar breached the Asset
Purchase Agreement by failing to make required payments under the Asset
Purchase Agreement and by failing to negotiate in good faith concerning a
cranberry sauce purchase agreement between the parties; (2) Cliffstar
breached an interim cranberry sauce purchase agreement between the two
companies by failing to adequately perform and to pay the Company the
required amounts due under it; (3) Cliffstar breached its fiduciary duty to
the Company based on the same (or similar) conduct; (4) Cliffstar breached
the promissory note issued by it in the transaction by failing to make its
payments in a timely manner and failing to pay all of the interest due; and
(5) Cliffstar breached a co-packing agreement entered into in connection
with the sale by failing to make required payments thereunder and other
misconduct. The Company also claims that Cliffstar breached its fiduciary
duties to the Company. The Company seeks compensatory damages in an amount
in excess of $5 million, plus punitive damages for Cliffstar's breaches of
its fiduciary duties and attorneys' fees. Cliffstar's answer to the
Company's amended complaint was received on November 15, 2000.
Cliffstar has asserted counterclaims against the Company, alleging that (1)
the Company fraudulently induced Cliffstar to enter into the Asset Purchase
Agreement; (2) the Company has breached the Asset Purchase Agreement by
failing to negotiate in good faith a cranberry sauce purchase agreement, by
failing to provide Cliffstar with sufficient quantities of cranberry
concentrate meeting Cliffstar's "specifications," by selling inventory that
did not have a commercial value at least equal to the Company's carrying
value, by failing to notify Cliffstar that the Company intended to
write-down its cranberry inventory, by not providing Cliffstar its selling
prices, by decreasing its level of service to customers after the parties
signed the Asset Purchase Agreement, and by refusing to turn over certain
labels, films and plates relating to the
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private label juice business to Cliffstar; (3) the Company breached the
co-packing agreement by prematurely terminating that agreement; (4) the
Company converted the labels, films and plates relating to the private
label juice business; and (5) the Company intentionally interfered with
Cliffstar's contractual relations, or reasonable expectations of entering
into business relations, with the printers who hold the labels, films and
plates. Cliffstar seeks compensatory damages in an amount not stated in the
counterclaims, punitive damages for the alleged fraudulent inducement and
intentional interference claims, and attorneys' fees. The complaint does
not seek rescission of the agreement, although Cliffstar reserves the right
to seek recovery of rescission-type damages (among other damages) without
seeking to unwind the transaction. The Company has denied the allegations
of Cliffstar's counterclaims in all material respects.
As of November 30, 2000, the note receivable from Cliffstar had an
outstanding balance of $27.5 million, and the Company had outstanding
accounts receivable and accrued interest due from Cliffstar aggregating
approximately $6.1 million. The action is in its early stages. No
depositions have been taken or scheduled and the Company has only begun to
conduct discovery. It is the opinion of the Company's management, after
consulting with outside legal counsel, that, (1) the Company has strong
claims for the required payments for cranberry concentrate, co-packing
services and cranberry sauce sales and other alleged breaches of the
agreements and these amounts owed the Company are valid and collectible;
(2) the Company has strong factual and legal defenses in all material
respects to Cliffstar's counterclaims; and (3) the note and accrued
interest due from Cliffstar is collectible. However, the resolution of the
legal proceedings cannot be predicted with certainty at this time. In
addition, management intends to vigorously defend the counterclaims against
them and to pursue any claims they may have against Cliffstar, including
any actions to collect the amounts outstanding.
Cliffstar made the required $ 0.25 million principal and related accrued
interest payment on the note receivable that was due on May 31, 2000 on
June 13, 2000, and the Company, after consulting with its outside legal
counsel, concluded that the payment was received late and, thus, the note
is in default with future interest accruing at the default rate of 12%. The
Company received Cliffstar's scheduled August 31, 2000 principal payment of
$ 0.25 million together with approximately $ 0.7 million of accrued
interest at 10% on September 8, 2000. The Company received Cliffstar's
scheduled November 30, 2000 principal payment of $ 0.25 million together
with approximately $ 0.7 million of accrued interest at 10% on December 22,
2000. The Company has recognized interest income on the note receivable at
a rate of 10% in the condensed consolidated financial statements, pending
the resolution of this matter.
Although the note is in default, the Company has classified the balance
outstanding in the accompanying condensed consolidated balance sheets in
accordance with the scheduled payment dates provided for in the note, as
this is how the Company anticipates payments will be received unless the
court rules otherwise.
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3. LONG-TERM DEBT
Long-term debt as of November 30 and August 31, 2000 consisted of the
following (in thousands):
November 30, August 31,
2000 2000
Revolving credit facility with a bank $155,000 $155,000
Term loan payable to insurance company with
interest at 8.08% 11,377 11,377
Term loan payable to insurance company with
interest at 7.86% 7,719 7,719
Term note with a bank 2,333 2,508
Promissory note with a vendor with interest at 5% 1,600 1,600
Other obligations 2,711 2,825
------ -----
Total 180,740 181,029
Less:Current maturities of long-term debt 17,643 12,643
Amounts classified as current liability 159,284 164,459
-------- -------
Amounts classified as noncurrent $ 3,813 $ 3,927
======== ========
The Company was not in compliance with various financial covenants under
the revolving credit facility, the two term loans payable to an insurance
company, and the term note with a bank as of November 30, 2000 and August
31, 2000, and the Company has not received waivers for any of these
covenant defaults. On December 13, 2000 the Company entered into a
forbearance agreement with the syndicate of banks providing the revolving
credit facility. The agreement provides, among other things, for the
deferral of interest and principal payments until February 12, 2001. The
Company is also working on a similar forbearance agreement with the
insurance company providing term loans. As a result, the borrowings under
the revolving credit facility, the two term loans payable to an insurance
company and the term note payable to a bank have been classified as a
current liability in the accompanying condensed consolidated balance
sheets.
On March 15, 1999, the Company entered into a credit agreement with its
syndicate of banks (the "Credit Agreement") that provides for a revolving
credit facility of $140 million. On December 29, 1999, the Credit Agreement
was amended, increasing the amount that could be borrowed under the
revolving credit facility to $155 million. The Credit Agreement was
subsequently amended effective February 29, 2000 and July 17, 2000 for
financial covenant defaults. The revolving credit facility terminates on
February 28, 2002. Under the terms of the Credit Agreement, the outstanding
principal amount is scheduled to be reduced by $5.0 million on the last day
of each of the first and third quarters of the Company commencing with the
fiscal quarters ending November 30, 2000 and May 31, 2001 and continuing
thereafter until the termination date of the agreement (however, the
forbearance agreement allows for deferral of the November 30, 2000
principal payment). Under the amended revolving credit facility, the
Company, through July 17, 2000, could borrow at the bank's domestic rate
(which approximates prime, as defined) or LIBOR plus one and one-quarter
percent (1.25%). Effective July 18, 2000, the interest rate was increased
to the bank's domestic rate (which approximates prime, as
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defined), plus 1.25%. Under the terms of the amended revolving credit
facility, interest accrues at the bank's domestic rate, plus 2.0%, while
the loan is in default. The borrowing option under LIBOR is no longer
available. Amounts outstanding under the agreement bear interest at a
weighted average of 11.5% and 10.09% as of November 30, 2000 and August 31,
2000, respectively. The Company has not made interest payments to the bank
since August 31, 2000, and did not make a $5.0 million principal payment
due November 30, 2000. The credit facility is collateralized by
substantially all assets of the Company not otherwise collateralized.
Included in accrued liabilities as of November 30, 2000 is approximately
$5.2 million of outstanding interest on the revolving credit facility.
The 8.08% term loan with an insurance company is payable in semi-annual
installments, including interest, through July 1, 2004. The loan is
collateralized by specific property and equipment.
The 7.86% term loan with an insurance company is payable in semi-annual
installments, including interest, through August 1, 2008. The interest rate
is subject to adjustment 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 loan is collateralized by specific
property and equipment.
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, as defined, or LIBOR plus an applicable rate margin (2%) at the
option of the Company. The weighted average interest rate on the
outstanding borrowings was 8.5% and 7.79% as of November 30, 2000 and
August 31, 2000, respectively. The note is collateralized by specific
property and equipment.
The two term loans with an insurance company and the bank term note all
have higher default interest rates specified while the loans are in
default, as defined, if the scheduled principal and interest payments are
not made. The Company has made all scheduled principal and interest
payments on these loans through November 30, 2000 and has not accrued
interest at the higher default rates.
The promissory note with a vendor is unsecured and is payable, including
interest at 5%, on October 24, 2002. The note provides that each $100
increment of the outstanding principal and accrued interest will be
convertible into one share of $100 stated value Series A Convertible
Preferred Stock ("Preferred Stock"), which series of Preferred Stock is yet
to be established by the Board of Directors of the Company, 180 days after
the occurrence of a refinancing, as defined. Each share of Preferred Stock
will be convertible into 40 shares of Class A Common Stock at the option of
the holder or automatically upon the occurrence of certain events. Each
share of Preferred Stock will entitle the holder to receive cumulative
annual cash dividends at a rate of 5% on the $100 stated value.
The other obligations consist of various term loans with financial
institutions with principal and interest due in various amounts through
January 2007. These loans are generally collateralized by specific property
and equipment.
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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 ($125 million as of November 30, 2000) and operating
ratios, as defined.
The Company has also guaranteed $1.0 million of outstanding obligations to
a bank of an independent cranberry grower. The grower is in default with
certain terms and conditions contained in the related debt agreements.
Management of the Company is of the opinion that the potential for any loss
to the Company is minimal.
4. RESTRUCTURING ACCRUALS
In the fourth quarter of fiscal 2000, the Company recorded an $8.25 million
pre-tax restructuring charge, consisting primarily of a $6.0 million
writedown of a manufacturing facility that discontinued production in
Bridgeton, New Jersey on November 22, 2000 and $2.25 million of plant
closing costs (primarily cleanup, security and insurance costs) and
employee termination benefits. Approximately 130 employees received
notification of their termination in fiscal 2000 as a result of the
restructuring plan, primarily at the Bridgeton facility and in the
Company's sales department. The Bridgeton facility is held for sale.
The following table summarizes the activity within the recorded accruals
during the three months ended November 30, 2000 (in thousands):
Accrued at Cash Accrued at
August 31, 2000 Payments November 30, 2000
Plant closing costs $ 770 $ 97 $ 673
Employee termination benefits 1,480 589 891
----- ---- ---
Total $2,250 $686 $ 1,564
====== ==== =======
5. SUPPLY CONTRACTS
The Company has multiple-year crop purchase contracts with 47 independent
cranberry growers pursuant to which the Company has contracted to purchase
all of the cranberry crop produced on 1,755 planted acres owned by these
growers. These contracts generally last for seven years, starting with the
1999 calendar year crop, and pay the growers at a market rate, as defined,
for all raw cranberries delivered plus $3 per barrel and certain incentives
for premium cranberries. In September 2000, the Company was unable to make
an aggregate payment of approximately $0.7 million due to the growers under
the terms of the contracts and the Company notified the growers of the
Company's intention to also defer payments required in fiscal 2001 under
the contract for the 2000 calendar year crop. Accordingly, the Company is
currently in default under the terms of the grower contracts. However, the
contracted growers harvested and delivered their 2000 calendar year crop to
the Company subsequent to August 31, 2000. The Company intends to pursue
amendment of the payment terms required under the contracts and seek the
necessary waivers from the growers. The ultimate resolution of this matter
is currently undeterminable.
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6. 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. 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. During fiscal
2000, the Company determined that it was no longer economically feasible to
operate these marshes and has entered into negotiations to terminate the
lease in fiscal 2001.
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 expired on
December 31, 2000, granted 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 provided for
payments to Cranberry Hills of 25% of the premises income, if any, during
the term of the lease with Equitable. The Company is currently in
discussions with Equitable to renew the lease.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINACIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
As of November 30, 2000, we remained in default of several covenants of our
revolving credit agreement and other long-term debt agreements. We did not make
interest payments on our revolving credit facility in the first quarter of
fiscal 2001 aggregating $5.2 million and did not make a $5.0 million principal
payment due November 30, 2000. However, we continue to work closely with our
lenders to renegotiate the terms of our debt arrangements. On December 13, 2000,
we entered into a forbearance agreement with our syndicate of banks pursuant to
which the banks agreed to allow us to defer principal and interest payments due
under our revolving credit facility until February 12, 2001. During this period,
the banks also agreed not to exercise various remedies available to them as a
result of our defaults as long as we remain in compliance with the terms and
conditions of the forbearance agreement. We agreed with the banks to perform
certain actions, among them (i) paying the banks a forbearance fee; (ii)
obtaining a forbearance agreement and waivers from certain other creditors and
third parties; (iii) moving certain company accounts to the agent bank; and (iv)
promptly supplying the banks with certain financial and other information. While
the forbearance agreement allowed us to defer principal and interest payments
due during the first quarter of fiscal 2001, we accrued the full amount of all
of the interest expense in our statement of operations. We continue to work
closely with the bank group and various third parties to secure compliance with
the terms of the forbearance agreement.
Additionally, we continue to actively explore alternative sources of debt
and equity capital and ways in which we can refinance all or some of our
indebtedness, and we expect to receive refinancing proposals from alternative
financial institutions prior to the end of the forbearance period.
We have recently taken several steps that we believe positively contributed
to our results of operations in the first quarter of fiscal 2001:
o We entered into a strategic marketing alliance with Crossmark, Inc.,
a national food broker, effective in the first quarter of fiscal 2001,
whereby we combined our sales and marketing efforts and further
consolidated our food broker network with Crossmark.
o We began to refocus our trade promotional strategies to emphasize
profitability as opposed to generating revenue growth and, in the
first quarter of fiscal 2001, certain higher-cost promotional
activities we entered into in fiscal 2000 expired or were
renegotiated. We believe these steps helped to reduce our selling,
general and administrative expenses in the first quarter of fiscal
2001.
o In the first quarter of fiscal 2001, we increased the cranberry
juice content in all of our Northland brand 100% juice cranberry
blends to 27% and began the rollout of
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these new reformulated blends, which we refer to as the "27%
Solution." While Northland brand 100% juice blends have always
contained 100% fruit juice (as opposed to many of our competitors'
products which generally contain a lesser percentage of fruit juice
sweetened by fructose or corn syrup), they have historically contained
only approximately 15% cranberry juice. We have reformulated our
Northland blends to include 27% cranberry juice in response to
increasing evidence of the potential health benefits associated with
drinking cranberry juice. This reformulation should help to reduce our
inventory levels since we will use more cranberries per case of juice
products.
o We completed the previously announced restructuring of our
manufacturing operations (including the closing of our Bridgeton
facility and transferring of current volume to our remaining
production facilities, the terminating of the receiving and processing
of grapes at our Dundee, New York facility, consolidation of
production and distribution of frozen concentrate volume for the east
coast from our Dundee, New York facility to our Mountain Home, North
Carolina facility, and the consolidating of our warehouse storage
programs throughout the distribution network), which we believe
contributed to our lower cost of sales for the quarter.
o We converted $1.6 million in outstanding payables to a vendor into a
promissory note convertible into convertible preferred stock (and are
pursuing similar arrangements with certain other significant trade
creditors).
o We reduced total personnel in all areas in an effort to reflect the
current needs of our business, which contributed to reduced selling,
general and administrative expenses for the quarter.
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 restrictions on cranberry growers if the CMC believes there
will be an oversupply of cranberries for the coming crop year. During fiscal
2000, the Secretary of the USDA, at the request and based on the recommendation
of the CMC, invoked a volume regulation to restrict the industry-wide harvest of
cranberries for the harvest occurring in the fall of 2000. The restriction
generally limited cranberry growers to selling only up to 85% of their historic
production levels. In response to this federal volume regulation, we temporarily
removed some of our Massachusetts acreage from production during the 2000
growing season and altered certain historical growing activities and practices.
As a result of this decision, as well as growing conditions in 2000, we
experienced a reduced harvest in the fall of 2000, and we believe that the
harvest industry wide is down significantly as well. We believe that part of the
reduced fall 2000 harvest is attributable to growers like us engaging in
practices designed to comply with the volume regulation, including removing
acreage from production, limiting or eliminating fertilizing and other
growth-enhancing practices, or failing to harvest certain acreage.
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In addition to the volume regulation and in response to requests from the
grower community, the United States Congress approved a $50 million federally
funded assistance program in October 2000. Under this plan, the federal
government will make direct cash subsidies totaling $20 million to growers. Of
this, we expect to receive approximately $1.1 million before the end of fiscal
2001. In addition, $30 million is to be used by the federal government to
purchase cranberry products containing the equivalent of approximately one
million barrels of cranberries from the industry on a "bid" basis. This purchase
will be used in school lunch and other federal programs directed to the needy
and disadvantaged. We have not yet determined whether we will participate in the
"bid" portion of this program.
While we currently continue to experience cash flow difficulties, we hope
to improve our cash position and results of operations through focusing on a
return to profitability as opposed to driving increased revenues.
RESULTS OF OPERATIONS
Total revenues for the three months ended November 30, 2000 were $44.8
million, a decrease of 40.3% from revenues of $75.0 million in the prior year's
first quarter. The decrese resulted primarily from (i) the sale of the private
label juice business in March of 2000; (ii) reduced co-packing revenue from a
major customer that during the quarter switched from an arrangement where we
purchased substantially all of the ingredients and sold the customer finished
product to a fee for services performed arrangement; and (iii) reduced sales of
Northland and Seneca branded products. Trade industry data for the 12-week
period ended November 5, 2000 showed that our Northland brand 100% juice
products achieved a 10.6% market share of the supermarket shelf-stable cranberry
beverage category on a national basis, down from a 10.9% market share for the
12-week period ended November 7, 1999. The total combined market share of
supermarket shelf-stable cranberry beverages for our Northland and Seneca
branded product lines was 12.5% for the 12-week period ended November 5, 2000
compared to a 12.6% market share for the 12-week period ended November 7, 1999.
We anticipate that our total revenues will continue to decrease in fiscal year
2001 as compared to fiscal 2000 primarily as a result of anticipated lower
co-packing revenues as well as our change in promotional and pricing strategies
to focus more on profitability as opposed to revenue growth.
Cost of sales for the first quarter of fiscal 2001 was $30.2 million
compared to $51.6 million for the first quarter of fiscal 2000, resulting in
gross margins of 32.6% and 31.2% in each respective period. The increase in
gross margins in fiscal 2001 was primarily due to the elimination of private
label juice revenues and reduced co-packing revenues, both of which carry lower
margins than sales of our branded products. We currently anticipate that our
gross margin will increase in fiscal 2001 as compared to fiscal 2000 primarily
due to (i) our changing product mix (including reduced revenues from co-packing
services and the elimination of revenues from lower margin private label juice
sales); (ii) the effects of the fiscal 2000 inventory adjustments which reduced
cranberry cost to estimated market levels; and (iii) the closing of our
Bridgeton, New Jersey facility, the sale of our grape business and our grape
receiving station in Portland, New York, and other efficiency measures
associated with increasing production levels and reducing overhead at our
remaining facilities.
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Selling, general and administrative expenses were $10.8 million, or 24.2%
of revenues, for the first quarter of fiscal 2001 compared to $19.9 million, or
26.6% of revenues, in the prior year's first fiscal quarter. The $9.1 million
decrease in selling, general and administrative expenses was primarily due to
(i) significant reductions in marketing and promotional expenses compared to the
first quarter of fiscal 2000 (in which we incurred greater marketing and
promotional expense to support the Seneca brand and the launch of a new Seneca
line of cranberry juice products, as well as undertook an aggressive marketing
campaign to support development and growth of our Northland brand products);
(ii) the recent significant revisions to our trade promotional practices to
reflect our new focus away from growing sales and market share and toward more
profitable operations; (iii) a reduction in personnel costs resulting from our
recent restructuring efforts; and (iv) a reduction in personnel costs and
selling commissions resulting from our recently announced strategic alliance
with Crossmark that outsources and consolidates much of our sales and marketing
efforts. The decrease in selling, general and administrative expenses was
partially offset by increases in outside professional fees incurred in
connection with developing a "turnaround" plan for our operations, negotiating
with our lenders regarding the terms of our amended credit facility and related
covenant defaults and forbearance agreement, and continuing efforts to seek
additional or alternative debt or equity financing. We expect that selling,
general and administrative expenses in the remaining quarters of fiscal 2001
will decrease from comparable quarters last year primarily as a result of steps
we have taken to focus on increasing profitability as opposed to revenue growth,
including the alliance with Crossmark, the planned reduction in trade spending,
the consolidation of our warehousing infrastructure and anticipated efficiencies
as a result of our new internal information systems.
The gain on disposals of property and equipment in the first quarter of
fiscal 2001 of $0.4 million resulted primarily from the sale of certain real
estate and other assets.
Interest expense was $4.7 million in the first quarter of fiscal year 2001
compared to $2.9 million during the same period of fiscal 2000. The increase in
interest expense of $1.8 million was due to increased debt levels between the
periods and significantly higher interest rates in fiscal 2001 (due in part to
revised terms of our revolving credit facility as a result of our defaults
thereunder). We remain in default of the terms of our revolving credit facility
and other debt agreements with third parties. See "Financial Condition" below.
Interest income in the first quarter of fiscal 2001 of $0.7 million was
associated with an unsecured, subordinated promissory note we received from
Cliffstar in connection with the sale of our private label juice business in
March of 2000.
There was no income tax expense in the first quarter of fiscal year 2001 as
the Company realized a benefit of approximately $64,000 related to the
utilization of certain deferred income tax assets (primarily net operating loss
carryforwards) for which a valuation allowance had been provided. Future
deferred income tax benefits of approximately $30.7 million relating to the
fiscal 2000 loss have not been recognized as an asset because of uncertainties
with respect to realization of those benefits. These benefits may be recognized
in future periods to offset income tax obligations that may need to be
recognized.
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FINANCIAL CONDITION
Net cash provided by operating activities was $0.1 million in the first
quarter of fiscal 2001 compared to a net cash used in operating activities of
$11.6 million in the same period of fiscal 2000. The difference of $11.7 million
between periods was primarily due to fiscal 2001 reductions in assets and
liabilities compared to significant increases in the same items in fiscal 2000.
For example, we would normally experience a seasonal increase in inventory in
the first quarter due to the fall harvest of our crop and our purchase of raw
cranberries from other independent cranberry growers. However, our inventory
increased only $0.1 million in the first quarter of fiscal 2001 compared to an
increase of $27.8 million in the first quarter last year. This was primarily
because (i) volume intake of raw cranberries was reduced due to the impact of
the federal marketing order of the United States Department of Agriculture and
prevailing growing conditions related to the fall 2000 harvest; (ii) the price
we paid for raw cranberries purchased from our independent growers was down
significantly (due primarily to the renegotiated terms of our grower contracts
which tie the price we pay for cranberries more closely to prevailing market
prices), and our growing and processing costs decreased from the prior year
(generally as a result of scaled-back growing operations, reorganized
manufacturing operations and overall personnel reductions); (iii) our
consolidation of operations, closing of our Bridgeton, New Jersey facility and
increased use of cranberries in our Northland branded products resulting from
the recent reformulation of those products, which enabled us to decrease raw
material and finished goods inventories; and (iv) a reduction in our purchases
of other raw materials. Also, receivables, prepaid expenses and other current
assets decreased $4.7 million from August 31, 2000 as a result of declining
revenue levels, which, along with the deferral of principal and interest
payments resulting from our forbearance agreement, provided us additional cash
to pay down accounts payable and accrued liabilities by $6.6 million in the
first quarter of fiscal 2001.
Working capital deficiency decreased $2.8 million to a $(138.7) million
deficiency at November 30, 2000 compared to a working capital deficiency of
$(141.5) million at August 31, 2000. Our current ratio was 0.4 to 1.0 at both
November 30, 2000 and August 31, 2000. If amounts outstanding under our debt
arrangements were classified as long-term liabilities instead of current
liabilities as of November 30, 2000, working capital would have been $20.6
million, and our current ratio would have been 1.3 to 1.0.
We have reached our borrowing capacity under our revolving credit facility
and continue to experience cash flow difficulties. We have failed to make
payments of interest and principal on our revolving credit facility due in
fiscal 2001 and have otherwise defaulted on certain covenants contained in our
bank loan agreements as well as certain note agreements with additional third
parties. Additionally, we are currently in default under the terms of our grower
contracts (see Note 5 to Notes to Condensed Consolidated Financial Statements).
We were unable to make an aggregate payment of approximately $0.7 million due on
on September 15, 2000 to the growers under the terms of the contracts, and we
notified the growers of our intention to also defer payments required in fiscal
2001 under the contract for the 2000 calendar year crop. We intend to pursue
amendment of the payment terms required under the contracts and seek the
necessary waivers from the growers.
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To help ease the cash flow burden over the near-term and help allow us to
reduce our accounts payable, we intend to continue our focus on profitability as
opposed to revenues and for that reason, we intend to spend less on trade
promotion in the upcoming fiscal year. Additionally, we have (i) made
substantial changes to our pricing and promotional strategies, including
entering into the agreement with Crossmark; (ii) converted $1.6 million in
outstanding accounts payable into an unsecured convertible promissory note in
the principal amount of $1.6 million bearing interest at the rate of 5% per
annum and payable in full on October 24, 2002 (which note is convertible into
convertible preferred stock under certain circumstances); (iii) completed the
conversion of our internal information systems; (iv) revised certain agreements
with various trade creditors to obtain payment terms more favorable to us; and
(v) entered into a forbearance agreement with our syndicate of banks allowing us
to defer principal and interest payments under our revolving credit facility
until February 12, 2001. Additionally, we intend to continue to pursue
opportunities to refinance our debt in fiscal 2001. Despite these efforts, we
cannot assure you that we will be able to obtain additional financing or that
cash flow from operations will be sufficient to allow us to manage our payables.
We intend to continue to work closely with our trade creditors in managing the
terms of our accounts payable.
Our net cash provided from investing activities was $0.5 million in the
first quarter of fiscal 2001 compared to net cash used of $2.7 million in the
first quarter of fiscal 2000. The difference between periods was due to a
significant reduction in property and equipment purchases offset by proceeds
from disposals of property and equipment and collections on the Cliffstar note
in the first quarter of fiscal 2001.
Our net cash used in financing activities was $0.3 million in the first
quarter of fiscal 2001 compared to cash provided of $14.4 million in the first
quarter of the prior year. Our only financing activity in the first quarter of
fiscal 2001 was related to payments on certain long-term debt. There were no
funds available under our revolving credit facility and dividend payments were
suspended indefinitely during the prior fiscal year. Our total debt (including
current portion) was $180.7 million at November 30, 2000 and $181.0 million at
August 31, 2000 for a total debt to equity ratio of approximately 3.4 to 1.0 at
both dates. Depending upon our future sales levels and relative sales mix of our
products during the remainder of fiscal 2001, we expect our working capital
requirements to fluctuate periodically during fiscal 2001.
As of November 30, 2000, we had reached the maximum available amount under
our revolving credit facility of $155 million. In both the second and third
quarters of fiscal 2000, we obtained waivers of certain covenant defaults under
our credit facility that resulted primarily from our operating performance from
our syndicate of banks. However, as mentioned, we were not in compliance with
several provisions of our revolving credit agreement and other long-term debt
agreements (including various covenants of two term loans payable to an
insurance company and a term note with a bank) as of and for the quarter ended
November 30, 2000, and accordingly, because the lenders have not waived these
covenant defaults, the balance of the debt agreement revolving credit facility
and long-term debt agreements have been classified as a current liability. As of
January 12, 2001, we have not made interest payments on the revolving credit
facility in the amount of $6.8 million, and did not make a $5.0 million
principal payment due November 30, 2000. Additionally, the interest rate under
our revolving credit facility increases to the bank's domestic rate
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plus 2.0% while we are in default. We have entered into a forbearance agreement
with our syndicate of banks which allows us to defer these interest and
principal payments until February 12, 2001. We are not certain that we will be
able to renegotiate the terms of our credit facility or that we will obtain
additional financing prior to the expiration of the forbearance period. By the
terms of our credit facility and the forbearance agreement, since we are
currently in default of the credit facility, the creditors have the ability to
call all outstanding principal and interest thereunder immediately due and
payable on February 12, 2001. In such event, it is highly unlikely that we would
be able to satisfy such an obligation, and we would likely be unable to continue
operation as a going concern. However, we continue to work with our lenders to
renegotiate the terms of those agreements. As a result of these factors and
others, there is substantial doubt about our ability to continue as a going
concern. See Notes 1 and 3 to Notes to Condensed Consolidated Financial
Statements included in this Form 10-Q.
We continue to actively explore alternative sources of debt and equity
capital and ways in which we can refinance all or some of our indebtedness, and
we expect to receive refinancing proposals from alternative financial
institutions prior to the end of the forbearance period.
Additionally, effective following the third quarter dividend payment in
fiscal 2000, we have suspended dividend payments on our common stock
indefinitely.
Unless our lenders call our loans due and payable at the expiration of the
forbearance period, we believe that we will be able to fund our ongoing
operational needs for the second quarter of fiscal 2001 through (i) cash
generated from operations; (ii) our actions to reduce our near-term working
capital requirements; and (iii) additional measures to reduce costs and improve
cash flow from operations.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We make certain "forward-looking statements" in this Form 10-Q, 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, including consumer acceptance of our
new 27% Solution; (ii) the disposition of certain litigation related to the sale
of the net assets of our private label juice business; (iii) the implementation
of the marketing order of the Cranberry Marketing Committee of the United States
Department of Agriculture and the cranberry purchase program adopted by the
United States Congress; (iv) agricultural factors affecting our crop and the
crop of other North American growers; (v) our ability to comply with the terms
and conditions of, and to satisfy our responsibilities under, our amended credit
facility, with respect to which we are currently in default of certain covenants
as well as certain principal and interest payment provisions, as well as our
forbearance agreement; (vi) our ability to secure additional financing and/or
generate sufficient cash from operations as may be necessary to fund working
capital requirements and continue as a going concern; (vii) the results of our
previously announced exploration of strategic alternatives; (viii) the results
of our internal organizational restructuring, including, without limitation, the
results of the restructuring of certain of our sales and marketing functions
through our agreement with Crossmark, Inc.; (ix) our ability to manage our trade
payables; and (x) our ability to continue to meet the listing requirements of
The Nasdaq National Market, including, without limitation, the requirement that
our Class A Common Stock maintain a minimum bid price above $1.00 per share. 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-Q. We will not
necessarily update these statements or other information in this Form 10-Q based
on future events or circumstances. Please read this entire Form 10-Q to better
understand our business and the risks associated with our operations.
Specifically, please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of our current financial
condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
------------------------------------------------------------------
We have not experienced any material changes in our market risk since
August 31, 2000.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
---------------------------
There was no material change in our litigation with Cliffstar during the
first quarter of fiscal 2001.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
-----------------------------------------
In response to this Item, the information set forth in Note 1 and Note 3 to
Notes of Condensed Consolidated Financial Statements contained in Part I of this
Quarterly Report on Form 10-Q is hereby incorporated by reference.
ITEM 5. OTHER EVENTS.
----------------------
On January 3, 2001, in the second quarter of fiscal 2001, we received a
letter from The Nasdaq Stock Market informing us that our Class A common stock
has failed to maintain a minimum bid price of $1.00 over the preceding 30
consecutive trading days as required by Nasdaq rules. Pursuant to Nasdaq rules,
we have been provided 90 calendar days, or until April 3, 2001, to regain
compliance with this minimum bid price rule. If at anytime before April 3, 2001,
the bid price of our Class A common stock is at least $1.00 for a minimum of 10
consecutive trading days, the Nasdaq staff will determine if we then comply with
the rule. However, if we cannot demonstrate compliance by that date, the letter
indicates that we will be provided with written notification that our securities
will be delisted from Nasdaq. At that time, we will have the opportunity to
appeal that decision to a Nasdaq Listing Qualifications Panel.
We have recently mailed proxy materials to our shareholders for the
upcoming annual shareholder meeting scheduled to be held on January 30, 2001 at
which our shareholders will be asked to vote on a proposed amendment to our
articles of incorporation that would allow us to effect, at the discretion of
our Board of Directors, a reverse stock split in one of three ratios at any time
prior to January 30, 2002. One purpose of the reverse stock split, if effected,
would be to help increase the trading price of our Class A shares to a level
above $1.00 minimum bid price per share, which may help us regain compliance
with the Nasdaq listing standards. We cannot be certain, however, that we will
be able to regain compliance with this minimum bid price rule, even if we are
authorized to and effect a reverse stock split.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
------------------------------------------
A. Exhibits
Exhibits filed with this Form 10-Q report are incorporated herein by
reference to the Exhibit Index accompanying this report.
B. Form 8-K
We did not file any reports on Form 8-K during the quarterly period to
which this Form 10-Q relates.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHLAND CRANBERRIES, INC.
DATE: January 12, 2001 By: /s/John Swendrowski
------------------------------------
John Swendrowski
Chairman and Chief Executive Officer
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EXHIBIT INDEX
Exhibit No. Description
----------- -----------
4 Forbearance Agreement, dated as of December 13,
2000, by and among the Company, NCI Foods, LLC, a
Wisconsin limited liability company, various
financial institutions and Firstar Bank, N. A., as
Agent.
25
