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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 DECEMBER 31, 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 February 14, 2000 was 4,342,528 and 5,155,733 shares,
respectively.
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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 December 31, 1999
and June 30, 1999 . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the Three and Six Months
Ended December 31, 1999 and 1998 . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Six Months
Ended December 31, 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. . . . 13
PART II -- OTHER INFORMATION
Item 5: Other Information . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6: Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 14
</TABLE>
2
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PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GOLDEN STATE VINTNERS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
------------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 49 $ 30
Trade and other receivables - net 18,126 9,939
Inventories 25,307 27,172
Refundable income taxes 222 4,131
Prepaid expenses and other current assets 685 729
Deferred income taxes 305 388
---------- ----------
Total current assets 44,694 42,389
PROPERTY, PLANT AND EQUIPMENT - Net 86,098 84,034
NOTE RECEIVABLE 1,722 1,722
OTHER ASSETS 343 375
---------- ----------
TOTAL ASSETS $ 132,857 $ 128,520
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank line of credit $ 1,900 $ 8,100
Cash overdraft 602 965
Accounts payable 2,668 4,029
Grower payable 8,209 660
Payroll and related liabilities 534 634
Accrued interest 766 191
Other accrued liabilities 207 886
Current portion of long-term debt 4,916 4,899
---------- ----------
Total current liabilities 19,802 20,364
LONG-TERM DEBT 37,753 39,250
DEFERRED INCOME TAXES 12,668 11,422
STOCKHOLDERS' EQUITY:
Class A common stock, par value $.01; 6,000,000 shares
authorized; 4,342,528 shares issued and outstanding at
December 31, 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
December 31, 1999 and June 30, 1999, respectively. 51 51
Paid-in capital 44,837 44,837
Retained earnings 17,702 12,552
---------- ----------
Total stockholders' equity 62,634 57,484
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 132,857 $ 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 SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------- -----------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
REVENUES:
Bulk wine and juice $ 31,547 $ 34,662 $ 36,806 $ 39,237
Wine grapes 4,407 7,303 10,618 13,369
Case goods 4,055 4,295 8,634 8,188
Brandy and spirits 13,596 9,748 13,903 12,970
---------- --------- ---------- ---------
Total revenues 53,605 56,008 69,961 73,764
COST OF SALES 43,053 42,823 56,326 55,626
---------- --------- ---------- ---------
GROSS PROFIT 10,552 13,185 13,635 18,138
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,616 1,624 3,125 3,173
---------- --------- ---------- ---------
INCOME FROM OPERATIONS 8,936 11,561 10,510 14,965
INTEREST EXPENSE 1,090 1,180 2,097 2,575
OTHER EXPENSE (3) (7) 25 (1)
---------- --------- ---------- ---------
INCOME BEFORE INCOME TAXES 7,849 10,388 8,388 12,391
INCOME TAXES 3,030 4,238 3,238 5,055
---------- --------- ---------- ---------
NET INCOME 4,819 6,150 5,150 7,336
ACCRETION ON PREFERRED STOCK - - - (1,928)
REDEEMABLE PREFERRED STOCK DIVIDENDS - - - (400)
---------- --------- ---------- ---------
INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 4,819 $ 6,150 $ 5,150 $ 5,008
========== ========= ========== =========
EARNINGS PER COMMON SHARE:
BASIC $ 0.51 $ 0.65 $ 0.54 $ 0.54
========== ========= ========== =========
DILUTED $ 0.51 $ 0.63 $ 0.54 $ 0.53
========== ========= ========== =========
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 9,498 9,479 9,498 9,207
========== ========= ========== =========
DILUTED 9,509 9,751 9,546 9,489
========== ========= ========== =========
</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>
SIX MONTHS ENDED
DECEMBER 31,
-----------------------------
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 5,150 $ 7,336
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 4,520 3,224
Change in allowance for doubtful accounts (200) -
Loss on disposal of assets 26 9
Deferred income taxes 1,329 1,313
Changes in assets and liabilities:
Trade and other receivables (7,987) (26,404)
Inventories 258 (6,926)
Prepaid expenses and other current assets 44 (531)
Accounts payable (1,361) (1,570)
Grower payable 7,549 9,012
Payroll and related liabilities (100) (5,750)
Other accrued liabilities 16 (1,104)
Accrued interest (120) (270)
Income taxes refundable/payable 3,909 6,830
--------- ---------
Net cash provided by (used in) operating activities 13,033 (14,831)
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (4,935) (2,435)
FINANCING ACTIVITIES:
Borrowings on line of credit 19,400 41,950
Payments on line of credit (25,600) (37,650)
Change in cash overdraft (363) 3,066
Repayments of long-term debt (1,516) (13,175)
Redemption of Sr. Preferred Stock - (10,000)
Payment of dividends - (400)
Proceeds from the sale of common stock - 33,992
Public offering costs - (486)
--------- ---------
Net cash provided by (used in) financing activities (8,079) 17,297
--------- ---------
INCREASE IN CASH AND EQUIVALENTS 19 31
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 30 40
--------- ---------
CASH AND EQUIVALENTS, END OF PERIOD $ 49 $ 71
========= =========
OTHER CASH FLOW INFORMATION:
Interest paid $ 2,379 $ 2,891
========= =========
Income taxes paid $ - $ -
========= =========
Notes/leases issued to acquire property and equipment $ - $ 2,984
========= =========
</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 December 31, 1999 and its results of operations and its cash
flows for the three and six month periods ended December 31, 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 and
six months ended December 31, 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>
DECEMBER 31, JUNE 30,
1999 1999
------------- -------------
<S> <C> <C>
Bulk wine $ 19,682 $ 14,250
Cased and bottled wine 2,368 3,584
Brandy 421 916
Juice, supplies and other 1,136 1,214
Unharvested crop costs 1,700 7,208
------------- -------------
Total $ 25,307 $ 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 - 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 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
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GOLDEN STATE VINTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - BUSINESS SEGMENT INFORMATION (CONTINUED)
Segment information as of December 31 and June 30, 1999 and for the three
and six month periods ended December 31, 1999 and 1998 is as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------- -------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues, net:
Bulk wine................... $ 31,547 $ 34,662 $ 36,806 $ 39,237
Wine grapes................. 4,407 7,303 10,618 13,369
Case goods.................. 4,055 4,295 8,634 8,188
Brandy...................... 13,596 9,748 13,903 12,970
----------- ----------- ----------- -----------
Total revenues, net........ 53,605 56,008 69,961 73,764
Cost of Sales:
Bulk wine................... 25,060 26,739 29,360 30,374
Wine grapes................. 3,773 5,498 8,899 9,403
Case goods.................. 3,511 3,344 7,212 6,288
Brandy...................... 10,709 7,242 10,855 9,561
----------- ----------- ----------- -----------
Total cost of sales........ 43,053 42,823 56,326 55,626
Gross Profit:
Bulk wine................... 6,487 7,923 7,446 8,863
Wine grapes................. 634 1,805 1,719 3,966
Case goods.................. 544 951 1,422 1,900
Brandy...................... 2,887 2,506 3,048 3,409
----------- ----------- ----------- -----------
Total gross profit......... $ 10,552 $ 13,185 $ 13,635 $ 18,138
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Capital Expenditures:
Bulk wine................... $ 497 $ 1,300 $ 2,511 $ 4,393
Wine grapes................. 54 218 252 399
Case goods.................. 804 65 1,571 119
Brandy...................... 21 53 574 500
Corporate................... 15 7 27 8
----------- ----------- ----------- -----------
Total...................... $ 1,391 $ 1,643 $ 4,935 $ 5,419
=========== =========== =========== ===========
Depreciation and amortization:
Bulk wine................... $ 2,609 $ 1,792 $ 3,143 $ 2,096
Wine grapes................. 36 211 551 680
Case goods.................. 41 16 82 41
Brandy...................... 549 239 571 294
Corporate................... 90 2 173 113
----------- ----------- ----------- -----------
Total...................... $ 3,325 $ 2,260 $ 4,520 $ 3,224
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
------------- --------
<S> <C> <C>
Total Assets:
Bulk wine................... $ 76,430 $ 63,311
Wine grapes................. 34,319 39,641
Case goods.................. 9,323 9,840
Brandy...................... 8,833 7,763
Corporate................... 3,952 7,965
------------- --------
Total...................... $ 132,857 $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 third fiscal quarter of fiscal 2000.
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
Revenues
Revenues for the second quarter of fiscal 2000 were $53.6 million, a
decrease of $2.4 million or 4.3%, as compared to revenues of $56.0 million
for the second quarter of fiscal 1999. The decrease in revenues was primarily
due to decreased wine grape sales as a result of the continued impact of the
Company's restructured grape supply relationship with EJ Gallo and a smaller
grape harvest in general offset by increased brandy revenues.
Bulk wine and related services. For the second quarter of fiscal
2000, revenues from bulk wine and related services were $31.5 million, a
decrease of $3.2 million or 9.2%, as compared to revenues of $34.7 million in
the second quarter of fiscal 1999. The decrease in bulk wine and related
services revenue resulted from decreased gallons sold primarily relating to
the smaller grape harvest in 1999.
Wine Grapes. In the second quarter of fiscal 2000, revenues from
grape sales were $4.4 million, a decrease of $2.9 million or 39.7%, as
compared to revenues of $7.3 million in the second 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 approximately 11,000 tons (or $2.6 million in
revenues) from approximately 18,000 to 7,000 tons in the second quarter of
2000 compared to the second fiscal quarter 1999 primarily as a result of 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 and
overall decreased yields on Company owned vineyards as compared to the prior
year. Resold grape revenue decreased to $3.1 million from $3.4 million for the
second quarters of fiscal 2000 and 1999 respectively.
Case goods and related services. For the second quarter of fiscal
2000, revenues from case goods and related services were $4.1 million, a
decrease of $.2 million or 4.7%, as compared to revenues of $4.3 million in
the second 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 scheduled to
resume bottling operations in February 2000.
Brandy. For the second quarter of fiscal 2000, revenues from the
sale of brandy and grape spirits were $13.6 million, an increase of $3.9
million or 40.2%, as compared to revenues of $9.7 million in the second
quarter of fiscal 1999. The period to period increase is a result of a shift
of brandy revenue from the first to the second quarter of fiscal 2000 due to
delayed production of brandy as a result of a later harvest and required
product blending and to a lesser extent an increase in the contracted brandy
production requirement.
Cost of Sales
In the second quarter of fiscal 2000, total cost of sales was $43.1
million, an increase of $.3 million or .7% as compared to total cost of sales
of $42.8 million in the second quarter of fiscal 1999. As a percentage of
revenues, for the second quarter of fiscal 2000, cost of sales was 80.4%, an
increase from 76.4% for the second quarter of fiscal 1999. The increase in
cost of sales on a percentage of revenue basis resulted primarily from 1)
increased per ton grape costs due to decreased grape yields from Company
owned vineyards and 2) an overall decrease in case goods margins due to
competitive pressures.
Gross Profit
In the second quarter of fiscal 2000, the Company realized gross
profit of $10.6 million, a decrease of $2.6 million or 19.7%, as compared to
gross profit of $13.2 million in the second quarter of fiscal 1999. As a
percentage of revenues, in the second quarter of fiscal 2000 gross
8
<PAGE>
margin declined to 19.6%, from 23.6% in the second quarter of fiscal 1999.
The Company's gross margin for the second 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 second quarters of both
fiscal years 2000 and 1999, selling, general and administrative expenses were
$1.6 million. In the second quarter of fiscal 2000, the Company reduced its
allowance for doubtful accounts by $200,000 offset by charges relating to
research and market development of various new potential products.
Interest Expense
For the second quarter of fiscal 2000, interest expense was $1.1
million, a decrease of $.1 million or 8.3%, as compared to interest expense of
$1.2 million in the second quarter 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 second quarter of fiscal 2000, net income was $4.8 million,
a decrease of $1.4 million or 22.6%, as compared to net income of $6.2
million in the second quarter of fiscal 1999. Net income in the second
quarter of fiscal 2000 was adversely impacted by 1) a reduction in revenues
from grape sales realized from Company owned vineyards 2) lower bulk
revenues and 3) lower margins on certain lines of business as previously
explained.
Earnings Per Share
For the second quarter of fiscal 2000, the basic earnings per share
was $.51, as compared to basic earnings per share of $.65 for the second
quarter of fiscal 1999. Net earnings available to common shareholders for the
second quarter of 2000 was impacted by reduced net income.
SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
Revenues
Total revenues for the first six months of fiscal 2000 were $70.0
million, a decrease of $3.8 millions or 5.1%, as compared to revenues of
$73.8 million for the first six months of fiscal 1999. The overall decrease
in revenues was primarily due to decreased wine grape sales as a result of
the continued restructuring of the Company's grape supply relationship with
EJ Gallo Winery and decreased yields on Company owned vineyards as compared
to the prior year as offset by increased brandy and case goods revenues.
Bulk wine and related services. For the first six months of fiscal
2000, revenues from bulk wine and related services were $36.8 million, a
decrease of $2.4 million or 6.1%, as compared to revenues of $39.2 million in
the first six months of fiscal 1999. Such decrease primarily resulted from an
overall reduction in processing as a result of the reduced California grape
harvest.
Wine grapes. In the first six months of fiscal 2000, revenues from
grape sales were $10.6 million, a decrease of $2.8 million or 20.9%, as
compared to revenues of $13.4 million in the first six 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 six months of
fiscal
9
<PAGE>
2000 compared to the first six 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 six months of fiscal 2000 and 1999, respectively.
Case goods and related services. For the first six months of fiscal
2000, revenues from case goods and related services were $8.6 million, an
increase of $.4 million or 4.9%, as compared to revenues of $8.2 million in the
first six months of fiscal 1999. The period to period increase in case goods and
related services revenues was primarily due to stronger customer demand.
Brandy. For the first six months of fiscal 2000, revenues from the
sale of brandy and grape spirits were $13.9 million, an increase of $.9
million or 6.9%, as compared to revenues of $13.0 million in the first six
months of fiscal 1999. Brandy sales volume increased to approximately 2.4
million proof gallons for the first six months of fiscal 2000 compared to
approximately 2.1 million proof gallons in the first six months of fiscal
1999 due to an increase in customer demand.
Cost of Sales
For the first six months of fiscal 2000, total cost of sales was
$56.3 million, an increase of $.7 million or 1.3%, from $55.6 million in the
first six months of fiscal 1999. As a percentage of revenues, cost of sales
for the first six months of fiscal 2000 was 80.4%, an increase from 75.3% in
the first six months of fiscal 1999. The increase in cost of sales on a
percentage of revenue basis was as a result of 1) increased per ton grape
costs due to decreased grape yields from company owned vineyards, 2) the
further shift, due to the grape contract restructuring discussed above, in
the timing of certain 1999 vintage revenues and cost of sales from grapes in
the first and second quarters of fiscal 2000 to bulk wine and case goods in
the second and subsequent quarters of fiscal 2000 and 3) an overall decrease
in case goods margins due to competitive pressures.
Gross Profit
In the first six months of fiscal 2000, the Company realized gross
profit of $13.6 million, a decrease of $4.5 million or 24.9%, as compared to
$18.1 million in the first six months of fiscal 1999. As a percentage of
revenues, gross profit for the first six months of fiscal 2000 was 19.6%, a
decrease from 24.7% in the first six months of fiscal 1999. The Company's
gross profit and gross margin for the first six months of fiscal 2000 were
primarily impacted by the items discussed above under "Cost of Sales".
Selling, General and Administrative Expenses
For the first six months of fiscal 2000, selling, general and
administrative expenses were $3.1 million, a decrease of $.1 million or 3.1%,
from $3.2 million for the first six months of fiscal 1999 primarily due to a
decrease of $200,000 in the allowance for doubtful accounts offset by charges
relating to research and market development of various new potential products.
Interest Expense
For the first six months of fiscal 2000, interest expense was $2.1
million, a decrease of $.5 million or 19.2%, as compared to interest expense
of $2.6 million in the first six months of fiscal 1999. The period to period
decline is primarily due to decreased average borrowings on the Company's
line of credit.
Net Income
10
<PAGE>
For the first six months of fiscal 2000, net income was $5.2
million, a decrease of $2.1 million or 28.8%, as compared to net income of
$7.3 million in the first six months of fiscal 1999.
Earnings Per Share
For the first six months of both fiscal 2000 and 1999, the basic
earnings per share was $.54. Net income available to common shareholders for
the first six months of fiscal 1999 was impacted 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 in the first
quarter of fiscal 1999.
11
<PAGE>
Liquidity and Capital Resources
The Company's working capital position at December 31, 1999 was $24.9
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 December 31, 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 $1.9 million and $8.1 million at December 31, 1999 and
June 30, 1999, respectively. Unused availability under the line of credit was
$30.6 million at December 31, 1999.
Net cash provided by operating activities for the first six months of
fiscal 2000 was $13.0 million, as compared to net cash used in operations of
$14.8 million for the first six months of fiscal 1999. In the first six
months of fiscal 1999, the Company made payments on officer notes aggregating
$5.7 million; in the first six months of fiscal 2000, the Company
successfully collected receivables of approximately $18 million on bulk sales
contracts earlier than in the prior year due to earlier completion and
acceptance of bulk wine.
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 might have failed from an inability to interpret date
codes properly, misreading "00" for the year 1900 instead of the year 2000.
The Company spent approximately $254,000 to reprogram, replace and test
its information technology software for Year 2000 compliance. With the
passing of the new year, the Company did not experience any interruption to its
operations due to Year 2000 compliance problems. The Company does not
anticipate any additional material expenditures as a result of Year 2000
difficulties.
12
<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.
13
<PAGE>
PART II
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
alleges the Company may be in violation of the Federal Alcohol Administration
Act with respect to certain labeling issues. The Company is cooperating with
the BATF review and believes this matter will be resolved in a manner that is
not materially adverse to the Company, though there can be no assurance in
this regard.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
11 Statement Regarding Computation of Per Share Earnings
27 Summary Financial Information
14
<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: February 14, 2000 GOLDEN STATE VINTNERS, INC.
By: /s/ BRIAN R. THOMPSON
---------------------------------
Brian R. Thompson
Chief Financial Officer
(Principal Financial &
Accounting Officer and
Duly Authorized Officer)
15
<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 Six Months Ended
December 31, December 31,
------------------ -----------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic EPS Computation
Numerator:
Net income $ 4,819 $ 6,150 $ 5,150 $ 7,336
Less: Accretion of redeemed senior preferred stock -- -- -- (1,771)
Accretion of converted junior preferred stock -- -- -- (157)
Redeemable preferred stock dividends -- -- -- (400)
------- ------- ------- -------
Income available to common stockholders $ 4,819 $ 6,150 $ 5,150 $ 5,008
======= ======= ======= =======
Denominator:
Weighted average common shares 9,498 9,479 9,498 9,207
======= ======= ======= =======
Basic EPS $ 0.51 $ 0.65 $ 0.54 $ 0.54
======= ======= ======= =======
Diluted EPS Computation
Numerator:
Income available to common stockholders and assumed conversions $ 4,819 $ 6,150 $ 5,150 $ 5,008
======= ======= ======= =======
Denominator:
Weighted average common shares outstanding 9,498 9,479 9,498 9,207
Stock options 11 272 48 282
------- ------- ------- -------
Adjusted weighted average common shares 9,509 9,751 9,546 9,489
======= ======= ======= =======
Diluted EPS $ 0.51 $ 0.63 $ 0.54 $ 0.53
======= ======= ======= =======
</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
PAGES 2 AND 3 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE AND ITS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUN-30-1999
<PERIOD-END> DEC-31-1999
<CASH> 49
<SECURITIES> 0
<RECEIVABLES> 19,198
<ALLOWANCES> 1,072
<INVENTORY> 25,307
<CURRENT-ASSETS> 44,694
<PP&E> 105,247
<DEPRECIATION> 19,149
<TOTAL-ASSETS> 132,857
<CURRENT-LIABILITIES> 19,802
<BONDS> 0
0
0
<COMMON> 95
<OTHER-SE> 62,539
<TOTAL-LIABILITY-AND-EQUITY> 132,857
<SALES> 0
<TOTAL-REVENUES> 69,961
<CGS> 0
<TOTAL-COSTS> 56,326
<OTHER-EXPENSES> 3,125
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,097
<INCOME-PRETAX> 8,388
<INCOME-TAX> 3,238
<INCOME-CONTINUING> 5,150
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,150
<EPS-BASIC> .54
<EPS-DILUTED> .54
</TABLE>
