<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 29, 1996
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-24048
GEERLINGS & WADE, INC.
(Exact name of registrant as specified in its charter)
------------------------------------------------------
MASSACHUSETTS 04-2935863
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
960 TURNPIKE STREET, CANTON, MA 02021
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (617) 821-4152
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Par Value Date Number of Shares
--------- ---- ----------------
Common Stock $ .01 August 12, 1996 3,775,555
<PAGE>
GEERLINGS & WADE, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at December 31, 1995 and
June 29, 1996 (Unaudited)................. 2
Statements of Operations for the Quarters
Ended June 30, 1995 and June 29, 1996 and
for the Two Quarter Periods Ended June 30,
1995 and June 29, 1996 (Unaudited)........ 3
Statements of Cash Flows for the Two
Quarter Periods Ended June 30, 1995
and June 29, 1996 (Unaudited)............. 4
Notes to Financial Statements............. 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations............................. 6
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Stockholders..................... 9
SIGNATURES.................................................. 10
</TABLE>
1
<PAGE>
PART 1. FINANCIAL STATEMENTS
Item 1. Financial Statements
GEERLINGS & WADE, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, June 29,
1995 1996
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 809,828 $ 403,876
Accounts receivable 61,970 339,679
Inventory 12,033,565 10,809,088
Prepaid mailing costs 800,088 837,593
Prepaid expenses 407,848 335,223
Refundable income taxes 798,634 203,681
Deferred income taxes 348,000 511,912
----------- -----------
Total Current Assets 15,259,933 13,441,052
----------- -----------
PROPERTY AND EQUIPMENT, AT COST 1,919,328 2,299,837
Less--Accumulated Depreciation 598,944 812,182
----------- -----------
1,320,384 1,487,655
----------- -----------
OTHER ASSETS 136,234 156,428
----------- -----------
$16,716,551 $15,085,135
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 3,015,412 $ 2,538,343
Accounts payable 2,785,527 2,009,082
Deferred revenue 415,114 169,812
Accrued expenses 349,883 359,405
----------- -----------
Total Current Liabilities 6,565,936 5,076,642
----------- -----------
DEFERRED REVENUE, LESS CURRENT PORTION 417,637 516,439
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value -
Authorized-1,000,000 shares
Outstanding-none
Common stock, $.01 par value-
Authorized-10,000,000 shares
Issued and
outstanding-3,775,243 and
3,775,555 shares in 1995
and 1996, respectively 37,752 37,755
Additional paid-in capital 9,705,327 9,709,370
Retained earnings (deficit) (10,101) (255,071)
----------- -----------
Total Stockholders' Equity 9,732,978 9,492,054
----------- -----------
$16,716,551 $15,085,135
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
GEERLINGS & WADE, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Two Quarter Period Ended
June 30, June 29, June 30, June 29,
1995 1996 1995 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $7,232,728 $7,189,882 $13,892,317 $14,859,989
Cost of Sales 3,859,637 3,857,028 7,388,884 8,067,096
---------- ---------- ----------- -----------
Gross Profit 3,373,091 3,332,854 6,503,433 6,792,893
Selling, general and administrative
expenses 2,934,607 3,484,825 5,525,706 7,068,213
---------- ---------- ----------- -----------
Income (loss) from operations 438,484 (151,971) 977,727 (275,320)
Interest income 22,210 --- 65,308 ---
Interest expense --- (57,844) --- (132,650)
---------- ---------- ----------- -----------
Income (loss) before income taxes 460,694 (209,815) 1,043,035 (407,970)
Provision (benefit) for income taxes 182,470 (84,000) 392,113 (163,000)
---------- ---------- ----------- -----------
Net income (loss) $ 278,224 $ (125,815) $ 650,922 $ (244,970)
========== ========== =========== ===========
Net income (loss) per share $0.07 $(0.03) $0.17 $(0.06)
========== ========== =========== ===========
Weighted average common shares 3,782,235 3,775,555 3,773,267 3,775,555
outstanding ========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
GEERLINGS & WADE, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Two Quarter Period Ended
June 30, June 29,
1995 1996
------------ ------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 650,922 $ (244,970)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities --
Depreciation and amortization 119,904 279,814
Deferred income taxes --- (163,000)
Changes in current assets and
liabilities --
Accounts receivable (63,243) (277,709)
Inventory (3,883,667) 1,224,477
Prepaid mailing costs (1,420,429) (37,505)
Prepaid expenses (129,014) 6,049
Refundable income taxes --- 594,041
Accounts payable 1,595,904 (776,445)
Deferred revenue 121,317 (146,500)
Accrued expenses 54,337 9,522
----------- -----------
Net cash provided by
(used in) operating
activities (2,953,969) 467,774
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, (398,864) (380,509)
net
Change in other assets (14,924) (20,194)
----------- -----------
Net cash used in investing
activities (413,788) (400,703)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit --- 4,980,431
Repayments on line of credit --- (5,457,500)
Proceeds from stock purchase plan 286,974 4,046
----------- -----------
Net cash provided by (used
in) financing activities 286,974 (473,023)
----------- -----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (3,080,783) (405,952)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 5,132,756 809,828
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,051,973 $ 403,876
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period -
Interest $ --- $ 139,432
=========== ===========
ITEMS NOT AFFECTING CASH FLOWS:
Income tax benefit of stock option
exercises $ 59,862 $ ---
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
- - -------------------------
The interim period information set forth in these financial statements is
unaudited and may be subject to normal year end adjustments. In the opinion of
management, the information reflects all adjustments, which consist of normal
recurring accruals that are considered necessary to present a fair statement of
the results of operations of Geerlings & Wade, Inc. (the "Company") for the
interim periods presented. The operating results for the one and two quarter
periods ended June 29, 1996 are not necessarily indicative of the results to be
expected for the fiscal year ending December 31, 1996.
The financial statements presented herein should be read in conjunction with the
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995. Certain information in these footnote
disclosures normally included in financial statements has been condensed or
omitted in accordance with the rules and regulations of the Securities and
Exchange Commission.
2. Net Income (Loss) per Share Data
--------------------------------
Net income (loss) per share is computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the period. Common stock equivalents, which are calculated
using the treasury stock method, are included in the computation of weighted
average common shares outstanding when their effect upon earnings per share is
dilutive.
3. Inventory Returns
-----------------
Certain prepaid Grand Cru Bordeaux wines held by french suppliers were returned
for credit. Accounts receivable at June 29, 1996 includes $247,000 related to
such transactions.
4. Certain Relationships and Related Transactions
----------------------------------------------
The Company has a credit facility (the "Credit Facility") with The First
National Bank of Boston ("Bank of Boston"). One of the Company's outside
directors is employed as a senior executive with Bank of Boston. The Company
believes that the Credit Facility provides terms no more or less favorable than
terms that may otherwise be offered by other lending institution.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Geerlings & Wade, Inc. (the "Company") is a direct marketer of premium
wines and wine-related merchandise to retail consumers. The Company currently
maintains licensed facilities in thirteen states. Federal, state and local laws
strictly govern the sale of wine in each market served by the Company.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
The Company may occasionally make forward-looking statements and estimates
such as forecasts and projections of the Company's future performance or
statements of management's plans and objectives. These forward-looking
statements may be contained in SEC filings, press releases and oral statements,
among others, made by the Company. Actual results could differ materially from
those in such forward-looking statements. Therefore, no assurance can be given
that the results in such forward-looking statements will be achieved. Important
factors could cause the Company's actual results to differ from those contained
in such forward-looking statements, include, among other things, the factors
mentioned in Exhibit 99 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 on file with the Security and Exchange Commission.
QUARTERS ENDED JUNE 30, 1995 AND JUNE 29, 1996
Sales
Sales decreased $43,000 or 0.6% from $7,233,000 in the quarter ended June
30, 1995 to $7,190,000 in the quarter ended June 29, 1996. The decrease in sales
from the prior year comparative quarter was caused by a 7.0% decrease in sales
derived from house mailings resulting from lower response rates, net of a 79.0%
increase in sales generated from prospect mailings resulting from improved
response rates and a higher average order size. Sales declined 7.2% in markets
in which the Company has been open longer than one year, while sales increased
130.7% in markets open one year or less. The net decline in sales in markets
open greater than one year is primarily the result of lower response to house
mailings in certain markets. The number of twelve-bottle equivalent cases
("cases") sold by the Company decreased by 4,500 or 6.8% from 66,100 in the
quarter ended June 30, 1995 to 61,600 in the quarter ended June 29, 1996. The
average case price increased by $8.34 or 7.8%, from $107.08 in the quarter ended
June 30, 1995 to $115.42 in the quarter ended June 29, 1996. The average case
price increase resulted from price increases and, in general, increased sales of
higher priced wines in comparison to the same fiscal quarter of 1995. The
average number of cases purchased per customer was 1.51 in the quarter ended
June 30 ,1995, unchanged from the comparable fiscal quarter of 1996.
Gross Profit
Gross profit decreased $40,000, or 1.2%, from $3,373,000 in the quarter
ended June 30, 1995 to $3,333,000 in the quarter ended June 29, 1996. Gross
profit as a percentage of sales decreased from 46.6% in the quarter ended June
30, 1995 to 46.4% in the quarter ended June 29, 1996. Gross profit per case
increased $3.07 or 6.0%, from $51.03 in the quarter ended June 30, 1995 to
$54.10 in the quarter ended June 29, 1996. The decrease in gross margin
percentage resulted primarily from increased sales of higher priced wines which
generally produce a lower gross margin percentage. Average gross margin per
case increased as a result of the increase in the average selling price per
case.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $550,000, or 18.7%,
from $2,935,000 in the quarter ended June 30, 1995 to $3,485,000 in the quarter
ended June 29, 1996, while increasing as a percentage of sales from 40.6% in the
quarter ended June 30, 1995 to 48.5% in the quarter ended June 29, 1996. The
increase in selling, general and administrative expenses is attributable to
increased payroll costs due to the hiring of additional personnel required to
support existing sales levels, and expenses associated with operations in
thirteen markets during the fiscal quarter ended June 29, 1996, compared to
operations in ten markets during the fiscal quarter ended June 30, 1995.
Interest
Interest income of $22,000 was generated in the quarter ended June 30, 1995
as a result of invested cash and cash equivalents. Interest expense of $58,000
was incurred in the quarter ended June 29, 1996 as a result of borrowings under
the Company's line of credit.
6
<PAGE>
TWO QUARTER PERIODS ENDED JUNE 30, 1995 AND JUNE 29, 1996
Sales
Sales increased $968,000 or 7.0%, from $13,892,000 in the two quarter
period ended June 29, 1995 to $14,860,000 in the two quarter period ended June
29, 1996. The increase in sales from the prior year comparative period was
caused by a 6.0% increase in sales derived from house mailings resulting from a
higher average case price which offset lower response rates, and a 13.0%
increase in sales generated from prospect mailings resulting from improved
response rates and a higher average order size. Sales declined 3.0% in markets
open longer than one year, while sales increased 136.7% in markets open one year
or less. The net decline in sales in markets open greater than one year is
primarily the result of lower response to house mailings in certain markets. The
number of cases sold by the Company decreased by 3,000, or 2.4%, from 127,400 in
the two quarter period ended June 30, 1995 to 124,400 in the two quarter period
ended June 29, 1996. The average case price increased by $11.24 or 10.5%, from
$106.80 in the two quarter period ended June 30, 1995 to $118.04 in the two
quarter period ended June 29, 1996. The average case price increase resulted
from price increases and, in general, increased sales of higher priced wines in
comparison to the same fiscal period of 1995. The average number of cases
purchased per customer decreased from 1.81 in the two quarter period ended June
30, 1995 to 1.79 in the two quarter period ended June 29, 1996.
Gross Profit
Gross profit increased $290,000 or 4.4%, from $6,503,000 in the two quarter
period ended June 30, 1995 to $6,793,000 in the two quarter period ended June
29, 1996. Gross profit as a percentage of sales decreased from 46.8% in the two
quarter period ended June 30, 1995 to 45.7% in the two quarter period ended June
29, 1996. Gross profit per case increased $3.55, or 7.0%, from $51.05 in the
two quarter period ended June 30, 1995 to $54.60 in the quarter ended June 29,
1996. The decrease in gross margin percentage resulted primarily from sales of
higher priced wines which generally produce a lower gross margin percentage.
Average gross margin per case increased as a result of the increase in the
average selling price per case.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $1,542,000 or 27.9%,
from $5,526,000 in the two quarter period ended June 30, 1995 to $7,068,000 in
the two quarter period ended June 29, 1996, while increasing as a percentage of
sales from 39.8% in the two quarter period ended June 30, 1995 to 47.6% in the
two quarter period ended June 29, 1996. The increase in selling, general and
administrative expenses is attributable to increased payroll costs due to the
hiring of additional personnel required to support existing sales levels, and
expenses associated with operations in thirteen markets during the two fiscal
quarters ended June 29, 1996, compared to operations in ten markets during the
two fiscal quarters ended June 30, 1995.
Interest
Interest income of $65,000 was generated in the two quarter period ended
June 30, 1995 as a result of invested cash and cash equivalents. Interest
expense of $133,000 was incurred in the two quarter period ended June 29, 1996
as a result of borrowings under the Company's line of credit.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
PROVISION FOR INCOME TAXES
The Company's provision (benefit) for income taxes for the two quarter
period ended June 29, 1996 reflects a 40% effective income tax rate anticipated
for the full year ended December 31, 1996. In the two quarter period ended June
30, 1995, the Company's effective income tax rate was 36% as a result of
anticipated tax benefits from municipal bond interest income. During the two
quarter period ended June 29, 1996, the Company recorded deferred income tax
benefit of $163,000. Deferred income taxes as of June 29, 1996 relate to the
net operating loss for the current two quarters and other temporary differences
which will reduce the Company's future tax obligations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary working capital needs continue to be funding the cost
of prospect mailings and purchases of inventory, and increased personnel costs
to support sales growth. As of June 29, 1996, the Company had cash and cash
equivalents totaling $404,000. In addition, the Company has a credit facility
with Bank of Boston comprised of a revolving discretionary demand line of credit
in the maximum principal amount equal to the lesser of 50% of qualifying
inventory or $5.0 million (the "Line of Credit"). The Line of Credit bears
interest at the Bank of Boston's base rate (which approximates the prime rate)
plus one-quarter percent, and is collateralized by substantially all of the
assets of the Company. As of June 29, 1996, $2,538,343 was outstanding under
the Line of Credit. On June 1, 1996, the Line of Credit was renewed on its
existing terms through May 31, 1997.
During the quarter ended June 29, 1996, net cash of $467,774 was provided
by operating activities, resulting principally from reductions of inventories
and accounts payable.
Net cash of $400,703 was used for investing activities, representing
primarily investments in leasehold improvements and
computer systems. Net cash of $473,023 was used for financing activities,
primarily related to net repayments of line of credit borrowings.
At December 31, 1995 and June 29, 1996, the Company had working capital of
$10,377,000 and $8,364,000, respectively. The decrease in working capital was
primarily due to the decrease in inventories from $12,034,000 to $10,809,000,
offset by reductions in line of credit borrowings and other current liabilities
of $477,000 and $1,012,000, respectively.
The Company presently believes that cash flows from operations and current
cash balances, together with the Line of Credit, will be sufficient to meet the
Company's working capital and capital expenditure requirements for the
foreseeable future.
EXCHANGE RATES
The Company often engages in currency-hedging activities related to firm
commitments for the purchase of inventories in an effort to fix costs and manage
the impact of exchange rate fluctuations. The Company has two foreign exchange
lines of credit which allow the Company to enter into forward currency exchange
contracts of up to $1,000,000 maturing on any one day. As of June 29, 1996, the
Company had no obligations in respect of forward currency exchange contracts.
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on May 14, 1996, a total of
3,238,894 shares of common stock or 94.93% of the total outstanding shares were
voted in the following manner:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NO VOTE
<S> <C> <C> <C> <C>
To elect Phillip D. Wade and James
Curvey as Directors for the three year
terms ending in 1999 3,437,175 - 146,976 -
To amend section 4(a) of the Company's
Stock Option Plan to allow for shares
subject to terminated or unexercised
awards to be available for future
grants 3,286,890 177,621 15,600 104,040
To ratify the appointment of Arthur
Andersen LLP as independent auditors
of the Company. 3,558,940 15,111 9,950 150
</TABLE>
The terms of office as a director of Messrs. Huib E. Geerlings, William
J. Shea and Robert Webb continued after the Annual Meeting.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GEERLINGS & WADE, INC.
(Registrant)
By: /s/ Peter F. McAree
-----------------------------
Name: Peter F. McAree
Title: Vice-President and Chief
Financial Officer
Dated: August 12, 1996
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-29-1996
<CASH> 403,876
<SECURITIES> 0
<RECEIVABLES> 339,679
<ALLOWANCES> 0
<INVENTORY> 10,809,088
<CURRENT-ASSETS> 13,441,052
<PP&E> 2,299,837
<DEPRECIATION> 812,182
<TOTAL-ASSETS> 15,085,135
<CURRENT-LIABILITIES> 5,076,642
<BONDS> 0
0
0
<COMMON> 37,755
<OTHER-SE> 9,454,299
<TOTAL-LIABILITY-AND-EQUITY> 15,085,135
<SALES> 14,859,989
<TOTAL-REVENUES> 14,859,989
<CGS> 8,067,096
<TOTAL-COSTS> 7,068,213
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 132,650
<INCOME-PRETAX> (407,970)
<INCOME-TAX> (163,000)
<INCOME-CONTINUING> (244,970)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (244,970)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
