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, 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 Sec tion 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 February 13, 1998, there were 1,507,374 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)
<TABLE>
<S> <C> <C> <C> <C>
Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
12/31/97 12/31/96 12/31/97 12/31/96
REVENUES:
Net sales $13,689,000 $12,339,000 $7,481,000 $6,296,000
Other 225,000 355,000 77,000 207,000
----------- ----------- ---------- ----------
Total revenue $13,914,000 $12,694,000 $7,558,000 $6,503,000
----------- ----------- ---------- ----------
COST & EXPENSES:
Cost of sales 11,457,000 10,816,000 5,870,000 5,235,000
Selling, general &
administrative 1,246,000 1,080,000 685,000 586,000
Interest 124,000 93,000 58,000 49,000
----------- ----------- ---------- ----------
Total cost & expenses $12,827,000 $11,989,000 $6,613,000 $5,870,000
----------- ----------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 1,087,000 705,000 945,000 636,000
PROVISION FOR INCOME TAXES 370,000 282,000 323,000 254,000
-------- -------- -------- --------
NET EARNINGS $717,000 $423,000 $622,000 $382,000
======== ======== ======== ========
EARNINGS PER COMMON SHARE
Basic $.44 $.26 $.38 $.23
==== ==== ==== ====
Diluted $.43 $.26 $.38 $.23
==== ==== ==== ====
WEIGHTED AVERAGE COMMON SHARES
AND EQUIVALENTS
Basic 1,643,668 1,655,509 1,644,559 1,635,898
========= ========= ========= =========
Diluted 1,648,390 1,655,509 1,652,776 1,635,898
========= ========= ========= =========
See notes to interim financial statements
</TABLE>
<PAGE>
VACU-DRY COMPANY
Balance Sheets
(Unaudited)
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS: 12/31/97 12/31/96 6/30/97 CURRENT LIABILITIES: 12/31/97 12/31/96 6/30/97
-------- -------- ------- -------- -------- -------
Cash $155 $178 $283 Borrowings under line of credit -0- -0- $1,354
Accounts receivable 2,722 1,670 1,567 Current maturities of long-term debt 595 576 557
Other receivable 70 124 70 Accounts payable 2,904 2,818 490
Inventories 8,170 6,208 5,055 Accrued payroll & related liabilities 719 659 539
Prepaid expenses 56 55 131 Accrued expenses 233 127 173
Current deferred taxes 240 225 239 Income taxes payable 256 209 -0-
--- --- ---
------- ------- ------
Total current assets $11,413 $ 8,460 $7,345 Total current liabilities $4,707 $4,389 $3,113
------ ------ ------
Borrowings under line of credit 1,694 -0- -0-
Net property, plant & Long-term debt 1,492 2,065 1,808
----- ----- -----
equipment 6,867 7,554 7,231 Total long-term debt-net of current 3,186 2,065 1,808
maturities ----- ----- -----
DEFERRED INCOME TAXES 826 843 826
--- --- ---
SHAREHOLDERS' EQUITY;
Capital stock 3,650 3,617 3,635
Retained earnings 5,911 5,100 5,194
----- ----- -----
Total shareholders' equity 9,561 8,717 8,829
_______ _______ _______ Total liabilities and _______ _______ _______
Total Assets $18,280 $16,014 $14,576 shareholders' equity $18,280 $16,014 $14,576
======= ======= ======= ======= ======= =======
See notes to interim financial statements
</TABLE>
<PAGE>
VACU-DRY COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996
---- ----
Net earnings $717,000 $423,000
-------- --------
Adjustments to reconcile net earnings to net
cash provided by operating activities -
Depreciation expense 541,000 525,000
Deferred income tax provision (1,000) 95,000
Changes in certain assets & liabilities
(Increase)decrease in receivables (1,155,000) 890,000
(Increase) in inventories (3,115,000) (2,778,000)
Decrease in prepaid assets 75,000 61,000
Increase in accounts payable 2,414,000 2,140,000
Increase in accrued expenses 60,000 21,000
Increase in accrued payroll
& related liabilities 180,000 183,000
Increase in income taxes payable 256,000 181,000
---------- ----------
Total adjustments (745,000) 1,318,000
----------- ----------
Net cash (used for) provided
by operating activities (28,000) 1,741,000
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (177,000) (1,165,000)
----------- ---------
Net cash (used for)investing activities (177,000) (1,165,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowings under the
line of credit 5,070,000 2,227,000
Payments on line of credit (4,730,000) (3,053,000)
Employee purchase of Company stock 15,000 23,000
Repurchase of common stock -0- (407,000)
Proceeds from long-term debt -0- 805,000
Principal payments of long-term debt (278,000) (207,000)
--------- ---------
Net cash provided by (used for)
financing activities 77,000 (612,000)
--------- ---------
NET (DECREASE) IN CASH (128,000) (36,000)
CASH AT THE BEGINNING OF THE YEAR 283,000 214,000
-------- --------
TOTAL CASH AT THE END OF THE PERIOD $155,000 $178,000
========= ========
See notes to interim financial statements
<PAGE>
VACU-DRY COMPANY
NOTES TO INTERIM FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 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 six month period ended December 31, 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.
Inventories at December 31, 1997 and June 30, 1997, consisted of the following:
12/31/97 6/30/97
Finished goods $5,716,000 $4,208,000
Work in progress 519,000 291,000
Raw materials, &
containers 1,935,000 556,000
---------- ----------
$8,170,000 $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 $126,000 $91,000
Income taxes paid $114,000 $128,000
Note 4 - Revolving Line of Credit -
The Company entered into a new revolving credit agreement with the Bank during
the second quarter ended December 31, 1997, which calls for repayment terms of
two years. Accordingly the balance owing to the Bank has been reclassified to
long-term.
<PAGE>
VACU-DRY COMPANY
NOTES TO INTERIM FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1997
Note 5 - Income Taxes -
The effective income tax rate for the six month period ending December 31, 1997
is 34%, which is comparable to the effective tax rate for the year ended June
30, 1997.
Note 6 - EPS Calculation
The Company computes earnings per share in accordance with Statement of
Financial Accounting Standards Number 128 " Earnings per Share". The following
table provides the detail of the basic and diluted earnings per computation for
the quarter and six months ended December 31, 1997.
For the Quarter Ended
12/31/97
<TABLE>
<S> <C> <C> <C>
Income Shares Per Share
(Numerator) (Denominator) Amount
Net Earnings $ 622,000
Basic EPS
Income available to
common stockholders 622,000 1,644,559 $.38
Effective of Dilutive Options:
Additional Shares due
to Stock Option 8,217
Diluted EPS
Income available to common
stockholders plus dilutive
options $622,000 1,652,776 $.38
======== ========= ====
</TABLE>
For the Six Month Ended
12/31/97
<TABLE>
<S> <C> <C> <C>
Income Shares Per Share
(Numerator) (Denominator) Amount
Net Earnings $717,000
Basic EPS
Income available to
common stockholders $717,000 1,643,668 $.44
Effective of Dilutive Options:
Additional Shares due
to Stock Option 4,722
Diluted EPS
Income available to common stockholders
plus dilutive options $717,000 1,648,390 $.43
======== ========= ====
</TABLE>
<PAGE>
VACU-DRY COMPANY
NOTES TO INTERIM FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1997
Note 7 - Subsequent Event -
Subsequent to December 31, 1997, the Company repurchased 139,100 shares of
the Company's common stock from two shareholders in privately negotiated
transactions for $6.00 per share. The repurchase price was determined based
upon the market price at or about the time of the negotiated transaction.
Payment was made by delivery of the Company's subordinated, interest-only
notes. The notes bear interest at 8-1/2% per annum payable monthly and are
due in full in five years. Payment of principal and interest is subordinated
to any of the Company's indebtedness to banks and other financial
institutions. The shares were purchased for use in possible future
acquisitions, for issuance pursuant to employee stock options and stock
purchase plans and for other corporate purposes. While the Company may make
additional purchases of its stock from time to time, it does not contemplate
making any purchases of such shares in the public market.
<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 December 31,
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 in nature, the Company's liquid
resources fluctuate during the 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 increase in the inventory balance as of December 31, 1997 is a direct
result of the change in the normal production period. The production period has
been reduced and consequently the current year's inventory levels have increased
on a comparative basis with last year. The net working capital as of December
31, 1997 increased by $2,635,000, from $4,071,000 as December 31, 1996 to
$6,706,000 as of December 31, 1997. Of this increase, $1,694,000 was a result of
the reclassification of the borrowings under the line of credit from current to
long-term (See Note 4 to Financial Statements). The remaining increase was
primarily a result of the improved earnings of $717,000. The increase in the
accounts receivable balance as of December 31, 1997 of $1,052,000 was partially
a result of the increased sales for the month of December of $529,000 and an
increase in the days outstanding from 32 as of December 31, 1996 to 39 as of
December 31, 1997.
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 increased the total
limit of its revolving line of credit to $4.5 million in anticipation of higher
short-term borrowing requirements as a direct result of the condensed production
period and the related increase in the inventory levels. As of December 31,
1997, the Company had $2,806,000 of available borrowings on the line of credit.
This compares to $3,500,000 of available funds as of December 31, 1996 on a
total limit of $3,500,000. As of December 31, 1997, 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. As of
January 1998 the Company signed a long-term lease for approximately one-half of
the previously vacated portion of this facility. Until this remaining space is
leased, the Company's rental income will be approximately $5,000 per month less
than in the prior year. The Company is actively looking for a new long-term
tenant for the balance of the available space. The Company continues to lease a
portion of its operating facility and is in negotiations with the primary tenant
to increase its square footage. By approximately April of 1998, the Company
should find out if this increase in lease income is probable.
The Company has increased its capital expenditure budget from $532,000 to
$625,000 for the fiscal year ended June 30, 1998. For the six months ended
December 31, 1997, the Company has spent $177,000 of this budget. These funds
are being primarily used to purchase new and refurbish existing equipment. The
Company anticipates financing these assets through internally generated funds.
Subsequent to the end of the quarter ended December 31, 1997, the Company
repurchased 139,100 shares of common stock at a cost of $834,600. See Note 7 to
the Financial Statements.
<PAGE>
Results of Operations
Quarter
Net sales increased $1,185,000 or 19% in the second quarter of fiscal 1997. This
increase was entirely from higher unit sales volume as the average sale price
declined slightly. The largest increase was from low moisture sales, which
increased $982,000. Other revenue decreased $130,000 as a result of a
non-recurring contract cancellation charge in 1996 of $50,000 and reimbursement
by a vendor for inventory charges of $35,000, also in 1996. In addition rental
income decreased $6,000 from 1996 as a result of the loss of a major tenant
during the quarter. As discussed above, the Company has secured a long-term
tenant to replace approximately one-half of this vacated space.
Cost of sales for the quarter ended December 31, 1997 decreased 4.7% from 83.2%
to 78.5% of net sales. This decrease was primarily a result of increased
production efficiencies in addition to lower raw material costs.
Selling, general and administrative expenses increased $99,000 or 17% in the
second quarter. This increase is a result of higher expenses in the following
areas: strategic planning costs, travel and additional compensation.
Interest expense increased $9,000 as a result of our increased average
borrowings on the line of credit. Comparative interest expense for the third
quarter may increase as a result of the higher inventory level and the related
increase in borrowings on the line of credit.
Year-to Date
Net sales increased $1,350,000 or 11% for the six months ended December 31,
1997. This increase was entirely from higher unit sales volume as the average
sale price declined slightly. The largest increase was from drum dried sales
which increased $800,000 from last year. Last years drum dried sales were lower
partially as a result of the mid-year startup of this new operation. Other
revenue decreased $130,000 as a result of a non-recurring contract cancellation
charge in 1996 of $50,000 and reimbursement by a vendor for inventory charges of
$35,000, also in 1996. In addition rental income remained very comparable
between periods.
Cost of sales as a percent of net sales decreased from 87.7% as of December 31,
1996 to 83.7% as of December 31, 1997. Although the average sales price dropped
slightly, the production efficiencies and the lower apple costs more than offset
this decline and resulted in the reduction in cost of sales.
Selling, general and administrative expenses increased $166,000 or 15% through
the six months ended December 31, 1997. This increase is a result of higher
expenses in the following areas: strategic planning and implementation costs,
travel and additional compensation.
Interest expense increase $31,000 as a result of our higher average borrowings
on the line of credit. Interest expense for the third quarter should increase as
a result of the higher inventory level and the related increase in borrowings on
the line of credit.
<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, 1997), 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 139,100 shares of common
stock in January 1998.
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 - none
(27) Financial Data Schedule (by electronic filing only)
b. Reports on Form 8-K -
Repurchase of 139,100 shares of Vacu-dry Company common stock,
date of report 1/9/98
<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, 1998 /s/ Gary L. Hess
-----------------
-----------------------
Gary L. Hess, President
Date: February 13, 1998 /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 December 31, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Jun-30-1998
<PERIOD-END> Dec-31-1997
<CASH> 155,000
<SECURITIES> 0
<RECEIVABLES> 2,785,000
<ALLOWANCES> 63,000
<INVENTORY> 8,170,000<F1>
<CURRENT-ASSETS> 11,413,000
<PP&E> 18,115,000
<DEPRECIATION> 11,248,000
<TOTAL-ASSETS> 18,280,000
<CURRENT-LIABILITIES> 4,707,000
<BONDS> 0
0
0
<COMMON> 3,650,000
<OTHER-SE> 5,911,000
<TOTAL-LIABILITY-AND-EQUITY> 18,280,000
<SALES> 13,689,000
<TOTAL-REVENUES> 13,914,000
<CGS> 11,457,000
<TOTAL-COSTS> 11,457,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 124,000
<INCOME-PRETAX> 1,047,000
<INCOME-TAX> 370,000
<INCOME-CONTINUING> 717,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 717,000
<EPS-PRIMARY> .44
<EPS-DILUTED> .43
<FN>
<F1>Net of LIFO reserve of $2,179,660
</FN>
</TABLE>
