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SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
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: 0-13406
The CHALONE Wine Group, Ltd.
(Exact name of Registrant as specified in its charter)
California 94-1696731
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
621 Airpark Road
Napa, California 94558
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 707-254-4200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of Registrant's Common Stock on May 3, 1995 was
4,962,344
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The CHALONE Wine Group, Ltd.
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Incorporated herein is the following unaudited financial information:
Consolidated Balance Sheets as of March 31, 1995, and December 31,
1994.
Consolidated Statements of Operations for the three-month and
nine-month periods ended March 31, 1995 and 1994.
Consolidated Statements of Changes in Financial Position for the
three-month and nine-month periods ended March 31, 1995 and 1994.
Notes to Consolidated Financial Statements.
The CHALONE Wine Group, Ltd.
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
March 31, December 31,
1995 1994
------- -------
(unaudited)
Current Assets
Cash............................................................ $ 242 $ 70
Accounts receivable, less allowance for doubtful accounts of
$28 and $17................................................... 3,295 4,509
Inventories...................................................... 28,740 29,422
Prepaid expenses and other assets................................ 164 209
Deferred income tax benefit...................................... 312 312
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Total current assets....................................... 32,753 34,522
Investment in Domaines Barons de Rothschild (Lafite)............. 12,524 12,524
Property, plant and equipment - net.............................. 20,299 20,444
Intangible assets arising from acquisitions, less amortization of
$880 and $854.................................................. 3,223 3,252
Other assets..................................................... 1,500 1,484
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Total assets............................................... $70,299 $72,225
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable.................................................... $13,708 $13,874
Current maturities on long-term obligations...................... 791 799
Accounts payable and accrued expenses............................ 1,574 2,713
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Total current liabilities.................................. 16,073 17,386
Long-term obligations, less current maturities..................... 5,455 5,541
Convertible subordinated debentures................................ 20,884 20,884
Deferred income taxes.............................................. 978 1,171
Minority interests................................................. 2,978 3,043
Shareholders' equity
Common stock.................................................... 24,467 24,472
Retained earnings (deficit)..................................... (536) (273)
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Total shareholders' equity................................ 23,931 24,199
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Total liabilities and shareholders' equity................ $70,299 $72,225
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<FN>
The accompanying notes are an integral part
of the consolidated financial statements
3
The CHALONE Wine Group, Ltd.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)(in thousands, except per-share data)
Three Months Ended
March 31,
-----------------------
1995 1994
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Wine sales ......................................................................... $ 4,423 $ 4,067
Cost of wines sold ................................................................. 2,926 2,596
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Gross profit .................................................................. 1,497 1,471
Operating expenses ................................................................. 1,221 1,101
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Operating income .............................................................. 276 370
Other income (expense)
Interest expense .............................................................. (736) (677)
Other, net .................................................................... 9 (27)
Minority interests ................................................................. (5) (37)
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Income (loss) before income taxes ............................................. (456) (371)
Income tax (benefit) expense ....................................................... (193) 155
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Net income (loss) ............................................................. $ (263) $ (216)
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Net income (loss) per common share ................................................. $ (.05) $ (.05)
Average number of shares used in income (loss) per share computation ...............
4,961 4,602
<FN>
The accompanying notes are an integral part
of the consolidated financial statements
4
The CHALONE Wine Group, Ltd.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(unaudited)(in thousands)
Three Months Ended
March 31,
--------------------------------
1995 1994
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Cash flows from operating activities:
Net earnings .................................................................... $ (263) $ (216)
Non-cash transactions:
Depreciation .................................................................. 314 318
Amortization .................................................................. 40 37
Increase in minority interest ................................................. 5 37
Loss (gain) on sale of equipment .............................................. 3 37
Changes in:
Deferred income taxes ....................................................... (193) (155)
Accounts receivable ......................................................... 1,214 824
Inventories ................................................................. 682 435
Prepaid expenses and other assets ........................................... 17 43
Accounts payable and accrued expense ........................................ (1,139) (1,015)
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Net cash provided (required by) operating activities
681 345
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Cash flows from investing activities:
Capital expenditures .......................................................... (200) (125)
Proceeds from disposal of equipment ........................................... 27 5
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Net cash used in investing activities ......................................... (173) (120)
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Cash flows from financing activities:
Net repayments under line of credit agreement ................................... (166) (236)
Repayment of long-term debt ..................................................... (95) (261)
Distribution to minority interest ............................................... (70) --
Net proceeds from issuance of common stock ...................................... (5) 2
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Net cash provided from financing activities ................................... (336) (495)
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Net increase (decrease) in cash .................................................... 172 (270)
Cash at beginning of year ....................................................... 70 421
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Cash at end of period ......................................................... $ 242 $ 151
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<FN>
The accompanying notes are an integral part
of the consolidated financial statements
5
The CHALONE Wine Group, Ltd.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of March 31, 1995, the consolidated
statement of operations for the three-month period ended March 31, 1995 and
1994, and the consolidated statement of changes in financial position for the
three-month period then ended have been prepared by the Company, without audit.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly position, results of
operations and changes in financial position at March 31, 1995, and for all
periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
consolidated financial statements be read in conjunction with the financial
statements and notes included in the Company's December 31, 1994, audited
financial statements.
NOTE 2 - SEASONAL FACTORS
The results for the interim periods are not necessarily indicative of
the results to be expected for the year, due to seasonal factors.
6
The CHALONE Wine Group, Ltd.
ITEM 2. MANAGEMENTOS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to revenue
of certain items in the Company's statements of operations for the three-month
period ended March 31, 1995 and 1994, and the percentage change in such items
between the comparable periods in those years.
Three Months Ended March 31,
--------------------------------------
Percentage Percent
of Wine Sales Change
----------------------- -----------
1994 vs.
1995 1994 1995
---------- ---------- -----------
Wine sales.................... 100.0% 100.0% 8.8%
Cost of wines sold............ 66.1 63.8 17.6
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Gross profit............... 33.9 36.2 1.8
Operating expenses............ 27.6 27.1 10.9
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Operating income........... 6.3 9.1 (25.4)
Other income (expense)
Interest expense........... (16.6) (16.6) 8.7
Other, net................. 0.2 (0.6) --
Minority interests............ 0.1 (0.9) (86.8)
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Loss before income taxes... (10.3) (9.1) 22.8
Income tax benefit............ 4.4 3.8 24.6
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Net loss................. (5.9) (5.3) 21.5
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7
The CHALONE Wine Group, Ltd.
Wine Sales
Sales for the three months ended March 31, 1995, increased approximately 9%
over the comparable period in 1994. This increase was due to increased volume of
wine sales from wholesale markets outside of California. Sales within California
were negatively impacted by unfavorable weather conditions experienced during
that three-month period in 1995.
Gross Profit
Gross profit for the three months ended March 31, 1995, increased by
approximately 2% from the comparable period in 1994. Gross profits as a
percentage of total declined from 36% in 1994 to 34% in the current three-month
period. This decline is attributable to changes in sales mix to lower margin
wines. Management believes that the sales mix will improve during the remainder
of the year resulting in a higher gross margin percentage.
Operating Expenses
Operating expenses include selling, general and administrative expenses.
Operating expenses in the first quarter of 1995 increased by 11% over the
comparable period in 1994. This increase was due primarily to selling expenses
for additional regional sales personnel and certain marketing programs.
Operating expenses as a percentage of sales remained essentially unchanged at
27% for the comparable three-month periods in 1994 and 1995.
Operating Income
Operating income for the three months ended March 31, 1995, dereased 25%
from the comparable period in 1994. This decrease was due to lower gross margins
and higher operating expenses, both discussed above.
Other Income (Expense)
Interest expense for the three months ended March 31, 1995, increased 9%
from the comparable period in 1994. This increase was due to higher rates offset
in part by lower borrowings.
Minority Interest
The Company currrently has three ventures in which there is a minority
interest. The "minority interest" in earnings (losses) of these ventures for the
year ended March 31, 1995, consisted of the following:
Minority
Interest in
Venture Minority Owner Minority % Earnings (Loss)
------- -------------- ---------- ---------------
Edna Valley Vineyard Paragon Vineyard Co., Inc. 50% $ 16,989
CanoeCo Partners CRVI 50% (8,114)
Canoe Ridge Winery (CRW) Various 49% (4,143)
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$ 4,732
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The "minority interest" amount for Edna Valley Vineyard represents a decrease
from the comparable period in 1994, and was due to lower unit sales and the
resulting lower profits for the period. The "minority interest" in net losses at
CanoeCo represent the losses incurred during the growing season prior to harvest
later in the year. CRW has only operated since October, 1994, and has not yet
released its first vintage, and is expected to occur in the summer of 1995.
The Company believes that Edna Valley Vineyard will continue to contribute
signicantly to its income, and hence that this "minority interest" will
continue. Management believes that CanoeCo and CRW should approach "normal"
production levels in 1995, and will have also growth proportionately.
8
Net Loss
Net Loss for the three months ended March 31, 1995, was $263,000, as
compared to a loss of $216,000 in the comparable period in 1994, due primarily
to higher sales and lower selling and interest costs, all as discussed above.
SEASONALITY
The Company's wine sales from quarter to quarter are highly variable
because the exact dates when wines are released for sale vary from year to year.
Sales are typically highest during the fourth quarter, because of heavy holiday
sales and because most wines are released around the end of the third and
beginning of the fourth quarters.
FINANCIAL CONDITION
The Company's working capital decreased by $456,000 during the
three-month period ending March 31, 1995, to $16,680,000, due to normal capital
expenditures, planned repayments of long-term debt and the net loss incurred.
At May 3, 1995, the Company had lines of credit totaling $15,700,000 of
which $13,118,000 had been drawn.
The Company is not aware of any potential impairments to its liquidity
and believes that its capital resources are adequate to meet the current and
historic levels of capital expenditures and liquidity needs of the Company.
PART II. - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. Not applicable.
(b) Reports. None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
THE CHALONE WINE GROUP, LTD.
Dated: May 8, 1995 BY /s/ William L. Hamilton
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William L. Hamilton
Executive Vice President
and Chief Financial Officer