SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
X of the Securities Exchange Act of 1934.
For the quarterly period ended December 31, 1995 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 01912
VACU-DRY COMPANY
(Exact name of registrant as specified in its charter)
California 94-1069729
(State of incorporation) (IRS Employer
Identification #)
7765 Healdsburg Ave., Sebastopol, California 95472
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 707/829-4600
Not-Applicable
___________________________________________________________________________
(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:____
As of December 31, 1995, there were 1,706,252 shares of common stock, no
par value, outstanding.
-1-
PART I
FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The financial statements herein presented for the quarter and six months
ended December 31, 1995 and 1994, reflect all the adjustments that in the
opinion of management are necessary for the fair presentation of the
financial position and results of operations for the period then ended. All
adjustments during the periods presented, are of a normal recurring
nature.
Liquidity and Capital Resources
Because the Company's operations are seasonal in nature, the Company's liquid
resources fluctuate during the year in a way that changes very little from
year to year. To assist in analyzing the seasonal impact on the balance
sheet, we have included comparative figures from December 1995 and 1994 in
addition to the prior fiscal year. Inventory and accounts payable balances
are normally at their lowest level as of the end of the fiscal year and their
highest level as of the end of the second quarter. This seasonal increase
in the accounts payable balance results in a temporary increase in the Debt
to Equity ratio. Adverse weather conditions earlier this year resulted in a
poor apple crop and has required purchasing more tonnage from out of state
than in normal years. The inventory level as of December 31, 1995 in
comparison with December 31, 1994 is significantly lower as a result of the
smaller California apple crop. The net working capital increased from
$3,775,000 as of June 30, 1995 to $4,150,000 as of December 31, 1995. The
1995 level is very comparable with December 31, 1994 of $4,058,000. The
increase in the accounts receivable balance is a result of the increased
sales and extended payment terms.
The Company's liquidity resources are obtained from external and internal
sources. The Company's largest external source is a revolving line of credit
provided by a bank at the Bank's prime rate. The Company has a revolving line
of credit limit of $3,500,000 ($3,000,000 as of December 31, 1994) secured by
inventory and accounts receivable. As of December 31, 1995, the Company had
$1,818,000 of available funds under this revolving line of credit. The
current availability of $1,818,000 compares with $767,000 of available
funds (on a $3,000,000 limit) as of December 31, 1994. As of
December 31, 1995, the Company was in compliance with all of the covenants
and restrictions related to its outstanding debt. The most significant source
of internal liquidity is the Company's net working capital. One source of
long term liquidity is the sale of the idle production facility, although the
Company is not relying on the sale of this facility as a source of liquidity,
the Company's short and long-term liquidity would materially increase upon
such a sale. The Company has leased the majority of the idle facility on a
short and long-term basis.
-2-
The Company has established a capital expenditure budget of approximately
$537,000 for the 1995-1996 fiscal year. Through December 31, 1995, the
Company has expended $121,000 of the $537,000, all of which has been
internally funded. The Company anticipates financing these assets through
internally generated funds and possibly the use of debt financing. At this
time the Company has not leased the area occupied by Product Development at
the idle facility and thus to conserve cash the Company is deferring this
relocation until this area is either leased or the entire facility is sold. The
capital expenditure budget will be used to refurbish existing equipment and
to purchase some new equipment.
Results of Operations
Quarter
Net sales increased $822,000 or 14% in the second quarter of fiscal 1996.
Although the sales increase is still a function of volume, we anticipate that
in the remaining quarters of the fiscal year we will see the affects of higher
prices. The short apple crop worldwide has driven the cost of apples up and
consequently the sale price of evaporated and low moisture apples
has increased.
Other revenue increased $252,000 or 812% as a result of increased rental income
from the idle production facility and $110,000 from the refund of reserve
related to debt owing to the State of California. This refund will not be
recurring in future quarters.
Cost of sales as a percentage of net sales increased from 85% in 1994 to 88% in
1995. LIFO materially effected the comparative results for the quarters. In
1995 LIFO resulted in a charge against earnings of $250,000 and comparatively
in 1994 LIFO was a credit of $250,000 to earnings. The unfavorable purchase
price variance in 1995 is the predominant reason for the LIFO charge against
earnings. The Company anticipates an unfavorable LIFO impact on earnings
during the last six months similar to the impact this quarter.
Selling, general and administrative expenses decreased $14,000 or 3% in the
second quarter. This decrease is primarily a result of the downsizing which
occurred in May of 1995. The Company anticipates similar favorable results
in the next six months.
Interest expense decreased $13,000 as a result of lower borrowings during the
quarter on the line of credit.
-3-
Year-To-Date
Net sales increased $1,077,000 or 9% during the six months ended December 1995.
The sales increase was a result of volume rather than price. In the next six
months this relationship should change as we experience the affects of higher
prices.
Other revenue increased $192,000, primarily as a result of the refund of the
reserve of $110,000, related to debt owing to the State of California.
Cost of sales as a percentage of net sales increased from 85% in 1994 to 90%
in 1995. As discussed above in the quarter results, the charge against
earnings from LIFO had a substantial impact on the comparative results
between years. Although our processing tonnage is down as a result of the
smaller apple crop, our factory overhead has decreased proportionately. The
balance in the Deferred Factory Overhead reserve is the same as
December 1994. As we discussed in the first quarter 10Q, the Company has
achieved an increase in the reserve to a level equal to last year. The
Deferred Factory Overhead Reserve is normally accumulated in the first and
second quarters to offset the lower production level in the fourth quarter.
Selling, general and administrative expenses decreased $204,000 or 18% during
the six months ended December 1995. This decrease is a result of numerous
factors, including; the effects of the downsizing, lower legal fees as a
result of settlement of litigation, decreased expenses related to the SAR
plan and other miscellaneous expense reductions.
Interest expense increased $15,000 during the six months ended December 1995
as a result of a higher outstanding balance on the line of credit coming
into the current fiscal year.
-4-
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
There are no legal proceedings pending.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the
period covered by this report.
Item 5. Other Information
Confoco Representation Agreement
Effective July 1, 1996, the representation agreement with Confoco,
Inc., for the sale of low moisture banana and pumpkin flakes will
terminate. Confoco, Inc., has decided to consolidate the sales
and marketing of its products internally. From July 1, 1995
through December 31, 1995 the Company recorded sales of $1,722,000
of Confoco products with a gross profit of $221,000. The
Company estimates it's sales of Confoco products for the entire
1996 Fiscal year to be approximately $2,500,000 with $321,000 of
related gross profit. For the 1995 Fiscal year the Company
recorded sales of $3,452,000 of Confoco products with a gross
profit of $532,000. The Company intends to put
significant effort into replacing these lost sales. However, there
is no assurance that such sales can be replaced, or if they can be
replaced, the same gross profit will be realized. If these sales
and related gross profit are not replaced, the resulting decline
will have a material negative impact on the Company's
earnings. Under the Company's agreement with Confoco, for the two
years from the date of termination the Company is prohibited from
distributing in the United States, Canada and Mexico, banana
products similar to those currently being sold.
Leased Properties
The Company recently finalized a lease with Fantastic Foods for
the balance of Plant #1( Idle Production Facility) for a term of
two years. Combined with the other tenants, the Company is
currently leasing properties at Plant #1 and #2 with annualized
gross revenues of approximately $500,000. The tenants at
these locations include Fantastic Foods, Inc., Benziger Family
Winery, P&L Specialties and a couple of other smaller companies.
Retirement of President & CEO
Donal Sugrue, President and CEO, has advised the Board of Directors
of his intention to retire this year after thirty four years of
service with the Company. The Executive Committee of the Board of
Directors has initiated a search for a successor and is currently
in the process of interviewing candidates. Mr. Sugrue
has agreed to accommodate the wishes of the Board of Directors in
regard to timing and orderly transition of the presidency. Mr.
Sugrue will continue to serve as a member of the Board of Directors.
-5-
Item 6. Exhibits & Reports on Form 8-K
(a) Exhibits -
(27.) Financial Data Schedule (by electronic filing only)
(b) Reports on Form 8-K - none
<PAGE>
VACU-DRY COMPANY
CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<C>Six Months <C>Six Months <C>Three Months<C>Three Months
Ended Ended Ended Ended
12/31/95 12/31/94 12/31/95 12/31/94
REVENUES:
Net sales $13,251,000 $12,174,000 $6,772,000 $5,950,000
Other 343,000 151,000 283,000 31,000
___________ ___________ __________ __________
Total revenue $13,594,000 $12,325,000 $7,055,000 $5,981,000
COST & EXPENSES:
Cost of sales 11,927,000 $10,355,000 5,993,000 5,053,000
Selling, general &
administrative 925,000 1,129,000 488,000 502,000
Interest 169,000 154,000 73,000 86,000
___________ ___________ __________ __________
Total cost & expenses $13,021,000 $11,638,000 $6,554,000 $5,641,000
EARNINGS BEFORE INCOME TAXES 573,000 687,000 501,000 340,000
PROVISION FOR INCOME TAXES 235,000 275,000 206,000 136,000
________ ________ ________ ________
NET EARNINGS $338,000 $412,000 $295,000 $204,000
EARNINGS PER COMMON SHARE $.20 $.24 $.17 $.12
AVERAGE COMMON SHARES
OUTSTANDING 1,700,015 1,700,852 1,701,957 1,702,099
See notes to interim financial statements
</TABLE>
<TABLE>
<CAPTION>
VACU-DRY COMPANY
Balance Sheets
(Unaudited)
(Dollars in thousands)
CURRENT ASSETS: 12/31/95 12/31/94 6/30/95 CURRENT LIABILITIES: 12/31/95 12/31/94 6/30/95
<S> <C> <C> <C> <C> <C> <C>
Cash $225 $282 $187 Borrowings under line of credit $1,682 $2,233 $2,351
Accounts receivable 2,313 1,624 1,679 Current maturities of L/T debt 480 475 480
Other receivable 6 97 155 Accounts payable 2,566 2,438 393
Inventories 7,469 8,504 5,414 Accrued p/r & related 633 652 524
Prepaid expenses 63 66 176 Accrued expenses 197 615 391
Current deferred taxes 303 502 303 Deferred factory overhead 525 525 -0-
_______ _______ ______
Total current assets $10,379 $11,075 $7,914 Income taxes payable 146 79 -0-
_____ ______ _____
Total current liabilities $6,229 $7,017 $4,139
Net property, plant &
equipment 7,078 7,760 7,421
LONG-TERM DEBT - Net of
current maturities 1,771 2,348 2,105
DEFERRED INCOME TAXES 905 803 912
SHAREHOLDERS' EQUITY;
Capital stock 3,971 3,958 3,936
Retained earnings 4,581 4,545 4,243
Total shareholders' equity 8,552 8,503 8,179
_______ _______ _______ Total liabilities and ______ _______ _______
Total Asset $17,457 $18,835 $15,335 shareholders' equity $17,457 $18,671 $15,335
</TABLE>
See notes to interim financial statements<PAGE>
VACU-DRY COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
1995 1994
Net earnings $338,000 $412,000
________ ________
Adjustments to reconcile net earnings to net
cash provided by operating activities -
Refund of reserve related to debt owing to the
State of California (110,000) -0-
Depreciation expense 464,000 423,000
Changes in certain assets & liabilities
(Increase) in receivables (485,000) (51,000)
(Increase) in inventories (2,055,000) (3,727,000)
Decrease in prepaid assets 113,000 38,000
Increase in accounts payable 2,173,000 1,723,000
(Decrease) in accrued expenses (194,000) (460,000)
Increase in acc p/r & related liab. 109,000 57,000
Increase in deferred overhead 525,000 525,000
Increase in income taxes payable 146,000 79,000
(Decrease) in deferred taxes (7,000) -0-
________ __________
Total adjustments 679,000 (1,393,000)
________ __________
Net cash provided by
(used for) operating activities 1,017,000 (981,000)
__________ __________
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (121,000) (726,000)
_________ _________
Net cash (used for) investing activities (121,000) (726,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowings on line of credit 5,739,000 5,988,000
Payments on line of credit (6,408,000) (4,035,000)
Quarterly dividend of $0.05 per share -0- (170,000)
Employee purchase of Company stock 35,000 63,000
Stock buy back of Company shares -0- (39,000)
Principal payments of long-term debt (224,000) (237,000)
_________ _________
Net cash provided by
(used for) financing activities (858,000) 1,570,000
_________ _________
NET INCREASE (DECREASE) IN CASH 38,000 (137,000)
CASH AT THE BEGINNING OF THE YEAR 187,000 419,000
________ ________
TOTAL CASH AT THE END OF THE PERIOD $225,000 $282,000
See notes to interim financial statements
<PAGE>
VACU-DRY COMPANY
NOTES TO INTERIM FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1995
Note 1 - The Interim Financial Statements herein presented for the six months
ended December 31, 1995, reflect all adjustments which are in the
opinion of management, necessary to a fair presentation of the
financial position and the results of operations for the period
then ended. The statements are unaudited and are not necessarily
indicative of results for the full year.
Note 2 - Inventories -
Inventories are stated at the lower of cost, using the last-in,
first-out (LIFO) method or market.
The excess of current cost of the inventory over LIFO cost was
$1,584,000 at December 31, 1995 and $1,334,000 at June 30, 1995.
Inventories at December 31, 1995 and June 30, 1995, consisted of the
following:
12/31/95 6/30/95
Finished Foods $5,837,000 $4,926,000
Work in progress 300,000 239,000
Raw materials & containers 1,332,000 249,000
$7,469,000 $5,414,000
Note 3 - Borrowings Under Line of Credit -
The Company renewed its line of credit with the bank on
November 1, 1995. The maximum amount available under the line of
credit was reduced from $4,000,000 to $3,500,000. The interest
rate and security were not changed.
Note 4 - Statement of Cash Flows -
Interest and income tax payments reflected in the Consolidated
Statement of Cash Flows were as follows:
1995 1994
Interest paid $178,000 $126,000
Income taxes paid $ 84,000 $158,000
Note 5 - Income Taxes -
The effective income tax rate for 1995 is 41%, which compares to
40% for 1994. There were no federal or state tax operating
loss carryforwards for book or tax purposes at December 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VACU-DRY COMPANY
(Don Sugrue)
Date: February 14, 1996 ____________________________
Donal Sugrue, President
(Tom Eakin)
Date: February 14, 1996 ____________________________
Tom Eakin, VP, Finance
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10Q FOR
THE QUARTER ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMTENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> DEC-31-1995
<CASH> 225,000
<SECURITIES> 0
<RECEIVABLES> 2,364,000
<ALLOWANCES> 45,000
<INVENTORY> 7,469,000<F1>
<CURRENT-ASSETS> 10,379,000
<PP&E> 16,931,000
<DEPRECIATION> 9,853,000
<TOTAL-ASSETS> 17,457,000
<CURRENT-LIABILITIES> 6,229,000
<BONDS> 0
0
0
<COMMON> 3,971,000
<OTHER-SE> 4,581,000<F2>
<TOTAL-LIABILITY-AND-EQUITY> 17,457,000
<SALES> 13,251,000
<TOTAL-REVENUES> 13,594,000
<CGS> 11,927,000
<TOTAL-COSTS> 11,927,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 169,000
<INCOME-PRETAX> 573,000
<INCOME-TAX> 235,000
<INCOME-CONTINUING> 338,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 338,000
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
<FN>
<F1>NET OF LIFO RESERVE OF $1,584,000
<F2>RETAINED EARNINGS
</FN>
</TABLE>
