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, 1996 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: ____ NO:__X__
As of December 31, 1996, there were 1,638,715 shares of common stock, no par
value, outstanding.
<PAGE>
Part 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
VACU-DRY COMPANY
CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
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Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
12/31/96 12/31/95 12/31/96 12/31/95
REVENUES:
Net sales $12,339,000 $13,251,000 $6,296,000 $6,772,000
Other 355,000 343,000 207,000 283,000
___________ ___________ __________ __________
Total revenue $12,694,000 $13,594,000 $6,503,000 $7,055,000
COST & EXPENSES:
Cost of sales 10,816,000 11,927,000 5,232,000 5,993,000
Selling, general &
administrative 1,080,000 925,000 586,000 488,000
Interest 93,000 169,000 49,000 73,000
___________ ___________ __________ __________
Total cost & expenses $11,989,000 $13,021,000 $5,867,000 $6,554,000
EARNINGS BEFORE INCOME TAXES 705,000 573,000 636,000 501,000
PROVISION FOR INCOME TAXES 282,000 235,000 254,000 206,000
________ ________ ________ ________
NET EARNINGS $423,000 $338,000 $382,000 $295,000
======== ======== ======== ========
EARNINGS PER COMMON SHARE $.26 $.20 $.23 $.17
==== ==== ==== ====
WEIGHTED AVERAGE COMMON SHARES
AND EQUIVALENTS 1,655,509 1,700,015 1,635,898 1,701,957
See notes to interim financial statements
VACU-DRY COMPANY
Balance Sheets
(Unaudited)
(Dollars in thousands)
</TABLE>
<TABLE>
<C> <C> <C> <C> <C> <C>
CURRENT ASSETS: 12/31/96 12/31/95 6/30/96 CURRENT LIABILITIES: 12/31/96 12/31/95 6/30/96
Cash $178 $225 $214 Borrowings under line of credit -0- $1,682 $826
Accounts receivable 1,670 2,313 2,684 Current maturities of long-term debt 576 480 415
Other receivable 124 6 -0- Accounts payable 2,818 2,566 678
Inventories 6,208 6,944 3,430 Accrued payroll & related liabilities 659 633 476
Prepaid expenses 55 63 116 Accrued expenses 127 197 106
Current deferred taxes 225 303 225 Income taxes payable 209 146 32
_______ _______ ______ ------ ------ ------
Total current assets $8,460 $ 9,854 $6,669 Total current liabilities $4,389 $5,704 $2,533
------ ------ ------
Net property, plant & LONG-TERM DEBT - Net of
equipment 7,554 7,078 6,918 current maturities 2,065 1,771 1,628
----- ----- -----
DEFERRED INCOME TAXES 843 905 748
--- --- ---
SHAREHOLDERS' EQUITY;
Capital stock 3,617 3,971 4,001
Retained earnings 5,100 4,581 4,677
----- ----- -----
Total shareholders' equity 8,717 8,552 8,678
----- ----- -----
_______ _______ _______ Total liabilities and
Total Asset $16,014 $16,932 $13,587 shareholders' equity $16,014 $16,932 $13,587
======= ======= ======= ======= ======= =======
See notes to interim financial statements
VACU-DRY COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995
Net earnings $423,000 $338,000
________ ________
Adjustments to reconcile net earnings to net
cash provided by operating activities -
Refund of reserve related to debt owing to the
State of California -0- (110,000)
Depreciation expense 525,000 464,000
Changes in certain assets & liabilities
(Increase) in receivables 890,000 (485,000)
(Increase) in inventories (2,778,000) (1,530,000)
Decrease in prepaid assets 61,000 113,000
Increase in accounts payable 2,140,000 2,173,000
(Decrease) in accrued expenses 21,000 (194,000)
Increase in accrued p/r & rel. liab. 183,000 109,000
Increase in income taxes payable 181,000 146,000
(Decrease) in deferred taxes 95,000 (7,000)
__________ __________
Total adjustments 1,318,000 679,000
___________ __________
Net cash provided by operating activities 1,741,000 1,071,000
__________ __________
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,165,000) (121,000)
___________ _________
Net cash (used for) investing activities (1,165,000) (121,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowings on line of credit 2,227,000 5,739,000
Payments on line of credit (3,053,000) (6,408,000)
Employee purchase of Company stock 23,000 35,000
Repurchase of common stock (407,000) -0-
Proceeds from long-term debt 805,000 -0-
Principal payments of long-term debt (207,000) (224,000)
_________ _________
Net cash used by financing activities (612,000) (858,000)
_________ _________
NET INCREASE (DECREASE) IN CASH (36,000) 38,000
CASH AT THE BEGINNING OF THE YEAR 214,000 187,000
________ ________
TOTAL CASH AT THE END OF THE PERIOD $178,000 $225,000
======== ========
See notes to interim financial statements
VACU-DRY COMPANY
NOTES TO INTERIM FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996
Note 1 - The Interim Financial Statements herein presented for the
six months ended December 31, 1996, reflect all
adjustments which are in the opinion of management
necessary to a fair statement of the results of
operations for the period then ended. The statements are
unaudited and are not necessarily indicative of results
for the full year.
Reclassifications - Certain 1995 amounts were
reclassified to conform to the 1996 presentation.
Note 2 - Inventories -
Inventories are stated at the lower of cost, using the
last-in, first-out (LIFO) method or market.
Inventories at December 31, 1996 and June 30, 1996,
consisted of the following:
12/31/96 6/30/96
Finished goods $4,667,000 $2,757,000
Work in progress 351,000 233,000
Raw materials, &
containers 1,715,000 440,000
__________ __________
$6,733,000 $3,430,000
========== ==========
Note 3 - Statement of Cash Flows -
Interest and income tax payments reflected in the
Consolidated Statement of Cash Flows were as follows:
1996 1995
Interest paid $ 91,000 $178,000
Income taxes paid $ 128,000 $84,000
Note 4 - Income Taxes -
The effective income tax rate for 1996 is 40%, which
compares to 41% for 1995.
<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, 1996.
The financial statements herein presented for the quarters ended December 31,
1996 and 1995, 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. 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.
The inventory levels as of December 31, 1996 and 1995 are very comparable when
you take into consideration the differences between periods in the LIFO
reserves. The net working capital as of December 31, 1996, 1995 and June 30,
1996 are very comparable. The decline in the accounts receivable balance as of
December 31, 1996 was only temporary and was a result of the lower sales in
the month of December. The Company increased its long-term debt by $805,000
as of the end of December 1996.
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 secured by inventory and accounts receivable. As
of December 31, 1996, the Company did not have any borrowings outstanding on
the line of credit. As of December 31, 1995 the Company had $1,818,000 of
available funds under the line of credit. As of December 31, 1996, 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 additional possible source of long term
liquidity could be the sale of the idle production facility. Although the
Company is not relying on or pursuing 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. In regard to this facility, there is some
indication that in late 1997 certain leases may not be renewed. Advance
planning to locate new tenants is already underway. The Company continues to
lease a portion of its operating facility and is in negotiations with the
primary tenant to increase its square footage.
<PAGE>
The Company has established a capital expenditure budget of approximately
$1,813,000 for the fifteen month period April 1,1996 - June 30, 1997. To date,
capital expenditures of $1,165,000 have been made. These funds are being
primarily 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. As of December 31, 1996, the Company
borrowed $805,000 of long-term debt to finance a portion of the $1,813,000
capital budget. The note for $805,000 is dated December 31, 1996 with a term
of 60 months, at a variable interest rate equal to the average weekly yield of
30 day Commercial Paper, plus 2.10% and is secured by specific machinery and
equipment.
During the first quarter ended September 30, 1996, the Company repurchased
80,000 shares of common stock at a cost of $407,000. This repurchase was to
offset the dilution caused by stock issuances under the Company's stock
purchase plan and under outstanding options. The Company has no present
intentions to repurchase more stock in the current fiscal year.
Results of Operations
Quarter
Net sales decreased $476,000 or 7% in the second quarter of fiscal 1996
compared to 1995. The adverse sales impact of the lost Confoco business was
only partially offset by higher dried apple sales. Other revenue decreased
$76,000 as a result of a non-recurring refund in 1995 of $110,000 from a
reserve related to debt owing to the State of California. Rental income
increased $16,000 between quarters. In addition a refund of $40,000 from the
Company's workers compensation insurance carrier was received.
Cost of sales for the quarter ended December 31, 1996 decreased 5.4% from
88.5% to 83.1% of net sales. Price increases have resulted in higher gross
margins for the quarter. We anticipate the margin will decrease in the third
and fourth quarter as we complete our raw material purchases and feel the full
impact of the increasing raw material costs.
Selling, general and administrative expenses increased $98,000 or 20% in the
second quarter. This increase is a result of higher expenses in the following
areas: consultants for our strategic plan, travel and higher salaries(replaced
our new regional sales manager). The consulting expenses of approximately
$75,000 will be non-recurring.
Interest expense decreased $24,000 as a result of our lower average borrowings
on the line of credit. Interest expense for the third quarter should increase
as a result of the long-term debt borrowing of $805,000 and increased
borrowings on the line of credit as a result of the higher inventory level.
Year-to Date
Net sales decreased $912,000 or 7% in the six months ended December 31, 1996.
Sales of Confoco products last year accounted for $1,723,000 of the net sales
for the six months ended December 31, 1995. In comparing the periods, if you
eliminate the Confoco sales from the net sales through December 31, 1995, the
sales increased $811,000 on approximately the same volume of unit sales.
Other income increased $12,000 during the comparative six month period.
Cost of sales as a percent of net sales decreased from 90% as of December 31,
1995 to 87.6% as of December 31, 1996. As noted in the quarter results, the
higher sale prices in the second quarter resulted in a higher gross operating
margin. On a comparative basis we have increased our production volume and
consequently our overhead absorption through the six months ended December
31, 1996.
Selling, general and administrative expenses increased $155,000 or 17% through
the six months ended December 31, 1996. This increase is a result of higher
expenses in the following areas: consultants for our strategic plan, travel
and higher salaries(replaced our new regional sales manager). The consulting
expenses of approximately $90,000 will be non-recurring next year.
Interest expense decreased $76,000 as a result of our lower average borrowings
on the line of credit. Interest expense for the third quarter should increase
as a result of the long-term debt borrowing of $805,000 and increased
borrowings on the line of credit as a result of the higher inventory level.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
There are no material 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. The
Company received approval from the Bank prior to the repurchase of
80,000 shares of common stock.
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
terminated. Confoco, Inc., has consolidated 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. 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.
Item 6. Exhibits & Reports on Form 8-K
a. Exhibits - none
(27) Financial Data Schedule (by electronic filing only)
b. Reports on Form 8-K - none
<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: February 13, 1997 (Gary L. Hess)
_______________________
Gary L. Hess, President
Date: February 13, 1997 (Tom Eakin)
_______________________
Tom Eakin, VP, Finance
<PAGE>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10Q FOR
THE QUARTER ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMTENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 178,000
<SECURITIES> 0
<RECEIVABLES> 1,734,000
<ALLOWANCES> 64,000
<INVENTORY> 6,733,000<F1>
<CURRENT-ASSETS> 8,985,000
<PP&E> 18,213,000
<DEPRECIATION> 10,659,000
<TOTAL-ASSETS> 16,539,000
<CURRENT-LIABILITIES> 4,914,000
<BONDS> 0
0
0
<COMMON> 3,617,000
<OTHER-SE> 5,100,000<F2>
<TOTAL-LIABILITY-AND-EQUITY> 16,539,000
<SALES> 12,339,000
<TOTAL-REVENUES> 12,694,000
<CGS> 10,816,000
<TOTAL-COSTS> 10,816,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93,000
<INCOME-PRETAX> 705,000
<INCOME-TAX> 282,000
<INCOME-CONTINUING> 423,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 423,000
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
<FN>
<F1>NET OF LIFO RESERVE OF $2,114,000
<F2>RETAINED EARNINGS
</FN>
</TABLE>
