<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 000-24651
------------------------
GOLDEN STATE VINTNERS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0412761
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) No.)
500 DRAKE'S LANDING ROAD, GREENBRAE, CALIFORNIA 94904
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (415) 461-4400
None
(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 / /
The number of shares of the Registrant's Class A and Class B Common Stock
outstanding as of November 12, 1999 was 4,342,528 and 5,155,733 shares,
respectively.
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<PAGE>
GOLDEN STATE VINTNERS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I -- FINANCIAL INFORMATION:
Item 1: Financial Statements
Consolidated Balance Sheets as of September 30, 1999
and June 30, 1999 . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the Three Months
Ended September 30, 1999 and 1998 . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Three Months
Ended September 30, 1999 and 1998 . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . 6
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . 8
Item 3: Quantitative and Qualitative Disclosures About Market Risk. . . . . 11
PART II -- OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 12
</TABLE>
2
<PAGE>
PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GOLDEN STATE VINTNERS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1999 1999
------------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 51 $ 30
Trade and other receivables - net 14,248 9,939
Inventories 42,749 27,172
Refundable income taxes 4,131 4,131
Prepaid expenses and other current assets 583 729
Deferred income taxes 228 388
---------- ----------
Total current assets 61,990 42,389
PROPERTY, PLANT AND EQUIPMENT - Net 86,202 84,034
NOTE RECEIVABLE 1,722 1,722
OTHER ASSETS 359 375
---------- ----------
TOTAL ASSETS $ 150,273 $ 128,520
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank line of credit $ 13,900 $ 8,100
Cash overdraft 2,989 965
Accounts payable 2,786 4,029
Grower payable 16,359 660
Payroll and related liabilities 545 634
Accrued interest 400 191
Other accrued liabilities 721 886
Current portion of long-term debt 4,869 4,899
---------- ----------
Total current liabilities 42,569 20,364
LONG-TERM DEBT 38,419 39,250
DEFERRED INCOME TAXES 11,470 11,422
STOCKHOLDERS' EQUITY:
Class A common stock, par value $.01; 6,000,000 shares
authorized; 4,342,528 issued and outstanding at
September 30, 1999 and June 30, 1999, respectively. 44 44
Class B common stock, par value $.01; 54,000,000 shares
authorized; 5,155,733 shares issued and outstanding at
September 30, 1999 and June 30, 1999, respectively. 51 51
Paid-in capital 44,837 44,837
Retained earnings 12,883 12,552
---------- ----------
Total stockholders' equity 57,815 57,484
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 150,273 $ 128,520
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
GOLDEN STATE VINTNERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1999 1998
<S> <C> <C>
REVENUES:
Bulk wine and juice $ 5,259 $ 4,575
Wine grapes 6,211 6,066
Case goods 4,579 3,893
Brandy and spirits 307 3,222
---------- ---------
Total revenues 16,356 17,756
COST OF SALES 13,273 12,803
---------- ---------
GROSS PROFIT 3,083 4,953
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,509 1,549
---------- ---------
INCOME FROM OPERATIONS 1,574 3,404
INTEREST EXPENSE 1,007 1,395
OTHER EXPENSE 28 6
---------- ---------
INCOME BEFORE INCOME TAXES 539 2,003
INCOME TAXES 208 817
---------- ---------
NET INCOME 331 1,186
ACCRETION ON PREFERRED STOCK - (1,928)
REDEEMABLE PREFERRED STOCK DIVIDENDS - (400)
---------- ---------
INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS $ 331 $ (1,142)
---------- ---------
---------- ---------
EARNINGS (LOSS) PER COMMON SHARE:
BASIC $ 0.03 $ (0.13)
---------- ---------
---------- ---------
DILUTED $ 0.03 $ (0.13)
---------- ---------
---------- ---------
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 9,498 8,934
---------- ---------
---------- ---------
DILUTED 9,603 8,934
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
GOLDEN STATE VINTNERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 331 $ 1,186
Adjustments to reconcile net income to net cash
flows used in operating activities:
Depreciation and amortization 1,195 964
Loss on disposal of assets 20 -
Deferred income taxes 208 810
Changes in assets and liabilities:
Receivables (4,309) (8,438)
Inventories (15,383) (13,331)
Prepaid expenses and other current assets 146 (695)
Accounts payable (1,243) 1,369
Grower payable 15,699 13,490
Payroll and related liabilities (89) (5,663)
Other accrued liabilities 209 (340)
Accrued interest (165) (397)
Income taxes refundable/payable - 3,096
--------- ---------
Net cash used in operating activities (3,381) (7,949)
INVESTING ACTIVITIES --
Purchases of property, plant and equipment (3,543) (1,860)
FINANCING ACTIVITIES:
Borrowings on line of credit 7,300 22,050
Payments on line of credit (1,500) (23,450)
Change in cash overdraft 2,024 689
Repayments of long-term debt (879) (12,595)
Redemption of Sr. Preferred Stock - (10,000)
Payment of dividends - (400)
Proceeds from the sale of common stock - 33,992
Public offering costs - (472)
--------- ---------
Net cash provided by financing activities 6,945 9,814
--------- ---------
INCREASE IN CASH AND EQUIVALENTS 21 5
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 30 40
--------- ---------
CASH AND EQUIVALENTS, END OF PERIOD $ 51 $ 45
--------- ---------
--------- ---------
OTHER CASH FLOW INFORMATION:
Interest paid $ 1,265 $ 1,843
--------- ---------
--------- ---------
Notes/leases issued to acquire property and equipment $ - $ 1,916
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
GOLDEN STATE VINTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (which include all normal and
recurring adjustments) necessary to present fairly the Company's financial
position at September 30, 1999 and its results of operations and its cash
flows for the three month periods ended September 30, 1999 and 1998. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted from the accompanying financial
statements. The unaudited financial statements set forth in this quarterly
report on Form 10-Q should be read in conjunction with the audited financial
statements and notes thereto included in the Company's Annual Report on Form
10-K (the "10-K") for the fiscal year ended June 30, 1999, on file at the
Securities and Exchange Commission. The Company's results for the three
months ended September 30, 1999 are not necessarily indicative of the results
that may be expected for the fiscal year ending June 30, 2000.
NOTE 2 - INVENTORIES:
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1999 1999
------------- -------------
<S> <C> <C>
Bulk wine $ 33,781 $ 14,250
Cased and bottled wine 3,352 3,584
Brandy 2,153 916
Juice, supplies and other 1,517 1,214
Unharvested crop costs 1,946 7,208
------------- -------------
Total $ 42,749 $ 27,172
------------- -------------
------------- -------------
</TABLE>
NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments," SFAS 137 extends the effective date of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The statement requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. As amended by SFAS
137, SFAS 133 is effective for the Company's fiscal year ending June 30,
2001. The Company is currently evaluating what impact, if any, this
statement may have on its financial statements.
NOTE 4 - BUSINESS SEGMENT INFORMATION
Effective July 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement required that a public
business enterprise report financial and descriptive information about its
reportable operating segments. Adoption of this statement had no impact on
the Company's consolidated financial position, results of operations or cash
flows.
The Company's chief decision maker evaluates performance based on gross
profit of the following four segments: bulk wine, wine grapes, case goods and
brandy. The bulk wine segment includes the production and sale of bulk wine,
the provision of custom crushing services, the storage of bulk wine in tanks
and barrels and the delivery of bulk wine barreling services, such as racking
and topping. The Company's wine grapes segment consists of the farming and
harvesting of Company owned vineyards and subsequent sales or internal use of
produced grapes as well as grapes purchased by the Company for resale. The
case goods segment includes the production of proprietary and private label
bottled wine and wine-related beverages and the provision of custom bottling
and storage services. The Company's brandy segment includes the production
of brandy and spirits and the provision of brandy barrel storage and related
barreling services. The Company also analyzes information on capital
expenditures, depreciation and amortization and assets utilized by each of
the four segments.
6
<PAGE>
GOLDEN STATE VINTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - BUSINESS SEGMENT INFORMATION (CONTINUED)
Segment information as of September 30 and June 30, 1999 and for the three
month periods ended September 30, 1999 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenues, net:
Bulk wine................... $ 5,259 $ 4,575
Wine grapes................. 6,211 6,066
Case goods.................. 4,579 3,893
Brandy...................... 307 3,222
----------- -----------
Total revenues, net........ 16,356 17,756
Cost of Sales:
Bulk wine................... 4,301 3,635
Wine grapes................. 5,126 3,905
Case goods.................. 3,700 2,944
Brandy...................... 146 2,319
----------- -----------
Total cost of sales........ 13,273 12,803
Gross Profit:
Bulk wine................... 958 940
Wine grapes................. 1,085 2,161
Case goods.................. 879 949
Brandy...................... 161 903
----------- -----------
Total gross profit......... $ 3,083 $ 4,953
----------- -----------
----------- -----------
Capital Expenditures:
Bulk wine................... $ 2,014 $ 3,093
Wine grapes................. 198 181
Case goods.................. 767 54
Brandy...................... 553 447
Corporate................... 11 1
----------- -----------
Total...................... $ 3,543 $ 3,776
----------- -----------
----------- -----------
Depreciation and amortization:
Bulk wine................... $ 535 $ 304
Wine grapes................. 515 469
Case goods.................. 41 25
Brandy...................... 21 55
Corporate................... 83 111
----------- -----------
Total...................... $ 1,195 $ 964
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1999 1999
------------- --------
<S> <C> <C>
Total Assets:
Bulk wine................... $ 84,347 $ 63,311
Wine grapes................. 37,711 39,641
Case goods.................. 10,811 9,840
Brandy...................... 9,774 7,763
Corporate................... 7,630 7,965
------------- --------
Total...................... $ 150,273 $128,520
------------- --------
------------- --------
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF GOLDEN STATE VINTNERS, INC. (THE "COMPANY") CONTAINS
"FORWARD-LOOKING STATEMENTS," AS DEFINED IN SECTION 27A OF THE SECURITIES ACT
OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED. FORWARD-LOOKING STATEMENTS ARE STATEMENTS OTHER THAN HISTORICAL
INFORMATION OR STATEMENTS OF CURRENT CONDITION AND RELATE TO FUTURE EVENTS OR
THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY. SOME FORWARD-LOOKING
STATEMENTS MAY BE IDENTIFIED BY USE OF SUCH TERMS AS "BELIEVES,"
"ANTICIPATES," "INTENDS" OR "EXPECTS." SUCH FORWARD-LOOKING STATEMENTS
INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY
CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S
RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING
STATEMENTS AS A RESULT OF A NUMBER OF FACTORS, INCLUDING WITHOUT LIMITATION,
THOSE FACTORS DISCUSSED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
FISCAL YEAR ENDED JUNE 30, 1999, AS FILED WITH SECURITIES AND EXCHANGE
COMMISSION ON SEPTEMBER 28, 1999. THE COMPANY UNDERTAKES NO OBLIGATION TO
PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT
OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
Recent Developments
Seasonality and Quarterly Results
The Company has experienced and expects to continue to experience
seasonal and quarterly fluctuations in its revenues. Because of the inherent
seasonality of its operations, the Company has historically reported its
highest revenues and net income in its first and second fiscal quarters as
the Company sells most of its grapes in the first quarter, immediately after
harvest, sells most of its bulk wine in its second quarter, immediately after
crush, and performs many of its wine processing services in the first and
second quarters.
As a result the Company typically reports lower revenues and net income
(loss) in the third and fourth fiscal quarters. In fiscal 1999 and 2000 El
Nino-related weather conditions, among other things, caused an approximate
four week delay in the California wine grape harvest as compared to normal
harvests. The Company anticipates that the late harvest of grapes will result
in the substantial reallocation of revenues relating directly to the 1999
crush into the Company's second and third fiscal quarters.
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Revenues
Revenues for the first quarter of fiscal 2000 were $16.4 million, a
decrease of $1.4 million or 7.9%, as compared to revenues of $17.8 million
for the first quarter of fiscal 1999. The decrease in revenues was
primarily due to a delay in the production and sale of brandy and spirits
partially offset by increased bulk wine, wine grapes and case goods revenues.
Bulk Wine and Related Services. For the first quarter of fiscal 2000,
revenues from bulk wine and related services were $5.3 million, an increase
of $.7 million or 15.2%, as compared to revenues of $4.6 million in the first
quarter of fiscal 1999. The increase in bulk wine and related services
revenue resulted from a favorable mix of bulk wine sold compared to the prior
year resulting in higher per gallon sales prices partially offset by a
decrease in overall gallons sold.
8
<PAGE>
Wine grapes. In the first quarter of fiscal 2000, revenues from grape
sales were $6.2 million, an increase of $.1 million or 1.6%, as compared to
revenues of $6.1 million in the first quarter of fiscal 1999. Wine grapes
revenues consist of revenues from grapes grown on the Company's vineyards and
grapes purchased from outside growers that are resold to various third
parties or "resold grapes". Company grown grape tons delivered to customers
decreased to approximately 14,600 tons (or $4.1 million in revenues) in the
first quarter of 2000 compared to 23,400 tons (or $5.9 million in revenues)
in the first fiscal quarter 1999 primarily as a result of overall decreased
yields on Company owned vineyards as compared to the prior year and the
Company's restructuring of grape contracts to utilize a greater percentage of
its own grapes toward the internal production of bulk wine and brandy. Resold
grape revenue increased to $2.1 million from $.2 million for the first
quarters of fiscal 2000 and 1999 respectively.
Case goods and related services. For the first quarter of fiscal 2000,
revenues from case goods and related services were $4.6 million, an increase
of $.7 million or 17.9%, as compared to revenues of $3.9 million in the first
quarter of fiscal 1999. The period to period increase in case goods and
related services revenues was primarily due to an increase in private label
case goods and related services.
Brandy. For the first quarter of fiscal 2000, revenues from the sale of
brandy and grape spirits were $.3 million, a decrease of $2.9 million or
90.6%, as compared to revenues of $3.2 million in the first quarter of fiscal
1999. The period to period decline in brandy revenue was due to delayed
production of brandy due to a later harvest and required product blending.
Management expects brandy revenues to be recognized primarily in the second
quarter of fiscal 2000.
Cost of Sales
For the first quarter of fiscal 2000, total cost of sales was $13.3
million, an increase of $.5 million or 3.9%, from $12.8 million in the first
quarter of fiscal 1999. As a percentage of revenues, for the first quarter of
fiscal 2000, cost of sales was 81.2%, an increase from 72.1% for the first
quarter of fiscal 1999. The increase in cost of sales on a percentage of
revenue basis resulted primarily from 1) increased grape per ton costs due to
decreased grape yields from Company owned vineyards and 2) overall decrease
in case goods margins.
Gross Profit
In the first quarter of fiscal 2000, the Company realized gross profit
of $3.1 million, a decrease of $1.9 million or 38.0%, as compared to gross
profit of $5.0 million in the first quarter of fiscal 1999. As a percentage
of revenues, in the first quarter of fiscal 2000 gross margin declined to
18.8%, from 27.9% in the first quarter of fiscal 1999. The Company's gross
margin for the first quarter of fiscal 2000 was primarily impacted by the
items discussed above under "Cost of Sales".
Selling, General and Administrative Expenses
Selling, general and administrative expenses included general
administrative items, and corporate overhead. For the first quarters of
fiscals 1999 and 2000, selling, general and administrative expenses were $1.5
million.
Interest Expense
For the first quarter of fiscal 2000, interest expense was $1.0 million,
a decrease of $.4 million or 28.6%, as compared to interest expense of $1.4
million in the first quarter of fiscal 1999. The period to period decline is
due to decreased average borrowings on the Company's line of credit and the
Company's use of proceeds from the IPO during July and August 1998 to repay
approximately $11.9 million in long-term debt, $5.7 million in officer notes
and to reduce its outstanding line of credit balance by $4.7 million.
Net Income
For the first quarter of fiscal 2000, net income was $.3 million, a
decrease of $.9 million or 75.0%, as compared to net income of $1.2 million
in the first quarter of fiscal 1999. Net income in the first quarter of
fiscal 2000 was adversely impacted primarily by a reduction in revenues from
grape sales realized from Company owned vineyards as explained above.
Earnings Per Share
For the first quarter of fiscal 2000, the basic earnings per share was
$0.03, as compared to basic loss per share of $.13 for the first quarter of
fiscal 1999. Net loss available to common shareholders for the first
quarter of 1999 was impacted by net income of $1.2 million offset by dividend
payments of $.4 million on shares of Senior Preferred Stock and, as a result
of the Company's initial public offering, accretion of $1.9 million with
respect to Senior Preferred Stock redeemed and Junior Preferred Stock
converted.
9
<PAGE>
Liquidity and Capital Resources
The Company's working capital position at September 30, 1999 was $19.4
million, as compared to $22.0 million at June 30, 1999. The decrease in
working capital is primarily due to internally financed additions to
property, plant and equipment. The Company maintains a revolving line of
credit for working capital purposes which is secured by inventory, accounts
receivable, the current year's wine grape crop and other collateral.
Collateral balances at September 30, 1999 are adequate for the Company's
working capital requirements. Borrowings under the line typically peak in
November, during the Company's second fiscal quarter. Revolving line of
credit balances were $13.9 million and $8.1 million at September 30, 1999 and
June 30, 1999, respectively. Unused availability under the line of credit
was $18.6 million at September 30, 1999.
Net cash used in operating activities for the first quarter of fiscal
2000 was $3.4 million, as compared to net cash used in operations of $7.9
million for the first quarter of fiscal 1999. In the first quarter of fiscal
1999, the Company made payments on officer notes aggregating $5.7 million.
Management expects that the Company's working capital requirements will
grow as the business expands and that peak borrowing needs will continue to
occur in the second quarter of the Company's fiscal year. Management
believes that current working capital, cash generated from operations and
funds available under the Company's line of credit will be sufficient to fund
working capital requirements and operations during the Company's 2000 fiscal
year.
Year 2000 Compliance
A significant percentage of the software that runs most of the computers in
the United States relies on two-digit date codes to perform a number of
computation and decision making functions. Commencing on January 1, 2000, these
computer programs may fail from an inability to interpret date codes properly,
misreading "00" for the year 1900 instead of the year 2000.
The Company has completed a comprehensive program to identify, evaluate
and address issues associated with the ability of its information technology
and non-information technology systems to properly recognize the Year 2000 in
order to avoid interruption of the operation of these systems and a material
adverse effect on the Company's operations as a result of the century change.
Each of the information technology software programs that the Company
currently uses has either been certified by its respective vendor as Year
2000 compliant or will be replaced with software that is so certified prior
to January 1, 2000. The Company has conducted comprehensive tests of all of
its software programs for Year 2000 compliance as part of its Year 2000
readiness program. The Company believes that its core non-information
technology systems, such as its bottling and production equipment, air
conditioning/refrigeration units, telephones and faxes will not be adversely
affected by the Year 2000, due to the completion of its tests and evaluation
of such equipment. As part of its Year 2000 compliance program, the Company
also intends to contact its significant vendors, suppliers and customers to
ascertain whether the systems used by such third parties are Year 2000
compliant. The Company has completed virtually all Year 2000 compliance
software testing.
To date, the Company has spent approximately $198,000 to reprogram,
replace and test its information technology software for Year 2000
compliance. The Company estimates the costs of these efforts will be between
$210,000 and $220,000 (inclusive of the $198,000). Costs and expenses arising
in connection with the Company's Year 2000 compliance efforts have been, and
will be, expensed as incurred.
The Company currently anticipates that both its information technology and
non-information technology systems will be Year 2000 compliant in sufficient
time to avoid business interruptions, though no assurances can be given that the
Company's compliance testing will not detect unanticipated Year 2000 compliance
problems. Furthermore, the Company does not yet know the Year 2000 compliance
status of third parties that are integral to the Company's business and is
therefore currently unable to assess the likelihood or the risk to the Company
of third party system failures. However, a system failure by any of the
Company's significant customers, suppliers or vendors could result in a material
adverse effect on the Company's business and operations.
The Company has developed contingency plans to handle a Year 2000 system
failure experienced by its information technology systems. These backup
procedures, including manual record keeping and processing, have been tested and
utilized by the Company in the past during times of unplanned system failure.
10
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's market risk
exposure from that reported in the Company's Form 10-K for the fiscal year
ended June 30, 1999.
11
<PAGE>
PART II
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's market risk
exposure from that reported in the Company's Form 10-K for the fiscal year
ended June 30, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
11 Statement Regarding Computation of Per Share Earnings
27 Summary Financial Information
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 6, 1999 GOLDEN STATE VINTNERS, INC.
By: /s/ BRIAN R. THOMPSON
---------------------------------
Brian R. Thompson
Chief Financial Officer
(Principal Financial &
Accounting Officer and
Duly Authorized Officer)
13
<PAGE>
GOLDEN STATE VINTNERS, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
EXHIBIT 11
Basic and fully diluted earnings per share ("EPS") are determined as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
Basic EPS Computation
Numerator:
Net income $ 331 $ 1,186
Less: Accretion of redeemed senior preferred stock -- (1,771)
Accretion of converted junior preferred stock -- (157)
Redeemable preferred stock dividends -- (400)
--------- ---------
Income (loss) available to common stockholders $ 331 $ (1,142)
--------- ---------
--------- ---------
Denominator:
Weighted average common shares 9,498 8,934
--------- ---------
--------- ---------
Basic EPS $ 0.03 $ (0.13)
--------- ---------
--------- ---------
Diluted EPS Computation
Numerator:
Income (loss) available to common stockholders $ 331 $ (1,142)
--------- ---------
--------- ---------
Denominator:
Weighted average common shares outstanding 9,498 8,934
Stock options 105 -
--------- ---------
Adjusted weighted average common shares 9,603 8,934
--------- ---------
--------- ---------
Diluted EPS $ 0.03 $ (0.13)
--------- ---------
--------- ---------
</TABLE>
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 2 AND 3 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUN-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 51
<SECURITIES> 0
<RECEIVABLES> 15,520
<ALLOWANCES> 1,272
<INVENTORY> 42,749
<CURRENT-ASSETS> 61,990
<PP&E> 103,899
<DEPRECIATION> 17,697
<TOTAL-ASSETS> 150,273
<CURRENT-LIABILITIES> 42,569
<BONDS> 0
0
0
<COMMON> 95
<OTHER-SE> 57,720
<TOTAL-LIABILITY-AND-EQUITY> 150,273
<SALES> 0
<TOTAL-REVENUES> 16,356
<CGS> 0
<TOTAL-COSTS> 13,273
<OTHER-EXPENSES> 1,509
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,007
<INCOME-PRETAX> 539
<INCOME-TAX> 208
<INCOME-CONTINUING> 331
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 331
<EPS-BASIC> $0.03
<EPS-DILUTED> $0.03
</TABLE>
