Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
X of the Securities Exchange Act of 1934.
For the fiscal year ended June 30, 1996.
Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934.
For the transition period from_______ to _______.
VACU-DRY COMPANY
(Exact name of registrant as specified in its charter)
Commission File Number 01912
California 94-1069729
(State of incorporation) (IRS Employer
Identification Number)
7765 Healdsburg Ave., Sebastopol, California 95472
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 707/829-4600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of Class)
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:
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ( )
On September 13, 1996 nonaffiliates of the Registrant held voting stock with
an aggregate market value of $8,166,770 based upon the average of the high and
low prices of such stock.
As of September 13, 1996, there were 1,633,354 shares of common stock, no par
value, outstanding.
The Proxy Statement for the 1996 Annual Meeting of Shareholders is
incorporated by reference into Part III of this report.
Part I
Item 1. Business
(a) Vacu-dry Company (the Company), incorporated in California in 1946, is
engaged in the business of the development, production and marketing of
fruit products. The Company's products include low moisture and
evaporated fruits, bulk apple juice, apple juice concentrate, private
label drink mixes and low moisture food for the food storage market.
Sales are principally to manufacturers in the United States and Canada.
The Company has been engaged in the production of low moisture fruits
since 1933. Through drying processes, the moisture in apples is reduced
from original levels of 85%-90% to as low as 2%. In addition the Company
purchases other fruits such as apricots, dates, peaches, prunes and
other varieties of fruit which have been partially dried and further
reduces the moisture in these fruits to levels of approximately 3%. The
resultant low moisture products are much lighter in weight and less
bulky than their raw, canned or frozen counterparts. Because of their
extreme dryness, low moisture fruit products require no refrigeration
or other special storage conditions. Other advantages include consistent
product quality, economical packaging and convenience in handling and
use.
As disclosed in Note 1 of the Footnotes to the Financial Statements,
the sales from the Representation Agreement with Confoco terminated
effective July 1, 1996. The Company has another representation agreement
to sell dried fruit products produced by a California company. This
agreement automatically renews at the end of each three year term unless
either party notifies the other six months in advance of the end of the
term. These products will be sold primarily as ingredients to the major
food processors.
(b) The Company competes in a single industry segment within the food
industry, all assets held are supportive of efforts to compete in that
segment.
(c) The low moisture food industry in the United States is very small, with
only a few processors engaged in the dehydration of fruits to low
moisture levels (2% to 5% moisture).
The Company has one major direct competitor in the low moisture and
evaporated business. Numerous processors compete in the business of
producing bulk apple juice and concentrate.
The Company's products are primarily sold through brokers to the major
food processors, bakery, food storage and food service markets and to
federal and state institutions.
In terms of volume, apples represent the major fruit handled by the
Company. The Company's production facility is designed to process fresh
fruit in addition to partially (evaporated) dried fruits or vegetables.
The sources of raw material supply are individual apple growers and in
emergencies by other dried apple processors . The majority of the
Company's raw apple supply comes from California. In some years, due
to crop conditions, the percentage of fruit purchased from out-of-state
sources may increase. In those years, the Company incurs increased costs
due to additional freight. The Company strives to reflect such cost
increases in selling price adjustments but, if unsuccessful, will absorb
such costs.
Other important fruits, including peaches, apricots and prunes, are
obtained principally from dried fruit packing houses in California.
Supplies of fruit are expected to be sufficient to meet the needs of
regular customers. For other supplies, including cans and packaging
materials, the Company draws from a number of vendors and expects that
adequate supplies will be available.
The business of producing evaporated apples, bulk apple juice and
concentrate is seasonal, beginning in August and usually ending in March
or April.
Inventories of fresh and dried apples, packaging materials and finished
goods as of June 30, 1996, were approximately 13% of annual net sales.
The Company experiences a normal seasonal increase in inventories and
related short-term borrowings during the second and third quarters of
the fiscal year.
The Company's three largest customers accounted for approximately 24%
of gross sales in 1996. One of these customers A. Sturm & Sons
accounted for more than 10% of gross sales in 1996. The loss of any one
or more of these customers could have a material adverse effect on the
Company.
The dollar amount of order and contract backlog believed to be firm as
of September 1, 1996, September 1, 1995 and September 1, 1994 is
$8,558,000, $9,913,000 and $7,960,000 respectively. The backlog as of
September 1, 1996 excludes the Confoco orders. Of the backlog for
September 1, 1995 and September 1, 1994, Confoco orders and contracts
represented $1,378,000 and $798,000 of the totals respectively. The
backlog of orders is expected to be filled within the related fiscal
year. The dollar value of backlog varies during the year, with the peak
occurring during the September through December period.
The Company holds the following trademarks: Vacu-dry, Appella, Apple
Munchies, Noah's Ark, Fruit Galaxy, Perma-Pak and Pantri Reserve.
Trademark sales, account for the majority of the Company's total sales.
Vacu-dry and Perma-Pak are the predominant trademarks listed above.
For information on research and development expenditures, see Note 11
to the Financial Statements.
The Company has complied with all governmental regulations regarding
protection of the environment. No material capital expenditures are
anticipated for environmental control facilities during the next fiscal
year.
The Company employs an average of approximately 250 persons. This
number varies throughout each year and increases during periods of high
production. Of the 250 employees, approximately 200 are represented by
the General Truck Drivers, Warehousemen and Helpers Union, Local #624.
The Company is presently in contract negotiations with the Union.
(d) The Company's export sales can vary greatly between years, depending
upon foreign crop conditions and relative exchange rates. The amount
of the Company's export sales for 1996, 1995 and 1994 were $2,498,000,
$1,480,000 and $1,267,000 respectively.
Item 2. Properties
The principal administrative offices are located in Sebastopol,
California. Approximately 4,130 square feet of office space are leased
through February 1997. At the end of the term of the lease, the Company
has the option to extend the term for an additional twelve months.
The Company owns 15 acres of land and approximately 95,000 square feet
under roof at 1365 Gravenstein Hwy So., Sebastopol, California. This
facility (formerly described as Plant #1) was used for the dehydration
of fruits to low moisture, prior to the consolidation of this operation
into the main processing plant (formerly described as Plant #2), located
at 2064 Gravenstein Hwy No., Sebastopol, California. As of June 30,
1996, the Company has leased approximately 82,000 square feet of this
facility. The Company has leased all of the available space (under
roof), other than the Research & Development area. The Company has no
debt associated with this facility.
The Company owns 64 acres of land and approximately 282,000 square feet
under roof at 2064 Gravenstein Hwy. No., Sebastopol, California. As of
June 30, 1996, this facility is the Company's only active processing
plant. The buildings include facilities to; process fresh apples into
dried products, bulk apple juice and concentrate, in addition to
dehydrating by continuous air drying and vacuum drying of apples and
other fruits, warehouse space, cold storage, and office accommodations.
The Company has leased approximately 42,600 square feet of excess
warehouse space through April 1997 and approximately 20,000 square feet
of land.
The consolidated production operations functioned at approximately 118%
of the single shift capacity.
Item 3. Legal Proceedings
The Company has no material legal proceedings pending.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the last
quarter of the year ended June 30, 1996.
Part II
Item 5. Market for the Registrant's Common Stock and Related Security-Holder
Matters
The Company's shares are traded on the Nasdaq National Market. The Company's
Nasdaq symbol is VDRY.
The quarterly high and low prices for the last two fiscal years were as
follows:
Quarter Ending Low Bid High Bid
9/30/94 8-1/2 11
12/31/94 7-3/4 10-3/4
3/31/95 5-1/2 8-1/2
6/30/95 4-1/4 6-1/2
9/30/95 4-5/8 5-3/4
12/31/95 4-5/8 5-3/4
3/31/96 4 6-1/4
6/30/96 4-1/4 5-3/4
The above quotations were obtained from the Nasdaq monthly statistical
reports.
On September 13, 1996, the approximate number of holders of common stock was
775. On that date, the average of the high and low price per share of the
Company's stock was $5.00. This price does not include dealer mark-ups, mark-
downs or commissions.
In the fourth quarter of fiscal 1994 and in the first three quarters of fiscal
1995, the Company declared a $.05 per share dividend. On April 27, 1995, as
a result of the decline in sales and earnings, the Board of Directors
suspended the quarterly dividends. 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. This covenant would need to be changed
prior to the declaration of dividend. At this time the Company does not intend
to reinstate a cash dividend plan.
Item 6. Selected Financial Data
YEAR ENDED
June 30, June 30, June 30, June 30, June 30,
1996 1995 1994 1993 1992
(In thousands except per share amounts)
Net sales $26,533 $21,438 $27,773 $26,770 $24,307
Earnings before
income taxes $651 $287 $1,887 $1,791 $1,353
Net earnings $434 $195 $1,174 $1,075 $833
Earnings per
common share $.25 $.11 $.70 $.65 $.50
Weighted average common
shares outstanding 1,704 1,701 1,669 1,664 1,664
Total Assets $13,587 $15,335 $14,929 $13,210 $10,760
Long-term debt $ 1,628 $ 2,185 $ 2,505 $ 2,404 $ 1,272
Cash dividends per
common share $ -- $ .15 $ .05 $ -- $ --
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition substantially improved during fiscal 1996.
Some of this improvement is reflected in the increase in the Company's current
ratio, which increased from 1.9 as of fiscal 1995 to 2.6 as of fiscal 1996.
In addition, net working capital increased $361,000 and term debt decreased
$542,000. As a result the Company's debt to equity ratio decreased from .87
as of fiscal 1995 to .56 as of fiscal 1996. The primary reason for the
improvement in the financial condition is the increased cashflow from
operating activities of $2,491,000. Of this increase, $2,067,000 was used to
reduce debt and $462,000 was used for capital expenditures.
Because the Company's operations are subject to seasonality, the Company's
liquid resources fluctuate annually in a manner which changes very little from
year to year. The Company experiences a normal seasonal decrease in
production in April. Inventories and related short-term borrowing 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 October, which creates a corresponding increase
in liquidity.
The Company's largest external source of liquidity is a $3,500,000 revolving
line of credit provided by a bank at the Bank's prime lending rate. As of
June 30, 1996, the Company had $2,674,000 of available funds on this revolving
line of credit. This compares with $1,649,000 of available funds on the
$4,000,000 revolving line of credit as of June 30, 1995. As of June 30, 1996,
the Company was in compliance with all 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. The most significant internal source of
liquidity is the Company's net working capital.
The Company has established a capital expenditure budget of approximately
$1,520,000 for the 1996-1997 fiscal year. These funds will primarily be used
to purchase new and refurbish existing equipment related to the manufacturing
operations. The Company anticipates financing these expenditures through
internally generated funds and through the use of debt financing. The Company
has a commitment from a financial institution to fund $850,000 of the 1996-
1997 capital expenditure budget. As of June 30, 1996 the Company has not
borrowed any money related to this commitment.
The Company has been successful in leasing all of the idle facility other than
the portion occupied by Product Development. At this time the Company is not
pursuing the sale of this facility. The Company continues to lease a portion
of its operating facility and is in negotiations with the primary tenant to
increase their square footage.
The Company anticipates that profitable operations and debt financing will
satisfy the Company's future liquidity and capital needs. However, the
Company will utilize future private or public financing if interest rates rise
or if the Company's growth prospects require additional funds for operations.
The Company does not believe the termination of the Confoco representation
agreement will have an immediate adverse effect on liquidity. The Company
believes its existing revolving line of credit is sufficient to meet its
working capital requirements.
RESULTS OF OPERATIONS
Net sales: The Company's sales are dictated by the competitive environment,
customer demands and consumer preferences. Sales volume between years can be
affected by one or more of these factors. Net sales for fiscal 1996 increased
$5,095,000 or 24%. This increase was primarily a result of higher volume
sales(67%) combined with an increase in the average unit price(33%). The unit
price increases were a direct result of the increased raw material costs.
Evaporated and low moisture fruit categories increased substantially while
sales of banana flakes and other Confoco products decreased $973,000. As
disclosed in Note 1 of the Footnotes to the Financial Statements, the sales
from the Confoco representation agreement terminated effective July 1, 1996.
In fiscal 1995 the Company's net sales decreased $6,335,000 or 23%. This
decline was a result of substantially lower sales to one of the Company's
major customers in addition to lower sales volume to other significant
customers. The competitive environment contributed to the sales decline in
fiscal 1995. The net sales for 1994 increased $1,003,000 or 4%. This increase
was a result of sales of banana products while apple sales actually decreased
$850,000, mainly as a result of the competitive environment.
Other revenue: During fiscal 1996 this category increased $430,000 or 169%
principally as a result of the receipt of two non-recurring items totalling
$313,000. Net rental income also increased an additional $134,000. In prior
years this revenue category has been comprised mainly of net rental income and
has been relatively constant at $250,000 to $300,000 per year.
Cost of sales: As a percentage of net sales, cost of sales increased slightly
in fiscal 1996 to 91% as compared to 90% in 1995 and 85% in 1994. This
increase was a direct result of the small worldwide apple crop and the
resultant higher raw material costs. For the second consecutive year we have
experienced depressed gross margins as a result of the continued competitive
pressure spurred by customer cost reduction programs. As disclosed in
Footnote 2 to the Financial Statements, the liquidation of certain LIFO
inventories in fiscal 1996 resulted in a reduction of cost of sales of
$642,000. In fiscal 1995, the increase in the cost of sales percentage was
predominantly due to the lower production volume as a result of the decreased
sales volume and the resultant decrease in overhead absorption. Cost of sales
increased slightly in fiscal 1994 due to slightly lower margins, along with
inefficiencies incurred during the start-up phase of the consolidation of
operations.
Selling, general and administrative expenses: In fiscal 1996 these expenses
increased $376,000 or 21%. The reason for the increase between years is
primarily due to the lower than normal expenses in fiscal 1995 as a result of
the reduction in the expenses from the receipt of workers compensation
dividends of $257,000 and a $96,000 credit from the reduction in the SAR
liability (as a result of the lower stock price). Included in the fiscal 1994
expenses is $346,000 of bonus and profit sharing expense which did not occur
in either fiscal 1995 or 1996.
Interest expense: The decline in fiscal 1996 interest expense of 23% is a
result of lower total borrowing( term debt decreased $542,000 and average
borrowings under the line of credit decreased $518,000). In contrast, in
fiscal 1995 interest expense increased $144,000 or 60% as a result of the
increased level of borrowing on the line of credit. In 1994 interest expense
increased $31,000 as a result of the increase in the prime lending rate by the
Company's bank and the larger balance owing to the bank on the consolidation
related financing during fiscal 1994 versus 1993.
Item 8. Consolidated Financial Statements and Supplementary Data
See Index at Item 14 for information required by this item.
Item 9. Disagreements on Accounting and Financial Disclosure
None
Part III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to this item is contained in the Registrant's
1996 Proxy Statement under the heading "Election of Directors," which
information is incorporated herein by reference.
Executive Officers of the Registrant
The following table sets forth certain information concerning the
executive officers of the Company as of September 13, 1996:
Name Age Position
Gary L. Hess 44 President and Chief
Executive Officer
Esther K. Castain 58 Secretary and Manager
of Employee Relations
Thomas R. Eakin 42 Vice President, Finance
Ralph A. Sceales 58 Vice President, Operations
Mr. Hess joined the Company as of May 1, 1996 as President and Chief
Executive Officer. Prior thereto he was a Senior Vice President of Dole
Food Company, Inc.(fresh and processed fruit)(1993-1996); President of
Cadence Enterprises, Inc.(water conservation products) and The Marketing
Partnership (1992-1993); and Director of Marketing, E & J Gallo Winery
(wine and distilled spirits) (1987-1992).
Ms. Castain joined the Company in 1976. She has been Secretary of the
Company since 1990. Prior thereto she was Manager of Employee
Relations.
Mr. Eakin joined the Company in 1983. For the past nine years he has
been Vice President, Finance, and Chief Financial Officer.
Mr. Sceales joined the Company in 1975. He has been Vice President,
Operations, since August 1990. For more than six years prior thereto
he was Director of Operations of the Company.
Items 11, 12 and 13
The information required by items 11, 12 and 13 will be included in the
definitive Proxy Statement for Registrant's 1996 Annual Meeting of
Shareholders or in an amendment to the Form 10-K under cover of Form 8. The
information required in this Part III will be filed with the Securities and
Exchange Commission not later than 120 days after the end of the 1996 fiscal
year.
Part IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K
(a)
1. Financial Statements:
Reports of Independent Public Accountants.
Statements of Earnings for the Years Ended June 30, 1996,
June 30, 1995 and June 30, 1994.
Balance Sheets -- June 30, 1996 and June 30, 1995.
Statements of Changes in Shareholders Equity for the
Years Ended June 30, 1996, June 30, 1995 & June 30, 1994.
Statements of Cash Flows for the Years Ended June 30, 1996,
June 30, 1995 and June 30, 1994.
Notes to Financial Statements.
Financial statements and schedules not included herein have been
omitted because of the absence of conditions under which they are
required or because the required information, where material, is
shown in the financial statements or notes thereto.
3. Exhibits:
Exhibit No.
3. a. Articles of Incorporation (2)
c. By-laws of Vacu-dry Company (4)
10. e. Employment Agreement, Gary L. Hess March 14, 1996 (5)
j. Stock Appreciation Rights Plan (4)
23. i Consent of Independent Public Accountants (5)
These exhibits are incorporated by reference to the Registrant's
Annual Report, filed pursuant to Section 13 of the Securities
Exchange Act of 1934:
(2) On Form 10-K for the year ended June 30, 1988.
(4) On Form 10-K for the year ended June 30, 1992.
(5) On Form 10-K for the year ended June 30, 1996
(b) No reports on Form 8-K were filed during the last quarter
of the year ended June 30, 1996.
VACU-DRY COMPANY
FINANCIAL STATEMENTS
AS OF JUNE 30, 1996 AND 1995
TOGETHER WITH AUDITORS' REPORT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Vacu-dry Company:
We have audited the accompanying balance sheets of Vacu-dry
Company (a California corporation) as of June 30, 1996 and
1995, and the related statements of earnings, changes in
shareholders' equity and cash flows for each of the three years
in the period ended June 30, 1996. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Vacu-dry Company as of June 30, 1996 and 1995, and
the results of its operations and its cash flows for each of
the three years in the period ended June 30, 1996, in
conformity with generally accepted accounting principles.
San Francisco, California,
August 9, 1996
VACU-DRY COMPANY
BALANCE SHEETS--JUNE 30, 1996 AND 1995
1996 1995
ASSETS
CURRENT ASSETS:
Cash $ 214,000 $ 187,000
Accounts receivable, less allowances
for uncollectible accounts of $61,000
and $45,000 in 1996 and 1995,
respectively 2,684,000 1,679,000
Income tax refund receivable - 155,000
Inventories, less LIFO reserves of
$2,114,000 and $1,334,000 in 1996
and 1995, respectively 3,430,000 5,414,000
Prepaid expenses 116,000 176,000
Current deferred income taxes 225,000 303,000
----------- -----------
Total current assets 6,669,000 7,914,000
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 231,000 227,000
Buildings and improvements 6,455,000 6,416,000
Machinery and equipment 10,118,000 10,135,000
Construction in progress 245,000 32,000
----------- -----------
Total property, plant and equipment 17,049,000 16,810,000
Accumulated depreciation (10,131,000) (9,389,000)
----------- -----------
Net property, plant and equipment 6,918,000 7,421,000
----------- -----------
Total assets $13,587,000 $15,335,000
=========== ===========
1996 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under line of credit $ 826,000 $ 2,351,000
Current maturities of long-term debt 415,000 480,000
Accounts payable 678,000 393,000
Accrued payroll and related liabilities476,000 524,000
Accrued expenses 106,000 391,000
Income tax payable 32,000 -
----------- -----------
Total current liabilities 2,533,000 4,139,000
----------- -----------
LONG-TERM DEBT, net of current
maturities 1,628,000 2,105,000
----------- -----------
DEFERRED INCOME TAXES 748,000 912,000
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock- 2,500,000 shares
authorized; no shares outstanding - -
Capital stock- common stock, 5,000,000
shares authorized, no par value;
1,713,354 and 1,698,030 shares
outstanding in 1996 and 1995,
respectively 4,001,000 3,936,000
Retained earnings 4,677,000 4,243,000
----------- -----------
Total shareholders' equity 8,678,000 8,179,000
----------- -----------
Total liabilities and shareholders'
equity $13,587,000 $15,335,000
=========== ===========
The accompanying notes are an integral part of these
statements.
VACU-DRY COMPANY
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
1996 1995 1994
REVENUE:
Net sales $26,533,000 $21,438,000 $27,773,000
Other 685,000 255,000 248,000
----------- ----------- -----------
Total revenue 27,218,000 21,693,000 28,021,000
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 24,142,000 19,270,000 23,521,000
Selling, general and
administrative 2,127,000 1,751,000 2,372,000
Interest 298,000 385,000 241,000
----------- ----------- -----------
Total costs and expenses 26,567,000 21,406,000 26,134,000
----------- ----------- -----------
Earnings before provision
for income taxes 651,000 287,000 1,887,000
PROVISION FOR INCOME TAXES 217,000 92,000 713,000
----------- ----------- -----------
Net earnings $ 434,000 $ 195,000 $ 1,174,000
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
AND EQUIVALENTS 1,703,968 1,700,912 1,669,122
========= ========= =========
EARNINGS PER COMMON SHARE $.25 $.11 $.70
==== ==== ====
The accompanying notes are an integral part of these statements.
VACU-DRY COMPANY
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
Common Stock
---------------------
Total
Number Retained Shareholders'
of Shares Amount Earnings Equity
BALANCE,
JUNE 30, 1993 1,664,029 $3,615,000 $3,212,000 $6,827,000
Net earnings - - 1,174,000 1,174,000
Dividends - - (83,000) (83,000)
Issuance of
common stock 35,543 318,000 - 318,000
--------- ---------- ---------- ----------
BALANCE,
JUNE 30, 1994 1,699,572 3,933,000 4,303,000 8,236,000
Net earnings - - 195,000 195,000
Dividends - - (255,000) (255,000)
Issuance of
common stock 13,658 99,000 - 99,000
Repurchase of
common stock (15,200) (96,000) - (96,000)
--------- ---------- ---------- ----------
BALANCE,
JUNE 30,1995 1,698,030 3,936,000 4,243,000 8,179,000
Net earnings - - 434,000 434,000
Issuance of
common stock 15,324 65,000 - 65,000
--------- ---------- ---------- ----------
BALANCE,
JUNE 30,1996 1,713,354 $4,001,000 $4,677,000 $8,678,000
========= ========== ========== ==========
The accompanying notes are an integral part of these statements.
VACU-DRY COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 434,000 $ 195,000 $ 1,174,000
------------ ----------- -----------
Adjustments to reconcile net
earnings to net cash provided by
(used for)operating activities-
Depreciation expense 947,000 884,000 777,000
Loss on sale of assets 20,000 6,000 9,000
Deferred taxes (86,000) 308,000 16,000
Changes in certain assets and
liabilities-
Decrease (increase)in accounts
receivable, net (1,005,000) (9,000) 148,000
Decrease (increase)in
inventories 1,984,000 (637,000) (1,376,000)
Decrease (increase)in
prepaid expenses 60,000 (110,000) (83,000)
Decrease (increase)in income
tax refund receivable 155,000 (117,000) 431,000
Increase (decrease) in
accounts payable 285,000 (767,000) 394,000
Increase (decrease) in
accrued liabilities (335,000) (475,000) 74,000
Decrease (increase)in income
taxes payable 32,000 - -
------------ ----------- -----------
Total adjustments 2,057,000 (917,000) 390,000
------------ ----------- -----------
Net cash provided by (used for)
operating activities 2,491,000 (722,000) 1,564,000
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (470,000) (867,000) (1,111,000)
Proceeds from the sale
of assets 8,000 13,000 -
------------ ----------- -----------
Net cash used for investing
activities (462,000) (854,000) (1,111,000)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowings under
the line of credit 11,002,000 11,324,000 8,974,000
Payments on line of credit(12,527,000) (9,253,000) (9,876,000)
Borrowings under
consolidation term loan - - 640,000
Principal payments of
long-term debt (542,000) (475,000) (334,000)
VACU-DRY COMPANY
STATEMENTS OF CASH FLOWS(continued)
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
1996 1995 1994
Dividends paid - (255,000) (83,000)
Repurchase of common stock - (96,000) -
Issuance of common stock 65,000 99,000 318,000
----------- --------- -----------
Net cash provided by (used for)
financing activities (2,002,000) 1,344,000 (361,000)
------------ --------- -----------
NET INCREASE (DECREASE)
IN CASH 27,000 (232,000) 92,000
CASH AT BEGINNING OF YEAR 187,000 419,000 327,000
------------ --------- -----------
CASH AT END OF YEAR $ 214,000 $ 187,000 $ 419,000
============ ========== ===========
SUPPLEMENTAL DATA:
Cash paid for-
Interest $ 309,000 $ 371,000 $ 238,000
Income taxes 316,000 158,000 581,000
The accompanying notes are an integral part of these statements.
VACU-DRY COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Vacu-dry Company (the Company) is engaged in the business of
the development, production and marketing of fruit. The
Company's products include low-moisture fruits, bulk apple
juice, apple juice concentrate, private label drink mixes and
low-moisture food, which are sold to manufacturers principally
in the United States and Canada.
The Company competes in a single industry segment within the
food industry. The low moisture food industry in the United
States is comparatively small with only a few organizations
engaged in the dehydration of fruits to low moisture levels.
The Company has one major direct competitors in the low
moisture and evaporated business. Numerous processors compete in
the business of bulk apple juice and concentrate.
Effective July 1, 1996, the representation agreement with
Confoco, Inc. (Confoco) for the sale of low-moisture banana and
pumpkin flakes terminated. Confoco has decided to consolidate
the sales and marketing of its products internally. For the
years ended June 30, 1996, 1995 and 1994, the Company recorded
gross profit on Confoco products of $368,000, $562,000 and
$278,000, respectively. The Company intends to put significant
effort into replacing these lost sales. However, there is no
assurance that such sales can be replaced, or if they can be
replaced, that the same gross profit will be realized. If
these sales and related gross profit are not replaced, the
resulting decline will have a material impact upon the
Company's earnings. Under the Company's agreement with
Confoco, for two years from the date of termination, the
Company is prohibited from distributing banana products to
those customers in the United States, Canada and Mexico that
currently purchase Confoco's products from the Company.
The Company's three largest customers, none of which are
Confoco, accounted for approximately 24 percent of net sales in
1996.
Inventories
Inventories are stated at the lower of cost, using the last-in,
first-out (LIFO) method, or market (Note 2).
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation
is computed by the straight-line method based upon the
estimated useful lives of the assets as follows:
Buildings and improvements 10 to 40 years
Machinery and equipment 3 to 15 years
Improvements that extend the life of the asset are capitalized;
other maintenance and repairs are expensed. The cost of
maintenance and repairs was $856,000 in 1996, $982,000 in 1995
and $909,000 in 1994.
Income Taxes
The Company records income taxes in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109). SFAS 109 requires the Company to
compute deferred taxes based upon the amount of taxes payable
in future years after considering changes in tax rates and
other statutory provisions that will be in effect in those
years.
Deferred taxes are recorded based upon differences between the
financial statement and tax basis of assets and liabilities and
available tax credit carryforwards.
Earnings per Common Share
Earnings per common share are computed by dividing net earnings
by the weighted average number of shares of common stock
outstanding during the period, including the dilutive effects
of stock options using the treasury stock method.
Common Stock
The Company has no par value common stock. The financial
statements reflect no par value.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board
issued Statement No. 123, "Accounting for Stock-Based
Compensation" (the Statement). The Statement encourages a fair
value-based method of accounting for an employee stock option
or similar equity instrument. However, the Statement also
allows an entity to continue to account for stock-based
employee compensation using the intrinsic value-based method in
APB Opinion No. 25. The Statement also applies to transactions
in which an entity issues its equity instruments to acquire
goods or services from nonemployees. Entities that elect to
follow the accounting in APB Opinion No. 25 must make pro forma
disclosures of net income and earnings per share, as if the
fair value-based method of accounting had been applied.
The Company has adopted the accounting requirements of the
Statement for nonemployee transactions entered into after
December 15, 1995. The fair value-based method of accounting
for employee stock-based compensation may be adopted upon
issuance. The disclosure requirements are effective for
financial statements for fiscal years beginning after December
15, 1995, or earlier if the accounting requirements are early
adopted. The Company has not decided whether it will adopt the
new standard for employee stock-based compensation, or if it
will continue using the intrinsic value-based method in APB
Opinion No. 25.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications
Certain 1995 and 1994 amounts were reclassified to conform to
the 1996 presentation.
2. INVENTORIES:
Inventories at June 30, 1996 and 1995, consist of the following
(LIFO cost):
1996 1995
Finished goods $2,757,000 $4,926,000
Work in process 233,000 239,000
Raw material and containers 440,000 249,000
---------- ----------
Total $3,430,000 $5,414,000
========== ==========
During 1996, the Company liquidated certain LIFO inventories
that were carried at lower costs prevailing in prior years.
The effect of this liquidation was to increase earnings before
income taxes by $642,000 ($384,000 increase in net earnings, or
an increase of $.23 per share).
3. BORROWINGS UNDER LINE OF CREDIT:
Borrowings under the line of credit are secured by inventory
and accounts receivable. Interest accrues monthly at the
bank's prime lending rate. The line of credit is renewed
annually on November 1.
1996 1995
Balance at June 30 $ 826,000 $2,351,000
Maximum amount available under
the line of credit $3,500,000 $4,000,000
Average borrowings $1,096,000 $1,614,000
Maximum borrowings $2,351,000 $2,996,000
Interest rate at June 30 8.25% 9.00%
Weighted average interest rate 8.52% 8.60%
Per the covenants of the revolving line of credit note with the
Company's bank, the Company will not, without prior written
consent of the bank, declare or pay any dividend or
distribution either in cash, stock or any other property on the
Company's stock now or hereafter outstanding with the exception
of a $.05 per share quarterly dividend declared in fiscal 1994
and paid in fiscal 1994 and 1995. No dividends have been
declared for fiscal 1996.
Among the restrictions under the line of credit are provisions
that require the Company to maintain certain financial ratios.
The Company was in compliance with these financial
restrictions.
4. LONG-TERM DEBT:
Long-term debt consists of the following:
1996 1995
Note payable- five-year consolidation
note, interest at prime (8.25 percent
at June 30, 1996) plus 0.375 percent,
interest and principal due monthly,
maturing in September 1998, secured
by accounts receivable, inventory,
equipment and fixtures $ 467,000 $ 667,000
Note payable- seven-year consolidation
note, interest at prime (8.25 percent
at June 30, 1996) plus 0.375 percent,
interest and principal due monthly,
maturing in September 2000, secured
by accounts receivable, inventory,
equipment and fixtures 1,576,000 1,792,000
Industrial revenue bonds, interest at a
weighted average rate (5.25 percent)
and payable in installments
through 1996 - 126,000
---------- ----------
Total 2,043,000 2,585,000
Less- Current maturities (415,000) (480,000)
---------- ---------
Long-term debt $1,628,000 $2,105,000
========== ==========
Maturities of long-term debt are as follows:
Year Ending June 30
1997 $ 415,000
1998 415,000
1999 282,000
2000 215,000
2001 716,000
----------
Total $2,043,000
==========
5. INCOME TAXES:
The following is a summary of the Company's provision for
income taxes:
1996 1995 1994
Current-
Federal $259,000 $(155,000) $530,000
State 44,000 - 161,000
Deferred (86,000) 247,000 22,000
-------- --------- --------
Provision $217,000 $ 92,000 $713,000
======== ========= ========
A reconciliation of the income tax provision to the expected
provision at the federal statutory income tax rate is as
follows:
1996 % 1995 % 1994 %
Provision at federal
statutory rate $221,000 34% $ 98,000 34% $642,000 34%
State taxes, less
federal tax benefit 41,000 6 17,000 6 113,000 6
Tax credits (45,000) (7) (23,000) (8) (27,000) (1)
Other - - - - (15,000) (1)
-------- -- -------- -- -------- --
Total provision $217,000 33% $ 92,000 32% $713,000 38%
======== == ======== == ======== ==
Temporary differences that gave rise to a significant portion
of deferred tax assets and liabilities for 1996 and 1995 were
as follows:
1996 1995
Deferred tax assets-
Employee benefit accruals $ 139,000 $ 155,000
Tax credit carryforwards 127,000 -
Unicap and inventory reserves 106,000 119,000
State income taxes 15,000 2,000
Other 11,000 41,000
--------- ----------
Total deferred tax assets 398,000 317,000
--------- ----------
Deferred tax liabilities-
Depreciation (875,000) (880,000)
Property taxes (46,000) (46,000)
--------- ---------
Total deferred tax liabilities (921,000) (926,000)
--------- ---------
$(523,000) $(609,000)
========= =========
The Company has tax credit carryforwards of $62,000 and $99,000
available to offset future federal and state taxable income,
respectively, at June 30, 1996.
6. STOCK APPRECIATION RIGHTS PLAN:
The Company has a stock appreciation rights (SAR) plan as an
incentive for key employees. Under the SAR plan, key employees
are granted rights entitling them to market price increases in
the Company's stock. At June 30, 1996 and 1995, 100,000 SARs
were authorized. A summary of the outstanding SARs is as
follows:
Rights Outstanding
at June 30
------------------
Price per Right 1996 1995
$ 3.75 1,600 1,600
5.63 200 200
2.69 5,350 5,750
4.31 1,500 1,500
4.63 13,400 18,400
9.63 3,000 3,000
10.88 - 2,500
8.88 4,500 5,500
------ ------
29,550 38,450
====== ======
The individual rights vest from the grant date as follows:
Year 1 0% Year 4 60%
2 20 5 80
3 40 6 100
All rights are granted at fair market value at the date of
grant. Rights generally vest over a period from the second to
the sixth anniversary date of the grant. The SAR liability and
expense or credit recorded annually is based on the market
price of the Company's stock as of the balance sheet date. In
1996 and 1995, the Company decreased selling, general and
administrative expenses by $1,000 and $96,000, respectively, in
order to reflect the lower SAR liability. In 1994, the Company
increased selling, general and administrative expenses by
$26,000 in order to reflect the higher SAR liability.
7. EMPLOYEE STOCK PURCHASE PLAN:
The Employee Stock Purchase Plan enables substantially all
employees to purchase shares of the Company's common stock at
85 percent of the market value on the first or last business
day of the quarterly offering period, whichever is lower. A
maximum of 100,000 shares are authorized for issuance over the
ten-year term of the plan. The plan term began on January 1,
1994. The following shares were issued under the term of the
plan:
Shares Average Price
Issued per Share
1996 15,324 $4.25
1995 13,658 7.25
1994 4,774 7.44
8. EMPLOYEE STOCK OPTION PLAN:
During 1996, the Board of Directors approved a stock option
plan (the Plan) for employees and nonemployee consultants
covering 90,000 shares of common stock. The Plan is subject to
shareholder approval. Under the terms of the Plan, the
purchase price of shares subject to each option granted will
not be less than the fair market value of the Company's common
shares at the date of grant. Options granted are exercisable
for ten years from the date of grant, and options are
exercisable at the rate of at least 25 percent per year over
four years from the date the option is granted. Each option
granted under the Plan may be exercised for 25 percent on the
first anniversary of the grant, and an additional 25 percent
may be exercised for the next three anniversaries.
At June 30, 1996, 526 shares were available for granting
further options, and options for 89,474 shares were outstanding
at $5.00 per share, of which no options were exercisable.
9. OPERATING LEASES:
The Company leases office space and equipment. At June 30,
1996, future minimum rental payments are as follows:
Year Ending
June 30
1997 $207,000
1998 178,000
-------
Total $385,000
========
Rental expense under these leases was $249,000 in 1996,
$235,000 in 1995 and $233,000 in 1994.
The Company has been leasing excess warehouse space, generating
revenues of $441,000 in 1996, $292,000 in 1995 and $195,000 in
1994. These revenues are classified as other income in the
statements of earnings.
10. RETIREMENT PLANS:
The Company has a contributory retirement savings and
profit-sharing plan covering nonunion employees. The Company
contributes one and one-half times the first 3 percent of
employee contributions to the retirement savings plan.
Profit-sharing contributions are derived based upon a specific
formula of Company earnings. Company contributions to the
retirement savings and profit-sharing plan were approximately
$79,000 in 1996, $107,000 in 1995 and $148,000 in 1994 and are
funded currently. The employer's contributions for any fiscal
year may not exceed the amount lawfully deductible by the
Company under the provisions of the Internal Revenue Code.
The Company contributes to a defined contribution plan for
employees covered by collective bargaining agreements. These
contributions, funded currently, were $256,000 in 1996,
$306,000 in 1995 and $356,000 in 1994.
11. RESEARCH AND DEVELOPMENT:
The Company sponsors research activities relating to the
development of new products and the improvement of existing
products. The cost of such activities charged to expense was
$269,000 in 1996, $360,000 in 1995 and $308,000 in 1994.
12. RELATED PARTY TRANSACTIONS:
The Company has entered into an agreement with a member of the
Board of Directors to provide consulting services to the
Company during the 1997 fiscal year. The Company prepaid
$18,000 related to this contract during the 1996 fiscal year.
13. QUARTERLY RESULTS (Unaudited):
For the Year Ended June 30, 1996
--------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
Net sales $6,479,000 $6,772,000 $7,053,000 $6,229,000 $26,533,000
Earnings (loss) before
income taxes 72,000 501,000 240,000 (162,000) 651,000
Net earnings (loss) 43,000 295,000 144,000 (48,000) 434,000
Earnings (loss) per
common share $.03 $.17 $.08 $(.03) $.25
For the Year Ended June 30, 1995
--------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
Net sales $6,224,000 $5,950,000 $4,531,000 $4,733,000 $21,438,000
Earnings (loss) before
income taxes 347,000 340,000 (630,000) 230,000 287,000
Net earnings (loss) 208,000 204,000 (375,000) 158,000 195,000
Earnings (loss) per
common share $.12 $.12 $(.22) $.09 $.11
Form 10-K
Copies of the Company's Form 10-K on file with the Securities
and Exchange Commission may be obtained by writing to:
Esther K. Castain
Vacu-dry Company
P.O. Box 2418
Sebastopol, California 95473-2418
SIGNATURES
Pursuant to the requirements of Section 13 of 15 (d) 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
(Registrant)
Date: September 27, 1996 By: (Gary L. Hess)
Gary L. Hess, President & CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
President & Chief
(a) (Gary L. Hess) Executive Officer September 27, 1996
________________________
Gary L. Hess
(b) Directors:
____________________
D.P. Boothe, Jr.
(Kenneth P. Gill) September 27,1996
____________________
Kenneth P. Gill
(Ed Koplovsky) September 27,1996
____________________
Ed Koplovsky
(Roger Mertz) September 27,1996
____________________
Roger Mertz
(Craig Stapelton) September 27,1996
____________________
Craig Stapleton
(Donal Sugrue) September 27,1996
____________________
Donal Sugrue
(Joseph Tonascia) September 27,1996
____________________
Joseph Tonascia
(c) Principal Financial Officer
and Accounting Manager:
(Thomas R. Eakin) September 27,1996
__________________
Thomas R. Eakin Chief Financial Officer
(Susan Medeiros) September 27,1996
_________________
Susan Medeiros Accounting Manager