June 25, 1998
United States Securities and
Exchange Commission
450 5th Street, NW
Washington, DC 20549
Re: Willamette Valley Vineyards, Inc.
Filing of Proxy Materials
To Whom it May Concern:
The following proxy materials are being filed electronically
via EDGAR for Willamette Valley Vineyards, Inc.
1. The proxy statement and form of proxy;
2. The proxy statement cover sheet;
3. The proxy card; and
4. Amendment to the Willamette Valley Vineyards, Inc.
1992 Stock Incentive Plan, see "Approval of Amendment to the
1992 Stock Incentive Plan" in Proxy Statement
5. The Company's Annual Report to be distributed to
its shareholders (included as part of the proxy statement).
The Company Form 10K was previously filed with the
Commission.
The 1997 Annual Report will be filed, for informational
purposes only, in paper format since no parts of such Annual
Report are incorporated by reference into the Definitive
Proxy Soliciting materials.
The Company confirms that, following approval of the
amendment to the Willamette Valley Vineyards, Inc. 1992
Stock Option Plan, the Company will file a Registration
Statement of Form S-R with the Commission prior to the
issuance of such shares thereunder.
Thank you for your assistance.
Sincerely,
James Ellis
Vice President of Corporate
Willamette Valley Vineyards, Inc.
United States
Securities and Exchange Commission
Washington, DC 20549
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [ x ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as
permitted by Rule 14a -6(e)(2))
[ x ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to section 240, 14a-
11(c) or Section 240, 14a-12
Willamette Valley Vineyards, Inc.
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (check the appropriate box):
[ x ] No fee required
[ ] Fee computed on table below per Exchange Act Rules
14a-6(1)(1) and 0-11
1) Title of each class of securities to
which transaction applies;
2) Aggregate number of securities to which
transaction applies;
3) Per unit price or other underlying value
of transaction computed pursuant to Exchange Act Rule 0-11
(set forth the amount of which the filing fee is calculated
and state how it was determined);
4) Proposed maximum aggregate value of
transaction;
5) Total Fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as
provided by Exchange Act Rule 0-11(a)(2) and identify the
filing for which the offsetting fee was paid previously.
Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing,
1) Amount Previously Paid;
2) Form, Schedule or Registration Statement
No.;
3) Filing Party;
4) Date Filed:
Table of Contents
Notice of Annual Meeting 1
Proxy Statement 2-17
Financial Highlight 17
Charts and Graphs 18-21
Audited Financials F1-F16
Report of Independent Accounts F1
Balance Sheet F2
Statement of Operations F3
Statement of Shareholders' Equity F4
Statement of Cash Flows F5
Notes to Financial Statements F6-F16
Notice of Annual Meeting of Shareholders
July 25th, 1998
5:00 PM, Pacific Daylight Time
Turner, Oregon
June 25th 1998
Dear Shareholder:
You are cordially invited to the Annual Meeting of
Shareholders (the "Annual Meeting") of Willamette Valley
Vineyards, Inc. (the "Company"), which will be held on
Saturday, July 25, 1998 at 5:00 p.m., Pacific Daylight Time,
at the Banquet Room of Legends at Spirit Mountain Casino,
27100 S.W. Salmon River Highway, Willamina, Oregon 97396.
We look forward to seeing as many of our shareholders as
possible and hope that you will attend the meeting.
Enclosed, for your review, is the Company's Proxy Statement
(including the Proxy Ballot), Annual Report and, as usual, a
Wine Order Form.
The Annual Meeting is being held for the following purposes:
1. To elect a Board of Directors to hold office until
the next Annual Meeting of Shareholders or until their
respective successors have been elected or appointed;
2. To approve an amendment to the Company's 1992 Stock
Incentive Plan, as amended, to increase the number of shares
of the Company's Common Stock which may be issued thereunder
from 325,000 to 600,000 shares;
3. To ratify the appointment by the Board of Directors
of Price Waterhouse, LLP as the Company's independent
auditors for the fiscal year ending December 31, 1998; and
4. To transact such other business as may properly come
before the Annual Meeting or any adjournment or postponement
thereof.
These items are fully discussed in the Proxy Statement.
Only shareholders of record at the close of business on June
22, 1998, the record date established by the Board of
Directors, will be entitled to vote at the Annual Meeting.
A list of shareholders entitled to vote will be available
for inspection at the Company's offices for a period
commencing two days after the date of this Notice and
lasting until the Annual Meeting.
Shareholders are requested to complete, date, sign and
return the enclosed Proxy Ballot as promptly as possible.
Whether or not you attend the Annual Meeting, it is
important that your shares be represented and voted at the
meeting. If you decide to attend the Annual Meeting and
vote in person, you will have that opportunity.
The Board of Directors
By: James L. Ellis
Vice President, Secretary
WILLAMETTE VALLEY VINEYARDS, INC.
8800 Enchanted Way S.E. * Turner, Oregon 97392
(503) 588-9463 * Fax (503) 588-8894 * www.wvv.com
PROXY STATEMENT
General
The enclosed proxy is solicited by the Board of Willamette
Valley Vineyards, Inc. (the Company) for use in voting at
the Annual Meeting of Shareholders (the "Annual meeting") to
be held at Willamina, Oregon in the Banquet Room of Legends
at Spirit Mountain Casino on Saturday, July 25, 1998 at 5:00
PM, and any postponement or adjournment thereof for the
following purposes: (1) to elect a Board of Directors to
hold office until the next annual meeting of Shareholders or
until their respective successors have been elected or
appointed; (2) to approve an amendment to the Company's
1992 Stock Incentive Plan to increase the number of shares
of the Company's Common Stock which may be issued thereunder
from 325,000 to 600,000 shares; (3) to ratify the
appointment of the accounting firm of Price Waterhouse, LLP
as independent auditors of the Company for the current year;
and (4) to transact such other business as may properly come
before the Annual Meeting or any adjournment or postponement
thereof.
Solicitation, Voting and Revocability of Proxies
The Board of Directors has fixed the close of business on
June 22, 1998 as the record date for the determination of
the shareholders entitled to notice of and to vote at the
Annual Meeting. Accordingly, only holders of record of
shares of Common Stock at the close of business on such date
will be entitled to vote at the Annual Meeting.
On the record date, there were approximately 3,558
beneficial holders of the 4,232,681 shares of Common Stock
then outstanding. The presence, in person or by proxy, of a
majority of the shares of Common Stock outstanding on the
record date and entitled to vote at the Annual Meeting is
required for a quorum at the Annual Meeting.
If the enclosed proxy is properly executed, the shares
represented thereby will be voted in accordance with the
instructions marked thereon. Executed but unmarked proxies
will be voted FOR the election of the nominees for election
to the Board of Directors, FOR the amendment to the 1992
Stock Incentive Plan, and FOR the ratification of the
appointment of Price Waterhouse, LLP as the Company's
independent auditors for the year ending December 31, 1998.
The Board of Directors does not know of any matters other
than those described in the Notice of Annual Meeting that
are to come before the Annual Meeting. If any other matters
are properly brought before the Annual Meeting, the persons
named in the proxy will vote the shares represented by such
proxy upon such matters. A shareholder giving a proxy has
the power to revoke it at any time prior to its exercise by
voting in person at the Annual Meeting, by giving written
notice to the Secretary prior to the Annual Meeting or by
giving a later dated proxy.
Each share of Common Stock outstanding on the record date
will be entitled to vote on all matters. The seven
candidates for election as Directors at the Annual Meeting
who receive the highest number of affirmative votes will be
elected. Approval of the proposal to amend the Company's
1992 Stock Incentive Plan will require the affirmative vote
of a majority of shares of the Company's Common Stock
present or represented and entitled to vote at the Annual
Meeting. The ratification of the independent auditors for
the Company for the current year will require the
affirmative vote of a majority of shares of the Company's
Common Stock present or represented and entitled to vote at
the Annual Meeting.
Because abstentions with respect to any matter are treated
as shares present or represented and entitled to vote for
the purposes of determining whether that matter has been
approved by the Shareholders, abstentions have the same
effect as negative votes for Proposals 2 and 3 in this Proxy
Statement. Broker non-votes and shares as to which the
proxy authority has been withheld with respect to any matter
are not deemed to be present or represented for purposes of
determining whether shareholder approval of that matter has
been obtained.
ELECTION OF DIRECTORS
Unless marked otherwise, proxies received will be voted FOR
the election of each of the nominees named below. Each of
the current directors has been nominated for election to the
Board of Directors. If any such nominee is unable or
unwilling to serve as a director at the time of the Annual
Meeting, the proxies will be voted for the election of such
other person as the proxy holders designate. The Board of
Directors has no reason to believe that any of such nominees
will be unwilling or unable to serve if elected as a
Director. Such persons have been nominated to serve until
the next annual meeting of shareholders following the 1998
Annual Meeting or until their successors, if any, are
elected or appointed. The Board of Directors recommends a
vote FOR the election of each of the nominees listed below.
Unless a contrary choice is specified, proxies solicited by
the Board of Directors will be voted FOR the election of
each of the nominees listed below.
Information Regarding Nominees. The following table sets
forth the names of each nominee to the Board of Directors,
and each such person's age at June 30, 1998 and position
with the Company.
Name Position(s) with the Company Age
James W. Bernau *** Chairperson of the Board,
President/CEO and Director 44
James L. Ellis *** Vice President,
Secretary and Director 53
Betty M. O'Brien* Director 55
Daniel S. Smith Director 58
Delna L. Jones** **** Director 57
Stan G. Turel * ** *** **** Director 50
William H. Malkmus * Director 63
__________________
*Member of the Compensation Committee
**Member of the Audit Committee
*** Member of the Executive Committee
**** Member of the Affiliated Transaction Committee
All Directors hold office until the next Annual Meeting of
Shareholders or until their successors have been elected and
qualified. Executive officers are appointed by the Board of
Directors and serve at the pleasure of the Board of
Directors. Set forth below is additional information as to
each Director and Executive Officer of the Company.
James W. Bernau. Mr. Bernau has been President and
Chairperson of the Board of Directors of the Company since
its inception in May 1988. Mr. Bernau began to develop the
vineyard in 1983, and co-founded the Company in 1988 with
Salem grape grower, Donald Voorhies. From 1981 to September
1989, Mr. Bernau was Director of the Oregon Chapter of the
National Federation of Independent Businesses ("NFIB"), an
association of 15,000 independent businesses in Oregon.
After founding and serving as President and Chairman of
several affiliated regional brewing companies
(see "Certain Relationships and Related Transactions")
between 1992 and 1997, Mr. Bernau decided in September of
1997 to turn his full time attention and effort to the
Company.
James L. Ellis. Mr. Ellis has served as a Director since
July 1991 and Secretary since June 1997. Mr. Ellis has
served as the Company's Director of Human Resources from
January 1993. From 1993 to 1997 he also served as the
Director of Human Resources for several affiliated regional
brewing companies (see "Certain Relationships and Related
Transactions") founded by Mr. Bernau. Mr. Ellis returned
full time to the Company in September of 1997, he was
appointed Vice President/Corporate in January of 1998. From
1990 to 1992, Mr. Ellis was a partner in Kenneth L. Fisher,
Ph.D. & Associates, a management consulting firm. From 1980
to 1990, Mr. Ellis was Vice President and General Manager of
R.A. Kevane & Associates, a Pacific Northwest personnel
consulting firm. From 1962 to 1979, Mr. Ellis was a member
of and administrator for the Christian Brothers of
California, owner of Mont La Salle Vineyards and producer of
Christian Brothers wines and brandy.
Betty M. O'Brien. Ms. O'Brien has served as a Director
since July 1991. Ms. O'Brien has been employed by
Willamette University as its Director of News and
Publications since 1988. Ms. O'Brien is a partner in Elton
Vineyards, a commercial vineyard located in Eola Hills in
Yamhill County, Oregon. She is a member of the Oregon
Winegrowers Association, having previously served as its
President and Treasurer as well as a director.
Daniel S. Smith. Mr. Smith has served as a Director since
July 1991. Since 1973, Mr. Smith has been an owner and the
manager of Danco Company, a commercial refrigeration
business. Mr. Smith owns 65 acres of commercial vineyards
near Eugene, Oregon.
Delna L. Jones. Ms. Jones has served as a Director since
November 1994. Since 1994, Ms. Jones has served as project
director for the CAPITAL Center, an education and business
consortium. From 1985 to 1990, Ms. Jones served as Director
of Economic Development with US West Communications.
Beginning in 1982, she was elected six times to the Oregon
House as the State Representative for District 6. During
her tenure, she served as the Assistant Majority Leader,
chaired the Revenue and School Finance Committee, and served
on the Legislative Rules and Reorganization Committee and
the Business and Consumer Affairs Committee. In addition,
Ms. Jones presently serves on many community and business
boards and advisory panels including recent election as a
county commissioner for Washington County, Oregon.
Stan G. Turel. Mr. Turel has served as a Director since
November of 1994. Mr. Turel is part owner and the CEO of
Columbia Turel, Inc., (formerly Columbia Bookkeeping, Inc.),
a position he has held since 1974. Columbia Turel, Inc. has
sixteen offices in Oregon and Washington, servicing 4,000
small business and 26,000 tax clients annually. Mr. Turel
is a licensed tax consultant, a member of the National
Association of Public Accountants, a private pilot, and a
former delegate to the White House Conference on Small
Business. Over the last several years, Mr. Turel has
founded a number of cable television stations. In addition,
Mr. Turel serves his community on a number of advisory
boards and panels.
William H. Malkmus. Mr. Malkmus has served as a Director
since April of 1997. Mr. Malkmus spent over 20 years as an
investment banker in San Francisco. For six years, following
his banking career and until his retirement in 1995, Mr.
Malkmus was the Chief Financial Officer of Vivra Inc., a
health care service company listed on the New York Stock
Exchange. In 1973, Mr. Malkmus co-founded Tualatin
Vineyards, one of Oregon's original wineries, and was
President/Treasurer until Tualatin merged with the Company
in 1997.
Board of Directors Committees. The Board, acting as the
Nominating Committee establishes procedures for the
nomination process, recommends candidates for election to
the Board of Directors and nominates officers for election
to the Board. The Nominating Committee will consider
nominees proposed by shareholders. Any shareholder who
wishes to recommend a prospective nominee for the Board of
Directors for consideration may do so by giving the
candidate's name and qualifications in writing to the
Secretary of the Company, 8800 Enchanted Way SE, Turner,
Oregon 97392. The Board of Directors has appointed a
standing Audit Committee which, during the year ended
December 31, 1997, conducted one meeting. The elected
members of the Audit Committee are Delna L. Jones and Stan
G. Turel. The Audit Committee reviews the scope of the
independent annual audit, the independent public
accountants letter to the Board of Directors concerning the
effectiveness of the Company's internal financial and
accounting controls, and the Board of Directors' response to
that letter, if deemed necessary. The Board of Directors
also has appointed a Compensation Committee which reviews
executive compensation, makes recommendations to the full
Board regarding changes in compensation, and administers the
Company's 1992 Stock Incentive Plan. During the fiscal year
ended December 31, 1997, the Compensation Committee held one
meeting. The members of the Compensation Committee are
Betty M. O'Brien, Chair, Stan G. Turel, and William H.
Malkmus. In 1994, the Board of Directors created
an Affiliated Transactions Committee which reviews
transactions potentially involving a conflict of interest
between the Company and other parties, including its former
affiliates. Current members of the Affiliated Transaction
Committee are Delna L. Jones and Stan G. Turel. The
Committee held no meetings in 1997. In 1997, the
Board appointed an Executive Committee, members of which
are: James W. Bernau, James L. Ellis, and Stan G. Turel.
The Executive Committee may exercise the authority of the
Board between Board meetings, except to the extent the Board
has delegated authority to another Committee or to other
persons, and except as limited by Oregon law. The Executive
Committee met ten times during 1997.
During 1997, the Board of Directors held nine meetings. All
incumbent directors attended more than 75% of the aggregate
of the total number of meetings held by the Board of
Directors and the total number of meetings held by all
committees of the Board on which he or she served during
1997. See "Management - Executive Compensation" for certain
information regarding compensation of Directors.
The Board of Directors unanimously recommends that
shareholders vote FOR the election of its nominees for
Director. If a quorum is present, the Company's bylaws
provide that Directors are elected by a plurality of the
votes cast by the shares entitled to vote. Abstention and
broker non-votes are counted for purposes of determining
whether a quorum exists at the Annual Meeting, but are not
counted and have no effect on the determination of whether a
plurality exists with respect to a given nominee.
MANAGEMENT / EXECUTIVE OFFICERS
Name Position Age
James W. Bernau President, Director and Chairperson
of the Board of Directors 44
Information concerning the principle occupation of Mr.
Bernau is set forth under "Election of Directors".
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table provides certain summary information
concerning compensation paid or accrued by the Company, to
or on behalf of the Company's Chief Executive Officer, James
W. Bernau (the "named executive officer") for the years
ending December 31, 1995, 1996, and 1997.
Annual Compensation
Name & Principle Year Salary ($) Bonus Other (1)
Position
James W. Bernau 1995 $3,040 -0- $8,400
President and 1996 6,500 -0- 8,400
Chairperson of 1997 19,385 -0- 8,400
the Board of Directors
As discussed under "Election of Directors", Mr. Bernau
previously served as President of certain affiliates of the
Company. Each of these companies paid a pro rata portion of
Mr. Bernau's monthly salary based on the amount of time that
Mr. Bernau devoted to the respective company's business in
that month. However, Mr. Bernau has now turned his full
time attention and effort to the Company's business. In
addition to his salary, Mr. Bernau may receive an annual
bonus from the Company based on the Company's performance
and Mr. Bernau's contribution to the Company as
determined solely by the Company's Board of Directors.
(1) Mr. Bernau is provided free housing on the property (see
note under "Bernau Employment Agreement").
Bernau Employment Agreement
The Company and Mr. Bernau are parties to an employment
agreement dated August 3, 1988 and amended in February,
1997. Under the amended agreement, Mr. Bernau is paid an
annual salary of $24,000 with annual increases tied to
increases in the consumer price index. Pursuant to the
terms of the employment agreement, the Company must use its
best efforts to provide Mr. Bernau with housing on the
Company's property. Mr. Bernau and his family live in the
house free of rent and must continue to reside there for the
duration of his employment in order to provide additional
security and lock-up services for late evening events at the
Winery and Vineyard. The employment agreement provides that
Mr. Bernau's employment may be terminated only for cause,
which is defined as non-performance of his duties or
conviction of a crime.
Stock Options
In order to reward performance and retain high-quality
employees, the Company often grants stock options to its
employees. The Company does not ordinarily issue shares of
stock to its employees, except upon the exercise of
previously granted options. Options are typically granted
at a per share exercise price equal to the closing price as
reported by NASDAQ on the day the option is granted. The
options vest to the employee over time. Three months
following termination of the employee's employment with the
Company, any and all unexercised options terminate and the
shares of Common Stock covered thereby become available for
subsequent grants. No stock options were granted to the
named executive officer during the year ended December 31,
1997 under the Company's 1992 Stock Incentive Plan.
Option Exercises and Holdings
The following table provides information, with respect to
the named executive officer, concerning exercised options
during the last fiscal year and unexercised options held as
of December 31, 1997.
Options Exercised in the last fiscal year
Number Value
Name of shares realized(1)
James W. Bernau -0- -0 -
Number of Securities Underlying Unexercised
Options at FY-End
James W. Bernau 15,000 (3) -0 -
Value of Unexercised In-the-Money
Options at FY-End(2)
Exercisable Unexercisable
James W. Bernau -0- -0 -
(1) The value realized is based on the difference between
the market price at the time of exercise of the options and
the applicable exercise price.
(2) Options are "in the money" at the fiscal year-end if the
fair market value of the underlying securities on such date
exceeds the exercise price of the option. The amounts set
forth represent the difference between the fair market value
of the securities underlying the options on December 31,
1997 ($1.50 per share based on the NASDAQ closing price for
the Company's Common Stock on that date), and the exercise
price of the option ($3.42 per share), multiplied by the
applicable number of options.
(3) Represents a 15,000 share warrant exercisable at $3.42
per share issued to Mr. Bernau in 1992. See "Certain
Transactions".
Director Compensation
Directors do not receive cash compensation for their service
on the Board, but are reimbursed for out-of-pocket and
travel expenses incurred in attending Board meetings. Under
the Company's 1992 Stock Incentive Plan adopted by the
shareholders in 1992, beginning in 1997 an option to
purchase 1,500 shares of Common Stock was granted to each
Director for service on the Board during the year. In
addition, each Director receives 50 shares of Common Stock
for each Board or committee meeting attended.
Section 16 Reports
Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "1934 Act") requires the Company's Directors
and officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file
initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission. Such
persons also are required to furnish the Company with copies
of all Section 16(a) reports they file. Based upon a review
of reports furnished to the Company, the Company believes
that all filing requirements applicable to its Directors,
officers and persons who own more than 10% of the Company's
Common Stock were complied with in 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1997 and 1996, the Company purchased grapes from
Elton Vineyards for $95,594 and $88,364, respectively.
Betty M. O'Brien, a Director of the Company, is a principle
owner of Elton Vineyards. Also during 1997 and 1996, the
Company purchased grapes from Sweet Cheeks Vineyards owned
by Director, Daniel S. Smith, for $128,460 and $50,292,
respectively.
On June 1, 1992, the Company granted Mr. Bernau a warrant to
purchase 15,000 shares of the Company's Common Stock as
consideration for his personal guarantee of the Real Estate
Loan and the Line of Credit from Farm Credit Services,
pursuant to which the Company borrowed $1.2 million. The
warrant is exercisable anytime through June 1, 2012, at an
exercise price of $3.42 per share.
Each of the following companies--Nor'Wester Brewing,
Willamette Valley Inc.-Microbreweries across America
(WVIMAA), Aviator Ales, Mile High Brewing, Bayhawk Ales and
North Country Brewing was affiliated with the Company in
that James W. Bernau, the Company's founder, President and
Chairperson of the Board of Directors, was also President
and Chairperson of the Board of Directors of each such
affiliated company. Mr. Bernau was also a significant
shareholder in Nor'Wester and WVIMAA.
During 1993 and through June 1994, the Company provided
management services to Nor'Wester and WVI. The management
services consisted of secretarial, accounting, marketing,
administrative, stock transfer and warehousing services,
which were provided on a cost-plus-fees basis. Beginning in
July 1994, such services were performed primarily by WVI
employees. The Company provided services to the affiliated
companies on a limited basis. For the years ended December
31, 1995 and 1994, charges to the Company for such
management services aggregated approximately $230,000 and
$58,000, respectively, and are included in selling, general
and administrative expenses. In addition, the Company
entered into a beer sale and distribution contract with
Nor'Wester. No sales were made under the terms of this
contract in 1996 or 1995.
In 1996, the Company began contracting for certain services
with Nor'Wester under a general services agreement.
Nor'Wester, WVI, and the Company each provided various
administrative and stock offering services to the affiliated
companies. During 1996, total amounts charged to the Company
by Nor'Wester and WVI aggregated $47,025; amounts charged by
the Company to the various affiliated companies aggregated
$86,450. As a result of these and other transactions, the
Company aggregate payable balance of $7,221 is netted
against other receivables in the accompanying balance sheet.
During 1997, charges to the Company aggregated $164,716;
amounts charged by the Company aggregated $92,600. The
charges to the Company were composed of reimbursements for
combined purchases of health insurance and telephone
services, which were paid through the former affiliates. In
the fall of 1997, the Company ceased all transactions with
these affiliated companies due to the fact that these
affiliated companies ceased doing business or were no
longer providing services. At December 31, 1997, the Company
has no receivables or payables from the former affiliates.
In 1997, the Company wrote off $14,000 of receivables from
the former affiliates. The Company will continue its
efforts to collect these receivables.
On December 3, 1992, James W. Bernau borrowed $100,000 from
the Company. The loan is secured by Mr. Bernau's stock in
the Company, and is payable, together with interest at a
rate of 7.35% per annum, on March 14, 2009. On December 31,
1997, the outstanding balance of the loan was $148,448.
The Company believes that the transactions set forth above
were made on terms no less favorable to the Company than
could have been obtained from unaffiliated third parties.
All future transactions between the Company and its
officers, Directors, and principle shareholders will be
approved by a disinterested majority of the members of the
Affiliated Transactions Committee of the Company's
Board of Directors, and will be on terms no less favorable
to the Company than could be obtained from unaffiliated
third parties.
STOCK OWNED BY MANAGEMENT AND PRINCIPLE SHAREHOLDERS
The following table sets forth certain information with
respect to beneficial ownership of the Company's Common
Stock as of June 22, 1998, by (i) each person who
beneficially owns more than 5% of the Company's Common Stock
(ii) each Director of the Company (iii) each of the
Company's named executive officers, and (iv) all Directors
and executive officers as a group.
Number of Shares of
Common Stock Outstanding Percent of
Beneficially Owned Beneficially Owned
James W. Bernau President/CEO, Chair of the Board
2545 Cloverdale Road 1,068,303(1) 25.2%
Turner, OR 97392
James L. Ellis Secretary, Director
7850 S.E. King Road 21,522(2) **
Milwaukie, OR 97222
Delna L. Jones, Director
PO Box 5969 3,600 **
Aloha, OR 97006
Betty M. O'Brien, Director
22500 Ingram Lane NW 4,530(3) **
Salem, OR 97304
Daniel S. Smith, Director
26978 Briggs Hill Road 28,384 **
Eugene, OR 97405
Stan G. Turel, Director
13909 S.E. Stark Street 108,542 2.6%
Portland, OR 97233
William H. Malkmus, Director
415 Manzanita Way 173,078 4.1
Woodside, CA 94062
Donald Voorhies
78356 Golden Reed Drive 223,818 5.3
Palm Desert, CA 92211
All Directors and executive 1,407,959 33.3%
officers as a group (7 persons)
_________________________
** Less than one percent.
(1) Includes 15,000 shares issuable upon the exercise of
an outstanding warrant.
(2) includes 3,500 shares held in Joint Tenancy with
spouse.
(3) includes 550 shares held in Joint Tenancy with
spouse.
APPROVAL OF AMENDMENT TO THE 1992 STOCK INCENTIVE PLAN
A total of 325,000 shares of Common Stock have been
reserved for issuance under the Company's 1992 Stock
Incentive Plan as amended in 1996, (the "Plan"). As of
January 1, 1998, 147,000 shares were available for future
grants or issuance. The Board of Directors believes that
the availability of stock incentives is an important factor
in the Company's ability to continue to attract and
retain experienced and competent employees and to provide an
incentive to them to exert their best efforts on behalf of
the Company. In January 1998, the Board believed that the
amount of shares available for grants was inadequate to meet
the ongoing recruitment and retention of key employees and
to continue to open participation in the plan to as many
qualified employees to the Plan, subject to shareholder
approval, to reserve an additional 275,000 shares of Common
Stock under the Plan thereby increasing the total number of
shares reserved under the Plan from 325,000 to 600,000
shares. These additional shares gave the Board the ability
to grant stock options, subject to shareholder approval, to
qualified employees in January and March of 1998 to provide
shares for possible future grants. On January 13, 1998 the
Board approved an option of 75,000 shares to James W.
Bernau, President and CEO, at an exercise price of $1.65.
The grant price was the closing NASDAQ price on the date of
grant adjusted upward by 10%. On March 5, 1998,
options were grated to additional employees by the Board at
a grant price of $1.75 which was the closing NASDAQ price on
the date of the grant.
The Board of Directors unanimously recommends a vote FOR the
proposal. If no instructions are given, proxies will
be voted FOR approval of the amendments to the Plan as
amended in 1996.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Price Waterhouse, LLP
to act as independent auditors for the Company for the year
ending December 31, 1998, subject to ratification of such
appointment by the Company's shareholders.
Unless otherwise indicated, properly executed proxies will
be voted in favor of ratifying the appointment of Price
Waterhouse, LLP to audit the books and accounts of the
Company for the fiscal year ending December 31, 1998. No
determination has been made as to what action the Board of
Directors would take if the shareholders do not ratify the
appointment.
A representative of Price Waterhouse, LLP has been invited
to attend the Annual Meeting at his own expense and will be
given an opportunity to make a statement if he desires to do
so and will be available to respond to appropriate
questions.
The Board of Directors unanimously recommends a vote FOR
this proposal. Unless a contrary choice is specified,
proxies solicited by the Board of Directors will be voted
FOR ratification of the appointment.
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
Any shareholder proposal intended for inclusion in the proxy
statement and form of proxy relating to the Company's 1999
annual meeting of shareholders must be received by the
Company not later than February 24, 1999, pursuant to the
proxy soliciting regulations of the Securities and Exchange
Commission (the "SEC"). Nothing in this paragraph shall be
deemed to require the Company to include in its proxy
statement and form of proxy for such meeting any shareholder
proposal which does not meet the requirements of the SEC in
effect at the time.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of
Directors does not know of any other matters to be presented
for action by the shareholders at the 1998 Annual Meeting.
If, however, any other matters not now known are properly
brought before the meeting, the persons named in the proxy
will vote the shares represented by such proxy upon such
matters.
COST OF SOLICITATION
The cost of soliciting proxies will be borne by the Company.
In addition to use of the mails, proxies may be solicited
personally or by telephone by Directors, officers and
employees of the Company, who will not be specially
compensated for such activities.
ADDITIONAL INFORMATION
A copy of the Company's Annual Report to Shareholders for
the fiscal year ended December 31, 1997 accompanies this
Proxy Statement. The Company is required to file an Annual
Report on Form 10-KSB with the Securities and Exchange
Commission. Shareholders may obtain, free of charge, a copy
of the Form 10-KSB by writing to James L. Ellis, Willamette
Valley Vineyards, Inc., 8800 Enchanted Way S.E., Turner,
Oregon 97392.
By Order of the Board of Directors,
James W. Bernau
Chairperson of the Board
Turner, Oregon
June 25, 1998
DESCRIPTION OF BUSINESS
Willamette Valley Vineyards, Inc. (the "Company") was formed
in May 1988 to produce and sell premium, super premium and
ultra premium varietal wines (i.e., wine which sells at
retail prices of $4 to $8, $8 to $15 and over $15 per
bottle, respectively). The Company's wines are made from
grapes grown at its vineyard (the "Vineyard") and from
grapes purchased from other nearby vineyards.
The grapes are crushed, fermented and made into wine at the
Company's winery (the "Winery") and the wines are sold
principally under the Company's Willamette Valley Vineyards
label. The Company's Vineyard and Winery are located on 75
acres of Company-owned land adjacent to Interstate 5,
approximately two miles south of Salem, Oregon.
In April 1997, the Company acquired 100 percent of the
outstanding stock of Tualatin Vineyards, Inc. adding 83
acres of producing vineyard, 60 more plantable acres and an
additional 20,000 cases of wine making capacity. The
purchase price paid by the Company to the Tualatin Valley
shareholders in exchange for their shares was $1,824,000
plus Tualatin Vineyards current assets minus their
current and long term liabilities as reflected in their
balance sheet dated April 15, 1997. The Company paid 35
percent of the purchase price in the form of cash with the
balance paid through the issuance of shares of the Company's
Common Stock at an agreed price per share. The final
purchase price was $1,988,601 paid to the Tualatin
Vineyards, Inc. shareholders.
The Company also leased O'Connor Vineyards on a ten-year
contract adding an additional 48 producing acres. All of
these highly regarded vineyards are within the Willamette
Valley Appellation.
Products
Under its Willamette Valley Vineyards label, the Company
currently produces and sells the following types of wine in
750 ml bottles: Pinot Noir, the Company's flagship and its
largest selling varietal in 1997; Chardonnay, Pinot Gris,
White Riesling, Dry Riesling, Gewurztraminer and Oregon
Blossom (blush blend). As a convenience to its restaurant
customers, the Company produces some of our products in
larger sized packages.
Under its WVV label, the Company currently produces and
sells small quantities of the following types of wine in 750
ml bottles: Merlot, Cabernet Sauvignon, Edelweiss, and
Oregon's Nog -- a seasonal holiday product.
Vineyard
The Property. The Company's estate vineyard at the Turner
site currently has 50 acres planted and 39 acres producing
which includes 17 acres of Pinot Noir and 8 acres of White
Riesling grape vines planted in 1985. The Company planted 8
acres of Pinot Gris vines in May 1992 and 6 acres of
Chardonnay (Espiguette clone) vines in 1993. In 1996, the
Company planted its remaining 11 acres in Chardonnay (Dijon
clones) and Pinot Gris. Grapevines do not bear commercial
quantities until the third growing season and do not
become fully productive until the fifth to eighth growing
season. Vineyards generally remain productive for 30 to 100
years, depending on weather conditions, disease and other
factors.
The Vineyard uses an elaborate trellis design known as the
Geneva Double Curtain. The Company has incurred the
additional expense of constructing this trellis because it
doubles the number of canes upon which grape clusters grow
and spreads these canes for additional solar exposure and
air circulation. Research and practical applications of
this trellis design indicate that it will increase
production and improve grape quality over traditional
designs.
In April of 1997, the Company purchased Tualatin Vineyards,
Inc. which added 83 acres of additional producing vineyards
and some 60 acres of bare land for future plantings. In
1997, the Company planted 19 acres at the Tualatin site and
is preparing to plant another 41 acres in 1998. The majority
of the new plantings will be Pinot Noir which is the
Company's flagship varietal. All of the new planting will be
available to harvest in the next three to five years.
Also in 1997, the Company entered into a 10 year lease with
O'Connor Vineyards (48 acres) located near Salem to manage
and obtain the supply of grapes from O'Connor Vineyards. In
1997, the Company received only a portion of the grapes
produced at O'Connor due to the phase out of certain pre-
existing grape sales contracts.
The Company now controls 243 acres (including 41 that will
be planted in 1998) of vineyard land. At full production,
these vineyards should enable the Company to grow
approximately 38% of the grapes needed to meet the Winery's
ultimate production capacity of 300,000 gallons (124,000
cases).
Grape Supply. In 1997, the Company's 39 acres of producing
estate vineyard yielded approximately 181 tons of grapes for
the Winery's ninth crush. Tualatin Vineyards produced 234
tons of grapes in 1997. O'Connor Vineyards produced 127 tons
of which about 80% were sold to other wineries because of
previous commitments. An additional 1,112 tons of grapes
were purchased from other growers in 1997. However, the
Company sold about 228 tons of the grapes harvested from its
vineyards or purchased from contracted vineyards in 1997.
The Company realized it could optimize inventory levels and
improve wine quality by processing fewer tons than were
initially thought necessary because of overly optimistic
sales projections, e.g. Chardonnay. The Company expects to
produce 202,000 gallons in 1998 (85,011 cases) from its 1997
crush. In 1998, the Company also anticipates selling excess
bulk wine to meet revised sales projections. The Winery's
1997 total wine production was 218,238 gallons (91,793
cases) from its 1996 crush. The Vineyard cannot and will not
provide the sole supply of grapes for the Winery's near-term
production requirements. The Company has also entered into
grape purchase contracts with certain Directors of the
Company. (See "CERTAIN TRANSACTIONS".)
The Company fulfills its remaining grape needs by purchasing
grapes from other nearby vineyards at competitive prices.
The Company believes high quality grapes will be available
for purchase in sufficient quantity to meet the Company's
requirements except in the Pinot Noir varietal, where there
is increasing demand. The grapes grown in the Company's
vineyards establish a foundation of quality upon which the
purchase of additional grapes is built. In addition, wine
produced from grapes grown in the Company's own vineyards
may be labeled as "Estate Bottled" wines. These wines
traditionally sell at a premium over non-estate bottled
wines.
Winery
Wine Production Facility. The Company's Winery is
structurally capable of producing up to 250,000 gallons
(104,000 cases) of wine per year, depending on the type of
wine produced. With the addition of Tualatin Vineyards, the
Company added 50,000 gallons (20,000 cases) of capacity.
However, the Tualatin production facility is not in use at
this time because the Executive Committee of the Company
decided that the production capacity at Tualatin was not
needed to meet near term production requirements.
Beginning with the Company's first vintage in 1989, the
Company's annual grape harvest and wine production are as
follows:
Crush Tons of Grapes Gallons Case
Year Crushed Production Year Produced Equivalents
1989 203
1990 206 1990 31,383 13,200
1991 340 1991 31,900 13,400
1992 565 1992 52,600 22,100
1993 633 1993 90,908 38,237
1994 590 1994 97,822 41,145
1995 885 1995 96,077 40,411
1996 1290 1996 127,655 53,693
1997 1426 1997 199,353 83,850
The quantity of grapes crushed in 1997 does not include 228
tons of grapes that were purchased and resold on the open
market because the Company had contracted for more grapes
than were needed. The Company was unable to sell
approximately 248 tons of grapes before crush, this tonnage
converts to 40,050 gallons of bulk wine. The Company has
sold to date 26,050 gallons with an additional verbal
commitment from a buyer to purchase the remaining
14,000 gallons in 1998.
Company Strategy
The Company, as one of the largest wineries in Oregon,
believes its success is dependent upon its ability to: (1)
grow and purchase high quality vinifera wine grapes; (2)
vinify the grapes into premium, super premium and ultra
premium wine; and (3) achieve significant brand recognition
for its wines, first in Oregon and then nationally and
internationally. The Company's goal is to continue
as one of Oregon's largest wineries, gaining a reputation
for producing some of Oregon's finest, most sought after
wines.
Based upon several highly regarded surveys of the US
wine industry, the Company believes that successful wineries
exhibit the following four key attributes: (i) focus on
production of high-quality premium, super premium and ultra
premium varietal wines; (ii) achieve brand positioning
that supports high bottle prices for its high quality wines;
(iii) build brand recognition by emphasizing restaurant
sales; and (iv) develop strong marketing advantages (such as
a highly visible winery location and successful self-
distribution).
The Company has designed its strategy to address each of
these attributes.
To successfully execute this strategy, the Company grows and
purchases selected, high-quality varietal wine grapes which
can be vinified into premium, super premium and ultra
premium wine. To produce superior quality wine, the Company
has assembled a team of well known accomplished winemaking
professionals, and has constructed and equipped a 22,934
square foot state-of-the-art Winery, 4,000 square foot
barrel storage facility for wine aging, 20,000 square foot
warehouse for aging/storing bottled wines and a 12,500
square foot outdoor production area for the crushing,
pressing and fermentation of wine grapes.
The Company's marketing strategy is to sell its premium,
super premium and ultra premium cork finished wine through a
combination of (i) direct sales at the Winery, (ii) self-
distribution to local and regional restaurants and retail
outlets, and (iii) sales through independent distributors
and wine brokers who market the Company's wine in specific
targeted areas where self-distribution is not economically
feasible. Most of the Company's wines are sold under its
Willamette Valley Vineyards label.
The Company believes the location of its Winery next to
Interstate 5, Oregon's major north-south freeway,
significantly increases direct sales to consumers and
facilitates self-distribution of the Company's products.
The Company believes this location provides high visibility
for the Winery to passing motorists, thus enhancing
recognition of the Company's products in retail outlets and
restaurants. The Company's Hospitality Center has further
increased the Company's direct sales and enhanced public
recognition of its wines.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the NASDAQ Stock
Market under the symbol "WVVI". As of December 31, 1997,
there were 3,558 holders of record of the Common Stock.
The table below sets forth, for the quarters indicated, the
high and low sales prices for the Company's Common Stock as
reported on the NASDAQ Stock Market. The Company's Common
Stock began public trading on September 13, 1994.
Quarter Ended
3/31/97 6/30/97 9/30/97 12/31/97
High $3.63 $3.50 $3.25 $2.25
Low $2.25 $2.00 $1.75 $1.19
3/31/96 6/30/96 9/30/96 12/31/96
High $3.75 $3.62 $3.50 $3.50
Low $2.75 $2.75 $2.00 $2.50
The Company has not paid any dividends on the Common Stock,
and it is not anticipated that any dividends will be paid by
the Company in the foreseeable future.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Forward Looking Statements
This Management's discussion and Analysis of Financial
Condition and Results of Operation and other sections of
this discussion and analysis contain forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking
statements involve risks and uncertainties that are based on
current expectations, estimates and projections about the
Company's business, and beliefs and assumptions made by
management. Words such as "expects", "anticipates",
"intends", "plans", "believes", "seeks', "estimates", and
variations of such words and similar expressions are
intended to identify such forward-looking statements.
Therefore, actual outcomes and results may differ materially
from what is expressed or forecasted in such forward-looking
statements due to numerous factors, including, but not
limited to: availability of financing for growth,
availability of adequate supply of high quality grapes,
successful performance of internal operations, impact of
competition, changes in wine broker or distributor
relations or performance, impact of possible adverse weather
conditions, impact of reduction in grape quality or supply
due to disease, impact of governmental regulatory decisions,
successful assimilation of Tualatin Vineyard Inc's business
with that of the Company and other risks detailed below as
well as those discussed elsewhere in this Form 10K and from
time to time in the Company's Securities and Exchange
Commission filing and reports. In addition, such statements
could be affected by general industry and market conditions
and growth rates, and general domestic economic conditions.
Discussion and Analysis
The Company embarked on an aggressive growth plan in 1997
aimed at solving several major issues. First, sales demand
exceeded supply of certain varieties, requiring allocation
and shortening the time for bottle aging to speed release
into the market. Second, sales and production growth made
the Company highly dependent upon outside sources of grapes
which were fetching higher market prices and becoming more
difficult to secure. Third, growers were linking the sales
of high demand grapes like Pinot Noir with low demand
grapes, requiring the Company to purchase grapes it
didn't need. Fourth, former management's sales projections
indicated the Company needed more winemaking capacity than
was available at its Turner site and significantly more wine
storage.
The Company has experienced over the last several
years high demand for some of its products as a result of
positive reviews by national wine writers and critics. For
example, Wine Enthusiast Magazine names Willamette Valley
Vineyards as "One of America's great Pinot Noir producers";
noted wine critic Robert Parker stated, "Willamette
Valley Vineyards' Whole Berry Fermented
Pinot Noir may be the world's most delicious and accessible
Pinot. It has been a knock-out in some vintages." With the
Company's 1996 Pinot Gris variety, noted Wine Spectator
writer Matt Kramer stated "In short, it's a winner." As a
consequence, the Company has experienced shortages in the
marketplace, which in the short term, is beneficial to brand
positioning but, over the long term, can threaten placement
in critical high profile accounts. The Company has resorted
to allocating the wines, this has not been entirely
effective in resolving the problem.
Facing these conditions, the Board of Directors adopted a
1997 Budget which called
for dramatically higher production levels, construction of a
wine storage facility, and authorized the purchase of
Tualatin Vineyards and Winery and the leasing, on a long
term basis, of O'Connor Vineyards.
For the first nine months of 1997, the Company failed to
achieve its sales
projections. In addition, the Company incurred expenses
greater than the Board authorized budget. The combination
of these two factors, despite record sales growth, produced
record losses for the first three quarters. The Board of
Directors formed an Executive Committee at its April 28th
meeting to work closely with the General Manager to address
operational management issues. Following the resignation of
the Company's General Manager in the third quarter, the
Executive Committee assumed management responsibilities for
the Winery until Company Founder & President/CEO,
Jim Bernau returned to operate the Company on a full-time
basis beginning in mid-September of 1997. The Executive
Committee consists of the President and Chair of the Board
James Bernau, Director James Ellis and Director Stan Turel.
The Executive Committee of the Board of Directors determined
the Company's performance was adversely affected by the
following:
Sales Projections - The 1997 sales projections for the
Willamette Valley Vineyards Brands were established solely
on a percentage increase from the prior year dollar
sales without surveying distributors, sales agents and
representatives for projected case depletion by variety.
The projections did not provide
detail for the Executive Committee to determine in what
products or markets the Company was not meeting projections.
This is the first time
in the Company's history it has not met its sales
projections. Additionally, the actual sales of the newly
acquired Tualatin Brand were only a small fraction of its
projected sales. The Company has returned to a strict
policy of developing detailed sales projections in which
each sales manager, agent and representative is directly
responsible for his or her projections. Sales against
projections are measured by product each month in each
market by wholesalers, agents and sales representatives.
Budgets and Spending - Since the 1997 Budget was based
upon the flawed sales projections, expenditures were not
adequately covered by the resulting sales. In addition,
actual spending exceeded the Board authorized budget. The
acquisition of Tualatin Vineyards magnified this problem,
since Tualatin was losing money at the time it was purchased
by the Company. Adequate measures were not taken to
eliminate these losses or adjust spending downward to match
the lower than expected sales. In 1997, the acquisition
of Tualatin Vineyards adversely affected the Company's net
income after taxes by $14,000. Since the capacity at the
Tualatin facility was not immediately needed, the Executive
Committee shifted wine production of Tualatin wine to its
Turner facility and mothballed the Tualatin facilities,
mitigating further Tualatin related losses. The Company
did, however, reopen the Tualatin tasting room to
generate additional retail sales and interest in the
Tualatin brand. The Company has returned to its policy of
limiting spending to monthly budgets and has instituted a
"real time" Purchase Order system, where managers can input
proposed expenses, measure them against the funds available
in the budget and seek approval from the CEO for spending
above pre-determined limits. The Executive Committee
developed an expenditure reduction plan that resulted in
General and Administrative expenses to be lower in the 4th
quarter of 1997 than in the same quarter of the previous
year excluding year end adjustments. The expenses that were
dramatically over budget were targeted for strict controls
included legal, travel, printing, advertising, outside
contractors and memberships. Competitive bidding
processes have been instituted for all major purchases,
services and supplies.
Personnel - The labor costs experienced in the first nine
months of 1997 exceeded the Budget. In addition, staff
reductions were not made when sales projections were not
achieved. The Executive Committee reorganized the workforce
and eliminated, through attrition or termination, 19 full
and part-time positions (principally mid-level managers) and
2 consultants. An in-state sales manager position
and an additional staff accountant were added. These
personnel actions resulted in considerable savings to the
Company. The personnel requisition and compensation process
requiring Human Resource Director and CEO approval has been
reinstituted to prevent hiring or compensation increases at
department levels that are outside the budget.
Pricing - Pricing has not kept up with contracted grape
prices and production cost increases reducing gross margins.
The Company has now phased out a lower price tier Willamette
Valley Vineyard Branded "Lot 27 and Lot 28" Pinot Noir and
Chardonnay and replaced it with a higher quality and higher
priced "Vintage Series" in grocery stores. The promotional
pricing in which the Company engaged to reduce its excess
inventories is now being phased out. Promotional sales were
limited to markets that would minimize potential harm to the
positioning of the Company's brand. A high end "Vineyard
Designated" series is now being produced to match the
quality and cost of grapes from prestige vineyards.
Interest Expense - Higher than necessary inventories have
required additional borrowings against the Company's line of
credit. As management works to optimize inventory levels,
these related interest costs will decline relative to sales.
The inventory build in 1997 was based upon what the Company
has now determined to be unrealistic sales projections with
some varieties like Chardonnay where 19,478 case equivalents
were crushed when in the same year only 10,537 cases of
Chardonnay were sold. In addition, the method used to
calculate production needs was flawed which overstated
necessary inventory levels. Production and Depletion
forecasting has now been corrected and the Company believes
it will eliminate surplus inventories by the end of 1999.
The Tualatin purchase was financed with borrowed funds,
increasing interest expense. This cost (as well as related
depreciation) will not be offset until the Company can
generate net revenue from its currently mothballed Tualatin
production facilities. Custom crushing and leasing
of the facility are being explored until such time as the
Company needs the capacity for its own use. The additional
plantings at Tualatin are financed entirely with borrowed
funds and the interest costs will not be directly offset
until the new plantings become fully productive in 5 years.
Additional interest cost is being incurred by how the
Company obtains its grapes. When grapes are purchased from
other growers, they are paid in installments after crush
and into the following year. However, growing grapes instead
of purchasing them requires cash to cover ongoing
agricultural expenses. The Company is now responsible for
farming expenses at the Tualatin and O'Connor sites.
Additionally, the O'Connor Vineyard lease requires an annual
cash lease payment at the beginning of the year before the
grapes are harvested. In general, the Company's costs of
growing its own grapes is less than purchasing on the open
market. This benefit, however, will not be realized until
the wine made from those grapes is sold.
The change in warehousing has increased interest expense as
well. The Company previously stored most of its case goods
off-site and paid by the month for storage and handling. The
new warehouse was constructed with borrowed funds and is
being used for storage, eliminating these outside storage
charges. Since the new warehouse has excess capacity,
management is actively seeking contract wine storage
opportunities. The cost of renting outside storage
on an annual basis was costing the Company $96,000. The
Company believes that it will realize savings in operating
its own storage facility.
The Winery posted net profits of $181,385 for the 4th
quarter of 1997 after the year-end adjustments or 4 cents
per share compared with net profits of $35,808 or 1 cent per
share for the fourth quarter of 1996. The year-end
adjustments were (1) the allowance for doubtful
accounts receivable adjusted to $30,000 from $10,000 in
1996, (2) the Company wrote off $9,500 of marketing
expenses, incurred in 1996, associated with its distributor
in the United Kingdom, (3) the Company wrote off
approximately $14,000 in receivables from its former
affiliated companies, (4) the Company wrote off $7,000 in
various year-end adjustments. A portion of the revenue
resulted from the sale of certain varieties of grapes for
which the Company had contracted early in 1997, but did not
need at crush time in the fall. The fourth quarter increase
reverses the disappointing performance of the Company in
the first, second and third quarters of 1997 where losses
totaled $113,523.
Although the Company experienced a dramatic turnaround and
enjoyed a strong fourth quarter, profits per share fell due
to overall 1997 performance and the dilution resulting from
new shares issued to Tualatin shareholders in partial
payment for the purchase of Tualatin Vineyards and Winery.
Results of Operations
Seasonal and Quarterly Results. The Company has
historically experienced and expects to continue
experiencing seasonal fluctuations in its revenues and net
income. In the past, the Company has reported a net loss or
modest net income during its first quarter and expects this
trend to continue in future first quarters, including the
first quarter of 1998. Sales volumes increase
progressively beginning in the second quarter through the
fourth quarter because of consumer buying habits.
The following table sets forth certain information regarding
the Company's revenues from Winery operations for each of
the last eight fiscal quarters:
Fiscal 1997 Fiscal 1996
Quarter Ended Quarter Ended
(in thousands) (in thousands)
3/31 6/30 9/30 12/31 3/31 6/30 9/30 \12/31
Tasting room $140 $212 $244 $272 151 $213 $251 $367
and retail sales
On-site and 86 92 145 177 76 116 128 154
off-site festivals
In-state sales 317 462 552 827 307 403 415 640
Bulk sales - 38 19 408 - - - -
Out-of-state 298 510 400 727 169 239 358 347
sales _____________________________________________
Total winery 841 1,314 1,360 2,411 703 971 1,152 1,508
Revenue. The following table sets forth, for the periods
indicated, select revenue data from Company operations:
Year Ended December 31
(in thousands)
1997 1996 1995
Tasting room and retail sales $ 868 $982 $940
On-site and off-site festivals 500 474 528
In-state sales 2,158 1,765 1,394
Bulk /Grape Sales 465 --- ---
Out-of-state sales 1,935 1,113 776
______________________
Revenues from winery operations $5,926 $4,334 $3,638
Less Excise Taxes 212 99 0
______________________
Net Revenue $5,714 $4,235 $3,638
1997 Compared to 1996. Tasting room sales for the year
ended December 31, 1997 decreased 12% to $868,531 from
$981,804 for the same period in 1996. The Company has seen a
drop in the average tasting room "ring" which means that the
customer is purchasing the wine elsewhere as witnessed by
increased sales in the in-state sales category. In the last
part of 1997, management has begun to track the buying
habits of the customers who visit the tasting room. In the
past several years, the Company did not track customers
buying habits which means the tasting room did not focus on
a targeted group of customers to increase its sales. In the
past year, the Company has allowed the Wholesale Division to
sell wine that in previous years has been exclusively sold
in the tasting room. In 1998, the Company will return to the
practice of selling certain exclusive wines in the tasting
room at higher profit margins. The Company experienced an
increase in revenue during 1997 in Hospitality rental income
over the same period in 1996. The total of rental income and
related wine sales was $187,257 in 1997 as compared to
$159,741 in 1996. This rental income comes primarily
through weddings, business meetings and educational
conferences held at the Winery's Hospitality Center.
On-site and off-site festival sales for the year ended
December 31, 1997 increased 5% to $500,199 from $474,405
for the same period in 1996. One off-site event, "The Bite
of Salem", had an increase in revenue of $11,500 over last
year's event, but it had a sponsor's fee of $8,000 which
made the event unprofitable. The Company has reinstituted a
strict policy of requiring a cost/benefit analysis for
each event before the decision is made to participate in the
event. The Company plans to reduce its overhead in the
Retail Department by only participating in events that
return to the Company a net profit after all direct costs.
Wholesale sales in the state of Oregon for the year ended
December 31, 1997, through the Company's independent sales
force, increased 22% to $2,157,896 from $1,765,340 for the
same period in 1996. PriceCostco, a large retailer, placed
the Company's products in several new locations in 1997
which resulted in $277,000 additional sales to that chain.
The Company has seen a significant increase in the sales of
its White Riesling product line which nearly doubled in
sales in 1997, resulting in an increase of approximately
$235,000 in sales over 1996, most of which was sold to the
above mentioned chain store. During the last part of
1997, the Company added an in-state sales manager whose main
focus was to increase in-state sales. This increased focus
by the Company resulted in record breaking sales in the
fourth quarter of 1997.
The Company contracted in early 1997 for more grapes than
what was needed to meet the revised sales forecasts in the
next few years. The Company sold some of its own grapes and
some of its contracted grapes for $465,030 and generated a
small profit in doing so. Because of certain multi-year
contracts, the Company intends to sell additional grapes in
1998 without incurring a loss.
Out-of-state sales for the year ended December 31, 1997,
increased 74% to $1,934,877 from $1,112,690 for the same
period in 1996. The Company now sells wine in 39 states as
compared to 28 states in 1996. The Pinot Noir variety led
the way in increased sales in 1997. The vintage and whole
cluster Pinot Noir product lines sold 6,097 more cases in
1997 resulting in a $439,000 increase in sales.
Pinot Noir, which now constitutes about one-third of the
Company's production, is among the fastest growing wine
varietals. New consumers are coming into the wine category.
Positive press, regarding the healthful use of wine,
continues to stimulate demand. The Company expects demand
for its wines to continue to increase. However, the Company
notes that new formidable entries into the Oregon wine
industry from out of state will increase competition and put
additional pressure on Pinot Noir grape supplies. In
addition, the industry in Oregon, Washington, and California
has experienced crush volumes in 1997 higher than annual
consumption rate increases, thus potentially putting
pressure on prices and margins. Additionally, sales of
Oregon produced wine, on a volume basis dropped for the
first time in 1997 from the previous year.
The Company reclassified its income statement to subtract
excise taxes from its gross revenue to equal a net revenue.
Since the Company only collects the excise tax on behalf of
the Bureau of Alcohol, Tobacco, and Firearms, and Oregon
Liquor Control Board, these taxes should not be considered
as a legitimate expense for the Company. The total excise
taxes collected in 1997 were $212,402 as compared to $99,219
in 1996. Before 1996, excise taxes were included in the
"selling, general, and administrative expenses".
As a percentage of net revenue after removing the excise
taxes, gross margin for all winery operations was 51% for
fiscal year 1997 as compared to 56% for 1996. The sales of
bulk juice and grapes at harvest at a slim margin reduced
the gross margin in 1997. After adjusting for these sales,
the gross margin would be 54% as compared to 56% in 1996.
The sales of existing Tualatin product at lower margins
reduced the margin in 1997, as well as, promotional
pricing of certain Willamette Valley products to reduce
inventory.
Selling, general, and administrative expenses for the year
ended December 31, 1997, increased 25% to $2,434,867
compared to $1,951,120 for the same period in 1996. As a
percentage of revenue from winery operations, the selling,
general, and administrative expenses were 43% in 1997 as
compared to 46% in 1996.
During the year of 1997, increased sales revenues over 1996
resulted in increased commissions paid to our independent
sales force. Commissions are paid to the sales force on a
specified percentage of revenue resulting in no adverse
affect on the net income ratio. The commissions paid in
1997 amounted to $642,709 as compared to $521,832 in 1996.
The Company has experienced increased expenses relating to
samples, travel, point-of-sale expenses, and shipping
charges for the development of new markets and the
expansion of sales outside of the state. The out-of-state
sales representatives are allowed a set percentage of
revenue for wine samples and point of sale material. Thus,
as the gross revenues increase, the actual dollar
expenditures for wine samples and point-of-sale
material increases, as well.
Other income for the year ended December 31, 1997 was
$19,471 as compared to $28,241 for the year ended December
31, 1996. Interest income increased to $31,296 in fiscal
year 1997 from $25,145 in fiscal year 1996. Interest
expense increased to $396,118 in fiscal year 1997 from
$214,380 in fiscal year 1996. The increase in the interest
expense was the result of the Company taking on more long
term debt to finance the purchase of Tualatin Vineyards,
Inc., plant additional land at Tualatin (becoming
more of a grower than purchaser of grapes), and fund
increases in inventory.
The provision for income taxes and the Company's effective
tax rate were $52,288 and 44% in fiscal year 1997 with
$98,685 or 37% of pre-tax income recorded for fiscal year
1996.
As a result of the above factors, net income decreased 60%
to $67,862 in fiscal 1997 from $170,430 for the fiscal year
of 1996. Earnings per share were $.02, $.05 and $.002 in
fiscal years 1997, 1996 and 1995, respectively.
1996 Compared to 1995. Tasting room sales for the year
ended December 31, 1996 increased 4% to $981,804 from
$940,327 for the same period in 1995. The most significant
increase in revenue during 1996 was in the Hospitality
rental income over the same period in 1995. The total of
rental income was $159,741 in 1996 as compared to $80,857 in
1995. This rental income comes primarily through weddings,
business meeting and educational conferences held at the
Winery's Hospitality Center. This increase in rental days
results in increased foot traffic in the tasting
room. Many rental visitors introduced to our winery and
tasting room facility return later to purchase wine at the
tasting room.
On-site and off-site festival sales for the year ended
December 31, 1996 decreased 10% to $474,405 from $528,158
for the same period in 1995. The major reason for a decrease
in revenue was the elimination of a retail booth at the
Oregon State Fair. The Company decided to eliminate this
event along with several smaller off-site events because the
events proved to not be profitable. The Company has been
able to replace these lost revenues with increased sales in
other divisions with lower operating costs. The net result
has contributed to improved Company-wide profit.
Wholesales sales in the state of Oregon for the year ended
December 31, 1996, through the Company's independent sales
force, increased 27% to $1,765,340 from $1,393,429 for the
same period in 1995. The increase in sales is primarily
attributable to the focus on new wine accounts, better
point-of-sale information, improved sales management and
targeting sales of higher margin wines. Because the Company
is one of the largest producers of wine in Oregon, the
Company has secured significant additional and better
positioned shelf space in several chain stores over this
time the previous year. PriceCostco placed the Company's
products in several new locations in 1996 which resulted in
$90,000 additional sales in that chain.
Out-of-state sales for the year ended December 31, 1996
increased 43% to $1,112,690 from $775,808 for the same
period in 1995. The Company now sells wine in 28 states as
compared to 22 states in 1995. In the third quarter of 1996,
the Company obtained a license to distribute its product in
Connecticut for the first time. Revenue in the state of
Connecticut for 1996 was $186,000.
Pinot Noir, which now constitutes about one-third of the
Company's production, is among the fastest growing wine
varietals. According to InfoScan reports, Pinot Noir sales
in American retail stores have grown 47% over the past 52
weeks. In comparison, Chardonnay sales (the number one
varietal wine) grew about 19% in the same time period. New
consumers are coming into the wine category. Positive press
regarding the healthful use of wine continues to stimulate
demand. The Company expects demand for its wines to remain
strong for the foreseeable future.
For the first time in 1996, the Company has restated its
income statement to subtract its excise taxes from gross
revenue to arrive at net revenue. Since the Company only
collects the excise tax for payment to the Bureau of
Alcohol, Tobacco, and Firearms, and Oregon Liquor Control
Board, these taxes should not be considered as a legitimate
expense for the Company. The total excise taxes collected in
1996 were $99,219 as compared to $87,599 in 1995. The 1995
excise taxes were included in "selling, general, and
administrative expenses" in the 1995 Company audit.
As a percentage of net revenue after removing the excise
taxes, gross profit for all winery operations was 56% for
fiscal year 1996 as compared to 52% for 1995. In the first
half of 1996, the Company increased its prices in all sales
venues. This resulted in an increase in the gross margin
percentage over the same period in 1995. Also, in 1996, the
Company sold 2,000 cases more Chardonnay and Pinot Noir than
it did in 1995. The margin on these two wines are
significantly higher than the margins of the remaining
wines.
Selling, general, and administrative expenses for the year
ended December 31, 1996 increased 8% to $1,951,120 compared
to $1,807,430 for the same period in 1995. As a percentage
of revenue from winery operations, the selling, general, and
administrative expenses were 46% in 1996 as compared to 50%
in 1995. The excise taxes paid in 1995 are included in the
Company's selling, general, and administrative cost,
whereas, in 1996, the excise taxes are netted against the
Company's revenue. The Company has initiated a strong cost
control policy whereas each month each department manager
meets with the Company's Controller o go over
the previous month's expenses. All of the monthly
expenditures are explained to the manager along with a
comparison of the manager's operating budget. After which
the department manager is required to develop a plan to
control the expense accounts that exceed his budget.
During the year of 1996, increased sales revenues over 1995
resulted in increased commissions paid to our independent
sales force. Commissions are paid to the sales force on a
specified percentage of revenue resulting in no adverse
affect on the net income. The commissions paid in 1996
amounted to $521,832 as compared to $401,449.
In the Retail operations, the Company added an additional
person to help with the growing room rentals it experienced
in 1996. Other expenses like supplies, advertising, and
services increased proportionately to the increase in the
number of days the Hospitality Center was rented. In 1996,
it was the first full year of depreciation of the new
Hospitality Center. The depreciation expense for the Retail
operation increased from $34,379 in 1995 to $90,522 in 1996.
Other income for the year ended December 31, 1996 was
$28,241 as compared to $2,408 for the year ended December
31, 1995. Interest income increased from $18,648 in fiscal
year 1995 to $25,145 in fiscal year 1996. Interest expense
increased from $128,169 in fiscal year 1995 to $214,380 in
fiscal year 1996. The increase in the interest expense was
the result of the Company taking on more long term debt.
The provision for income taxes and the Company's effective
tax rate were $98,685 and 37% in fiscal year 1996 with
$29,768 or 82% of pre-tax income recorded for fiscal year
1995.
As a result of the above factors, net income increased to
$170,430 in fiscal 1996 from $6,324 for the fiscal year of
1995. Earnings per share were $.05, $.002 and $.04 in
fiscal year 1996, 1995 and 1994, respectively.
Liquidity and Capital Resources
The Company was organized on May 2, 1988, and sold its first
wine in late April 1990. Prior to April 1990, the Company's
working capital and Vineyard development and Winery
construction costs were principally funded by cash
contributed by James Bernau and Donald Voorhies, the
Company's co-founders, and by $1,301,354 in net proceeds
received from the Company's first public stock offering,
which began in September 1988 and was completed in June 1989
with the sale of 882,352 shares at a price of $1.70 per
share pursuant to Federal Regulation A.
Since April 1990, the Company has operated on revenues from
the sale of its wine and related products and the net
proceeds from three additional stock offerings. The
Company's second public stock offering began in July 1990
and was completed in July 1991 with the sale of 731,234
shares at prices of $2.65 and $2.72 per share exclusively to
Oregon residents, resulting in net proceeds to the Company
of $1,647,233.
In 1992, the Company conducted two stock offerings pursuant
to Federal Regulation A. The Company commenced an offering
on July 18, 1992 which was completed on September 30, 1992,
with the sale of 428,216 shares of Common Stock at a price
of $3.42 per share and net proceeds to the Company of
$1,290,364. On October 2, 1992, as a result of the
oversubscription of the first offering in 1992, the Company
commenced another offering of Common Stock which was
completed on October 31, 1992 with the sale of 258,309
shares at a price of $3.42 per share, resulting in net
proceeds to the Company of $775,726.
Cash and cash equivalents decreased to $13,541 at December
31, 1997 from $794,885 at December 31, 1996. This change
was principally attributable to spending nearly $650,000 of
funds borrowed in 1996 from Farm Credit Services to
construct a storage facility on site.
Inventories increased 47% as of December 31, 1997, to
$4,171,027 from the December 31, 1996 level of $2,843,053.
The increase is the result of significant increases in
production to meet the projections used by previous
management.
Property, plant and equipment, net, increased 26% as of
December 31, 1997, to $6,859,835 from $5,421,016 as of
December 31, 1996. The increase was attributable to the
construction of a 20,000 square foot storage facility plus
the addition of the production facility purchased from
Tualatin Vineyards.
Long term debt increased to $4,044,943 as of December 31,
1997, from $3,170,000 as of December 31, 1996. The increase
in debt was the result of cash borrowings for the purchase
and vineyard expansion of Tualatin Vineyards,
The Company has a line of credit from Farm Credit Services
with a limit of $2,000,000. As of December 31, 1997 the
outstanding balance of the line was $1,517,297 as compared
to $479,626 in 1996. These funds were used to meet
operational expenditures primarily to fund the increase in
the inventory.
FINANCIAL HIGHLIGHTS
(in thousands, except for per share amounts)
Year ended
December 31 1997 1996 1995 1994 1993 1992 1991
Revenue from $5,714 $4,235 $3,638 $2,869 $2,264 $1,818 $823
winery operations
Net income 68 170 6 170 116 19 (113)
(loss)
Net income .02 0.05 0.00 0.04 0.03 0.01 (0.04)
(loss) per share
Weighted 4,104 3,785 3,785 3,785 3,784 3,350 3,003
average number of common
shares outstanding
As of
December 31 1997 1996 1995 1994 1993 1992 1991
Selected balance sheet data:
Working
capital $2,471 $2,696 $1,981 $1,661 $2,333 $2,472 $1,095
Total
assets 13,946 10,264 8,340 6,881 6,677 6,076 3,485
Long-term
debt 4,044 3,170 2,008 889 910 440 193
Shareholders'
equity 7,105 5,628 5,458 5,451 5,278 5,180 3,070
(Graphs unavailable for transmission so the following is a
replacement narrative.)
WVV Assets & Equity Growth
In 1997 the growth in assets and equity resulted from the
acquisition of Tualatin Vineyards, Inc.
ASSETS EQUITY
(in millions)
06/30/88 0.2 0.2
04/30/90 2.1 1.7
12/31/90 3.0 2.6
12/31/91 3.3 2.9
12/31/92 6.1 5.2
12/31/93 6.7 5.3
12/31/94 6.9 5.5
12/31/95 8.3 5.5
12/31/96 10.3 5.6
12/31/97 13.9 7.1
WVV Gross Margin
Gross Margin is the net of net sales revenue less the
production cost of wine sold. After the elimination of
grape sales, the gross margin decreased in 1997 to 54.19%
over the 1996 level of 56.22%. This was a result of prices
not keeping pace with cost increases, the sale of Tualatin
wines at lower margins and promotional pricing of certain
wines to reduce excess inventory.
1990 41.21
1991 46.37
1992 52.07
1993 55.66
1994 56.40
1995 52.48
1996 56.22
1997 54.19
Distribution of Sales
This chart shows the distribution of sales between wholesale
and retail and individual elements contained in each
element.
Wholesale Retail
Festival 5
Offsite 3
Tasting Room 12
Hospitality 3
Out of State 29
In State 36
Bulk 8
Export 4
Totals 77 23
Number of Oregon Wholesale Accounts
Our winery has expended significant resources to establish
retail and restaurant placements for our wine. Our growth
initially focused on the Willamette Valley, but then
expanded to the Oregon Coast, and more recently into Eastern
and Southern Oregon.
1990 100
1991 700
1992 1100
1993 1200
1994 1395
1995 1450
1996 1550
1997 1600
WVV Out-of-State Sales
WVV has dramatically increased its out-of-state sales in the
past few years. We are now licensed in 39 states and
several foreign countries. Out-of-state wholesale sales
grew at the rate of 73% over 1996.
(in millions)
1991 0.1
1992 0.1
1993 0.2
1994 0.3
1995 0.8
1996 1.1
1997 1.9
WVV Sales Revenue
We continued strong revenue growth in 1997 to $5,714,132 (of
which $465,030 were sales of grapes and juice). This is up
35% from 1996 ($4,235,020). Wholesale sales in Oregon rose
22% in 1997 to an all time high of $2,157,896. Out-of-state
wholesale sales grew at the rate of 73% over 1996 to
$1,934,877.
(in millions)
Retail Wholesale Juice
1990 0.3 .1 0
1991 0.6 .2 0
1992 0.8 1.0 0
1993 1.0 1.3 0
1994 1.3 1.6 0
1995 1.4 2.2 0
1996 1.4 2.9 0
1997 1.4 4.1 .4
Cases Bottled at WVV
Our barrel-aged wines average 10 months in the barrel before
they are bottled and another 6 to 8 months in our cellar
before they are released for sale. The increased cases
bottled in 1997 will assure product available for sale in
1998 and 1999.
(in cases)
1990 5,743
1991 17,796
1992 27,336
1993 39,697
1994 40,208
1995 53,693
1996 63,178
1997 91,793
Wine Inventory at WVV at Cost
A winery's development requires inventory building and
aging. At year end 1997, we had $4,171,027 of inventory at
cost. We insured that inventory for $5,361,724. We insure
our inventory based upon the revenue we expect to derive
from it, less certain bottling and selling costs.
(in millions)
1990 0
1991 0
1992 1.1
1993 1.5
1994 1.5
1995 1.9
1996 2.8
1997 4.2
Oregon Wine Production
Since 1986, Oregon wine production has grown from 592,908
gallons to 1,787,337 in 1997 - an average annual increase of
16.8%
(in millions)
1986 0.6
1987 0.7
1988 0.8
1989 0.9
1990 0.9
1991 1.0
1992 1.1
1993 1.2
1994 1.4
1995 1.5
1996 1.7
1997 1.9
WVV Production Capacity
At Willamette Valley, our structural capacity increased from
104,000 cases to 121,350 cases in 1997. The Company moved
its case goods to a new storage facility which will allow it
to place an additional 750 oak barrels (17,250 cases) in the
former storage area. In April of 1997, the Company added
20,000 additional cases capacity with the purchase of
Tualatin Vineyards.
(in cases)
Production Structural
1990 25,000 25,000
1991 40,000 40,000
1992 65,000 65,000
1993 70,000 70,000
1994 78,000 78,000
1995 80,000 80,000
1996 104,000 104,000
1997 121,250 138,000
(capacity in cases)
Stainless Steel Barrel
1990 20,000 5,000
1991 32,000 8,000
1992 50,000 15,000
1993 50,000 20,000
1994 50,000 28,000
1995 50,000 30,000
1996 64,000 40,000
1997 69,000 52,000
Tons Crushed at WVV
Since the sale of wine has been increasing at an annual rate
of approximately 15% over the last two years, it became
necessary to increase the 1997 harvest levels of particular
varieties to insure that the winery would have sufficient
inventory to meet future sales needs. Nearly 200 tons of
grapes contracted by the company were sold off to reduce its
excess inventory.
(in tons)
1990 206
1991 340
1992 556
1993 633
1994 630 (1)
1995 885
1996 1,290
1997 1,426
(1) 590 tons crushed plus 40 tons equivalent as purchased
bulk wines.
Willamette Valley
Vineyards, Inc.
Report and Financial Statements
December 31, 1997, 1996 and 1995
Willamette Valley Vineyards, Inc.
Index to Financial Statements
Report of Independent Accountants F-1-2
Balance Sheet F-3-4
Statement of Operations F-5
Statement of Shareholders= Equity F-6
Statement of Cash Flows F-7-8
Notes to Financial Statements F-9-26
Report of Independent Accountants
To the Board of Directors and Shareholders of
Willamette Valley Vineyards, Inc.
In our opinion, the accompanying balance sheet and the
related statements of operations, of shareholders' equity
and of cash flows present fairly, in all material
respects, the financial position of Willamette Valley
Vineyards, Inc. at December 31, 1997 and 1996, and the
results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
These financial statements are the responsibility of the
Company's management; our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance
with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made
by management, and evaluating the overall financial
statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Portland, Oregon
March 10, 1998
Willamette Valley Vineyards, Inc.
Balance Sheet
December 31, 1997 and 1996
1997 1996
Assets
Current assets
Cash and cash equivalents $ 13,541 $ 794,885
Accounts receivable, net (Note 3) 820,526 288,905
Income taxes receivable (Note 12 24,436 -
Other receivables 3,122 12,388
Inventories (Note 4) 4,171,027 2,843,053
Prepaid expenses and other
current assets 75,171 94,790
Deferred income taxes (Note 11) 94,813 111,438
Total current assets 5,202,636 4,145,459
Vineyard development costs, net
Notes 1 and 2) 1,506,906 386,605
Property and equipment, net
(Notes 2 and 5 6,859,835 5,421,016
Investments (Note 6) 105,040 115,218
Note receivable (Note 12) 148,448 138,511
Debt issuance costs 122,870 56,896
$ 13,945,735 $ 10,263,705
Liabilities and Shareholders' Equity
Current liabilities:
Line of credit (Note 7) $ 1,517,297 $ 479,626
Current portion of long-term
debt (Note 8) 124,192 97,819
Accounts payable 363,419 117,428
Accrued commissions and
payroll costs 225,297 122,745
Other accrued liabilities 51,511
Income taxes payable 29,148
Grape payables (Note 12) 501,238 551,014
Total current liabilities 2,731,443 1,449,291
Long-term debt (Note 8) 3,920,751 3,072,181
Deferred income taxes (Note 11) 188,275 114,028
Total liabilities 6,840,469 4,635,500
Commitments and contingencies (Note 13)
Shareholders' equity (Note 9):
Common stock, no par value - 10,000,000 shares authorized,
4,231,431 and 3,785,356 shares issued and outstanding at
December 31, 1997 and 1996 6,779,067 5,369,868
Retained earnings 326,199 258,337
Total shareholders' equity 7,105,266 5,628,205
$13,945,735 $10,263,705
Willamette Valley Vineyards, Inc.
Statement of Operations
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
Net revenues:
Winery operations 5,714,132 $ 4,235,020 $ 3,637,721
Cost of goods sold:
Winery operations 2,813,764 1,853,791 1,687,086
Gross margin 2,900,368 2,381,229 1,950,635
Selling, general and
administrative expenses 2,434,867 1,951,120 1,807,430
Income from operations 465,501 430,109 143,205
Other income (expenses):
Interest income 31,296 25,145 18,648
Interest expense (Note 1)(396,118) (214,380) (128,169)
Other income 19,471 28,241 2,408
(345,351) (160,994) (107,113)
Income before income taxes 120,150 269,115 36,092
Income taxes (Note 10) 52,288 98,685 29,768
Net income $ 67,862 $ 170,430 $ 6,324
Basic net income per
common share (Note 1) $ .02 $ .05 $ -
Diluted net income per
common share (Note 1)$ .02 $ .04 $
- -
Willamette Valley Vineyards, Inc.
Statement of Shareholders' Equity
Years Ended December 31, 1997, 1996 and 1995
Retained
Common stock earnings
Shares Dollars (deficit) Total
Balances at
December 31, 1994 3,785,356 $5,369,868 $ 81,583 $5,451,451
Net income - - 6,324 6,324
Balances at
December 31, 1995 3,785,356 5,369,868 258,337 5,628,205
Net income - - 170,430 170,430
Balances at
December 31, 1996 3,785,356 5,369,868 258,337 5,628,205
Stock issuance for
purchase of Tualatin
Valley Vineyard 444,825 1,406,699 - 1,406,699
Stock issuance
for compensation 1,250 2,500 - 2,500
Net income - - 67,862 67,862
Balances at
December 31, 1997 4,231,431 6,7779,067 326,199 7,105,266
Willamette Valley Vineyards, Inc.
Statement of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
Cash flows from
operating activities $ 67,862 $ 170,430 $ 6,324
Net income
Reconciliation of net
income to net cash (used for)
provided by operating activities
Depreciation and
amortization 533,444 377,855 302,971
Deferred income taxes 90,872 39,524 (32,427)
Bad debt expense 44,384 27,382 7,890
Loss on disposition
of assets 895
Changes in assets and liabilities
Accounts receivable (519,198) (184,215) (3,614)
Other receivables 9,266 6,339 (6,219)
Inventories (953,956) (953,005) (356,423)
Prepaid expenses and
other current assets 19,775 (30,579) (18,148)
Notes receivable (9,937) (9,509) 2,127
Accounts payable 90,133 (18,541) (628)
Accrued liabilities 45,741 64,684 (1,783)
Income taxes receivable (24,436) - -
Income taxes payable (29,148) 29,148 (49,602)
Grape payables (49,776) 206,372 133,243
Net cash (used for)
operating activities (684,079) (274,115) (16,289)
Cash flows from investing activities
Additions to property
and equipment (1,101,354) (931,110) (1,067,024)
Vineyard development
expenditures (165,794) (31,943) (31,755)
Cash received (paid)
for investments 10,178 38,675 (38,017)
Payments to acquire Tualatin
Valley Vineyards (684,624) - -
Proceeds from sale of
property and equipment 6,000 - -
Net cash used for
investing activities (1,935,594) (924,378) (1,136,796)
Cash flows from financing activities
Debt issuance costs (74,285) (20,477) (21,068)
Net increase in line
of credit balance 1,037,671 318,326 161,300
Issuance of long-term debt 982,164 1,162,127 1,185,561
Repayments of
long-term debt (107,221) (66,493) (21,613)
Net cash provided by
financing activities 1,838,329 1,393,483 1,304,180
Net (decrease) increase in
cash and cash equivalents (781,344) 194,990 151,095
Cash and cash equivalents
Beginning of year 794,885 599,895 448,800
End of year $ 13,541 $ 794,885 $ 599,895
Willamette Valley Vineyards, Inc.
Notes to Financial Statements
December 31, 1997, 1996 and 1995
1. Summary of Operations, Basis of Presentation and
Significant Accounting Policies
Organization and operations
Willamette Valley Vineyards, Inc. (the Company) owns and
operates vineyards and a winery located in the state of
Oregon, and produces and distributes premium and super
premium wines, primarily pinot noir, chardonnay, and white
riesling. The majority of the Company's wine is sold to
grocery stores and restaurants in the state of Oregon
through the Company's sales force. Out-of-state and foreign
sales represented approximately 33% of revenues. The
Company also sells its wine from the hospitality room at its
winery.
Basis of presentation
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles
which require management to make certain estimates and
assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities as of the
date of the financial statements, and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents include short-term investments
with an original maturity of less than ninety days.
Revenue recognition
The Company recognized revenue upon the delivery of its
products to its customers. Sales are recorded as trade
accounts receivable and no collateral is required.
Inventories
After a portion of the vineyard becomes commercially
productive, the annual crop and production costs relating to
such portion are recognized as work-in-progress inventories.
Such costs are accumulated with related direct and indirect
harvest, wine processing and production costs, and are
transferred to finished goods inventories when the wine is
produced, bottled, and ready for sale. The cost of finished
goods is recognized as cost of sales when the wine product
is sold. Inventories are stated at the lower of cost or
market using the average cost method by variety and vintage
to determine the first-in, first-out (FIFO) cost of
inventories. In accordance with general practices in the
wine industry, wine inventories are included in current
assets in the accompanying balance sheet, although a portion
of such inventories may be aged for more than one year.
Vineyard development costs
Vineyard development costs consist primarily of the costs of
the vines and expenditures related to labor and materials to
prepare the land and construct vine trellises. The costs
are capitalized until the vineyard becomes commercially
productive, at which time annual amortization is recognized
using the straight-line method over the estimated economic
useful life of the vineyard, which is estimated to be 30
years. Accumulated amortization of vineyard development
costs aggregated $116,193 and $74,700 at December 31, 1997
and 1996, respectively.
1. Summary of Operations, Basis of Presentation and
Significant Accounting Policies (Continued)
Property and equipment
Property and equipment are stated at cost or the historical
cost basis of the contributing shareholders, as applicable,
and are depreciated on the straight-line basis over their
estimated useful lives as follows:
Land improvements 15 years
Winery building 30 years
Equipment 5-7 years
Expenditures for repairs and maintenance are charged to
operating expense as incurred. Expenditures for additions
and betterments are capitalized. When assets are sold or
otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any
resulting gain or loss is included in operations.
In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." The Company adopted
the statement in 1996; however, the adoption does not have a
significant impact on the Company's financial position or
results of operations.
Debt issuance costs
Debt issuance costs are amortized on a straight-line basis,
which approximates the effective interest method, over the
life of the debt.
Income taxes
The Company accounts for income taxes using the asset and
liability approach prescribed by Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
Under this approach, deferred income taxes are calculated
for the expected future tax consequences of temporary
differences between the book basis and tax basis of the
Company's assets and liabilities. The Company files stand-
alone federal and state income tax returns.
Basic and diluted net income per share
The Company adopted Statement of Financial Accounting
Standards No. 128 (SFAS 128), "Earnings Per Share," in 1997.
SFAS 128 requires disclosure of basic and diluted earnings
per share. All prior years have been restated to reflect
the adoption of SFAS 128. Basic earnings per share are
computed based on the weighted average number of common
shares outstanding each year. Escrowed shares have been
included in the weighted average number of common shares
outstanding for 1995. Diluted earnings per common share
take into account all dilutive equity instruments.
1997
Weighted
average
shares Earnings
Income outstanding per share
Basic $67,862 4,103,669 $ .02
Options 638
Warrants
_______ __________ _________
Diluted $67,862 4,104,307 $ .02
1996
Weighted
average
shares Earnings
Income outstanding per share
Basic $170,430 3,785,356 $ .05
Options 20,532
Warrants
_______ __________ _________
Diluted $170,430 3,805,888 $ .04
1995
Weighted
average
shares Earnings
Income outstanding per share
Basic $ 6,324 3,785,356 $ -
Options 4,938
Warrants 3,600
______ __________ _________
Diluted $ 6,324 3,793,894
1. Summary of Operations, Basis of Presentation and
Significant Accounting Policies (Continued)
Basic and diluted net income per share (continued)
Options to purchase 161,500, 92,000 and 5,000 shares of
common stock were outstanding at December 31, 1997, 1996 and
1995, respectively, but were not included in the computation
of diluted earnings per share because the options' exercise
price was greater than the average market price of the
common shares. In addition, the warrant outstanding since
1992 (see Note 9) was not included in the computation of
diluted earnings per share in 1997 or 1996 because the
exercise price of $3.42 was greater than the average market
price of the common shares during those two years.
Statement of cash flows
Supplemental disclosure of cash flow information:
1997 1996 1995
Interest paid $ 321,000 $ 197,000 $ 166,000
Income taxes paid 15,000 28,000 112,000
Supplemental schedule of noncash investing
and financing activities
Assets transferred from
related companies 19,279 48,189
Issuance of common stock
awards to employees 2,500
Acquisition of Tualatin Valley, Inc.:
Common stock issued in connection with acquisition
Issued to stockholders
of TVI 1,292,591
Fee to Acquisitions
Northwest, Inc. 114,108
Tangible assets acquired, net of cash paid
Fixed assets 143,376
Vineyard development 996,000
Other assets acquired, net of cash acquired
Accounts receivable 56,807
Inventory 371,518
Prepaids 156
Liabilities assumed
Accounts payable 269,966
Accrued liabilities 5,300
During the year ended December 31, 1995, the Company
capitalized approximately $38,000 of interest related to the
construction of its hospitality center.
Fair market value of financial instruments
The fair market values of the Company's recorded financial
instruments approximate their respective recorded balances,
as the recorded assets and liabilities are stated at amounts
expected to be realized or paid, or carry interest rates
commensurate with current rates for instruments with a
similar duration and degree of risk.
2. Acquisition
On April 15, 1997, Willamette Valley Vineyards, Inc.
(WVV) acquired the assets of Tualatin Vineyards, Inc. (TVI),
a winery located in Oregon, for a purchase price of
$1,824,000, plus TVI's net current assets of $164,601 as of
the closing date. The acquisition was accounted for using
the purchase method of accounting, and the results of
operations include the revenues and expenses generated with
the TVI assets from the acquisition date through December
31, 1997. WVV paid 35 percent of the purchase price in cash
and the balance was paid through the issuance of WVV common
stock.
The following unaudited pro forma information
represents the results of operations of the Company as if
the acquisition had occurred as of January 1, 1996, after
giving effect to increased interest expense for debt issued
related to the acquisition, depreciation based on current
costs, and the effect of the (benefit from) provision for
income taxes.
1997 1996
(unaudited) (unaudited)
Net revenues 5,874,733 4,944,635
Gross margin 2,972,077 2,645,337
Net income (53,395) 38,488
3. Accounts Receivable
Oregon law prohibits the sale of wine in Oregon on credit;
therefore, the Company's accounts receivable balances are
the result of sales to out-of-state and foreign
distributors. Accounts receivable include an outstanding
balance of approximately $185,200 and $80,000 at December
31, 1997 and 1996, respectively, from a European customer to
which extended credit terms have been granted. At December
31, 1997 and 1996, the Company's accounts receivable balance
is net of an allowance for doubtful accounts of $30,000 and
$10,000, respectively.
4. Inventories
Inventories consist of:
1997 1996
Winemaking and packaging materials $ 189,062 $ 87,321
Work-in-process (costs relating
to unprocessed 1,725,910 1,559,612
and/or unbottled wine products)
Finished goods (bottled wine and
related products 2,256,055 1,196,120
$ 4,171,027 $ 2,843,053
5. Property and Equipment
1997 1996
Land and improvements $ 1,031,115 $ 563,077
Winery building and hospitality
center 4,506,344 3,718,733
Equipment 3,263,633 2,576,748
Construction in progress ______ -_ 27,913
8,801,092 6,886,471
Less accumulated depreciation(1,941,257) (1,465,455)
$ 6,859,835 $ 5,421,016
Construction in progress related to the addition of a new
storage tasting and cellaring facility at the Company's
winery which was completed in the Fall of 1997.
6. Investments
Investments consist of:
1997 1996
Oregon Liquor Control Commissions and Bureau
of Alcohol, Tobacco and Firearms $ 88,066 $ 85,163
Farm Credit Securities 15,000 30,055
Other 1,974 ______-
$ 105,040 $ 115,218
The Oregon Liquor Control Commission and the Bureau of
Alcohol, Tobacco and Firearms investments require restricted
short-term investments to cover future excise tax payments.
Farm Credit Securities investments are required as a
condition of the Northwest Farm Credit Service loan and line
of credit facility (see Note 7). These investments are
classified as held-to-maturity investments and are recorded
at historical
cost.
7. Line of Credit Facility
The Company has a $2,000,000 credit facility with Northwest
Farm Credit Services. Borrowings under this facility bear
interest at 8.5%. At December 31, 1997 and 1996, $1,517,297
and $479,626 were outstanding under this facility,
respectively.
8. Long-Term Debt
Long-term debt consists of:
1997 1996
Northwest Farm Credit Services Loan $ 4,044,943 $3,170,000
Less current portion (124,192) (97,819)
$ 3,920,751 $ 3,072,181
The Company entered into an agreement with Northwest Farm
Credit Services (NWFCS) in 1997 containing two separate
notes bearing interest at a rate of 7.96%. These notes
require monthly payments ranging from $10,364 to $16,488
until the notes are fully repaid in 2014. The loan
agreements contain covenants which require the Company to
maintain certain financial ratios and balances. At December
31, 1997, the Company was not in compliance with these
covenants. However, the Company has obtained a letter dated
March 24, 1998 waiving the debt covenants until December 31,
1998.
Future minimum principal payments of long-term debt mature
as follows:
Year ending
December 31,
1998 $ 124,192
1999 180,978
2000 195,763
2001 211,754
2002 229,052
Thereafter 3,103,204
$ 4,044,943
9. Shareholders' Equity
The Company is authorized to issue 10,000,000 shares of its
common stock. Each share of common stock is entitled to one
vote. At its discretion, the Board of Directors may declare
dividends on shares of common stock, although the Board does
not anticipate paying dividends in the foreseeable future.
In addition, in connection with the Company's initial stock
offering, the founding shareholders agreed to place in
escrow certain shares of common stock. All of these shares
have been released as of December 31, 1995.
9. Shareholders' Equity (Continued)
On June 1, 1992, the Company granted its president a warrant
to purchase 15,000 shares of common stock as consideration
for his personal guarantee of the real estate loans and the
line of credit with Northwest Farm Credit Services (see
Notes 7 and 8) The warrant is exercisable through June 1,
2012 at an exercise price of $3.42 per share. As the
warrant exercise price equaled the stock price at the date
of grant, no expense was recorded as a result of this
transaction. As of December 31, 1997, no warrants had been
exercised.
10. Stock Incentive Plan
In 1992, the Board of Directors adopted a stock incentive
plan and reserved 175,000 shares of common stock for
issuance to employees, consultants, and directors of the
Company under the plan. In 1996, the Board of Directors
reserved an additional 150,000 shares. Administration of
the plan, including determination of the number, term, and
type of options to be granted, lies with the Board of
Directors or a duly authorized committee of the Board of
Directors.
At December 31, 1997, 1996 and 1995, the following
transactions related to stock options occurred:
1997 1996 1995
Wtd.. Wtd.. Wtd
Avg Avg Avg
Exercise Exercise
Exercise
Shares Price Shares Price Shares Price
Outstanding at
beginning of year 46,500 $2.87 45,000 $3.72 84,100 $4.58
Granted 100,000 2.63 248,500 2.81 25,000 3.80
Exercised - - - - - -
Forfeited (173,500) 2.66 (47,000) 3.38(64,100) 4.88
Outstanding at
end of year 173,000 $2.94 246,500 $2.87 45,000 $3.72
Weighted average fair value of options granted
during the year $ 1.47 $ 1.87 $2.35
Weighted average options outstanding and exercisable at
December 31, 1997 are as follows:
Options outstanding Options exercisable
Weighted
Number average Weighted Number Weighted
outstanding at remaining average exercisable at average
Exercise December contractual exercise December exercise
price 31, 1997 life price 31, 1997 price
$ 2.50 13,500 8.66 $ 2.50 1,350 2.50
2.75 72,500 6.95 2.75 9,500 2.75
3.00 72,000 5.16 3.00 10,760 3.00
3.62 10,000 2.56 3.62 4,000 3.62
4.50 5,000 2.08 4.50 2,000 4.50
$2.50/4.50 173,000 5.94 2.94 27,610 3.09
10. Stock Incentive Plan (Continued)
The Company adopted Statement of Financial Accounting
Standards No. 123 (SFAS 123) in 1996 and has elected to
account for its stock-based compensation under Accounting
Principles Board Opinion 25. As required by SFAS 123, the
Company has computed for pro forma disclosure purposes the
value of options granted during each of the three years
ended December 31, 1997 using the Black-Scholes option-
pricing model with the following weighted-average
assumptions used for the grants in 1997, 1996 and 1995:
1997 1996 1995
Risk-free interest rate 6.31 % 6.33 % 6.56%
Expected dividend yield - - -
Expected lives 5 years 8.15 years 7.25 years
Expected volatility 57 % 57% 55%
Options were assumed to be exercised upon vesting for
purposes of this valuation. Adjustments are made for
options forfeited prior to vesting. For the years ended
December 31, 1997, 1996 and 1995, the total value of the
options granted was computed to be $146,700, $371,034 and
$58,825, respectively, which would be amortized on a
straight-line basis over the vesting period of the options.
Had compensation cost for the Company's stock option plans
been determined based on the fair value at the grant date
for awards consistent with the provisions of SFAS 123, the
Company's net earnings would have been reduced to the pro
forma amounts indicated as follows:
1997 1996 1995
Net income - as reported $ 67,862 $ 170,430 $ 6,324
Per share:
Basic 0.02 0.05 0.00
Diluted 0.02 0.04 0.00
Net income (loss) - pro forma
41,838 116,786 (1,794)
Per share:
Basic 0.01 0.03 0.00
Diluted 0.01 0.03 0.00
The effects of applying SFAS 123 for providing pro
forma disclosures for the three years ended December 31,
1997 are not likely to be representative of the effects on
reported net income and earnings per share for future years,
because options vest over several years and additional
awards generally are made each year.
11. Income Taxes
The provision for income taxes consists of:
1997 1996 1995
Current tax expense (benefit)
Federal $ - $ 47,197 $ (2,300)
State - 11,964 (359)
- 59,161 (2,659)
Deferred tax (expense):
Federal 46,530 35,032 26,545
State 5,758 4,492 5,882
52,288 39,524 32,427
Total $ 52,288 $ 98,685 $ 29,768
During the year ended December 31, 1996, the Company
utilized its net operating loss carryforwards of
approximately $28,000 to reduce its taxable income.
The effective income tax rate differs from the federal
statutory rate as follows:
Year ended December 31
1997 1996 1995
Federal statutory rate 34.0 % 34.0 % 34.0%
State taxes, net of federal benefit 4.4 4.9 5.9
Utilization of fully reserve
net operating loss carryforwards - - -
Permanent differences 3.8 0.6 41.9
Benefit of federal rate bracket - (2.9) -
Other 1.3 0.1 0.7
43.5 % 36.7 % 82.5%
Deferred tax assets and (liabilities) consist of:
December 31,
1997 1996
Accounts receivable $ 11,508 $ 3,836
Inventory 34,538 103,522
Net operating loss carryforwards 37,888 -
Other 10,879 4,080
Gross deferred tax assets 94,813 111,438
Capital assets (188,275) (114,028)
Gross deferred tax liability (188,275) (114,028)
Net deferred tax (liability) asset $(93,462) $ (2,590)
12. Related Parties
In 1996, the Company began contracting for management
services with Nor'Wester Brewing Company (Nor'Wester) and
Willamette Valley, Inc. (WVI), companies formerly controlled
by the Company's president, under a general services
agreement. Nor'Wester, WVI, and the Company each provided
various administrative services, including design and print
work, and stock offering services to the affiliated
companies, subsidiaries of WVI: Aviator Ales, Inc. (AAI);
Mile High Brewing Company (MHBC); Bayhawk Ales, Inc. (BAI);
and North Country Brewing Company, Inc. (NCBCI). During
1996, total amounts charged to the Company by Nor'Wester and
WVI aggregated $47,025; amounts charged by the Company to
the various affiliated companies aggregated $86,450. As a
result of these and other transactions, the Company had an
aggregate payable balance of $7,221 which is netted against
other receivables in the accompanying balance sheet. During
1997, charges to the Company aggregated $164,716; amounts
charged by the Company aggregated $92,601. Prior to
December 31, 1997, all intercompany transactions ceased and
as of December 31, 1997 all balances are zero.
The Company and one of its two founding shareholders
have entered into a grape purchase contract. Under the
terms of such contract, the founding shareholder agreed to
sell, and the Company agreed to buy, the entire production
of pinot noir, chardonnay, and white riesling wine grapes
from the founding shareholder's separately owned vineyard to
supplement grapes provided by the Company's vineyard. The
contract commenced with the Fall 1989 vineyard harvest and
continued through the 1995 harvest. The contract stipulated
certain standards of quality. The purchase price of the
grapes equaled the average price paid for each variety of
grapes in the Willamette Valley market region each season,
as set forth by certain market surveys. The terms of the
contract also provided for a bonus payable to the founding
shareholder if, and only if, the finished bottle price of
wine produced from the purchased grapes exceeded the Oregon
average bottle price as measured by certain market surveys.
In 1995, the Company purchased grapes for $33,347, pursuant
to the terms of the contract. The founding shareholder sold
his vineyards in November of 1995.
During 1997, 1996 and 1995, the Company purchased
grapes from other shareholders, at an aggregate price of
$262,795, $138,656 and $142,003, respectively. At December
31, 1997, 1996 and 1995, grape payables included $130,893,
$92,706 and $67,161, respectively, owed to these
shareholders.
On December 3, 1992, the Company issued a loan to its
president in the amount of $100,000. The loan was due on
December 3, 1993, bearing interest at 7.35%. On March 14,
1994, the loan was extended to March 14, 2009. The loan is
secured by the common stock of the Company held by its
president. This note, including the related interest
receivable, is classified as a long-term note receivable in
the accompanying balance sheet.
13. Commitments and Contingencies
Operating leases
The Company entered into a lease agreement for
approximately 45 acres of vineyards and related equipment in
1997. The Company is also committed to lease payments for
various office equipment. As of December 31, 1997, the
Company was obligated under various long-term operating
leases requiring future minimum lease payments as follows:
Year ending
December 31
1998 $ 90,519
1999 92,984
2000 92,702
2001 83,827
2002 83,827
Thereafter 335,308
Total minimum payments required $ 779,167
Total rental expense for all operating leases amounted to
$94,827 in 1997.
Susceptibility of vineyards to disease
The Tualatin vineyard purchased during 1997 is known to be
infested with phylloxera, an aphid-like insect which can
destroy vines. Although management has begun planting with
phylloxera-resistant rootstock, a portion of the vines at
the Tualatin vineyard are susceptible to phylloxera. The
Company has not detected any phylloxera at its Turner
vineyard.
WILLAMETTE VALLEY VINEYARDS, INC.
Proxy Ballot
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Willamette Valley Vineyards,
Inc., an Oregon corporation (the "Company"), hereby appoints
James W. Bernau and James L. Ellis, or either of them, with
full power of substitution in each, as proxies to cast all
votes which the undersigned shareholder is entitled to cast
at the Annual Meeting of Shareholders (the "Annual Meeting")
to be held on Saturday, July 25, 1998, at 5:00 p.m., local
time, at Willamina, Oregon in the Banquet Room of Legends at
Spirit Mountain Casino and any adjournments or postponements
thereof upon the following matters:
1. Election of seven directors each for a one-year term.
FOR the nominees WITHHOLD AUTHORITY
listed below to vote for all
(except as indicated below) nominees listed below
____ ____
| | | |
|____| |___|
NOMINEES:
James W. Bernau * James L. Ellis * Delna L. Jones
William H. Malkmus * Betty M. O'Brien * Daniel S. Smith
Stan G. Turel
Instruction: To withhold authority to vote for any nominee,
write that nominee's name(s) in this space:
__________________________________________________________
2. Approval of Amendments to Company's 1992 Stock
Incentive Plan.
FOR AGAINST ABSTAIN
_____ _____ _____
3. Ratification of appointment of Price Waterhouse,
LLP as auditors.
FOR AGAINST ABSTAIN
_____ _____ _____
4. In their discretion, the proxies are authorized
to vote upon such other matters as may properly come before
the meeting or any adjournments or postponements thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER.
UNLESS DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR"
THE ELECTION OF THE NOMINEES LISTED IN PROPOSAL 1, FOR
PROPOSAL 2, 3, 4 AND IN ACCORDANCE WITH THE RECOMMENDATIONS
OF A MAJORITY OF THE BOARD OF DIRECTORS AS TO OTHER MATTERS.
The undersigned hereby acknowledges receipt of the Company's
Proxy Statement and hereby revokes any proxy or proxies
previously given.
Please sign below exactly as your name appears on your Stock
Certificate. If shares are registered in more than one
name, the signatures of all such persons are required. A
corporation should sign in its full corporate name by a duly
authorized officer, stating his/her title. Trustees,
guardians, executors and administrators should sign in their
official capacity, giving their full title as such. If a
partnership, please sign in the partnership name by
authorized person(s).
If you receive more than one Proxy Ballot, please sign and
return all such ballots in the enclosed envelope.
PLEASE SIGN, DATE AND RETURN THIS PROXY BALLOT TODAY, USING
THE ENCLOSED ENVELOPE. THIS PROXY MAY BE REVOKED AT ANY TIME
BY YOU BEFORE IT IS VOTED AT THE ANNUAL MEETING.
____________________________ ____________________________
Typed or Printed Name Date Typed or Printed Name Date
_____________________________ ____________________________
Authorized Signature Authorized Signature
_____________________________ ____________________________
Title or authority, Title or authority,
if applicable if applicable
