SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) X of the Securities Exchange Act of 1934. For the quarterly period ended September 30, 1995 or Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from_______ to _______. Commission File Number 01912 VACU-DRY COMPANY (Exact name of registrant as specified in its charter) California 94-1069729 (State of incorporation) (IRS Employer Identification #) 7765 Healdsburg Ave., Sebastopol, California 95472 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 707/829-4600 Not-Applicable _____________________________________________________________________________ (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES: __X__ NO:____ As of September 30, 1995, there were 1,701,910 shares of common stock, no par value, outstanding. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The financial statements herein presented for the quarters ended September 30, 1995 and 1994, reflect all the adjustments that in the opinion of management are necessary for the fair presentation of the financial position and results of operations for the period then ended. All adjustments during the periods presented, are of a normal recurring nature. Liquidity and Capital Resources Because the Company's operations are seasonal in nature, the Company's liquid resources fluctuate during the year in a way that changes very little from year to year. The inventory and accounts payable balances are normally at their lowest level as of the end of the fiscal year and their highest level as of the end of the second quarter. This seasonal increase in the accounts payable balance results in a temporary increase in the Debt to Equity ratio. Normally during the first quarter of the fiscal year the inventory levels increase as a result of the beginning of the production season for apples. Adverse weather conditions earlier this year resulted in a poor local apple crop and a late start in production. As a result of this late start, the inventory level did not increase in the first quarter of the current fiscal year. The net working capital increased from $3,775,000 as of June 30, 1995 to $3,882,000 as of September 30, 1995. These levels are very comparable with September 30, 1994 of $3,875,000. The increase in the Borrowings Under the Line of Credit from September 30, 1994 to September 30, 1995 of $1,185,000 was a result of an increase in the accounts receivable balance of $1,182,000 during the same period. The Borrowings Under the Line of Credit will decline as the accounts receivable balance decreases. The Company's liquidity resources are obtained from external and internal sources. The Company's largest external source is a revolving line of credit provided by a bank at the Bank's prime rate. The Company has a revolving line of credit limit of $4,000,000 secured by inventory and accounts receivable. As of September 30, 1995, the Company had $2,237,000 of available funds under this revolving line of credit. During the prior fiscal year the revolving line of credit limit was increased to $4,000,000. The current availablity of $2,237,000 compares with $2,422,000 of available funds (on a $3,000,000 limit) as of September 30, 1994. As of September 30, 1995, the Company was in compliance with all of the covenants and restrictions related to its outstanding debt. The most significant source of internal liquidity is the Company's net working capital. One source of long term liquidity is the sale of the idle production facility, although the Company is not relying on the sale of this facility as a source of liquidity, the Company's short and long- term liquidity would materially increase upon such a sale. The Company has leased the majority of the idle facility on a short and long-term basis. -2- The Company has established a capital expenditure budget of approximately $537,000 for the 1995-1996 fiscal year. The Company anticipates financing these assets through internally generated funds and possibly the use of debt financing. At this time the Company has not leased the area occupied by Product Development at the idle facility and thus to conserve cash the Company is deferring this relocation until this area is either leased or the entire facility is sold. The capital expenditure budget will be used to refurbish existing equipment and to purchase some new equipment. The Board of Directors have suspended the quarterly cash dividend and stock repurchase plan. Results of Operations Net sales increased $255,000 or 4% in the first quarter of fiscal 1996. The sales increased as a result of volume rather than price. Cost of sales as a percentage of net sales increased from 85% in 1994 to 92% in 1995. The smaller apple crop resulted in a late start in production and consequently less factory overhead was absorbed during the quarter. This lack of absorption resulted in the increase to cost of sales. In comparison with the first quarter of the past two years, the Company processed significantly less tonnage this period and as a result we did not have the excess absorption of overhead to set aside in the Deferred Factory Overhead reserve. By comparison, in the first quarter of the past two years the Company established a reserve of $150,000 each year. To achieve the same balance in the Deferred Factory Overhead Reserve as in the past two years, the Company will need to materially increase the absorption of overhead in the next quarter. The Deferred Factory Overhead Reserve is normally accumulated in the first and second quarter to offset the lower production level in the fourth quarter. Failure to accumulate an adequate reserve would have an adverse effect on the earnings for the fourth quarter. Selling, general and administrative expenses decreased $190,000 or 30% in the first quarter. This decrease is a result of numerous factors, including; the effects of the staff reductions, lower legal fees as a result of settlement of the pending ligitaion, decreased expenses related to the SAR plan and other miscellaneous expense reductions. Interest expense increased $28,000 because of the increased borrowings under the line of credit. -3- PART II OTHER INFORMATION Item 1. Legal Proceedings There are no 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 period covered by this report. Item 6. Exhibits & Reports on Form 8-K a. Exhibits - none b. Reports on Form 8-K - none VACU-DRY COMPANY CONDENSED STATEMENT OF EARNINGS (UNAUDITED) Three Months Three Months Ended Ended 9/30/95 9/30/94 REVENUES: Net sales $6,479,000 $6,224,000 Other 60,000 120,000 Total revenue $6,539,000 $6,344,000 COST & EXPENSES Cost of sales 5,934,000 5,302,000 Selling, general & administration 437,000 627,000 Interest 96,000 68,000 $6,467,000 $5,997,000 EARNINGS BEFORE INCOME TAXES 72,000 347,000 PROVISION FOR INCOME TAXES 29,000 139,000 NET EARNINGS $ 43,000 $ 208,000 EARNINGS PER COMMON SHARE $.03 $.12 WEIGHTED AVERAGE COMMON SHARES OUSTANDING 1,698,072 1,699,605 See notes to interim financial statements VACU-DRY COMPANY Balance Sheets (Unaudited) (Dollars in thousands) CURRENT ASSETS: 9/30/95 6/30/95 CURRENT LIABILITIES: 9/30/95 6/30/95 Cash $ 215 $ 187 Borrowings under line of credit $ 1,763 $2,351 Accounts receivable 2,769 1,679 Current maturities of long-term debt 480 480 Other receivables 161 155 Accounts payable 2,045 393 Inventories 5,369 5,414 Accrued payroll & related liabilities 621 524 Prepaid expenses 264 176 Accrued expenses 261 391 Current deferred taxes 303 303 Deferred factory overhead -0- -0- _____ _____ Income taxes payable 29 -0- Total current assets 9,081 7,914 _____ _____ Net property, plant & Total current liabilities $5,199 $4,139 equipment 7,252 7,421 LONG-TERM DEBT - Net of current maturities 1,985 2,105 DEFERRED INCOME TAXES 912 912 SHAREHOLDERS' EQUITY: Capital stock 3,952 3,936 Retained earnings 4,285 4,243 Total shareholders' equity 8,237 8,179 ______ ______ Total liabilities and ______ ______ Total Assets $16,333 $15,335 shareholders' equity $16,333 $15,335 See notes to interim financial statements VACU-DRY COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 43,000 $ 208,000 __________ __________ Adjustments to reconcile net earnings to net cash provided by operating activities - Depreciation expense 229,000 207,000 Changes in certain assets & liabilities (Increase) in receivables (1,096,000) (65,000) Decrease (increase) in inventories 45,000 (2,160,000) (Increase) in prepared assets (88,000) (6,000) Increase in accounts payable 1,652,000 1,413,000 Increase (decrease) in accrued expenses (131,000) 248,000 Increase in payroll & related liabilities 97,000 161,000 Increase in deferred overhead -0- 150,000 Increase in income taxes payable 29,000 101,000 __________ _________ Total adjustments 737,000 49,000 Net cash provided by (used for) operating activities 780,000 257,000 _______ ________ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (60,000) (543,000) _______ ________ Net cash used for investing activities (60,000) (543,000) _______ ________ CASH FLOWS FROM FINANCING ACTIVITIES: Additional borrowings under the line of credit 2,713,000 1,863,000 Payments on line of credit (3,301,000) (1,565,000) Quarterly Dividend of $.05 per share -0- (85,000) Employee purchase of Company stock 16,000 40,000 Principal payments of long-term debt (120,000) (119,000) __________ __________ Net cash used by financing activities (692,000) 134,000 __________ __________ NET INCREASE (DECREASE) IN CASH 28,000 (152,000) CASH AT THE BEGINNING OF THE YEAR 187,000 419,000 __________ __________ TOTAL CASH AT THE END OF THE PERIOD $ 215,000 $ 267,000 See notes to interim financial statements VACU-DRY COMPANY NOTES TO INTERIM FINANCIAL STATEMENTS THREE MONTHS ENDED SEPTEMBER 30, 1995 Note 1 - The Interim Financial Statements herein presented for the three months ended September 30, 1995, reflect all adjustments which are in the opinion of management necessary to a fair statement of the results of operations for the period then ended. The statements are unaudited and are not necessarily indicative of results for the full year. Note 2 - Inventories - Inventories are stated at the lower of cost, using the last- in, first-out (LIFO) method or market. The excess of current cost of the inventory over LIFO cost was $1,334,000 at September 30, 1995 and $1,334,000 at June 30, 1995. Inventories at September 30, 1995 and June 30, 1995, consisted of the following: 9/30/95 6/30/95 Finished goods $4,174,000 $4,926,000 Work in progress 252,000 239,000 Raw materials, & containers 943,000 249,000 __________ __________ $5,369,000 $5,414,000 Note 3 - Statement of Cash Flows - Interest and income tax payments reflected in the Consolidated Statement of Cash Flows were as follows: 1995 1994 Interest paid $100,000 $68,000 Income taxes paid - 0 - - 0 - Note 4 - Income Taxes - The effective income tax rate for 1995 is 40%, which compares to 40% for 1994. There were no federal or state tax operating loss carryforwards for book or tax purposes at September 30, 1995. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VACU-DRY COMPANY Date: November 13, 1995 (Donal Sugrue) _______________________ Donal Sugrue, President Date: November 13, 1995 (Tom Eakin) _______________________ Tom Eakin, VP, Finance