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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, 1997.
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
(State of Incorporation) (IRS Employer Identification Number)
California 94-1069729
(Address of principal executive offices) (Zip Code)
7765 Healdsburg Ave., Sebastopol, California 95472
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:
(Title of Class)
Common Stock, No Par Value
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 8, 1997 nonaffiliates of the Registrant held voting
stock with an aggregate market value of $8,419,130 based upon the
average of the high and low prices of such stock on such date.
As of September 8, 1997, there were 1,642,757 shares of common
stock, no par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
The Proxy Statement for the 1997 Annual Meeting of Shareholders
is incorporated by reference into Part III of this report.
Part I
Item 1. Business
GENERAL DEVELOPMENT OF BUSINESS
-------------------------------
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 worldwide,
but 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
expires on November 3, 1997.
INDUSTRY SEGMENT INFORMATION
----------------------------
The Company competes in a single industry segment within the
food industry, all assets held are supportive of efforts to
compete in that segment.
NARRATIVE DESCRIPTION OF BUSINESS
---------------------------------
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 domestic 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.
-1-
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 these fruits are expected
to be sufficient to meet the needs of our 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. In fiscal 1998, the
Company is changing its production plan and as a result,
production will be compressed into a shorter period of
months.
Inventories of fresh and dried apples, packaging materials
and finished goods as of June 30, 1997, were approximately
21% 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 22% of gross sales in 1997. One of these
customers A. Sturm & Sons accounted for more than 10% of
gross sales in 1997. 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, 1997, September 1, 1996 and
September 1, 1995 is $10,186,000, $8,558,000 and $9,913,000
respectively. The backlog as of September 1, 1996 excludes
the Confoco orders. Of the backlog for September 1, 1995,
Confoco orders and contracts represented $1,378,000 of the
total. 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.
-2-
The Company holds the following trademarks: Vacu-dry,
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
union employees are presently covered by a signed contract.
EXPORT SALES
------------
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 1997,
1996 and 1995 were $2,536,000, $2,498,000 and $1,480,000
respectively.
-3-
Item 2. Properties
The principal administrative offices are located in
Sebastopol, California. Approximately 4,130 square feet of
office space are leased through February 1999. At the end
of the term, the lease reverts to month to month.
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, 1997, the Company has leased approximately
78,000 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 66 acres of land and approximately 298,000
square feet under roof at 2064 Gravenstein Hwy. No.,
Sebastopol, California. As of June 30, 1997, 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 51,500 square feet of excess warehouse space
through December 1997 and approximately 23,750 square feet
of land through May 1998.
The 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, 1997.
-4-
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
9/30/95 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
9/30/96 4-7/8 5-1/4
12/31/96 4-7/8 5-1/2
3/31/97 5 5-1/2
6/30/97 4-3/8 5
The above quotations were obtained from the Nasdaq monthly
statistical reports.
On September 8, 1997, the approximate number of holders of common
stock was 733. On that date, the average of the high and low
price per share of the Company's stock was $5.125. 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 waived prior to the declaration of a dividend. At this time
the Company does not intend to reinstate a cash dividend plan.
-5-
Item 6. Selected Financial Data
YEAR ENDED
June 30, June 30, June 30, June 30, June 30,
1997 1996 1995 1994 1993
(In thousands except per share amounts)
Net sales $23,798 $26,533 $21,438 $27,773 $26,770
Earnings before
income taxes $749 $651 $287 $1,887 $1,791
Net earnings $517 $434 $195 $1,174 $1,075
Earnings per
common share $.31 $.25 $.11 $.70 $.65
Weighted average common
shares and equivalents
outstanding 1,648 1,704 1,701 1,669 1,664
Total Assets $14,576 $13,587 $15,335 $14,929 $13,210
Long-term debt $ 1,808 $ 1,628 $ 2,105 $ 2,585 $ 2,404
Cash dividends per
common share $ -- $ -- $ .15 $ .05 $ --
-6-
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition continues to be strong although
the increase in inventories and the increased capital
expenditures in fiscal 1997 offset some of the positive cash
flow from fiscal 1996. The Company's current ratio declined
slightly from 2.6 as of fiscal 1996 to 2.4 as of fiscal 1997.
During fiscal 1997, the Company borrowed $805,000 of long-term
debt to finance a portion of the $1,338,000 of capital
expenditures. In addition the Company repurchased 80,000 shares
of stock at a total cost of $407,000. As a result, the Company's
debt to equity ratio increased from .56 as of fiscal 1996 to .65
as of fiscal 1997.
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. In fiscal 1998 the Company
is forecasting a change in the normal production period. This
change will increase inventories in the first six months of the
fiscal year. The Company has arranged with its Bank to finance
this increase if needed with an increase in the available short-
term borrowing.
The most significant internal source of liquidity is the
Company's net working capital, which during fiscal 1997,
increased slightly to $4,232,000. 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, 1997, the Company had $2,146,000 of available funds on this
revolving line of credit. This compares with $2,674,000 of
available funds on the $3,500,000 revolving line of credit as of
June 30, 1996. As of June 30, 1997, 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 without the prior
approval by the Bank.
The Company has established a capital expenditure budget of
approximately $532,000 for the 1998 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.
-7-
The Company has been successful in leasing all of the idle
facility other than the portion occupied by Product Development.
A major tenant, that accounted for 38 percent of rental income in
fiscal 1997, has informed the Company they will not renew their
lease which expires in November of 1997. The Company is working
hard to obtain a replacement tenant without a loss of income. If
a tenant is not found the Company will lose $17,000 per month in
lease income. 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 believes its existing revolving line of credit limit
of $3,500,000 may need to be increased as a result of the new
production schedule and the related increase in inventories
during the peak production activity. The Company has discussed
this increase with its Bank and does not anticipate any problems
in finalizing this increase at the November 1st renewal.
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 1997 decreased $2,735,000 or 10%.
This decrease was primarily a result of the loss of the Confoco
banana and pumpkin sales, which accounted for $2,478,000 of
fiscal 1996 sales. The Confoco sales representation agreement was
terminated as of June 30, 1996 (See Note 1 of the Footnotes to
the Financial Statements). 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.
Other revenue: In fiscal 1997 other revenue decreased $50,000 or
7%. This decrease was due primarily to a decrease in nonrecurring
items that were partially offset by an increase in net rental
income of $96,000. 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 during fiscal 1996. In fiscal
1995 this category was comprised mainly of net rental income of
$217,000.
-8-
Cost of sales: As a percentage of net sales, cost of sales
decreased slightly in fiscal 1997 to 89% as compared to 91% in
1996 and 90% in 1995. This decrease is a result of the increased
production volume and the resultant increase in overhead
absorption. The increase in fiscal 1996 was a direct result of
the small worldwide apple crop and the resultant higher raw
material costs. As disclosed in Note 2 of the Footnotes to the
Financial Statements, the liquidation of certain LIFO inventories
in fiscal 1996 resulted in a reduction of cost of sales of
$642,000.
Selling, general and administrative expenses: Expenses in fiscal
1997 increased $27,000 or 1%. In fiscal 1996 these expenses
increased $376,000 or 21%. The reason for the increase in fiscal
1996 is primarily due to the lower than normal expenses in fiscal
1995 as a result of the reduction in expenses from the receipt
of a workers compensation dividend of $257,000 and a $96,000
credit from the reduction in the SAR liability (as a result of
the lower stock price).
Interest expense: In fiscal 1997 interest expense declined
$26,000 or 9%. The decline in the weighted average borrowings
and the decline in the weighted average interest rate on the line
of credit more than offset the increase in interest expense as a
result of the increase in long-term debt. 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).
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
-9-
Part III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to this item is contained in the
Registrant's 1997 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 8, 1997:
Name Age Position
Gary L. Hess 45 President and Chief
Executive Officer
Esther K. Castain 59 Secretary and
Manager of Employee Relations
Thomas R. Eakin 43 Vice President,Finance
Ralph A. Sceales 59 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 ten
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 1997 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 no later than 120 days after the
end of the fiscal year.
-10-
Part IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K
(a) Documents filed as part of this Report:
1. Financial Statements: Page No.
Report of Independent Public Accountants 12
Statement of Earnings for the Years Ended 15
June 30, 1997, June 30, 1996 and June 30, 1995
Balance Sheets -- June 30, 1997 and June 30,1996 13-14
Statements of Changes in Shareholders' Equity for 16
the Years Ended June 30, 1997, June 30, 1996 and
June 30, 1995.
Statements of Cash Flows for the Years Ended 17
June 30, 1997, June 30, 1996 and June 30, 1995.
Notes to Financial Statements. 18-28
2. 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:
Page No.
See Exhibit Index 30
(b) No reports on Form 8-K were filed during the last quarter
of the year ended June 30, 1997.
-11-
VACU-DRY COMPANY
FINANCIAL STATEMENTS
AS OF JUNE 30, 1997 AND 1996
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
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, 1997 and
1996, 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, 1997. 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, 1997 and 1996, and
the results of its operations and its cash flows for each of
the three years in the period ended June 30, 1997, in
conformity with generally accepted accounting principles.
San Francisco, California,
August 13, 1997
-12-
VACU-DRY COMPANY
BALANCE SHEETS-JUNE 30, 1997 AND 1996
1997 1996
ASSETS
CURRENT ASSETS:
Cash $283,000 $214,000
Accounts receivable, less allowances for
uncollectible accounts of $63,000 and
$61,000 in 1997 and 1996, respectively 1,567,000 2,684,000
Income tax receivable 70,000 0
Inventories, less LIFO reserves of $2,180,000
and $2,114,000 in 1997 and 1996,
respectively 5,055,000 3,430,000
Prepaid expenses 131,000 116,000
Current deferred income taxes 239,000 225,000
_________ _________
Total current assets 7,345,000 6,669,000
_________ _________
PROPERTY, PLANT AND EQUIPMENT:
Land 231,000 231,000
Buildings and improvements 6,570,000 6,455,000
Machinery and equipment 11,059,000 10,118,000
Construction in progress 77,000 245,000
__________ __________
Total property, plant and equipment 17,049,000 17,937,000
Accumulated depreciation (10,706,000) (10,131,000)
__________ __________
Net property, plant and equipment 7,231,000 6,918,000
__________ __________
Total assets $14,576,000 $13,587,000
========== ==========
The accompanying notes are an integral part of these statements
-13-
VACU-DRY COMPANY
BALANCE SHEETS--JUNE 30, 1997 AND 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under line of credit $1,354,000 $826,000
Current maturities of long-term debt 557,000 415,000
Accounts payable 490,000 678,000
Accrued payroll and related liabilities 539,000 476,000
Accrued expenses 173,000 138,000
_______ _______
Total current liabilities 3,113,000 2,533,000
LONG-TERM DEBT, net of current maturities 1,808,000 1,628,000
DEFERRED INCOME TAXES 826,000 748,000
SHAREHOLDERS' EQUITY:
Preferred stock: 2,500,000 shares 0 0
authorized; no shares outstanding
Common stock: 5,000,000 shares authorized,
no par value; 1,642,757 and 1,713,354 shares 3,635,000 4,001,000
outstanding in 1997 and 1996, respectively
Retained earnings 5,194,000 4,677,000
_________ _________
Total shareholders' equity 8,829,000 8,678,000
_________ _________
Total liabilities and shareholders'equity $14,576,000$13,587,000
========== ==========
The accompanying notes are an integral part of these statements.
-14-
VACU-DRY COMPANY
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
1997 1996 1995
REVENUE:
Net sales $23,798,000 $26,533,000 $21,438,000
Other 635,000 685,000 255,000
__________ __________ __________
Total revenue 24,433,000 27,218,000 21,693,000
COSTS AND EXPENSES:
Cost of sales 21,258,000 24,142,000 19,270,000
Selling, general and 2,154,000 2,127,000 1,751,000
administrative
Interest 272,000 298,000 385,000
------- -------- -------
Total costs and expenses 23,684,000 26,567,000 21,406,000
---------- ---------- ----------
Earnings before provision 749,000 651,000 287,000
for income taxes
PROVISION FOR INCOME TAXES 232,000 217,000 92,000
------- ------- ------
Net earnings $517,000 $434,000 $195,000
======= ======= =======
WEIGHTED AVERAGE COMMON SHARES
AND EQUIVALENTS 1,647,723 1,703,968 1,700,912
EARNINGS PER COMMON SHARE $.31 $.25 $.11
The accompanying notes are an integral part of these statements.
-15-
VACU-DRY COMPANY
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
Common Stock Total
Number Retained Shareholders'
of Shares Amount Earnings Equity
BALANCE, JUNE 30, 1994 1,699,572 $3,933,000 $4,303,000 $8,236,000
Net earnings 0 0 195,000 195,000
Dividends 0 0 (255,000) (255,000)
Issuance of common stock 13,658 99,000 0 99,000
Repurchase of common stock (15,200) (96,000) 0 (96,000)
------ ------ ------- ------
BALANCE, JUNE 30, 1995 1,698,030 3,936,000 4,243,000 8,179,000
Net earnings 0 0 434,000 434,000
Issuance of common stock 15,324 65,000 0 65,000
------ ------ ------ ------
BALANCE, JUNE 30, 1996 1,713,354 4,001,000 4,677,000 8,678,000
Net earnings 0 0 517,000 517,000
Repurchase of common stock (80,000) (407,000) 0 (407,000)
Issuance of common stock 9,403 41,000 0 41,000
----- ------ ------ -------
BALANCE, JUNE 30, 1997 1,642,757 $3,635,000 $5,194,000 $8,829,000
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
-16-
VACU-DRY COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $517,000 $434,000 $195,000
Adjustments to reconcile net earnings
to net cash provided by (used for)
operating activities:
Depreciation expense 1,025,000 947,000 884,000
Loss on sale of assets 0 20,000 6,000
Deferred income tax provision 64,000 (86,000) 308,000
Changes in assets and liabilities:
Accounts receivable, net 1,117,000 (1,005,000) (9,000)
Income tax receivable (70,000) 155,000 (117,000)
Inventories (1,625,000) 1,984,000 (637,000)
Prepaid expenses (15,000) 60,000 (110,000)
Accounts payable (188,000) 285,000 (767,000)
Accrued payroll and related liabilites 63,000 (50,000) (72,000)
Accrued expenses 35,000 (253,000) (403,000)
------ ------- -------
406,000 2,057,000 (917,000)
------- --------- -------
Net cash provided by (used for) 923,000 2,491,000 (722,000)
operating activities ------- --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,338,000) (470,000) (867,000)
Proceeds from the sale of assets 0 8,000 13,000
------- ------- ------
Net cash used for investing (1,338,000) (462,000) (854,000)
activities --------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under the line of credit 8,030,000 11,002,000 11,324,000
Payments on line of credit (7,502,000)(12,527,000) (9,253,000)
Proceeds from issuance-Long-term debt 805,000 0 0
Principal payments of long-term debt (483,000) (542,000) (475,000)
Dividends paid 0 0 (255,000)
Repurchase of common stock (407,000) 0 (96,000)
Issuance of common stock 41,000 65,000 99,000
------ ------ ------
Net cash provided by (used 484,000 (2,002,000) 1,344,000
for) financing activities ------- --------- ---------
NET INCREASE (DECREASE) IN CASH 69,000 27,000 (232,000)
CASH AT BEGINNING OF YEAR 214,000 187,000 419,000
------- ------- -------
CASH AT END OF YEAR $283,000 $214,000 $187,000
======= ======= =======
SUPPLEMENTAL DATA: Cash paid for:
Interest $264,000 $309,000 $371,000
Income taxes 381,000 316,000 158,000
The accompanying notes are an integral part of these statements.
-17-
VACU-DRY COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
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 products, 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 competitor in the low moisture and evaporated
business. Numerous processors compete in the business of bulk
apple juice and concentrate.
Effective July 1, 1996, a representation agreement with Confoco,
Inc. (Confoco) for the sale of low moisture banana and pumpkin
flakes terminated. For the years ended June 30, 1996 and 1995,
the Company recorded gross profit on Confoco products of $368,000
and $562,000, respectively. 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 accounted for approximately
22 percent of net sales in 1997.
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 less accumulated
depreciation. 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 $936,000 in 1997, $856,000 in 1996
and $982,000 in 1995.
-18-
Income Taxes
The Company records income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." SFAS No. 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.
Revenue
The Company recognizes revenue upon shipment of the product.
Stock-Based Compensation
The Company accounts for its stock-based compensation under APB
Opinion No. 25, which allows an entity to account for stock-based
compensation using the intrinsic-value-based method.
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.
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.
New Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
SFAS No. 128, AEarnings Per Share,@ and SFAS No. 129,
ADisclosure of Information about Capital Structure.@ The
requirements of both SFAS No. 128 and SFAS No. 129 will become
effective for the Company during the year ending June 30, 1998.
If SFAS No. 128 had been applied by the Company during 1997, 1996
and 1995, the basic income per share and diluted income per share
would have remained unchanged as reported in the Statement of
Earnings 1at $.31, $.25 and $.11, respectively. SFAS No. 129
will not have a material impact on the Company=s financial
statement disclosures.
-19-
2.INVENTORIES:
Inventories at June 30 consist of the following (LIFO cost):
1997 1996
Finished goods $4,208,000 $2,757,000
Work in process 291,000 233,000
Raw material and containers 556,000 440,000
------- -------
Total $5,055,000 $3,430,000
========= =========
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 (a $384,000 increase in net earnings, or an
increase of $.23 per share).
-20-
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.
1997 1996
Balance at June 30 $1,354,000 $826,000
Maximum amount available
Under the line of credit $3,500,000 $3,500,000
Average borrowings $982,000 $1,096,000
Maximum borrowings $3,160,000 $2,351,000
Interest at Prime Prime
Interest rate at June 30 8.50% 8.25%
Weighted average interest 8.32% 8.52%
rate
In accordance with 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 were declared in
fiscal 1997 or 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.
-21-
4. LONG-TERM DEBT:
Long-term debt consists of the following:
1997 1996
Note payable: five-year consolidation
note, interest at prime (8.5 percent at
June 30, 1997) plus 0.375 percent,
interest and principal due monthly, $267,000 $467,000
maturing in September 1998, secured by
accounts receivable, inventory, equipment
and fixtures
Note payable: seven-year consolidation
note, interest at prime (8.5 percent at
June 30, 1997) plus 0.375 percent,
interest and principal due monthly, 1,361,000 1,576,000
maturing in September 2000, secured by
accounts receivable, inventory, equipment
and fixtures
Note payable: five-year note, interest at
the yield of 30-day commercial paper
(5.63 percent at June 30, 1997) plus
2.1 percent, interest and principal due 737,000 0
monthly, maturing December 2001, secured
by equipment --------- --------
Total 2,365,000 2,043,000
Less: Current maturities (557,000) (415,000)
------- -------
Long-term debt $1,808,000 $1,628,000
========= =========
Maturities of long-term debt are as follows:
Year Ending
June 30
1998 $557,000
1999 435,000
2000 381,000
2001 897,000
2002 95,000
-------
Total $2,365,000
-22-
5.INCOME TAXES:
The following is a summary of the Company's provision for income
taxes:
1997 1996 1995
Current:
Federal $257,000 $259,000 $(155,000)
State 39,000 44,000 0
Deferred (64,000) (86,000) 247,000
------- ------- -------
Provision $232,000 $217,000 $92,000
======= ======= ======
A reconciliation of the income tax provision to the expected
provision at the federal statutory income tax rate is as follows:
1997 % 1996 % 1995 %
Provision at federal
statutory rate $253,000 34% $221,000 34% $98,000 34
State taxes, less
federal tax benefit 47,000 6 41,000 6 17,000 6
Tax credits and other (68,000) (9) (45,000) (7) (23,000) (8)
------ -- ------- -- ------ --
Total provision $232,000 31% $217,000 33% $92,000 32%
======= == ======= == ====== ==
-23-
Temporary differences that gave rise to deferred tax assets and
liabilities for 1997 and 1996 were as follows:
1997 1996
Deferred tax assets:
Employee benefit accruals $145,000 $139,000
Tax credit carryforwards 65,000 127,000
Unicap and inventory reserves 119,000 106,000
State income taxes 1,000 15,000
Other 25,000 11,000
------- -------
Total deferred tax assets 355,000 398,000
------- -------
Deferred tax liabilities:
Depreciation (892,000) (875,000)
Property taxes (50,000) (46,000)
------ ------
Total deferred tax liabilities (942,000) (921,000)
------- -------
$(587,000) $(523,000)
======= =======
At June 30, 1997, the Company has state tax credit carryforwards
of $99,000 to offset future state taxable income. These credits
expire in 2004 and 2005.
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, 1997 and 1996, 100,000 SARs
were authorized. A summary of the outstanding SARs is as
follows:
Rights
Outstanding
at June 30
Price per Right 1997 1996
$2.69 4,950 5,350
3.75 1,600 1,600
4.31 1,500 1,500
4.63 9,900 13,400
5.63 200 200
8.88 4,500 4,500
9.63 3,000 3,000
----- -----
25,650 29,550
====== ======
-24-
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 1997, 1996 and
1995, the Company decreased selling, general and administrative
expenses by $4,000, $1,000 and $96,000, respectively, in order to
reflect the lower 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 that began on January 1, 1994. The following
shares were issued under the term of the plan:
Average
Shares Price
Issued per Share
1997 9,403 $4.26
1996 15,324 4.25
1995 13,658 7.25
8.EMPLOYEE STOCK OPTION PLAN:
During 1996, the Board of Directors (the Board) approved a stock
option plan (the Plan) for employees and nonemployee consultants
covering 90,000 shares of common stock. The Plan includes
incentive stock options (ISOs) and nonqualified stock options
(NSOs). Some of the terms and conditions of the Plan are
different for ISOs and NSOs. The purchase price of each ISO
granted will not be less than the fair market value of the
Company's common shares at the date of grant. The purchase price
of each NSO granted shall be determined by the Board in its
absolute discretion, but in no event shall such price be less
than 85 percent of the fair market value at the time of grant.
NSO and ISO 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.
At June 30, 1997 and 1996, 526 shares were available for granting
further options, and options for 89,474 shares were outstanding
at $5.00 per share. These options have a remaining life of nine
years. At June 30, 1997 and 1996, 22,369 and 0 options were
exercisable, respectively.
-25-
The Company accounts for the Plan under APB Opinion No. 25, under
which no compensation cost has been recognized. Had compensation
cost for the Plan been determined consistent with SFAS No. 123,
the Company's net income and earnings per share would have been
reduced to the following pro forma amounts:
1997 1996 1995
Net income:
As reported $517,000 $434,000 $195,000
Pro forma 472,000 389,000 N/A
Earnings per
share:
As reported .31 .25 .11
Pro forma .29 .23 N/A
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model, with the
following weighted-average assumptions used for grants in 1996:
weighted average risk-free interest rate of 6.61 percent;
expected dividend yield of 0 percent; expected life of five years
for the Plan options; expected volatility of 37.44 percent.
9. OPERATING LEASES:
The Company leases office space and equipment. At June 30, 1997,
future minimum rental payments are as follows:
Year Ending
June 30
1998 $237,000
1999 207,000
-------
Total $444,000
========
Rental expense under these leases was $244,000 in 1997, $249,000
in 1996 and $235,000 in 1995.
The Company has been leasing excess warehouse space, generating
revenues of $537,000 in 1997, $441,000 in 1996 and $292,000 in
1995. These revenues are classified as other income in the
statements of earnings. A single lease, which accounted for 38
percent of rental income in 1997, will expire in November 1997.
The Company is in the process of seeking new tenants. The
remaining leases have varying terms, which range from month-to-
month to expiration dates through June 2000.
-26-
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 using a specific formula based
upon the Company's earnings. Company contributions to the
retirement savings and profit-sharing plan are funded currently
and were approximately $79,000 in 1997 and 1996, and $107,000 in
1995. 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 $335,000 in 1997, $256,000
in 1996 and $306,000 in 1995.
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
$321,000 in 1997, $269,000 in 1996 and $360,000 in 1995.
12. RELATED-PARTY TRANSACTIONS:
The Company 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 recorded an expense of $30,000
in fiscal 1997 related to this agreement, $18,000 of which was
recorded as a prepaid expense in the fiscal 1996 financial
statements.
13. QUARTERLY RESULTS (Unaudited):
For the Year Ended June 30,
1997
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
Net sales $6,043,000 $6,296,000 $5,894,000 $5,565,000 $23,798,000
Earnings (loss)
before income 69,000 636,000 51,000 (7,000) 749,000
taxes
Net earnings 42,000 382,000 27,000 66,000 517,000
Earnings per $.03 $.23 $.02 $.03 $.31
common share
-27-
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 72,000 501,000 240,000 (162,000) 651,000
taxes
Net earnings 43,000 295,000 144,000 (48,000) 434,000
(loss)
Earnings (loss)
per common $.03 $.17 $.08 $(.03) $.25
share
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
-28-
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 24, 1997 By: /s/ 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) /s/ Gary L. Hess Executive Officer September 24,1997
-----------------
Gary L. Hess
(b) Directors:
/s/Kenneth P. Gill September 25, 1997
------------------
Kenneth P. Gill
/s/ Ed Koplovsky September 24, 1997
----------------
Ed Koplovsky
/s/ Roger Mertz September 25, 1997
--------------
Roger Mertz
/s/ Craig Stapleton September 26, 1997
-------------------
Craig Stapleton
----------------
Donal Sugrue
(c) Principal Financial Officer
and Accounting Manager:
/s/ Thomas R. Eakin September 24, 1997
-------------------
Thomas R. Eakin Chief Financial Officer
/s/ Susan Medeiros September 24, 1997
------------------
Susan Medeiros Accounting Manager
-29-
VACU-DRY COMPANY
COMMISSION FILE NUMBER 01912
EXHIBIT INDEX
For the year ended June 30, 1997
Exhibit Page No.
Number Document Description or(Annotation)
Reference
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)
(k) 1996 Stock Option Plan (6)
(i) 1993 Employee Stock Purchase Plan (7)
11. Computation of Per Share Earnings 31
23. (a) Consent of Independent Public Accountants 33
27. (a) Financial Data Schedule 32
Incorporated by reference to the Company's:
(2) Form 10-K for the year ended June 30, 1988
(4) Form 10-K for the year ended June 30, 1992
(5) Form 10-K for the year ended June 30, 1996
(6) Form 10-K/A for the year ended June 30, 1996
(7) Form S-8 Registration Statement No. 33-70870
These exhibits are incorporated by reference to the Registrant's
Annual Report, filed pursuant to Section 13 of the Securities and
Exchange Act of 1934.
-30-