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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
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<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 000-24651
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GOLDEN STATE VINTNERS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 77-0412761
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
500 DRAKE'S LANDING ROAD, GREENBRAE, CALIFORNIA 94904
(Address of principal executive offices) (Zip Code)
</TABLE>
(415) 461-4400
(Registrant's telephone number,
including area code)
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.
/X/ Yes / / No
The number of shares of the Registrant's Class A and Class B Common Stock
outstanding as of May 12, 2000 was 4,342,528 and 5,155,733 shares, respectively.
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GOLDEN STATE VINTNERS, INC.
TABLE OF CONTENTS
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<CAPTION>
ITEM NO. PAGE
- --------------------- --------
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PART I--FINANCIAL INFORMATION
Item 1-- Financial Statements
Consolidated Balance Sheets as of March 31, 2000 and June
30, 1999.................................................. 3
Consolidated Statements of Operations for the Three and Nine
Months Ended March 31, 2000 and 1999...................... 4
Consolidated Statements of Cash Flows for the Nine Months
Ended March 31, 2000 and 1999............................. 5
Notes to Consolidated Financial Statements.................. 6
Item 2-- Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 9
Item 3-- Quantitative and Qualitative Disclosures About Market
Risk...................................................... 13
PART II--OTHER INFORMATION
Item 5-- Other Information........................................... 20
Item 6-- Exhibits and Reports on Form 8-K............................ 20
</TABLE>
2
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PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GOLDEN STATE VINTNERS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
2000 1999
----------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents...................................... $ 5,270 $ 30
Trade and other receivables--net.......................... 6,052 9,939
Inventories............................................... 21,169 27,172
Refundable income taxes................................... 1,724 4,131
Prepaid expenses and other current assets................. 1,075 729
Deferred income taxes..................................... 118 388
-------- --------
Total current assets.................................. 35,408 42,389
PROPERTY, PLANT AND EQUIPMENT--Net.......................... 83,506 84,034
NOTE RECEIVABLE............................................. -- 1,722
OTHER ASSETS................................................ 336 375
-------- --------
TOTAL ASSETS................................................ $119,250 $128,520
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank line of credit....................................... $ -- $ 8,100
Cash overdraft............................................ -- 965
Accounts payable.......................................... 2,066 4,029
Grower payable............................................ 724 660
Payroll and related liabilities........................... 747 634
Accrued interest.......................................... 774 886
Other accrued liabilities................................. 161 191
Current portion of long-term debt......................... 4,899 4,899
-------- --------
Total current liabilities............................. 9,371 20,364
LONG-TERM DEBT.............................................. 37,041 39,250
DEFERRED INCOME TAXES....................................... 11,556 11,422
STOCKHOLDERS' EQUITY:
Class A common stock, par value $.01; 6,000,000 shares
authorized; 4,342,528 shares issued and outstanding at
March 31, 2000 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
March 31, 2000 and June 30, 1999, respectively.......... 51 51
Paid-in capital........................................... 44,837 44,837
Retained earnings......................................... 16,350 12,552
-------- --------
Total stockholders' equity............................ 61,282 57,484
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $119,250 $128,520
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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GOLDEN STATE VINTNERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------- ------------------
2000 1999 2000 1999
-------- -------- -------- -------
<S> <C> <C> <C> <C>
REVENUES:
Bulk wine and juice............................... $11,322 $18,793 $48,128 $58,030
Wine grapes....................................... (2) (127) 10,616 13,242
Case goods........................................ 3,309 3,621 11,943 11,809
Brandy and spirits................................ 381 320 14,284 13,290
------- ------- ------- -------
Total revenues................................ 15,010 22,607 84,971 96,371
COST OF SALES....................................... 14,478 16,557 70,804 72,183
------- ------- ------- -------
GROSS PROFIT........................................ 532 6,050 14,167 24,188
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........ 2,100 1,607 5,225 4,780
------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS....................... (1,568) 4,443 8,942 19,408
INTEREST EXPENSE.................................... 874 1,102 2,971 3,678
OTHER (INCOME) EXPENSE.............................. (63) (6) (38) (7)
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES................... (2,379) 3,347 6,009 15,737
INCOME TAXES (BENEFIT).............................. (1,027) 1,366 2,211 6,421
------- ------- ------- -------
NET INCOME (LOSS)................................... (1,352) 1,981 3,798 9,316
ACCRETION ON PREFERRED STOCK........................ -- -- -- (1,928)
REDEEMABLE PREFERRED STOCK DIVIDENDS................ -- -- -- (400)
------- ------- ------- -------
INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS...... $(1,352) $ 1,981 $ 3,798 $ 6,988
======= ======= ======= =======
EARNINGS (LOSS) PER COMMON SHARE:
BASIC............................................. $ (0.14) $ 0.21 $ 0.40 $ 0.75
======= ======= ======= =======
DILUTED........................................... $ (0.14) $ 0.20 $ 0.40 $ 0.73
======= ======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC............................................. 9,498 9,488 9,498 9,299
======= ======= ======= =======
DILUTED........................................... 9,498 9,835 9,573 9,592
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
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GOLDEN STATE VINTNERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 3,798 $ 9,316
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 5,337 4,073
Change in allowance for doubtful accounts............... (200) --
Loss on disposal of assets.............................. 1,777 27
Deferred income taxes................................... 404 1,710
Changes in assets and liabilities:
Trade and other receivables........................... 4,087 (5,562)
Inventories........................................... 5,163 1,155
Prepaid expenses and other current assets............. (346) (569)
Accounts payable...................................... (1,963) (2,042)
Grower payable........................................ 64 (245)
Payroll and related liabilities....................... 113 (5,674)
Other accrued liabilities............................. (30) (895)
Accrued interest...................................... (112) (279)
Income taxes refundable/payable....................... 2,407 4,099
-------- --------
Net cash provided by operating activities......... 20,499 5,114
INVESTING ACTIVITIES:
Purchases of property, plant and equipment................ (5,650) (4,080)
Proceeds from note receivable............................. 1,722 --
Change in deposits........................................ (8) (3)
-------- --------
Net cash used in investing activities............. (3,936) (4,083)
FINANCING ACTIVITIES:
Borrowings on line of credit.............................. 25,900 51,550
Payments on line of credit................................ (34,000) (61,050)
Change in cash overdraft.................................. (965) (801)
Repayments of long-term debt.............................. (2,258) (13,914)
Redemption of Sr. Preferred Stock......................... -- (10,000)
Payment of dividends...................................... -- (400)
Proceeds from the sale of common stock.................... -- 33,992
Public offering costs..................................... -- (486)
Stock option exercises.................................... -- 90
-------- --------
Net cash used in financing activities............. (11,323) (1,019)
-------- --------
INCREASE IN CASH AND EQUIVALENTS............................ 5,240 12
CASH AND EQUIVALENTS, BEGINNING OF PERIOD................... 30 40
-------- --------
CASH AND EQUIVALENTS, END OF PERIOD......................... $ 5,270 $ 52
======== ========
OTHER CASH FLOW INFORMATION:
Interest paid............................................. $ 3,313 $ 4,134
======== ========
Income taxes paid......................................... $ 1,400 $ 3,700
======== ========
Notes/leases issued to acquire property and equipment..... $ -- $ 3,411
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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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 March 31, 2000 and its results of operations and its cash flows for
the three and nine month periods ended March 31, 2000 and 1999. 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 and nine months ended March 31, 2000 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>
MARCH 31, JUNE 30,
2000 1999
---------- --------
<S> <C> <C>
Bulk wine.............................................. $12,541 $14,250
Cased and bottled wine................................. 2,026 3,584
Brandy................................................. 1,309 916
Juice, supplies and other.............................. 1,241 1,214
Unharvested crop costs................................. 4,052 7,208
------- -------
Total................................................ $21,169 $27,172
======= =======
</TABLE>
NOTE 3--NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments" which 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--VINEYARD REMOVAL
During the third quarter of fiscal 2000, the Company decided to remove
approximately 700 acres of vineyards that were considered under-performing. The
net book value of the vineyards removed and estimated removal costs aggregated
to approximately $1.8 million and is included in cost of sales for the three and
nine-month periods ended March 31, 2000.
NOTE 5--BUSINESS SEGMENT INFORMATION
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
6
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GOLDEN STATE VINTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 5--BUSINESS SEGMENT INFORMATION (CONTINUED)
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.
Segment information as of March 31, 2000 and June 30, 1999 and for the three
and nine month periods ended March 31, 2000 and 1999 is as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues, net:
Bulk wine............................. $11,322 $18,793 $48,128 $58,030
Wine grapes........................... (2) (127) 10,616 13,242
Case goods............................ 3,309 3,621 11,943 11,809
Brandy................................ 381 320 14,284 13,290
------- ------- ------- -------
Total revenues, net................. 15,010 22,607 84,971 96,371
Cost of Sales:
Bulk wine............................. 9,170 13,461 38,530 43,835
Wine grapes........................... 1,817 9 10,716 9,412
Case goods............................ 3,374 2,917 10,586 9,205
Brandy................................ 117 170 10,972 9,731
------- ------- ------- -------
Total cost of sales................. 14,478 16,557 70,804 72,183
Gross Profit:
Bulk wine............................. 2,152 5,332 9,598 14,195
Wine grapes........................... (1,819) (136) (100) 3,830
Case goods............................ (65) 704 1,357 2,604
Brandy................................ 264 150 3,312 3,559
------- ------- ------- -------
Total gross profit.................. $ 532 $ 6,050 $14,167 $24,188
======= ======= ======= =======
Capital Expenditures:
Bulk wine............................. $ 168 $ 885 $ 2,679 $ 5,278
Wine grapes........................... 88 1,010 340 1,409
Case goods............................ 418 110 1,989 229
Brandy................................ 6 64 580 564
Corporate............................. 35 3 62 11
------- ------- ------- -------
Total............................... $ 715 $ 2,072 $ 5,650 $ 7,491
======= ======= ======= =======
Depreciation and amortization:
Bulk wine............................. $ 665 $ 672 $ 3,809 $ 2,768
</TABLE>
7
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GOLDEN STATE VINTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 5--BUSINESS SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Wine grapes........................... -- -- 551 680
Case goods............................ 48 16 130 57
Brandy................................ 22 63 593 357
Corporate............................. 81 98 254 211
------- ------- ------- -------
Total............................... $ 816 $ 849 $ 5,337 $ 4,073
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
2000 1999
--------- --------
<S> <C> <C>
Total Assets:
Bulk wine............................................. $ 59,849 $ 63,311
Wine grapes........................................... 32,864 39,641
Case goods............................................ 9,044 9,840
Brandy................................................ 8,582 7,763
Corporate............................................. 8,911 7,965
-------- --------
Total............................................... $119,250 $128,520
======== ========
</TABLE>
8
<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" or "GSV") 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, (i) reduced consumer spending or a change
in consumer preferences, which could reduce demand for the Company's wines;
(ii) competition from various domestic and foreign wine producers which could
affect the Company's ability to sustain volume and revenue growth;
(iii) interest rates and other business and economic conditions which could
increase significantly the costs and risks of projected capital spending; and
(iv) the effect of weather and other natural forces on growing conditions and,
in turn, the quality and quantity of grapes produced by the Company. Each of
these factors, and other risks pertaining to the Company, the premium wine
industry and general business and economic conditions, are more fully discussed
herein and from time to time in other filings with the Securities and Exchange
Commission, including the Company's Annual Report on Form 10-K for the year
ended June 30, 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 late harvest of grapes resulted in the substantial reallocation of
revenues relating directly to the 1999 crush into the Company's third fiscal
quarter of fiscal 2000.
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
REVENUES
Revenues for the third quarter of fiscal 2000 were $15.0 million, a decrease
of $7.6 million or 33.6%, as compared to revenues of $22.6 million for the third
quarter of fiscal 1999. The decrease in revenues was primarily due to a decrease
in bulk wine revenues.
BULK WINE AND RELATED SERVICES. For the third quarter of fiscal 2000,
revenues from bulk wine and related services were $11.3 million, a decrease of
$7.5 million or 39.9%, as compared to revenues of $18.8 million in the third
quarter of fiscal 1999. The decrease in bulk wine and related services revenue
resulted
9
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from decreased gallons contracted for current vintage wines and to a lesser
extent the reduced California grape harvest.
CASE GOODS AND RELATED SERVICES. For the third quarter of fiscal 2000,
revenues from case goods and related services were $3.3 million, a decrease of
$.3 million or 8.3%, as compared to revenues of $3.6 million in the third
quarter of fiscal 1999. The period to period slight decrease in case goods and
related services revenues was primarily due to the transition to a new bottling
line at the Company's St. Helena facility which resumed operations in February
2000.
WINE GRAPES AND BRANDY. The Company's wine grape and brandy business
segments did not realize a material amount of revenues in the third quarter of
fiscal 2000.
COST OF SALES
For the third quarter of fiscal 2000, total cost of sales was $14.5 million,
a decrease of $2.1 million or 12.7%, as compared to total cost of sales of $16.6
million in the third quarter of fiscal 1999. As a percentage of revenues, for
the third quarter of fiscal 2000, cost of sales was 96.7%, an increase from
73.5% for the third quarter of fiscal 1999. The increase in cost of sales on a
percentage of revenue basis resulted primarily from 1) a write-off of
approximately $1.8 million related to the removal of approximately 700 acres of
vineyards that were underperforming and were expected to remain so in future
periods 2) in fiscal 1999, a substantial last-in, first out (LIFO) benefit was
recognized, whereas in fiscal 2000 the LIFO impact was not significant 3)
increased per ton grape costs due to decreased grape yields from Company owned
vineyards and 4) decreased utilization of bottling facilities and declining case
goods margins.
GROSS PROFIT
In the third quarter of fiscal 2000, the Company realized gross profit of
$.5 million, a decrease of $5.6 million or 91.8%, as compared to gross profit of
$6.1 million in the third quarter of fiscal 1999. As a percentage of revenues,
in the third quarter of fiscal 2000 gross margin declined to 3.3%, from 27.0% in
the third quarter of fiscal 1999. The Company's gross margin for the third
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 third quarter of fiscal 2000, selling,
general and administrative expenses were $2.1 million, an increase of $.5
million or 31.3%, from $1.6 million for the third quarter of fiscal 1999
primarily due to consulting services for restructuring issues and charges
relating to research and market development of various new products.
INTEREST EXPENSE
For the third quarter of fiscal 2000, interest expense was $.9 million, a
decrease of $.2 million or 18.2%, as compared to interest expense of $1.1
million in the third quarter of fiscal 1999. The period to period decline is due
to decreased average borrowings on the Company's line of credit.
NET INCOME (LOSS)
For the third quarter of fiscal 2000, net loss was $1.4 million, a decrease
of $3.4 million as compared to net income of $2.0 million in the third quarter
of fiscal 1999. Net loss in the third quarter was adversely impacted by 1) lower
bulk revenues 2) removal of vineyards and 3) lower margins on certain lines of
business as previously explained.
10
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EARNINGS (LOSS) PER SHARE
For the third quarter of fiscal 2000, the basic loss per share was $.14, as
compared to basic earnings per share of $.21 for the third quarter of fiscal
1999. Net earnings (loss) available to common shareholders for the third quarter
of 2000 was impacted by reduced net income.
NINE MONTHS ENDED MARCH 31, 2000 AND 1999
REVENUES
Total revenues for the first nine months of fiscal 2000 were $85.0 million,
a decrease of $11.4 million or 11.8%, as compared to revenues of $96.4 million
for the first nine months of fiscal 1999. The overall decrease in revenues was
primarily due to a decrease in bulk wine revenues as a result of decreased
yields on Company owned vineyards as compared to the prior year and the
continued restructuring of the Company's grape supply relationship with EJ Gallo
Winery and were partially offset by increased brandy and case goods revenues.
BULK WINE AND RELATED SERVICES. For the first nine months of fiscal 2000,
revenues from bulk wine and related services were $48.1 million, a decrease of
$9.9 million or 17.1%, as compared to revenues of $58.0 million in the first
nine months of fiscal 1999. Such decrease primarily resulted from decreased
gallons contracted for current vintage wines and to a lesser extent the reduced
California grape harvest. In addition, in fiscal 2000, the Company has
experienced a loss of revenues associated with a major bulk wine customer. Bulk
wine revenues in fiscal 1999 from this customer were approximately $4.9 million
compared to approximately $.4 million in the first nine months of fiscal 2000.
Company management does not believe the fiscal 1999 level of revenues will be
earned in fiscal 2000 nor is management certain this customer will continue to
provide revenues in future periods to the extent realized in fiscal 1999.
WINE GRAPES. In the first nine months of fiscal 2000, revenues from grape
sales were $10.6 million, a decrease of $2.6 million or 19.7%, as compared to
revenues of $13.2 million in the first nine months 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
approximately 20,000 tons (or $4.4 million in revenues) from approximately
42,000 to 22,000 tons in the first nine months of fiscal 2000 compared to the
first nine months of fiscal 1999 primarily as a result of overall decreased
yields on Company-owned vineyards as compared to the prior year and the
Company's continued 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 $5.2 million from $3.6 million for the
first nine months of fiscal 2000 and 1999, respectively.
CASE GOODS AND RELATED SERVICES. For the first nine months of fiscal 2000,
revenues from case goods and related services were $11.9 million, an increase of
$.1 million or .8%, as compared to revenues of $11.8 million in the first nine
months of fiscal 1999. The period to period slight increase in case goods and
related services was primarily due to stronger customer demand in the first 6
months of fiscal 2000.
BRANDY. For the first nine months of fiscal 2000, revenues from the sale of
brandy and grape spirits were $14.3 million, an increase of $1.0 million or
7.5%, as compared to revenues of $13.3 million in the first nine months of
fiscal 1999. Brandy sales volume increased to approximately 2.4 million proof
gallons in the first nine months of fiscal 2000 compared to approximately 2.1
million proof gallons in the first nine months of fiscal 1999 due to an increase
in customer demand.
COST OF SALES
For the first nine months of fiscal 2000, total cost of sales was
$70.8 million, a decrease of $1.4 million or 1.9%, from $72.2 million in the
first nine months of fiscal 1999. As a percentage of revenues, cost of
11
<PAGE>
sales for the first nine months of fiscal 2000 was 83.3%, an increase from 74.9%
in the first nine months of fiscal 1999. The increase in cost of sales on a
percentage of revenue basis was primarily as a result of 1) increased per ton
grape costs due to decreased grape yields from Company owned vineyards, 2) the
write-off of approximately $1.8 million related to the removal of approximately
700 acres of vineyards that were underperforming and were expected to remain so
in future periods and 3) the decreased utilization of bottling facilities and
declining case goods margins.
GROSS PROFIT
In the first nine months of fiscal 2000, the Company realized gross profit
of $14.2 million, a decrease of $10.0 million or 41.3%, as compared to $24.2
million in the first nine months of fiscal 1999. As a percentage of revenues,
gross profit for the first nine months of fiscal 2000 was 16.7%, a decrease from
25.1% in the first nine months of fiscal 1999. The Company's gross profit and
gross margin for the first nine months of fiscal 2000 were primarily impacted by
the items discussed above under "Cost of Sales".
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
For the first nine months of fiscal 2000, selling, general and
administrative expenses were $5.2 million, an increase of $.4 million or 8.3%,
from $4.8 million for the first nine months of fiscal 1999 primarily due to
consulting services for restructuring issues, research and market development of
various new products partially offset by a decrease in the allowance for
doubtful accounts.
INTEREST EXPENSE
For the first nine months of fiscal 2000, interest expense was $3.0 million,
a decrease of $.7 million or 18.9%, as compared to interest expense of $3.7
million in the first nine months of fiscal 1999. The period to period decline is
due to decreased average borrowings on the Company's line of credit.
NET INCOME
For the first nine months of fiscal 2000, net income was $3.8 million, a
decrease of $5.5 million or 59.1%, as compared to net income of $9.3 million in
the first nine months of fiscal 1999. Net income for the first nine months of
fiscal 2000 was adversely impacted by lower bulk and wine grape revenues, lower
margins on certain lines of business and the removal of vineyards as previously
explained.
EARNINGS PER SHARE
For the first nine months of fiscal 2000, the basic earnings per share was
$.40 as compared to basic earnings per share of $.75 for the first nine months
of fiscal 1999. Net income available to common shareholders for the first nine
months of fiscal 2000 was impacted by reduced net income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position at March 31, 2000 was $26.0 million,
as compared to $22.0 million at June 30, 1999. The increase in working capital
is primarily due to cash, receivables and inventory generated relative to the
1999 crush. 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 March 31, 2000 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 $0.0 million and $8.1 million at
March 31, 2000 and June 30, 1999, respectively. Unused availability under the
line of credit was $32.5 million at March 31, 2000.
Net cash provided by operating activities for the first nine months of
fiscal 2000 was $20.5 million, as compared to net cash provided by operations of
$5.1 million for the first nine months of fiscal 1999. In the
12
<PAGE>
first nine months of fiscal 1999, the Company made payments on officer notes
aggregating $5.7 million; in the first nine months of fiscal 2000, the Company
successfully collected receivables and reduced inventory levels over the prior
year due to earlier completion and acceptance of bulk wine in accordance with
management's plan to reduce inventory levels.
Management expects that the peak borrowing needs will continue to occur in
the second quarter of the Company's fiscal year. Management believes that
current working capital, cash generated from operations and funds available
under the Company's line of credit will be sufficient to fund working capital
requirements and operations during the Company's 2001 fiscal year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company holds no market risk sensitive trading instruments. All Company
balance sheet items and sales are in U.S. dollars, therefore the Company has no
foreign currency exchange rate risk related to these financial data. The Company
does not use financial instruments for trading purposes.
Certain Company debt is subject to variable interest rate options. The
following chart indicates the Company's fixed and variable rate long and
short-term debt at March 31, 2000, and estimates the balances of such debt in
future periods ($ millions):
<TABLE>
<CAPTION>
JUNE 30,
MARCH 31, ----------------------------------------------------
2000 2000 2001 2002 2003 2004
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Bank line of credit:
Average Outstanding* $ 9.5 $ 9.5 $ 5.0 $ 5.0 $ 5.0 $ 5.0
Weighted average rate for year 6.7% 6.7% 7.5% 7.5% 7.5% 7.5%
Long-term Debt:
Fixed Rate:
Average Outstanding $43.0 $42.6 $38.7 $34.8 $30.9 $26.6
Weighted average rate for year 9.1% 9.0% 8.8% 8.8% 8.5% 8.7%
</TABLE>
- ------------------------
* Based on current anticipated cash flow, the Company believes that its bank
line of credit will be periodically used to fund operations in the Company's
peak season.
During its annual business cycle, the Company utilizes a variable interest
rate working capital line at various borrowing levels. The Company's existing
working capital loan agreement offers interest rate options at spreads over
LIBOR and/or lender cost of funds, at maturities selected by the Company. For
the nine months ended March 31, 2000, the average outstanding balance under this
line was approximately $9.5 million, with a weighted average interest rate of
approximately 6.7%. The Company estimates an average outstanding balance under
such line of $9.5 million for fiscal 2000 and a 6.7% weighted average interest
rate. The Company applied cash generated from operations to reduce the
outstanding balance on its line of credit during fiscal 2000.
At March 31, 2000, the Company had a note payable to an insurance company
with a balance of $29.1 million and carried an interest rate of 9.7%. On
April 21, 2000, the interest rate on the outstanding balance of $29 million was
converted from 9.7% to an interest rate equal to 275 basis points over the then
five-year U.S. Treasury note rate or 8.99%. Accordingly, this debt reflected as
variable rate debt in previous filings is now included with fixed rate debt.
At March 31, 2000, the balance on the Company's fixed rate long-term debt
was $41.9 million and carried a weighted average interest rate of approximately
9.1%. The Company estimates that the outstanding balance on such debt will be
$41.0 million at June 30, 2000 and will bear interest at a weighted average rate
of 9.0%.
13
<PAGE>
For strategic reasons, the Company enters into forward product sales and
material supply contracts, most of which generally have staggered maturity
dates. Of the Company's four primary lines of business, bulk wine, grape sales
and brandy production are subject to multi-year contracts, while case goods
sales generally occur on a short-term basis. As the primary raw material
component for most Company product is wine grapes, the Company enters into long
and short-term grape purchase contracts to ensure an adequate and cost effective
source of raw material for production. Product sales contracts are substantially
fixed over the term of the contract as to quantity and price. Wine grape
contract terms are similarly fixed at inception for the term of the contract,
although a portion of these contracts contain annual harvest market price
adjustment clauses, against individual harvest year minimum pricing. For the
nine month period ended March 31, 2000, or the 1999 harvest year, approximately
.4% of the Company's total wine grape purchases on a dollar basis were adjusted
upward against contract minimum prices following the harvest. The Company
expects to experience similar grape price adjustments during the 2001 fiscal
year, with respect to the 2000 harvest year. The Company's annual budget
anticipates these upward wine grape price adjustments, based on management's
knowledge of movements in anticipated wine grape supply and quality during each
harvest year's wine grape crop maturation.
Although the Company's annual wine and brandy production is substantially
committed under sales contracts prior to harvest and production, the Company
intentionally maintains uncommitted product inventory to meet customer demand.
At March 31, 2000, the Company's reported inventory value of bulk wine and
brandy was $13.9 million, of which approximately $7.2 million, or 52%, is
contractually committed to future production programs. The uncommitted amount of
inventory, approximately $6.7 million, or 48%, is reserved primarily for future
case goods sales, which are generally not subject to written preproduction
purchase contracts, and for spot market bulk wine sales. While the Company
generally matches preproduction contractual sales with contracted material
supply agreements, the Company will continue to maintain certain uncommitted
inventory to service short-term customer needs.
14
<PAGE>
RISK FACTORS
IN EVALUATING THE COMPANY, ITS BUSINESS, OPERATIONS AND FINANCIAL POSITION,
THE FOLLOWING RISK FACTORS SHOULD BE CAREFULLY CONSIDERED, IN ADDITION TO THE
OTHER INFORMATION CONTAINED IN THIS FORM 10-Q. THE FOLLOWING FACTORS, AMONG
OTHERS, COULD AFFECT THE COMPANY'S ACTUAL FUTURE OPERATING RESULTS AND COULD
CAUSE SUCH RESULTS TO DIFFER FROM THE RESULTS DISCUSSED ELSEWHERE IN THIS FORM
10-Q.
CONCENTRATION OF CUSTOMERS
During the nine month period ended March 31, 2000, five of the Company's
customers accounted for approximately 47% of the Company's revenues, with Heaven
Hill Distilleries, Inc. and Canandaigua Wine Company accounting for
approximately 17% and 11%, respectively. While some of the Company's largest
customers have entered into some form of long-term contract with the Company,
there can be no assurance that each of these relationships will continue
following the expiration of these contracts or that the volume of business the
Company is currently conducting with such customers will continue at such
levels. The loss of any one of the Company's major customers or a significant
reduction in the volume of their business with the Company could have a material
adverse effect on GSV's business, financial condition and results of operations.
In the nine month period ended March 31, 2000, approximately 21% of the
Company's grape production (on a per ton basis) was contracted for sale to EJ
Gallo Winery ("Gallo"). Such grape sales accounted for approximately 5% of the
Company's revenues in the nine month period ended March 31, 2000. The Company
restructured its grape supply arrangements with Gallo, and as the Company went
into the 1998 harvest, most of its grape production was not subject to
guaranteed purchase contracts with Gallo or with any other customer. As a result
of these restructuring efforts, GSV experienced a significant decline in grape
sale revenues for fiscal 1999 and the nine month period ended March 31, 2000.
Further, if the wine industry were to experience a significant decline in the
price of wine grapes, there can be no assurance that the Company could
profitably use or sell such grapes, which could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company continues to have long-term grape supply contracts with Gallo, covering
certain Zinfandel and Chardonnay grapes.
AGRICULTURAL RISKS
Grape production is subject to a variety of agricultural risks. Extreme
weather conditions can materially and adversely affect the quality and quantity
of grapes produced. In 1995 and 1996, variability in production yields in
California's Central Valley contributed to a significant decline in the tonnage
of grapes produced by virtually all vineyards, including those of the Company.
Additionally, in January 1997, severe flooding in the San Joaquin River Basin
destroyed a number of protective levees, damaging a small portion of the
Company's Gravelly Ford vineyards, which damage was not entirely insured. There
can be no assurance that inclement weather in the future will not affect a
substantial portion of the Company's vineyards in any year and have a material
adverse effect on the Company's business, financial condition and results of
operations.
Vineyards are also susceptible to certain diseases, insects and pests, which
can increase operating expenses, reduce yields and damage or kill vines. In
recent years phylloxera, a louse that feeds on and may ultimately destroy the
roots of grape vines, has infested many vineyards in the wine grape producing
regions of California, causing grape yields to decrease. Phylloxera infestation
has been widespread in California, particularly in Napa, Sonoma, Mendocino and
Monterey Counties, where the soil and climate provide an ideal environment for
the pest. As a result of this widespread infestation, thousands of vineyard
acres throughout the State of California have been replanted with
phylloxera-resistant rootstock or, in some cases, taken out of production
completely. The cost of controlling this pest was significant to affected
vineyard owners.
15
<PAGE>
Substantially all of the Company's vineyards are planted on their own
rootstock that is not phylloxera-resistant. In the fall of 1997, phylloxera was
discovered in certain acres of the Company's vineyards. The Company believes
that the scope of this phylloxera infestation is modest, though there can be no
assurance in that regard. Additionally, GSV believes the climate, soil and water
conditions in California's San Joaquin Valley slow the development of phylloxera
in vineyard roots. Further, 1998 harvest yields from the Company's
phylloxera-infested acres were not notably lower than yields from surrounding,
non-infested acreage. There can, however, be no assurance that phylloxera will
not spread throughout adjoining vineyard acres, reduce yields and require a
significant investment in replanting with disease-resistant root stock, all of
which would have a material adverse effect on the Company.
Other pests that may infest vineyards include leafhoppers, thrips,
nematodes, mites, insects, orange tortrix and various grapevine diseases, such
as Pierce's disease, which has destroyed portions of a number of vineyards in
Southern California and elsewhere. Pesticides and the selection of resistant
rootstocks reduce losses from these pests, but do not eliminate the risk of such
loss. Gophers, rabbits, deer and birds can also pose a problem for vineyards,
and wine grapevines are also susceptible to certain viral infections which may
cause reduction of yields. In addition, the presence of potentially harmful
nematodes in relatively high numbers has been detected in certain acres of the
Company's vineyards. None of these infestations or infections currently poses a
major threat to the Company's vineyards, although they could do so in the future
and could subject the vineyards to severe damage, which could have a material
adverse effect on the Company.
RISKS RELATING TO THE PRODUCTION OF BULK WINE
While the Company has substantial experience in producing and processing
bulk wine, the Company may still experience production difficulties and delays
with respect to the delivery of finished wine. The Company generally guarantees
the quality of the wine produced, which could result in the Company bearing
financial responsibility for wine that fails to meet agreed upon quality
standards. From time to time, the Company has received claims from customers
based on alleged defects in wine produced by the Company. Such production
difficulties could have a material adverse effect on the Company's business,
results of operations and financial condition.
DEPENDENCE ON CONSUMER DEMAND
The growth of the wine industry and the success of the Company's business
depend to a significant extent on a number of factors relating to discretionary
consumer spending, including the general condition of the economy, federal,
state and local taxation, the deductibility of business entertainment expenses
under federal and state tax laws and general levels of consumer confidence.
Imposition of excise or other taxes on wine could negatively impact the wine
industry by increasing wine prices for consumers. The wine industry is also
subject to changes in consumer tastes and preferences. To the extent wine
consumers reduce consumption of wine in favor of other beverages, such as
special natural wines, or if there should be any significant decline in general
economic conditions or uncertainties regarding future economic prospects that
adversely affect discretionary consumer spending generally, or purchases of wine
specifically, demand for wine and for the Company's products and services could
decline.
In recent years there has been substantial publicity regarding the possible
health benefits of moderate wine consumption. The results of a number of studies
suggest that moderate consumption of wine (or other alcoholic beverages) could
result in decreased mortality and other health benefits. Alternatively,
anti-alcohol groups have, in the past, successfully advocated more stringent
labeling requirements and other regulations designed to discourage consumption
of alcoholic beverages, including wine. More restrictive regulations, negative
publicity regarding alcohol consumption, publication of studies that indicate a
significant health risk from moderate consumption of alcohol or changes in
consumer perceptions of the relative healthfulness or safety of wine generally
could adversely affect the sale and
16
<PAGE>
consumption of wine and the demand for wine and wine grapes and could have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEMAND FOR BULK WINE
Bulk wine and related services accounted for approximately 57% of GSV's
revenues in the nine months ended March 31, 2000. Recently, the Company has
focused its resources on expanding this portion of its business. Any loss of a
major bulk wine customer could reduce GSV's bulk wine revenues, which could have
a material adverse effect on the Company's business, financial condition and
results of operations.
CASE GOODS SALES
Sales of case goods and related services accounted for approximately 14% of
revenues in the nine months ended March 31, 2000. A significant portion of the
Company's case goods revenues consists of short-term private label case goods
sales. Additionally, the Company's higher margin proprietary case goods revenues
resulted from sales of the Company's relatively unknown proprietary brands of
premium wines. Any significant increase in the supply of premium wine in the
California wine market that is not met by a corresponding demand could adversely
affect the Company's case goods sales.
WINE GRAPE SUPPLY; PRICING
The Company believes the demand for wine grapes has increased substantially
over recent years and has generally outpaced grape supply. As a result, prices
for premium California wine grapes were at historically high levels following
the 1996 harvest and generally continued to rise through the 1999 harvest.
However, a number of recent developments, including (1) plantings of new
vineyards, (2) yield enhancements through technological advances, (3) denser
plantings of vines, and (4) availability of wine from foreign sources, should
greatly increase grape supply, resulting in likely downward price pressure on
certain varieties and appelations following the 1999 harvest. Such increases in
supply have resulted in certain California wine grape and bulk wine prices to
decline significantly, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
ENVIRONMENTAL RISKS
The Company's current operations emit ethanol and require the periodic usage
of various chemical herbicides, fungicides and pesticides, some of which contain
hazardous or toxic substances. The emission and usage of these chemicals are, to
varying degrees, subject to federal and state regulation. The Company believes
that its properties and operations have been and continue to be in material
compliance with relevant environmental regulations. At the same time, if
hazardous substances are discovered to have emanated from the Company's
properties, the Company could be subject to material liability arising from the
remediation of such potential harm.
SEASONALITY OF BUSINESS; QUARTERLY REVENUES; FLUCTUATING RESULTS
The wine grape business is extremely seasonal and the Company recognizes the
vast majority of its revenues in the first six months of its fiscal year. GSV is
not positioned to maximize quarter-to-quarter results, and its quarterly results
should not be considered indicative of those to be expected for a full year. The
Company recorded 68% of its revenues during the first six months of the
Company's 1999 fiscal year. GSV has historically operated at a loss in the last
two fiscal quarters due to limited sales during such quarters. In fiscal 1999,
El Nino-related weather conditions, among other things, caused an approximate
four week delay in the California wine grape harvest as compared to the prior
year's harvest. The late harvest of grapes resulted in increased revenues in the
second and third quarters of fiscal 1999 as compared to the second and third
quarters of fiscal 1998. Seasonality of revenues also affects the
17
<PAGE>
Company's cash flow requirements. In the past, GSV has borrowed funds under
lines of credit from late summer through the fall to finance inventory build-up
during the fall crush season. GSV also historically borrows funds through the
spring and summer to finance crop production costs through harvest. Such
seasonality in revenues and borrowings may lead to significant fluctuations in
the Company's reported quarterly results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
COMPETITION; INDUSTRY FRAGMENTATION
The wine industry is extremely competitive. The Company competes with
several well-capitalized companies in the production of bulk wine. Further, many
of the Company's current and prospective competitors have substantially greater
financial, production, personnel and other resources than the Company. In order
to meet near-term shortfalls in supply, a number of wineries have commenced
purchases of wine from foreign sources. Because of higher production costs in
the United States and the higher prices of grapes in California, especially in
comparison to the prices of years past, some wineries can achieve significant
cost savings, even after taking into account shipping costs, by importing bulk
wine from abroad. Some countries, such as France, have launched marketing
campaigns to increase their sales in the United States. Foreign competition can
be expected to continue and increase. In addition, the Company's principal
winery customers compete with each other and with other wineries located in the
United States, Europe, South America, South Africa and Australia. Wine also
competes with other alcoholic, and to a lesser degree, nonalcoholic beverages,
and to the extent wine consumers reduce consumption of wine in favor of such
other beverages, demand for wine and the Company's products and services could
decline.
FIXED FARMING COSTS
The Company incurs relatively fixed annual farming costs per vineyard acre.
Revenues from grape sales and wine processing and production are not realized
until harvest and vary depending upon numerous factors. Vineyard productivity
varies from year to year depending upon weather and other factors, and
significant variations in annual yields should be expected from time to time.
Because production costs are not significantly variable in light of productivity
or revenue levels, weak harvests or lower grape prices cannot be fully mitigated
by cost reductions and could have an adverse effect upon profitability.
RELIANCE ON KEY PERSONNEL
The Company believes its continued success depends on the active involvement
of Jeffrey B. O'Neill, the Company's Chief Executive Officer, Mark A. Larson,
the Company's Chief Operating Officer and Brian R. Thompson, the Company's Chief
Financial Officer. There can be no assurance that these persons will remain in
their management positions with the Company, and the loss of the services of any
of these persons could have an adverse effect on the Company's business,
financial condition and results of operations.
GOVERNMENT REGULATION
GSV is subject to a broad range of federal and state regulatory requirements
regarding its operations and practices. These regulations are subject to change
and conceivably could have a significant impact on operating practices, chemical
usage and other aspects of the Company's business. There can be no assurance
that new or revised regulations pertaining to the wine grape production industry
will not have a material adverse effect on the Company's business, financial
condition and results of operations.
Wine production and sales are subject to extensive regulation by the Federal
Bureau of Alcohol, Tobacco and Firearms, the California Department of Alcohol
Beverage Control and other state and federal governmental authorities that
regulate licensing, trade and pricing practices, labeling, advertising
18
<PAGE>
and other activities. In recent years, federal and state authorities have
required warning labels on beverages containing alcohol. Restrictions imposed by
government authorities on the sale of wine could increase the retail price of
wine, which could have an adverse effect on demand for wine in general. There
can be no assurance that there will not be new or revised laws or regulations
pertaining to the wine industry which could have a negative impact on the
Company's business.
VOLATILITY OF STOCK PRICE
The market price of the shares of Class B Common Stock has declined sharply
since the Company's initial public offering in late July 1998. The market price
for such shares could continue to be volatile and may be significantly affected
by factors such as actual or anticipated fluctuations in the Company's operating
results, industry consolidation, conditions and trends in the wine industry,
changes in recommendations and estimates by security analysts, general market
conditions and other factors. There can be no assurance that an active trading
market of the Class B Common Stock will be sustained. In addition, stock markets
from time to time have experienced price and volume fluctuations that have
affected the market price for many companies and that frequently have been
unrelated to the operating performance of those companies. Such market
fluctuations may adversely affect the market price of the Class B Common Stock.
19
<PAGE>
PART II--OTHER INFORMATION
ITEM 5. OTHER INFORMATION
As the Company bottles both proprietary and third party case goods, it is
subject to various state and Federal product labeling regulations. On December
20, 1999, the Company received notice from the Bureau of Alcohol, Tobacco and
Firearms ("BATF") concerning a review of certain capsules and labels applied to
a limited number of case goods bottled by the Company. BATF alleged the Company
was in violation of the Federal Alcohol Administration Act with respect to
certain labeling issues. This matter was resolved in a manner that was not
materially adverse to the Company.
On December 15, 1999, the Company entered into an employment agreement with
Mark A. Larson, 51, to serve as President and Chief Operating Officer of the
Company. Prior to joining the Company, Mr. Larson served as President and Chief
Executive Officer of United Distillers & Vintners West, a division of United
Distillers & Vintners which is a subsidiary of Diageo plc, the world's largest
manufacturer and marketer of wines and distilled spirits.
The Company anticipates filing a proxy statement relating to the 1999 Annual
Meeting of Stockholders with the Securities and Exchange Commission in early
June 2000. The 1999 Annual Meeting of Stockholders is tentatively scheduled for
Thursday, June 29, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit Number
11 Statement Regarding Computation of Per Share Earnings
27 Summary Financial Information
20
<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.
Golden State Vintners, Inc.
(Registrant)
<TABLE>
<C> <S> <C>
/S/ BRIAN R. THOMPSON
May 12, 2000 -------------------------------------------
---------------------------- Brian R. Thompson
Date CHIEF FINANCIAL OFFICER
</TABLE>
21
<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 (loss) per share ("EPS") are determined as
follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic EPS Computation
Numerator:
Net income (loss)....................................... $(1,352) $(1,981) $3,798 $ 9,316
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.......... $(1,352) $ 1,981 $3,798 $ 6,988
======= ======= ====== =======
Denominator:
Weighted average common shares.......................... 9,498 9,488 9,498 9,299
======= ======= ====== =======
Basic EPS................................................. $ (0.14) $ 0.21 $ 0.40 $ 0.75
======= ======= ====== =======
Diluted EPS Computation
Numerator:
Income (loss) available to common stockholders and
assumed conversions................................... $(1,352) $ 1,981 $3,798 $ 6,988
======= ======= ====== =======
Denominator:
Weighted average common shares outstanding.............. 9,498 9,488 9,498 9,299
Stock options........................................... -- 347 75 293
------- ------- ------ -------
Adjusted weighted average common shares................. 9,498 9,835 9,573 9,592
======= ======= ====== =======
Diluted EPS............................................... $ (0.14) $ 0.20 $ 0.40 $ 0.73
======= ======= ====== =======
</TABLE>
<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
PAGE 2 AND 3 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE AND ITS QUALIFIED
IN ITS ENTIRELY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUN-30-1999
<PERIOD-END> MAR-31-2000
<CASH> 5,270
<SECURITIES> 0
<RECEIVABLES> 7,093
<ALLOWANCES> 1,041
<INVENTORY> 21,169
<CURRENT-ASSETS> 35,408
<PP&E> 103,664
<DEPRECIATION> 20,158
<TOTAL-ASSETS> 119,250
<CURRENT-LIABILITIES> 9,371
<BONDS> 0
0
0
<COMMON> 95
<OTHER-SE> 61,187
<TOTAL-LIABILITY-AND-EQUITY> 119,250
<SALES> 0
<TOTAL-REVENUES> 84,971
<CGS> 0
<TOTAL-COSTS> 70,804
<OTHER-EXPENSES> 5,225
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,971
<INCOME-PRETAX> 6,009
<INCOME-TAX> 2,211
<INCOME-CONTINUING> 3,798
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,798
<EPS-BASIC> .40
<EPS-DILUTED> .40
</TABLE>
