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, 1998 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, 1998, there were 1,513,411 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, 1998.
The financial statements herein presented for the quarters ended September 30,
1998 and 1997, reflect all the adjustments that in the opinion of management are
necessary for the fair presentation of the financial position, results of
operations and cash flows for the periods then ended. All adjustments during the
periods presented are of a normal recurring nature unless otherwise stated. In
June of 1998, Vacu-dry Company formed a new company, Made In Nature Company,
Inc.(MINCO), for the purpose of acquiring substantially all of the business and
assets of Made In Nature, Inc., a natural foods marketer of organic consumer
packaged goods. Accordingly, the results of operations of MINCO are included in
the consolidated results below beginning June 11, 1998.
Liquidity and Capital Resources
Because the Company's operations, except for MINCO, are seasonal, the Company's
liquid resources fluctuate during the year. The Company experiences a normal
seasonal decrease in production in April. Inventories and related short-term
borrowings are usually at their peak at this time. The slowdown in production
normally extends through July and corresponds to the availability of raw fruit
on an affordable basis. The Company's inventory ordinarily decreases during the
period beginning in May and ending in September which creates a corresponding
increase in liquidity. MINCO has contracts with organic growers and packers and
is normally able to schedule production as needed to meet demand.
The Company experienced lower cash flows during the current fiscal quarter due
to the net loss which resulted from the slower than anticipated ramp-up of sales
and certain start-up expenses of MINCO. As a result of
the acquisition of MINCO, the debt to equity ratio increased from .76 in fiscal
1998 to 1.15 in fiscal 1999. The current ratio is 2.24 for fiscal 1999 versus
1.84 for the previous fiscal year. This increase was due to higher inventories
as a result of the MINCO acquisition and the reclassification of borrowings
under the line of credit from current to long-term debt (as a result the
restructuring of the loan agreement) in the later part of fiscal 1998.
The Company's operating capital is obtained from external and internal sources.
The Company's largest external source is a $4,500,000 revolving line of credit
provided by a bank at the Bank's prime rate. Under the terms of the revolving
line of credit agreement, the Company can elect shor-term LIBOR financing or
long-term prime rate financing. As of September 30, 1998, the Company had
$533,000 of available funds under the line of credit. This amount is less than
the $2,632,000 of availability under the $3,500,000 revolving line of credit at
September 30,1997. The decline in available borrowings resulted from the
Company's utilization of the revolving line to fund the MINCO acquisition. The
Company is in the process of finalizing an agreement with its current lender to
increase the existing bank line of credit to $5,000,000 and to provide
longer-term financing for the MINCO acquisition. As of September 30, 1998, 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.
<PAGE>
Excluding computer system expenditures which are expected to be financed through
leasing arrangements, a capital expenditure budget of approximately $988,000 has
been established by the Company for the 1999 fiscal year. These funds will
primarily be used to purchase new and recondition existing equipment related to
the manufacturing operation. The Company anticipates financing these
expenditures through internally generated funds.
As discussed in the recent Form 10-K for the year ended June 30,1998,the Company
is in the process of converting it's information technology systems and hardware
to a system that is year 2000 compliant. The new system is scheduled to be fully
implemented by April 30,1999.
Until recently, the Company has been successful in leasing all of its idle
production facility other than a portion occupied by Product Development. The
Company signed a long-term lease for approximately one-half of the previously
vacated portion of this facility. The Company has secured a short-term lease
which expires January 31,1999 for the balance of the available space. The
Company is working to obtain a replacement tenant without a loss of income but
has been unsuccessful to date. In addition, the Company continues to lease a
portion of its current operating facility and has entered into a long-term lease
with the primary tenant.
The Company has entered into a five-year lease agreement for new corporate
office space consisting of approximately 9,200 square feet with a monthly base
rent of $14,600 versus $7,800 currently being paid. MINCO and the Company's
corporate office will be consolidated and relocated in December,1998.
Results of Operations
Net sales increased $1,813,000 or 29.2% in the first quarter of fiscal 1999.
This increase was comprised of MINCO net sales of $693,000 or 11.2% of this
increase with the remaining balance attributed to higher unit sales.
Other revenue which is primarily comprised of rental income is comparable to the
last fiscal year.
Cost of sales (excluding MINCO) as a percent of net sales decreased from 90% as
of September 1997 to 86% as of September 1998. The decrease is a result of lower
raw material costs, greater favorable production variances and higher absorption
of factory overhead. The effect of MINCO's results in the Consolidated Cost of
Sales for Fiscal 1999 was minor or approximately a 1% increase.
Selling, general and administrative expenses increased $878,000 or 149% in the
first quarter. Of this change approximately $775,000 is a result of MINCO
expenses. The remaining balance represents increases for employee salaries and
benefits, and temporary help.
Interest expense increased $34,000 as a result higher average short-term
borrowings and increased average long-term debt. This increase was a result of
the additional debt related to the MINCO acquisition and long-term debt issued
in connection with the stock repurchase in the third quarter of fiscal 1998.
The effective income tax rate for the first quarter ended September 30, 1998 of
35%, is comparable to the effective tax rate for the year ended June 30, 1998.
<PAGE>
VACU-DRY COMPANY
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<S> <C> <C>
Three Months Three Months
Ended Ended
9/30/98 9/30/97
REVENUES:
Net sales $8,021,000 $6,208,000
Other 180,000 176,000
--------- ---------
Total revenue 8,201,000 6,384,000
--------- ---------
COST & EXPENSES:
Cost of sales 6,946,000 5,588,000
Selling, general &
Administrative 1,467,000 589,000
Interest 99,000 65,000
--------- ---------
Total cost & expenses 8,512,000 6,242,000
--------- ---------
EARNINGS(LOSS) BEFORE MINORITY
INTEREST & INCOME TAXES (311,000) 142,000
MINORITY INTEREST 73,000 -0-
--------- ---------
EARNINGS(LOSS) BEFORE PROVISION
INCOME TAXES (238,000) 142,000
PROVISION (BENEFIT)FOR INCOME
TAXES (109,000) 47,000
--------- ---------
NET EARNINGS (LOSS) $(129,000) $95,000
========= =======
WEIGHTED AVERAGE COMMON SHARES 1,511,104 1,642,776
========= =========
EARNINGS (LOSS) PER COMMON SHARE $(.09) $.06
====== ====
See notes to interim financial statements
</TABLE>
<PAGE>
VACU-DRY COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
09/30/98 09/30/97 6/30/98 09/30/98 09/30/97 6/30/98
ASSETS LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT ASSETS: CURRENT LIABILITIES:
Cash $166 $232 $385 Borrowings under line of credit $500 $868 $ -0-
Accounts receivable 2,669 2,567 2,298 Current maturities of long-term debt 438 595 438
Income tax receivable 272 70 163 Accounts payable 3,300 2,886 3,789
Inventories 7,932 6,284 7,926 Accrued payroll & related liabilities 742 581 936
Prepaid expenses 203 92 298 Accrued expenses 197 175 353
Current deferred taxes 360 239 360 Income taxes payable -0- 47 -0-
------ -- ---
------ ------ ------
Total current assets 11,602 9,484 11,430 Total current liabilities 5,177 5,152 5,516
----- ----- -----
BORROWING UNDER LINE OF CREDIT 3,467 -0- 2,297
----- --- -----
LONG TERM DEBT-net of
current maturities 2,011 1,631 2,203
PROPERTY, PLANT & ----- ----- -----
EQUIPMENT - net 7,012 7,055 6,784
DEFERRED INCOME TAXES 865 826 865
--- --- ---
MINORITY INTEREST 436 -0- 509
--- --- ---
GOODWILL, net of SHAREHOLDERS' EQUITY:
of amortization 2,612 -0- 2,562
Capital stock 2,850 3,641 2,837
Warrants for common stock 456 -0- 456
Retained earnings 5,964 5,289 6,093
----- ----- -----
Total shareholders' equity 9,270 8,930 9,386
_______ _______ _______ Total liabilities and _______ _______ _______
Total Assets $21,226 $16,539 $20,776 shareholders' equity $21,226 $16,539 $20,776
======= ======= ======= ======= ======= =======
See notes to interim financial statements
</TABLE>
<PAGE>
VACU-DRY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
CASH FLOWS FROM OPERATING ACTIVITIES: 1998 1997
---- ----
Net earnings (loss) $(129,000) $95,000
--------- ------
Adjustments to reconcile net earnings (loss) to net
cash provided by (used for) operating activities -
Depreciation and amortization expense 313,000 269,000
Minority interest (73,000) -0-
Changes in assets & liabilities -
Accounts receivable, net (415,000) (1,000,000)
Income tax receivable (109,000) -0-
Inventories, net (43,000) (1,229,000)
Prepaid expenses 95,000 39,000
Accounts payable (489,000) 2,396,000
Accrued expenses (156,000) 2,000
Accrued payroll & related liabilities (194,000) 42,000
Income taxes payable -0- 47,000
----------- ---------
Total adjustments (1,071,000) 566,000
----------- ---------
Net cash provided by (used for)
operating activities (1,200,000) 661,000
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (510,000) (93,000)
---------- --------
Net cash used for investing activities (510,000) (93,000)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under the line of credit 4,945,000 2,221,000
Payments on line of credit (3,275,000) (2,707,000)
Principal payments of long-term debt (192,000) (139,000)
Issuance of common stock 13,000 6,000
---------- --------
Net cash provided by (used for)
Financing activities 1,491,000 (619,000)
---------- --------
NET DECREASE IN CASH (219,000) (51,000)
CASH AT THE BEGINNING OF THE YEAR 385,000 283,000
-------- --------
TOTAL CASH AT THE END OF THE PERIOD $166,000 $232,000
======== ========
See notes to interim financial statements
<PAGE>
VACU-DRY COMPANY
NOTES TO INTERIM FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1998
Note 1 -
The accompany fiscal 1999 and 1998 unaudited interim 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 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, 1998. The results of operations
for the three month period ended September 30, 1998 are not indicative of the
results that may be achieved for the entire year ending June 30,1999.
Due to the seasonal nature of the company's business, the prior year interim
balance sheet is presented in the accompanying unaudited financial statement.
Reclassifications - Certain prior year amounts were reclassified to conform to
the current year presentation.
Note 2 - Inventories -
Inventories are stated at LIFO cost for Vacu-dry; FIFO cost for Made In Nature.
The excess of current cost of the inventory over LIFO cost was $1,115,000 at
September 30, 1998 and June 30, 1998. Inventories at September 30, 1998 and June
30, 1998, consisted of the following:
Vacu-dry - LIFO
9/30/98 6/30/98
Finished goods $3,973,000 $4,695,000
Work in progress 452,000 470,000
Raw materials & containers 1,187,000 442,000
---------- ----------
5,612,000 5,607,000
MINCO - FIFO
Finished goods 2,320,000 2,319,000
--------- ---------
Total inventories $7,932,000 $7,926,000
========== ==========
Note 3 - Statement of Cash Flows -
Interest and income tax payments reflected in the Consolidated Statement of Cash
Flows were as follows:
1998 1997
---- ----
Interest paid $ 90,000 $ 71,000
Income taxes paid $ -0- $ -0-
<PAGE>
PART II
OTHER INFORMATION
Item 1 - Legal proceedings
There are no material legal proceedings pending.
Item 2 - Changes in Securities
There are no material 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 declaring or paying of any
dividend or distribution in either shares of any
class of the Company's stock now or hereafter
outstanding, without the prior approval by the Bank.
Item 3 - 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 4 - 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.
Date: November 13, 1998 /s/ Gary L. Hess
-----------------------
Gary L. Hess, President
Date: November 13, 1998 /s/ Tom R. Eakin
-----------------------
Tom R. Eakin, VP Finance
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
10Q for the quarter ended September 30, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Jun-30-1999
<PERIOD-END> Sep-30-1998
<CASH> 166,000
<SECURITIES> 0
<RECEIVABLES> 2,756,000
<ALLOWANCES> 87,000
<INVENTORY> 7,932,000<F1>
<CURRENT-ASSETS> 11,602,000
<PP&E> 19,096,000
<DEPRECIATION> 12,084,000
<TOTAL-ASSETS> 21,226,000
<CURRENT-LIABILITIES> 5,177,000
<BONDS> 0
0
0
<COMMON> 2,850,000<F3>
<OTHER-SE> 5,964,000<F2>
<TOTAL-LIABILITY-AND-EQUITY> 21,226,000
<SALES> 8,021,000
<TOTAL-REVENUES> 8,201,000
<CGS> 6,946,000
<TOTAL-COSTS> 6,946,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99,000
<INCOME-PRETAX> (311,000)<F4>
<INCOME-TAX> (109,000)
<INCOME-CONTINUING> (129,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (129,000)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
<FN>
<F1>Net of LIFO reserve of $1,115,000
<F2>Retained Earnings
<F3>1,513,411 Total common shares outstanding
<F4>Before minority interest of $73,000
</FN>
</TABLE>
