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Rev. Apr. 26, 2016
Calaveras Vineyards
In March 1994, Anne Clemens, a senior vice president at Goldengate Capital, received a loan proposal
from Tom Howell, a managing director with NationsBank’s investment-banking group. The brochure
described the prospective management acquisition of Calaveras Vineyards and solicited Goldengate’s
participation in the $4.5 million senior financing facility. The facility would consist of a $2 million term loan
and a revolving credit of up to $2.5 million. Clemens needed to decide quickly whether the proposed terms
were attractive, where to position Goldengate in this credit, and whether to offer a counterproposal on terms.
Goldengate Capital was a large West Coast financial institution with main activities in commercial lending,
asset-based financing, leasing, mezzanine lending, and equity investing. Clemens had worked with Howell on a
previous deal, and participated in two other business deals structured by him. These proved to be very profitable
deals for Goldengate, so Clemens planned to give this new proposal careful study. NationsBank N.A. was the
third largest financial institution in the United States.
Calaveras Vineyards
Calaveras Vineyards sat on 220 acres in Alameda Valley, California. The vineyards occupied 175 acres. The
remaining acres consisted of various equipment sheds (to house the farming equipment), the winery building
(containing storage tanks, aging barrels, and a small bottling operation), and a small farmhouse with guestrooms,
offices, and the requisite tasting and sales room. Exhibit 1 summarizes the major assets of the vineyard.1
Esteban Calaveras founded Calaveras Vineyards in 1883 to make wine for the Catholic Church. By the
1950s, the winery and vineyard had expanded into the production of table wines for sale to retailers and
restaurants. Through the 1960s and 1970s, the Calaveras family, who continued to own the vineyards, made
few changes despite dramatic growth in demand for California wines and the entry of large corporations in the
production of California wines. Ownership of the vineyard changed hands in 1986, 1990, and 1992, as the
vineyard passed from one large corporate wine producer to another. With each change, the vineyard changed
marketing organizations (i.e., independent firms that managed the sales and marketing of the vineyard’s
products). Thus, over the preceding nine years, there had been three changes in both the ownership and the
marketing organization.
Most recently, Stout PLC, a British conglomerate with interests in alcoholic beverages and branded
consumer products, acquired Calaveras Vineyards in a purchase of a portfolio of vineyards from another
1 Clemens had heard that choice vineyard land might sell for between $5,000 and $10,000 an acre, but that acreage was usually sold in units sufficient
in size to constitute a winery business. She suspected that, in a forced liquidation, receivables could be sold for 85% of face value, and inventory (virtually
all of which was finished goods) could be sold for 75% of book value, while plant and equipment would fetch 40% of book value.
This case was prepared by Robert F. Bruner. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an
administrative situation. Information about the company has been disguised. Some information on peer firms is fictional and has been added for the
sake of deepening student analysis. Copyright 1995 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved.
To order copies, send an e-mail to sales@dardenbusinesspublishing.com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet,
or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation.
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conglomerate. Stout decided to sell Calaveras as part of a drive to focus on large, well-known wine and spirits
brands.
Products, marketing, and competition
Despite the many changes in ownership and marketing, Calaveras managed to improve its brand image and
market position through a strategy of careful quality control, market segmentation, and capital improvements
(such as converting from redwood to oak cooperage, upgrading the winery with a bladder press, and installing
a sprinkler system). Because of these improvements, Calaveras increased its average wholesale prices from
$29.52 in 1989 to $44.26 in 1993.
Calaveras’s products could be broken down into five main categories:
1. Estate wines were made and bottled at the winery from a few selected varieties. The Sauvignon Blanc
and Cabernet Sauvignon were highly praised by numerous influential wine writers, while the Petite
Sirah was one of Calaveras’s oldest and best-known varieties. All of Calaveras’s estate wines were sold
in the superpremium category.
2. Selected-vineyards wines were made from grapes purchased from selected vineyards (under long-term
contracts), and aged and bottled separately to preserve their special characteristics. The Chardonnay
was highly praised by numerous influential wine writers and brought prestige to the Calaveras brand.
All selected-vineyards wines were sold in the superpremium category.
3. California wines were made from medium-quality Calaveras produce. This category was declining in
importance, as Calaveras was able to elevate its wines to a higher status and pricing category under
either the estate or selected-vineyards programs.
4. Generic wines were made from lesser-quality produce of the estates, selected-vineyards, and California
categories.
5. Special-accounts wines were made from surplus, lesser-quality wine, and from non-varietal grapes. This
wine was sold under special programs to airlines, hotels, and church parishes.
Exhibit 2 summarizes the breakdown of 1993 revenues among these categories.
In recent years, Calaveras’ corporate owners had aimed to lift the company out of the bulk-wine category
and into the premium-brand segment of the market. Dr. Lynna Martinez joined Calaveras in 1987 in order to
develop and implement a strategy to reach this goal. Martinez’s strategy called for developing estate wines that
would put the Calaveras brand in the premium category and focusing the product line on a few premium
varieties of grapes. Accordingly, Calaveras introduced the Sauvignon Blanc, Cabernet Sauvignon, and Petite
Sirah wines and reduced the number of varietal grapes grown at the vineyard from 22 in 1987 to seven in 1994.
In 1990, Martinez introduced the Chardonnay to broaden Calaveras’s position in the premium category. Having
attained the goal of moving Calaveras to the premium segment of the wine market, management’s strategy now
called for cautious price increases and the development of the special-accounts segment in order to use fully
Calaveras’s lesser-quality wines.
Calaveras management planned to adopt a new marketing company upon consummation of the acquisition.
The new company, Winston-Fendall, was a well-established wine marketer on the West Coast, where Calaveras
sales were strongest. Winston-Fendall had also just lost its flagship account and promised to position Calaveras
in that capacity. The contract with the marketing company called for Winston-Fendall to collect all receivables
on behalf of Calaveras and remit them to Calaveras. In addition, Winston-Fendall would pay Calaveras any
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receivables left unpaid after 90 days on a non-recourse basis. Management believed these requirements would
relieve Calaveras of credit risk.
About two-thirds of Calaveras’s case sales were made through its wholesale-distribution network, and the
remainder was sold directly to special commercial accounts, including airlines and hotels. Its distributors sold
roughly 60% of Calaveras’s wholesale case sales to restaurants. The remaining 40% was sold primarily to highend retail outlets. Calaveras management planned to make no significant changes in its current wholesale
distribution network. All major distributorships expressed keen interest in a continuing or increasing
relationship with Calaveras. Nine distributors handled 80% of total volume, with two distributors in California
handling 50% of total volume.
Calaveras developed special commercial accounts with airline and hotel companies, which represented sales
volume of approximately 15,000–25,000 cases a year. These accounts permitted Calaveras to sell wine that
ordinarily would be sold in bulk. Because these were direct sales, margins to Calaveras were higher than if the
cases had been sold through intermediaries. Gigantic Airlines, a major national air-transportation company,
purchased 4,000 cases of this wine in 1987 and raised the volume to 12,715 cases in 1993. At the same time,
free-on-board (FOB) prices increased from $21 per case in 1987 to $39.70 per case in 1993. Gigantic was
committed to a minimum of 16,500 cases in 1994 and told management that future purchases should be no
less than 16,500 cases per year.
A common practice in the industry was to segment demand by price, ranging from “Low Price” (under
$2.75 per 750-milliliter equivalent bottle at retail), “Economy” ($2.76–$4.25), “Popular” ($4.26–$5.75),
“Premium” ($5.76–$7.50), “Super Premium” ($7.51–$10.00), and “Ultra Premium” ($10.01 and over).
Competition in the superpremium and premium wine segments was fragmented. Nevertheless, management
identified several brands with characteristics similar to Calaveras—namely, high visibility, a reputation based
on a well-respected brand and/or personality of the owners/winemakers, and a competitive position in the
superpremium/premium segment. These competitors included Clos du Val, Cakebread, Acacia, SonomaCutrer, and Jordan, all of which were privately owned and typically secretive about their finances and operations.
Nationwide, demand for alcoholic beverages stagnated, and unit sales of spirits declined. Dollar sales of
beer had grown only 2.2% in 1992—less than the rate of inflation. Wine sales in supermarkets, however, had
grown 7.4%, in part because “…supermarket operators are becoming increasingly sophisticated in their
selections of quality wines with higher price points, and because they are doing a better job of merchandising.”2
Another source noted:
Domestic table wine, in particular, outshone the overall wine market… In recent years, this category
was fueled by premium California varietals. American consumers have increasingly been moving away
from the generic wines popular in the 1970s to the more upscale, higher-quality varietal wines. Several
commercial wine manufacturers, most notably Gallo, Heublein, and The Wine Group, have moved
into the premium varietal market to reap its profits. And that is what they did in 1991. Both Gallo’s
Reserve Cellars and Heublein’s Blossom Hill posted double-digit gains in 1991…3
Offering one unusual explanation for these sales improvements, Standard & Poor’s noted:
Much of the gains can be traced to the continued effects of the publicity surrounding the so-called
French Paradox—scientific studies indicating that while the French consume 30% more fat per year
than do Americans, they have a 40% lower incidence of coronary disease. The report gained widespread
2
3
Progressive Grocer (July 1993): 74.
Jobson’s Wine Marketing Handbook 1992 (New York: Jobson Publishing Corporation, 1992), 6.
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attention following a program on the subject that first aired on CBS’s 60 Minutes in November 1991.
The show aired again in the summer of 1992. In the report, both American and French doctors
suggested that the “paradox” could be related to the fact that the French drink more wine than
Americans do. The researchers concluded that moderate consumption of alcoholic beverages—
particularly red wine—could reduce the risk of heart disease by as much as half. There has been a
significant upturn in wine sales, especially red wine, since the 60 Minutes report aired.4
Operations
The vineyard supplied about half the grape requirements of the Calaveras winery. Exhibit 3 details the
acreage under production and the yield by variety of grape. To fulfill its grape requirements, the new company
would assume two long-term supply contracts from Stout PLC. Exhibit 4 outlines the purchase terms under
these contracts for 1993. Clemens learned that the price under these long-term contracts was variable with the
market. She assumed that this year’s price per ton would be a fair predictor of next year’s price, although the
uncertainty about the cost of goods meant that gross margins for each of the product lines could vary by as
much as 4% up or down from target. She assumed that gross margins had a standard deviation of 2%.
The production of wine from grapes entailed four main steps: crushing, fermenting, aging, and bottling.
The winery was located on the vineyard property, with total capacity of approximately 65,000 cases per year for
estate and selected-vineyards production. Although the winery had adequate production capacity in most areas,
a moderate amount of fermentation, storage, and aging capacity was leased from Seraphim Winery, a neighbor.
All finished bottled goods were also warehoused at Seraphim.
Management
Martinez, vice president and general manager of the property for Stout PLC, headed management of the
new company. The operations manager, Peter Newsome, remained in that capacity. Martinez purchased 85%
of the equity of the new company, and Newsome purchased the remaining 15%. Exhibit 5 presents abbreviated
résumés for these individuals.
Historical financial performance
Stout PLC provided pro forma historical profit-and-loss statements and balance sheets for Calaveras’s fiscal
years ended March 1990, 1991, 1992, and 1993. These statements are presented in Exhibit 6. Management
believed that sales and operating profit were approximately as follows:
Sales
Operating cash flow
(all values in thousands)
1991
$2,848
$(54)
1992
$2,836
$13
1993
$2,534
$260
Sales increased from $2.4 million in 1990 to $2.8 million in 1991 and 1992, as Calaveras’s strategy of introducing
premium wines with increasing average prices began to show tangible results. Sales dropped to $2.5 million in
1993, as Stout’s dismantling of its vineyard operations began to have an impact on Calaveras’s volumes; in
particular, Calaveras had no effective sales organization representing it. Operating cash flow improved
dramatically because of increased average prices for Calaveras wines.
4
Standard & Poor’s Industry Surveys (August 26, 1993): F31.
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Financial projections
Management developed a financial forecast with the assistance of the prominent accounting firm Ernst and
Anderson. Forecast balance sheets, income statement, and assumptions are given in Exhibits 7, 8, and 9,
respectively. Because many factors varied predictably with the planned production level, the primary variable
was case revenues. Management developed what it believed was a conservative projection of case sales, which
took into account three main factors: case-sales trends and demand, inflation, and real price increases reflecting
Calaveras’s strengthening brand recognition.
Historical and projected case sales are given in Exhibits 10 and 11. Sales in Calaveras Vineyards’ first year
were expected to rebound to the levels of 1992, due to the revitalization of the company’s marketing effort.
Case-sales forecasts for the second year and beyond predicted a continuation of the increasing demand for
Calaveras’s estate Sauvignon Blanc, Cabernet Sauvignon, and selected-vineyard’s Chardonnay, while
recognizing the constraints of vineyard and production capacity for these and other varieties. Overall, this
displayed a shift in product mix toward white wines. Clemens learned that the theoretical maximum capacity of
the winery was 110,000 cases per year. Without further information, she assumed that, to sustain unit growth
shown in the forecasts, it would be necessary to invest $350,000 per year starting in 1996, rather than the
$250,000 per year shown in the loan-proposal forecast. The forecast also showed an ambitious real growth rate
in unit prices of 2%. Clemens wondered how long real price growth could continue, and generally believed that
it was an especially uncertain number.5 In defense of this assumption, the proposal document pointed to the
strong past success of Martinez in elevating the winery’s brand recognition and shifting the product mix into
the higher-price categories.
For the sake of comparison, Clemens’s assistant gathered information on manufacturers of wine and
brandy (Exhibit 12). Unfortunately, few publicly listed “pure-play” firms were comparable to Calaveras.
Clemens’s assistant identified three possible comparables, all traded over-the-counter:
Canandaigua Wine Company was the second-largest producer of wines in the United States, with sales
in 1993 of $471 million. Once derisively called “Chateau Screwcap” and “a wino’s winemaker”6 for its
focus on low-price product segments, the firm was building a record of solid growth and profit
improvement through the acquisition and consolidation of small wineries. The firm was located in
upstate New York.
Finn & Sawyer Wine Company reached sales of $25 million, and their headquarters operated out of
Mendocino, California. It operated four California vineyards and produced only ultrapremium and
superpremium wines.
Frogg’s Jump Winery, Inc., had sales of $67 million and was located in Livermore Valley, California.
This firm specialized in the production of private-label wines for hotels, resorts, and airlines, and
serviced the higher-volume wine needs of wine-cooler manufacturers and large religious organizations.
Valuation information about these firms included the following:
5
6
Indeed, Clemens believed that real price growth could vary between +3% and −1% with equal probability.
Jay Palmer, “Sampling Chateau Screwcap,” Barron’s (July 20, 1992): 36.
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Canandaigua
Finn & Sawyer
Frogg’s Jump
Beta (levered)7
0.59
1.35
0.95
Beta (unlevered)
0.54
1.312
0.867
Book value debt/equity ratio
0.86
0.12
0.35
Market value
debt/equity ratio
0.277
0.048
0.156
Market/book ratio
3.11
2.50
2.25
Price/earnings ratio
(on expected EPS)
14
13
15
Tax rate
38%
40%
39%
Expected EPS growth rate,
next 5 years
25%
11%
14%
Clemens was conscious of the fact that Calaveras was a considerably smaller company than comparables, and
that, with the performance turnaround and change in management, some conservative equity investors might
demand a venture-capital type of return from Calaveras. Target venture-capital equity returns were at least 30%.
As for future financing, Clemens believed that Calaveras would gravitate toward the industry-average capital
structure.
In the first quarter of 1994, long-term corporate interest rates rose 150 basis points on fears of rising
inflation. Similarly, the stock-market indexes receded 4%. Exhibit 13 gives a summary of historical rates of
inflation in recent years. Clemens learned that between 1926 and 1992 inflation averaged 3.1% per year and had
a standard deviation of 4.7%. Exhibit 14 presents information on current capital-market conditions.
Conclusion
The specific terms of financing would need to be determined through negotiations between the buyers and
their creditors. The NationsBank proposal, however, contemplated the following structure at closing:
7 These betas taken from Value Line and author analysis. Such betas are estimated by regressing the difference between return on the company and
the risk-free rates of return against the equity-market premium (calculated as the return on a large portfolio of stocks including both large and small
capitalization companies less the risk-free rate of return).
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Uses of Funds
(in millions of dollars)
Net working capital8
Land
Plant and equipment
Organization expenses
Total uses
Sources of Funds
(in millions of dollars)
$2,116
1,124
582
300
$4,122
Revolving loan
Term loan
Equity investment
$1,122
2,000
1,000
Total sources
$4,122
NationsBank proposed that the revolving loan be secured by accounts receivable and inventory. The
maximum commitment under the revolver would be $2.5 million, though the borrowing base (the amount
actually permitted to be outstanding under the loan) would be equal to 85% of receivables and 75% of
inventories.9 The interest rate on the revolving loan would be prime plus 2.0%. The term loan would amortize
equally over five years, and would be secured by land, plant, and equipment. The interest rate on the term loan
would be prime plus 3.0%. The prime rate was currently 6.75%.10 As a rough initial assumption, Anne Clemens
decided to assume a total interest rate of 9.5% on both the revolver and term loan. Clemens also assumed that,
over the long term, Martinez would lever Calaveras’s balance sheet at levels typical for other wine-producing
companies, and Clemens proposed to use a discount rate consistent with this assumption.
The proposal from Tom Howell noted that Calaveras was currently carried on Stout’s books for
approximately $7 million, and the fair market value of the assets of Calaveras was estimated to be $5 to
$7 million. Therefore, the purchase price for the assets of the firm of $4.122 million represented a significant
discount.
Clemens needed to decide quickly whether to participate in this deal, and how. Could the new company
service the debt? What was the value of the assets on both an asset and a cash-flow basis? What were the “key
drivers” of these values, and how sensitive were the values to variations in those assumptions? How attractive
was this deal from the standpoint of the equity investors? Should she propose alternative terms, and if so, what
should they be?
As the sun set over the Pacific Ocean, Clemens decided to tackle these questions with the help of her
assistant. After telephoning for supper from a nearby deli, she booted up her computer and accessed the
spreadsheet model of the financial forecast that her assistant had prepared.
Net working capital at closing was projected to be the sum of cash ($50,000) and inventory ($2,196,000) less payables and accruals ($130,000).
Privately, Clemens estimated that, in liquidation, a sale of the plant and equipment would fetch a value equal to only 40% of their gross book value.
10 Clemens believed that changes in the prime rate of interest were normally distributed with a mean of zero and a standard deviation of about 1.75%.
8
9
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Exhibit 1
Calaveras Vineyards
Summary of Major Assets
Acreage:
220 gross acres
175 planted acres
Buildings:
8 structures (2 of wood frame and batten siding; 6 of metal sides and roof, and concrete floor).
Grape-crushing equipment
Bottling equipment (@ 70 bottles per minute)
Cooperage:
40 stainless-steel tanks; 254,774 gallons capacity.
33 wooden tanks; 61,298 gallons capacity.
1,161 French oak barrels; 69,760 gallons capacity.
1,197 barrels used for generic wines; 63,667 gallons capacity.
Source: NationsBank offering document.
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Exhibit 2
Calaveras Vineyards
Breakdown of 1993 Revenues by Product Category
Products
Percentage of 1993 Revenues
Estates
Sauvignon Blanc
Cabernet Sauvignon
Petite Sirah
(w)
(r)
(r)
13.8
8.6
4.5
Selected vineyards
Chardonnay
Sauvignon/Fume Blanc
White Zinfandel
(w)
(w)
(w)
30.0
4.9
2.5
California
Petite Sirah
Chenin Blanc
Other
(r)
(w)
(r)
8.1
1.6
0.4
Generic
White table wine
Red table wine
Special accounts
6.9
2.1
(r,w)
Total
16.6
100.0
Note: “r” indicates a red wine; “w” indicates a white wine.
Source: NationsBank proposal document.
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Exhibit 3
Calaveras Vineyards
Summary of Acres under Production and Tons per Acre by Variety of Grape
Variety and Acres
Growing in 1993
1991 Tons/Acre
1992 Tons/Acre
1993 Tons/Acre
Sauvignon Blanc
(71 acres)
3.4
3.1
2.9
Semillon
(20.1 acres)
4.4
4.7
3.4
Chenin Blanc
(5.7 acres)
7.5
11.9
7.3
White Riesling
(7.8 acres)
3.0
2.4
1.4
Muscat Blanc
(0 acres)
2.7
0.8
0
White total
(107.15 acres)
3.7
3.7
3.0
Cabernet Sauvignon
(40.5 acres)
2.8
2.9
2.8
Petite Sirah
(26.7 acres)
2.9
2.7
2.2
Red total
(67.2 acres)
2.8
2.8
2.5
Grand total
(174.35 acres)
3.4
3.4
2.8
Notes:
1. Tonnage figures rounded from the actual. In 1989, 50 acres of the 175 were replanted. This acreage had not yet reached full production.
2. The grand total tons/acre is a weighted average (by acres) of the yield for red and white wine grapes.
Source: NationsBank proposal document.
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Exhibit 4
Calaveras Vineyards
Summary of Purchases in 1993 of Grapes under Long-Term Contract
Acres
Price/Ton
Tons
Years
Remaining
Contract with Helsingor
Vineyards
Chardonnay
Sauvignon Blanc
Pinot Blanc
96.0
35.0
27.0
$750.76
469.90
$583.58
15.0
$412.90
9 years
Variable
at market
3 years
Variable
at market
320
140
100
Contract with Cleaver
Winery
Zinfandel
Pricing
Changes
50
Source: NationsBank proposal document.
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Exhibit 5
Calaveras Vineyards
Résumés for Martinez and Newsome
Lynna Martinez
Position
Vice president/general manager and winemaker, Calaveras Vineyard, Alameda California (1987–
present).
Education
University of Burgundy, Dijon, France. Degrees: Diplôme des Hautes Honneurs, Microbiology.
University of California at Davis. Degrees: M.S. Food Science/Ph.D. Microbiology.
Experience
1980–81
1981–84
1984–87
Technical director—Casa Blanca Winery, Trujillo, Mexico
Technical director/winemaker—Domaine Millar, Fresno, California
Winemaker—Bullion Vineyards, La Plata, California
Other
Training in family-owned winery and distillery. Teaching and research assistant at Department
of Viticulture and Enology, University of California at Davis. Numerous training trips to Europe
to gain experience in champagne and white-wine technology at the Moet et Chandon installation
in Epernay.
Peter Newsome
Position
Operations manager.
Education
Macquarrie University, Australia. Degree in business administration.
Experience
1984–86
1986–93
1993 to
present
Tasting-room manager.
Manager of purchasing and warehousing.
Operations manager.
Source: NationsBank proposal document.
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Exhibit 6
Calaveras Vineyards
Pro Forma Historical Financial Statements
Profit-and-Loss
Statement
Net sales
Cost of sales
Winery (under)/over
absorbed costs
Gross profit
Mktg. and advt.
Sell. and admin.
Total expenses
Opng. profit
Balance Sheets
Cash
Receivables
Inventories
Prepaid exp.
Total current assets
Fixed assets
Cost
Accum. depr.
Net fixed assets
Intangibles
Total assets
Trade liabs.
Parent equity
and advances
Total liabilities
and equity
1990
1991
1992
1993
$2,378,041
1,992,461
$2,847,763
1,782,811
$2,836,062
2,197,367
$2,534,255
1,779,809
0
385,580
62,354
356,706
419,060
(33,480)
(612,000)
482,952
109,647
427,164
536,811
(53,859)
(96,998)
541,697
103,047
425,409
528,456
13,241
(53,303)
701,143
61,333
380,138
441,471
259,672
331,856
337,492
2,570,861
1,083
3,241,292
52,385
397,864
2,461,174
1,179
2,912,602
7,379
354,508
1,806,339
8,191
2,176,417
24,769
316,782
2,332,241
0
2,673,792
3,984,287
178,484
3,805,803
486,822
7,533,917
4,303,372
377,253
3,926,119
340,421
7,197,142
4,429,552
771,765
3,657,787
493,656
6,327,860
4,487,193
1,067,086
3,420,107
62,233
6,156,132
166,254
217,290
95,410
78,853
7,367,663
6,961,852
6,232,450
6,077,279
$7,533,917
$7,179,142
$6,327,860
$6,156,132
Source: NationsBank proposal document. Figures have been disguised.
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Page 14
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Exhibit 7
Calaveras Vineyards
Forecast Income Statement
(all values in thousands)
1994
1995
1996
1997
1998
$3,704
$4,193
$4,681
$4,967
$5,348
Estates
422
560
638
664
781
Selected
259
310
365
380
395
Chardonnay
412
509
613
696
724
California
177
120
124
129
135
Generic
215
224
233
242
252
Special accts.
625
650
677
704
732
85
88
92
96
100
(2,196)
(2,461)
(2,742)
(2,911)
(3,119)
Gross profit
1,508
1,731
1,939
2,056
2,229
Selling, general and admin.
(519)
(587)
(655)
(695)
(749)
Amortization of organizational costs
(60)
(60)
(60)
(60)
(60)
EBIT
930
1,085
1,224
1,301
1,420
(306)
(308)
(280)
(235)
(173)
Profit before taxes
624
777
944
1,066
1,247
Tax expense
231
287
349
394
461
Net income
$393
$489
$594
$671
$786
0
0
0
0
0
$393
$489
$594
$671
$786
Sales revenue
Cost of goods sold
Winery
Total
Interest expense (avg. balance)
Dividends to common shareholders
Retentions to equity
Source: Author’s analysis, drawing on NationsBank proposal document. Figures have been disguised.
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Page 15
UV0255
Exhibit 8
Calaveras Vineyards
Forecast Balance Sheets
(all values in thousands)
(At Closing)
1994
1995
1996
1997
1998
$50
$50
$50
$50
$50
$50
0
370
419
468
497
535
2,196
2,461
2,742
2,911
3,119
3,245
60
60
60
60
60
0
Total current assets
2,306
2,942
3,272
3,489
3,726
3,830
Land
1,124
1,124
1,124
1,124
1,124
1,124
582
832
1,082
1,332
1,582
1,832
1,706
1,956
2,206
2,456
2,706
2,956
0
116
283
499
766
1,082
1,706
1,840
1,923
1,957
1,940
1,874
240
180
120
60
0
0
$4,252
$4,961
$5,315
$5,506
$5,666
$5,704
Cash
Accounts receivable
Inventory
Organization costs, current
Plant and equipment
Gross PP&E
Accum. depreciation
Net PP&E
Organization costs, noncurrent
Total assets
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Page 16
UV0255
Exhibit 8 (continued)
Payables and accruals
$130
$246
$274
$291
$312
$324
400
400
400
400
400
0
Revolving line of credit
1,122
1,722
1,958
1,938
1,806
1,446
Total current liabs.
1,652
2,368
2,633
2,630
2,518
1,770
Debt, noncurrent
1,600
1,200
800
400
0
0
Total liabilities
3,252
3,568
3,433
3,030
2,518
1,770
Common stock
1,000
1,000
1,000
1,000
1,000
1,000
0
393
882
1,477
2,148
2,934
1,000
1,393
1,882
2,477
3,148
3,934
$4,252
$4,961
$5,315
$5,506
$5,666
$5,704
Borrowing base (85% AR,
75% Inv.)
$1,647
$2,161
$2,413
$2,581
$2,761
$2,888
Revolver
$1,122
$1,722
$1,958
$1,938
$1,806
$1,446
Debt, current portion LTD
Retained earnings
Total equity
Total liabilities and equity
Memorandum:
Source: Author’s analysis, drawing on NationsBank proposal document. Figures have been disguised.
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Page 17
UV0255
Exhibit 9
Calaveras Vineyards
Forecast Assumptions
Summary of Key Assumptions
Case sales
Exh. 11
Cash minimum (m)
$50
$/Case
Exh. 11
AR/sales
0.10
INV(T)/COGS(T+1)
1.00
Gross margins
Estates
0.50
CL(T)/COGS(T+1)
0.10
Select, other
0.38
SGA/sales
0.14
Chardonnay
0.40
Depreciation
California
0.36
Cap. exp.
Generic
0.29
Interest rate
Special accts.
0.38
Tax rate
Winery
0.49
Inflation rate
2.00%
Real price growth
2.00%
Amort. organization costs
5 years
Dividend payout:
Now-1996
0%
1997 and after
0%
5-yr, S-L
250
9.50%
37.00%
Discussion of Certain Assumptions
1. Production and inventory. Grapes are processed into wine in the year of harvest, and all wine processed
is sold approximately one year after processing, with the exception of Estate Reds (about 10% of
production), which are sold two years after processing. The forecast assumes overall average processing
time of one year. Thus, cost of sales and current liabilities are based on costs capitalized the previous
year.
2. Beyond the forecast period, prices are expected to increase 2% per year, before inflation. This is
consistent with management’s strategy of lifting the brand recognition of Calaveras Vineyards wines,
and of improving the quality of all wines.
3. Depreciation is based on a five-year average life of allocated asset (purchased) values. Assets are
depreciated using the straight-line method.
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Page 18
UV0255
Exhibit 9 (continued)
4. The tax rate is a blended Federal and California State blended rate of 37%. There are no significant
differences between book and tax income.
5. Organization costs of $300,000 will be amortized over five years. These cash costs were to be paid at
closing and would consist mainly of legal, accounting, and financial advisory fees incurred to
consummate the transaction.
6. The vineyard yield, per acre, and production rate, per ton of grapes, are expected to remain constant.
7. The term loan is assumed to be amortized over five years. The interest rate of the term loan and
revolver is assumed constant at 9.5%, 25 basis points lower than currently, to reflect the expected
moderation of inflation over the longer term.
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Page 19
UV0255
Exhibit 10
Calaveras Vineyards
Historical Case Sales and Prices
1991
Cases
1991
$/Case
1992
Cases
1992
$/Case
1993
Cases
1993
$/Case
4,436
3,258
2,547
46.85
45.56
46.42
2,924
2,887
1,574
48.25
46.92
47.82
6,133
2,993
1,599
49.70
48.33
49.25
8,633
11,794
5,835
38.88
37.85
38.03
16,537
9,750
4,482
40.05
38.98
39.17
11,569
3,444
2,112
41.25
40.15
40.35
California
Petite Sirah (r)
Chenin Blanc (w)
Other (r)
9,472
5,393
7,299
32.52
33.13
30.73
7,666
5,210
1,350
33.50
34.13
31.65
5,864
1,353
322
34.50
35.15
32.60
Generic
White table wine
Red table wine
17,685
4,657
22.42
20.09
13,301
2,976
23.10
20.69
7,716
2,337
23.79
21.31
Estates
Sauvignon Blanc (w)
Cabernet Sauvignon (r)
Petite Sirah (r)
Select vineyards
Chardonnay (w)
Sauvignon/Fume Blanc (w)
White/Rose Zinfandel (w)
Total wholesale
81,009
Special accounts
Hotels (w,r)
Gigantic Airlines (w,r)
Altar wines (w,r)
0
11,320
2,388
37.61
37.42
41.59
0
23,465
2,157
38.74
38.54
42.83
2,090
12,715
3,155
39.90
39.70
44.12
3,633
$54.15
2,957
$55.78
2,188
$57.45
Winery (w,r)
Total nonwholesale
Total case sales
17,341
98,350
68,657
45,442
28,579
97,236
Note: “r” indicates a red wine; “w” indicates a white wine.
Source: NationsBank proposal document and author analysis.
This document is authorized for use only by Carla Benavides in 2022.
20,148
65,590
5,000
1,728
1,000
10,000
2,500
62,728
4,000
16,500
3,500
2,790
26,790
89,518
Generic
White Table Wine
Red Table Wine
TOTAL WHOLESALE
Special Accounts
Hotels
Gigantic Airlines
Altar Wines
Winery
TOTAL NON WHOLESALE
TOTAL CASE SALES
16,000
8,000
2,000
Select Vineyards
Chardonnay
Savignon/Fume Blanc
White/Rose Zinfandel
California
Petite Sirah
Chenin Blanc
Other
9,000
5,000
2,500
1994
Cases
Estates
Sauvignon Blanc
Cabernet Sauvignon
Petite Sirah
Page 20
This document is authorized for use only by Carla Benavides in 2022.
$59.77
$41.51
$41.30
$45.90
$24.75
$22.17
$35.89
$36.57
$33.92
$42.92
$41.77
$41.98
$51.71
$50.28
$51.24
1994
$/Case
95,790
26,790
2,790
4,000
16,500
3,500
69,000
10,000
2,500
5,000
0
0
19,000
8,000
3,500
12,000
6,000
3,000
1995
Cases
$62.19
$43.19
$42.97
$47.76
$25.75
$23.07
$37.34
$38.05
$35.29
$44.65
$43.46
$43.68
$53.80
$52.31
$53.31
1995
$/Case
102,290
26,790
2,790
4,000
16,500
3,500
75,500
10,000
2,500
5,000
0
0
22,000
8,000
5,000
14,000
6,000
3,000
1996
Cases
Forecast Case Sales and Prices
Calaveras Vineyards
Exhibit 11
$64.70
$44.93
$44.71
$49.69
$26.79
$24.00
$38.85
$39.58
$36.71
$46.45
$45.22
$45.44
$55.97
$54.43
$55.46
1996
$/Case
104,290
26,790
2,790
4,000
16,500
3,500
77,500
10,000
2,500
5,000
0
0
24,000
8,000
5,000
14,000
6,000
3,000
1997
Cases
$67.31
$46.75
$46.51
$51.69
$27.87
$24.97
$40.42
$41.18
$38.20
$48.33
$47.04
$47.28
$58.23
$56.63
$57.70
1997
$/Case
107,290
26,790
2,790
4,000
16,500
3,500
80,500
10,000
2,500
5,000
0
0
24,000
8,000
5,000
16,000
7,000
3,000
1998
Cases
$70.03
$48.64
$48.39
$53.78
$29.00
$25.98
$42.06
$42.85
$39.74
$50.28
$48.94
$49.19
$60.58
$58.91
$60.04
1998
$/Case
UV0255
For the exclusive use of C. Benavides, 2022.
For the exclusive use of C. Benavides, 2022.
Page 21
UV0255
Exhibit 12
Calaveras Vineyards
Comparative Information on Manufacturers of Wine and Brandy
(81 establishments for 1993)
Percentage
of Assets
or Sales
4.6%
7.7
0.5
43.5
2.0
58.3
29.2
12.5
100.0
Average
Dollar Amount
$ 59,256
99,189
6,441
560,356
25,763
751,005
376,147
161,022
1,288,174
Financial Statement
Cash
Accounts receivable
Notes receivable
Inventory
Other current
Total current
Fixed assets
Other noncurrent
Total assets
Accounts payable
Bank loans
Notes payable
Other current
Total current
Other long-term liabilities
Deferred credits
Net worth
Total liabs. and net worth
95,325
0
76,002
204,820
376,147
235,736
2,576
673,715
1,288,174
7.4
0.0
5.9
15.9
29.2
18.3
0.2
52.3
100.0
Net sales
Gross profit
Net profit
752,554
298,011
$ 14,299
100.0
39.6
1.9%
Ratios
Solvency
Quick ratio (×)
Current ratio (×)
Curr. liab. to net worth (%)
Total liab. to net worth (%)
Efficiency
Collection period (days)
Sales to inventory (×)
Assets to sales (%)
Acct. payable to sales (%)
Profitability
Return on sales (%)
Return on assets (%)
Return on net worth (%)
Upper Quartile
Median
Lower Quartile
1.2×
5.5
8.0
28.8
0.4×
2.5
44.0
103.4
0.2×
1.5
102.7
186.4
29.2
2.6
95.8
4.9
51.3
1.4
136.7
11.3
69.2
0.8
287.9
17.7
7.3
8.1
16.6
2.8
2.3
7.7
(0.2)
(0.1)
1.1
Source: Industry Norms and Key Business Ratios (Dun & Bradstreet Business Services, 1994).
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Page 22
UV0255
Exhibit 13
Calaveras Vineyards
A Summary of Industry Rates of Inflation in 1991
Percentage Change in 1991
Producer Price Index
Wine, brandy, and brandy spirits
Grape table wine
White wine
Red wine
Rosé wine
All farm products
Consumer Price Index
Wine
Total beverage alcohol
Food
All items
3.4%
4.2
3.3
4.4
6.6
6.3%
13.6%
10.5
2.9
4.2%
Source: Jobson’s Wine Marketing Handbook 1992 (New York: Jobson Publishing Corporation, 1992).
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Page 23
UV0255
Exhibit 14
Calaveras Vineyards
Current Capital-Market Conditions
(February 28, 1994)
Interest Rates
Fed. funds
Prime rate
90-day T-bills
30-year T-bonds
Corporate bonds (10+ years)
High quality
Medium quality
High yield
3.75%
6.75%
3.25%
5.85%
7.0%
7.3%
9.35%
Stock Market
P/E multiples
Dow
S&P 500
NASDAQ
14.5×
15.5×
16.8×
Average Equity Market Premiums (1926–92)
Geometric
Mean Premium
Arithmetic
Mean Premium
Returns on all common stock less returns on:
Long-term government bonds
U.S. Treasury bills
5.5%
6.6%
7.2%
8.6%
Returns on small-company stocks less returns on:
Long-term government bonds
U.S. Treasury bills
7.4%
8.5%
12.4%
13.8%
Sources: Federal Reserve Board Bulletin; 1993 Yearbook, Stocks, Bonds, Bills, and Inflation (Ibbotson Associates).
This document is authorized for use only by Carla Benavides in 2022.