Willamette Valley Vineyards, Inc. — 2020 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2020; it does not provide a standalone fourth-quarter income statement. The Oregon-based company produces premium wines and sells through direct-to-consumer channels and distributors. Its brands include Willamette Valley Vineyards, Tualatin Estate, Griffin Creek, Elton, Pambrun and Maison Bleue.
Financial and operating highlights
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Net sales | $27.315 million | $24.749 million | Up 10.4% |
| Gross profit / margin | $16.730 million / 61.2% | $15.295 million / 61.8% | Gross profit up 9.4%; margin down 0.6 percentage points |
| Income from operations | $5.002 million | $3.728 million | Up 34.2% |
| Net income | $3.395 million | $2.511 million | Up 35.2% |
| Income applicable to common shareholders / EPS after preferred dividends | $2.279 million / $0.46 | $1.485 million / $0.30 | Up 53.5% |
| Cash from operations | $5.421 million | $4.291 million | Up $1.130 million |
| Cash from investing | $(4.772) million | $(5.319) million | Lower investment outflow |
| Cash from financing | $6.301 million | $(1.660) million | Primarily reflected preferred-stock proceeds |
- Year-end cash was $14.000 million, versus $7.050 million a year earlier. Working capital was $27.5 million and the current ratio was 4.80:1.
- Long-term debt was approximately $5.984 million and the property-purchase note payable was $1.385 million. The company had no outstanding borrowings on its $2 million revolving credit line and reported compliance with its covenants.
- Net sales increased across direct retail and distributor channels. Retail sales rose 12.6%, in-state distributor sales 27.9%, and out-of-state sales 1.2%. Direct sales were 38.6% of net sales; distributor sales were 61.4%.
- Produced-wine case sales increased 15.3% to 180,850 cases. The company produced about 175,357 cases and reported 157,347 cases of bottled wine in inventory at year-end.
Material changes versus 2019
- Revenue and earnings grew, supported by higher internet and telephone sales, stronger in-state distributor sales and increased shipments to distributors. Tasting-room and kitchen activity was constrained by COVID-19, but online and ambassador-program sales more than offset those declines in retail revenue.
- Gross margin fell to 61.2% from 61.8%, which management attributed mainly to lower per-case margins on wines from higher-cost vintages.
- Direct sales remained broadly stable as a share of net revenue, while the distributor mix shifted modestly toward in-state sales.
- Crop yield was below the seven-year average: company-grown grapes were 1,031 tons, compared with 1,572 tons in 2019. The company purchased 1,470 tons in 2020, versus 1,046 tons in 2019.
- Preferred-stock issuance generated $7.498 million net proceeds recorded as equity, with an additional $0.511 million of investor deposits recorded as a liability. Preferred shares outstanding increased to 6.310 million from 4.663 million.
Outlook, risks and unusual items
- Outlook: Management said operating cash flow, available credit facilities and the preferred-stock program should meet foreseeable operating needs. No quantified revenue, earnings or margin guidance is provided.
- COVID-19: Tasting-room closures and capacity limits, reduced hospitality demand, possible employee disruptions and uncertain consumer spending remained risks. Curbside pickup and shipping promotions helped mitigate direct-sales declines. The company delayed some planned capital expenditures to preserve liquidity.
- Growth investment: The Bernau Estate tasting-room project was expected to cost about $14.4 million and be mostly completed during fiscal 2021; approximately $5.3 million had been spent through year-end 2020. Management expected funding from cash and debt and/or equity financing. The company also opened Willamette Wineworks in Folsom, California, in 2020.
- Liquidity facilities: The company returned a $1.655 million PPP loan after obtaining a $5 million Farm Credit Services commitment intended to provide added liquidity; it had not drawn on that commitment as of the filing date. Its $2 million Umpqua credit line was due to expire in July 2021.
- Key business risks: Grape availability and quality, weather and wildfire smoke, vineyard disease including phylloxera, competition, consumer demand, distributor dependence and COVID-19. One distributor represented approximately 24.0% of 2020 revenue, compared with 14.1% in 2019.
- Other obligations: Contractual obligations totaled $16.847 million, including $8.170 million of undiscounted operating-lease payments. Series A preferred stock carries a cumulative 5.3% dividend and may be optionally redeemed by the company after June 1, 2021, subject to its terms.
- The auditor issued an unqualified opinion on the financial statements and reported no critical audit matters. The auditor was not engaged to audit internal control; management concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Reconcile the EBITDA disclosures: the narrative states $6.984 million for 2020, while the reconciliation table calculates $6.980 million; the narrative also says EBITDA increased 22.2%.
- Assess whether the higher distributor concentration and increase in distributor incentive expenses—$1.758 million in 2020 versus $1.076 million in 2019—affect revenue quality, customer dependence or margins.
- Evaluate funding and completion costs for the Bernau Estate project, including the company’s expected use of cash, debt and/or equity and the status of the credit facilities.
- Monitor preferred-stock dividend and potential redemption obligations alongside the company’s capital spending and liquidity needs.
- Track grape yields, purchased-grape costs and supply risks, including the impact of weather, smoke and vineyard disease.