10-Q 1 0001.txt FORM 10-Q ================================================================================ 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 December 31, 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 February 7, 2001 was 4,871,865. Transitional Small Business Disclosure Format: Yes [ ] No [X] ================================================================================ RAVENSWOOD WINERY, INC. PART I. FINANCIAL INFORMATION Page ---- ITEM 1. FINANCIAL STATEMENT Balance Sheets as of December 31, 2000 and June 30, 2000. 2 Statements of Income for the three months and six months ended December 31 , 2000 and 1999. 3 Statements of Cash Flows for the three months and six months ended December 31, 2000 and 1999. 4 Notes to Financial Statements. 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 7 CONDITION AND RESULTS OF OPERATIONS ITEM 3. FACTORS THAT MAY AFFECT FUTURE RESULTS 15 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 19 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 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
December 31, June 30, 2000 2000 ----------- ----------- ASSETS (unaudited) Current assets: Cash and cash equivalents $ 6,338,163 $ 5,769,373 Accounts receivable, less allowance of $10,000 5,558,495 4,166,816 Inventories 27,063,182 20,521,284 Prepaid expenses 343,935 377,631 ----------- ----------- Total current assets 39,303,775 30,835,104 Property, plant and equipment, net 14,652,650 14,787,553 Note receivable from shareholder 310,000 310,000 Deferred tax assets 65,000 180,000 Other assets 68,997 60,433 ----------- ----------- $54,400,422 $46,173,090 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 56,300 $ 83,597 Current portion of capital lease obligations 737,754 617,979 Short-term borrowings -- 500,000 Accounts payable 7,355,550 3,217,036 Accrued commissions 686,544 514,379 Accrued liabilities 694,621 390,010 ----------- ----------- Total current liabilities 9,530,769 5,323,001 Long-term liabilities: Long-term debt, net 6,895,799 6,453,407 Capital lease obligations, net 2,453,633 2,392,497 Convertible debentures 1,625,000 1,687,500 ----------- ----------- Total liabilities 20,505,201 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, 4,871,815 and 4,856,779 issued and outstanding 15,156,151 15,054,373 Retained earnings 18,649,666 15,176,560 Unrealized gain on available-for-sale securities 89,404 85,752 ----------- ----------- Total shareholders' equity 33,895,221 30,316,685 ----------- ----------- $54,400,422 $46,173,090 =========== =========== See accompanying notes to financial statements.
2 RAVENSWOOD WINERY, INC. STATEMENT OF INCOME (UNAUDITED)
Three months ended December 31, Six months ended December 31, ------------------------------- ----------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Gross Sales $ 11,359,262 $ 10,437,413 $ 20,966,215 $ 18,726,389 Less excise taxes (241,232) (199,045) (572,276) (533,690) Less discounts, allowances and returns (408,350) (314,777) (786,434) (576,925) ------------ ------------ ------------ ------------ Net sales 10,709,680 9,923,591 19,607,505 17,615,774 Cost of goods sold 4,921,569 4,813,758 8,954,200 8,277,176 ------------ ------------ ------------ ------------ Gross profit 5,788,111 5,109,833 10,653,305 9,338,598 Operating expenses 2,403,437 2,001,483 4,620,896 3,741,333 ------------ ------------ ------------ ------------ Operating income 3,384,674 3,108,350 6,032,409 5,597,265 Interest expense (244,628) (232,678) (502,359) (356,444) Other income (expenses) 84,421 72,282 229,057 158,076 ------------ ------------ ------------ ------------ (160,207) (160,396) (273,302) (198,368) Income before income taxes 3,224,467 2,947,954 5,759,107 5,398,897 Provision for income taxes 1,266,000 1,168,000 2,286,000 2,121,130 ------------ ------------ ------------ ------------ Net income $ 1,958,467 $ 1,779,954 $ 3,473,107 $ 3,277,767 ============ ============ ============ ============ Earnings per share: Basic $ 0.40 $ 0.39 $ 0.71 $ 0.72 ============ ============ ============ ============ Diluted $ 0.39 $ 0.36 $ 0.69 $ 0.67 ============ ============ ============ ============ Weighted average number of common shares outstanding: Basic 4,870,758 4,571,435 4,864,142 4,569,893 ============ ============ ============ ============ Diluted 5,094,431 5,006,546 5,098,581 5,006,562 ============ ============ ============ ============ See accompanying notes to financial statements.
3 RAVENSWOOD WINERY, INC. STATEMENT OF CASH FLOWS (UNAUDITED)
Three months ended December 31, Six months ended December 31, ------------------------------- ----------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ------------ Operations: Net income $ 1,958,467 $ 1,779,954 $ 3,473,107 $ 3,277,767 Items not requiring the current use of cash: Depreciation and amortization 418,804 315,441 792,366 458,831 Unrealized gain (loss) on available for sale securities (20,172) 5,649 3,652 43,216 Deferred income taxes (13,000) -- 115,000 7,800 Changes in other operating items: Accounts receivable (140,276) (1,176,461) (1,391,679) (2,380,620) Inventories (878,483) (3,521,358) (6,541,898) (5,378,337) Prepaid expenses (150,542) (169,092) (117,304) 34,320 Other assets (3,803) (3,607) (8,566) (11,887) Accounts payable (670,015) 2,326,683 4,138,514 2,973,194 Accrued liabilities 223,918 121,329 304,612 207,243 Prepaid (accrued) income taxes (741,000) (929,480) 151,000 (240,520) Accrued commissions 92,359 185,285 172,165 281,595 ----------- ----------- ----------- ------------ Cash provided by (used for) operations 76,257 (1,065,657) 1,090,969 (727,398) ----------- ----------- ----------- ------------ Investing: Additions to plant & equipment (60,252) (2,382,011) (170,952) (4,484,459) ----------- ----------- ----------- ------------ Cash used for investing activities (60,252) (2,382,011) (170,952) (4,484,459) ----------- ----------- ----------- ------------ Financing: Short-term borrowings, net -- 250,000 (500,000) (700,000) Proceeds from long-term debt -- 1,933,509 455,000 2,252,036 Proceeds from issuance of stock 16,703 -- 39,278 -- Proceeds from sale of securities -- 12,948 -- 12,948 Repayments of long-term debt (170,978) (73,955) (345,505) (158,335) ----------- ----------- ----------- ------------ Cash provided by (used for) financing activities (154,275) 2,122,502 (351,227) 1,406,649 ----------- ----------- ----------- ------------ Change in cash & cash equivalents (138,270) (1,325,166) 568,790 (3,805,208) Balance at beginning of period 6,476,433 8,910,861 5,769,373 11,390,903 ----------- ----------- ----------- ------------ Balance at end of period $ 6,338,163 $ 7,585,695 $ 6,338,163 $ 7,585,695 =========== =========== =========== ============ Cash paid during the period for: Interest $ 213,345 $ 253,835 $ 475,346 $ 377,824 =========== =========== =========== ============ Taxes $ 2,020,000 $ 2,353,850 $ 2,020,000 $ 2,353,850 =========== =========== =========== ============ Noncash investing and financing: Plant and equipment purchased with long-term liabilities $ 362,627 $ 411,576 $ 486,511 $ 1,116,631 =========== =========== =========== ============ Conversion of convertible debentures to common stock $ 62,500 $ 815,000 $ 62,500 $ 815,000 =========== =========== =========== ============ 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-month and six-month periods ended December 31, 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 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 six month period ended December 31, 2000, 2,200 shares of common stock were purchased under Ravenswood's 1999 Equity Incentive Plan, and 1,586 shares of common stock were issued under the Company's Employee Stock Purchase Plan. In October 2000, debentures with a face value of $62,500 were converted into 5,625 shares of the Company's common stock. 5 NOTE 4 - Inventories: Inventories are summarized as follows: December 31, June 30, 2000 2000 ----------- ----------- (Unaudited) Bulk wine $22,134,236 $15,262,865 Bottled wine 4,590,277 4,716,701 Crop costs 43,967 137,051 Supplies 130,286 233,943 Tasting room merchandise 164,416 170,724 ----------- ----------- $27,063,182 $20,521,284 =========== =========== NOTE 5 - Property, plant and equipment: Property, plant and equipment are summarized as follows: December 31, 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 9,834,769 9,832,748 Machinery and equipment 1,195,900 1,080,251 Equipment held under capital leases 4,605,465 4,118,953 Office equipment 319,386 298,837 Construction in progress 32,735 -- ----------- ----------- 18,226,497 17,569,034 Less accumulated depreciation 3,573,847 2,781,481 ----------- ----------- $14,652,650 $14,787,553 =========== =========== NOTE 6 - Comprehensive income: Comprehensive income includes unrealized gain (loss) on available-for-sale securities. The following is a reconciliation of net income and comprehensive income (unaudited):
Three months ended Six months ended December 31, December 31, ---------------------------- -------------------------- 2000 1999 2000 1999 ----------- ---------- ---------- ---------- Net income $ 1,958,467 $1,779,954 $3,473,107 $3,277,767 Change in unrealized gain (loss) on available-for-sale securities (20,172) 5,649 3,652 43,216 ----------- ---------- ---------- ---------- Comprehensive income $ 1,938,295 $1,785,603 $3,476,759 $3,320,983 =========== ========== ========== ==========
6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Item 2. 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 general, as sales of the value-priced Vintners Blend Series have increased as a percentage of gross sales, Ravenswood's gross margin has decreased. However, Ravenswood has recently realized efficiencies in their production process for the Vintners Blend Series which have improved gross margin when compared to periods of comparable sales mix. The gross margin for the Vintners Blend Series traditionally is more variable than that of Ravenswood's higher-priced product series because a significant portion of the wine used in the Vintners Blend series is purchased in the bulk market rather than produced by Ravenswood from grapes acquired from its traditional grape suppliers. Ravenswood has entered into several bulk wine purchase contracts with terms extending for one to two years. 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 7 specific periods. Ravenswood traditionally releases new vintages of its Vineyard Designate Series in the fourth fiscal quarter or the first fiscal quarter of the subsequent fiscal year. 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 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. 8 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 Six Months Ended December 31, December 31, ------------ ------------ Statement of Income Data: 1999 2000 1999 2000 ---- ---- ---- ---- Net Sales 100.0% 100.0% 100.0% 100.0% Cost of Goods Sold 48.5 46.0 47.0 45.7 ----- ----- ----- ----- Gross Profit 51.5 54.0 53.0 54.3 Operating Expenses 20.2 22.4 21.2 23.5 ----- ----- ----- ----- Operating Income 31.3 31.6 31.8 30.8 Other Expense, net 1.6 1.5 1.1 1.4 ----- ----- ----- ----- Income Before Income Taxes 29.7 30.1 30.7 29.4 Provision for Income Taxes 11.8 11.8 12.1 11.7 ----- ----- ----- ----- Net Income 17.9% 18.3% 18.6% 17.7% ===== ===== ===== =====
Three Months Ended December 31, 2000 and 1999 Sales Net sales of Ravenswood's products increased to $10.7 million in the three months ended December 31, 2000, from $9.9 million in the three months ended December 31, 1999. This increase is primarily attributable to an increase in the volume of wines produced and sold by Ravenswood. In the three months ended December 31, 2000, case sales increased to 134,245 cases from 119,966 cases in the three months ended December 31, 1999, while the average gross price per case decreased to $83.97 from $86.13 in these respective periods due to a change in the mix of products sold. Gross sales for Vintners Blend Series grew 16.1%, while County Series sales increased by 8.4% for the three months ending December 31, 2000, compared to the three months ended December 31, 1999. Vineyard Designate Series decreased by 16.0% for the period ended December 31, 2000 when compared to the second quarter of fiscal 2000 due to the smaller 1998 vintage which is available for sale during the 2001 fiscal year. The percentages of gross sales attributable to the Vintners Blend Series, County Series and Vineyard Designate Series were 66.4%, 19.7% and 13.0%, respectively, for the three months ended December 31, 2000, as compared to 62.5%, 19.8% and 16.8%, respectively, in the three months ended December 31, 1999. Sales of Ravenswood branded merchandise accounted for approximately .9% of gross sales for the three months ended December 31, 2000 and December 31, 1999. Cost of Goods Sold Cost of goods sold increased to $4.9 million, or 46.0% of net sales, for the three months ended December 31, 2000, from $4.8 million, or 48.5% of net sales, for the three months ended December 31, 1999. The decrease in cost of goods sold as a percentage of net sales is primarily attributable to the improved margins realized in the Vintners Blend Series. Gross Profit Ravenswood's gross profit increased to $5.8 million for the three months ended December 31, 2000, from $5.1 million for the three months ended December 31, 9 1999, and increased as a percentage of net sales to 54.0% from 51.5% in these respective periods. The increase in aggregate gross profit is primarily attributable to increases in sales volume. The increase in gross profit as a percentage of net sales is primarily due to the improved margins realized in the Vintners Blend Series. Operating Expenses Operating expenses increased to $2.4 million for the three months ended December 31, 2000, from $2.0 million for the three months ended December 31, 1999, and increased as a percentage of net sales to 22.4% from 20.2% in these respective periods. The increase in the amount of operating expenses is attributable to several different factors. 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 sales, have increased due primarily to additional personnel that were not hired until the third and fourth quarters of fiscal 2000 when the Quarry Facility and new warehouse became operational. Additionally, depreciation expense has increased significantly as portions of the Quarry Facility have been put into operation. Other Expense, Net Other expense remained stable at $160,207 and $160,396, or 1.5% and 1.6% of net sales, in the three months ended December 31, 2000, and 1999, respectively. Provision for Income Taxes The provision for income taxes reflects an estimated annualized effective tax rate of 39.3% for the three months ended December 31, 2000, and 39.6% for the corresponding period in fiscal 2000. The slight decrease is due to the effect of manufacturer's tax credit on the effective tax rate for the three months ended December 31, 2000. Six Months Ended December 31, 2000 and 1999 Sales Net sales of Ravenswood's products increased to $19.6 million in the six months ended December 31, 2000, from $17.6 million in the six months ended December 31, 1999. This increase is primarily attributable to an increase in the volume of wines produced and sold by Ravenswood. In the six months ended December 31, 2000, case sales increased to 241,782 cases from 206,654 cases in the six months ended December 31, 1999, while the average price per case decreased to $85.85 from $89.59 in these respective periods. Gross sales for Vintners Blend Series grew 23.6%, while County Series sales increased by 16.2% for the six months ended December 31, 2000, compared to the six months ended December 31, 1999. Vineyard Designate Series decreased by 22.7% for the period ended December 31, 2000 when compared to the first six months of fiscal 2000 due to the smaller 1998 vintage. The percentages of gross sales attributable to the Vintners Blend Series, County Series and Vineyard Designate Series were 63.0%, 21.3% and 14.6%, respectively, for the six months ended December 31, 2000, as compared to 57.1%, 20.5% and 21.2%, respectively, in the six months ended December 31, 1999. Sales of Ravenswood branded merchandise accounted for approximately 1.1% of gross sales for the six months ended December 31, 2000, and December 31, 1999. Cost of Goods Sold Cost of goods sold increased to $8.9 million, or 45.7% of net sales, for the six months ended December 31, 2000, from $8.3 million, or 47.0% of net sales, for 10 the six months ended December 31, 1999. The decrease in cost of goods sold as a percentage of net sales is primarily attributable to the improved margins realized in Vintners Blend Series wines. Gross Profit Ravenswood's gross profit increased to $10.6 million for the six months ended December 31, 2000, from $9.3 million for the six months ended December 31, 1999, and increased as a percentage of net sales to 54.3% from 53.0% in these respective periods. The increase in aggregate gross profit is primarily attributable to increases in sales volumes of Ravenswood's product series. The increase in gross profit as a percentage of net sales is due primarily to improved margins realized in Vintners Blend Series wines. Operating Expenses Operating expenses increased to $4.6 million for the six months ended December 31, 2000, from $3.7 million for the six months ended December 31, 1999, and increased as a percentage of net sales to 23.6% from 21.2% in these respective periods. The increase in the amount of operating expenses is attributable to several different factors. 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 sales, have increased due primarily to additional personnel that were not hired until the third and fourth quarters of fiscal 2000 when the Quarry Facility and new warehouse became operational. Additionally, depreciation expense has increased significantly as portions of the Quarry Facility have been put into operation. Other Expense, Net Other expense amounted to $273,302 and $198,368 or 1.4% and 1.1% of net sales, in the six months ended December 31, 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 39.7% for the six months ended December 31, 2000, and 39.3% for the corresponding period in fiscal 2000. The slight increase is due to the effect of manufacturer's tax credit on the effective tax rate for the six months ended December 31, 1999. 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 December 31, 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. 11
Quarter Ended (In Thousands) ---------------------------------------------------------------------------------- September 30, December 31, March 31, June 30, September 30, December 31, 1999 1999 2000 2000 2000 2000 ---- ---- ---- ---- ---- ---- Statement of Income Data: Gross Sales $8,289 $10,437 $8,692 $8,197 $9,607 $11,359 Less Excise Taxes 335 199 326 404 331 241 Less Discounts, Allowance and Returns 262 315 239 309 378 408 ------ ------- ------ ------ ------ ------- Net Sales 7,692 9,924 8,127 7,484 8,898 10,710 Cost of Goods Sold 3,463 4,814 3,897 3,522 4,033 4,922 ------ ------- ------ ------ ------ ------- Gross Profit 4,229 5,110 4,230 3,961 4,865 5,788 Operating Expenses 1,740 2,001 1,832 2,162 2,217 2,403 ------ ------- ------ ------ ------ ------- Operating Income 2,489 3,108 2,398 1,799 2,648 3,385 Other Expense, Net 38 160 205 186 113 160 ------ ------- ------ ------ ------ ------- Income Before Income Taxes 2,451 2,947 2,192 1,613 2,535 3,224 Provision for Income Taxes 953 1,168 875 370 1,020 1,266 ------ ------- ------ ------ ------ ------- Net Income $1,498 $ 1,780 $1,317 $1,243 $1,515 $ 1,958 ====== ======= ====== ====== ====== =======
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 based on the winemaker's opinion on the maturity of the wine; (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. FINANCIAL CONDITION Assets Ravenswood's total assets increased by 17.8% to $54.4 million at December 31, 2000, from $46.2 million at June 30, 2000. Accounts receivable increased 33.4% from $4.2 million at June 30, 2000 to $5.6 million at December 31, 2000. The increase in accounts receivable can be attributed to an increase in sales for the quarter ended December 31, 2000 as compared to sales for the quarter ended June 30, 2000, especially during the month of December. Ravenswood's inventory increased by 31.9% or $6.5 million from $20.5 million at June 30, 2000 to $27.1 million on December 31, 2000. The increase in inventory is primarily due to the receipt of grapes for the 2000 harvest. Property, plant and equipment, net of depreciation, decreased $134,903 from $14.8 million at June 30, 2000 to $14.7 million at December 31, 2000. Liabilities Ravenswood's total liabilities increased 29.3% to $20.5 million at December 31, 2000, from $15.9 million at June 30, 2000. The increase was primarily due to purchases of grapes received for the 2000 harvest and reflected in accounts payable. At December 31, 2000, 12 Ravenswood's long-term liabilities outstanding were $11.0 million and $2.0 million were available under the terms of Ravenswood's lines 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 $6.3 million at December 31, 2000, as compared to $5.8 million at June 30, 2000. The 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 $76,257 for the three months ended December 31, 2000 as compared to $1.1 million used for operations for the three months ended December 31, 1999. The principal uses of cash from operations for the three months ended December 31, 2000 were the acquisition of inventory, especially grapes received through the harvest, payment of income taxes and payment of accounts payable. The principal source of cash for the three months ended December 31, 2000 was net income. Net cash provided by operations was $1.1 million for the six months ended December 31, 2000, as compared to $727,389 used by operations for the six months ended December 31, 1999. The principal uses of cash from operations for the six months ended December 31, 2000 were the acquisition of additional inventory, especially grapes received through the harvest, and funding accounts receivable. Principal sources of cash during this same period were net income and accounts payable. Net cash used for investing activities totaled $60,252 for the three months ended December 31, 2000 as compared to $2.4 million for the three months ended December 31, 1999. The principal use of cash for investing activities for the three months ended December 31, 2000 was primarily purchases of plant equipment. Net cash used for investing activities totaled $170,952 for the six months ended December 31, 2000, as compared to $4.5 million for the six months ended December 31, 1999. The principal use of cash for the six months ended December 31, 2000 was primarily for purchases of plant equipment. During fiscal 2000, Ravenswood was in the process of building and equipping 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 $154,275 for the three months ended December 31, 2000, as compared to $2.1 million provided by financing activities for the three months ended December 31, 1999. The principal use of cash for the three months ended December 31, 2000 was repayment of long-term debt while the principal source of cash for the three months ended December 31, 1999 was financing from Pacific Coast Farm Credit Association to fund construction of the Quarry Facility. Net cash used by financing activities was $351,227 for the six months ended December 31, 2000, as compared to $1.4 million provided by financing activities for the six months ended December 31, 1999. The principal use of cash for the six months ended December 31, 2000 was repayment of long-term debt while the principal source of cash for the six months ended December 31, 1999 was financing provided by Pacific Coast Farm Credit Association to construct the Quarry Facility Ravenswood's grape purchases normally occur in the second fiscal quarter, when the fruit is harvested. For the 2000 harvest, over half of the grapes was received in August and September, or the first fiscal quarter, while the remainder was received in October and November, or the second fiscal quarter. 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 the 2000 harvest, these payments have been or will be made in the following manner: 37%, 30% and 19% in the second, third and fourth quarters of fiscal 2001, respectively, and the 13 remaining 14% in the first quarter of fiscal 2002. 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 December 31, 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 Farm Credit Association for the purpose of financing the construction of the Quarry Facility. The loan is secured by the Quarry Facility and its lease. The Quarry Facility was completed in fiscal 2000 at a total 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. 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 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 14 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, many 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 have a few contracts with bulk wine suppliers, however, these agreements would not protect us from fluctuations in the price or availability of bulk wine because of the amount of wine required for these products. 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-winged 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 was lower than for the 1997 harvest, which we believe was an unusually large harvest. Therefore, the inventory of our 1998 vintage was 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 available 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. 15 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. Because some states have laws that prohibit distributor 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. 16 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. 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 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. 17 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 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 held by our directors and executive officers, will be exercised, our directors and executive officers and their respective affiliates would beneficially own 2,243,976 shares of common stock, or approximately 44.8% 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 18 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. 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 December 31, 2000: Working capital $2,297 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 4. Submission of Matters to a Vote of Security Holders The following matters were submitted to the shareholders at Ravenswood's Annual Meeting of Shareholders held on November 7, 2000. Each of these matters was approved by a majority of the shares present at the meeting. (1) The uncontested reelection of each member of the Board of Directors: Name Shares Voted For Shares Withheld W. Reed Foster 4,571,925 5,110 Joel E. Peterson 4,571,925 5,110 Callie S. Konno 4,571,915 5,120 Justin M. Faggioli 4,571,534 5,501 James F. Wisner 4,571,825 5,210 Robert E. McGill, III 4,571,725 5,310 John D. Nichols 4,571,635 5,400 (2) Amendment to the 1999 Equity Incentive Plan Shares voted for: 2,965,233 Shares voted against: 59,337 Abstain: 945 Broker Non-Vote 1,833,414 (3) Ratification of the appointment of Ravenswood's Independent Auditors Shares voted for: 4,535,784 Shares voted against: 1,876 Abstentions: 39,375 Broker Non-votes: 281,894 Item 6. Exhibits and Reports on Form 8-K (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: February 12, 2001 Ravenswood Winery, Inc. /s/ Callie S. Konno ----------------------------------- Callie S. Konno Chief Financial Officer Dated: February 12, 2001 /s/ W. Reed Foster ----------------------------------- W. Reed Foster Chairman of the Board and Chief Executive Officer 21