SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d) X of the Securities
Exchange Act of 1934.
For the quarterly period ended December 31, 1999 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
SONOMAWEST HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA 94-1069729
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(State of incorporation) (IRS Employer Identification #)
100 STONY POINT ROAD, SUITE 200, SANTA ROSA, CALIFORNIA 95401
- - - - ------------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 707/535-4000
- - - - --------------------------------------------------
VACU-DRY COMPANY
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(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 February 22, 2000, there were 1,520,734 shares of common stock, no par
value, outstanding.
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SONOMAWEST HOLDINGS, INC.
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at December 31, 1999
and June 30, 1999................................................3
Condensed Consolidated Statements of Earnings -
Three and Six Months Ended December 31, 1999 and 1998............5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended December 31, 1999 and 1998......................6
Notes to Condensed Consolidated Financial Statements...............7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................12
Item 2. Changes in Securities.............................................12
Item 4. Submission of Matters to a Vote of Security Holders...............12
Item 6. Exhibits and Reports on Form 8-K..................................12
Signature.................................................................13
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SONOMAWEST HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
AMOUNTS IN THOUSANDS
12/31/99 6/30/99
------------ ------------
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CURRENT ASSETS:
Cash $ 8,643 $ 548
Accounts receivable, net 629 327
Prepaid income taxes -- 566
Inventories, net 1,122 1,513
Prepaid expenses 91 165
Current deferred taxes, net 1,439 2,032
Net current assets of
discontinued operations -- 5,222
------------ ------------
Total current assets 11,924 10,373
------------ ------------
Property, plant, equipment, net 2,892 3,135
Net assets of discontinued operations -- 3,859
Deferred income taxes, net 171 326
Other assets 75 --
------------ ------------
Total assets $ 15,062 $ 17,693
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See Notes to Condensed Consolidated Financial Statements
3
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SONOMAWEST HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
AMOUNTS IN THOUSANDS
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12/31/99 6/30/99
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CURRENT LIABILITIES:
Borrowings under line of credit $ -- $ 5,745
Current maturities of long term debt 344 1,416
Accounts payable 254 542
Income taxes payable 712 --
Accrued payroll and related liabilities 153 437
Other accrued expenses 99 183
Net current liabilities of
discontinued operations 974 --
------------ ------------
Total current liabilities 2,536 8,323
------------ ------------
Net liabilities of discontinued operations 446 --
Long term debt-net of
current maturities 2,565 2,860
------------ ------------
Total liabilities 5,547 11,183
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SHAREHOLDERS' EQUITY:
Capital stock 2,897 2,890
Warrants for common stock 456 456
Retained earnings 6,162 3,164
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Total shareholders' equity 9,515 6,510
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Total liabilities and shareholders' equity $ 15,062 $ 17,693
============ ============
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See Notes to Condensed Consolidated Financial Statements
4
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SONOMAWEST HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Six Months Three Months
Ended December 31 Ended December 31
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
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REVENUES:
Net Sales $ 1,151 $ 1,258 $ 535 $ 565
Rental 666 279 462 165
------- ------- ------- -------
Total revenue $ 1,817 $ 1,537 $ 997 $ 730
------- ------- ------- -------
Costs & Expenses
Cost of sales 1,095 1,138 652 496
Selling, general & administrative 1,273 1,472 571 696
------- ------- ------- -------
Total costs and expenses 2,368 2,610 1,223 1,192
------- ------- ------- -------
Other income (expense), net (3) (70) 47 (49)
------- ------- ------- -------
Loss from continuing operations before minority
interest and benefit for income taxes (554) (1,143) (179) (511)
MINORITY INTEREST -- 132 -- 59
------- ------- ------- -------
Loss from continuing operations before benefit for income taxes (554) (1,011) (179) (452)
BENEFIT FOR INCOME TAXES (221) (401) (72) (180)
------- ------- ------- -------
Net loss from continuing operations (333) (610) (107) (272)
------- ------- ------- -------
DISCONTINUED OPERATIONS:
Earnings from discontinued operations, net of income taxes 431 801 -- 592
Gain (loss) on sale of discontinued business, net of income taxes 2,899 -- (421) --
------- ------- ------- -------
NET EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS 3,330 801 (421) 592
------- ------- ------- -------
NET EARNINGS (LOSS) $ 2,997 $ 191 $ (528) $ 320
======= ======= ======= =======
WEIGHTED AVERAGE COMMON SHARES AND EQUIVALENTS:
Basic 1,520 1,512 1,520 1,516
======= ======= ======= =======
Diluted 1,551 1,540 1,542 1,540
======= ======= ======= =======
EARNINGS (LOSS) PER COMMON SHARE
Continuing operations
Basic $ (0.22) $ (0.40) $ (0.07) $ (0.18)
======= ======= ======= =======
Diluted $ (0.22) $ (0.40) $ (0.07) $ (0.18)
======= ======= ======= =======
Discontinued operations:
Basic $ 2.19 $ 0.53 $ (0.28) $ 0.39
======= ======= ======= =======
Diluted $ 2.15 $ 0.52 $ (0.28) $ 0.38
======= ======= ======= =======
Net earnings (loss):
Basic $ 1.97 $ 0.13 $ (0.35) $ 0.21
======= ======= ======= =======
Diluted $ 1.93 $ 0.12 $ (0.35) $ 0.21
======= ======= ======= =======
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See Notes to Condensed Consolidated Financial Statements
5
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SONOMAWEST HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
AMOUNTS IN THOUSANDS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,998 $ 191
Adjustments to reconcile net earnings (loss)
to net cash used for operating activities:
Earnings from discontinued operations, net (431) (801)
Gain on sale of discontinued business, net (2,899) --
Depreciation and amortization expense 124 83
Minority interest -- (132)
Changes in assets & liabilities:
Accounts receivable, net (302) (104)
Income tax receivable 250 (71)
Inventories, net 391 (4,450)
Prepaid and other assets (1) 179
Accounts payable (288) 1,585
Accrued payroll & related liabilities (284) 3
Other accrued expenses (84) (3)
-------- --------
Net cash provided by (used for) operating activities (526) (3,520)
-------- --------
Net cash provided by discontinued operations 15,764 1,132
-------- --------
Net cash provided by (used) in operating activities 15,238 (2,388)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (38) (891)
-------- --------
Net cash provided by (used for) investing activities (38) (891)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under the line of credit 3,727 12,812
Payments on the line of credit (9,472) (11,617)
Principal payments of current debt (1,367) (283)
MINCO financing proceeds -- 2,100
Issuance of common stock 7 14
-------- --------
Net cash provided by (used for) financing activities (7,105) 3,026
-------- --------
NET INCREASE (DECREASE) IN CASH 8,095 (253)
CASH AT THE BEGINNING OF THE YEAR 548 385
-------- --------
TOTAL CASH AT THE END OF THE PERIOD $ 8,643 $ 132
======== ========
See notes to Condensed Consolidated Financial Statements
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6
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SONOMAWEST HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1999
Note 1-
The accompanying 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 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 periods presented have been reflected and are of a normal
recurring nature except as discussed below. 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, 1999. The results of
operations for the three- and six-month periods ended December 31, 1999 are not
indicative of the results that will be achieved for the entire year ending June
30, 2000.
Reclassification - Certain previously-reported amounts were reclassified to
conform to the current presentation with respect to discontinued operations.
Note 2-
In July 1999, the Company consummated an asset purchase agreement (the Purchase
Agreement) with Tree Top, Inc. The Purchase Agreement governs the sale of all
intangible assets (primarily trademarks, know how and customer lists) and
certain of the equipment relating to the Company's processed apple products
line. Although the Purchase Agreement excludes other product lines within the
Company's ingredient segment, the Company is actively seeking buyers for the
remaining product lines of the ingredients segment and plans to discontinue
production of all ingredients segment products by June 30, 2000. Consequently,
the ingredients segment has been presented as a discontinued operation in the
accompanying consolidated financial statements. The purchase price for the sale
of the processed apple product line of $12,000,000 was paid in cash at the
closing date of the sale on July 30, 1999. In addition, apple products
inventories with a net book of $ 1.7 million were purchased by Tree Top, Inc. at
a price of $1.9 million. Tree Top, Inc. is not assuming any of the Company's
liabilities. In connection with the Purchase Agreement, the Company and certain
shareholders, directors, and management will agree not to compete with Tree Top,
Inc. in processed apple product lines for a period of three to ten years. In
addition, as part of the transaction, the Company sold the Vacu-dry trademark.
Thus, the Company changed to its current name in December 1999.
During the first half of fiscal 2000, the Company recorded a net after-tax gain
of $2.9 million from the sale of the processed apple product line and the
disposal of the remaining product lines of the ingredients segment. The net
after-tax gain included $15,764,000 of proceeds from the sale offset by a) the
write-down of assets related to the ingredients segment to their estimated net
realizable value (assets which were impaired as a direct result of the decision
to discontinue the segment and sell the apple product lines), b) costs to be
incurred in closing the discontinued segment (consisting primarily of severance
costs, professional fees, relocation costs and lease buy-outs), c) estimated
operating losses to be incurred during the wind-down period and d) estimated
loss on sale of equipment at auction.
7
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Summarized historical information of the discontinued operations is as follows:
SIX MONTHS ENDED DECEMBER 31,
1999 1998
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7<S> <C> <C>
Income statement data:
Revenues $ 7,726,000 $ 9,389,000
Costs and expenses (7,008,000) (8,054,000)
------------ ------------
Operating income 718,000 1,335,000
Income tax expense (287,000) (534,000)
------------ ------------
Income from discontinued operations, net of income taxes $ 431,000 $ 801,000
============ ============
DECEMBER 31,1999 JUNE 30,1999
---------------- ------------
Balance sheet data:
Accounts receivable, net of reserves of $130,000 and $172,000 $ -- $ 2,287,000
Inventories, net of reserves of $3,962,000 and $3,968,000 237,000 7,202,000
Prepaid expenses -- 323,000
------------ ------------
Total current assets of discontinued operations 237,000 9,812,000
Property, plant and equipment, net -- 4,448,000
------------ ------------
Total assets of discontinued operations 237,000 14,260,000
Accounts payable -- 3,388,000
Accrued payroll and related liabilities -- 812,000
Other accrued expenses -- 180,000
Capital lease liability for computer system 697,000 799,000
Provision for severance, transaction costs, wind-down costs and other
liabilities related to the decision to discontinue the ingredients segment 960,000 --
------------ ------------
Total liabilities of discontinued operations 1,657,000 5,179,000
Net assets (liabilities) of discontinued operations $ (1,420,000) $ 9,081,000
============ ============
The inventories included above have been adjusted to net realizable value
Note 3 -
INVENTORIES - Inventories are stated at FIFO cost
Inventories at December 31, 1999 and June 30, 1999, consisted of the following:
12/31/99 6/30/99
------------ ------------
Finished goods $ 224,000 $ 195,000
Raw materials, & supplies 1,260,000 1,696,000
Reserve for obsolete inventory (362,000) (378,000)
------------ ------------
$ 1,122,000 $ 1,513,000
============ ============
Note 4 -
STATEMENT OF CASH FLOWS - Interest and income tax payments reflected in the
Condensed Consolidated Statement of Cash Flows were as follows:
1999 1998
------------ ------------
Interest paid $ 166,000 $ 198,000
Income taxes paid $ 220,000 $ 102,000
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8
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
SonomaWest Holdings, Inc. (the "Company") is including the following cautionary
statement in this Form 10-Q to make applicable and take advantage of the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995 for
any forward looking statements made by, or on behalf of, the Company. Forward
looking statements include statements concerning plans, objectives, goals,
strategies, future events or performance and underlying assumptions, and other
statements which are other than statements of historical facts. Certain
statements contained herein are forward looking statements and, accordingly,
involve risks and uncertainties which could cause actual results or outcomes to
differ materially from those expressed in the forward looking statements. In
addition to other factors and matters discussed elsewhere herein, these risks
and uncertainties include, but are not limited to, uncertainties affecting the
food processing industry, risks associated with fluctuations in the price and
availability of raw materials, management of growth, adverse publicity affecting
organic foods or the Company's products, and product recalls. The Company's
expectations, beliefs and projections are expressed in good faith and are
believed by the Company to have a reasonable basis, including without
limitation, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectations, beliefs or
projections will result or be achieved or accomplished. The Company disclaims
any obligation to update any forward-looking statements to reflect events or
circumstances after the date hereof.
The financial statements herein presented for the quarters and six-month periods
ended December 31, 1999 and 1998 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 periods then ended. All adjustments during the
periods presented are of a normal recurring nature unless otherwise stated.
OVERVIEW
Since the Company acquired certain of the assets and liabilities of Made in
Nature, Inc. on June 11, 1998, the Company has operated in three business
segments: industrial dried fruit ingredients, organic packaged foods and real
estate. The Company commenced a strategic reorganization upon the announcement
of the proposed sale of the bulk of its apple-based industrial ingredients
product line in June 1999. In August 1999 the decision was made to sell or
discontinue all product lines in the Company's industrial dried fruit
ingredients business segment. As a result of these decisions, the ingredients
business is considered a discontinued operation and its operating results,
results of cash flows and net assets are reflected outside of the Company's
continuing operations.
DISCONTINUED OPERATIONS
In June 1999 the Company announced an agreement (subsequently approved by the
Company's shareholders in July 1999), to sell the bulk of its apple-based
industrial ingredients product line to Tree Top, Inc., of Selah, Washington.
This product line represented 55% and 81% of the Company's sales for the years
ended June 30, 1999 and 1998, respectively. At the same time, the Company also
decided to close its only apple processing plant in Sebastopol, California. This
sale, which was recorded in the first quarter of fiscal 2000, is an important
element of the Company's strategic plan to increase the return on its
investments and increase shareholder value by exiting businesses with low
returns and high capital requirements. The transactions will provide financial
resources to support the Company's real estate and other business opportunities.
The terms of the sale included the payment of $12 million cash to the Company in
July 1999. Tree Top also purchased related product line inventories of $1.9
million in September and October 1999. The after-tax gain on the sale was $2.8
million. The net gain is based upon the cash proceeds and the disposal value of
assets not acquired by Tree Top, offset by severance and relocation costs,
wind-down costs, transaction costs and identified liabilities directly related
to the decision to discontinue the business segments. These costs may be
adjusted in the future depending upon the final wind-down of the business which
is expected to run through June 30, 2000.
Following completion of the sale, the Company determined in August 1999 that the
remaining product lines in the Company's vacuum ingredients segment of its
business would be discontinued and held for sale. These product lines include
the Company's vacuum dried ingredients, Perma-Pak long-term food storage, and
drink mix businesses. As a result of these decisions, the Company has classified
this business segment as a discontinued business. Accordingly, the Company has
segregated the net assets of the discontinued operations in the Consolidated
Balance Sheets at December 31 and June 30, 1999, the operating results of the
discontinued operations in the Consolidated Statements of Operations for three
and six months ended December 31,1999 and 1998, and the cash flows from
discontinued operations in the Consolidated Statements of Cash Flows for the six
months ended December 31, 1999 and 1998.
9
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In addition, as part of the transaction, the Company sold the Vacu-dry
trademark. As a result, the Company adopted its new name in December 1999.
In the first half of fiscal 2000, the Company recorded after-tax earnings from
discontinued operations of $431,000. The after-tax earnings resulted from
ingredients business sales of $7.7 million in fiscal 2000 versus $9.4 million in
fiscal 1999. The decline in sales was due to the liquidation of the apple
ingredients business during the first quarter of fiscal 2000 and a significant
decline in the sales of Perma Pak products. The ingredients business generated
$718,000 of operating income in fiscal 2000 versus $1,335,000 in fiscal 1999.
The Company is actively marketing all of its discontinued product lines and has
presented offering information to interested parties. There can be no assurances
that there will be a sale of all or any of the remaining product lines. The
anticipated pick up in demand for low moisture, shelf stable foods in the second
half of 1999 surrounding Y2K fears did not materialize. As a result, the Company
recorded additional reserves of $500,000 in December 1999 to reflect the
estimated impairment of its Perma Pak inventories. These reserves are included
in the gain (loss) on sale of discontinued business, net of income taxes, in the
accompanying Condensed Consolidated Statements of Earnings. During the second
quarter of fiscal 2000 the Company completed the sale of the majority of its
remaining production equipment associated with its discontinued businesses.
Finally, the Company successfully concluded negotiations with Teamsters Local
624 regarding severance associated with the sale of the apple-based ingredients
businesses. Severance payments totaling approximately $300,000 were paid to
former union employees in December 1999. The losses on equipment sales and the
severance payments were consistent with the amounts provided in the first
quarter of fiscal 2000.
RESULTS OF CONTINUING OPERATIONS
The Company's continuing lines of business consist of the sales and marketing of
organic packaged fruits and beverages through the Company's subsidiary Made in
Nature Company, Inc. (MINCO) and the leasing and development of the Company's
real estate. The Company continues to look for opportunities to drive costs out
of the MINCO operation, reducing staff by more than 50% (to 5) since its
acquisition in June 1998. All production is outsourced. Expanding product
distribution beyond the historical specialty health food category into mass
supermarkets has proven to be a challenge. These customers typically demand
significant free goods and advertising commitments to induce order flow, along
with full product dating protection. A significant portion of the Company's
future revenues will come from the Company's second business segment, real
estate. The Company intends to develop its real estate largely for industrial
rental. The current use permit for the Company's former production site requires
that the facility be used in part for the processing of locally grown crops. The
Company is attempting to broaden the use permit to allow other types of
activities, but there can be no assurance that such efforts will be successful.
RESULTS OF OPERATIONS
Net sales consist solely of MINCO revenues, and were $1,151,000 and $535,000 for
the six and three months ending December 31, 1999, as compared with $1,258,000
and $565,000 for the corresponding periods in the prior year, declines of 9% and
5%, respectively. The decreases in sales were due to decreases in both beverage
and packaged dried fruit product line sales. The Company continues to evaluate
all of its options to bring MINCO operations to profitability, including a
possible sale or merger of the business to gain operating scale efficiencies.
Rental Revenue represents the Company's leasing of warehouse space in several
buildings and a yard as well as its former production facility. There are leases
with more than a dozen tenants that have varying terms ranging from
month-to-month to eight years with options to extend. Several of the larger
tenants have notified the Company that they will be moving before June 2000. In
addition, the Company is preparing its vacated production facility for leasing,
and has engaged a broker to assist in the marketing effort. Fiscal 2000 rental
revenues have increased $387,000 and $297,000, or 139% and 180% for the six and
three months ended December 31, respectively, as compared with the corresponding
periods in the prior year. These increases are due to higher market rental
rates, CPI increases and the leasing of some previously vacant space, along with
annual true-up utility billings for some tenants performed in December 1999.
All Cost of Goods Sold are related to the sales of Made in Nature products.
Profitability was impacted in the current quarter by the sale of some
stale-dated specialty juice concentrate at a $210,000 loss. Without this
transaction, MINCO would have earned 23% year-to-date gross margin in fiscal
10
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2000 compared to 8% in the prior year. This improvement in margin is the result
of Company efforts to lower its distribution costs and customer claims for
spoilage, along with better inventory management.
Selling, general and administrative expenses include only direct costs related
to continuing operations and all general corporate overhead costs. Only direct
selling, general and administrative costs related to the ingredients business
were allocated to discontinued operations in the Consolidated Statements of
Operations. In the second quarter and year-to-date of fiscal 2000, selling,
general and administrative expenses related to continuing operations decreased
18% and 14% from the corresponding periods of the prior year, to $1,273,000 and
$571,000, respectively. These declines were primarily due to significant efforts
to reduce expenses for MINCO and reduced corporate costs due to the downsizing
of the operation.
The effective tax rate for the second quarter and year-to-date fiscal 2000 and
the corresponding periods in fiscal 1999 was 40%, or approximately the statutory
rate after the federal benefit for state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company utilized the $15.8 million net proceeds from its discontinued
operations (including $12 million from the sale of its apple product lines) to
reduce borrowings under the bank line of credit and to retire a significant
portion of its debt. Cash balances increased from $548,000 at June 30, 1999 to
$8,643,000 at December 31, 1999. The Company retired two share repurchase notes
in January 2000 to reduce long-term debt another $271,000.
Historically, the Company's operating capital has been obtained from a
combination of internal and external sources. The largest external source has
been a revolving line of credit provided by a bank at its prime rate of
interest, which is secured by the Company's assets. As of September 30, 1999,
the Company had no outstanding balance on a maximum available line of $2
million, nor did the Company draw down this facility during the second fiscal
quarter. This credit facility was initially scheduled to expire in November
2000. However, as a result of the sale of the discontinued operations, the bank
amended the agreement in August 1999, reducing the maximum line of credit to $2
million with an expiration date of December 31, 1999. The Company has no plans
to renew the credit facility, as internally-generated cash flow and the
remaining proceeds from the sale of the ingredients business should be
sufficient to meet working capital needs for the coming year.
In fiscal 1998, the Company had performed a review of its information technology
(IT) systems and determined that they were not year 2000 compliant. As a result,
a new computer system with related hardware was installed during fiscal 1999 at
a cost of $1.1 million. The related IT expenditures were partially financed
through capital lease arrangements of $840,000. These leases were divided into
two components: one for hardware for $246,000, and the other for software,
including installation by an outside consulting firm, for $594,000. The leases
are payable over three and four years, respectively, and include a buy-out
option. Management feels that upon the sale and closedown of the discontinued
operations, the new system will far exceed the Company's future requirements.
Consequently, the existing system was written off in the quarter ended September
30, 1999, and is included in the net gain on the sale of the discontinued
business. The Company converted to a simpler and less expensive system for an
investment of less than $50,000 in December 1999 that is also year 2000
compliant.
Until recently, the Company's real estate activities had consisted of the
leasing of an idle production facility and rental of a small portion of space in
its operating facility. Most of the previously available space has been rented.
With the closure of the plant as a result of the sale of the processed apple
product lines, the Company intends to convert all of its former plant space to
industrial rentals by outside parties. The new space available for leasing
includes a mix of offices, production buildings and warehouses plus
approximately 55,000 square feet of cold storage. The Company is actively
seeking to attract wineries and food processors to occupy the space, and has
engaged a leading real estate broker to assist in the marketing and leasing of
the facility. It is anticipated that the facility will be fully leased in stages
over the next twelve months.
11
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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 April 20,
1999, included a covenant which prohibited 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 line of credit expired
December 31, 1999 and the Company has no plans to renew it.
Item 4. Submission of Matters to a Vote of Security Holders.
On July 26, 1999 holders of a majority of the Company's outstanding common stock
approved by written consent the sale of certain of the intangible assets and
some of the equipment related to the Company's processed apple product line.
Shareholders holding 929,304 shares voted for the transaction and shareholders
holding 16,856 shares voted against the transaction.
The Company's Annual Meeting of Shareholders was held on November 22, 1999. Gary
L. Hess, Roger S. Mertz, Frederic Selinger and Craig R. Stapleton were elected
directors. In addition, the following proposals were approved:
a. An amendment to the Company's Articles of Incorporation to change the
name of the Company from Vacu-dry Company to SonomaWest Holdings, Inc.
b. An amendment to the Company's Articles of Incorporation changing the
corporate purposes and powers of the Company.
c. An amendment to the Company's by-laws to provide for a change in the
authorized number of directors.
d. An amendment to the Company's 1996 Stock Option Plan to increase the
shares available for issuance under the Plan by an aggregate of 185,000
shares to 275,000 shares.
The shares voted for, against, and abstain on these matters were as follows:
Proposal For Against Abstain
- - - - -------- --- ------- -------
Name Change 951,587 11,865 794
Change in Purposes 932,647 30,880 719
Amendment to By-Laws 890,402 52,744 21,100
Amendment to Option Plan 801,395 161,182 1,669
Item 6. Exhibits & Reports on Form 8-K
a. Exhibits
(27) Financial Data Schedule (by electronic filing only)
Reports on Form 8-K
On August 5,1999 the Company filed a Form 8-K relating to the approval of the
transaction described in Item 4 above.
12
<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: February 22, 2000 /s/ GARY L. HESS
---------------------------------------
Gary L. Hess,
Chief Executive Officer, President
and Chief Financial Officer
13
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<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
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<CIK> 0000102588
<NAME> SONOMAWEST HOLDINGS, INC.
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<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
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0
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<INCOME-PRETAX> (554)
<INCOME-TAX> (221)
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