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 September 30, 1997 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 November 12, 1997, there were 1,644,538 shares of common stock, no par
value, outstanding.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISK AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN OF
THE FACTORS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED JUNE 30, 1997.
The financial statements herein presented for the quarters ended September 30,
1997 and 1996, 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, the Company's liquid resources
normally fluctuate during the year in a way that changes very little from year
to year. The 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. Normally
during the first quarter of the fiscal year the inventory levels increase as a
result of the beginning of the production season. During the current fiscal
year, the Company is changing its normal production period. The Company
anticipates this will increase comparative inventories during the first six
months of fiscal 1998. The Company has arranged with its Bank to finance this
increase if needed with an increase in the revolving line of credit. As a result
of this increase in production volume in the first quarter, inventories were
significantly higher than a year ago. This difference was partially due to the
fact the inventory level at September 30, 1996, was one of the lowest levels in
years. Net working capital remained relatively constant at $4,332,000 as
compared to the June 30, 1997 level of $4,232,000. The increase in the accounts
receivable and inventory balances were funded by the increase in accounts
payable. With the increased profits and reduced capital expenditures, the
Company's excess cash was used to paydown $486,000 on the line of credit.
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 most significant source of
internal liquidity is the Company's net working capital. The Company has a
revolving line of credit limit of $3,500,000 secured by inventory and accounts
receivable. As of September 30, 1997, the Company had $2,632,000 of available
funds under the line of credit. As of September 30, 1996 the Company did not
have any borrowings outstanding on the line of credit. As of September 30, 1997,
the Company was in compliance with all of the covenants and restrictions related
to its outstanding debt. The Company's loan agreement with its bank includes a
negative covenant regarding the declaring or paying of a dividend in cash, stock
or any other property without the prior approval by the bank.
The Company has established a capital expenditure budget of approximately
$532,000 for the 1997-1998 fiscal year. These funds will primarily be used to
purchase new and refurbish existing equipment. The Company anticipates financing
these assets through internally generated funds and through the use of debt
financing.
Until recently, the Company has been successful in leasing all of its idle
production facility other than a portion occupied by Product Development. A
major tenant, that accounted for 38 percent of rental income in fiscal 1997,
<PAGE>
has informed the Company, they will not renew their lease which expires in
November of 1997. The Company is actively pursuing a replacement tenant without
the loss of income. The Company will lose $17,000 per month in lease revenue,
until a replacement tenant is found. The Company continues to lease a portion of
its operating facility and is in negotiations with the primary tenant to
increase their square footage.
The Company anticipates that profitable operations and debt financing will
satisfy the Company's future liquidity and capital needs. However, the Company
will utilize future private or public financing if interest rates rise or if the
Company's growth prospects require additional funds for operations.
Results of Operations
Net sales increased $165,000 or 2.7% in the first quarter of fiscal 1998. This
increase was all a result of higher unit sales. Average unit prices dropped
slightly.
Other revenue increased slightly from last year. Other revenue is comprised
primarily of net rental income. If a replacement tenant is not found for the
lease expiration described above, other revenue will be reduced by $17,000 per
month beginning in November 1997.
Cost of sales as a percent of net sales decreased from 92% as of September 1996
to 90% as of September 1997. The decrease is a result of lower raw material
costs. In addition the comparative net overhead expenses between quarters was
lower in the current year.
Selling, general and administrative expenses increased $72,000 or 14.6% in the
first quarter. This change is a result of increased travel, brokerage and
professional fees.
Interest expense increased $21,000 as a result higher average short term
borrowings and increased average long-term debt.
The effective income tax rate for the first quarter ended September 30, 1997 of
33%, is comparable to the effective tax rate for the year ended June 30, 1997.
As of June 30, 1997, the Company has state tax credit carryforwards of $99,000
to offset future taxable income.
<PAGE>
-3-
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
There are no legal proceedings pending.
Item 2. Changes in Securities
The Company's revolving line of credit agreement with its Bank
dated( November 1, 1996), includes a covenant which prohibits
the declaring or paying of any dividend or distribution in
either cash, stock or any other property on the Company's
stock now or hereafter outstanding, nor redeem, retire,
repurchase or otherwise acquire shares of any class of the
Company's stock now or hereafter outstanding, without the
prior approval by the Bank.
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 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
STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Three Months
Ended Ended
9/30/97 9/30/96
REVENUES:
Net sales $6,208,000 $6,043,000
Other 153,000 148,000
---------- ----------
Total revenue $6,361,000 $6,191,000
---------- ---------
COST & EXPENSES
Cost of sales 5,588,000 5,584,000
Selling, general &
administration 566,000 494,000
Interest 65,000 44,000
--------- ---------
$6,219,000 $6,122,000
--------- ---------
EARNINGS BEFORE INCOME TAXES 142,000 69,000
PROVISION FOR INCOME TAXES 47,000 27,000
------- ------
NET EARNINGS $95,000 $42,000
======= =======
EARNINGS PER COMMON SHARE $.06 $.03
==== ====
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 1,642,776 1,675,120
========= =========
See notes to interim financial statements
<PAGE>
<TABLE>
<CAPTION>
VACU-DRY COMPANY
Balance Sheets
(Unaudited)
(Dollars in thousands)
<S> <C> <C> <C> <S> <C> <C> <C>
CURRENT ASSETS: 9/30/97 9/30/96 6/30/97 CURRENT LIABILITIES: 9/30/97 9/30/96 6/30/97
------- ------- ------- ------- ------- -------
Cash $232 $515 $283 Borrowings under line of credit $868 $ -0- $1,354
Accounts receivable 2,567 1,964 1,567 Current maturities of long-term debt 595 415 557
Other receivable 70 16 70 Accounts payable 2,886 2,071 490
Inventories 6,284 3,652 5,055 Accrued payroll & related liabilities 581 640 539
Prepaid expenses 92 96 131 Accrued expenses 175 72 173
Current deferred taxes 239 225 239 Income taxes payable 47 8 -0-
------- ------ ------ ----- ------ ------
Total current assets $9,484 $6,468 $7,345
Total current liabilities $5,152 $3,206 $3,113
------ ------ ------
Net property, plant & LONG-TERM DEBT - Net of
equipment 7,055 7,335 7,231 current maturities 1,631 1,525 1,808
----- ----- -----
DEFERRED INCOME TAXES 826 748 826
--- --- ---
SHAREHOLDERS' EQUITY:
Capital stock 3,641 3,605 3,635
Retained earnings 5,289 4,719 5,194
----- ----- -----
Total shareholders' equity 8,930 8,324 8,829
_______ _______ _______ Total liabilities and ______ _______ _______
Total Assets $16,539 $13,803 $14,576 shareholders' equity $16,539 $13,803 $14,576
======= ======= ======= ======= ======= =======
See notes to interim financial statements
</TABLE>
<PAGE>
VACU-DRY COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
1997 1996
---- ----
Net earnings $95,000 $42,000
------- -------
Adjustments to reconcile net earnings to net
cash provided by operating activities -
Depreciation expense 269,000 262,000
Changes in certain assets & liabilities
Receivables (1,000,000) 704,000
Inventories (1,229,000) (222,000)
Prepaid expenses 39,000 20,000
Accounts payable 2,396,000 1,393,000
Accrued expenses 2,000 (34,000)
Accrued payroll & related liabilities 42,000 164,000
Income taxes payable 47,000 (24,000)
--------- ---------
Total adjustments 566,000 2,263,000
--------- ---------
Net cash provided by operating activities 661,000 2,305,000
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (93,000) (679,000)
--------- ---------
Net cash (used for) investing activities (93,000) (679,000)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowings under the line of credit 2,221,000 253,000
Payments on line of credit (2,707,000) (1,079,000)
Issuance of common stock 6,000 11,000
Repurchase of common stock -0- (407,000)
Principal payments of long-term debt (139,000) (103,000)
--------- ----------
Net cash (used for)financing activities (619,000) (1,325,000)
-------- ----------
NET INCREASE (DECREASE)IN CASH (51,000) 301,000
CASH AT THE BEGINNING OF THE YEAR 283,000 214,000
-------- ---------
TOTAL CASH AT THE END OF THE PERIOD $232,000 $515,000
======== ========
See notes to interim financial statements
<PAGE>
VACU-DRY COMPANY
NOTES TO INTERIM FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1997
Note 1 -
The accompanying 1997 and 1996 unaudited interim financial
statements have been prepared pursuant to the rules of the
Securities and Exchange Commission. Certain information
and disclosures normally included in annual financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted
pursuant to such rules and regulations although the Company
believes these disclosures are adequate to make the
information not misleading. In the opinion of management,
all adjustments necessary for a fair presentation for the
period presented have been reflected and are of a normal
recurring nature. These interim financial statements
should be read in conjunction with the financial statements
and notes thereto for each of the three years in the period
ended June 30, 1997. The results of operations for the
three month period ended September 30, 1997 are not
indicative of the results that may be achieved for the
entire year ending June 30, 1998.
Reclassification - Certain 1996 amounts were
reclassified to conform to the 1997 presentation.
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 $2,180,000 at September 30, 1997 and
$2,180,000 at June 30, 1997.
Inventories at September 30, 1997 and June 30, 1997,
consisted of the following:
9/30/97 6/30/97
Finished goods $4,429,000 $4,208,000
Work in progress 404,000 291,000
Raw materials &
containers 1,451,000 556,000
---------- ----------
$6,284,000 $5,055,000
========== ==========
Note 3 - Statement of Cash Flows -
Interest and income tax payments reflected in the
Consolidated Statement of Cash Flows were as follows:
1997 1996
---- ----
Interest paid $71,000 $45,000
Income taxes paid $83,000 $53,000
<PAGE>
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
Date: November 14, 1997 /s/ Gary L. Hess
-----------------
-----------------------
Gary L. Hess, President
Date: November 14, 1997 /s/ Tom Eakin
-----------------
-----------------------
Tom Eakin, VP, Finance
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(This schedule contains summary financial information extracted from the
10Q for the quarter ended September 30, 1997 and is qualified in its entirety
by reference to such financial statements)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-1-1997
<PERIOD-END> Sep-30-1997
<CASH> 232,000
<SECURITIES> 0
<RECEIVABLES> 2,631,000
<ALLOWANCES> 63,000
<INVENTORY> 6,284,000
<CURRENT-ASSETS> 9,484,000
<PP&E> 18,033,000
<DEPRECIATION> 10,978,000
<TOTAL-ASSETS> 16,539,000
<CURRENT-LIABILITIES> 5,152,000
<BONDS> 0
0
0
<COMMON> 3,641,000
<OTHER-SE> 5,289,000
<TOTAL-LIABILITY-AND-EQUITY> 16,539,000
<SALES> 6,208,000
<TOTAL-REVENUES> 6,361,000
<CGS> 5,588,000
<TOTAL-COSTS> 5,588,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,000
<INCOME-PRETAX> 142,000
<INCOME-TAX> 47,000
<INCOME-CONTINUING> 95,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95,000
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
