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 March 31, 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 May 12, 1998, there were 1,509,438 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>
Nine Months Nine Months Three Months Three Months
Ended Ended Ended Ended
3/31/98 3/31/97 3/31/98 3/31/97
REVENUES:
Net sales $19,897,000 $18,233,000 $6,208,000 $5,894,000
Other 342,000 531,000 116,000 176,000
----------- ----------- ---------- ----------
Total revenue $20,239,000 $18,764,000 $6,324,000 $6,070,000
----------- ----------- ---------- ----------
COST & EXPENSES:
Cost of sales 16,465,000 16,208,000 5,007,000 5,392,000
Selling, general &
administrative 2,270,000 1,625,000 1,025,000 545,000
Interest 215,000 175,000 90,000 82,000
----------- ----------- ---------- ----------
Total cost & expenses $18,950,000 $18,008,000 $6,122,000 $6,019,000
----------- ----------- ---------- ----------
EARNINGS BEFORE
INCOME TAXES 1,289,000 756,000 202,000 51,000
PROVISION FOR INCOME TAXES 438,000 306,000 68,000 24,000
-------- -------- -------- --------
NET EARNINGS $851,000 $450,000 $134,000 $27,000
======== ======== ======== =======
EARNINGS PER COMMON SHARE $.53 $.27 $.09 $.02
===== ==== ==== ====
WEIGHTED AVERAGE COMMON
SHARES 1,604,779 1,650,001 1,525,274 1,638,739
========== ========= ========= =========
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>
CURRENT ASSETS: 3/31/98 3/31/97 6/30/97 CURRENT LIABILITIES: 3/31/98 3/31/97 6/30/97
------- ------- ------- ------ ------- -------
Cash $194 $250 $283 Borrowings under line of credit $750 $3,428 $1,354
Accounts receivable 2,570 2,306 1,567 Current maturities of long-term debt 595 576 557
Other receivable 16 27 70 Accounts payable 1,369 1,461 490
Inventories 7,853 7,692 5,055 Accrued payroll & related liabilities 761 742 539
Prepaid expenses 17 16 131 Accrued expenses 318 123 173
Current deferred taxes 240 225 239 Income taxes payable 30 -0- -0-
-- --- ---
------- ------- ------
Total current assets $10,890 $ 10,516 $7,345 Total current liabilities $3,823 $6,330 $3,113
------ ------ ------
Borrowings under line of credit 1,850 -0- -0-
Long-term debt net of
current maturities 2,185 1,927 1,808
----- ----- -----
Net property, plant &
equipment 6,665 7,337 7,231 Total long-term debt 4,035 1,927 1,808
----- ----- -----
DEFERRED INCOME TAXES 826 843 826
--- --- ---
SHAREHOLDERS' EQUITY;
Capital stock 2,826 3,626 3,635
Retained earnings 6,045 5,127 5,194
----- ----- -----
Total shareholders' equity 8,871 8,753 8,829
______ _______ _______ Total liabilities and _______ _______ _______
Total Assets $17,555 $17,853 $14,576 shareholders' equity $17,555 $17,853 $14,576
======= ======= ======= ======= ======= =======
See notes to interim financial statements
</TABLE>
<PAGE>
VACU-DRY COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1997
CASH FLOWS FROM OPERATING ACTIVITIES: 1998 1997
---- ----
Net earnings $851,000 $450,000
-------- --------
Adjustments to reconcile net earnings to net
cash used for operating activities -
Depreciation expense 821,000 787,000
Deferred income tax provision (1,000) 95,000
Changes in certain assets & liabilities
(Increase)decrease in receivables (949,000) 351,000
(Increase) in inventories (2,798,000) (4,262,000)
Decrease in prepaid assets 114,000 100,000
Increase in accounts payable 879,000 783,000
Increase in accrued expenses 145,000 17,000
Increase in accrued payroll
& related liabilities 222,000 266,000
Increase(decrease)in income taxes payable 30,000 (32,000)
---------- ----------
Total adjustments (1,537,000) (1,895,000)
----------- ----------
Net cash used for operating
activities (686,000) (1,445,000)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (255,000) (401,000)
_________ _________
Net cash (used for) investing activities (255,000) (401,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowings under the
line of credit 8,385,000 6,483,000
Payments on line of credit (7,139,000) (3,881,000)
Employee purchase of Company stock 26,000 32,000
Repurchase of common stock -0- (407,000)
Principal payments of long-term debt (420,000) (345,000)
--------- ---------
Net cash provided by financing
activities 852,000 1,882,000
--------- ---------
NET (DECREASE) IN CASH (89,000) 36,000
CASH AT THE BEGINNING OF THE YEAR 283,000 214,000
-------- --------
TOTAL CASH AT THE END OF THE PERIOD $194,000 $250,000
========= ========
Supplemental Disclosure of Non-Cash Activities
Repurchase of stock through the
issuance of notes payable $835,000 $ -0-
========= =====
See notes to interim financial statements
<PAGE>
VACU-DRY COMPANY
NOTES TO INTERIM FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1998
Note 1 -
The accompanying 1998 and 1997 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 nine month
period ended March 31, 1998 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 March 31, 1998 and June 30, 1997, consisted of the
following:
3/31/98 6/30/97
Finished goods 6,551,000 $4,208,000
Work in progress 597,000 291,000
Raw materials, &
containers 705,000 556,000
---------- ----------
$7,853,000 $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:
1998 1997
---- ----
Interest paid $210,000 $159,000
Income taxes paid $409,000 $261,000
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. Under this agreement,
the Company can borrow at the Bank's prime rate with repayment terms of
two years or at LIBOR with a short-term maturity.
VACU-DRY COMPANY
NOTES TO INTERIM FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1998
Note 5 - Income Taxes
The effective income tax rate for the nine month period ending March 31, 1998
is 34%, which is comparable to the effective tax rate for the year ended June
30, 1997.
Note 6 - Subsequent Event -
On April 21, 1998, the Company executed a letter of intent to acquire
substantially all of the business and assets of Made In Nature,Inc., a
natural foods company headquartered in San Rafael, California.
The acquisition, which would be accomplished through a wholly owned
subsidiary,is conditioned upon acceptable completion of due diligence, the
resolution of certain current obligations on the part of Made In Nature, and
board approval of both companies. The letter of intent calls for the Company
to acquire the business and its assets free and clear of all liens and
liabilities except those specifically assumed.
Note 7 - Stock Repurchase -
On January 9 and 20, 1998, the Company completed the purchase of two blocks
of its Common Stock aggregating 139,100 shares, equal to approximately 8.5%
of its outstanding Common Stock. The shares were purchased in two privately
negotiated transactions. The purchase price in each transaction was $6.00 per
share. Payment was made by delivery of the Company's subordinated,
interest-only notes. The notes bear interest at 8.5% per annum and are due in
full in five years.
<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 March 31, 1998
and 1997, 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 level of inventories are very comparable to March 31,1997 however, we
are anticipating that our inventory balances at the end of the current fiscal
year will be lower than last year. The net working capital as of March 31, 1998
increased by $2,881,000, from $4,186,000 as March 31, 1997 to $7,067,000 as of
March 31, 1998. Of this increase, $1,850,000 was a result of the refinancing of
the line of credit to a term of two years (See Note 4 to Financial Statements).
The remaining increase was primarily a result of the improved earnings.
The Company's operating capital is 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 $4,500,000 in anticipation of higher short-term
borrowing requirements as a direct result of a condensed production period and
the related increase in the inventory levels. As of March 31, 1998, the Company
had $1,900,000 of available borrowings on the line of credit. This compares to
$72,000 of available funds as of March 31, 1997 on a total line of $3,500,000.
As of March 31, 1998, the Company was in compliance with all of the covenants
and restrictions related to its outstanding debt. As of January 1998 the Company
signed a long-term lease for approximately one-half of the previously vacated
portion of this facility. The Company has secured a new short-term tenant for
the balance of the available space. This lease expires January 31, 1999. The
Company is in the process of negotiating a long-term lease with a new tenant,
beginning February 1, 1999. The Company continues to lease a portion of its
operating facility and is in negotiations with the primary tenant on a long-term
lease. The current lease was extended and expires on May 31, 1998.
The Company has increased its capital expenditure budget from $532,000 to
$625,000 for the fiscal year ended June 30, 1998. For the nine months ended
March 31, 1998, the Company has spent $255,000 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.
On April 21, 1998, the Company executed a letter of intent to acquire
substantially all of the business and assets of Made In Nature, Inc., a natural
food marketer of organic consumer packaged goods located in San Rafael,
California. The letter of intent calls for the Company to acquire the business
and its assets free and clear of all liens and liabilities except those
specifically assumed.
<PAGE>
Results of Operations
Quarter
Net sales increased $314,000 or 5% in the third quarter of fiscal 1998. 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 $976,000 however; lower sales in other product categories partially
offset the increase. Other revenue decreased $60,000 as a result of less
non-recurring income.
Cost of sales for the quarter ended March 31, 1998 decreased from 91.5% to 80.6%
of net sales. This decrease was primarily a result of reduced product costs.
Selling, general and administrative expenses increased $480,000 or 88% in the
third quarter. This increase was a result of costs incurred as a result of
exploration of new strategic initiatives, an accrual for the employee incentive
plan and Stock Appreciation Rights expense.
Interest expense increased $8,000 as a result of our increased average
borrowings on the line of credit during the quarter.
Year-to Date
Net sales increased $1,664,000 or 9.1% for the nine months ended March 31, 1998.
This increase was entirely from higher unit sales volume as the average sale
price declined slightly. The increase was predominately across all product
lines, but particularly in vacuum, drum drying and Zoria Farms sales. Other
revenue decreased $189,000 as a result of non-recurring revenue earned in 1997.
The Company's real estate income is comparable to last year.
Cost of sales as a percent of net sales decreased from 88.9% as of March 31,
1997 to 82.7% as of March 31, 1998. Although the average sales price dropped
slightly, the margin increased as a result of lower raw material prices,
improved yields and other production efficiencies.
Selling, general and administrative expenses increased $645,000 or 39.7% through
the nine months ended March 31, 1998. This increase was a result of costs
incurred as a result of exploration of new strategic initiatives, an accrual for
the employee incentive plan and Stock Appreciation Rights expense.
Interest expense increased $40,000 as a result of our higher average 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
There are no material changes in securities.
The Company's revolving line of credit agreement with its Bank
dated (December 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 the 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 -
Filed January 22, 1998, repurchase of two blocks of common
stock aggregating 139,100 shares.
<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: May 15, 1998 /s/ Gary L. Hess
------------
-----------------------
Gary L. Hess, President
Date: May 15, 1998 /s/ Tom Eakin
------------
-----------------------
Tom Eakin, VP, Finance
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
10Q for the quarter ended March 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Jun-30-1998
<PERIOD-END> Mar-31-1998
<CASH> 194,000
<SECURITIES> 0
<RECEIVABLES> 2,669,000
<ALLOWANCES> 83,000
<INVENTORY> 7,853,000<F1>
<CURRENT-ASSETS> 10,890,000
<PP&E> 18,193,000
<DEPRECIATION> 11,528,000
<TOTAL-ASSETS> 17,555,000
<CURRENT-LIABILITIES> 3,823,000
<BONDS> 0
0
0
<COMMON> 2,826,000
<OTHER-SE> 6,045,000
<TOTAL-LIABILITY-AND-EQUITY> 17,555,000
<SALES> 19,897,000
<TOTAL-REVENUES> 20,239,000
<CGS> 16,465,000
<TOTAL-COSTS> 16,465,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 215,000
<INCOME-PRETAX> 1,289,000
<INCOME-TAX> 438,000
<INCOME-CONTINUING> 851,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 851,000
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
<FN>
<F1>Net of LIFO reserve of $1,849,660
</FN>
</TABLE>
