<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 March 30, 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
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 May 10, 1996 3,775,555
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GEERLINGS & WADE, INC.
INDEX
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<CAPTION>
Page
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Balance Sheets at December 31, 1995 and
March 30, 1996 (Unaudited)........................................... 2
Statements of Operations for the Quarters Ended March 31, 1995
and March 30, 1996 (Unaudited)....................................... 3
Statements of Cash Flows for the Quarters Ended March 31, 1995
and March 30, 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 5. Other Information.................................................... 8
SIGNATURES............................................................................. 9
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1
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GEERLINGS & WADE, INC.
BALANCE SHEETS
(Unaudited)
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<CAPTION>
December 31, March 31,
1995 1996
------------- -------------
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 809,828 $ 313,571
Accounts receivable 61,970 72,579
Inventory 12,033,565 10,799,952
Prepaid mailing costs 800,088 1,060,769
Prepaid expenses 407,848 317,386
Refundable income taxes 798,634 431,622
Deferred income taxes 348,000 427,912
----------- -----------
Total Current Assets 15,259,933 13,423,791
----------- -----------
PROPERTY AND EQUIPMENT, AT COST 1,919,328 1,957,665
Less--Accumulated Depreciation 598,944 702,617
----------- -----------
1,320,384 1,255,048
----------- -----------
OTHER ASSETS 136,234 129,453
----------- -----------
$16,716,551 $14,808,292
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 3,015,412 $ 2,193,634
Accounts payable 2,785,527 2,161,824
Deferred revenue 415,114 154,520
Accrued expenses 349,883 201,364
----------- -----------
Total Current Liabilities 6,565,936 4,711,342
----------- -----------
DEFERRED REVENUE, LESS CURRENT PORTION 417,637 479,087
----------- -----------
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 37,752 37,755
shares in 1995 and 1996,
respectively
Additional paid-in capital 9,705,327 9,709,364
Retained earnings (deficit) (10,101) (129,256)
----------- -----------
Total Stockholders' Equity 9,732,978 9,617,863
----------- -----------
$16,716,551 $14,808,292
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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GEERLINGS & WADE, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
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<CAPTION>
Quarter Ended
March 31, March 30,
1995 1996
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Sales $6,659,589 $7,670,107
Cost of Sales 3,529,247 4,210,068
---------- ----------
Gross Profit 3,130,342 3,460,039
Selling, general and administrative expenses 2,591,099 3,583,388
---------- ----------
Income (loss) from operations 539,243 (123,349)
Interest income (expense), net 43,098 (74,806)
---------- ----------
Income (loss) before income taxes 582,341 (198,155)
Provision (benefit) for income taxes 209,647 (79,000)
---------- ----------
Net income (loss) $ 372,694 $ (119,155)
========== ==========
Net income (loss) per share $ 0.10 $ (0.03)
========== ==========
Weighted average common shares
outstanding 3,765,000 3,776,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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GEERLINGS & WADE, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
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<CAPTION>
Quarter Ended
March 31, March 31,
1995 1996
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CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 372,698 $ (119,155)
Adjustments to reconcile net income to net cash used in
operating activities --
Depreciation and amortization 67,043 103,673
Deferred income taxes -- (79,912)
Changes in current assets and liabilities --
Accounts receivable (85,279) (10,609)
Inventory (1,713,474) 1,233,613
Prepaid mailing costs (669,017) (260,681)
Prepaid expenses (151,331) 90,462
Refundable income taxes -- 367,012
Accounts payable 539,549 (623,703)
Deferred revenue 37,920 (199,144)
Accrued expenses 104,037 (148,519)
----------- ----------
Net cash provided by (used in) operating activities (1,497,834) 353,037
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (188,122) (38,337)
Change in other assets (17,646) 6,781
----------- ----------
Net cash used in investing activities (205,768) (31,556)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit -- (821,778)
Proceeds from stock option plans 15,251 4,040
----------- ----------
Net cash provided by (used in) financing activities 15,251 (817,738)
----------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,688,101) (496,257)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,132,756 809,828
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,444,655 $ 313,571
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period -
State Income Taxes $ 84,550 $ --
=========== ==========
Interest $ -- $ 80,222
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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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 quarter ended March
30, 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
---------------------------
Net income (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the period.
Common stock equivalents, which are calculated using the treasury stock method,
are included in the computation of weighted averages common shares outstanding
when their effect upon earnings per share is dilutive.
5
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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 maintains
licensed facilities in 13 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 plan 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 assurances can be given
that the results in such forward-looking statements will be achieved. Important
factors that 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 Securities and Exchange
Commission.
Quarters Ended March 31, 1995 and March 30, 1996
Sales
Sales increased $1,010,000, or 15%, from $6,660,000 in the quarter
ended March 31, 1995 to $7,670,000 in the quarter ended March 30, 1996. The
increase in sales resulted primarily from further penetration of markets in
which the Company has been open one year or less, while sales in markets open
longer than one year increased 2% over sales in the comparable fiscal 1995
quarter. The number of twelve-bottle equivalent cases ("cases") sold by the
Company increased by 1518, or 2.5%, from 61,290 in the quarter ended March 31,
1995 to 62,808 in the quarter ended March 30, 1996. During the first quarter of
1996, the average case price was $122.12, an increase of $13.47, or 11 %, from
the average case price of $108.65 in the same period in 1995. The average case
price increase is the result of increased sales to existing customers (defined
as buyers within the preceding 12 month period) and sales of higher priced
wines. The average number of cases purchased per customer increased from 1.16 in
the quarter ended March 31, 1995 to 1.35 in the quarter ended March 30, 1996,
primarily due to increased sales generated by existing customers.
Gross Profit
Gross profit increased $330,000, or 11%, from $3,130,000 in the quarter
ended March 31, 1995 to $3,460,000 in the quarter ended March 30, 1996. Gross
profit as a percentage of sales decreased from 47.0% in the quarter ended March
31, 1995 to 45.1% in the quarter ended March 30, 1996. Average gross profit per
case increased $4.84, or 9.5%, from $51.07 in the quarter ended March 31, 1995
to $55.91 in the quarter ended March 30, 1996. The decrease in gross margin
percentage resulted primarily from sales of higher priced wines which 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 $992,000, or
38%, from $2,591,000 in the quarter ended March 31, 1995 to $3,583,000 in the
quarter ended March 30, 1996, while increasing as a percentage of sales from
38.9% in the quarter ended March 31, 1995 to 46.7% in the quarter ended March
30, 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 a larger customer base, and expenses associated
with operations in the five new markets served by the Company for the full
fiscal quarter ended March 30, 1996.
Interest
Net interest expense increased $118,000 from income of $43,000 in the
quarter ended March 31, 1995 to net interest expense of $75,000 in the quarter
ended March 30, 1996. The increase in net interest expense was due to
borrowings under the Company's line of credit in the first quarter of 1996.
6
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Provision (Benefit) for Income Taxes
The Company's provision (benefit) for income taxes for the quarter
ended March 30, 1996 reflects a 40% effective income tax rate anticipated for
the full year ended December 31, 1996. In the quarter ended March 31, 1995, the
Company's effective income tax rate was 36% as a result of anticipated tax
benefits from municipal bond interest income. During the quarter ended March 30,
1996, the Company recorded deferred income tax benefit of $79,000. Deferred
income taxes as of March 30, 1996 relate to the net operating loss for the
current quarter and other temporary differences which will reduce the Company's
future tax obligations. The Company carries no valuation allowance as of March
30, 1996.
Liquidity and Capital Resources
The Company's primary capital needs are funding the cost of prospect
mailings, purchases of inventory, and increased personnel costs to support
sales growth. As of March 30, 1996, the Company had cash and cash equivalents
totaling $314,000. In addition, the Company has a credit facility with The First
National Bank of Boston ("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 March 30, 1996, $2,194,000
was outstanding under the Line of Credit.
During the quarter ended March 30, 1996, net cash of $353,000 was
provided by operating activities, resulting from lower levels of inventory
offset by reductions in accounts payable and accrued expenses.
Net cash of $32,000 was used for investing activities, representing
primarily computer and telephone systems enhancements. Net cash of $818,000 was
used for financing activities, primarily related to repayment of line of credit
borrowings.
At December 31, 1995 and March 30, 1996, the Company had working
capital of $8,694,000 and $8,712,000, respectively. The increase in working
capital resulted primarily from decrease in inventories from $12,034,000 to
$10,800,000, offset by reductions in line of credit borrowings by $822,000 and
other current liabilities by $1,033,000.
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 engages in certain currency-exchange 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 maintains two
separate foreign exchange lines with the Bank of Boston and The Chase Manhattan
Bank (formally Chemical Bank), each of which allows the Company to enter into
forward currency exchange contracts of up to $500,000 maturing on any one day.
As of March 30, 1996, the Company had no foreign exchange contracts outstanding.
7
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PART II. OTHER INFORMATION
Item 5. Other Information
On May 3, 1996, the Company announced that a search has commenced for a
successor to Phillip D. Wade, President and Chief Executive Officer. Following
the appointment of his successor, Mr. Wade is expected to serve in an advisory
capacity for an interim period and will continue as a member of the Board of
Directors.
8
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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 Executive Officer
Dated: May 10, 1996
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-30-1996
<CASH> 313,571
<SECURITIES> 0
<RECEIVABLES> 72,579
<ALLOWANCES> 0
<INVENTORY> 10,799,952
<CURRENT-ASSETS> 13,423,791
<PP&E> 1,957,665
<DEPRECIATION> 702,617
<TOTAL-ASSETS> 14,808,292
<CURRENT-LIABILITIES> 4,711,342
<BONDS> 0
0
0
<COMMON> 37,755
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,808,292
<SALES> 7,670,107
<TOTAL-REVENUES> 7,670,107
<CGS> 4,210,068
<TOTAL-COSTS> 3,583,388
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74,806
<INCOME-PRETAX> (198,155)
<INCOME-TAX> (79,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (119,155)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
