-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OKJUo9ol2n2PkwPjkMwNbPkHcnhzmLaj36h2v37a4WM1Swgf8/dxW6jz5kqKzQFl AdPGMrZ7wf2Sd/Dq0vrzSw== /in/edgar/work/0000950005-00-001129/0000950005-00-001129.txt : 20001115 0000950005-00-001129.hdr.sgml : 20001115 ACCESSION NUMBER: 0000950005-00-001129 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RAVENSWOOD WINERY INC CENTRAL INDEX KEY: 0000937015 STANDARD INDUSTRIAL CLASSIFICATION: [2080 ] IRS NUMBER: 943026706 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-30002 FILM NUMBER: 764596 BUSINESS ADDRESS: STREET 1: 18701 GEHRICKE RD STREET 2: SUITE 308 CITY: SONOMA STATE: CA ZIP: 95476 MAIL ADDRESS: STREET 1: 18701 GEHRICKE RD CITY: SONOMA STATE: CA ZIP: 95476 10QSB 1 0001.txt FORM 10QSB ================================================================================ SECURITIES & EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to ___________________ Commission file number: 0-30002 RAVENSWOOD WINERY, INC. (Exact Name of Small Business Issuer as Specified in its Charter) California 94-3026706 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 18701 Gehricke Road Sonoma, California 95476 (Address of Principal Executive Offices) (Zip Code) Issuer's Telephone Number: 707-938-1960 Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares outstanding of the Issuer's Common Stock on November 8, 2000 was 4,870,179. Transitional Small Business Disclosure Format: Yes [ ] No [X] ================================================================================ RAVENSWOOD WINERY, INC. PART I. FINANCIAL INFORMATION
Page ---- ITEM 1. FINANCIAL STATEMENTS Balance Sheets as of September 30, 2000 and June 30, 2000. 2 Statements of Income for the three months ended September 30, 2000 and 1999. 3 Statements of Cash Flows for the three months ended September 30, 2000 and 1999. 4 Notes to Financial Statements. 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 20 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
1 RAVENSWOOD WINERY, INC. PART I. FINANCIAL INFORMATION Item 1. Financial Statements RAVENSWOOD WINERY, INC. BALANCE SHEET September 30, June 30, 2000 2000 ----------- ----------- ASSETS (unaudited) Current assets: Cash and cash equivalents $ 6,476,433 $ 5,769,373 Accounts receivable, less allowance of $10,000 5,418,219 4,166,816 Inventories 26,184,699 20,521,284 Prepaid income taxes -- 277,500 Prepaid expenses 66,893 100,131 ----------- ----------- Total current assets 38,146,244 30,835,104 Property, plant and equipment, net 14,648,575 14,787,553 Deferred tax assets 52,000 180,000 Note receivable from shareholder 310,000 310,000 Other assets 65,195 60,433 ----------- ----------- $53,222,014 $46,173,090 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 57,011 $ 83,597 Current portion of capital lease obligations 594,912 617,979 Short-term borrowings -- 500,000 Accounts payable 8,025,565 3,217,036 Income taxes payable 614,500 Accrued commissions 594,185 514,379 Accrued liabilities 470,705 390,010 ----------- ----------- Total current liabilities 10,356,878 5,323,001 Long-term liabilities: Long-term debt, net 6,921,852 6,453,407 Capital lease obligations, net 2,378,061 2,392,497 Convertible debentures 1,687,500 1,687,500 ----------- ----------- Total liabilities 21,344,291 15,856,405 ----------- ----------- Shareholders' equity: Preferred stock, no par value; 1 million shares authorized, none issued -- -- Common stock, no par value; 20 million shares authorized, 4,858,929 and 4,856,779 issued and outstanding 15,076,947 15,054,373 Retained earnings 16,691,200 15,176,560 Unrealized gain on available-for-sale securities 109,576 85,752 ----------- ----------- Total shareholders' equity 31,877,723 30,316,685 ----------- ----------- $53,222,014 $46,173,090 =========== =========== See accompanying notes to financial statements.
2 RAVENSWOOD WINERY, INC. STATEMENT OF INCOME (UNAUDITED) Three months ended September 30, ----------------------------- 2000 1999 ----------- ----------- Gross sales $ 9,606,953 $ 8,288,976 Less excise taxes 331,044 334,645 Less discounts, returns and allowances 378,084 262,148 ----------- ----------- Net sales 8,897,825 7,692,183 Cost of goods sold 4,032,631 3,463,418 ----------- ----------- Gross profit 4,865,194 4,228,765 Operating expenses 2,217,459 1,739,850 ----------- ----------- Operating income 2,647,735 2,488,915 ----------- ----------- Other income (expense): Interest expense (257,730) (123,766) Other, net 144,635 85,796 ----------- ----------- (113,095) (37,970) ----------- ----------- Income before tax provision 2,534,640 2,450,945 Provision for income taxes 1,020,000 953,130 ----------- ----------- Net income $ 1,514,640 $ 1,497,815 =========== =========== Earnings per share: Basic $ 0.31 $ 0.33 =========== =========== Diluted $ 0.30 $ 0.31 =========== =========== Weighted average number of common shares outstanding: Basic 4,857,546 4,568,352 =========== =========== Diluted 5,102,221 5,006,581 =========== =========== See accompanying notes to financial statements. 3 RAVENSWOOD WINERY, INC. STATEMENT OF CASH FLOWS (UNAUDITED)
Three months ended September 30, -------------------------------- 2000 1999 ------------ ------------ Operating activities: Net income $ 1,514,640 $ 1,497,815 Items not requiring the current use of cash: Depreciation and amortization 373,562 143,390 Deferred income taxes 128,000 37,568 Unrealized gain on available-for-sale securities 23,824 -- Changes in other operating items: Accounts receivable (1,251,403) (1,204,158) Inventories (5,663,415) (1,856,979) Accrued/prepaid income taxes 892,000 945,330 Prepaid expenses and other 28,476 (37,588) Accounts payable 4,808,529 350,165 Accrued liabilities and accrued commissions 160,501 461,211 ------------ ------------ Cash provided by operations 1,014,714 336,754 ------------ ------------ Investing activities: Additions to plant and equipment (110,701) (2,102,449) ------------ ------------ Cash used for investing activities (110,701) (2,102,449) ------------ ------------ Financing activities: Short-term borrowings, net (500,000) (950,000) Proceeds from long-term debt 455,000 318,527 Repayment of long-term debt (174,527) (82,874) Issuance of common shares 22,574 -- ------------ ------------ Cash used for financing activities (196,953) (714,347) ------------ ------------ Increase (decrease) in cash and cash equivalents 707,060 (2,480,042) Cash and cash equivalents at beginning of period 5,769,373 11,390,903 ------------ ------------ Cash and cash equivalents at end of period $ 6,476,433 $ 8,910,861 ============ ============ Cash paid during the period for: Interest $ 262,000 $ 123,989 ============ ============ Taxes $ -- $ -- ============ ============ Noncash investing and financing: Plant and equipment purchased with capital leases $ 123,883 $ 705,055 ============ ============ See accompanying notes to financial statements.
4 - -------------------------------------------------------------------------------- RAVENSWOOD WINERY, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1 - Basis of presentation: The financial statements included herein for Ravenswood Winery, Inc. (the "Company") have been prepared by the Company, without audit pursuant to the rules and regulations of the Securities and Exchange Commission. In management's opinion, the interim financial data presented includes all adjustments (which include only normal recurring adjustments) necessary for a fair presentation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The results of operations for the three months ended September 30, 2000 are not necessarily indicative of the operating results expected for the entire fiscal year. The financial statements included herein should be read in conjunction with other documents the Company files from time to time with the Securities and Exchange Commission, including the Company's Form 10-KSB for the fiscal year ended June 30, 2000. NOTE 2 - Significant accounting policies: Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results when ultimately realized could differ from those estimates. Reclassification Certain prior period amounts have been reclassified in order to conform to the current period presentation. NOTE 3 - Earnings per share Basic EPS represents the income available to common shareholders divided by the weighted average number of common shares outstanding for the period. Diluted EPS represents the income available to common shareholders divided by the weighted average of common shares 5 outstanding while also giving effect to the potential dilution that could occur if securities or other contracts to issue common stock (e.g. stock options and convertible debentures) were exercised and converted into stock. For all periods presented, the difference between basic and diluted EPS for the Company is due to the dilutive effect of stock options and convertible debentures. This effect is calculated using the treasury stock method. During the three month period ended September 30, 2000, 2,150 shares of common stock were purchased under Ravenswood's 1999 Equity Incentive Plan. 6 NOTE 4 - Inventories:
Inventories are summarized as follows: September 30, June 30, 2000 2000 ----------------- ----------------- (Unaudited) Bulk wine $20,088,398 $15,262,865 Bottled wine 5,809,303 4,716,701 Crop costs 0 137,051 Supplies 135,452 233,943 Tasting room merchandise 151,546 170,724 ----------------- ----------------- $26,184,699 $20,521,284 ================= =================
NOTE 5 - Property, plant and equipment: Property, plant and equipment are summarized as follows:
September 30, June 30, 2000 2000 ----------------- ----------------- (Unaudited) Land $ 245,135 $ 245,135 Vineyards 345,473 345,473 Buildings and improvements 1,647,634 1,647,637 Leasehold improvements 9,869,805 9,832,748 Machinery and equipment 1,143,849 1,080,251 Equipment held under capital leases 4,242,836 4,118,953 Office equipment 308,886 298,837 ----------------- ----------------- 17,803,618 17,569,034 Less accumulated depreciation 3,155,043 2,781,481 ----------------- ----------------- $14,648,575 $14,787,553 ================= =================
NOTE 6 - Comprehensive income: Comprehensive income includes unrealized gain on available-for-sale securities. The following is a reconciliation of net income and comprehensive income (unaudited): For Three Months Ended -------------------------------- September 30, September 30, 2000 1999 ---- ---- Net income $ 1,514,641 $ 1,497,815 Change in unrealized gain on available-for-sale securities 23,824 37,567 -------------- -------------- Comprehensive income $ 1,538,465 $ 1,535,382 ============== ============== 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), regarding future events and Ravenswood's plans and expectations that involve risks and uncertainties. When used in this Report, the words "estimate," "project," "intend," "expect" and "anticipate" and similar expressions are intended to identify such forward-looking statements. Such statements are subject to certain risks and uncertainties, including those discussed below, that could cause actual results to differ materially from those projected. Factors that may cause actual results to vary include, but are not limited to: (i) future and past weather and general farming conditions affecting the annual grape harvest; (ii) variations in consumer taste and preference: (iii) changes in the wine industry regulatory environment; and (iv) changes in the market value of Ravenswood's common stock. Other factors that may cause or contribute to such differences include, but are not limited to, those discussed below under "Risk Factors," as well as those discussed elsewhere in this Report and in the documents incorporated herein by reference. In light of the important factors that can materially affect results, including those set forth in this paragraph and below, the inclusion of forward-looking information herein should not be regarded as a representation by Ravenswood or any other person that the objectives or plans for Ravenswood will be achieved. The reader is therefore cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. Ravenswood undertakes no obligation to publicly release updates or revisions to these statements. Overview Ravenswood produces, markets and sells premium California wines exclusively under the Ravenswood brand name. The vast majority of wines produced and sold by Ravenswood are red wines, including Merlot, Cabernet Sauvignon and, particularly, Zinfandel. To a lesser extent, Ravenswood produces white wines, including Chardonnay, French Colombard and Gewurztraminer. Ravenswood's red wines accounted for approximately 94% of gross sales in the 2000 fiscal year, with sales of Zinfandel accounting for approximately 65% of gross sales for that period. Ravenswood believes that sales of its red wines, particularly Zinfandel, will continue to account for a significant portion of its sales in the future. Since its inception in 1976, Ravenswood has grown by increasing its production volume and its portfolio of wine products. For the fiscal year ended June 30, 2000, Ravenswood realized total gross sales of $33.2 million from the sale of 412,866 cases of wine and Ravenswood branded merchandise. The mix of products sold in any given period affects Ravenswood's gross profit as a percentage of net sales, or gross margin. In particular, as sales of the value-priced Vintners Blend Series have increased as a percentage of gross sales, Ravenswood's gross margin has decreased. The gross margin for the Vintners Blend Series is traditionally more variable than Ravenswood's higher-priced product series because a significant portion of the wine used in these products is purchased in the bulk market rather than produced by Ravenswood from grapes acquired from its traditional grape suppliers. Ravenswood has no bulk wine purchase contracts. The price, quality and available quantity of bulk wine have fluctuated in the past and Ravenswood expects that they will continue to fluctuate in the future. The timing for release of Ravenswood's products, particularly its County Series and Vineyard Designate Series, also significantly affects Ravenswood's sales in specific periods. Ravenswood has traditionally released new vintages of its Vineyard Designate Series in the fourth fiscal quarter or the first fiscal quarter of the subsequent fiscal year. For fiscal year 2001, many of the Vineyard Designates were released in August and September, resulting in sales during the second quarter. In addition, the release dates of some of Ravenswood's County Series wines fluctuate between the third and fourth fiscal quarters of each fiscal year. The timing of these release dates is based upon the winemakers' determination as to the optimal flavor characteristics of these wines and available inventory. Fluctuation of release dates may make comparison of results on a 8 period-to-period basis less meaningful. The nature of the winemaking process, including the need for wine to be aged before it is released, requires Ravenswood to incur significant expenses in producing products which may not generate revenues until up to two years later. Any factors that may prevent or delay the sale of Ravenswood's wines at the prices anticipated at the time of their production could adversely affect its liquidity and reduce its profits. Pricing for grapes purchased by Ravenswood is determined annually by reference to benchmark price quotations or through negotiation. As a result, the cost of grapes used in Ravenswood's wine production has fluctuated and is expected to continue to fluctuate. Ravenswood has traditionally attempted to moderate and stabilize price increases from year to year. Consequently, gross margins realized by Ravenswood have fluctuated in the past and are expected to continue to fluctuate with the price of grapes used in production. Within the United States, Ravenswood utilizes distributors in every state except California. Brokers are used to assist the sales effort in California and 31 other states. Ravenswood uses both brokers and distributors in most of the foreign countries in which Ravenswood's wines are sold. Brokers act as an independent sales force and receive commissions as compensation for their sales. Brokers do not take title to the wines they sell. Distributors purchase wine from Ravenswood and sell the wine to their own retail accounts such as restaurants, grocery stores and wine shops. Ravenswood primarily uses smaller, well-positioned brokers and distributors for whom Ravenswood is a key brand. Although Ravenswood has very few long-term agreements for distribution of its products, Ravenswood believes that its relationships with existing brokers and distributors are excellent. Ravenswood's executive management also takes an active role in assisting brokers and distributors with sales within California and within major geographic markets outside California. Ravenswood sells its products directly in California, utilizing four warehouses throughout the state and a network of seven brokers. Ravenswood realizes significantly greater gross margins in areas, such as California, where it relies on direct sales facilitated through brokers without the use of distributors. Sales within California accounted for approximately 45% of Ravenswood's gross sales in the 2000 fiscal year. Of this amount, approximately 8% of gross sales were purchases by California and non-California consumers through Ravenswood's tasting room and approximately 37% of gross sales were sales to retail accounts. We expect similar results for fiscal 2001. Ravenswood believes that sales within California will continue to account for a substantial portion of its sales in the future. Results of Operations The following table sets forth items from Ravenswood's statement of income, expressed as a percentage of net sales, for the periods indicated: Three Months Ended September 30, ------------- Statement of Income Data: 2000 1999 Net Sales 100.0% 100.0% Cost of Goods Sold 45.3 45.0 ------------- ------------- Gross Profit 54.7 55.0 Operating Expenses 24.9 22.6 ------------- ------------- Operating Income 29.8 32.4 Other Expense, net 1.3 .5 ------------- ------------- Income Before Income Taxes 28.5 31.9 Provision for Income Taxes 11.5 12.4 ------------- ------------- Net Income 17.0% 19.5% ============= ============= 9 Three Months Ended September 30, 2000 and 1999 Sales Net sales of Ravenswood's products increased 15.7% to $8.9 million in the three months ended September 30, 2000, from $7.7 million in the three months ended September 30, 1999. This increase is primarily attributable to an increase in the volume of wines produced and sold by Ravenswood. In the three months ended September 30, 2000, case sales increased to 107,537 cases from 86,687 cases in the three months ended September 30, 1999, while the average price per case decreased to $88.20 from $94.37 in these respective periods (based on gross sales). The decrease in average price per case is primarily attributable to two factors, the relatively late release of the Vineyard Designate Series in the first quarter of fiscal 2001, which resulted in lower sales of this series for this year as compared to the first quarter of fiscal 2000 and the increase in sales of the Vintners Blend Series as a percentage of gross sales. Case sales of Vineyard Designate Series wines declined in the first quarter of fiscal 2001 by 31.9% over the same period in the previous fiscal year. There are two reasons for this decline. First, as discussed previously, Vineyard Designate wines from the 1998 vintage were released later in the first quarter of fiscal 2001 than the 1997 vintage wines which were released in the previous fiscal year's first quarter. Second, vineyard yields in the 1998 vintage were lower, due to the effects of El Nino, than the abundant 1997 vintage. Consequently fewer Vineyard Designate wines will be available for sale in fiscal 2001 than in fiscal 2000. The percentages of gross sales attributable to the Vintners Blend Series, County Series and Vineyard Designate Series were 59%, 23% and 17%, respectively, for the three months ended September 30, 2000, as compared to 50%, 21% and 27%, respectively, in the three months ended September 30, 1999. Sales of Ravenswood branded merchandise accounted for approximately 1% and 2% of gross sales for the three months ended September 30, 2000, and September 30, 1999, respectively. Cost of Goods Sold Cost of goods sold increased to $4.0 million, or 45.3% of net sales, for the three months ended September 30, 2000, from $3.5 million, or 45.0% of net sales, for the corresponding period in fiscal 2000. Cost of goods sold remained relatively unchanged despite the decrease in Vineyard Designate Series sales, a higher margin product, due to improved margins for the Vintners Blend Series. Gross Profit Ravenswood's gross profit increased to $4.9 million for the three months ended September 30, 2000, from $4.3 million for the three months ended September 30, 1999, and decreased as a percentage of net sales to 54.7% from 55.0% in these respective periods. The increase in aggregate gross profit is primarily attributable to increases in sales volumes. 10 Operating Expenses Operating expenses increased to $2.2 million for the three months ended September 30, 2000, from $1.7 million for the three months ended September 30, 1999, and increased as a percentage of net sales to 24.9% from 22.6% in these respective periods. The increase in the amount of operating expenses is attributable to increased sales volumes. Increased sales volumes resulted in increased brokerage commissions as well as increases in Ravenswood's sales, administrative and warehouse staffs. Operating expenses, as a percentage of net sales, have increased and will continue to increase as Ravenswood completes its move into the Quarry Facility, as additional personnel are added that were not previously hired due to lack of space and facility, and as it adjusts to maintaining two operating plants with administrative offices. Other Expense, Net Other expense includes non-operating income and expense items, which primarily consist of interest on outstanding debt. Other expense amounted to $113,095 and $37,970, or 1.3% and .5% of net sales, in the three months ended September 30, 2000, and 1999, respectively. The increase in other expense is due primarily to an increase in interest expense on funds borrowed to build the Quarry Facility and to purchase equipment installed there. Additionally, interest income generated from invested proceeds of the December, 1998 private placement and April, 1999 initial public offering which had previously offset interest expense, has decreased as Ravenswood has used those funds to complete the Quarry Facility and as operating capital. A portion of the decrease in interest income has been offset by income generated through custom crush and custom bottling fees. Provision for Income Taxes The provision for income taxes reflects an estimated annualized effective tax rate of 40.2% for the three months ended September 30, 2000, and 38.9% for the corresponding period in fiscal 2000. The slight increase is due to the effect of manufacturer's tax credit taken for the first quarter of fiscal 2000. 11 Selected Quarterly Results of Operations The following table presents Ravenswood's results of operations for each of the six quarters prior to and including the quarter ended September 30, 2000. The quarterly information is unaudited, but management believes that the information regarding these quarters has been prepared on the same basis as the audited financial statements appearing in the Company's Form 10-KSB for the fiscal year ended June 30, 2000. In the opinion of management, all necessary adjustments which include only normal recurring adjustments have been included to present fairly the unaudited quarterly results when read in conjunction with the financial statements and related notes appearing elsewhere in this Form 10-QSB filing.
Quarter Ended (In Thousands) ----------------------------------------------------------------------------------------- June 30, September 30, December 31, March 31, June 30, September 30, 1999 1999 1999 2000 2000 2000 ---- ---- ---- ---- ---- ---- Statement of Income Data: Gross Sales $ 6,119 $ 8,289 $ 10,437 $ 8,692 $ 8,197 $ 9,607 Less Excise Taxes 361 335 199 326 404 331 Less Discounts, Allowance and Returns 234 262 315 239 309 378 ---------- ---------- ---------- ---------- ---------- ---------- Net Sales 5,525 7,692 9,924 8,127 7,484 8,898 Cost of Goods Sold 2,788 3,463 4,814 3,897 3,522 4,033 ---------- ---------- ---------- ---------- ---------- ---------- Gross Profit 2,737 4,229 5,110 4,230 3,961 4,865 Other Operating Expenses 1,503 1,740 2,001 1,832 2,162 2,217 ---------- ---------- ---------- ---------- ---------- ---------- Operating Income 1,234 2,489 3,108 2,398 1,799 2,648 Other (Income) Expense (12) 38 160 205 186 113 ---------- ---------- ---------- ---------- ---------- ---------- Income Before Income Taxes 1,247 2,451 2,947 2,192 1,613 2,535 Provision for Income Taxes 385 953 1,168 875 370 1,020 ---------- ---------- ---------- ---------- ---------- ---------- Net Income $ 862 $ 1,498 $ 1,780 $ 1,317 $ 1,243 $ 1,515 ========== ========== ========== ========== ========== ==========
Ravenswood experiences seasonal and quarterly fluctuations in sales, operating expenses and net income. Because Ravenswood manages its business to achieve long-term strategic objectives, it may make decisions that it believes will enhance its long-term growth and profitability, even if these decisions adversely affect quarterly earnings. These decisions include: (a) when to release its wines for sale; (b) how to position its wines competitively; and (c) which grape and bulk wine sources to use to produce its wines. In addition, the release dates of Ravenswood's Vineyard Designate Series and County Series have resulted in fluctuations in Ravenswood's results on a quarter-to-quarter basis. Ravenswood's sales volume may also change depending upon its distributors' inventory levels. The results of operations for any quarter are not necessarily indicative of the results of any future period. The market price of Ravenswood's common stock may fluctuate significantly in response to these quarter-to-quarter variations. 12 FINANCIAL CONDITION Assets Ravenswood's total assets increased by 15.3% to $53.2 million at September 30, 2000, from $46.2 million, at June 30, 2000. Accounts receivable increased 30% from $4.2 million at June 30, 2000 to $5.4 million at September 30, 2000. Ravenswood's inventory increased by 27.6% or $5.7 million to $26.2 million at September 30, 2000, from $20.5 million at June 30, 2000. Property, plant and equipment, net of depreciation, decreased slightly from $14.8 million at June 30, 2000, to $14.6 million at September 30, 2000. Liabilities Ravenswood's total liabilities increased 34.6% to $21.3 million at September 30, 2000, from $15.9 million at June 30, 2000. The increase was primarily due to purchases for grapes received in August and September of 2000, which increased accounts payable by 149.5% or $4.8 million. At September 30, 2000, Ravenswood's long-term liabilities outstanding was $11.0 million and $2.0 million was available under the terms of Ravenswood's line of credit. Liquidity and Capital Resources Ravenswood has funded its capital requirements primarily with cash flows from operations, a mix of short-term and long-term borrowings, and the sale of its securities, most recently with its initial public offering in April, 1999. Cash and cash equivalents totaled $6.5 million at September 30, 2000, as compared to $5.8 million at June 30, 2000. The slight increase in cash and cash equivalents is primarily due to cash generated from operations and receipt of the last installment of Ravenswood's construction loan from Pacific Coast Farm Credit. Net cash provided by operations was $1.0 million for the three months ended September 30, 2000, as compared to $336,754 for the three months ended September 30, 1999. The principal uses of cash from operations in this period were the acquisition of additional inventory through grape purchases and funding accounts receivable, while the principal sources of cash were net income and accounts payable. Net cash used for investing activities totaled $110,701 for the three months ended September 30, 2000, as compared to $2.1 million for the three months ended September 30, 1999. During the first quarter of fiscal 2000, Ravenswood was in the process of building its Quarry Facility and therefore cash used for investing activities was much larger than for the same period during fiscal 2001. Ravenswood expects that net cash used for investing activities will increase in the future due to the expansion of its barrel storage capacity at the Quarry Facility. Net cash used by financing activities was $196,953 for the three months ended September 30, 2000, as compared to $714,347 for the three months ended September 30, 1999. The principal use of cash during these periods was to repay short-term borrowings on the revolving line of credit and the principal source of cash during these periods was proceeds from long-term debt. Ravenswood's grape purchases normally occur in the second fiscal quarter, when the fruit is harvested. For the 2000 harvest, approximately half the estimated expected tonnage was received in August and September of 2000, or the first quarter of fiscal 2001. Ravenswood expects to receive the other estimated half in October and November of 2000. Most grape purchase contracts specify the timing of payment for these purchases. The actual payment dates vary depending upon the terms of the individual contract. Based upon its grape purchase contracts for 13 the 1999 harvest, these payments were made in the following manner: 42%, 29% and 17% in the second, third and fourth quarters of fiscal 2000, respectively, and the remaining 12% in the first quarter of fiscal 2001. As a result of harvest costs and the timing of grape and bulk wine purchase payments, Ravenswood's inventory and related cash requirements generally peak during the second or third fiscal quarters. Cash requirements also fluctuate depending upon the level and timing of capital spending and tax payments. Ravenswood leases barrels and other equipment used in the production of its wines. Ravenswood estimates that aggregate lease payments for barrels and other equipment will be approximately $625,000 for the 2001 fiscal year. Ravenswood anticipates that it will enter into additional leasing arrangements as it increases its production. The holders of $815,000 in convertible debentures issued in 1994 converted to 285,250 shares of Ravenswood common stock in December, 1999. If the debentures had not converted, Ravenswood would have been able to redeem them at face value at any time during the period beginning on January 1, 2000 and ending December 31, 2004. In December 1998, Ravenswood completed a private sale of $1.7 million of convertible debentures due December 31, 2008 and $1.7 million of common stock. Each $10,000 debenture is convertible into 900 shares of common stock at any time prior to December 31, 2003, upon request of the holder. If the debentures are not converted, Ravenswood may redeem them at face value at any time during the period from January 1, 2004 until the maturity date. Ravenswood pays interest quarterly on the debentures in an amount equal to the prime interest rate quoted by Bank of America NT&SA plus 1%. The interest rate is adjusted every 18 months, except that in no period may the interest rate adjustment exceed 2%, or the maximum interest rate exceed 11%. Ravenswood has a line of credit with Pacific Coast Farm Credit Association, under which Ravenswood may borrow up to a total of $2 million. As of September 30, 2000, Ravenswood had nothing outstanding under this line of credit. On April 26, 1999 Ravenswood obtained a $4.6 million construction loan from Pacific Coast for the purpose of financing construction of the Quarry Facility. The loan is secured by the Quarry Facility and its lease. The Quarry Facility was completed during fiscal 2000 at a cost of approximately $9.7 million. The remaining costs of approximately $5.1 million were funded from the December, 1998, private equity offering and proceeds from Ravenswood's initial public offering in April, 1999. Equipment worth approximately $3.3 million was funded through capital leases as of June 30, 2000. In April, 1999, Ravenswood completed an initial public offering of one million shares of its common stock at a price of $10.50 per share. W.R. Hambrecht & Company, LLC acted as underwriter for the offering. The net proceeds from the offering have been and will continue to be used for: investment in wine inventory, expansion of production facilities, general corporate purposes, and retirement of indebtedness. Ravenswood's shares are listed on the Nasdaq National Market under the trading symbol RVWD. The full extent of Ravenswood's future capital requirements and the adequacy of its available funds will depend on many factors, not all of which can be accurately predicted. Although no assurance can be given, Ravenswood believes that anticipated cash flow from operations, borrowings under its existing credit agreements, proceeds from its initial public offering and the private placement in 1998 described above, will be sufficient to fund its capital requirements, including its planned expansion, for at least the next 12 months. In the event that additional capital is required, Ravenswood may seek to raise that capital through public or private equity or 14 debt financings. Future capital funding transactions may result in dilution to shareholders. There can be no assurance that additional capital will be available on favorable terms, if at all. Ravenswood's inability to obtain additional capital on acceptable terms would limit its growth and could have a negative impact on its business. Ravenswood uses substantial amounts of its working capital to purchase grapes and bulk wine supplies from third parties and to pay for the use of third-party production facilities in its wine production. Ravenswood also uses capital to fund its own grape-growing and winemaking activities. Ravenswood expects that it will need an increased amount of working capital over the next several years to fund increases in its production level and inventory. FACTORS THAT MAY AFFECT RESULTS A reduction in consumer demand for premium red wines could harm our business Because a large percentage of the wines we produce are premium red wines, including Merlot, Cabernet Sauvignon and, in particular, Zinfandel, our business would be harmed if consumer demand for red wines in general, or Zinfandel in particular, failed to grow or declined. An overall reduction in consumer demand for premium wine would also harm our business. A reduction in the supply of grapes and bulk wine available to us from the independent grape growers and bulk wine suppliers on whom we rely could reduce our annual production of wine We rely on annual contracts, some of which are not in writing, with over 80 independent growers to purchase substantially all of the grapes used in our wine production. We cannot provide assurance that we will be able to contract for the purchase of grapes at acceptable prices from these or other suppliers in the future. The terms of many of our purchase agreements also constrain our ability to discontinue purchasing grapes in circumstances where we might want to do so. Those agreements typically provide that, while either party may terminate the agreement at any time, both parties must continue to abide by its terms for three years following termination. We are dependent on bulk wine suppliers for the production of several of our wines, particularly our Vintners Blend Series. We do not have contracts with bulk wine suppliers or agreements that would protect us from fluctuations in the price or availability of bulk wine. The availability and price of bulk wine significantly affect the quality and production levels of our products that contain bulk wine. The price, quality and available quantity of bulk wine have fluctuated in the past. It is possible that we will not be able to purchase bulk wine of acceptable quality at acceptable prices and quantities in the future, which could increase the cost or reduce the amount of wine we produce for sale. This could cause reductions in our sales and profits. Bad weather, plant diseases, pests, including the glassy-wing sharpshooter and other factors could reduce the amount or quality of the grapes we need to produce our wines A shortage in the supply of quality grapes may result from the occurrence of any number of the factors which determine the quality and quantity of grape supply, such as weather conditions, pruning methods, the existence of diseases and pests, and the number of vines producing grapes, as well as the level of consumer demand for wine. Any shortage could cause an increase in the price of some or all of the grape varieties required for our wine production and/or a reduction in the amount of wine we are able to produce, which could harm our business and reduce our sales and profits. For example, due to the effects of El Nino, the grape supply available to us for the 1998 harvest 15 was lower than for the 1997 harvest, which we believe was an unusually large harvest. Therefore, the inventory of our 1998 vintage may be less than that of our 1997 vintage. As a result, the growth of our sales may be limited in fiscal year 2001, when a portion of our 1998 vintage will be released for sale. Factors which reduce the quantity of grapes may also reduce their quality, which in turn could reduce the quality or amount of wine we produce. A deterioration in the quality of our wines could harm our brand name, and a decrease in our production could reduce our sales and profits. Although we grow only a small portion of the grapes we use, our business is still subject to numerous agricultural risks. Most of the vineyards that supply our grapes are primarily planted to rootstocks believed to be resistant to Phylloxera, a pest that feeds on susceptible grape rootstocks. We purchase grapes from regions in California in which the glassy-winged sharpshooter has, or may be encountered. The glassy-winged sharpshooter can transmit Pierce's Disease to vineyards. This disease is often fatal to wine grape vines. To date, our access to supplies of grapes and bulk wine has not been negatively impacted by the spread of the glassy-winged sharpshooter or Pierce's Disease. However, we cannot be certain that these vineyards, or vineyards from which we obtain grapes in the future, will not become susceptible to current or new strains of Phylloxera, plant insects, such as the glassy-winged sharpshooter, or diseases, such as Pierce's Disease. Any resulting reduction in grape supply could reduce our sales and profits. An oversupply of grapes may also harm our business by increasing the supply of wine sold by our competitors The recent increase in demand for premium wine has resulted in the planting of additional vineyards, both domestically and internationally, and the replanting of existing vineyards to greater densities, which could result in a significant increase in the supply of premium wine grapes. An oversupply of grapes may significantly increase the amount of premium wine produced. An increase in the supply of premium wines could harm our business because we only produce premium wines. Oversupply may also increase the amount of premium wine available to our distributors and retail outlets, which would increase competition in our distribution channels. The loss of Mr. Foster, Mr. Peterson or other key employees would damage our reputation and business We believe that our success largely depends on the continued employment of a number of our key employees, including W. Reed Foster, our chairman and chief executive officer, and Joel E. Peterson, our president and winemaker. Any inability or unwillingness of Mr. Foster, Mr. Peterson or other key management team members to continue in their present capacities could harm our business and our reputation. For instance, if Mr. Peterson's relationship with Ravenswood were to terminate for any reason, we would need to find a successor winemaker. We cannot be certain that we could find or hire a successor winemaker with skills equivalent to those of Mr. Peterson. Because a significant amount of our sales is made through brokers, a change in our relationship with any of them could harm our business In the 2000 fiscal year, approximately 75% of our gross sales were made through brokers. A change in our relationship with any of our brokers could harm our business and reduce our sales. Our most successful broker was responsible for 21% of our gross sales in the 2000 fiscal year, and our ten most successful brokers were responsible for 69% of our gross sales in the 2000 fiscal year. 16 Because some states have laws that prohibit distributors changes, our sales may be reduced if we cannot replace an under-performing distributor Our sales outside of California largely depend on the use of distributors. Our ten largest distributors accounted for approximately 23% of our gross sales for the 2000 fiscal year, and we expect that sales to our ten largest distributors will continue to represent a substantial portion of our sales in the future. The laws and regulations of several states prohibit distributor changes except under limited circumstances. As a result, it may be difficult for us to replace distributors that do not perform adequately, which may reduce our sales and profits. Our business may be harmed if our distributors fail to market our products effectively We depend largely on our distributors in areas outside California to market our products to the restaurants and retail outlets they service. Other premium wine producers, as well as the producers of alternative beverages, compete for our distributors' marketing resources. A failure by our distributors to market our products as effectively as they, or other distributors, market our competitors' products could harm our business. The market price of our stock may fluctuate due to seasonal fluctuations in our wine sales, operating expenses and net income We experience seasonal and quarterly fluctuations in sales, operating expenses and net income. We have managed, and will continue to manage, our business to achieve long-term objectives. In doing so, we may make decisions that we believe will enhance our long-term profitability, even if these decisions may reduce quarterly earnings. These decisions include: (a) when to release our wines for sale; (b) how to position our wines competitively; and (c) which grape and bulk wine sources to use to produce our wines. In addition, fluctuations in our distributors' inventory levels may affect our sales volume. These and other factors relating to seasonality and business decisions may cause fluctuations in the market price of our common stock. We also compete with popular, low-priced "generic" wines and with beer and other alcoholic and non-alcoholic beverages both for demand and for access to distribution channels Many of the producers of these beverages also have significantly greater financial, technical, marketing and public relations resources than we do. Our sales may be harmed to the extent any alternative beverages are introduced that compete with wine. We may not be able to compete successfully against these wine or alternative beverage producers. A reduction in our access to, or an increase in the cost of, the third-party services we use to produce our wine could harm our business We utilize third-party facilities, of which there is a limited supply, for the production activities associated with our wines. Our inability in the future to use these or alternative facilities, at reasonable prices or at all, could increase the cost or reduce the amount of our production, which could reduce our sales and our profits. We do not have long-term agreements with any of these facilities. The activities conducted at outside facilities include: (a) crushing; (b) fermentation; (c) storage; (d) blending; and (e) bottling. Our reliance on these third-parties varies according to the type of production activity. As production increases, we may continue to rely upon these third-party production facilities. Reliance on third-parties will also vary with annual harvest volumes. 17 A failure to complete the expansion of our facilities as planned could limit our production of wine and harm our business We recently completed Phase I of our production facility, the Quarry Facility, and are currently utilizing it to full capacity. We are currently planning to expand the Quarry Facility, in order to increase our production capacity. Our failure to complete the expansion of the Quarry Facility, or otherwise expand our production capabilities, would limit our production capacity, would require greater use of third-party production facilities and could reduce our sales and/or profits. We expect to utilize the entire Quarry Facility fully upon the completion of the contemplated expansion. As a result, any further expansion of our production capacity may require us to use third-party production facilities or to continue to expand our own production capacity. Our failure to expand our production capacity, or to secure capacity from third-parties, either at acceptable prices or at all, could limit our production and reduce our sales and/or profits. Adverse public opinion about alcohol may harm our business In recent years, activist groups have used advertising and other methods to inform the public about the societal harms associated with the consumption of alcoholic beverages. These groups have also sought, and continue to seek, legislation to reduce the availability of alcoholic beverages, to increase the penalties associated with the misuse of alcoholic beverages, or to increase the costs associated with the production of alcoholic beverages. Over time, these efforts could cause a reduction in the consumption of alcoholic beverages generally, which could harm our business and reduce our sales and profits. While a number of research studies suggest that moderate alcohol consumption may provide various health benefits, other studies conclude or suggest that alcohol consumption has no health benefits and may increase the risk of stroke, cancer and other illnesses. An unfavorable report on the health effects of alcohol consumption could significantly reduce the demand for wine, which could harm our business and reduce our sales and profits. Contamination of our wines would harm our business Because our products are designed for human consumption, our business is subject to hazards and liabilities related to food products, such as contamination. A discovery of contamination in any of our wines, through tampering or otherwise, could result in a recall of our products. Any recall would significantly damage our reputation for product quality, which we believe is one of our principal competitive assets, and could seriously harm our business and sales. Although we maintain insurance to protect against these risks, we may not be able to maintain insurance on acceptable terms and this insurance may not be adequate to cover any resulting liability. Increased regulatory costs or taxes would harm our financial performance The wine industry is regulated extensively by the Federal Bureau of Alcohol, Tobacco and Firearms, various foreign agencies, and state and local liquor authorities. These regulations and laws dictate various matters, including: o Excise taxes o Licensing requirements o Trade and pricing practices o Permitted distribution channels o Permitted and required labeling o Advertising 18 o Relationships with distributors and retailers Recent and future zoning ordinances, environmental restrictions and other legal requirements may limit our plans to expand our production capacity, as well as any future development of new vineyards and wineries. Future legal or regulatory challenges to the wine industry could also harm our business and impact our operating results. Because our directors and officers have significant control over Ravenswood, other investors do not have as much influence on corporate decisions as they would if control were less concentrated Assuming all convertible debentures held by our directors and executive officers and their respective affiliates will be converted, and all options exercisable within 60 days of the date hereof by our directors and executive officers, will be exercised, our directors and executive officers and their respective affiliates would beneficially own 2,230,476 shares of common stock, or approximately 45.2% of our outstanding common stock and common stock equivalents. As a result, our directors and executive officers and their respective affiliates have significant influence in the election of directors and the approval of corporate actions that must be submitted for a vote of shareholders. The interests of these persons may conflict with the interests of other shareholders, and the actions they take or approve may be contrary to those desired by the other shareholders. This concentration of ownership may also have the effect of delaying, preventing or deterring an acquisition of Ravenswood by a third party. Natural disasters, including earthquakes or fires, could destroy our facilities or our inventory California experiences earthquake activity from time to time, such as the recent earthquake in Napa. The Gehricke Road Facility, the Quarry Facility and all of the third-party facilities we use to produce and store our wine are located in areas that are subject to earthquake activity. If we lost all or a portion of our wine prior to its sale or distribution as a result of earthquake activity, we would lose our investment in, and anticipated profits and cash flows from, that wine. Such a loss would seriously harm our business and reduce our sales and profits. In addition, we must store our wine in a limited number of locations for a period of time prior to its sale or distribution. Any intervening catastrophies, such as a fire, that result in the destruction of all or a portion of our wine would result in a loss of our investment in, and anticipated profits and cash flows from, that wine. Such a loss would seriously harm our business and reduce our sales and profits. Our small market size and relatively low trading volume may limit the market price, liquidity or trading volume of our stock Our small size and relatively low trading volume may reduce the amount of research coverage from market analysts. This reduced level of coverage may limit the market price, liquidity or trading volume of our common stock. Risks associated with potential Year 2000 problems Even though to date Ravenswood has not experienced an adverse impact from the transition to the Year 2000, Ravenswood cannot provide assurance that its suppliers and customers have not been affected in a manner that is not yet apparent. As a result, Ravenswood will continue to monitor its Year 2000 compliance and the Year 2000 compliance of its suppliers and customers. 19 RAVENSWOOD WINERY, INC. PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds The following table describes the use of proceeds from Ravenswood's initial public offering in April, 1999. (IN THOUSANDS) Effective Date of the Company's Registration Statement: April 8, 1999 Commission File Number 333-71729 Date Offering Commenced: April 9, 1999 Date Offering Completed: Upon the sale of all the shares registered Names of Managing Underwriters: W. R. Hambrecht & Co., LLP Class of Securities Registered: Common Stock Shares Registered and Sold: 1,000* Sold by Company: 1,000* Sold by Shareholders: 0 Aggregate Price of Offering Amount Registered and Sold: $10,500 Gross Proceeds to Company: $10,500 Gross Proceeds to Selling Shareholders 0 Underwriter's Discounts and Commission Charged to the Company: $420 Other issuance costs: $546 Net offering proceeds to the Company: $9,534 Approximate use of net offering proceeds through September 30, 2000: Working capital $1,265 Retirement of debt $1,000 Expansion of production facilities $3,350 - ----------- *In connection with the initial public offering, Ravenswood granted the underwriters an over-allotment option to purchase 150,000 additional shares of Ravenswood's common stock at the original initial public offering price. The option was not exercised.
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. Exhibit Number -------------- 27.1 Financial Data Schedule (b) Reports on Form 8-K. None. 20 RAVENSWOOD WINERY, INC. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: November 13, 2000 Ravenswood Winery, Inc. /s/Callie S. Konno ------------------------------------- Callie S. Konno Chief Financial Officer Dated: November 13, 2000 /s/W. Reed Foster ------------------------------------- W. Reed Foster Chairman of the Board and Chief Executive Officer 21 EX-27.1 2 0002.txt FINANCIAL DATA SCHEDULE
5 3-MOS JUN-30-2001 JUL-01-2000 SEP-30-2000 6,476,433 0 5,428,219 10,000 26,184,699 38,146,244 17,803,618 3,155,043 53,222,014 10,356,878 6,978,863 0 0 15,076,947 16,800,776 53,222,014 8,897,825 8,897,825 4,032,631 2,217,459 0 0 257,730 2,534,640 1,020,000 1,514,640 0 0 0 1,514,640 0.31 0.30
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