Annual Report Project - Phase IV for ACC2010

Principles of Accounting I:  ACC 2010
Annual Report Project – Phase IV

Company: Willamette Valley Vineyards, Inc.

Based upon the information you’ve collected in the first three phases; assess your company’s major strengths and weaknesses.  You will want to address this analysis in terms of investment potential (would this company be a worthy stock investment, reasoning?), profitability, financial flexibility and social responsibility.  Please limit your response in this phase to no more than two typed pages.

Financially, Willamette Valley Vineyards, Inc. (WVVI) is an investment worthy company.  According to WVVI’s financial reports, they are performing increasingly well throughout the years and making beneficial financial and operational decisions.  However, Willamette Valley Vineyards, Inc. is also changing some personnel and operational procedures which may be cause for caution.

This company still appears to be stabilizing as there are some wild financial fluctuations reported; however these fluctuations generally result in a desirable outcome.  For instance; according to the Statement of Cash Flows, between 2009 and 2010 WVVI had a reduction of net income of $319,662 or 43.07%.  Between 2010 and 2011 WVVI had an increase of net income of $445,947 or 108.29% which makes up for the reduction between 2009 and 2010.  In 2010 diluted earnings per share were 8 cents per share and in 2011 they increased to 18 cents per share.  So while they could have been more profitable by maintaining a steadier net income throughout three years, it appears that they are back on track after the poorly performed year of 2010. 

WVVI accredits the 2011 performance to several key factors, including an increase in gross profit, decreased expenses and increase in income tax expense.  They cite the increase of gross profit accounting for 4.0% of the favorable change in income from operations and decreases in expenses accounting for 96.0% of the favorable change. (2011 10K – Item7 – Page 27/91).

Another major contribution to this favorable change might be that WVVI has changed some of their operational procedures.  According to the Willamette Valley Vineyards, Inc. 2011 Form 10K report (Item 1 Business – Page 13/91), WVVI has ceased performing their own wholesale distribution under the name Bacchus Fine Wines and have entered an Exclusive Distribution Agreement with Young’s Market Company of Washington, LLC.  This agreement should result in lower operating costs and higher revenues.  Unfortunately, since this agreement was made in September, it will probably take some time before the benefits are seen on the financial reports.  However, there is a previously unreported $250,000 in the 2011 year from Current portion of distribution agreement receivable (1.03% Total Assets & 9.19% Net Cash from Operating Activities) which is due to this agreement.

One note of caution would be the liquidity of Willamette Valley Vineyards, Inc. stock.  The filed 2011 10K states (Item1A. Risk Factors – Page 23/91) “Our common stock is thinly traded, and therefore not as liquid as other investments.  The trading volume of our common stock on NASDAQ is consistently “thin,” in that there is not a great deal of trading activity on a daily basis.  Because the average active trading volume is thin, there is less opportunity for shareholders to sell their shares of our common stock on the open market, resulting in the common stock being less liquid than common stock in other publicly traded companies.”  With this information, we would advise investors interested in WVVI to not expect immediate results from their investment.

Another note of caution would be a Reuter’s article describing the termination of R. Steven Caldwell as the Chief Financial Officer (CFO) of Willamette Valley Vineyards, Inc.  This termination took place on May 4, 2012 and was reported in the company’s Form 8-K.  Neither the 8-K nor the Reuter’s article explain the reason for the termination which leaves room for speculation.  WVVI’s CEO, Jim Bernau will be serving as the interim CFO through the filing of the 2012 First Quarter 10Q.  The CFO position is being converted to a Controller who will also serve as the Company’s Chief Accounting Officer.   This change in operations may benefit Willamette Valley Vineyards, Inc., however, it could just as possibly disadvantage the company.  In the 2011 Form 10k (Item1A. Risk Factors – Page 19/91) the company declares that a “Loss of key employees could harm our reputation and business.  Our success depends to some degree upon the continued service of a number of key employees.  The loss of the services of one or more of our key employees, including the President, Winemaker, and CFO, could harm our business and our reputation and negatively impact our profitability…”

In 2011, Willamette Valley Vineyards, Inc. also lost Head Winemaker, Forrest Klaffke, who passed away in December after a three year battle with cancer.  As a result, Don Crank, who has been with WVVI for eight years, has been promoted from assistant winemaker to head winemaker.  WVVI believes this change will have no effect on the quality of their wines.  We believe that this change might be reason for caution.

Willamette Valley Vineyards, Inc. shows increasing profit and sustainability throughout the years.  With regards to the 2010 and 2011 financial statements alone, we would recommend investment with this company.  However, in light of the recent loss of “key employee”, CFO, R. Steven Caldwell, “key employee”, Head Winemaker, Forrest Klaffke, and the “thinly” traded stock, we would highly recommend postponing an investment decision until future review of Willamette Valley Vineyards, Inc.  We have the opinion that there is too great a chance that these changes may negatively affect company performance at this time.  We recommend allowing sufficient time for Willamette Valley Vineyards, Inc. to incorporate these changes and make internal adjustments before deciding to invest with them.