-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DFFcxmIj+r1jA/1qi2a8gDPs/iWlHYJ3lVWpopT7cQCcyUjMQHrls8e3y8Y1XvgS HQhlOxwQ7gF0EkC/ZSDfOA== 0001004404-99-000016.txt : 19990517 0001004404-99-000016.hdr.sgml : 19990517 ACCESSION NUMBER: 0001004404-99-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VACU DRY CO CENTRAL INDEX KEY: 0000102588 STANDARD INDUSTRIAL CLASSIFICATION: CANNED, FROZEN & PRESERVED FRUIT, VEG & FOOD SPECIALTIES [2030] IRS NUMBER: 941069729 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-01912 FILM NUMBER: 99624579 BUSINESS ADDRESS: STREET 1: 7765 HEALDSBURG AVE STREET 2: P O BOX 2418 CITY: SEBASTOPOL STATE: CA ZIP: 95473-2418 BUSINESS PHONE: 7078294600 MAIL ADDRESS: STREET 1: P O BOX 2418 STREET 2: 7765 HEALDSBURG AVENUE CITY: SEBASTOPOL STATE: CA ZIP: 95473-2418 10-Q 1 QUARTERLY REPORT 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, 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 VACU-DRY COMPANY (Exact name of registrant as specified in its charter) ---------------------------------------------------- California 94-1069729 ---------- ------------- (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 - -------------------------------------------------- - --------------------------------------------------- (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, 1999, there were 1,517,503 shares of common stock, no par value, outstanding. 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 quarter and nine months ended March 31, 1999, 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 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 herein. Liquidity and Capital Resources - ------------------------------- Because the Company's operations, except for MINCO, are seasonal, the Company's liquid resources normally fluctuate during the year. The Company experiences a normal seasonal decrease in production beginning 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. The normal operating cycle of the Company has been significantly affected by the recent high level of sales of food storage (canned goods) products. Consumer concerns over potential Year 2000 (Y2K) computer-related problems have resulted in demand that has significantly exceeded prior year's sales. These increased sales have required higher production and inventory levels during the current fiscal year. 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 flow during the current fiscal quarter due to the build-up of food storage inventories and negative results from MINCO'S operations. MINCO's fiscal year-to-date sales and profitability have not met management's expectations. The Company is exploring alternate strategies such as new products and expense reductions in many areas in an attempt to achieve break-even results from MINCO. However, there is no assurance that profitable operations can be achieved in the near term. As a result of the acquisition of MINCO and the build-up of the food storage products, the debt to equity ratio increased from .90 in fiscal 1998 to 1.60 in fiscal 1999. Also during the current fiscal year the Company obtained a $2,100,000 five year note to finance the MINCO acquisition. The current ratio 2.4 at March 31,1999 compares to 3.5 at March 31,1998. The decrease was due to higher accounts payable for the purchase of food storage ingredients. Operating capital for the Company is obtained from external and internal sources. The Company's largest external source is a $8,000,000 revolving line of credit provided by a bank at the bank's prime rate. On April 20,1999, the company signed a new agreement with its existing bank which resulted in the line of credit being increased from $5,000,000 to $8,000,000. Under the terms of the revolving line of credit agreement, the Company can elect short term LIBOR financing or long term prime rate financing. Since it was anticipated that the Company would not have any availability under the previous $5,000,000 line of credit, a short-term loan from its current lender was arranged prior to March 31,1999. This borrowing was granted and included as part of the line of credit increase. At March 31,1998, the Company had $1,900,000 of availability under a $4,500,000 revolving line of credit. The decline in available borrowings resulted from the Company's utilization of the revolving line to fund higher inventory levels particularly for the food storage products and funding the negative cash flow of MINCO. As of March 31, 1999, 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 prohibiting the declaring or paying of a dividend in cash, stock or any other property without the prior approval by the bank. 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 as well as to make certain structural repairs needed to maintain the value of building improvements. The Company has reviewed its information technology (IT) systems and determined that it is not Year 2000 compliant. The Company has purchased new software, which is warranted to be Year 2000 compliant. In addition the Company has acquired new hardware on which to operate the new software. The Company has completed its assessment of its non-IT systems. All identified non-IT systems have been certified Year 2000 compliant by the original manufacturers. The Company has hired a consulting firm to manage the implementation of the software. The conversion for Vacu-dry and MINCO to this new system is expected to be completed by June 30, 1999. The conversion to the new software is divided into two Phases. Phase I for just the ingredient business was successfully completed on January 31,1999. The completion of the final Phase has been delayed until May 31, 1999. MINCO was also able to successfully install the new software on May 1,1999. We have allocated one month at the end of the conversion to make sure we have addressed all of the issues related to the conversion. A group of ten managers have formed an "Implementation Team" and are strongly supported by upper management. Both the Implementation Team and upper management are confident that the implementation can be completed by June 30, 1999. Management estimates that the total cost of the system will be approximately $900,000. The expenditures for the new system will primarily occur in fiscal 1999. As of March 31, 1999, the Company has expended approximately $800,000 of the total budget. The Company will finance these costs through a lease agreement. The Company has assessed its risk relative to the Year 2000 issue and is confident that it can accomplish the conversion prior to December 31, 1999. If this conversion does not happen the Company would have to rely on PC based software to accomplish its normal business activities until the conversion can be completed. Until recently, the Company has been successful in leasing all of its idle production facility other than a portion occupied by the product development group. The Company signed a long-term lease for approximately one-half of the previously vacated portion of this facility. 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. Results of Operations - --------------------- Quarter - ------- Net sales increased $6,592,000 or 106.2% in the third quarter of fiscal 1999. This increase was primarily due to record food storage sales primarily to one customer of $6,540,000, which represents an increase of $5,770,000 versus the prior year's sales of $770,00. However, since the Quarter's end the Company has experienced a significant decline in food storage sales and the level of future sales is uncertain. Also as a result of the decline, inventories of the food storage items are high. MINCO'S sales for the current quarter were $550,000,there were no MINCO sales for the prior year. Declines in both the prices and volume for the remaining food ingredients business have partially offset the aforementioned higher sales. Cost of sales for the quarter ended March 31, 1998 decreased from 80.6% to 72.2% of net sales. This decrease was a result of lower raw material costs and higher margins on the food storage line. Selling, general and administrative expenses increased $727,000 or 69.2% in the third quarter. Of this change, approximately $600,000 is a result of MINCO. The remaining balance of $127,000 is a result of staffing increases and their related wages. Interest expense increased $57,000 as a result of our increased average borrowings on the line of credit. This was due to funding needs for increased food storage inventory and MINCO'S negative cash flow. Year-to Date - ------------ Net sales increased $10,032,000 or 50.4% for the nine months ended March 31, 1999. This increase was primarily due to second and third quarter food storage sales, currently as noted above. The portion of the increase due to the inclusion of MINCO'S sales was $1,808,000. Fiscal year-to-date sales for the food ingredients business have been adversely affected by competitive pricing. As a result of the growing concern regarding the Y2K issue, food storage product sales have been at record levels. However, as of the date of this filing, we have returned to the lower normal levels for food storage sales with high amounts of unsold inventory on-hand. Since the Company is uncertain as to future revenue from the food storage line, the Company faces significant uncertainties in establishing inventory levels. Cost of sales as a percent of net sales decreased from 82.7% as of March 31, 1998 to 77.9% as of March 31, 1999. The primary reason for the decrease was higher margins on food storage sales and lower raw material costs. The effect of MINCO'S results in the consolidated costs of sales for fiscal 1999 was approximately 5.4% or $1,622,000. Selling, general and administrative expenses increased $2,514,000 or 107.1% through the nine months ended March 31, 1999. The portion of the increase due to the inclusion of MINCO was $2,027,000 or 80.7%. The remaining balance was due to increases in staffing and professional services Interest expense increased $160,000 as a result of our higher average borrowings on the line of credit. This was due to funding needs for increased food storage inventory and MINCO'S negative cash flow. The effective tax rate for the nine months ended March 31, 1999 of 38% is comparable to the 37% incurred for the fiscal year ended June 30, 1998.
VACU-DRY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (Dollars in thousands) Nine Months Nine Months Three Months Three Months Ended Ended Ended Ended 3/31/99 3/31/98 3/31/99 3/31/98 ----------- ----------- ------------ ------------- REVENUES: Net Sales $29,929 $19,897 $12,800 $6,208 Other 523 417 175 142 -------- -------- -------- -------- Total revenue $30,452 $20,314 $12,975 $6,350 -------- ------- ------- -------- Costs & Expenses Cost of sales 23,315 16,465 9,241 5,007 Selling, general & administrative 4,859 2,345 1,778 1,051 Interest 375 215 147 90 -------- -------- -------- ------ Total cost & expenses $28,549 $19,025 $11,166 $6,148 ------- ------- ------- ------ EARNINGS BEFORE INCOME TAXES AND MINORITY 1,903 1,289 1,809 202 MINORITY INTEREST 180 0 46 0 -------- -------- -------- -------- EARNINGS BEFORE INCOME TAXES 2,083 1,289 1,855 202 PROVISION FOR INCOME TAXES 723 438 688 68 ------- --------- -------- -------- NET EARNINGS $1,360 $851 $1,167 $134 ======== ======== ======== ======== WEIGHTED AVERAGE COMMON SHARES AND EQUIVALENTS: Basic 1,513,411 1,604,779 1,515,742 1,525,274 ========= ========= ========= ========= Diluted 1,547,902 -- 1,564,067 -- ========= ========= EARNINGS PER COMMON SHARE Basic $0.90 $0.53 $0.77 $0.09 ===== ===== ===== ===== Diluted $0.88 -- 0.75 -- ===== ==== See Notes to Interim Financial Statements
VACU-DRY COMPANY CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands) 3/31/99 3/31/98 6/30/98 3/31/99 3/31/98 6/30/98 ------- ------ ------- ------- ------- ------- CURRENT ASSETS: CURRENT LIABILITIES: Cash $172 $194 $385 Current maturities of long-term debt $ 438 $595 $438 Accounts receivable 3,478 2,570 2,298 Accounts payable 5,938 1,369 3,789 Other receivables 816 16 0 Income tax receivable 0 0 163 Accrued payroll & related liabilities 1,021 761 936 Inventories 14,892 7,853 7,926 Accrued expenses 395 318 353 Prepaid expenses 74 17 298 Income taxes payable 452 30 0 Current deferred taxes 360 240 360 ______ ______ ______ ------- ------- ------ Total current assets $19,792 $10,890 $11,430 Total current liabilities $8,244 $3,073 $5,516 ------ ------ ------ Borrowings under line of credit 5,000 2,600 2,297 ------ ------ ------ Property, plant & Long term debt-net of equipment, net 6,663 6,665 6,784 current maturities 3,914 2,185 2,203 ----- ----- ----- DEFERRED INCOME TAXES 865 826 865 --- --- --- MINORITY INTEREST 329 0 509 --- -- --- SHAREHOLDERS' EQUITY: Goodwill, net of amortization 2,682 0 2,562 Capital stock 2,876 2,826 2,837 Warrants for common stock 456 0 456 Retained earnings 7,453 6,045 6,093 ------ ------ ------ Total shareholders' equity 10,785 8,871 9,386 _______ ______ _______ Total liabilities and _______ _____ ______ Total Assets $29,137 17,555 $20,776 shareholders' equity $29,137 $17,555 $20,776 ======= ====== ======= ======= ======= ======= See notes to interim financial statements
VACU-DRY COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED MARCH 31, 1999 AND 1998 CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998 ---- ---- Net earnings $1,360 $851 Adjustments to reconcile net earnings to net cash used for operating activities: Depreciation and amortization expense 952 821 Deferred income tax provision -0- (1) Minority interest (180) -0- Changes in assets & liabilities: Accounts receivable, net (1,226) (949) Other receivables (816) -0- Income tax receivable 163 -0- Inventories, net (7,001) (2,798) Prepaid assets 224 114 Accounts payable 1,999 879 Accrued payroll & related liabilities 85 222 Accrued expenses 42 145 Income taxes payable 452 30 ------- ------ Net adjustments (5,306) (1,537) ------- ------ Net cash used for operating activities (3,946) (686) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (722) (255) ------- ------- Net cash used for investing activities (722) (255) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under the line of credit 20,540 8,385 Payments on line of credit (17,837) (7,139) Principal payments of long-term debt (388) (420) Proceeds from MINCO financing 2,100 -0- Issuance of common stock 40 26 ------- ------- Net cash provided by financing activities 4,455 852 ------- ------- NET DECREASE IN CASH (213) (89) CASH AT THE BEGINNING OF THE YEAR 385 283 ---- ---- TOTAL CASH AT THE END OF THE PERIOD $172 $194 ==== ==== See notes to Interim Financial Statement
VACU-DRY COMPANY NOTES TO INTERIM FINANCIAL STATEMENTS NINE MONTHS ENDED MARCH 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. 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 nine month period ended March 31, 1999 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. During the third quarter approximately 50% of sales were for food storage items to primarily one customer. Reclassification - Certain 1998 amounts were reclassified to conform to the 1999 presentation. Note 2 - Inventories - -------------- Inventories are stated at LIFO cost for Vacu-dry; FIFO cost for MINCO. The excess of current cost of the inventory over LIFO cost was $657,000 at March 31, 1999 and $1,115,000 at June 30, 1998. Inventories at March 31, 1999 and June 30, 1998, consisted of the following: 3/31/99 6/30/98 ------- ------- Vacu-dry LIFO ------------- Finished goods $9,027,000 $4,695,000 Work in progress 982,000 470,000 Raw materials, & containers 2,871,000 442,000 --------- ---------- 12,880,000 $5,607,000 MINCO FIFO ---------- Finished goods 2,012,000 2,319,000 --------- --------- Total Inventories $14,892,000 $7,926,000 =========== ========== Note 3 - Statement of Cash Flows - -------------------------- Interest and income tax payments and stock repurchase reflected in the Consolidated Statement of Cash Flows were as follows: 1999 1998 ---- ---- Interest paid $338,000 $210,000 Income taxes paid $108,000 $409,000 Repurchase of stock through issuance of notes payable -0- $835,000 PART II OTHER INFORMATION Item 1. Legal Proceedings There are no legal proceedings pending. Item 2. Changes in Securities The Company's revolving line of credit agreement with its Bank dated April 20, 1999, includes a convenant 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. 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 27. Financial Data Schedule (by electronic filing only) b. Reports on Form 8-K - None 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: May 13, 1999 /s/ Gary L. Hess ----------------------- Gary L. Hess, President EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS JUN-30-1999 MAR-31-1999 172,000 0 14,892,000 85,000 14,892,000 19,792,000 19,323,000 10,660,000 29,137,000 8,244,000 0 0 0 2,876,000 7,909,000 29,137,000 29,929,000 30,452,000 23,315,000 28,549,000 0 0 375,000 1,903,000 723,000 1,360,000 0 0 0 1,360,000 .90 .88 Net of LIFO RTeserve of $657,000 Retained earnings 1,517,503 total common shares outstanding Minority interest of 180,000
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