<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1997
REGISTRATION NO. 333-34443
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
BERINGER WINE ESTATES HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2080 68-0370340
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1000 PRATT AVENUE
ST. HELENA, CALIFORNIA 94574
(707) 963-7115
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PETER F. SCOTT
SENIOR VICE PRESIDENT, FINANCE AND OPERATIONS AND CHIEF FINANCIAL OFFICER
BERINGER WINE ESTATES HOLDINGS, INC.
1000 PRATT AVENUE
ST. HELENA, CALIFORNIA 94574
(707) 963-7115
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
GREGG F. VIGNOS RONALD S. BEARD
JOHN L. DONAHUE GREGORY J. CONKLIN
SALLY BRAMMELL GAVIN A. BESKE
WILLIAM A. HINES GIBSON, DUNN & CRUTCHER LLP
PILLSBURY MADISON & SUTRO LLP 333 SOUTH GRAND AVENUE
P.O. BOX 7880 44TH FLOOR
SAN FRANCISCO, CA 94120 LOS ANGELES, CA 90071
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE(2) OFFERING PRICE(2) FEE(3)(4)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Common Stock, $0.01 par value... 5,270,000 shares(1) $26.00 $148,720,000 $41,521
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) The shares of Class B Common Stock are not being registered for the
purpose of sales outside the United States.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) This registration fee has previously been paid.
(4) Calculated pursuant to Rule 457(a) based upon an estimate of the maximum
offering price.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[LOGO] SUBJECT TO COMPLETION, DATED OCTOBER 15, 1997
4,850,000 SHARES
BERINGER WINE ESTATES HOLDINGS, INC.
CLASS B COMMON STOCK
(PAR VALUE $.01 PER SHARE)
----------
Of the 4,850,000 shares of Class B Common Stock offered, 4,250,000 shares are
being offered by the Underwriters to the public and 600,000 shares are being
offered by the Company directly to the holders of its Series A Non-Voting Pay-
in-Kind Preferred Stock. The Underwriters will not participate in, or receive
any discount or commission on, any sales of the Class B Common Stock to the
holders of Series A Non-Voting Pay-in-Kind Preferred Stock.
Of the 4,250,000 shares of Class B Common Stock offered by the Underwriters,
3,400,000 shares are being offered hereby in the United States and 850,000
shares are being offered in a concurrent international offering outside the
United States. The initial public offering price and the aggregate underwriting
discount per share will be identical for both offerings. See "Underwriting".
The Company has two classes of Common Stock, Class B Common Stock, which is
offered hereby, and Class A Common Stock. Holders of Class B Common Stock are
entitled to one vote per share and holders of Class A Common Stock are entitled
to twenty votes per share. Class A Common Stock is convertible at any time into
Class B Common Stock on a one-for-one basis. Immediately after the completion
of these offerings, the shares of Class B Common Stock to be offered in these
offerings will represent 10.8% of the combined voting power of all classes of
voting stock and 26.8% of the economic interest (or rights of holders of common
equity to participate in distributions in respect of common equity) in the
Company (11.6% and 28.5%, respectively, if the Underwriters' over-allotment
options are exercised in full).
The Company intends to use approximately $38,500,000 of the proceeds of these
offerings to redeem all outstanding shares of its Series A Non-Voting Pay-in-
Kind Preferred Stock. Certain officers, directors and entities affiliated with
Texas Pacific Group, a greater than 10% stockholder of the Company, are holders
of the Series A Non-Voting Pay-in-Kind Preferred Stock and thus would receive
approximately $25,426,000 in the aggregate as a result of this proposed
redemption. See "Use of Proceeds" and "Certain Transactions".
Prior to these offerings, there has been no public market for the Class B
Common Stock of the Company. It is currently estimated that the initial public
offering price per share will be between $23.00 and $26.00. For factors to be
considered in determining the initial public offering price, see
"Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN RISKS
RELEVANT TO AN INVESTMENT IN THE CLASS B COMMON STOCK.
The Class B Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "BERW".
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT(1)(2) COMPANY(3)
----------------- -------------- -----------
<S> <C> <C> <C>
Per Share.......................... $ $ $
Total(4)........................... $ $ $
</TABLE>
- ------
(1) The 600,000 shares of Class B Common Stock which the Company is hereby
offering directly to holders of its Series A Non-Voting Pay-in-Kind
Preferred Stock will be sold at $ , the initial public offering price
less the underwriting discount.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting".
(3) Before deducting estimated expenses of $1,100,000 payable by the Company.
(4) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 336,000 shares of Class B Common Stock at the initial
public offering price per share, less the underwriting discount, solely to
cover over-allotments. Additionally, the Company has granted the
International Underwriters a similar option with respect to an additional
84,000 shares as part of the concurrent international offering. If such
options are exercised in full, the total initial public offering price,
underwriting discount and proceeds to the Company will be $ , $
and $ , respectively. See "Underwriting".
----------
The shares of Class B Common Stock offered hereby are offered severally by
the Underwriters, as specified herein, subject to receipt and acceptance by
them and subject to their right to reject any order in whole or in part. It is
expected that certificates for the shares will be ready for delivery in New
York, New York on or about , 1997, against payment therefor in
immediately available funds.
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
HAMBRECHT & QUIST
SMITH BARNEY INC.
----------
The date of this Prospectus is , 1997
<PAGE>
[Photograhps of Rhine House in center (historic Beringer family residence on
Beringer Winery Grounds). Right hand margin lists Company's brands. In each
corner, photographs of following Company Wineries: Chateau Souverain, Stag's
Leap Winery, Chateau St. Jean, and Meridian. Between photos of Wineries are
photos of bottles of Company Wines.]
BERINGER MERIDINA VINEYARDS, CHATEAU ST. JEAN, NAPA RIDGE, CHATEAU
SOUVERAIN AND STAGS' LEAP ARE REGISTERED TRADEMARKS OF THE COMPANY. THIS
PROSPECTUS ALSO INCLUDES TRADE NAMES AND TRADEMARKS OF COMPANIES OTHER THAN
BERINGER.
------------------
The Company intends to furnish to its stockholders annual reports
containing audited consolidated financial statements and quarterly reports
containing unaudited interim financial information for the first three fiscal
quarters of each fiscal year of the Company.
------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS B COMMON
STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS
IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH
THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and the Notes thereto
appearing elsewhere in this Prospectus. Except as set forth in the Consolidated
Financial Statements and Notes thereto or as otherwise specified herein, all
information in this Prospectus assumes no exercise of the Underwriters' over-
allotment options and reflects (1) a two-for-one stock split of the Class A and
Class B Common Stock and change in the par value of the Company's Class A and
Class B Common Stock from $.0001 per share to $.01 per share effected on
October 2, 1997, (2) the exercise of all outstanding warrants for Class B
Common Stock on or prior to the closing of this offering and (3) the redemption
of all of the Company's outstanding shares of Series A Non-Voting Pay-in-Kind
Preferred Stock (the "Series A Preferred Stock") and prepayment of its 12 1/2%
Senior Subordinated Notes Due January 10, 2006 (the "Subordinated Notes") upon
the closing of this offering. See "Description of Capital Stock" and
"Underwriting". Unless otherwise specified or the context requires otherwise,
the terms "Beringer" and the "Company" mean Beringer Wine Estates Holdings,
Inc. and each of its consolidated subsidiaries, and all references in this
Prospectus to 750ml premium wine sold in U.S. food stores refer to sales of
domestic wine only. The term "premium wine" as used herein refers to wine which
retails for $3.00 or more per 750 milliliter ("ml") bottle or the equivalent
price for differently sized bottles. In addition, statements in this Prospectus
relating to the differential between 1.5 liter ("L") and 750ml sales are
management estimates based on U.S. food store data compiled by Information
Resources Inc. ("IRI"). IRI does not guarantee the accuracy or completeness of
data compiled by it.
THE COMPANY
Beringer is a leading producer of premium California varietal table wines,
marketed under the Beringer, Meridian Vineyards, Chateau St. Jean, Napa Ridge,
Chateau Souverain and Stags' Leap brand names. With this portfolio of brands,
the Company has captured the number one share of 750ml premium wines sold in
U.S. food stores for each of the last four years, and in fiscal 1997 had a
14.3% volume share of this market. The Company believes it is well positioned
across its entire portfolio, with a top five market share for nine of the
eleven largest selling varietals in U.S. food stores. In one key varietal
category, White Zinfandel, Beringer holds a commanding 37.9% dollar share of
these 750ml wines sold in U.S. food stores, while selling at an approximate 15%
price premium over the second leading White Zinfandel brand. Beringer White
Zinfandel also generates the largest dollar sales of any wine stock keeping
unit ("SKU") sold in U.S. food stores. Beringer focuses exclusively on the
premium wine market and believes that its wines are widely recognized for their
quality. In 1990, Beringer Private Reserve Cabernet Sauvignon was named "Wine
of the Year" by Wine Spectator magazine. In 1996, Beringer Private Reserve
Chardonnay received the same honor. This same magazine named eight of the
Company's wines to its list of "Top 100" wines of the world in 1996, a record
number for a wine company. In addition, in June 1997, Beringer was named "The
Best Overall Winery in America" in a poll of over 11,000 wine consumers by Wine
Spectator magazine.
Beringer believes that its rigorous attention to quality, the strength of its
brand portfolio and its pursuit of strategic acquisitions have enabled the
Company to grow its net revenues at a compound annual rate of 14.1%, from
$159.2 million in fiscal 1993 to $269.4 million in fiscal 1997. Over the same
period, net income grew at a compound annual rate of 27.3%, from $7.7 million
to $20.1 million, excluding purchase accounting adjustments related to the
acquisition of the Company and Chateau St. Jean and Stags' Leap wineries. The
Company attributes its leadership position in the rapidly growing premium wine
market to its (1) high quality wines which compete in every price segment of
the premium wine market, (2) focus on consumer marketing, (3) control in crop
year 1996 over approximately 23.4% of its overall grape requirements (and
approximately 48% of its grape requirements excluding White Zinfandel
requirements) and (4) professional management team with an average of 19 years
of industry experience.
3
<PAGE>
Beringer was founded in 1876 and is the oldest continuously operating winery
in Napa Valley. Through a series of vineyard acquisitions over the last ten
years, management has assembled extensive strategic acreage positions in the
prime growing regions of Napa, Sonoma, Lake, Santa Barbara and San Luis Obispo
Counties. The Company believes that its ownership of these vineyards enables it
to control a source of high quality premium wine grapes at an attractive cost.
For example, in 1996, the average cost per ton of producing Chardonnay grapes
on the Company's Santa Barbara vineyards was $825, compared to a weighted
average price paid for Santa Barbara Chardonnay grapes of $1,450.
Over the past twenty years there has been a shift in consumer preferences in
the U.S. from generic or "jug" wines to high quality, premium varietal wines.
The Company estimates that shipments of premium 750ml varietal wines have grown
from 3.4% of total case volume of California table wines in 1980 to over 25% of
total case volume in 1996. Because premium wines sell at higher price points
than jug wines, the Company estimates that this 25% volume share represents
approximately $2.2 billion, or 51% of total dollar sales of California wines
sold at wholesale. Over this period, the compound annual growth of premium
varietal case volume was approximately 15.2% and annual dollar sales growth was
approximately 18.6%. The Company believes that this major shift in consumer
preferences has occurred due to (1) the maturing "baby-boomer" generation
entering its prime wine consumption period, (2) a growing consumer interest in
premium wines in general, (3) a growing interest in and sophistication about
food which lends itself to expanded consumption of premium wines and (4) the
improving quality and reputation of California premium wines.
Throughout this shift in consumer preferences, Beringer has utilized
sophisticated consumer marketing to build substantial brand loyalty and
significant market share in the rapidly expanding premium wine market. The
Company believes that during the 1990s this marketing and brand building
expertise has helped the Company expand existing brands and launch new brands.
For example, Beringer White Zinfandel's dollar share has grown from 25.5% of
750ml White Zinfandel sales in U.S. food stores in 1991 to 37.9% in 1996. In
fiscal 1997, Beringer White Zinfandel's sales in U.S. food stores were 26%
greater than the number two wine SKU. Meridian Vineyards, a brand launched by
the Company in 1990, now has the number two market share for all Chardonnay
brands retailing for over $8 per bottle, with growth in case volume of 48% from
fiscal 1996 to fiscal 1997. The Company expects further growth in Meridian
Vineyards sales through Merlot and Cabernet Sauvignon brand extensions, as well
as additional growth in Chardonnay sales.
STRATEGY
Beringer's objective is to strengthen its leadership position in the premium
wine market and thereby increase its revenues and profits. The Company's
strategy for achieving this objective has the following key elements:
. Management of a Multi-Brand Portfolio
. Focus on High Quality Across All Brands
. Control of Premium Grape Supplies and Vineyards
. Pursuit of Strategic Acquisitions
. Emphasis on Consumer Marketing
. Commitment of Professional and Experienced Management Team
See "Business--Strategy".
4
<PAGE>
THE OFFERINGS
<TABLE>
<C> <S>
Class B Common Stock Offered:
United States Offering............. 3,400,000 shares
International Offering............. 850,000 shares
Company Offering(1)................ 600,000 shares
Total............................ 4,850,000 shares
Common Stock to be Outstanding after
the Offering:
Class A Common Stock............... 1,416,962 shares
Class B Common Stock............... 16,668,946 shares(2)
Total............................ 18,085,908 shares
Voting Rights:
Class A Common Stock............... Twenty votes per share
Class B Common Stock............... One vote per share
Use of Proceeds..................... Redemption of all outstanding shares of
Series A Preferred Stock, prepayment of
the Subordinated Notes, partial prepayment
of line of credit and long-term senior
debt, working capital and general
corporate purposes. See "Use of Proceeds".
Proposed Nasdaq National Market
Symbol............................. BERW
</TABLE>
- --------
(1) Direct offering by the Company to holders of the Series A Preferred Stock.
(2) Excludes 1,374,426 shares of Class B Common Stock reserved for issuance
upon exercise of stock options outstanding at August 15, 1997. See
"Capitalization", "Management--Employee Benefit Plans" and Note 11 of Notes
to Consolidated Financial Statements.
RISK FACTORS
See "Risk Factors" beginning on page 8 for a description of certain risks
relevant to an investment in the Class B Common Stock.
TRADEMARK AND TRADENAME INFORMATION
Beringer, Meridian Vineyards, Chateau St. Jean, Napa Ridge, Chateau Souverain
and Stags' Leap are registered trademarks of the Company. This Prospectus also
includes trade names and trademarks of companies other than Beringer.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
($ THOUSANDS, EXCEPT PER SHARE DATA)
The Company was incorporated for the purpose of acquiring Beringer Wine
Estates Company and its wholly owned subsidiaries. The acquisition from Nestle
Holdings, Inc. of all of the outstanding common stock of Beringer Wine Estates
Company by the Company occurred on January 1, 1996 (the "Acquisition"). The
Company constitutes the successor company ("New Beringer") and is reflected in
the historical results of operations beginning on January 1, 1996. The
historical results of operations through December 31, 1995 are the results of
Beringer Wine Estates Company and its consolidated subsidiaries ("Old
Beringer").
<TABLE>
<CAPTION>
OLD BERINGER NEW BERINGER
------------------------------------------ -------------------
SIX MONTHS YEAR
YEAR ENDED JUNE 30, ENDED SIX MONTHS ENDED
---------------------------- DECEMBER 31, ENDED JUNE JUNE 30,
1993 1994 1995 1995 30, 1996 1997
-------- -------- -------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues........... $159,176 $180,836 $202,010 $106,867 $124,863 $269,460
Cost of goods sold(1).. 79,871 90,004 101,287 54,114 93,626 177,829
Gross profit(2)........ 79,305 90,832 100,723 52,753 31,237 91,631
Operating income
(loss)(3)............. 20,911 25,433 34,805 16,556 (4,783) 12,984
Interest expense....... (7,619) (7,007) (5,730) (2,214) (12,830) (26,401)
Income (loss) before
taxes(4).............. 13,862 18,949 30,122 14,467 (17,358) (12,525)
Net income (loss)(5)... 7,659 10,469 16,753 8,086 (9,365) (5,449)
Preferred dividends
and accretion of
discount.............. -- -- -- -- 2,054 4,920
-------- -------- -------- -------- -------- --------
Net income (loss)
allocable to common
stockholders.......... $ 7,659 $ 10,469 $ 16,753 $ 8,086 $(11,419) $(10,369)
======== ======== ======== ======== ======== ========
Loss per share
Primary.............. $ (1.04) $ (0.85)
======== ========
Supplemental(6)...... $ (0.23)
========
Weighted average
common shares
outstanding(7)
Primary.............. 10,978 12,185
======== ========
Supplemental......... 17,035
========
OTHER FINANCIAL DATA:
Depreciation and
amortization(8)....... $ 9,671 $ 9,790 $ 10,457 $ 5,234 $ 4,497 $ 9,120
EBITDA(9).............. 31,152 35,746 46,309 21,915 32,100 66,304
Capital expenditures... 15,489 16,904 10,763 7,082 3,031 33,956
</TABLE>
<TABLE>
<CAPTION>
OLD BERINGER NEW BERINGER AS ADJUSTED(10)
-------------------------- ----------------- ---------------
AT JUNE 30, AT JUNE 30, AT JUNE 30,
-------------------------- ----------------- ---------------
1993 1994 1995 1996 1997 1997
-------- -------- -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........ $ 12,408 $ 7,650 $ 27,955 $209,129 $209,711 $209,711
Total assets........... 278,579 286,454 289,922 438,742 467,184 467,184
Total long-term debt,
including current
portion............... -- -- -- 289,244 319,112 252,331
Total long-term
obligations(11)....... 256 -- -- 317,531 356,072 254,950
Common stock and other
stockholders' equity.. 140,411 140,880 158,326 48,381 43,993 145,115
Redeemable preferred
stock, common stock
and other
stockholders' equity.. 140,411 140,880 158,326 77,484 78,334 145,115
</TABLE>
- -------
(1) In accordance with purchase accounting rules applied to the Company's
acquisitions, inventory was increased to fair market value. Due to this
inventory step-up, cost of goods sold increased in the six months ended
June 30, 1996 and the year ended June 30, 1997 by $32,131 and $43,308,
respectively.
(2) Gross profit without the inventory step-up would have been $63,368 and
$134,939 in the six months ended June 30, 1996 and the year ended June 30,
1997, respectively.
(3) If the inventory step-up had not occurred, operating income would have
been $27,348 and $56,292 for the six months ended June 30, 1996 and for
the year ended June 30, 1997, respectively.
(4) If the inventory step-up had not occurred, income (loss) before income
taxes would have been $14,773 and $30,783 for the six months ended
June 30, 1996 and for the year ended June 30, 1997, respectively.
(5) If the inventory step-up had not occurred, net income (loss) would have
been $9,593 and $20,086 for the six months ended June 30, 1996 and for the
year ended June 30, 1997, respectively.
(6) Supplemental earnings per share (i) illustrates the effect on earnings per
share of the repurchase of all the outstanding shares of Series A
Preferred Stock ($38,500), repayment of all of the outstanding
Subordinated Notes ($38,150), including a prepayment penalty of $3,150,
and repayment of $27,353 of the line of credit and $6,000 of long-term
debt with the estimated net proceeds from this offering, as if such
transactions occurred at the beginning of the applicable period and (ii)
gives effect to the issuance of the 4,850,000 shares of Class B Common
Stock offered hereby, as if such shares were outstanding at the beginning
of the applicable period. See Note 1 of Notes to Consolidated Financial
Statements.
(7) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the determination of shares used in computing earnings per
share.
(8) Includes amortization of goodwill from 1993 to 1995, which was eliminated
in connection with the Acquisition.
(9) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. For the six months ended June 30, 1996 and the year ended
June 30, 1997, $32,131 and $43,308, respectively, of inventory step-up are
included in EBITDA. EBITDA is not a measure of financial performance under
generally accepted accounting principles and should not be considered as
an alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity.
(10) Assumes the issuance and sale of the 4,850,000 shares of Class B Common
Stock offered hereby occurred on June 30, 1997 at an assumed offering
price of $24.50 per share. See note (6) above.
(11) Includes line of credit; long term debt, less current portion; other
liabilities and the Series A Preferred Stock.
6
<PAGE>
SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
The supplemental consolidated financial data set forth below are presented
herein to reflect on a pro forma basis the comparative consolidated financial
data without the inventory step-up included in the audited results for the six
month period ended June 30, 1996 and the year ended June 30, 1997. On January
1, 1996, an investment group led by TPG Partners, L.P. and its affiliates
(collectively "TPG") acquired the Company from a subsidiary of Nestle S.A. This
transaction was accounted for as a purchase, resulting in new basis of assets
and liabilities effective January 1, 1996. This information should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus and "Selected Consolidated Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
($ THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $159,176 $180,836 $202,010 $231,730 $269,460
Cost of goods sold(1)... 79,871 90,004 101,287 115,609 134,521
Gross profit(1)......... 79,305 90,832 100,723 116,121 134,939
Operating income (1).... 20,911 25,433 34,805 43,904 56,292
Interest expense........ (7,619) (7,007) (5,730) (15,044) (26,401)
Income before taxes(1).. 13,862 18,949 30,122 29,240 30,783
Taxes(2)................ 6,203 8,480 13,369 11,560 10,697
Net income.............. $ 7,659 $ 10,469 $ 16,753 $ 17,680 $ 20,086
======== ======== ======== ======== ========
</TABLE>
- --------
(1) For the years ended June 30, 1996 and 1997, cost of goods sold was reduced
and gross profit, operating income and income before taxes were effectively
increased by $32,131 and $43,308, respectively, as a result of the
inventory step-up.
(2) For the years ended June 30, 1996 and 1997, income taxes have been computed
on net income after adding back the amount of the inventory step-up.
7
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following information in
conjunction with the other information contained in this Prospectus before
purchasing the Class B Common Stock offered hereby. Except for historical
information contained herein, the matters discussed in this Prospectus are
forward-looking statements that are subject to certain risks and uncertainties
that could cause actual results to differ materially from those set forth in
such forward-looking statements. Such risks and uncertainties include, without
limitation, the Company's ability to implement its business strategies or to
compete effectively with domestic and foreign premium wine producers and the
possibility of a shift in consumer preferences.
CHANGES IN CONSUMER SPENDING AND PREFERENCES FOR WINE COULD ADVERSELY AFFECT
THE COMPANY
The success of the Company's business depends upon a number of factors
related to the level of consumer spending, including the general state of the
economy and consumer confidence in future economic conditions.
RISKS FROM GEOGRAPHIC CONCENTRATION OF SALES
In its fiscal year ended June 30, 1997, approximately 25% of the Company's
wine sales were concentrated in California and approximately 25% of such sales
were concentrated in the States of New York, New Jersey, Texas, Illinois,
Pennsylvania and Florida. Changes in national consumer spending or consumer
spending in these and other regions can affect both the quantity and price
level of wines that customers are willing to purchase at restaurants or
through retail outlets. Reduced consumer confidence and spending may result in
reduced demand for the Company's products, limitations on its ability to
increase prices and increased selling and promotional expenses.
RISK OF DEPENDENCE ON CERTAIN VARIETALS
Approximately 78% of the Company's net revenues in its fiscal year ended
June 30, 1997 were concentrated in its top three selling varietal wines. Sales
of White Zinfandel, Chardonnay and Cabernet Sauvignon accounted for 40.4%,
26.2% and 10.9% of the Company's fiscal 1997 net revenues, respectively. A
sudden and unexpected shift in consumer preferences or a reduction in sales of
wine generally or in wine varietals or types, particularly White Zinfandel,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
RISKS FROM COMPETITION
The premium table wine industry is intensely competitive and highly
fragmented. The Company's wines compete in all of the premium wine market
segments with many other premium wines produced domestically and abroad, with
imported wines coming primarily from France, Italy and Chile. The Company's
wines also compete with popular-priced generic wines and with other alcoholic
and, to a lesser degree, nonalcoholic beverages for shelf space in retail
stores and for marketing focus by the Company's independent distributors, many
of which carry extensive brand portfolios. The wine industry has also
experienced significant consolidation in recent years and many of the
Company's competitors have significantly greater capital resources than the
Company.
RISKS FROM SEASONALITY OF WINE BUSINESS
The Company has experienced, and expects to continue to experience, seasonal
and quarterly fluctuations in net revenues, cost of goods sold and net income.
Sales volume tends to increase in advance of, and to decrease following,
holiday periods and the date price increases go into effect. In addition,
sales volume tends to decrease when distributors begin a quarter with larger
than standard
8
<PAGE>
inventory levels. The timing of releases for certain wines can also have an
impact on quarterly results. Further, sales volume tends to decrease during
the summer months. Thus, the Company typically reports lower earnings in its
first fiscal quarter and, with the current inventory step-up, expects to
report a loss for the first quarter of fiscal 1998. The Company's level of
borrowing fluctuates throughout the year, generally peaking during the second
or third fiscal quarter, as a result of harvest costs and the timing of
contractual payments to grape growers. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Seasonality and
Quarterly Results".
The Company is managed to achieve broad, long-term strategic objectives. In
certain instances, the Company may make decisions that it believes will
enhance its long-term growth and profitability, even if such decisions depress
quarterly earnings.
AGRICULTURAL RISKS
Winemaking and grape growing are subject to a variety of agricultural risks.
Various diseases and pests and extreme weather conditions can materially and
adversely affect the quality and quantity of grapes available to the Company,
thereby materially and adversely affecting the quality and supply of the
Company's wines and, consequently, its business, financial condition and
results of operations. Future government restrictions regarding the use of
certain materials used in grape growing may have a material adverse effect on
vineyard costs and production.
Grape growing requires adequate water supplies. The Company supplies its
vineyards' water needs through wells and reservoirs located on its properties.
While the Company believes it has adequate water supplies for all of its
vineyards, a substantial loss of grape crops or growing vines caused by
inadequate water supplies would have a material adverse effect on the
Company's business, financial condition and results of operations.
Phylloxera, a pest that feeds on susceptible grape rootstocks, has infested
many California vineyards. Phylloxera causes the vine to become economically
unproductive within two to three years of infestation. Although the Company
has experienced significant infestation of its owned and leased vineyards, it
has pursued a replanting program since recognizing the problem. The Company
has approximately 1,026 acres of phylloxera-infested vineyards that need to be
replanted over the next four years. The Company believes that the location of
much of its susceptible vineyard acreage in Santa Barbara, with its sandy soil
composition, has a reduced likelihood of phylloxera infestation; however,
there can be no assurance that phylloxera will not infest these vineyards.
Replanted vines generally take three to five years to bear grapes in
commercial quantities. In addition, there can be no assurance that the
rootstocks the Company is now using in its planting and replanting programs
will not become susceptible to existing or new strains of phylloxera, plant
insects or diseases, including, but not limited to, Pierce's Disease or Fan
Leaf Virus, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Phylloxera".
RISKS FROM FLUCTUATIONS IN QUANTITY AND QUALITY OF GRAPE SUPPLY
The quality and quantity of grape supply is determined by a combination of
factors, including weather conditions during the growing season, diseases and
pests and industry-wide planting efforts. The adequacy of grape supply is
influenced by consumer demand for wine. While the Company believes that it can
secure a sufficient supply of grapes from its own production and from grape
supply contracts with independent growers, there can be no assurance that
grape supply shortages will not occur. A shortage in the supply of wine grapes
could result in an increase in the price of some or all grape varieties and a
corresponding increase in the cost to the Company of its wine production,
particularly with respect to White Zinfandel, for which virtually all of the
Company's grapes are externally sourced. Such an increase in the cost of
producing the Company's wines could have a material adverse effect on the
Company's business, financial condition and results of operations.
9
<PAGE>
Demand for premium wines currently exceeds supply of premium wine grapes,
giving wineries a degree of pricing flexibility. However, new vineyards are
rapidly being planted and old vineyards are being replanted to greater
densities, with the expected result of significantly increasing the supply of
premium wine grapes and the amount of wine which will be produced. This
expected increase in grape production could result in an excess of supply over
demand and force wineries to reduce or not increase prices, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Grape Supply and Vineyard Ownership".
RISKS FROM DEPENDENCE ON DISTRIBUTION NETWORK
The Company sells its products principally to distributors for resale to
restaurants and retail outlets. Sales to the Company's largest distributor
(Southern Wine and Spirits of America, Inc.), and to the Company's ten largest
distributors combined, represented approximately 30% and 59%, respectively, of
the Company's net revenues during fiscal 1997. Sales to the Company's ten
largest distributors are expected to continue to represent a substantial
majority of the Company's net revenues in the future. The laws and regulations
of several states prohibit changes of distributors, except under certain
limited circumstances, making it difficult to terminate a distributor without
reasonable cause, as defined by applicable statutes. The resulting difficulty
or inability to replace distributors, poor performance of the Company's major
distributors or the Company's inability to collect accounts receivable from
its major distributors could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Industry Background".
RISKS FROM CAPITAL REQUIREMENTS OF THE WINE BUSINESS AND THE COMPANY'S
LEVERAGE
The premium wine industry is a capital-intensive business which requires
substantial capital expenditures to develop and acquire vineyards and to
improve or expand wine production. Further, the farming of vineyards and
acquisition of grapes and bulk wine require substantial amounts of working
capital. The Company was acquired in a leveraged transaction at the beginning
of 1996 and since that time has financed its operations and capital spending
principally through borrowings. At June 30, 1997, the Company's total
indebtedness was approximately $319.1 million. After this offering, assuming
net proceeds of $110 million, the Company intends to reduce total indebtedness
to approximately $252.3 million. See "Use of Proceeds" and "Description of
Credit Agreement". The Company projects the need for significant capital
spending and increased working capital requirements over the next several
years which will require additional borrowings or other financing. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources".
The Company's substantial leverage has several important consequences to
holders of its Common Stock, including the following: (1) the Company has
significant fixed interest and principal repayment obligations requiring the
expenditure of substantial amounts of cash; (2) the Company's earnings may be
materially adversely affected by increases in interest rates; (3) the Company
may not be able to obtain financing when required or such financing may not be
available on reasonable terms; and (4) the Company's existing senior debt
covenants restrict, among other things, its ability to pay dividends on its
capital stock and to incur additional indebtedness. See "Description of Credit
Agreement". The Company's leverage could also have a material adverse effect
on the Company's business, financial condition and results of operations by
limiting its ability to withstand competitive pressure and adverse economic
conditions (including a downturn in its business or increased inflation or
interest rates) or to take advantage of significant business opportunities
that may arise, such as product line and brand extensions, acquisitions or
joint ventures.
10
<PAGE>
RISKS FROM GOVERNMENT REGULATION OF THE WINE BUSINESS
The wine industry is subject to extensive regulation by the Federal Bureau
of Alcohol, Tobacco and Firearms and various foreign agencies, state liquor
authorities and local authorities. These regulations and laws dictate such
matters as licensing requirements, trade and pricing practices, permitted
distribution channels, permitted and required labeling, advertising and
relations with wholesalers and retailers. Expansion of the Company's existing
facilities and development of new vineyards and wineries may be limited by
present and future zoning ordinances, environmental restrictions and other
legal requirements. In addition, new regulations or requirements or increases
in excise taxes, income taxes, property and sales taxes and international
tariffs, could materially adversely affect the financial results of the
Company. The Company can provide no assurance that there will not be future
legal or regulatory challenges to the industry, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
RISKS FROM CONSUMER PERCEPTION OF HEALTH ISSUES RELATED TO ALCOHOL CONSUMPTION
While a number of research studies suggest that various health benefits may
result from the moderate consumption of alcohol, other studies conclude or
suggest that alcohol consumption does not have any health benefits and may in
fact increase the risk of stroke, cancer and other illnesses. If an
unfavorable report on alcohol consumption gains general support, it could have
a material adverse effect on the Company's business, financial condition and
results of operations.
RISKS FROM THE COMPANY'S USE OF PESTICIDES AND OTHER HAZARDOUS SUBSTANCES
The Company uses pesticides and other hazardous substances in the operation
of its business. If hazardous substances are discovered on, or emanating from,
any of the Company's properties and their release presents a threat of harm to
public health or the environment, the Company may be held strictly liable for
the cost of remediation. Payment of any such costs could have a material
adverse effect on the Company's business, financial condition and results of
operations.
POSSIBLE CONTAMINATION AND OTHER QUALITY CONTROL AND OPERATING HAZARDS RISKS
The Company's operations are subject to certain hazards and liability risks,
such as potential contamination, through tampering or otherwise, of
ingredients or products. Contamination of any of the Company's wines could
result in the need for a product recall which could significantly damage the
Company's reputation for product quality. The Company believes that its
reputation for product quality is one of its principal competitive advantages.
Damage to its reputation for quality would have a material adverse effect on
the Company's business, financial condition and results of operations.
Although the Company maintains insurance against certain risks under various
general liability and product liability insurance policies, the Company's
insurance may not be adequate or may not continue to be available at a price
or on terms satisfactory to the Company.
LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT THE COMPANY
The Company's success will depend in large part upon the continued services
of a number of key employees. The loss of the services of one or more of the
Company's key personnel could have a material adverse effect on the Company.
In addition, if one or more of the Company's key employees resigns from the
Company to join a competitor or to form a competing company, the loss of such
personnel to any such competitor could have a material adverse effect on the
Company's business, financial condition and results of operations. In the
event of the loss of any such personnel, there can be no assurance that the
Company would be able to prevent the unauthorized disclosure or use of its
trade secrets, practices or procedures by such personnel.
11
<PAGE>
RISKS FROM FOREIGN COUNTRY EXPOSURE
The Company conducts some of its import and export activity for wine and
packaging supplies in foreign currency. The Company purchases its foreign
currency on the spot market on an as needed basis and does not engage in
hedging activities to offset the risk of exchange rate fluctuations.
Accordingly, there is a risk that a shift in certain foreign exchange rates or
the imposition of unforeseen and adverse trade regulations could adversely
impact the costs of these items and have an adverse impact on the Company's
profitability.
In addition, the imposition of unforeseen and adverse trade regulations
could have an adverse effect on the Company's imported wine operations and
thus on the Company's business, financial condition and results of operations.
The Company does not believe its foreign exchange risk and international
operations exposure is material at this time, but its increasing involvement
with international transactions may increase these risks in the future.
RISK OF DILUTION OR INFRINGEMENT OF COMPANY TRADEMARKS
The Company's wines are branded consumer products, and the Company's efforts
to distinguish its wines from those of its competitors depends, in part, on
the strength and vigilant enforcement of its trademarks. There can be no
assurance that competitors will refrain from using trademarks, tradenames or
trade dress which dilute the Company's intellectual property rights, and any
such actions may require the Company to become involved in litigation to
protect such rights. Any such litigation could involve substantial financial
expenditures and the diversion of management's time and attention. The
dilution of the Company's trademarks could have a material adverse effect on
the Company's business, financial condition and results of operations.
RISK FROM ACQUISITIONS; GROWTH STRATEGY
The Company's growth strategy has included the acquisition of wineries,
brands and vineyards. The Company's future growth through acquisitions, if
any, will depend, in part, on the continued availability of suitable
acquisition candidates at favorable prices and on favorable terms and
conditions. Additional acquisitions may result in non-cash charges, such as
inventory step-ups, that reduce reported earnings. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Acquisitions entail a risk that businesses acquired will not perform in
accordance with expectations. Further, there can be no assurance that the
Company will be successful in integrating operations acquired from other
companies, and such difficulties may divert management's attention from other
business concerns and lead to the potential loss of key employees of either
the Company or the acquired operations.
RISK FROM CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER MEASURES
The Company has two classes of Common Stock: Class A Common Stock, which is
entitled to 20 votes per share, and Class B Common Stock, which is entitled to
one vote per share. Assuming TPG purchases its pro rata share of the 600,000
shares offered directly by the Company hereby, TPG will own or control
following this offering 1,190,946 shares of Class A Common Stock and 8,859,874
shares of Class B Common Stock, representing approximately 84.0% and 53.2% of
all the outstanding Class A and Class B Common Stock, respectively, and 72.6%
of the combined voting power of both classes of Common Stock. Consequently,
following this offering TPG will be able to elect all of the Company's Board
of Directors, thereby ensuring that TPG will continue to direct the business,
policies and management of the Company. In addition, following this offering
the Company's Certificate of Incorporation will authorize the issuance and
sale of 5,000,000 shares of Preferred Stock with rights, preferences and
privileges as fixed by the Board of Directors without further approval of or
action by the stockholders. The Preferred Stock could be issued on terms that
are unfavorable to the holders of Class B Common Stock or that could make a
takeover or change in control of the Company more difficult.
12
<PAGE>
RISK FROM ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY
OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price of the Class B Common Stock will be
determined by negotiations between the Company and the representatives of the
Underwriters, and may not be indicative of the market price of the Class B
Common Stock after this offering. The Class B Common Stock has been approved
for quotation on the Nasdaq National Market. However, there can be no
assurance that an active trading market will develop or be sustained for the
Class B Common Stock or that the Class B Common Stock will trade in the public
market at or above the initial public offering price. See "Underwriting".
The stock market has from time to time experienced extreme price and volume
volatility. In addition, the market price of the Class B Common Stock may be
influenced by a number of factors, including investor perceptions of the
Company and comparable public companies, changes in conditions or trends in
the wine industry or in the industries of the Company's significant customers,
and changes in general economic and other conditions. Factors such as quarter-
to-quarter variations in the Company's net revenues and earnings could also
cause the market price of the Class B Common Stock to fluctuate significantly.
RISKS FROM SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Class B Common Stock (including shares
issued upon the exercise of employee stock options or upon conversion of the
Class A Common Stock) in the public market following this offering could
adversely affect the market price of the Class B Common Stock. Although only
the 4,250,000 shares being sold by the Underwriters in this offering will be
available for sale in the public market immediately after this offering,
approximately 14.0 million shares of Class B Common Stock issued or issuable
upon exercise of stock options or conversion of outstanding shares of Class A
Common Stock will be eligible for sale in the public market beginning 180 days
after the date of this Prospectus, subject to the volume and manner of sale
limitations imposed by Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"). See "Shares Eligible for Future Sale".
DILUTION TO NEW INVESTORS
The initial public offering price will be substantially higher than the book
value per share of the Class B Common Stock. Investors purchasing Class B
Common Stock in this offering will therefore incur immediate, substantial
dilution in the net tangible book value of their shares equal to $16.45 per
share, assuming an initial public offering price of $24.50 per share. In
addition, investors purchasing shares of Class B Common Stock in this offering
will incur additional dilution to the extent outstanding stock options are
exercised. See "Dilution".
ABSENCE OF DIVIDENDS
The Company is restricted from paying cash dividends under its credit
agreement and does not anticipate paying cash dividends on the Class B Common
Stock in the foreseeable future. See "Dividend Policy" and "Description of
Credit Agreement".
DIVIDEND POLICY
Since its acquisition from Nestle Holdings, the Company has not declared or
paid cash dividends on its capital stock and does not anticipate paying any
cash dividends in the foreseeable future. The Company currently intends to
retain its earnings, if any, for the development and expansion of its
business. The Company's credit agreement contains certain provisions
restricting its ability to pay dividends. See "Description of Credit
Agreement".
13
<PAGE>
THE COMPANY
Founded in 1876 in California's Napa Valley, Beringer was family-owned until
1971, when it was acquired by a subsidiary of Nestle S.A. ("Nestle"), the
global beverage, food and confection conglomerate. Nestle's wine operations
were conducted by its subsidiary, Wine World, Inc., whose name was changed in
1990 to Wine World Estates Company. On January 1, 1996, Silverado Partners
Acquisition Corp., a California corporation controlled by an investment group
that included TPG Partners, L.P. and Silverado Equity Partners L.P., acquired
Wine World Estates Company from Nestle Holdings, Inc. ("Nestle Holdings").
Silverado Partners Acquisition Corp. was reincorporated in Delaware later in
1996 and renamed Beringer Wine Estates Holdings, Inc. In June 1996, the name
of the operating company was changed to Beringer Wine Estates Company, which
is a wholly-owned operating subsidiary of the Company. The Company's
operations were expanded with the acquisitions of the Chateau St. Jean in
April 1996 and Stags' Leap Winery in February 1997. The Company's principal
executive offices are located at 1000 Pratt Avenue, St. Helena, California
94574 and its telephone number is (707) 963-7115.
Beringer is a leading producer of premium California varietal table wines,
marketed under the Beringer, Meridian Vineyards, Chateau St. Jean, Napa Ridge,
Chateau Souverain and Stags' Leap brand names. With this portfolio of brands,
the Company has captured the number one share of 750ml premium wines sold in
U.S. food stores for each of the last four years, and in fiscal 1997 had a
14.3% volume share of this market. The Company believes that it is well
positioned across its entire portfolio, with a top five market share for nine
of the eleven largest selling varietals in U.S. food stores. In one key
varietal category, White Zinfandel, Beringer holds a commanding 37.9% dollar
share of these 750ml wines sold in U.S. food stores, while selling at an
approximate 15% price premium over the second leading White Zinfandel brand.
Beringer White Zinfandel also generates the largest dollar sales of any wine
SKU sold in U.S. food stores. Beringer focuses exclusively on the premium wine
market and believes that its wines are widely recognized for their quality. In
1990, Beringer Private Reserve Cabernet Sauvignon was named "Wine of the Year"
by Wine Spectator magazine. In 1996, Beringer Private Reserve Chardonnay
received the same honor. This same magazine named eight of the Company's wines
to its list of "Top 100" wines of the world in 1996, a record number for a
wine company. In addition, in June 1997, Beringer was named "The Best Overall
Winery in America" in a poll of over 11,000 wine consumers by Wine Spectator
magazine.
Beringer believes that its rigorous attention to quality, the strength of
its brand portfolio and its pursuit of strategic acquisitions have enabled the
Company to grow its net revenues at a compound annual rate of 14.1%, from
$159.2 million in fiscal 1993 to $269.4 million in fiscal 1997. Over the same
period, net income grew at a compound annual rate of 27.3%, from $7.7 million
to $20.1 million, excluding purchase accounting adjustments related to the
acquisition of the Company and Chateau St. Jean and Stags' Leap wineries. The
Company attributes its leadership position in the rapidly growing premium wine
market to its (1) high quality wines which compete in every price segment of
the premium wine market, (2) focus on consumer marketing, (3) control in crop
year 1996 over approximately 23.4% of its overall grape requirements (and
approximately 48% of its grape requirements excluding White Zinfandel
requirements) and (4) professional management team with an average of 19 years
of industry experience.
Beringer is the oldest continuously operating winery in Napa Valley. Through
a series of vineyard acquisitions over the last ten years, management has
assembled extensive strategic acreage positions in the prime growing regions
of Napa, Sonoma, Lake, Santa Barbara and San Luis Obispo Counties. The Company
believes that its ownership of these vineyards enables it to control a source
of high quality premium wine grapes at an attractive cost. For example, in
1996, the average cost per ton of producing Chardonnay grapes on the Company's
Santa Barbara vineyards was $825, compared to a weighted average price paid
for Santa Barbara Chardonnay grapes of $1,450.
14
<PAGE>
Over the past twenty years there has been a shift in consumer preferences in
the U.S. from generic or "jug" wines to high quality, premium varietal wines.
The Company estimates that shipments of premium 750ml varietal wines have
grown from 3.4% of total case volume of California table wines in 1980 to over
25% of total case volume in 1996. Because premium wines sell at higher price
points than jug wines, the Company estimates that this 25% volume share
represents approximately $2.2 billion, or 51% of total dollar sales of
California wines sold at wholesale. Over this period, the compound annual
growth of premium varietal case volume was approximately 15.2% and annual
dollar sales growth was approximately 18.6%. The Company believes that this
major shift in consumer preferences has occurred due to (1) the maturing
"baby-boomer" generation entering its prime wine consumption period, (2) a
growing consumer interest in premium wines in general, (3) a growing interest
in and sophistication about food which lends itself to expanded consumption of
premium wines and (4) the improving quality and reputation of California
premium wines.
Throughout this shift in consumer preferences, Beringer has utilized
sophisticated consumer marketing to build substantial brand loyalty and
significant market share in the rapidly expanding premium wine market. The
Company believes that during the 1990s this marketing and brand building
expertise has helped the Company expand existing brands and launch new brands.
For example, Beringer White Zinfandel's dollar share has grown from 25.5% of
750ml White Zinfandel sales in U.S. food stores in 1991 to 37.9% in 1996. In
fiscal 1997, Beringer White Zinfandel's sales in U.S. food stores were 26%
greater than the number two wine SKU. Meridian Vineyards, a brand launched by
the Company in 1990, now has the number two market share for all Chardonnay
brands retailing for over $8 per bottle, with growth in case volume of 48%
from fiscal 1996 to fiscal 1997. The Company expects further growth in
Meridian Vineyards sales through Merlot and Cabernet Sauvignon brand
extensions, as well as additional growth in Chardonnay sales.
STRATEGY
Beringer's objective is to strengthen its leadership position in the premium
wine market and thereby increase its revenues and profits. The Company's
strategy for achieving this objective has the following key elements:
. Management of a Multi-Brand Portfolio
. Focus on High Quality Across All Brands
. Control of Premium Grape Supplies and Vineyards
. Pursuit of Strategic Acquisitions
. Emphasis on Consumer Marketing
. Commitment of Professional and Experienced Management Team
See "Business--Strategy".
USE OF PROCEEDS
The proceeds to the Company from the sale of the 4,850,000 shares of Class B
Common Stock offered hereby are estimated to be $110,002,875 ($119,624,025 if
the Underwriters' over-allotment options are exercised in full), assuming an
initial public offering price of $24.50 per share and after deducting
estimated underwriting discounts and offering expenses. The Company currently
intends to use the net proceeds of this offering as follows: (1) approximately
$38.5 million to redeem all outstanding shares of Series A Preferred Stock,
(2) approximately $38.1 million to prepay the Subordinated Notes which have a
maturity date of January 6, 2006 (including $3.1 million in prepayment
penalties), (3) approximately $27.4 million to repay a portion of its line of
credit which has a maturity date of January 16, 2001 and (4) approximately
$6.0 million to repay long-term debt which has a maturity date of July 16,
2005. The Company will use any remaining proceeds of this offering for working
capital and other general corporate purposes. The currently effective annual
interest rates on the Subordinated Notes, the line of credit and the long-term
debt are 12.5%, 7.9% and 8.0%,
15
<PAGE>
respectively. The Series A Preferred Stock pays an in-kind dividend at a 14.0%
effective annual interest rate. The cost, timing and amount of funds required
by the Company cannot be precisely determined at this time and will be based
upon numerous factors. The Board of Directors has broad discretion in
determining how the proceeds of this offering will be applied. Pending such
uses, the Company intends to invest the proceeds of this offering in short-
term, investment grade, interest-bearing obligations. See "Description of
Credit Agreement".
CAPITALIZATION
The following table sets forth at June 30, 1997 the capitalization of the
Company and the pro forma capitalization of the Company, as adjusted to give
effect to the sale of the 4,850,000 shares of Class B Common Stock being
offered by the Company at an assumed initial public offering price of $24.50
per share and the application of the estimated net proceeds therefrom as set
forth under "Use of Proceeds".
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
AS REPORTED AS ADJUSTED
----------- -----------
($ MILLIONS)
<S> <C> <C>
Line of credit......................................... $104.0 $ 76.6
Long-term debt......................................... 215.1 175.7
------ ------
Total debt........................................... 319.1 252.3
------ ------
Redeemable preferred stock:
Redeemable Series A Preferred Stock, $.0001 par
value; 2,000,000 shares authorized; 369,640 shares
issued and outstanding; no shares issued and
outstanding as adjusted............................. 34.3 --
------ ------
Common stock and other stockholders' equity:
Class A Common Stock, $.01 par value;
2,000,000 shares authorized; 1,019,980 shares issued
and outstanding; 1,416,962 shares issued and
outstanding as adjusted(1).......................... -- --
Class B Common Stock, $.01 par value;
38,000,000 shares authorized; 11,716,212 shares
issued and outstanding; 16,600,842 shares issued and
outstanding as adjusted(1)(2)....................... .1 .2
Notes receivable from stockholders................... (.6) (.6)
Warrants............................................. 1.8 --
Additional paid-in-capital........................... 57.5 165.0
Accumulated deficit(3)............................... (14.8) (19.5)
------ ------
Total common stock and other stockholders' equity.... 44.0 145.1
------ ------
Total capitalization................................. $397.4 $397.4
====== ======
</TABLE>
- --------
(1) Assumes that 396,982 shares of Class B Common Stock are exchanged for
Class A Common Stock in an exchange offer (the "Exchange Offer") pursuant
to which the Company offered all of the holders of its Class A Common
Stock the right to increase their holdings of Class A Common Stock by 50%
through exchange, on a one-for-one basis, of shares of Class B Common
Stock for shares of Class A Common Stock. Of all the holders of the
Company's Class A Common Stock, only TPG participated in the Exchange
Offer.
(2) Assumes exercise of all outstanding warrants to purchase shares (431,612)
of Class B Common Stock, and excludes 1,434,426 shares of Class B Common
Stock reserved for issuance upon exercise of stock options outstanding at
June 30, 1997. See "Management--Employee Benefit Plans" and Note 11 of
Notes to Consolidated Financial Statements.
(3) The "As adjusted" column has been increased to reflect $4.7 million of
extraordinary loss that will result from the intended early retirement of
the Subordinated Notes.
16
<PAGE>
DILUTION
The net tangible book value of the Company as of June 30, 1997 was
$43,995,000, assuming exercise of all outstanding warrants to purchase shares
of Class B Common Stock, or $3.34 per share. "Net tangible book value per
share" represents the amount of total tangible assets less total liabilities
of the Company, divided by the number of shares of Common Stock outstanding.
After giving effect to (1) the sale of the 4,850,000 shares of Class B Common
Stock offered hereby (at an assumed initial public offering price of $24.50
per share and after deduction of estimated underwriting discounts and offering
expenses) and (2) the application of the net proceeds therefrom in the manner
described under "Use of Proceeds", the pro forma net tangible book value of
the Company as of June 30, 1997 would have been $145,115,000, or $8.05 per
share. This represents an immediate increase in net tangible book value of
$4.71 per share to existing stockholders and an immediate dilution in net
tangible book value of $16.45 per share to new investors purchasing shares in
this offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price......................... $24.50
------
Net tangible book value before offering..................... $ 3.34
Increase attributable to new investors...................... 4.71
------
Pro forma net tangible book value after offering.............. 8.05
------
Dilution to new investors..................................... $16.45
======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1997,
the number of shares of Common Stock purchased from the Company, total
consideration paid and the average price paid per share by the existing
stockholders and new investors who purchase Class B Common Stock pursuant to
this offering (based upon an assumed initial public offering price of $24.50
per share and before deduction of estimated underwriting discounts and
offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).. 13,167,804 73.1% $ 66,420,000 36.0% $ 5.04
New investors(2).......... 4,850,000 26.9 117,871,000 64.0 24.30
---------- ----- ------------ -----
Total................... 18,017,804 100.0% $184,291,000 100.0% $10.23
========== ===== ============ =====
</TABLE>
The above computations assume (1) exercise of all outstanding warrants to
purchase shares of Class B Common Stock and (2) no exercise of the
Underwriters' over-allotment options or of any outstanding stock options, but
does not include the shares issued on August 15, 1997 upon exercise of an
outstanding option. As of June 30, 1997, there were outstanding options to
purchase an aggregate of 1,434,426 shares of Class B Common Stock at a
weighted average exercise price of $6.25 per share. To the extent these
options are exercised, purchasers of Class B Common Stock offered hereby will
incur further dilution. See "Description of Capital Stock", "Management--
Employee Benefit Plans--1996 Stock Option Plan" and Note 11 of Notes to
Consolidated Financial Statements.
- --------
(1) Represents purchases of Class A and Class B Common Stock totalling
$64,568,000 and the value of warrants to purchase Class B Common Stock
issued of $1,848,000, plus the aggregate exercise price therefor of
$4,000.
(2) Assumes the sale of 4,250,000 shares of Class B Common Stock to be sold to
the public at an assumed public offering price of $24.50 per share and the
sale of 600,000 shares at $22.91 per share sold to holders of the Series A
Preferred Stock.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
($ THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data set forth below should be read in conjunction
with the Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus. The statement of operations data set forth below
for the years ended June 30, 1995 and 1997 and for the six months ended
December 31, 1995 and June 30, 1996 and the balance sheet data at June 30,
1996 and 1997 have been derived from audited financial statements included
elsewhere in this Prospectus, which have been audited by Price Waterhouse LLP.
The statement of operations data for the years ended June 30, 1993 and 1994
and the balance sheet data at June 30, 1993, 1994 and 1995 have been derived
from unaudited financial statements of the Company which, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results of operations of
the Company for the unaudited periods.
The Company was incorporated for the purpose of acquiring Beringer Wine
Estates Company and its wholly owned subsidiaries. The acquisition from Nestle
Holdings, Inc. of all of the outstanding common stock of Beringer Wine Estates
Company by the Company occurred on January 1, 1996. The Company constitutes
the successor company ("New Beringer") and is reflected in the historical
results of operations beginning on January 1, 1996. The historical results of
operations through December 31, 1995 are the results of Beringer Wine Estates
Company and its consolidated subsidiaries ("Old Beringer").
<TABLE>
<CAPTION>
OLD BERINGER NEW BERINGER
------------------------------------------ -------------------
SIX MONTHS SIX MONTHS YEAR
YEAR ENDED JUNE 30, ENDED ENDED ENDED
---------------------------- DECEMBER 31, JUNE 30, JUNE 30,
1993 1994 1995 1995 1996 1997
-------- -------- -------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues.......... $159,176 $180,836 $202,010 $106,867 $124,863 $269,460
Cost of goods sold(1). 79,871 90,004 101,287 54,114 93,626 177,829
Gross profit(2)....... 79,305 90,832 100,723 52,753 31,237 91,631
Operating income
(loss)(3)............ 20,911 25,433 34,805 16,556 (4,783) 12,984
Interest expense...... (7,619) (7,007) (5,730) (2,214) (12,830) (26,401)
Income (loss) before
taxes(4)............. 13,862 18,949 30,122 14,467 (17,358) (12,525)
Net income (loss)(5).. 7,659 10,469 16,753 8,086 (9,365) (5,449)
Preferred dividends
and accretion of
discount............. -- -- -- -- 2,054 4,920
-------- -------- -------- -------- -------- --------
Net income (loss)
allocable to common
stockholders(5)...... $ 7,659 $ 10,469 $ 16,753 $ 8,086 $(11,419) $(10,369)
======== ======== ======== ======== ======== ========
Loss per share
Primary............. $ (1.04) $ (0.85)
======== ========
Supplemental(6)..... $ (0.23)
========
Weighted average
common shares
outstanding(7)
Primary............. 10,978 12,185
======== ========
Supplemental(6)..... 17,035
========
</TABLE>
<TABLE>
<CAPTION>
OLD BERINGER NEW BERINGER
-------------------------- -----------------
AT JUNE 30, AT JUNE 30,
-------------------------- -----------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................. $ 12,408 $ 7,650 $ 27,955 $209,129 $209,711
Total assets.................... 278,579 286,454 289,922 438,742 467,184
Total long-term debt, including
current portion................ -- -- -- 289,244 319,112
Total long-term obligations (8). 256 -- -- 317,531 356,072
Common stock and other
stockholders' equity........... 140,411 140,880 158,326 48,381 43,993
Redeemable preferred stock,
common stock and other
stockholders' equity........... 140,411 140,880 158,326 77,484 78,334
</TABLE>
- -------
(1) In accordance with purchase accounting rules applied to the Company's
acquisitions, inventory was increased to fair market value. Due to this
inventory step-up, cost of goods sold increased in the six months ended
June 30, 1996 and the year ended June 30, 1997 by $32,131 and $43,308,
respectively.
(2) Gross profit without the inventory step-up would have been $63,368 and
$134,939 in the six months ended June 30, 1996 and the year ended June 30,
1997, respectively.
(3) If the inventory step-up had not occurred, operating income would have
been $27,348 and $56,292 for the six months ended June 30, 1996 and for
the year ended June 30, 1997, respectively.
(4) If the inventory step-up had not occurred, income (loss) before income
taxes would have been $14,773 and $30,783 for the six months ended June
30, 1996 and for the year ended June 30, 1997, respectively.
(5) If the inventory step-up had not occurred, net income (loss) would have
been $9,593 and $20,086 for the six months ended June 30, 1996 and for the
year ended June 30, 1997, respectively.
(6) Supplemental earnings per share (i) illustrates the effect on earnings per
share of the repurchase of all the outstanding shares of Series A
Preferred Stock ($38,500), repayment of all of the outstanding
Subordinated Notes ($38,150), including a prepayment penalty of $3,150,
and repayment of $27,353 of the line of credit and $6,000 of long-term
debt with the estimated net proceeds from this offering, as if such
transactions occurred at the beginning of the applicable period and (ii)
gives effect to the issuance of the 4,850,000 shares of Class B Common
Stock offered hereby, as if such shares were outstanding at the beginning
of the applicable period. See Note 1 of Notes to Consolidated Financial
Statements.
(7) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the determination of shares used in computing earnings per
share.
(8) Includes line of credit; long-term debt, less current portion; other
liabilities and the Series A Preferred Stock.
18
<PAGE>
SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
The supplemental consolidated financial data set forth below are presented
herein to reflect on a pro forma basis the comparative consolidated financial
data without the inventory step-up included in the audited results for the six
month period ended June 30, 1996 and the year ended June 30, 1997. On January
1, 1996, an investment group led by TPG acquired the Company from Nestle
Holdings. This transaction was accounted for as a purchase, resulting in new
basis of assets and liabilities effective January 1, 1996. This information
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto included elsewhere in this Prospectus, and "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
($ THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $159,176 $180,836 $202,010 $231,730 $269,460
Cost of goods sold(1)... 79,871 90,004 101,287 115,609 134,521
Gross profit(1)......... 79,305 90,832 100,723 116,121 134,939
Operating income(1)..... 20,911 25,433 34,805 43,904 56,292
Interest expense........ (7,619) (7,007) (5,730) (15,044) (26,401)
Income before taxes(1).. 13,862 18,949 30,122 29,240 30,783
Taxes(2)................ 6,203 8,480 13,369 11,560 10,697
Net income.............. $ 7,659 $ 10,469 $ 16,753 $ 17,680 $ 20,086
======== ======== ======== ======== ========
</TABLE>
- --------
(1) For the years ended June 30, 1996 and 1997, cost of goods sold was reduced
and gross profit, operating income and income before taxes were
effectively increased by $32,131 and $43,308, respectively, as a result of
the inventory step-up.
(2) For the years ended June 30, 1996 and 1997, income taxes have been
computed on net income after adding back the amount of the inventory step-
up.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data", "Supplemental Consolidated Financial
Data" and the Company's Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus. For a discussion of certain
considerations relevant to an investment in the Class B Common Stock, see
"Risk Factors".
OVERVIEW
Beringer Vineyards was founded in 1876. The business remained family owned
until 1971, when it was acquired by a subsidiary of Nestle. On January 1,
1996, an investment group led by TPG acquired the Company from Nestle Holdings
(the "Acquisition"). Thereafter, the Company's operations were expanded with
the acquisitions of Chateau St. Jean in April 1996 and Stags' Leap Winery in
February 1997.
The Acquisition and the related accounting treatment have impacted the
Company's financial results in two significant ways. Financial results have
been most significantly impacted by an increase in the cost of goods sold
resulting from the increase of inventory balances to their fair market values
less costs of completion and disposal (the "inventory step-up") in accordance
with purchase accounting rules applied to record the Acquisition. See "--
Effect of Inventory Step-Up". In addition, the Company's earnings have been
negatively affected by significant increases in interest expense related to
the debt incurred to finance the Acquisition. See "--Effect of Leveraged
Acquisition".
EFFECT OF INVENTORY STEP-UP
The Acquisition was recorded using the purchase accounting method. Under
this method, the purchase price is allocated to the assets and liabilities of
the acquired company in the order of their liquidity and based on their
estimated fair market values at the time of the transaction. When the Company
was acquired in January 1996, $101.9 million of the purchase price in excess
of book value was allocated to the Company's inventory on hand at the
transaction date. Subsequent acquisitions have resulted in additional
inventory step-ups. The 1996 purchase of Chateau St. Jean generated
$6.4 million in inventory step-up, while the 1997 acquisition of Stags' Leap
Winery generated $14.6 million in inventory step-up. The Company uses the
"first-in, first-out" ("FIFO") method of inventory accounting. As the
inventory on hand at the transaction dates is sold in the normal course of
business under the FIFO method of accounting, costs of the wine sold are
charged to cost of goods sold, including the amount of the inventory step-up
allocated to the wine sold. As this inventory step-up is charged to cost of
goods sold, it reduces the Company's gross profit and its overall operating
results. The charges to cost of goods sold resulting from the inventory step-
up are non-cash items and are expected to affect the Company's reported
performance at decreasing levels through fiscal year 2000. As the inventory
step-up will affect the Company's reported financial results only in the near
term, the Company's historical results for 1996 and 1997 are not indicative of
the Company's future performance. See "--Results of Operations".
20
<PAGE>
The following table illustrates the actual and projected effects of the
inventory step-up:
INVENTORY STEP-UP
($ MILLIONS)
<TABLE>
<CAPTION>
REMAINING
INVENTORY CHARGE TO IN YEAR-
STEP-UP COST OF END
YEAR ENDED JUNE 30, ADDED GOODS SOLD INVENTORY
------------------- --------- ---------- ---------
<S> <C> <C> <C>
1996....................................... $108.3(1) $32.1 $76.2
1997....................................... 14.6(2) 43.3 47.5
1998(3).................................... -- 27.0 20.5
1999(3).................................... -- 17.0 3.5
2000(3).................................... -- 3.5 0.0
</TABLE>
- -------
(1) Of this amount, $101.9 million was allocated to inventory on hand at the
time of the Acquisition and $6.4 million was allocated to inventory
acquired when the Company purchased Chateau St. Jean.
(2) Step-up attributable to the Company's acquisition of Stags' Leap Winery in
1997.
(3) These Company estimates are based on a number of assumptions, including in
particular projections with respect to the Company's sales of wine. The
Company believes these assumptions are reasonable based on information
presently available. Changes in events and circumstances, however, may
occur, and therefore there can be no assurance that these estimates will
prove to be accurate.
The chart below sets forth the Company's selected statements of operations
data for the fiscal years ended June 30, 1995, 1996 and 1997 with and without
the inventory step-up.
SUMMARY AS REPORTED AND PRO FORMA SELECTED STATEMENT OF OPERATIONS DATA
($ MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996
COMBINED PRO FORMA WITHOUT
AS REPORTED PRO FORMA (1) AS REPORTED INVENTORY STEP-UP (2)
-------------------------------- ------------- ----------- ---------------------
SIX MONTH SIX MONTH
YEAR PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
ENDED DECEMBER 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1995 1995 1996 1996 1997 1996 1997
------ ------------ ------------ ------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $202.0 $106.9 $124.8 $231.7 $ 269.4 $231.7 $269.4
Cost of goods sold
(without inventory
step-up)............... 101.3 54.1 61.5 115.6 134.5 115.6 134.5
Inventory step-up....... -- -- 32.1 32.1 43.3 -- --
------ ------ ------ ------ ------- ------ ------
Gross profit............ 100.7 52.8 31.2 84.0 91.6 116.1 134.9
Operating expenses...... 65.9 36.2 36.0 72.2 78.6 72.2 78.6
------ ------ ------ ------ ------- ------ ------
Operating income........ 34.8 16.6 (4.8) 11.8 13.0 43.9 56.3
Interest and other...... 4.7 2.1 12.6 14.7 25.5 14.7 25.5
------ ------ ------ ------ ------- ------ ------
Income (loss) before
income taxes........... 30.1 14.5 (17.4) (2.9) (12.5) 29.2 30.8
Income taxes (benefit).. 13.3 6.4 (8.0) (1.6) (7.1) 11.6 10.7
------ ------ ------ ------ ------- ------ ------
Net income (loss)....... 16.8 8.1 (9.4) (1.3) (5.4) 17.6 20.1
Less preferred dividend
and accretion of
discount............... -- -- (2.1) (2.1) (4.9) (2.1) (4.9)
------ ------ ------ ------ ------- ------ ------
Net income (loss)
allocable to common
stockholders........... $ 16.8 $ 8.1 $(11.5) $ (3.4) $(10.3) $ 15.5 $ 15.2
====== ====== ====== ====== ======= ====== ======
</TABLE>
- -------
(1) Represents the summation of the "As Reported" balances for the six month
periods ended December 31, 1995 and June 30, 1996.
(2) Represents the "Pro-Forma" and "As Reported" balances for the years ended
June 30, 1996 and 1997, respectively, (i) less the inventory step-up and
(ii) adjusted for the recomputation of income taxes after the inventory
step-up is added back.
21
<PAGE>
EFFECT OF LEVERAGED ACQUISITION
In financing the Acquisition, the Company incurred both senior and
subordinated long-term debt and obtained a revolving line of credit that is
classified as long term due to its expiration date of January 2001.
Historically, financing was provided to the Company by Nestle through interest
bearing advances. At December 31, 1995, outstanding advances totaled
$95.8 million. This amount was repaid as part of the acquisition of the
Company from Nestle Holdings. At June 30, 1996, $4.0 million of purchase price
remained outstanding and was paid in August 1996.
Since the Acquisition, the credit arrangements have been restructured and
the new credit facilities have been used, in conjunction with cash from
operations, to finance the Company's operating needs, capital expenditures and
acquisitions. At June 30, 1997, long-term debt outstanding was $215.1 million
and the line of credit balance was $104.0 million, leaving $42.5 million
available under the terms of this line, after taking into consideration an
outstanding letter of credit of $3.5 million. Interest expense (excluding $0.6
million of interest payments capitalized to ongoing development activities)
incurred as a result of these obligations in 1997 was $26.4 million. The
Company intends to use the net proceeds from this offering to (1) retire all
of the outstanding Subordinated Notes (approximately $38.1 million, including
$3.1 million in prepayment penalties), (2) repay a portion of its line of
credit (approximately $27.4 million), (3) repay a portion of its long-term
senior debt (approximately $6.0 million) and (4) redeem all of the Series A
Preferred Stock (approximately $38.5 million). Assuming retirement of such
debt and repurchase of such preferred stock at the expected offering date, the
Company's interest expense will be reduced by approximately $4.5 million in
fiscal 1998 and by approximately $7.2 million for a full year, and preferred
dividends and accretion of discount will be reduced by approximately $2.1
million in fiscal 1998 and by approximately $4.9 million for a full year. See
"Use of Proceeds" and "--Liquidity and Capital Resources".
SEASONALITY AND QUARTERLY RESULTS
The Company has experienced and expects to continue to experience seasonal
and quarterly fluctuations in its net revenues. Historically, the Company has
reported its highest net revenues in the second fiscal quarter (October--
December), as sales volumes tend to increase in advance of holiday periods and
tend to decrease during the summer months. Thus, the Company typically reports
lower earnings in the first quarter, and due to the inventory step-up expects
to report a loss for the first quarter of fiscal 1998.
The following table illustrates the seasonality of the Company's net
revenues for each of the most recent eight fiscal quarters:
QUARTERLY NET REVENUES ($ MILLIONS)
<TABLE>
<CAPTION>
FISCAL 1996 QUARTER ENDED FISCAL 1997 QUARTER ENDED
-------------------------------- --------------------------------
SEPT. 30 DEC. 31 MAR. 31 JUN. 30 SEPT. 30 DEC. 31 MAR. 31 JUN. 30
-------- ------- ------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $42.7 $64.2 $61.5 $63.3 $56.0 $77.1 $67.4 $68.9
Percent of annual net
revenues............... 18.4% 27.7% 26.6% 27.3% 20.8% 28.6% 25.0% 25.6%
</TABLE>
Grower payments and grape and bulk wine purchases result in increases in
seasonal borrowing requirements following each harvest. Most grape contracts
require a partial payment within 30 days of delivery with the balance paid at
later dates as specified in the contract. The Company typically makes
approximately two-thirds of its payments during the second fiscal quarter,
with many final payments due in the third quarter. As a result of harvest
costs and the timing of contract grape and grape and bulk wine purchase
payments, the Company's inventory related cash requirements generally peak
during the second or third fiscal quarter. Cash requirements also fluctuate
depending on the level and timing of capital spending, marketing and
advertising campaigns, and acquisitions.
22
<PAGE>
RESULTS OF OPERATIONS
The following table illustrates selected statement of operations data for
the periods indicated, expressed as a percentage of net revenues:
PERCENTAGE OF NET REVENUES
<TABLE>
<CAPTION>
1996
COMBINED PRO FORMA WITHOUT
AS REPORTED PRO FORMA (1) AS REPORTED INVENTORY STEP-UP (2)
-------------------------------- ------------- ----------- ---------------------
SIX MONTH SIX MONTH
YEAR PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
ENDED DECEMBER 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1995 1995 1996 1996 1997 1996 1997
----- ------------ ------------ ------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold
(without inventory
step-up)............... 50.1% 50.6 49.3 49.9 49.9 49.9% 49.9%
Inventory step-up....... -- -- 25.7% 13.9% 16.1% -- --
----- ----- ----- ----- ----- ----- -----
Gross profit............ 49.9% 49.4% 25.0% 36.2% 34.0% 50.1% 50.1%
Operating expenses...... 32.7% 33.9% 28.8% 31.2% 29.2% 31.2% 29.2%
----- ----- ----- ----- ----- ----- -----
Operating income........ 17.2% 15.5% (3.8)% 5.0% 4.8% 18.9% 20.9%
Interest and other...... 2.3% 1.9% 10.1% 6.3% 9.4% 6.3% 9.4%
----- ----- ----- ----- ----- ----- -----
Income (loss) before in-
come taxes............. 14.9% 13.6% (13.9)% (1.3)% (4.6)% 12.6% 11.5%
Income taxes (benefit).. 6.6% 6.0% (6.4)% (0.7)% (2.6)% 5.0% 4.0%
----- ----- ----- ----- ----- ----- -----
Net income (loss)....... 8.3% 7.6% (7.5)% (0.6)% (2.0)% 7.6% 7.5%
===== ===== ===== ===== ===== ===== =====
</TABLE>
- -------
(1) Represents the summation of the "As Reported" balances for the six month
periods ended December 31, 1995 and June 30, 1996.
(2) Represents the "Pro-Forma" and "As Reported" balances for the years ended
June 30, 1996 and 1997, respectively, (i) less the inventory step-up and
(ii) adjusted for the recomputation of income taxes after the inventory
step-up is added back.
THREE YEARS ENDED JUNE 30, 1997
For purposes of the following tables, "As Reported" balances for the year
ended June 30, 1996 represent the summation of the balances for the six month
periods ended December 31, 1995 and June 30, 1996 as presented in the "Summary
As Reported and Pro Forma Selected Statement of Operations Data" table on page
21.
NET REVENUES
The Company's net revenues have been increasing steadily over the past three
years due to volume growth, price increases and product mix improvements, as
well as the acquisitions of the Chateau St. Jean and Stags' Leap wineries.
The following table illustrates the Company's net revenues and volumes for
the past three years:
NET REVENUES
($ AND VOLUME MILLIONS, EXCEPT PER CASE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
AS REPORTED
--------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Beringer.................................................. $135.2 $149.7 $160.3
Meridian Vineyards........................................ 18.6 24.7 39.0
All other California brands............................... 44.9 48.8 59.4
Imports................................................... 3.3 8.5 10.7
Total..................................................... $202.0 $231.7 $269.4
Volume (9L cases-all brands).............................. 4.57 5.00 5.42
Net revenues per case..................................... $44.20 $46.34 $49.70
</TABLE>
Net revenues increased 14.7%, from $202.0 million in fiscal 1995 to $231.7
million in fiscal 1996, and increased 16.3% to $269.4 million from fiscal 1996
to fiscal 1997. The Company's case volume grew by 9.4%, from 4.57 million
cases in fiscal 1995 to 5.00 million cases in fiscal 1996, and by 8.4% to 5.42
million
23
<PAGE>
cases in fiscal 1997. In addition to this volume growth, prices on many
products within the entire portfolio were increased and the mix of products
sold improved so that the average price per unit increased 4.8%, from $44.20
in fiscal 1995 to $46.34 in fiscal 1996, and 7.3% to $49.70 in fiscal 1997.
While strong consumer demand and reduced supplies have allowed recent price
increases, there can be no assurance that future price increases will be
possible. See "Risk Factors--Grape Supply". Net revenues generated from "All
Other California Brands" in fiscal 1997 increased by $10.6 million over fiscal
1996 net revenues to $59.4 million. Net revenues from "All Other Brands" for
the six months ended June 30, 1996 and the year ended June 30, 1997 include
$4.5 million and $17.6 million, respectively, from Chateau St. Jean which was
acquired in April 1996. In addition, growth in net revenues for "All Other
California Brands" in fiscal year 1997 was provided in part by the acquisition
of Stags' Leap Winery in February 1997.
Net revenues are calculated by deducting Federal and California excise taxes
from gross revenues. The excise tax rate is charged on a gallonage basis and
has remained unchanged during these periods. Excise tax has averaged
approximately $2.51 per case for the past three years and is declining as a
percentage of gross revenues as the average selling price increases.
COST OF GOODS SOLD
Cost of goods sold includes the costs of raw materials (grapes and bulk
wine), packaging, winemaking, bottling, freight, warehousing and overhead on
winery facilities and equipment (primarily depreciation and property tax).
Cost of goods sold increased significantly in both 1996 and 1997, increasing
45.8% from $101.3 million in fiscal 1995 to $147.7 million in fiscal 1996 and
20.4% to $177.8 million in fiscal 1997. These increases of $46.4 million and
$30.1 million, respectively, were heavily influenced by the inventory step-up,
which was charged to cost of goods sold for six months in 1996 and a full year
in 1997. Included in the $147.7 million in cost of goods sold for 1996 was
$32.1 million of inventory step-up and included in the $177.8 million for 1997
was $43.3 million of inventory step-up. When inventory step-up is excluded
from the measurement of cost of goods sold, increases in 1996 and 1997 were
$14.3 million and $18.9 million, respectively. These increases in cost of
goods sold of 14.1% and 16.3%, respectively, are due primarily to increases in
volume during 1996 and 1997. Volume increased approximately 9.2% in 1996 and
8.5% in 1997. The remaining increase in cost of goods sold was due to product
mix improvements and higher unit costs.
The increase in cost per case without the inventory step-up (from $22.17 in
1995 to $23.12 in 1996 and to $24.82 in 1997) reflects changes in the mix of
products sold toward higher value and higher cost items and also reflects
increases in the cost of grapes and bulk wine used in the Company's products.
The increase in cost of grapes and bulk wine has resulted from the combined
effect of smaller than normal harvests in 1995 and 1996 as well as increases
in industry-wide demand for grapes. The Company's cost of grapes, measured on
a per ton basis, increased by approximately 20% between the harvests of 1994
and 1996, due in part to the increase in grape costs and in part to a
favorable shift in the Company's product mix. All other components of product
cost have remained relatively constant when measured on a unit basis.
GROSS PROFIT
The Company's gross profit decreased 16.6% from $100.7 million in fiscal
1995 to $84.0 million in fiscal 1996. Gross profit increased 9.0% in 1997 to
$91.6 million. The decrease in 1996 was due to the effect of the $32.1 million
of inventory step-up charged to cost of goods sold for the last six months of
the fiscal year. Although gross profit for fiscal 1997 reflects a full year
impact of $43.3 million of inventory step-up, volume increases and
improvements in unit revenue resulted in an increase in gross profit. Gross
profit as a percent of net revenues decreased from 49.9% in fiscal 1995 to
36.2% in fiscal 1996 and to 34.0% in fiscal 1997. These percentages, when
calculated without the effect of the inventory step-up, remained constant at
approximately 50% in each year.
24
<PAGE>
The following table illustrates the Company's gross profit with and without
the effect of the inventory step-up:
GROSS PROFIT WITH AND WITHOUT INVENTORY STEP-UP
($ AND VOLUME MILLIONS, EXCEPT PER CASE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------
PRO FORMA
WITHOUT INVENTORY
AS REPORTED STEP-UP
---------------------- ------------------
1995 1996 1997 1996 1997
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues........................ $202.0 $231.7 $269.4 $ 231.7 $ 269.4
Cost of goods sold.................. 101.3 115.6 134.5 115.6 134.5
Inventory step-up................... 0.0 32.1 43.3 0.0 0.0
------ ------ ------ -------- --------
Gross profit...................... $100.7 $ 84.0 $ 91.6 $ 116.1 $ 134.9
====== ====== ====== ======== ========
As a percent of net revenues...... 49.9% 36.2% 34.0% 50.1% 50.1%
Volume (9L cases)................... 4.57 5.00 5.42 5.00 5.42
Gross profit per case............. $22.04 $16.80 $16.90 $ 23.22 $ 24.89
====== ====== ====== ======== ========
</TABLE>
Although the Company's gross profit per case has declined since 1995, when
calculated without the effect of the inventory step-up, the Company's gross
profit per case increased by 5.4% from $22.04 in fiscal 1995 to $23.22 in
fiscal 1996 and by 7.2% to $24.89 in fiscal 1997. These increases resulted
from price increases and product mix enhancements that exceeded increases in
product costs (without the impact of the inventory step-up).
OPERATING EXPENSES
Operating expenses consist of sales and marketing overhead, advertising,
merchandising and trade-related expenses, as well as general and
administrative expenses. Operating expenses increased 9.6% from $65.9 million
in fiscal 1995 to $72.2 million in fiscal 1996 and by 8.9% to $78.6 million in
fiscal 1997. These increases are primarily a result of increases in sales and
marketing expenses. The Company has increased its advertising and
merchandising expenses, as it continues to differentiate its products from
those of its competitors and build consumer brand loyalty. While operating
expenses have increased over this three-year period, the ratio of operating
expenses to net revenues has decreased from 32.7% in fiscal 1995 to 31.1% in
fiscal 1996 and to 29.2% in fiscal 1997, primarily due to price increases and,
to a lesser extent, economies of scale.
OPERATING INCOME
Operating income decreased 66.2% from $34.8 million in fiscal 1995 to $11.8
million in fiscal 1996 due primarily to the impact of the inventory step-up
and increased 10.2% to $13.0 million in 1997. Excluding the inventory step-up,
operating income has increased steadily, increasing 26.1% in 1996 to $43.9
million and 28.2% in 1997 to $56.3 million. When measured without the
inventory step-up, operating income has increased both as a percentage of net
revenues and on a per case basis primarily due to price increases and product
mix enhancements. Operating income as a percent of net revenues decreased from
17.2% in fiscal 1995 to 5.1% in fiscal 1996 and to 4.8% in fiscal 1997.
Calculated without the effect of the inventory step-up, operating income as a
percent of net revenues increased from 17.2% in fiscal 1995 to 18.9% in fiscal
1996 and to 20.9% in fiscal 1997. Operating income per case decreased from
$7.61 in fiscal 1995 to $2.36 in fiscal 1996 and to $2.40 in fiscal 1997. When
calculated without the effect of the inventory step-up, operating income per
case increased from $7.61 in fiscal 1995 to $8.78 in fiscal 1996 and to $10.39
in fiscal 1997.
25
<PAGE>
The following table sets forth the Company's operating income and related
data for the past three years:
OPERATING INCOME WITH AND WITHOUT INVENTORY STEP-UP
($ MILLIONS, EXCEPT PER CASE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
PRO FORMA
WITHOUT
INVENTORY
AS REPORTED STEP-UP
-------------------- -------------
1995 1996 1997 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Operating income............................. $34.8 $11.8 $13.0 $43.9 $56.3
As a percent of net revenues................. 17.2% 5.1% 4.8% 18.9% 20.9%
Operating income per case.................... $ 7.61 $ 2.36 $ 2.40 $ 8.79 $10.39
</TABLE>
INTEREST AND OTHER EXPENSE
Interest expense increased significantly in the second half of fiscal 1996
and all of fiscal 1997 as a result of debt incurred in connection with the
Acquisition. Interest expense increased 164.9% to $15.1 million in fiscal 1996
and 74.8% to $26.4 million in fiscal 1997. The Company expects to use a
portion of the proceeds of this offering to reduce debt which will reduce
interest expense accordingly. See "Use of Proceeds". The Company's average
cost of debt was 6.2% in fiscal 1995, 8.1% in fiscal 1996 and 8.6% in fiscal
1997.
Other income and expense consists primarily of non-operating income and
expense items. These items have tended to fluctuate from year to year and have
not represented significant components of the income statement when measured
as a percent of net income. Other income and expense as measured on a net
basis amounted to income of $1.0 million in fiscal 1995, $0.4 million in
fiscal 1996 and $0.9 million in fiscal 1997.
INCOME (LOSS) BEFORE INCOME TAXES
The Company reported income before income taxes of $30.1 million in fiscal
1995 and losses before income taxes of $2.9 million in fiscal 1996 and $12.5
million in fiscal 1997. The results for fiscal 1996 and fiscal 1997 were
affected by the inventory step-up charged to cost of goods sold and the
increased interest expense described above. When evaluating income before
income taxes, it is meaningful to view trends without the impact of the
inventory step-up.
The following table illustrates the Company's income before income taxes for
the past three years:
INCOME BEFORE INCOME TAXES WITH AND WITHOUT INVENTORY STEP-UP
($ MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------
PRO FORMA WITHOUT
AS REPORTED INVENTORY STEP-UP
--------------------- ------------------
1995 1996 1997 1996 1997
----- ----- ------ -------- --------
<S> <C> <C> <C> <C> <C>
Income (loss) before income taxes . $30.1 $(2.9) $(12.5) $29.2 $30.8
As a percent of net revenues....... 14.9% (1.3)% (4.6)% 12.6% 11.4%
</TABLE>
When viewed without the effect of the inventory step-up, income before
income taxes varies little over the three-year period and shows decreases as a
percent of net revenues. This result occurs because increases in operating
income (without the effect of the inventory step-up) are offset by increases
in interest expense.
26
<PAGE>
INCOME TAXES (BENEFIT)
The Company records income taxes using the liability method. Accordingly,
the calculation of income taxes includes both a current provision, which
represents the federal and state taxes the Company expects to currently pay,
and a deferred provision or benefit. The deferred provision or benefit
represents the change from period to period in the differences between the tax
and financial reporting bases of the Company's assets and liabilities.
In fiscal 1995 (prior to any purchase accounting) the tax provision was at a
rate of 44.4%. After the Acquisition, the Company reported book losses
primarily due to the absorption of inventory step-up through cost of goods
sold. The rate of tax benefit on these losses resulted from differences
between book and tax bases of inventory and property and the amortization of
tax goodwill, which is not recognized for book purposes. In fiscal years 1996
and 1997, the effective tax benefit rates were (55.8%) and (56.5%),
respectively. Due to the on-going amortization of the tax goodwill (which is
deductible for tax purposes but not reflected in the financial statements),
the Company expects to report an effective income tax rate for 1998 which is
lower than the statutory rate.
NET INCOME
As a result of the inventory step-up and higher interest expense associated
with the Acquisition, the Company generated net losses in fiscal 1996 and
fiscal 1997. When evaluating net income, it is again meaningful to view trends
without the effect of the inventory step-up.
The following table illustrates the Company's net income for the past three
years:
NET INCOME WITH AND WITHOUT INVENTORY STEP-UP
($ MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
PRO FORMA WITHOUT
AS REPORTED INVENTORY STEP-UP
-------------------- ------------------
1995 1996 1997 1996 1997
----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Net income (loss).................... $16.8 $(1.3) $(5.4) $ 17.6 $ 20.1
As a percent of net revenues......... 8.3% (0.6)% (2.0)% 7.6% 7.4%
</TABLE>
When viewed without the effect of the inventory step-up, the Company's
income on an after tax basis shows modest increases over the three year period
ended June 30, 1997. As discussed above, the Company's increases in operating
income (without the effect of the inventory step-up) were offset by increases
in interest expense resulting in minimal changes in income before income taxes
and net income. Since the Acquisition, net income to Common Stock has been
reduced by dividends on the Series A Preferred Stock, which totaled $2.1
million in the year ended June 30, 1996 and $4.9 million in the year ended
June 30, 1997. The Company intends to use a portion of the proceeds of this
offering to redeem all of the outstanding Series A Preferred Stock. See "Use
of Proceeds".
27
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position at June 30, 1995, 1996 and 1997 is
presented below:
WORKING CAPITAL
($ MILLIONS)
<TABLE>
<CAPTION>
AT JUNE 30,
---------------------------------
PRO
FORMA WITHOUT
INVENTORY
STEP-UP
AND TREATMENT
OF THE LINE
OF CREDIT
AS REPORTED AS SHORT TERM
------------------- -------------
1995 1996 1997 1996 1997
----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Working capital............................... $28.0 $209.1 $209.7 $ 22.9 $ 58.2
</TABLE>
The Company's working capital position has been significantly affected by
the inventory step-up and by the change in the terms of its line of credit.
The inventory step-up contributed $76.2 million to inventory balances at June
30, 1996, of which $47.5 million remained in inventory balances at June 30,
1997. Further, the classification of the Company's line of credit as long-term
debt (due to its expiration date of January 2001) results in a substantial
reduction in current liabilities at June 30, 1996 and 1997. Amounts due to
Nestle prior to the Acquisition were current in nature. Line of credit
balances were $86.0 million at June 30, 1996 and $104.0 million at June 30,
1997. In addition, the Company had an outstanding letter of credit of $3.5
million at June 30, 1997.
When reducing current assets for the inventory step-up and increasing
current liabilities by reflecting the line of credit balance as current,
working capital declined in 1996 to $22.9 million and increased in 1997 to
$58.2 million.
This 18.2% decline in pro forma working capital from $28.0 million in 1995
to $22.9 million in 1996 occurred primarily because the line of credit balance
increased by $30.8 million over the short-term obligations outstanding at
June 30, 1995, while inventory balances (excluding the inventory step-up)
increased by only $26.9 million. Pro forma working capital increased by
154.1%, from $22.9 million in fiscal 1996 to $58.2 million in fiscal 1997 as
inventory balances (excluding the inventory step-up) increased $34.8 million
while borrowings under the line of credit decreased by $6.0 million.
During fiscal 1995, 1996 and 1997, the Company's cash from operations was
supplemented by borrowings on its line of credit, additional long-term debt
and issuance of Common and Preferred Stock. Funds obtained from these sources
were used to support acquisitions, capital expenditures and increases in
working capital. During this period, the Company invested $54.8 million in
capital expenditures consisting primarily of property acquisitions, vineyard
development, facility capacity expansion, warehousing and computer systems. In
addition, the Company invested $51.5 million for the acquisitions of the
Chateau St. Jean and Stags' Leap wineries. Further, the Company increased its
investment in working capital (primarily inventory and accounts receivable,
exclusive of amounts associated with the acquisitions) by $32.8 million during
this period.
The Company estimates that approximately 1,026 of its vineyard acres are
infested with phylloxera, and intends to replant such acres with what it
believes to be phylloxera-resistant rootstock over the next four calendar
years. Management estimates that such replanting will require expenditures of
approximately $6.0 million, $5.5 million, $2.4 million and $1.5 million in
calendar years 1998, 1999, 2000 and 2001, respectively. See "Business--
Phylloxera".
Management expects the Company's working capital needs to continue to grow
as the business expands. Investment in both inventory and trade receivables
are expected to increase as the business grows. Capital expenditures are
expected to continue to grow in fiscal 1998. Current plans are for aggregate
capital expenditures of approximately $45.0 million in fiscal 1998, of which
the majority will be for vineyard acquisition and development. Although the
Company has no fixed purchase
28
<PAGE>
commitments relating to its bulk wine and grape purchases, the Company
estimates that it will spend approximately $86 million through fiscal 1998 to
meet such requirements. Although the Company is not currently in discussions
with respect to any acquisitions that would have a material effect on the
Company's operations, the Company intends to continue to pursue acquisition
opportunities both domestically and internationally. The Company believes
investments in capital expenditures and working capital will, for the
foreseeable future, be financed through operating cash flows and capacity in
existing credit facilities.
The net proceeds from this offering will be used to redeem the Series A
Preferred Stock, prepay the Subordinated Notes (including $3.1 million in
prepayment penalties) and reduce the Company's long-term debt. Management
believes the Company's cash requirements will require additional borrowings
under the line of credit over the next several years. The line of credit,
which expires in January 2001, allows for a maximum outstanding balance of
$150.0 million. The outstanding balance at June 30, 1997 was $104.0 million.
As of June 30, 1997, the Company's lenders included a syndicate of
institutional lenders which have provided $181.7 million in secured, long-term
debt. Interest and principal on this debt are payable quarterly, with a final
maturity date of July 16, 2005. See "Description of Credit Agreement".
29
<PAGE>
BUSINESS
INTRODUCTION
Beringer is a leading producer of premium California varietal table wines,
marketed under the Beringer, Meridian Vineyards, Chateau St. Jean, Napa Ridge,
Chateau Souverain and Stags' Leap brand names. With this portfolio of brands,
the Company has captured the number one share of 750ml premium wines sold in
U.S. food stores for each of the last four years, and in fiscal 1997 had a
14.3% volume share of this market. The Company believes it is well positioned
across its entire portfolio, with a top five market share for nine of the
eleven largest selling varietals in U.S. food stores. In one key varietal
category, White Zinfandel, Beringer holds a commanding 37.9% dollar share of
these 750ml wines sold in U.S. food stores, while selling at an approximate
15% price premium over the second leading White Zinfandel brand. Beringer
White Zinfandel also generates the largest dollar sales of any wine SKU sold
in U.S. food stores. Beringer focuses exclusively on the premium wine market
and believes that its wines are widely recognized for their quality. In 1990,
Beringer Private Reserve Cabernet Sauvignon was named "Wine of the Year" by
Wine Spectator magazine. In 1996, Beringer Private Reserve Chardonnay received
the same honor. This same magazine named eight of the Company's wines to its
list of "Top 100" wines of the world in 1996, a record number for a wine
company. In addition in June 1997, Beringer was named "The Best Overall Winery
in America" in a poll of over 11,000 wine consumers by Wine Spectator
magazine.
Beringer believes that its rigorous attention to quality, the strength of
its brand portfolio and its pursuit of strategic acquisitions have enabled the
Company to grow its net revenues at a compound annual rate of 14.1%, from
$159.2 million in fiscal 1993 to $269.4 million in fiscal 1997. Over the same
period, net income grew at a compound annual rate of 27.3%, from $7.7 million
to $20.1 million, excluding purchase accounting adjustments related to the
acquisition of the Company and Chateau St. Jean and Stags' Leap wineries. The
Company attributes its leadership position in the rapidly growing premium wine
market to its (1) high quality wines which compete in every price segment of
the premium wine market, (2) focus on consumer marketing, (3) control in crop
year 1996 over approximately 23.4% of its overall grape requirements (and
approximately 48% of its grape requirements excluding White Zinfandel
requirements) and (4) professional management team with an average of 19 years
of industry experience.
Beringer was founded in 1876 and is the oldest continuously operating winery
in Napa Valley. Through a series of vineyard acquisitions over the last ten
years, management has assembled extensive strategic acreage positions in the
prime growing regions of Napa, Sonoma, Lake, Santa Barbara and San Luis Obispo
Counties. The Company believes that its ownership of these vineyards enables
it to control a source of high quality premium wine grapes at an attractive
cost. For example, in 1996, the average cost per ton of producing Chardonnay
grapes on the Company's Santa Barbara vineyards was $825, compared to a
weighted average price paid for Santa Barbara Chardonnay grapes of $1,450.
The Company believes that over the past twenty years there has been a shift
in consumer preferences in the U.S. from generic or "jug" wines to high
quality, premium varietal wines. The Company estimates that shipments of
premium 750ml varietal wines have grown from 3.4% of total case volume of
California table wines in 1980 to over 25% of total case volume in 1996.
Because premium wines sell at higher price points than jug wines, the Company
estimates that this 25% volume share represents approximately $2.2 billion, or
51% of total dollar sales of California wines sold at wholesale. Over this
period, the compound annual average growth of premium varietal case volume was
approximately 15.2% and annual dollar sales growth was approximately 18.6%.
The Company believes that this major shift in consumer preferences has
occurred due to (1) the maturing "baby-boomer" generation entering its prime
wine consumption period, (2) a growing consumer interest in
30
<PAGE>
premium wines in general, (3) a growing interest in and sophistication about
food which lends itself to expanded consumption of premium wines and (4) the
improving quality and reputation of California premium wines.
Throughout this shift in consumer preferences, Beringer has utilized
sophisticated consumer marketing to build substantial brand loyalty and
significant market share in the rapidly expanding premium wine market. The
Company believes that during the 1990s this marketing and brand building
expertise has helped the Company expand existing brands and launch new brands.
For example, Beringer White Zinfandel's dollar share has grown from 25.5% of
750ml White Zinfandel sales in U.S. food stores in 1991 to 37.9% in 1996. In
fiscal 1997, Beringer White Zinfandel's sales in U.S. food stores were 26%
greater than the number two wine SKU. Meridian Vineyards, a brand launched by
the Company in 1990, now has the number two market share for all Chardonnay
brands retailing for over $8 per bottle, with growth in case volume of 48%
from fiscal 1996 to fiscal 1997. The Company expects further growth in
Meridian Vineyards sales through Merlot and Cabernet Sauvignon brand
extensions, as well as additional growth in Chardonnay sales.
STRATEGY
Beringer's objective is to strengthen its leadership position in the premium
wine market and thereby increase its revenues and profits. The Company's
strategy for achieving this objective has several key elements.
MANAGEMENT OF A MULTI-BRAND PORTFOLIO. The Company markets a portfolio of
six brands from the major California premium growing areas across all premium
price segments. The Company believes this multi-brand portfolio provides
opportunities for growth at each price point without diluting the value of any
individual brand. Further, the Company believes that this portfolio offers
consumers a choice of familiar and appealing products that are differentiated
by varietal, region and price, while providing distributors with a broad
assortment of brands for their selling efforts. To supplement its domestic
brands and meet the growing U.S. demand for premium wine, the Company has been
working with winemakers in Italy, Chile and southern France to produce high
quality wines which will compete in the rapidly growing $7 to $10 a bottle
market segment.
FOCUS ON HIGH QUALITY ACROSS ALL BRANDS. The Company believes it has
consistently offered consumers high quality wines that are an excellent value
in each price segment of the premium wine market. The Company's team of 14
experienced winemakers produces these wines by using high quality premium wine
grapes and state-of-the-art equipment in each stage of the winemaking process.
The Company's success in producing high quality wines is evidenced by the
acclaim afforded to the Company's entire brand portfolio by a number of the
leading wine writers. For example, in 1996, eight of the Company's wines were
included in Wine Spectator's "Top 100" wines of the world, more than any other
wine company since Wine Spectator began the survey in 1988.
CONTROL OF PREMIUM GRAPE SUPPLIES AND VINEYARDS. Premium varietal grapes are
the most important determinant of wine quality and represent a significant
component of product cost. The Company produces a larger percentage of its
grape requirements (excluding White Zinfandel requirements) than most of its
competitors, enabling it to (1) control grape quality, (2) control the most
important component of cost and (3) help assure continuity of grape supply.
Beringer either owns or controls through long-term leases approximately 9,400
plantable acres in California's prime wine growing regions of Napa, Sonoma,
Lake, Santa Barbara and San Luis Obispo Counties. In crop year 1996, the
Company produced approximately 23.4% of its overall grape requirements (and
approximately 48% of its grape requirements excluding White Zinfandel
requirements) with grapes grown on its owned or controlled vineyards. To meet
its White Zinfandel requirements, the Company's strategy is to purchase grapes
or bulk wine, primarily through long-term contracts.
31
<PAGE>
PURSUIT OF STRATEGIC ACQUISITIONS. The current consolidation of the
California wine industry is being hastened by the ongoing consolidation of the
industry's distributor network. The Company has taken advantage of this trend
by purchasing the Chateau St. Jean and Stags' Leap wineries in the last two
years. Acquiring attractively positioned wineries allows the Company to
augment its brand portfolio and to achieve operating efficiencies by
integrating sales, marketing and administrative functions of acquired wineries
with those of its existing California wineries, resulting in significant cost
savings. By adding Chateau St. Jean to Beringer's distributor network, the
Company was able to increase case sales of Chateau St. Jean outside of
California by 30% and raise prices in the first full year following its
acquisition. In addition, the Company believes Beringer's professional
management can often improve wine quality and increase the productivity of
acquired wineries, thereby increasing sales and profitability. While the
Company currently has no such commitments, the Company is continually
evaluating acquisition candidates and intends to make strategic winery
acquisitions on a highly selective basis.
EMPHASIS ON CONSUMER MARKETING. The Company utilizes sophisticated marketing
strategies more typically employed by consumer packaged goods companies,
including advertising, product publicity and packaging initiatives in consumer
marketing, as well as extensive trade marketing targeted at distributors and
retail channels. The Company has advertised its Beringer brand on the radio
since 1985 and its Meridian Vineyards brand on television since 1994. The
Company believes this advertising has contributed to the compound growth in
case sales of Beringer White Zinfandel of 12.4% per calendar year since
calendar year 1991, and has helped drive Meridian Vineyards Chardonnay to the
number two market share position for 750ml Chardonnay retailing for over $8 a
bottle in U.S. food stores.
COMMITMENT OF PROFESSIONAL AND EXPERIENCED MANAGEMENT TEAM. The Company
believes its professional management team's depth and experience in both the
wine and branded consumer packaged goods industries will be important in
guiding the Company's growth. Since its acquisition from the Beringer family
in 1971, the Company has been run by a professional management team. The
average tenure of senior management of the Company in the wine industry is 19
years and their average tenure at the Company is 14 years.
INDUSTRY BACKGROUND
California produces the vast majority of premium wine produced in the United
States. In recent years, growth in consumption of California table wine has
accelerated significantly. According to Gomberg, Fredrikson & Associates, an
industry research and consulting firm ("Gomberg"), since 1980 the case volume
of California premium table wine shipments has increased at a compound annual
rate of approximately 14%, as measured in 9 liter cases. In 1996, California
table wine shipments to the U.S. market reached an all-time high of 136
million cases.
In the United States, wine is generally distributed through a "three-tier"
distribution network. Most wineries sell wine to distributors, who typically
sell dozens to hundreds of individual wine brands, as well as distilled
spirits, beer and non-alcoholic beverages, to retail liquor and food stores
and for consumption "on-premise" in restaurants and hotels. A distributor
generally has the right to sell a brand within a specific geographic area and
typically employs a sales staff which services all classes of retail outlets.
The Company believes that, because large wineries offering a multi-brand
portfolio constitute a large percentage of a distributor's sales and generally
employ a large sales staff, they often receive greater distributor attention.
Wine sales in food stores are allowed in 34 states; the remaining 16 states,
primarily on the eastern seaboard and in the southeast, prohibit wine sales in
food stores. Club stores represent a relatively recent, but rapidly expanding,
addition to the distribution channel. Finally, a significant amount of premium
wine is sold in restaurants and hotels.
32
<PAGE>
Industry data indicating where Americans purchase wine are incomplete. While
retail information compiled by IRI through the use of electronic scanners in
food stores has a high degree of accuracy, sales through other categories of
retail outlets, such as warehouse stores and club stores, are not
systematically reported. The Company believes that U.S. food stores account
for a substantial percentage of total retail wine sales. Unless otherwise
indicated, all market share data herein has been compiled using IRI data.
U.S. food store 750ml premium wine sales are dominated by four varietal
wines, with the top three accounting for 68% of all premium wine sales by case
volume in 1996. As illustrated in the chart below, Chardonnay is the largest
selling varietal premium wine, representing 30% of U.S. food store case
volume, followed by White Zinfandel with 23% of food store case volume. The
four varietals depicted below have grown from 72% of total case volume of U.S.
food store premium wine sales in 1991 to 77% in 1996 and to 78% in the first
six months of 1997.
[PIE CHART APPEARS HERE]
[Pie Chart illustrating market shares for
sales in 1996 of following varitals:]
<TABLE>
<S> <C>
Merlot 9%
Cabernet Sauvignon 15%
Chardonnay 30%
White Zinfandel 23%
All Other 23%
</TABLE>
33
<PAGE>
Through June 1997, retail sales trends in U.S. food stores indicate that
Merlot (+17%) and White Zinfandel (+9%) are demonstrating the strongest growth
among the leading domestically produced varietal wines.
[Bar chart of Volume of Dey Varietals (750 left axis shows percentage
growth from June 22, 1996 to June 22, 1997 (form -10% to 20%) Right axis shows
varietals: Chardonnay (+2%), White Zinfandel (+9%); Cabernet-Savignon (+2%);
Merlot (+17%); Savignon Blanc (-5%) and All Other (-8%)]
Gomberg reported that shipments of imported table wines grew at a compound
annual rate of 14.4% from 1994 to 1996, and in 1996 accounted for 18.9% of
total U.S. table wine sales. Varietal wines, particularly Cabernet Sauvignon,
Chardonnay, Merlot and Sauvignon Blanc from wine-growing regions which have
not been major suppliers of wine to the U.S. market in the past, such as
Chile, Australia and southern France, represent a substantial part of this
growth. The Company believes that sales of imported varietal wines,
particularly in the $5 to $8 per bottle price range, will continue to grow in
the U.S.
Further, the Company believes that the linkage between red wine consumption
and health, which was first widely reported in the United States in 1991, has
provided a sustained increase in the demand for red wine. See "Risk Factors--
Consumer Perception of Health Issues".
PREMIUM MARKET SEGMENTATION
Gomberg has tiered the premium wine market into three price segments.
POPULAR PREMIUM SEGMENT
Wines retailing for $3 to $7 per 750ml bottle are in the popular premium
segment. The Company estimates that this price segment accounted for 37% of
total U.S. 750ml premium wine case sales in calendar year 1996. Popular
premium wines are made from grapes grown both in California's Central Valley
and coastal vineyards. These wines are generally not aged in oak barrels, or
are aged for a shorter period of time than superpremium and ultrapremium
wines.
34
<PAGE>
SUPERPREMIUM SEGMENT
Wines retailing for $7 to $14 per 750ml bottle are in the superpremium
segment. Superpremium wines typically are made from grapes grown in the
coastal vineyard areas of California, and are produced using traditional, more
expensive and time-consuming winemaking techniques such as barrel fermentation
and aging. The Company believes that the $8 to $10 per bottle price range is
the largest and fastest growing within the superpremium segment and that the
$10 price point currently represents an important point of price resistance
for many consumers. Chardonnay dominates this price segment, but Cabernet
Sauvignon and Merlot are heavily represented as well. Several of the Company's
products sell in the $8 to $10 per bottle price range and the Company plans to
introduce additional products to take advantage of the growth in this key
segment. Superpremium wines translate flavors and images of the highest
quality wines to more accessible price points. These wines have a major on-
premise presence (restaurant and hotel sales).
ULTRAPREMIUM SEGMENT
Wines retailing for over $14 per 750ml bottle are in the ultrapremium
segment. This segment is characterized by selected imports and wines from
vineyards primarily located in the premium California growing regions of Napa,
Sonoma, Lake, Santa Barbara, San Luis Obispo and Monterey Counties. Red wines,
particularly Cabernet Sauvignon and Merlot, make up a major percentage of
ultrapremium wine sales, while Chardonnay is the dominant white wine in this
price range. These wines are typically consumed in restaurants or at home on
special occasions, and have the highest image among wine-knowledgeable
consumers. Wine press recognition and wine collector interest is most
important to sales of wines in this segment.
As illustrated in the following chart, the Company estimates that total
750ml premium wines sales from all three price segments in 1996 generated
approximately $2.2 billion in winery revenues, which would equal 51% of the
estimated $4.3 billion in total 1996 U.S. wine shipments. The Company
estimates that 1996 shipments of 750ml premium wines totaled 34.6 million
cases, representing approximately 25% of total case volume.
1996 CALIFORNIA TABLE WINE SALES AND VOLUME BY SEGMENT(1)
<TABLE>
<CAPTION>
SALES VOLUME
----------------------------------- ------------------------------
COMPOUND
ANNUAL
COMPOUND GROWTH
DOLLARS ANNUAL GROWTH CASES SINCE
(IN MILLIONS) PERCENT SINCE 1980 (IN MILLIONS) PERCENT 1980
------------- ------- ------------- ------------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Popular premium
(750ml)(2)............. $ 800.0 19.0% N/A 18.5 14.0% N/A
Superpremium (750ml).... 990.0 23.0 17.0% 12.7 9.0 13.8%
Ultrapremium (750ml).... 380.0 9.0 25.0 3.4 2.0 22.9
-------- ----- ---- ----- ----- ----
750ml premium
subtotal(2)............ 2,170.0 51.0 18.6 34.6 25.0 15.2
1.5L premium(2)......... 770.0 18.0 N/A 22.9 17.0 N/A
-------- ----- ---- ----- ----- ----
Total premium........... 2,940.0 69.0 18.6 57.5 42.0 15.1
All other............... 1,310.0 31.0 2.2 78.6 58.0 (1.4)
-------- ----- ---- ----- ----- ----
Total................... $4,250.0 100.0% 8.7% 136.1 100.0% 1.7%
======== ===== ==== ===== ===== ====
</TABLE>
- --------
(1) Derived from Gomberg.
(2) The Company has estimated the differential between 1.5L and 750ml popular
premium sales on the basis of IRI data.
35
<PAGE>
BRAND PORTFOLIO
The Company's portfolio of six California premium wine brands and a
selection of imported premium wine brands compete in all three wine market
segments.
[Table showing Premium Wine Segments in which Beringer Brands sell.
Vertical column listing brands and horizontal axis listing market segments:
popular, super and ultrapremium.
Beringer - all three market segments
Meridian - superpremium segment
Chateau St. Jean - super and ultrapremium segments
Napa Ridge - popular and superpremium segments
Chateau Souverain - superpremium segment
Stags' Leap - ultrapremium segment
Imported Wines - all three premium segments]
BERINGER VINEYARDS
Beringer Vineyards, founded in 1876 and the oldest continuously operating
winery in Napa Valley, is the Company's flagship brand and enjoys a 10.8%
market volume share of 750ml premium U.S. food store wine sales. Beringer
competes in all three premium wine segments. The Company believes that its
Beringer brand reputation is recognized by premium wine consumers, and
Beringer consistently scores at the highest level in independent consumer
surveys on brand awareness and consumer purchase frequency. In June 1997, a
poll of over 11,000 consumers conducted by the Wine Spectator magazine named
Beringer "The Best Overall Winery in America".
POPULAR PREMIUM. Led by Beringer White Zinfandel, with a 37.9% dollar share
in 1996 of U.S. food store sales of 750ml White Zinfandel, Beringer is well
positioned in the popular premium wine segment. White Zinfandel accounted for
23% of all 750ml wines sold in U.S. food stores in 1996. While selling at an
approximate 15% price premium to the second leading White Zinfandel brand,
Beringer White Zinfandel also has the largest dollar sales of any 750ml wine
SKU in U.S. food stores, nearly 26% higher than the next largest selling wine
SKU. In 1991, Beringer White Zinfandel represented a 25.5% dollar share of the
total White Zinfandel food store market and grew to 37.9% in 1996, an annual
growth rate in market share of 8.1%. Beringer is also the food store market
share leader for 750ml sales of Chenin Blanc and Gamay Beaujolais.
SUPERPREMIUM. In the superpremium price segment, Beringer offers a range of
appellation wines from California's Napa Valley, Knights Valley and North
Coast, including its Napa Valley Chardonnay and Knights Valley Cabernet
Sauvignon. The Company believes that both wines have long been recognized as
market leaders, with Beringer Chardonnay representing the largest selling Napa
Valley Chardonnay in U.S. food stores in 1996. These wines are produced
primarily from grapes grown on Company owned and leased vineyards. The Company
believes that the $8 to $10 per bottle price range is a particularly
attractive and growing market segment. The Company intends to introduce new
products under the Beringer brand in this price range.
ULTRAPREMIUM. Beringer has numerous product offerings that compete in the
ultrapremium price segment and which the Company believes are recognized as
among the highest quality wines in the world. In 1990, Beringer Private
Reserve Cabernet Sauvignon was named "Wine of the Year" by Wine
36
<PAGE>
Spectator. In 1996, Beringer Private Reserve Chardonnay received the same
honor, the only white wine selected for this award. Wine writers consistently
recognize Beringer Howell Mountain Merlot as one of the finest Merlots
produced in California.
The Company believes its success in the superpremium and ultrapremium
segments is attributable to (1) its over 2,500 acres of high-quality vineyards
in Napa Valley and Knights Valley, (2) its Napa Valley winemaking facilities,
(3) its substantial annual investment in equipment and new, primarily French,
oak barrels, and (4) the 18-year collaboration between its winemaking and
vineyard management teams.
MERIDIAN VINEYARDS
Meridian Vineyards' product offerings compete primarily in the superpremium
price segment. The focus of the brand is its award-winning Santa Barbara
Chardonnay, retailing at $8 to $10 per bottle, which the Company believes is
the fastest growing price segment in the superpremium wine market. This wine
is made from grapes grown at the Company's approximately 3,900 acres of
producing vineyards in Santa Barbara and San Luis Obispo Counties and is
supported by an extensive television advertising campaign.
The Company believes that Meridian Vineyards is one of the most successful
superpremium wine brands introduced in the last ten years. It was launched by
the Company in 1990. The Company has grown Chardonnay case sales at a compound
annual rate of 48% from 1990 to 1996. In fiscal 1997, unit sales of Meridian
Chardonnay increased by 48%. In the seven years since its introduction by the
Company, Meridian Vineyards Chardonnay has become the number two selling
Chardonnay in U.S. food stores in the over $8 per bottle price range.
The Company is extending the Meridian Vineyards brand by increasing its
focus on Cabernet Sauvignon and Merlot, California's two leading red
varietals, and believes it has the potential to significantly increase its
sales in these varietals. Meridian Vineyards also offers a "Reserve" style
Chardonnay and Pinot Noir, which compete in the ultrapremium segment and have
received favorable reviews from wine writers.
The Company intends to plant over 2,000 additional acres in Santa Barbara
and San Luis Obispo during the next several years. The Company also plans to
expand Meridian Vineyards' winery, which has been designed to produce large
quantities of high quality, barrel-aged superpremium wines at competitive
costs.
CHATEAU ST. JEAN
Competing in the superpremium and ultrapremium price segments, Chateau St.
Jean produces a range of high quality varietal wines from California's Sonoma
County. Founded in 1974, this winery has been a leader in the development of
premium Chardonnay wines from Sonoma County, particularly single-vineyard
designated wines. The Company believes that Chateau St. Jean Robert Young
Vineyard Chardonnay and Belle Terre Vineyard Chardonnay are among the most
recognized and acclaimed single-vineyard wines in California. Chateau St. Jean
has also become known in recent years for Cabernet Sauvignon and Merlot. The
Company intends to expand its production of these wines, while continuing to
focus on Chardonnay as the lead item of this brand.
The Company acquired Chateau St. Jean in 1996 and, since its acquisition,
has fully integrated it with existing operations. The Company has expanded
Chateau St. Jean's oak barrel and other winery investments in an effort to
improve the quality and increase the volume of Chateau St. Jean wines. By
adding Chateau St. Jean to Beringer's distributor network, the Company was
able to increase case volume sales of Chateau St. Jean outside of California
by 30% while raising prices in the first full year following its acquisition.
37
<PAGE>
The Company believes that Chateau St. Jean has long been recognized as one
of California's premier wineries, as most recently demonstrated in the June
1997 consumer poll by Wine Spectator, in which Chateau St. Jean was named
among the top ten wineries in America and among the top five Chardonnay
wineries in California. Five wines from Chateau St. Jean were included in Wine
Spectator's "Top 100" wines of the world in 1996.
NAPA RIDGE
Napa Ridge was introduced in 1986 as a popular premium brand. The Company
believes that Napa Ridge has become widely recognized as one of the leading
"value" wines in California. In a June 1997 poll of over 11,000 consumers by
Wine Spectator, Napa Ridge was named the number two value winery in America.
The grapes used in Napa Ridge wines come primarily from the coastal regions of
California, and the wines are produced at several of the Company's wineries.
In recent years, the Company's investment in the quality of Napa Ridge
wines, including the extensive use of oak barrel aging, has allowed the
Company to increase prices to the point where much of the brand is selling at
or above $7 per bottle.
CHATEAU SOUVERAIN
Founded in Napa Valley in 1943, Chateau Souverain competes in the
superpremium wine segment, with products retailing primarily in the $10 to $12
per bottle price range. In 1973, the winery was relocated to Sonoma's
Alexander Valley, and in 1986 the Company purchased the winery. The Company
believes the quality and reputation of Chateau Souverain wines have grown
steadily in the last ten years. Chateau Souverain focuses on red wines,
primarily Cabernet Sauvignon, Merlot and Zinfandel, and owns over 300 acres of
estate vineyards in Alexander Valley. In a June 1997 Wine Spectator poll of
over 11,000 consumers, Chateau Souverain was selected as one of the top ten
value wineries in America.
STAGS' LEAP WINERY
Stags' Leap Winery, purchased by the Company in early 1997, is a small,
ultrapremium winery located in the famed Stags Leap District of Napa Valley.
The winery focuses on red wines, with Cabernet Sauvignon, Merlot and Petite
Syrah accounting for 80% of its sales. Its 90 acres of estate vineyards are
the site of the original vineyard planting in the Stags Leap District. A
substantial portion of Stags' Leap Winery's sales is concentrated in
restaurants. The Company intends to increase the production volume of Stags'
Leap Winery wines, while seeking to further enhance their quality and
reputation.
IMPORTED WINES
The Company has marketed imported wine in the United States for over 25
years. The Company's strategy is to provide imported wine brands in the
popular premium and superpremium wine segments from wine-producing regions of
the world with a reputation for quality and value. The Company complements
this primary strategy with a limited number of niche ultrapremium brands,
including Travaglini and Cune, which are marketed to a narrower consumer base.
GABBIANO (ITALY). The Company acquired the exclusive right to distribute
Gabbiano in the United States in 1995. Gabbiano is one of the leading brands
of Italian Chianti in the United States, having recently achieved a number two
market share of all 750ml Chianti sold in U.S. food stores. Gabbiano sales are
also heavily focused on the Italian restaurant market.
38
<PAGE>
CAMPANILE (ITALY). The Company developed and introduced the Campanile brand
of Italian wines in 1996. The brand is focused on Pinot Grigio, Merlot and
Chardonnay sold in the superpremium segment. Campanile sales are concentrated
in restaurants and hotels for on-premise consumption.
TARAPACA (CHILE). The Company acquired the exclusive U.S. marketing rights
to Tarapaca in 1996 and introduced the brand in selected markets late that
year. Tarapaca is a well-known premium brand in Chile with a modern winery and
over 1200 acres of vineyards. Tarapaca produces Cabernet Sauvignon,
Chardonnay, Merlot and Sauvignon Blanc wines, for sale primarily in the
popular premium price segment. The Company has an active program of technical
collaboration with Tarapaca to develop appropriate wine styles for the U.S.
market. To take advantage of the rapidly growing market for Chilean wines, the
Company intends to introduce Tarapaca wines nationally in the second half of
1997.
RIVEFORT OF FRANCE (FRANCE). The Company has developed and owns the
"Rivefort" brand which is produced in southern France and will compete in the
superpremium segment. The Company's California winemakers have collaborated
with French winemakers for over 10 years to develop this brand. The Company
believes the availability and quality of varietal wines in southern France
provides a significant opportunity to market Rivefort of France in the U.S.
for less than $9 per bottle. The Company intends to introduce Rivefort of
France into selected U.S. markets in 1997 and to devote substantial marketing
and winemaking resources to expanding Rivefort of France sales in the future.
MARKETING
The Company believes that its strong marketing programs, which are directed
both to consumers and wholesale and retail trade buyers, have been and will
continue to be critical elements of its long-term success.
CONSUMER MARKETING
The Company's consumer marketing programs are directed by a professional
marketing staff that combines consumer packaged goods marketing, training and
experience with wine industry knowledge. The Company utilizes a brand
management system in which a team is responsible for the marketing of each
brand.
ADVERTISING. Although broadcast advertising has been infrequently used in
the premium wine market, the Company has been advertising Beringer on the
radio since 1985 and Meridian Vineyards on television since 1994. The Company
believes that television advertising has helped to grow Meridian Vineyards to
the number two Chardonnay sold for over $8 a bottle in U.S. food stores only
seven years after its launch by the Company. Case sales of Meridian Chardonnay
have grown at a compound annual rate of 41% from 1990 to 1996. Fiscal 1997
unit sales of Meridan Chardonnay increased by 48% over the prior fiscal year.
The Company intends to substantially expand its broadcast advertising in the
future. The Company also engages in consumer and trade print advertising
designed to efficiently reach the primary target audience for its higher-
priced, ultrapremium wines.
PRODUCT PUBLICITY. Product publicity is a major marketing priority of the
Company. The Company's public relations staff has worked with many prominent
wine writers and wine publications in the U.S. for a number of years. This
staff and the Company's winemakers also travel together extensively throughout
the U.S. to promote the Company's wines.
PACKAGING. The Company believes that unique and attractive packaging is
important to stimulate sales of premium wines, particularly in large retail
food, drug and club store outlets. The Company's packaging seeks to combine
traditional elements of wine labeling with unique designs to differentiate its
brands and create strong visual impact.
39
<PAGE>
WINE HOSPITALITY. The Company maintains extensive retail and hospitality
programs at four of its wineries--Beringer, Meridian Vineyards, Chateau St.
Jean and Chateau Souverain. Together, these wineries receive more than 350,000
visitors per year who are given the opportunity to tour the winery and sample
a selection of wines. The Company believes its winery hospitality program is
among the largest in California and is effective in creating brand awareness
and building consumer brand loyalty.
TRADE MARKETING
DISTRIBUTOR SALES MANAGEMENT. Beringer's field sales force of approximately
60 persons supports a network of distributors in the United States. The
Company chooses its distributors on the basis of their (1) focus on premium
wine, (2) overall market strength, and (3) management skills and financial
strength. United States wine distributors represent many brands of premium
wine, across all price segments. The Company believes that its high sales
volume and multi-brand portfolio make it attractive to the Company's
distributors, as demonstrated by the 14.5 year average time its top 10
distributors have represented the Company's brands. In particular, in fiscal
1997, Beringer White Zinfandel had the largest dollar sales of any 750ml wine
SKU in U.S. food stores, nearly 26% higher than the next largest selling wine
SKU.
The Company also believes that the strength of its distributor relationships
and past success in marketing its brands enhance the effectiveness of its new
product introductions.
SPECIALIZED SALES MANAGEMENT AND EDUCATION. The Company's sales managers
focus on specialized retail channels. The Company maintains relationships with
many national restaurant, hotel and retail store chains, which control a
substantial amount of premium wine volume in the United States. The Company
also offers extensive food and wine education programs which allow the Company
to build strong, long-term relationships with national retail accounts by
providing innovative training and marketing programs that assist these
accounts in increasing their premium wine sales.
The Company manages its European export program through its wholly owned
subsidiary, Beringer Vineyards (Europe) S.A., headquartered in Switzerland.
The Company expects to increasingly focus sales and marketing resources on
export markets.
GRAPE SUPPLY AND VINEYARD OWNERSHIP
The Company's extensive vineyard holdings enable it to exert a high degree
of control over grape quality, quantity and cost. The Company currently owns,
or controls through long-term leases, 13,659 acres, of which approximately
9,400 are plantable. A total of approximately 6,200 of these plantable acres
are currently producing grapes and the remainder are in development or are
expected to begin development in the next three years. The Company owns or
controls vineyards in California's North Coast in Napa, Sonoma and Lake
Counties, and in California's Central Coast in Santa Barbara and San Luis
Obispo Counties.
In addition to the cost of grapes, two key components of grape supply are
critical for wineries:
. Quality--Grape quality is the most important factor in producing high
quality wine. Vineyard location, soil type, climate, and viticultural
techniques combine to determine grape quality. Winemaking techniques,
modern equipment and barrel aging can improve wine quality and
consistency, but high quality wine can only be produced from high
quality grapes.
. Quantity--Grape quantity dictates the final quantity of wine produced.
Grapes, like any other agricultural product, are subject to annual
variations in production (i.e., yield per acre). In some years the
average yield per acre of a specific vineyard can vary dramatically
below or above the long-term averages. Additionally, grape quantity
cannot be increased quickly to keep pace with rapid increases in market
demand for any particular varietal. The first harvest
40
<PAGE>
of commercial quantities is not expected until the third or fourth year
after planting, with full yields not realized until about the fifth or
sixth year. Accordingly, grape quantity is often a constraint on wine
sales regardless of market demand.
The Company's product sourcing strategy is to: (1) control a significant
portion of its requirements for high quality premium varietal grapes from
owned or leased vineyards; (2) purchase, under long-term agreements, high
quality premium varietal grapes from independent grape growers in the prime
grape growing regions for its super and ultrapremium wines; and (3) purchase
grapes and bulk wine for its White Zinfandel wine under long-term contracts
which have an average term of 6.5 years. Of the long term contracts currently
in effect, the average term remaining under such contracts is 4.6 years. The
Company believes that ownership and control of vineyards afford it a
competitive cost advantage. For example, in 1996, the average per ton cost of
producing Chardonnay grapes on the Company's Santa Barbara vineyards was $825,
compared to a weighted average price paid for Santa Barbara Chardonnay grapes
of $1,450. Approximately 63.1% of the Company's 1996 supply of Chardonnay and
Cabernet Sauvignon grapes was sourced from owned or controlled vineyards. In
accordance with the Company's strategy of sourcing its White Zinfandel wine
through long-term agreements, only 1.7% of grapes for the Company's White
Zinfandel wine was sourced internally during the 1996 harvest. In order to
control the quality of its purchased wine, the Company's winemakers consult
regularly at the wineries from which bulk wine is purchased. In 1996, the
Company purchased 6,449,028 gallons of bulk wine.
The Company controls approximately 2,200 acres of property through long-term
leases. While lease terms vary among the properties, the Company leases land
for a period of time long enough to plant or replant a vineyard and realize a
favorable economic return. Generally, these leases have an initial term of 25
to 30 years, with some form of extension or purchase option at the end of the
initial term. Of the total acres leased by the Company, over 80% have 10 or
more years and over 75% have 20 or more years remaining on their terms.
The Company believes its extensive vineyard holdings enhance its ability to
predict and control grape costs and provide the Company with a competitive
advantage. Additionally, the Company believes that by controlling a high
percentage of its needs for premium varietal grapes (particularly Chardonnay
and Cabernet Sauvignon), grape quality, and therefore wine quality, can be
enhanced.
PHYLLOXERA
Phylloxera, a microscopic aphid-like pest that feeds on susceptible grape
rootstocks, has infested many of California's vineyards during the past ten
years. Although phylloxera does not impair the quality of grapes or cause any
known human health risks, it does slowly destroy the rootstock and cause its
yields to gradually decline. Accordingly, the supply of high quality grapes
has been reduced, and the price of grapes has increased dramatically as supply
from the premium growing regions has fallen relative to demand.
The Company began replanting phylloxera-infested vineyards in 1989 with what
it believes to be phylloxera-resistant rootstock. As of June 30, 1997, the
Company had replanted 1,393 acres at a cost of approximately $20.0 million in
Napa, Sonoma and San Luis Obispo Counties. The Company believes that its
vineyard acreage in Santa Barbara, with its sandy soil composition, has a
reduced likelihood of phylloxera infestation; however, there can be no
assurance that phylloxera will not infest these vineyards. The Company
believes that approximately 1,026 additional vineyard acres have been
affected, and these acres are scheduled to be replanted over the next four
years.
While replanting due to phylloxera has been costly and has presented a grape
supply problem for the Company, there are three favorable effects of the
replanting on the Company: (1) the Company believes that it is further along
in this redevelopment process than many of its major competitors;
41
<PAGE>
(2) many of the Company's replanted vineyards had already reached the end of
their economic life (which averages 24 to 30 years); and (3) the Company
believes the newly planted vineyards will be more economically productive than
the previous vineyards. Modern viticultural techniques are employed when
replanting, including more dense spacing and new trellising systems, and the
Company expects such techniques to result in higher yielding vineyards with
enhanced grape quality.
WINEMAKING
The Company's winemaking philosophy is to utilize high quality grapes and
equipment to produce excellent quality wine for each brand within the
Company's portfolio. Each of the Company's six domestic brands has a winemaker
dedicated to the production of all wines for that brand. Each of the Company's
wineries has modern equipment that is appropriate for the style and scale of
wines produced. In addition, the Company emphasizes traditional barrel aging
as an integral part of its winemaking process.
The Company's research and development department manages its experimental
winemaking and grape growing programs. The findings and conclusions of this
program offer valuable assistance and insight, which are used by the
winemaking and vineyard management staff. The winemaking, vineyard management
and research and development groups work closely together to achieve the
common goal of producing consistently high quality wines for each brand within
the Company's portfolio.
FACILITIES AND PRODUCTION
The Company's production facilities consist of approximately 852,031 square
feet of space at six wineries located in the Napa Valley, Paso Robles in San
Luis Obispo County and the Alexander and Sonoma Valleys in Sonoma County. Over
the past five years, the Company has invested significant amounts of capital
in these facilities, adding many winery improvements, including new
fermentation and barrel storage capacity and equipment.
The Company's operational strategy for these facilities is to: (1) fully
utilize their capacities with the flexibility of producing six brands through
shared crushing, processing, bottling and storage; and (2) selectively utilize
outside contract capacities (crushing, processing, storage) to capitalize on
growth opportunities while attempting to minimize capital investments. The
Company believes that its complete product line provides production synergies
through the ability to transfer grapes, supplies, wines and oak barrels among
its wineries and to allocate bottling, storage and other production capacity
on a system-wide basis.
The Company will require additional capacity at its winery facilities to
support volume growth in future years. While crushing capacity is somewhat
dependent on the mix of grape varietals being crushed and, most importantly,
the time period over which the grapes arrive to be crushed, the estimated
capacity of these facilities is 60,000 tons. During the 1996 harvest, 49,500
tons were crushed at the Company's wineries, allowing for some growth in grape
crush capacity. The Company has and will continue to increase its crush
capacity as necessary in accordance with the growth of its brands.
Oak barrel storage capacity provides a one year capacity cushion for the
Company. Additional barrel storage capacity must be added as volume increases.
The Company plans to support its additional requirements with owned and leased
storage capacity.
The Company intends to increase stainless steel storage capacity annually to
keep pace with growth of the business. The Company does not have excess
stainless steel capacity and increases in stainless storage have been included
in future years' capital expenditure plans.
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<PAGE>
COMPETITION
The premium table wine industry is intensely competitive and highly
fragmented. The Company's wines compete in all of the premium wine market
segments with many other premium wines produced domestically and abroad, with
imported wines coming primarily from France, Italy and Chile. The Company's
wines also compete with popular-priced generic wines and with other alcoholic
and, to a lesser degree, nonalcoholic beverages for shelf space in retail
stores and for marketing focus by the Company's independent distributors, many
of which carry extensive brand portfolios. The wine industry has also
experienced significant consolidation in recent years and many of the
Company's competitors have significantly greater capital resources than the
Company.
GOVERNMENT REGULATION
The wine industry is subject to extensive regulation by the Federal Bureau
of Alcohol, Tobacco and Firearms and various foreign agencies, state liquor
authorities and local authorities. These regulations and laws dictate such
matters as licensing requirements, trade and pricing practices, permitted
distribution channels, permitted and required labeling, advertising and
relations with wholesalers and retailers. Expansion of the Company's existing
facilities and development of new vineyards and wineries may be limited by
present and future zoning ordinances, environmental restrictions and other
legal requirements. In addition, new regulations or requirements or increases
in excise taxes, income taxes, property and sales taxes and international
tariffs, could materially adversely affect the financial results of the
Company. The Company can provide no assurance that there will not be future
legal or regulatory challenges to the industry, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
EMPLOYEES
As of August 1, 1997, the Company had approximately 610 regular full-time
employees. The Company also employs part-time and seasonal workers for
vineyard development, bottling operations, and hospitality functions.
Approximately 90 employees at Beringer Vineyards are covered by a collective
bargaining agreement with Distillery 6 Allied Workers' Union, Local 186 (the
"Union"). The collective bargaining agreement provides that the Union shall
act as the sole bargaining agency on behalf of the employees and specifies the
employees' wages and working conditions (benefits, hours and disciplinary
procedures). Since 1972, there have been no labor stoppages or strikes and the
Company is not aware of any material disputes with its employees. The Company
considers its relations with its employees to be good.
TRADEMARKS
The Company has obtained federal trademark registrations for wine for the
"Beringer", "Meridian Vineyards", "Chateau St. Jean", "Chateau Souverain",
"Stags' Leap" and "Napa Ridge" marks. The Company also has foreign
registrations for wine in those countries to which it exports these brands.
Each of the United States trademark registrations is renewable indefinitely so
long as the Company is making a bona fide usage of the trademark.
LEGAL PROCEEDINGS
The Company is a party to a lawsuit involving environmental contamination at
its Asti winery. However, this contamination occurred prior to the Acquisition
and Nestle Holdings retained full responsibility for the prosecution and
defense of, and any liability resulting from, all claims connected with this
matter.
The Company is not a party to any other material legal proceedings.
43
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Walter T. Klenz(1)...... 52 President, Chief Executive Officer and Chairman
of the Board of Directors
Robert E. Steinhauer.... 56 Senior Vice President-Vineyard Operations
Edward B. Sbragia....... 48 Senior Vice President and Winemaster
Peter F. Scott.......... 44 Senior Vice President, Finance and Operations
and Chief Financial Officer
Janelle E. Thompson..... 48 Vice President, Marketing and Hospitality
Richard G. Carter....... 53 Vice President, Sales
Martin L. Foster........ 51 Vice President, Finance and Treasurer
A. Tor Kenward.......... 49 Vice President, Winery Communications
Thomas W. Peterson...... 45 Vice President-Sonoma Operations and Winemaking
Douglas W. Roberts...... 45 Vice President, General Counsel and Secretary
Richard Adams(2)........ 46 Director
David Bonderman......... 54 Director
Randy Christofferson(2). 40 Director
James G. Coulter(1)(3).. 37 Director
Timm F. Crull(3)........ 66 Director
William A. Franke(3).... 60 Director
E. Michael Moone(1)..... 57 Director
William S. Price III(1). 41 Director
Jesse Rogers(3)......... 40 Director
George A. Vare(2)....... 60 Director
</TABLE>
- --------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
WALTER T. KLENZ has been a director of the Company since January 1996 and
became Chairman of the Board in August 1997. Mr. Klenz joined the Company in
1976 as director of marketing for the Beringer brand, and has served as
President and Chief Executive Officer of the Company since 1990. From 1984
until 1990, he served as Senior Vice President, Finance/Operations.
ROBERT E. STEINHAUER joined the Company in 1979 and has served as Senior
Vice President- Vineyard Operations since 1989.
EDWARD B. SBRAGIA joined the Company in 1976 and has served as Senior Vice
President and Winemaster since 1989.
PETER F. SCOTT joined the Company in June 1997 as Senior Vice President,
Finance and Operations and Chief Financial Officer. He served as Chief
Financial Officer of Kendall-Jackson Winery, Ltd. from 1990 until joining the
Company.
JANELLE E. THOMPSON joined the Company in 1982 and has served as Vice
President, Marketing and Hospitality since 1987.
RICHARD G. CARTER joined the Company in 1975 and was appointed Vice
President, Sales in 1984.
44
<PAGE>
MARTIN L. FOSTER joined the Company in 1992 as Vice President, Finance and
Treasurer. From 1988 to 1992, he was Senior Vice President, Finance and
Administration at Guild Wineries.
A. TOR KENWARD joined the Company in 1977 and has served as Vice President,
Winery Communications since 1986.
THOMAS W. PETERSON joined the Company in 1986 and has served as the
Company's Vice President-Sonoma Operations and Winemaking since 1996.
DOUGLAS W. ROBERTS joined the Company in 1976 and has served as Secretary
since 1990. He was appointed Vice President and General Counsel in 1997.
RICHARD ADAMS joined the Company's Board of Directors in January 1996. Mr.
Adams is managing partner of the law firm Worsham, Forsythe & Wooldridge,
L.L.P. He has been employed by that firm since 1978 and has been managing
partner since 1988.
DAVID BONDERMAN joined the Company's Board of Directors in January 1996. Mr.
Bonderman is a principal of Texas Pacific Group, a partnership he co-founded
in 1992. He currently serves on the Boards of Directors of Continental
Airlines, Inc., Ducati Motorcycles S.P.A., Creditcon Asia, Realty Information
Group, Denbury Resources, Inc., Ryanair, Ltd., Bell & Howell Company, Virgin
Cinemas Limited and Washington Mutual, Inc.
RANDY CHRISTOFFERSON joined the Company's Board of Directors in January
1996. Since 1995 Mr. Christofferson has served as President of First USA Bank,
and from 1990 to 1995 held various positions in the travel and related service
business of American Express. He currently serves on the Boards of Directors
of First USA Bank and First USA Federal Savings Bank.
JAMES G. COULTER joined the Company's Board of Directors in January 1996 and
served as Co-Chairman of the Board from January 1996 to August 1997.
Mr. Coulter is a principal of Texas Pacific Group, a partnership he co-founded
in 1992. Mr. Coulter currently serves on the Boards of Directors of several
companies, including America West Airlines, Inc. ("America West") and Virgin
Cinemas Limited.
TIMM F. CRULL joined the Company's Board of Directors in January 1996. Mr.
Crull was Chairman of the Board of Nestle USA from 1991 to 1994, and is
currently a member of the Boards of Directors of BankAmerica Corporation,
Hallmark Cards, Dreyer's Grand Ice Cream, Inc. and Smart & Final Inc.
WILLIAM A. FRANKE joined the Company's Board of Directors in January 1996.
Since February 1997, Mr. Franke has been Chairman and Chief Executive Officer
of America West Holdings Corporation and since 1992 has been Chairman of the
Board of its principal subsidiary, America West. He served as America West's
Chief Executive Officer from 1993 to 1997. Mr. Franke is the owner and
president of Franke & Company, Inc., a financial advisory firm, and a managing
partner of Newbridge Latin America, L.P., a private equity investment fund. He
is also a director of Central Newspapers, Inc., publisher of the Phoenix and
Indianapolis morning newspapers, and Phelps Dodge Corporation, a major mining
and manufacturing company. He is Chairman of the Board of Airplanes Limited
and a controlling trustee and Chairman of Airplanes U.S. Trust, entities
involved in aircraft financing and leasing.
E. MICHAEL MOONE joined the Company's Board of Directors in January 1996.
Mr. Moone has been Chairman of Napa Valley Kitchens in St. Helena, California,
Chairman of Luna Vineyards in Napa, California and Chairman and a managing
partner of Silverado Equity Partners, L.P. ("Silverado Partners") since 1995.
From 1990 to 1992, Mr. Moone served as President and Chief Executive Officer
of Stouffer Foods Corporation, where he also served as President of Nestle
Frozen Food Company. He is currently a member of the Board of Directors of
Ruiz Mexican Foods, Inc. and Clos du Val Winery.
45
<PAGE>
WILLIAM S. PRICE III joined the Company's Board of Directors in January 1996
and served as Co-Chairman of the Board from January 1996 to August 1997.
Mr. Price is a principal of Texas Pacific Group, a partnership he co-founded
in 1992. Mr. Price is currently Chairman of the Board of Favorite Brands
International, Inc. and serves on the Boards of Directors of Continental
Airlines, Inc., Belden & Blake Company, Inc., Del Monte Company, Inc., Denbury
Resources, Inc., and Vivra Specialty Partners, Inc. Mr. Price is also an
officer of the general partner of Newbridge Investment Partners.
JESSE ROGERS joined the Company's Board of Directors in January 1996. Since
1989, Mr. Rogers has been an officer of Bain & Company, Inc., the
international strategic consulting firm, where he currently serves as a
director. He is currently a member of the Board of Directors of Ruiz Food
Products, Inc. and the United Way of the Bay Area.
GEORGE A. VARE joined the Company's Board of Directors in January 1996.
Since 1995, Mr. Vare has been President of Luna Vineyards and a managing
partner of Silverado Partners. From 1991 to 1994, Mr. Vare was President and
Chief Executive Officer of the Henry Wine Group, then the fourth largest
California wine wholesaler.
The Board of Directors currently has eleven (11) directors. All directors
are elected to hold office until the next annual meeting of stockholders and
until their successors have been elected. Officers are elected at the first
Board of Directors meeting following the stockholders' meeting at which the
directors are elected and serve at the discretion of the Board of Directors.
There are no family relationships among any of the directors or executive
officers of the Company.
BOARD COMMITTEES, COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has established an Audit Committee, a Compensation
Committee and an Executive Committee. The Audit Committee, on which Messrs.
Christofferson, Adams and Vare serve, reviews the results and scope of the
annual audit and the services provided by the Company's independent
accountants. The Compensation Committee, consisting of Messrs. Coulter, Crull,
Franke and Rogers, makes recommendations to the Board of Directors with
respect to the Company's general and specific compensation policies and
practices and administers the Company's stock plans. The Executive Committee,
comprised of Messrs. Klenz, Coulter, Moone and Price, manages the Company's
business affairs when the full Board of Directors is not in session.
There were no interlocks or other relationships among the Company's
executive officers and directors that are required to be disclosed under
applicable executive compensations disclosure requirements.
COMPENSATION OF DIRECTORS
Directors of the Company who do not receive compensation as officers or
employees of the Company or its affiliates (a "Non-Employee Director") receive
$2,500 for each Company Board meeting attended. Such amount is payable, at the
option of each Non-Employee Director, in (i) cash, (ii) 50% cash and 50%
shares of Class B Common Stock or (iii) shares of Class B Common Stock (in
each case, any shares of Class B Common Stock awarded are valued at fair
market value at the time of the applicable Board meeting). Additionally,
members of the Executive Committee, Audit Committee and Compensation Committee
receive $1,000 for each committee meeting attended. The Company also
reimburses its directors' expenses incurred for travel to and from meetings
and provides each director ten cases of wine per year. Additionally, pursuant
to the 1996 Stock Option Plan, directors (other than partners of Silverado
Partners or persons employed by TPG) are eligible to receive non-qualified
stock options in consideration for their services as directors, although to
date no such awards have been made. The Company does not pay any additional
compensation to directors who receive compensation as officers or employees of
the Company or its affiliates. In lieu of the aforementioned compensation, E.
Michael Moone receives an annual fee of $25,000 for his services as a director
and as Chairman of the Executive Committee.
46
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid to the Company's Chief
Executive Officer and to the Company's four most highly compensated executive
officers other than the Chief Executive Officer whose total annual salary and
bonus exceeded $100,000, for services rendered in all capacities to the
Company during the fiscal year ended June 30, 1997. No options were granted to
any of these executive officers in the fiscal year ended June 30, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
----------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(2)
--------------------------- -------- -------- ----------------
<S> <C> <C> <C>
Walter T. Klenz(3)........................ $287,500 $255,000 $474,275
President and Chief Executive Officer
Robert E. Steinhauer(4)................... 147,000 92,576 281,187
Senior Vice President, Vineyard Opera-
tions
Edward B. Sbragia......................... 156,666 103,210 258,181
Senior Vice President and Winemaster
Richard G. Carter(5)...................... 160,000 73,319 155,999
Vice President, Sales
Janelle E. Thompson(6).................... 139,000 78,040 128,711
Vice President, Marketing and Hospitality
</TABLE>
- --------
(1) "Other Annual Compensation" column omitted, as such compensation did not
exceed the lesser of $50,000 or 10% of the total of any named executive
officer's salary and bonus.
(2) Of these amounts, with respect to each of the above-named executive
officers, $16,275, $7,187, $8,181, $6,999 and $6,511, respectively,
represent matching contributions made by the Company under its 401(k)
plan. The remainder of these amounts was paid by the former owner of the
Company as a stay bonus (the "Stay Bonus") in September 1996, pursuant to
an agreement made with each of these employees in September 1995. These
agreements were made in connection with the Acquisition and required that
these individuals continue their employment with the Company until
September 1996.
(3) Mr. Klenz deferred $249,179 of the Stay Bonus.
(4) Mr. Steinhauer deferred $46,288 of the Stay Bonus.
(5) Mr. Carter deferred $37,461 of the Stay Bonus.
(6) Ms. Thompson deferred $73,901 of the Stay Bonus.
EMPLOYEE BENEFIT PLANS
1996 STOCK OPTION PLAN
The Beringer Wine Estates Holdings, Inc. 1996 Stock Option Plan (the "1996
Option Plan") was adopted by the Board of Directors, effective January 16,
1996. The 1996 Option Plan was amended and restated effective August 25, 1997,
subject to stockholder approval. The 1996 Option Plan provides for options in
the form of incentive stock options ("ISOs") and nonstatutory stock options
("NSOs"). Employees, directors and consultants of the Company are eligible for
the grant of NSOs. Only employees are eligible for the grant of ISOs.
A total of 2,205,604 shares of Class B Common Stock has been reserved for
issuance under the 1996 Option Plan. Any shares that have been reserved but
not issued pursuant to grants during any calendar year shall remain available
for grant during any subsequent calendar year.
47
<PAGE>
The 1996 Option Plan is administered by the Compensation Committee. The
"Compensation Committee" is defined as the full Board of Directors or a
committee designated by the Board of Directors to administer the 1996 Option
Plan. The committee's membership will enable the 1996 Option Plan to qualify
under Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), with regard to the grant of options to persons who are
subject to Section 16 of the Exchange Act. The Board of Directors may amend
the 1996 Option Plan as desired without further action by the Company's
stockholders except as required by applicable law. The 1996 Option Plan will
continue in effect until terminated by the Board or, with respect to ISOs, for
a term of 10 years from its original adoption date, whichever is earlier.
The consideration for each option granted under the 1996 Option Plan will be
established by the Compensation Committee, but in no event will the option
price for ISOs be less than 100% of the fair market value of the Class B
Common Stock on the date of grant. NSOs will have such terms and be
exercisable in such manner and at such times as the Compensation Committee may
determine.
The 1996 Option Plan provides that, in the event of a merger or
reorganization of the Company, outstanding options shall be subject to the
agreement of merger or reorganization.
As of August 15, 1997, options to purchase a total of 676,446 shares of
Class B Common Stock have been granted under the 1996 Option Plan. Such
options have per share exercise prices ranging from $5.00 to $30.00, or a
weighted average per share exercise price of $6.61. None of such options have
been exercised.
EMPLOYEE STOCK PURCHASE PLAN
The 1997 Employee Stock Purchase Plan (the "ESPP") was adopted by the Board
of Directors on August 25, 1997, to be effective upon the completion of this
offering. The ESPP provides employees of the Company with an opportunity to
purchase shares of Class B Common Stock at a discount and pay for their
purchases through payroll deductions and lump sum contributions. All expenses
incurred in connection with the implementation and administration of the ESPP
will be paid by the Company. A pool of 200,000 shares of Class B Common Stock
has been reserved for issuance under the ESPP (subject to anti-dilution
provisions). Each regular, full-time and part-time employee who works an
average of over 20 hours per week will be eligible to participate in the ESPP,
provided the employee is employed as of the first day of the offering period.
Eligible employees may elect to contribute up to 15% of their cash
compensation to purchasing shares under the ESPP. At the end of each three-
month purchase period, the Company will apply the amount contributed by the
participant during that period to purchase shares of Class B Common Stock for
him or her. The purchase price will be equal to 85% of the lower of (a) the
market price of Class B Common Stock immediately before the beginning of the
applicable "offering period" or (b) the market price of Class B Common Stock
on the last business day of the purchase period. In general the offering
period is 12 months. The value of the Class B Common Stock purchased each
calendar year (measured at the beginning of the offering periods) may not
exceed $25,000 per participant. Participants may withdraw their contributions
at any time before the close of the accumulation period.
48
<PAGE>
CERTAIN TRANSACTIONS
In connection with the Company's incorporation in May 1995, the Company
issued an aggregate of 5,000 shares of its common stock for an aggregate
purchase price of $5,000 to certain of its directors and officers. Of the
persons to whom such stock was issued, E. Michael Moone and George A. Vare are
directors of the Company. In December 1995, in connection with the
Acquisition, such shares were converted into an aggregate of 70,000 shares of
Class A Common Stock and 630,000 shares of Class B Common Stock, having an
estimated aggregate fair market value of $3.5 million.
On January 1, 1996, pursuant to a Stock Purchase Agreement among the
Company, Nestle Holdings and TPG, the Company acquired all of the outstanding
capital stock of Wine World Estates (now Beringer Wine Estates Company) in
exchange for cash of $75.0 million and a secured promissory note in the amount
of $275.0 million (the "Acquisition Note"). In connection with and immediately
prior to consummation of the Acquisition, the Company sold to TPG, for cash
consideration of approximately $45.6 million, 50,000 shares of Series A
Preferred Stock at a price of $89.70 per share, 770,000 shares of Class A
Common Stock at a price of $5.00 per share, and 7,443,824 shares of Class B
Common Stock at a price of $5.00 per share; the Company also issued two
promissory notes payable to TPG in the aggregate amount of $37.4 million (the
"TPG Notes"). In connection with the Acquisition, the Company paid fees to (i)
Silverado Partners of $1.5 million, (ii) Bain & Co., a consulting firm of
which Jesse Rogers, a current director of the Company, is a managing director,
of $1.0 million, and (iii) TPG of approximately $2.58 million.
Also in connection with the Acquisition, certain directors of the Company
affiliated with Silverado Partners received options to purchase an aggregate
of 697,980 shares of Class B Common Stock at an exercise price of $6.00. Of
the persons to whom such options were issued, Messrs. Vare and Moone are
directors of the Company. See "Description of Capital Stock--Silverado
Options".
On January 16, 1996, the Company repaid the Acquisition Note and the TPG
Notes in full with proceeds from the following transactions: (1) the sale of
168,000 shares of Class A Common Stock at a price of $5.02 per share,
1,614,766 shares of Class B Common Stock at a price of $5.02 per share (with
respect to both Class A Common Stock and Class B Common Stock, the purchase
price was equivalent to $5.00 per share plus an amount equal to interest
thereon at 10% per annum accruing from January 1, 1996 through January 15,
1996), and 250,000 shares of Series A Preferred Stock at a price of $90.31 per
share ($89.70 per share plus an amount equal to dividends thereon accruing
from January 1, 1996 to January 15, 1996); (2) the issuance of Subordinated
Notes in the aggregate principal amount of $35 million, net of a $1.8 million
original issue discount, and the concurrent sale of warrants to purchase an
aggregate of 431,612 shares of Class B Common Stock; and (3) the incurrence of
long-term indebtedness in the amount of $256.0 million under the Company's
credit agreement, dated as of January 16, 1996. See "Description of Credit
Agreement". The stock issued in January 1996 was purchased by executive
officers Klenz, Steinhauer, Sbragia, Kenward, Carter and Thompson, by
directors Vare and Moone, by stockholders TPG and Silverado Partners and by
the holders of the Subordinated Notes. Certain of the executive officers,
including Messrs. Klenz, Sbragia and Kenward, paid 50% of the purchase price
of such shares with a full recourse note bearing interest at the prime rate,
payable at maturity, which is generally ten years from the date of purchase.
In March 1996, in connection with the acquisition of the Chateau St. Jean
winery, the Company sold 945,000 shares of Class B Common Stock to certain of
its existing stockholders, including TPG, Silverado Partners and Messrs. Moone
and Vare at a price of $5.00 per share.
In September 1996, pursuant to the terms of Securities Purchase Agreements
between the Company and each purchaser, the Company sold to certain of its
employees, including all executive officers of the Company, an aggregate of
3,548 shares of Series A Preferred Stock at a price of $89.70 per share,
11,980 shares of Class A Common Stock at a price of $5.00 per share and
224,380 shares of Class B Common Stock at a price of $5.00 per share. The
Company has certain repurchase rights with respect to such shares, which
rights expire upon the closing of this offering.
49
<PAGE>
In February 1997, in connection with the Company's acquisition of the stock
and certain assets of Stags' Leap Winery and certain real estate of The
Newhall Land and Farming Company, the Company sold an aggregate of 833,334
shares of Class B Common Stock at a purchase price of $6.00 per share to
certain of its existing stockholders and employees, including TPG, Silverado
Partners, Messrs. Moone and Vare, and all of the Company's current executive
officers except Mr. Scott.
Purchasers of the Series A Preferred Stock, Class A Common Stock and Class B
Common Stock have included, among others, the following executive officers,
directors and five percent stockholders of the Company:
<TABLE>
<CAPTION>
CLASS A CLASS B SERIES A
COMMON STOCK(1) COMMON STOCK PREFERRED STOCK
--------------- ------------ ---------------
<S> <C> <C> <C>
Entities Affiliated with TPG....... 858,964 9,525,248 176,477
Silverado Partners................. 68,956 770,214 20,523
David Bonderman(2)................. 858,964 9,525,248 176,477
James G. Coulter(2)................ 858,964 9,525,248 176,477
William S. Price III(2)............ 858,964 9,525,248 176,477
E. Michael Moone(3)................ 96,956 1,385,430 20,523
George A. Vare(4).................. 82,956 1,078,778 20,523
Walter T. Klenz.................... 3,980 53,714 1,185
Edward B. Sbragia.................. 1,856 28,344 552
Robert E. Steinhauer(5)............ 1,856 28,344 552
Richard G. Carter.................. 796 16,198 237
Janelle E. Thompson................ 796 16,198 237
A. Tor Kenward..................... 796 16,198 237
Thomas W. Peterson................. 630 13,622 187
Martin L. Foster................... 630 13,698 187
Douglas W. Roberts................. 316 8,520 93
</TABLE>
- --------
(1) Shares of Class A Common Stock are convertible at any time at the option
of the holder into shares of Class B Common Stock on a 1-for-1 basis.
(2) Includes shares purchased by TPG Partners, L.P., TPG Parallel I, L.P.,
Wine World Equity Partners, L.P. and TPG GenPar, L.P. Messrs. Coulter,
Price and Bonderman, directors of the Company, are directors, executive
officers and stockholders of TPG Advisors, Inc., the general partner of
TPG GenPar, L.P., which is in turn the general partner of each of TPG
Partners, L.P. and TPG Parallel I, L.P. TPG Partners, L.P. is the general
partner of Wine World Equity Partners, L.P.
(3) Includes shares purchased by the Moone Family Partnership and Silverado
Partners and shares issuable upon exercise of the Silverado Options.
(4) Includes shares purchased by Vare Family Partners, LP and Silverado
Partners and shares issuable upon exercise of the Silverado Options.
(5) Includes shares purchased by the Robert E. Steinhauer and Verna Steinhauer
1992 Trust.
The Company has granted the investors listed above certain registration
rights with respect to the shares of Class B Common Stock issued or issuable
upon conversion of their Class A Common Stock or exercise of the Silverado
Options. See "Shares Eligible for Future Sale" and "Description of Capital
Stock--Registration Rights".
50
<PAGE>
In December 1990, the Company entered into a warehouse lease agreement with
a partnership in which Messrs. Klenz and Moone hold interests. In the years
ended June 30, 1995, 1996 and 1997, the Company recorded rent expense under
such lease of $768,000, $768,000 and $948,000, respectively. Minimum rental
payments to be paid for the fiscal year ending June 30, 1998 are expected to
be $948,000.
In both April 1996 and February 1997, the Company paid Silverado Partners
certain consulting fees of $500,000 in connection with the Company's purchase
of the Chateau St. Jean and Stags' Leap wineries. TPG was also paid consulting
fees totaling $500,000 in connection with the Company's acquisition of Chateau
St. Jean.
In May 1997, the Company entered into a relationship with Napa Valley
Kitchens to distribute certain of its gourmet food products. Mr. Moone is
Chairman of the Board of Directors of Napa Valley Kitchens.
The Company has entered into indemnification agreements with each of its
directors and executive officers. The agreements require the Company to
indemnify such individuals for certain liabilities to which they may be
subject as a result of their affiliation with the Company, to the fullest
extent permitted by Delaware law.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and
its officers, directors, principal stockholders and affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested outside directors on the Board of Directors, and
will be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
51
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Class A and Class B Common Stock (after the
Exchange Offer) as of October 1, 1997, and as adjusted to reflect the sale by
the Company of the shares of Class B Common Stock offered hereby, by: (1) each
person who is known by the Company to beneficially own more than 5% of the
Company's Class A and Class B Common Stock, (2) each of the Company's
directors, (3) each of the Company's officers named under "Management--Summary
Compensation Table" and (4) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING(2)
--------------------------------- ---------------------------------
NUMBER OF NUMBER OF PERCENT OF NUMBER OF NUMBER OF PERCENT OF
CLASS A CLASS B TOTAL VOTING CLASS A CLASS B TOTAL VOTING
BENEFICIAL OWNERS SHARES SHARES POWER(1) SHARES SHARES POWER
- ----------------- --------- ---------- ------------ --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Entities Affiliated with
TPG(3)................. 1,190,946 8,339,670 80.1% 1,190,946 8,859,874 72.6%
201 Main Street
24th Floor
Fort Worth, TX 76102
Silverado Partners(4)... 68,956 770,214 5.4% 68,956 830,710 4.9%
1776 2nd Street
Napa, CA 94559
James G. Coulter(5)..... 1,190,946 8,339,670 80.1% 1,190,946 8,859,874 72.6%
William S. Price III(5). 1,190,946 8,339,670 80.1% 1,190,946 8,859,874 72.6%
David Bonderman(5)...... 1,190,946 8,339,670 80.1% 1,190,946 8,859,874 72.6%
E. Michael Moone(6)..... 96,956 1,386,074 8.3% 96,956 1,446,571 7.5%
George A. Vare(7)....... 82,956 1,079,422 6.8% 82,956 1,139,919 6.2%
Walter T. Klenz......... 3,980 53,714 * 3,980 57,207 *
Richard Adams........... -- 2,560 * -- 2,560 *
Randy Christofferson.... -- 2,560 * -- 2,560 *
William A. Franke....... -- 2,560 * -- 2,560 *
Timm F. Crull........... -- 2,060 * -- 2,060 *
Jesse Rogers............ -- 2,060 * -- 2,060 *
Edward B. Sbragia....... 1,856 28,344 * 1,856 29,971 *
Robert Steinhauer(8).... 1,856 28,344 * 1,856 29,971 *
Richard G. Carter....... 796 16,198 * 796 16,897 *
Janelle E. Thompson..... 796 16,198 * 796 16,897 *
All Directors and
Executive Officers
as a group
(20 persons)(9)....... 1,313,558 10,249,960 90.9% 1,313,558 10,840,881 82.5%
</TABLE>
- --------
* Less than 1% of the total voting power of the outstanding shares of Common
Stock.
(1) In calculating the percent of total voting power, the voting power of
shares of Class A Common Stock (twenty votes per share) and Class B Common
Stock (one vote per share) has been aggregated.
(2) Assumes that each holder of Series A Preferred Stock purchases the full
pro rata share allocated to such holder of the 600,000 shares of Class B
Common Stock offered hereby directly by the Company.
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(3) Includes 961,662 shares of Class A Common Stock and 6,712,300 shares of
Class B Common Stock held by TPG Partners, L.P.; 95,838 shares of Class A
Common Stock and 668,950 shares of Class B Common Stock held by TPG
Parallel I L.P.; 133,446 shares of Class A Common Stock and 949,240 shares
of Class B Common Stock held by Wine World Equity Partners, L.P.; and
9,180 shares of Class B Common Stock held by TPG GenPar, L.P. (TPG
Partners, L.P., TPG Parallel I, L.P. Wine World Equity Partners, L.P. and
TPG GenPar, L.P. are referred to collectively herein as the "TPG
Affiliates"). TPG Advisors, Inc. is the general partner of TPG GenPar,
L.P., which in turn is the general partner of each of TPG Partners, L.P.
and TPG Parallel I L.P. TPG Partners, L.P. is the general partner of Wine
World Equity Partners, L.P.
(4) Includes 68,956 Shares of Class A Common Stock and 770,214 Class B Common
Stock held by Silverado Partners.
(5) Includes 1,190,946 shares of Class A Common Stock and 8,339,670 shares of
Class B Common Stock held by the TPG Affiliates. Messrs. Bonderman,
Coulter, and Price, directors of the Company, are each directors,
executive officers and shareholders of TPG Advisors, Inc., and hence may
be deemed to share voting and investment power with respect to the shares
held by the TPG Affiliates. Each of Messrs. Bonderman, Coulter and Price
disclaim their beneficial ownership of shares held by the TPG Affiliates
except to the extent of their proportionate interest in such entities.
(6) Includes 68,956 shares of Class A Common Stock and 770,214 shares of Class
B Common Stock held by Silverado Partners. Mr. Moone, a director of the
Company, is a Managing Partner of Silverado Partners, and as such, may be
deemed to share voting and investment power with respect to such shares.
Mr. Moone disclaims beneficial ownership of shares held by Silverado
Partners except to the extent of his proportionate interest therein. Also
includes 17,102 shares of Class B Common Stock held by the Moone Family
Partnership, L.P., as to which Mr. Moone has shared voting and investment
power, and 279,192 shares of Class B Common Stock subject to an
exercisable option.
(7) Includes 68,956 shares of Class A Common Stock and 770,214 shares of Class
B Common Stock held by Silverado Partners. Mr. Vare, a director of the
Company, is a Managing Partner of Silverado Partners, and as such, may be
deemed to share voting and investment power with respect to such shares.
Mr. Vare disclaims beneficial ownership of shares held by Silverado
Partners except to the extent of his proportionate interest therein. Also
includes 8,552 shares of Class B Common Stock held by Vare Family
Partners, LP as to which Mr. Vare has shared voting and investment power,
and 139,596 shares of Class B Common Stock subject to an exercisable
option.
(8) Includes 2,784 shares of Class A Common Stock and 27,416 shares of Class B
Common Stock held by the Robert E. Steinhauer and Verna Steinhauer 1992
Trust as to which Mr. Steinhauer has shared voting and investment power.
(9) Includes shares held by the TPG Affiliates and Silverado Partners which
are affiliated with certain directors.
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company, will consist of 2,000,000 shares of Class A Common Stock, par value
$0.01 per share, 38,000,000 shares of Class B Common Stock, $0.01 par value,
and 5,000,000 shares of undesignated Preferred Stock, par value $0.01 per
share. Of the 38,000,000 shares of Class B Common Stock authorized, 1,416,962
have been reserved for issuance upon conversion of outstanding Class A Common
Stock, 2,605,604 have been reserved for issuance pursuant to the Company's
1996 and 1998 Option Plans and the ESPP (see Note 11 of Notes to Consolidated
Financial Statements), and 4,850,000 are being offered hereby.
COMMON STOCK
The Company's Common Stock consists of Class A Common Stock and Class B
Common Stock. As of August 15, 1997, there were 1,019,980 shares of Class A
Common Stock outstanding held by approximately 50 stockholders of record and
11,266,222 shares of Class B Common Stock outstanding held by approximately 50
stockholders of record.
Each share of Class A Common Stock is entitled to twenty votes and each
share of Class B Common Stock is entitled to one vote on all matters submitted
to a vote of the stockholders of the Company. Neither the Class A nor the
Class B Common Stock is entitled to cumulative voting rights. Generally, all
matters to be voted upon by stockholders must be approved by a majority of the
votes entitled to be cast by all shares of Class A Common Stock and Class B
Common Stock, voting together as a single class. Subject to preferences that
may be applicable to any then outstanding Preferred Stock, holders of Class A
Common Stock and Class B Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available therefor. See "Dividend Policy". Dividends payable in shares
of Common Stock or in options or similar rights to acquire shares of Common
Stock or in securities convertible into or exchangeable for shares of Common
Stock may be paid only in shares of or in options or similar rights to the
Class B Common Stock. In the event of a liquidation, dissolution or winding up
of the Company, holders of the Common Stock are entitled to share ratably in
all assets remaining after payment of liabilities and the liquidation
preference of any then outstanding Preferred Stock or any class or series of
stock ranking prior to the Class A Common Stock and Class B Common Stock.
The Class A Common Stock is convertible at any time at the option of the
holder, on a one-for-one basis, into shares of Class B Common Stock.
Additionally, the Class A Common Stock is automatically convertible into
shares of Class B Common Stock, on a one-for-one basis, with the approval of a
majority of the shares of Class A Common Stock, upon the closing of this
offering. Additionally, shares of Class A Common Stock will automatically
convert into Class B Common Stock, on a one-for-one basis, upon the transfer
of record or beneficial ownership of such Class A Common Stock to an entity or
person that (i) is not a stockholder of the Company on the date on which the
Restated Certificate of Incorporation is filed with the Delaware Secretary of
State (an "Existing Stockholder"), anticipated to occur promptly following the
consummation of this offering, or (ii) an affiliate, beneficiary, family
member or trust related to an Existing Stockholder, subject to certain terms
and conditions. The Common Stock has no preemptive or other subscription
rights and there are no redemption or sinking fund provisions applicable to
the Common Stock. All outstanding shares of Common Stock are, and the Common
Stock to be outstanding upon completion of this offering will be, fully paid
and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, the Company expects to redeem all
outstanding shares of its Series A Preferred Stock. See Note 9 of Notes to
Consolidated Financial Statements for a description of the currently
outstanding Preferred Stock. Following this offering, the Company's
Certificate of Incorporation
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will be restated to delete all references to the Series A Preferred Stock and
5,000,000 shares of undesignated Preferred Stock will be authorized. The Board
of Directors will have the authority, without further action by the
stockholders, to issue from time to time the Preferred Stock in one or more
series and to fix the number of shares, designations, preferences, powers, and
relative participating, optional or other special rights and the
qualifications or restrictions thereof. The preferences, powers, rights and
restrictions of different series of Preferred Stock may differ with respect to
dividend rates, amounts payable on liquidation, voting rights, conversion
rights, redemption provisions, sinking fund provisions and other matters. The
issuance of Preferred Stock could decrease the amount of earnings and assets
available for distribution to holders of Common Stock or affect adversely the
rights and powers, including voting rights, of the holders of Common Stock,
and may have the effect of delaying, deferring or preventing a change in
control of the Company. The Company has no present plan to issue any shares of
Preferred Stock.
SILVERADO OPTIONS
In January 1996, in connection with the Acquisition, the Company issued
options to certain members of its Board of Directors affiliated with Silverado
Partners (the "Silverado Options") for the purchase of an aggregate of 697,980
shares of Class B Common Stock, at an exercise price of $6.00 per share. The
Silverado Options are exercisable at any time prior to January 16, 2006, but
only during the one-month period from December 15 of each calendar year to
January 15 of the next calendar year; provided, however, that the Silverado
Options will become exercisable at any time subsequent to the closing of this
offering. As of July 31, 1997, none of the Silverado Options had been
exercised. Under the terms of the Amended and Restated Stockholders' Rights
Agreement and Voting Agreement dated as of June 7, 1996 (the "Stockholders'
Agreement"), holders of the Silverado Options are entitled to certain
registration rights with respect to the shares issuable upon exercise of the
Silverado Options. See "--Registration Rights".
REGISTRATION RIGHTS
Pursuant to the Stockholders' Agreement, the holders of approximately 14.0
million shares of Class B Common Stock, including shares of Class B Common
Stock issuable upon conversion of Class A Common Stock or the exercise of
options, including the Silverado Options (collectively, the "Registrable
Shares"), are entitled to certain rights with respect to the registration of
such shares under the Securities Act. If the Company proposes to register any
of its securities under the Securities Act, either for its own account or for
the account of other security holders, holders of the Registrable Shares are
entitled to notice of such registration and are entitled to include, at the
Company's expense, such shares therein, provided among other conditions, that
the underwriters have the right to limit the number of Registrable Shares
included in such registration. Additionally, commencing 180 days after the
closing of this offering, and subject to certain conditions and limitations,
Silverado Partners and certain affiliates (the "Silverado Entities") and TPG
have the right to require the Company to file a registration statement under
the Securities Act to register all or any part of their Registrable Shares
(provided that with respect to such a request made by one of the Silverado
Entities there shall be no more than one such registration statement in any
one year). New York Life Insurance Company and certain entities affiliated
with Crescent/Mach I Partners, L.P. are entitled to similar demand
registration rights which take effect immediately upon the consummation of
this offering. Further, the holders of Registrable Shares may require the
Company to register all or any portion of their Registrable Shares on Form S-
3, when such form becomes available to the Company, subject to certain
conditions and limitations.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Delaware Law"), an anti-takeover law. In general,
the statute prohibits a publicly held Delaware corporation from engaging in a
business combination with an "interested stockholder" for a period of
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three years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved by the
Board of Directors and the holders of at least 66 2/3% of the outstanding
voting stock of the corporation (excluding shares held by the interested
stockholder). A "business combination" includes a merger, asset sale or other
transaction resulting in financial benefit to the stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns
(or within the three prior years, did own) 15% or more of the corporation's
voting stock. This statutory prohibition does not apply if, upon consummation
of the transaction in which any person becomes an interested stockholder, the
interested stockholder owns at least 85% of the outstanding voting stock of
the corporation (excluding shares held by persons who are both directors and
officers or by certain stock option plans).
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Certificate of Incorporation that
limit the liability of its directors for monetary damages for breach of their
fiduciary duty as directors, except for liability that cannot be eliminated
under Delaware Law. Delaware Law provides that directors of a company will not
be personally liable for monetary damages for breach of their fiduciary duty
as directors, except for liability resulting from (1) any breach of their duty
of loyalty to the Company or its stockholders, (2) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (3) unlawful payment of dividend or unlawful stock repurchase or
redemption, as provided in Section 174 of the Delaware Law, or (4) any
transaction from which the director derived an improper personal benefit.
The Company's Bylaws also provide that the Company shall indemnify its
directors and officers to the fullest extent permitted by Delaware Law. The
Company has entered into separate indemnification agreements with its
directors and officers that could require the Company, among other things, to
indemnify them against certain liabilities that may arise by reason of their
status or service as directors and to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified.
The Company believes that the limitation of liability provision in its
Certificate of Incorporation and these indemnification agreements will
facilitate the Company's ability to continue to attract and retain qualified
individuals to serve as directors and officers of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class B Common Stock is BankBoston,
N.A.
LISTING
The Class B Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "BERW". The Company has not applied to list
its Common Stock on any other exchange or quotation system.
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<PAGE>
DESCRIPTION OF CREDIT AGREEMENT
The following is a summary of certain provisions of the Company's Second
Amended and Restated Credit Agreement, dated as of February 28, 1997, by and
among the Company, Pacific Coast Farm Credit Services, ACA ("PCFC") other
banks and lenders party thereto (collectively, the "Lenders") and PCFC, as
agent on behalf of the Lenders (the "Credit Agreement"). Such summary is
complete in all material respects. The Credit Agreement was filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
The Credit Agreement provides for a senior secured credit facility
consisting of (1) a term loan of $182.5 million (the "Term Loan") divided into
tranches of $20 million ("Term Loan Tranche A") and $162.5 million ("Term Loan
Tranche B"), and (2) a revolving credit facility (the "Revolving Facility") of
up to $150 million, which includes a $10 million letter of credit subfacility.
Interest on outstanding Term Loan indebtedness accrues at a fixed rate
determined by reference to the particular Term Loan tranche and the interest
period selected by the Company. The Company is obligated to make payments of
principal and interest on such indebtedness on a quarterly basis. Principal
and interest on indebtedness currently outstanding under the Term Loan is
payable as follows: (1) with respect to $20 million of indebtedness
outstanding under Term Loan Tranche A, interest and principal are payable
quarterly, commencing on April 1, 1999, in an amount approximating the equal
amortization of such principal and interest based on the Fixed Rate Average in
effect on January 16, 1999 and amortized over a period of 17.5 years from
January 16, 1999; (2) with respect to $150 million of indebtedness outstanding
under Term Loan Tranche B, interest and principal are payable quarterly,
commencing on April 1, 1997, in accordance with principal amounts set forth in
a schedule to the Credit Agreement amortized over a period of 19.5 years from
January 16, 1997; and (3) with respect to $12.5 million of indebtedness
outstanding under Term Loan Tranche B, interest and principal are payable
quarterly, commencing July 1, 1997, in accordance with principal and interest
amounts that approximate the equal amortization of principal and interest
based on the weighted average of the Fixed Ratio in effect on July 1, 1997.
Outstanding indebtedness under the Revolving Facility bears interest at a
variable rate equal to the sum of (1) the higher of the prime rate or the rate
announced by Bank of America NT & SA from time to time as its reference rate
and (2) a margin of 0.75% per annum, subject to reduction in the event the
Company attains certain funded debt/EBITDA ratios. The Company may, at its
option, elect to pay interest on all or any portion of outstanding
indebtedness under the Revolving Facility at a fixed interest rate in
accordance with procedures set forth in the Credit Agreement.
The Credit Agreement further provides for mandatory prepayment of certain
outstanding amounts in the event the Company sells real estate and certain
other fixed assets, incurs additional indebtedness other than purchase money
indebtedness, issues additional stock or makes a payment on account of the
principal portion of any subordinated debt.
The obligations of the Company under the Credit Agreement are secured by
substantially all of the assets of the Company, including cash, accounts
receivable, equipment, intellectual property and real property, as well as the
stock of certain of the Company's subsidiaries.
The Credit Agreement sets forth certain financial tests which the Company is
obligated to satisfy on a consolidated basis. These tests include (a) a ratio
of current assets (adjusted to exclude inventory step-ups and deferred taxes
resulting from certain acquisitions) to current liabilities (adjusted to
include amounts outstanding under the Revolving Facility) (the "Current
Ratio"), (b) a ratio of total liabilities (adjusted to exclude subordinated
debt and deferred taxes) to the sum of net worth plus subordinated debt (the
"Leverage Ratio"), (c) a minimum net worth covenant, and (d) a ratio of cash
flow to debt service (the "Debt Coverage Ratio"). The Company is currently
obligated to maintain (a) a Current Ratio
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of 1.20 to 1 as of the last day of each fiscal quarter, (b) a Leverage Ratio
of 3.50 to 1 as of the last day of the fiscal quarter, (c) a minimum net worth
of at least $70 million plus 80% of consolidated net income for the fiscal
year ending December 31, 1996, and (d) a Debt Coverage Ratio of at least 1.50
to 1 as of the last day of each fiscal quarter.
The Credit Agreement also contains a number of affirmative and negative
covenants. The affirmative covenants require the Company, among other things,
to: (a) maintain its corporate existence and conduct its business
substantially as conducted as of the date of the Credit Agreement, (b) pay and
discharge all taxes and lawful claims owing against it, (c) maintain all
required insurance, (d) comply with all laws and perform, within all required
time periods, all of its obligations and enforce all of its rights under each
agreement to which it is a party, (e) comply with all environmental laws, (f)
maintain its equipment and fixtures in good operational condition, and (g) pay
all obligations owing under any lease of real or personal property.
The negative covenants restrict the Company, among other things, from: (a)
merging or consolidating with any other person or entity, except under certain
circumstances, (b) making certain loans or investments, (c) incurring
additional indebtedness other than certain specified types of indebtedness,
(d) issuing additional shares of capital stock or materially changing its
capital structure, (e) creating any liens on any of its properties except for
certain permitted liens, (f) selling certain key assets, (g) making certain
restricted payments, (h) refinancing or amending any agreement for
subordinated debt, (i) acquiring real property except by merger or
consolidation, and so long as the agent under the Credit Agreement receives,
for the benefit of the Lenders, a deed of trust, title insurance policy and
environmental report with respect to such property, (j) terminating certain
key real property leases, and (k) incurring various types of capital
expenditures in excess of certain enumerated amounts.
The financial and other covenants in the Credit Agreement may prevent the
Company from carrying out a transaction or taking other action otherwise
determined by the Board of Directors to be in the best interests of the
Company. For example, the covenant regarding limitations on incurrence of
indebtedness may preclude the Company from making an acquisition (whether by
merger or some other form). See "Risk Factors--Capital Requirements and
Leverage".
The Credit Agreement also contains a number of Events of Default, including
without limitation the following: failure to pay interest, principal or
expenses under the Credit Agreement and related documents when due and
payable; breach of the covenants, representations, warranties and other
provisions of the Credit Agreement and related documents; the institution of
certain voluntary or involuntary insolvency actions by or against the Company;
the acquisition by Beringer Wine Estates Holding, Inc. of any assets other
than the stock of Beringer Wine Estates; the Company's failure to obtain a
stay or discharge of an uninsured judgment against it in excess of $50,000;
the occurrence of an event of default under, or the termination of, any
guaranty relating to the Company's obligations under the Credit Agreement; the
Company's failure to make payment under any agreement to which it is a party
involving indebtedness in excess of $1,000,000; certain events relating to
ERISA involving a liability in certain cases exceeding $50,000 or liabilities
exceeding in the aggregate $100,000; and payment of principal with respect to
the Company's subordinated debt. Upon the occurrence of an Event of Default,
the Lenders have the right, in addition to other available remedies, to
terminate the Term Loan and the Revolving Facility, to declare all
indebtedness immediately due and payable, and to thereafter pursue applicable
remedies against any and all collateral securing payment of such indebtedness.
The Company and the Lenders have amended the Credit Agreement, the
effectiveness of which is contingent upon the completion of this offering, as
follows: A $10 million swingline facility has been incorporated in the
Revolving Facility. The swingline facility will be available for advances of
up to
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7 days. The Term Loan Tranche A has been reduced by $6 million. Any excess
cash flow payments required in connection with fiscal year 1997 will be waived
and, in the future, there will be no excess cash flow requirements. After
giving effect to the reduction in the Term Loan Tranche A, the Term Loan
Tranche A will be amortized over 18.5 years and repayable in quarterly
principal installments commencing April 1, 1998. The amount of Term Loan
Tranche B and the amortization related thereto shall remain unchanged.
The Revolving Loan has been amended to provide for advances under the
swingline facility at the overnight rate as quoted by PCFC, and the interest
rate option under both Term Loan Tranche A and Term Loan Tranche B has been
amended to include an option to elect to fix the interest rate on all or any
portion of such loans to maturity.
Certain of the interest rate margins have been amended. From and after March
31, 1998, the Revolving Loan will bear interest at a variable rate or fixed
rate, as applicable, plus a reduced margin (as compared to the original Credit
Agreement terms) as set forth in a schedule to the amended Credit Agreement.
The margin applicable to the fixed rate periods under the Term Loan in effect
as of the amendment date has been reduced for each applicable interest period
by amounts of between .32% and .45% per annum. A reduced margin applicable to
each fixed rate selected after the amendment date has been determined by
reference to a schedule to the amended Credit Agreement.
Certain of the financial and other covenants in the Credit Agreement have
also been amended. The prohibition on payments on account of subordinated debt
have been temporarily waived to allow the Company to prepay in full its
12 1/2% Senior Subordinated Notes, and the restriction on issuance of additional
capital stock and material changes to the Company's capital structure have
been waived to permit the transactions contemplated by this offering. In
addition, certain of the capital expenditure restrictions were deleted, the
Leverage Ratio covenant was deleted, the minimum net worth covenant has been
deleted, and the restrictions on the purchase of the real property has been
deleted. The minimum Debt Coverage Ratio was increased to at least 1.75 to 1
through June 29, 1999, and the Company has been required to maintain through
May 31, 2000 a maximum capitalization ratio of .70 to 1, which capitalization
ratio is defined as the ratio of consolidated debt to the sum of consolidated
debt and consolidated net worth.
The maturity date under the Revolving Facility is January 16, 2001 and the
maturity date of the Term Loan is July 16, 2005.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for the Class B
Common Stock, and no predictions can be made regarding the effect, if any,
that sales of shares or the availability of shares for sale will have on the
market price prevailing from time to time. As described below, only a limited
number of shares will be available for sale shortly after this offering due to
certain contractual and legal restrictions on resale. Nevertheless, sales of
substantial amounts of Class B Common Stock in the public market after these
restrictions lapse could adversely affect the prevailing market price.
Upon completion of this offering, the Company will have outstanding
1,416,962 shares of Class A Common Stock and 16,668,946 shares of Class B
Common Stock (assuming the Underwriters' over-allotment option is not
exercised). The Class A Common Stock is convertible on a share-for-share basis
into Class B Common Stock and must be converted to effect any public sale of
such stock. The 4,250,000 shares of Class B Common Stock being sold to the
public by the Underwriters hereby will be freely tradable (other than by an
"affiliate" of the Company) without restriction or registration under the
Securities Act. All remaining shares of Class B Common Stock were issued and
sold by the Company in private transactions ("Restricted Shares") and are
eligible for public sale if registered under the Securities Act or sold in
accordance with Rule 144 or 701 thereunder. For purposes of Rule 144, an
"affiliate" of an issuer is a person that directly, or indirectly through one
or more intermediaries, controls or is controlled by, or is under common
control with, such issuer.
The Company's directors, executive officers and certain stockholders, who
collectively hold an aggregate of approximately 1,000,000 shares of Class A
Common Stock and approximately 11 million shares of Class B Common Stock, and
who will acquire additional shares of Class B Common Stock in this offering,
have agreed pursuant to certain agreements that they will not sell, either
publicly or privately, any Class B Common Stock owned by them without the
prior written consent of the representatives of the Underwriters for a period
of 180 days from the date of this Prospectus (the "Lockup Period"). Following
the expiration of the Lockup Period, approximately 14.0 million shares of
Class B Common Stock, including shares issuable upon conversion of Class A
Common Stock and shares issuable upon the exercise of certain options, will be
available for sale in the public market subject to compliance with Rule 144 or
Rule 701, including approximately 12.0 million shares eligible for sale under
Rule 144(k). In addition, the Company has agreed that, during the Lockup
Period, subject to certain exceptions, that it will not issue, sell, offer or
agree to sell other than pursuant to the ESPP, grant any options for the sale
of (other than stock options under the Company's stock plans) or otherwise
dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable for Common Stock, other than
pursuant to this offering. See "Underwriting".
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an affiliate of the Company, or a holder of
Restricted Shares who owns beneficially shares that were not acquired from the
Company or an affiliate of the Company within the previous year, would be
entitled to sell within any three-month period a number of shares that does
not exceed the greater of (1) 1% of the then outstanding shares of Class B
Common Stock (approximately 167,000 shares immediately after this offering,
assuming no exercise of the Underwriters' over-allotment option) or (2) the
reported average weekly trading volume of the Class B Common Stock on the
Nasdaq National Market during the four calendar weeks preceding the date on
which notice of the sale is filed with the Securities and Exchange Commission
(the "Commission"). Sales under Rule 144 are subject to certain requirements
relating to manner of sale, notice and availability of current public
information about the Company. However, a person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days immediately preceding the sale, and who has owned
beneficially Restricted Shares for at least two years, is entitled to sell
such shares under Rule 144(k) without regard to the volume limitations,
manner-of-sale provisions or notice requirements. The foregoing is a summary
of Rule 144 and is not intended to be a complete description of it.
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Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its
employees, directors, officers, consultants or advisers prior to the closing
of this offering, pursuant to written compensatory benefit plans or written
contracts relating to the compensation of such persons. In addition, the
Commission has indicated that Rule 701 will apply to stock options granted by
the Company under its employee benefit plans before this offering, along with
the shares acquired upon exercise of such options. Securities issued in
reliance on Rule 701 are deemed to be Restricted Shares and, beginning 90 days
after the date of this Prospectus (unless subject to the contractual
restrictions described above for the Lockup Period), may be sold by persons
other than affiliates of the Company subject only to the manner-of-sale
provisions of Rule 144 and by affiliates of the Company under Rule 144 without
compliance with its two-year minimum holding period requirements.
The Company intends to file registration statements on Form S-8 under the
Securities Act covering approximately 2.6 million shares of Class B Common
Stock reserved for issuance under the Company's stock plans. Such registration
statements are expected to be filed soon after the date of this Prospectus and
will automatically become effective upon filing. Accordingly, shares
registered under such registration statements will be available for sale in
the public market, unless such shares are subject to vesting restrictions with
the Company or the contractual restrictions described above. See "Management--
Employee Benefit Plans--1996 Stock Option Plan", and "--Employee Stock
Purchase Plan".
In addition, after this offering, the holders of approximately 14.0 million
shares of Class B Common Stock and Class B Common Stock issuable upon
conversion of the Class A Common Stock or the exercise of options will be
entitled to certain rights to cause the Company to register the sale of such
shares under the Securities Act. Registration of such shares under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act (except for shares purchased by
affiliates of the Company) immediately upon the effectiveness of such
registration. See "Description of Capital Stock--Registration Rights".
61
<PAGE>
LEGAL MATTERS
The validity of the Class B Common Stock offered hereby and certain other
legal matters will be passed upon for the Company by Pillsbury Madison & Sutro
LLP, San Francisco, California. Certain legal matters in connection with this
offering will be passed upon for the Underwriters by Gibson, Dunn & Crutcher
LLP, Los Angeles, California.
EXPERTS
The financial statements as of June 30, 1996 and 1997 and for the years
ended June 30, 1995 and 1997 and the six months ended December 31, 1995 and
June 30, 1996 included in this Prospectus and the financial statement
schedules included in the Registration Statement have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting. The
statements in this Prospectus (i) on page 4 in the second through fourth
sentences of the second paragraph, on page 32 in the second sentence of the
fourth paragraph, on page 34 in the first sentence of the second paragraph,
the sentence constituting the fourth paragraph and the first sentence of the
fifth paragraph, on page 35 in the first sentence of the first paragraph, the
first sentence in the second paragraph, the third paragraph and the table
entitled "1996 California Table Wine Sales and Volume by Segment" have been
reviewed and approved by Gomberg, Frederikson & Associates; (ii) on page 3 the
last three sentences of the first paragraph under the caption "The Company"
(which statements also appear in the last three sentences of the second
paragraph on page 14, and in the last three sentences in the first paragraph
on page 30, and the last sentence appears also as the last sentence of the
second full paragraph on page 36), on page 31 in the last sentence of the
fourth full paragraph, on the bottom of page 36 and the top of page 37 in the
second and third sentences of the carryover paragraph, on page 38 in the last
sentence of the first paragraph, the second sentence of the second paragraph
and the last sentence of the fourth paragraph have been reviewed and approved
by Wine Spectator magazine; and (iii) on page 3 in the second through fifth
sentences of the second paragraph (which statements also appear as the second
through fifth sentences of the second paragraph on page 14 and as the second
through fifth sentences of the first paragraph on page 30), on page 4 in the
third and fourth sentences of the third paragraph (which statements also
appear as the third and fourth sentences of the second paragraph on page 15
and as the third and fourth sentences of the first full paragraph on page 31),
on page 33 in the second paragraph and chart, on page 34 in the first and
second paragraphs and chart, on page 35 in the third paragraph and chart, on
page 36 in the first sentence of the second paragraph and the entire third
paragraph, on page 39 in the second sentence of the sixth paragraph and on
page 40 in the last sentence of the second paragraph have been reviewed and
approved by Information Resources, Inc. as experts in such matters, and are
included herein in reliance upon such review and approval.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under the
Securities Act with respect to the Class B Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Class B Common Stock offered
hereby, reference is hereby made to such Registration Statement, exhibits and
schedules. Statements contained in this Prospectus regarding the contents of
any contract or other document are not necessarily complete; with respect to
each such contract or document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. A copy of the Registration Statement, including
the exhibits and schedules thereto, may be inspected without charge at the
principal office of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549; the New York
62
<PAGE>
Regional Office located at 7 World Trade Center, 13th Floor, New York, New
York 10048; and the Chicago Regional Office located at Citicorp Center,
Chicago, Illinois 60661. Copies of such material may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the fees prescribed by the Commission.
In addition, the Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The Company intends to furnish to its stockholders annual reports containing
audited consolidated financial statements and quarterly reports containing
unaudited interim financial information for the first three fiscal quarters of
each fiscal year of the Company.
63
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets as of June 30, 1996 and 1997................. F-3
Consolidated Statements of Operations for the years ended June 30, 1995
and 1997 and for the six months ended December 31, 1995 and June 30,
1996.................................................................... F-4
Consolidated Statements of Changes in Common Stock and Other Stockhold-
ers' Equity for the year ended June 30, 1995 and the six months ended
December 31, 1995....................................................... F-5
Consolidated Statements of Changes in Common Stock and Other
Stockholders' Equity for the six months ended June 30, 1996 and the
year ended June 30, 1997................................................ F-6
Consolidated Statements of Cash Flows for the years ended June 30, 1995
and 1997 and for the six months ended December 31, 1995 and June 30,
1996.................................................................... F-7
Notes to Consolidated Financial Statements............................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Beringer Wine Estates Holdings, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the
financial position of Beringer Wine Estates Holdings, Inc. and its
subsidiaries at June 30, 1997 and 1996, and the results of their
operations, and their cash flows for the years ended June 30, 1995 and 1997
and the six month periods ended December 31, 1995 and June 30, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
September 24, 1997
F-2
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------
PRO FORMA
1996 1997 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTE 1)
Current assets:
Cash.......................................... $ 14,223 $ 115
Accounts receivable-trade, net................ 23,484 28,226
Inventories................................... 208,069 214,097
Prepaids and other current assets............. 3,994 5,024
-------- --------
Total current assets......................... 249,770 247,462
Property, plant and equipment, net............. 182,520 212,378
Investments.................................... 88 267
Notes receivable from affiliate................ 930 --
Other assets, net.............................. 5,434 7,077
-------- --------
Total assets................................ $438,742 $467,184
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade........................ $ 9,053 $ 10,114
Book overdraft liability...................... -- 2,001
Accrued promotion expenses.................... 1,429 2,461
Accrued payroll, bonuses and benefits......... 4,059 3,661
Accrued interest.............................. 5,034 5,998
Other accrued expenses........................ 1,538 5,698
Income taxes payable.......................... 946 --
Deferred tax liabilities...................... 13,742 4,104
Current portion of long-term debt............. 816 3,714
Due to Nestle (Note 12)....................... 4,024 --
-------- --------
Total current liabilities.................... 40,641 37,751
Line of credit................................. 86,000 104,000
Long-term debt, less current portion........... 202,428 211,398
Deferred tax liabilities....................... 32,189 29,368
Other liabilities.............................. -- 6,333
-------- --------
Total liabilities............................ 361,258 388,850
-------- --------
Commitments and contingencies (Notes 12 and 13)
Redeemable preferred stock:
Redeemable Series A Preferred Stock, $0.01 par
value; stated at redemption value, less non-
accreted discount of $2,836,000 and
$2,738,000, including cumulative dividends in
arrears; 2,000,000 shares authorized; 319,389
and 369,640 shares issued and outstanding.... 29,103 34,341 $ --
-------- -------- --------
Common stock and other stockholders' equity:
Class A Common Stock, $0.01 par value;
2,000,000 shares authorized; 1,008,000 and
1,019,980 shares issued and outstanding...... 10 10 10
Class B Common Stock, $0.01 par value;
38,000,000 shares authorized; 10,639,590 and
11,716,212 shares issued and outstanding..... 106 117 117
Notes receivable from stockholders............ (340) (636) (636)
Warrants (Note 11)............................ 1,848 1,848 1,848
Additional paid-in-capital.................... 56,124 57,470 53,311
Accumulated deficit........................... (9,367) (14,816) (14,816)
-------- -------- --------
Total common stock and other stockholders'
equity..................................... 48,381 43,993 39,834
-------- -------- --------
Total redeemable preferred stock, common stock
and other stockholders' equity............... 77,484 78,334 $ 39,834
-------- -------- ========
Total liabilities redeemable preferred
stock, common stock and other stockholders'
equity..................................... $438,742 $467,184
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OLD BERINGER NEW BERINGER
----------------------- -------------------
SIX MONTHS SIX MONTHS YEAR
YEAR ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, JUNE 30,
1995 1995 1996 1997
---------- ------------ ---------- --------
<S> <C> <C> <C> <C>
Gross revenues................... $213,742 $113,057 $131,227 $282,801
Less excise taxes................ 11,732 6,190 6,364 13,341
-------- -------- -------- --------
Net revenues..................... 202,010 106,867 124,863 269,460
Cost of goods sold............... 101,287 54,114 93,626 177,829
-------- -------- -------- --------
Gross profit..................... 100,723 52,753 31,237 91,631
Selling, general and administra-
tive expenses................... 64,006 35,241 36,020 78,647
Amortization of goodwill......... 1,912 956 -- --
-------- -------- -------- --------
Operating income (loss).......... 34,805 16,556 (4,783) 12,984
Other income (expense):
Interest expense................ (5,730) (2,214) (12,830) (26,401)
Other, net...................... 1,047 125 255 892
-------- -------- -------- --------
Income (loss) before income taxes
................................ 30,122 14,467 (17,358) (12,525)
(Provision for) benefit of income
taxes........................... (13,369) (6,381) 7,993 7,076
-------- -------- -------- --------
Net income (loss)................ $ 16,753 $ 8,086 (9,365) (5,449)
======== ========
Cumulative preferred stock divi-
dend and accretion of discount.. (2,054) (4,920)
-------- --------
Net loss allocable to common
stockholders.................... $(11,419) $(10,369)
======== ========
Loss per share:
Primary......................... $ (1.04) $ (0.85)
======== ========
Supplemental (unaudited) (Note
1)............................. $ (0.23)
========
Weighted average number of common
shares and equivalents outstand-
ing:
Primary......................... 10,978 12,185
======== ========
Supplemental (unaudited)........ 17,035
========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK AND OTHER STOCKHOLDERS'
EQUITY
YEAR ENDED JUNE 30, 1995 AND SIX MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------- PAID-IN- RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1994............ 51 $51 $125,581 $15,248 $140,880
Net income......................... 16,753 16,753
Contributions from stockholder..... 693 693
--- --- -------- ------- --------
Balance at June 30, 1995............ 51 51 126,274 32,001 158,326
Net income......................... 8,086 8,086
Contributions from stockholder..... 17 17
Dividends paid to stockholder...... (5,000) (5,000)
--- --- -------- ------- --------
Balance at December 31, 1995........ 51 $51 $126,291 $35,087 $161,429
=== === ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK AND OTHER STOCKHOLDERS'
EQUITY
SIX MONTHS ENDED JUNE 30, 1996 AND THE YEAR ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
CLASS A CLASS B COMMON NOTES
COMMON STOCK STOCK RECEIVABLE ADDITIONAL
------------- --------------- FROM PAID-IN ACCUMULATED
SHARES $'S SHARES $'S STOCKHOLDERS WARRANTS CAPITAL DEFICIT TOTAL
--------- --- ---------- ---- ------------ -------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1996.................... 70,000 $ 1 630,000 $ 6 $ -- $ -- $ -- $ (2) $ 5
Net loss............... (9,365) (9,365)
Issuance of stock...... 938,000 9 10,009,590 100 (340) 58,178 57,947
Issuance of stock war-
rants.................. 1,848 1,848
Preferred stock divi-
dend and accretion of
discount............... (2,054) (2,054)
--------- --- ---------- ---- ----- ------ ------- -------- -------
Balance at June 30,
1996.................... 1,008,000 10 10,639,590 106 (340) 1,848 56,124 (9,367) 48,381
Net loss............... (5,449) (5,449)
Issuance of stock...... 11,980 -- 1,076,622 11 (402) 6,266 5,875
Repayment of notes re-
ceivable from stock-
holders................ 106 106
Preferred stock divi-
dend and accretion of
discount............... (4,920) (4,920)
--------- --- ---------- ---- ----- ------ ------- -------- -------
Balance at June 30,
1997.................... 1,019,980 $10 11,716,212 $117 $(636) $1,848 $57,470 $(14,816) $43,993
========= === ========== ==== ===== ====== ======= ======== =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OLD BERINGER NEW BERINGER
----------------------- -------------------
YEAR
SIX MONTHS SIX MONTHS ENDED
YEAR ENDED ENDED ENDED JUNE
JUNE 30, DECEMBER 31, JUNE 30, 30,
1995 1995 1996 1997
---------- ------------ ---------- -------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................... $16,753 $ 8,086 $ (9,365) $(5,449)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Deferred taxes................................................................. 1,522 968 (8,930) (15,596)
Depreciation................................................................... 8,547 4,278 1,873 5,429
Amortization................................................................... 1,910 956 397 970
Provision for doubtful accounts................................................ 1 -- -- 210
Other.......................................................................... (7) (189) 33 (17)
Change in assets and liabilities:
Accounts receivable-trade...................................................... (526) (91) (688) (4,139)
Inventories.................................................................... 445 (24,536) 48,864 17,412
Prepaids and other assets...................................................... (1,312) (463) (95) (2,786)
Accounts payable-trade......................................................... 3,540 4,427 (4,938) 1,991
Book overdraft liability....................................................... -- -- -- 2,001
Accrued promotion expenses..................................................... 631 (228) 234 1,032
Accrued payroll, bonuses and benefits.......................................... (956) 608 1,236 (398)
Accrued interest............................................................... 327 (1,810) 5,034 964
Other accrued expenses......................................................... 803 1,219 (900) 1,137
Income taxes payable........................................................... 7,101 3,114 946 (946)
Other liabilities.............................................................. -- -- -- 6,333
------- ------- --------- -------
Net cash provided by (used in) operating activities........................... 38,779 (3,661) 33,701 8,148
------- ------- --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property, plant and equipment................................... (10,763) (7,082) (3,031) (33,956)
Dispositions of property, plant and equipment................................... 1,146 997 -- 187
Beringer Acquisition (Note 2)................................................... -- -- (271,798) --
CSJ Acquisition (Note 2)........................................................ -- -- (31,176) --
SLW Acquisition (Note 2)........................................................ -- -- -- (20,351)
Distributions from investments.................................................. 148 -- 86 --
Proceeds from notes receivable from affiliate................................... -- -- 350 --
------- ------- --------- -------
Net cash used in investing activities......................................... (9,469) (6,085) (305,569) (54,120)
------- ------- --------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from line of credit................................................ -- -- 86,000 18,000
Proceeds from long-term debt.................................................... -- -- 203,152 12,500
Repayments of long-term debt.................................................... -- -- -- (816)
Net proceeds (repayment) of amounts due to Nestle............................... (26,920) 11,589 (91,738) (4,024)
Issuance of common stock........................................................ -- -- 54,417 5,780
Issuance of preferred stock..................................................... -- -- 27,049 318
Issuance of stock warrants...................................................... -- -- 1,848 --
Proceeds from notes receivable from stockholders................................ -- -- -- 106
Contributions from Nestle....................................................... -- 17 -- --
------- ------- --------- -------
Net cash provided by (used in) financing activities............................. (26,920) 11,606 280,728 31,864
------- ------- --------- -------
Net increase (decrease) in cash................................................. 2,390 1,860 8,860 (14,108)
Cash at beginning of the period................................................. 1,113 3,503 5,363 14,223
------- ------- --------- -------
Cash at end of the period....................................................... $ 3,503 $ 5,363 $ 14,223 $ 115
======= ======= ========= =======
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
Beringer Wine Estates Holdings, Inc. (BWEH or the Company), a Delaware
corporation, was incorporated for the purpose of acquiring Beringer Wine
Estates Company and its wholly owned subsidiaries. The acquisition from Nestle
Holdings, Inc. (Nestle) of all of the outstanding common stock of Beringer
Wine Estates Company by BWEH took place on January 1, 1996 (Note 2). BWEH
constitutes the successor company (New Beringer). The historical results of
operations through December 31, 1995 are the results of Beringer Wine Estates
Company and its consolidated subsidiaries (Old Beringer).
The Company is engaged in the operation of vineyards and wineries and the
production and sale of premium bottled wine. The majority of its operations
are carried out in California. The Company sells its wine principally in the
United States to distributors for resale to retail outlets and restaurants. A
substantial portion of its sales are concentrated in California and, to a
lesser extent, the States of New York, New Jersey, Texas, Illinois,
Pennsylvania and Florida. Export sales for all periods presented account for
approximately 4% of net revenues, with major markets in Europe, Canada and
Asia.
Prior to December 1995, NOTG Holdings, Inc. (NOTG), a wholly owned
subsidiary of Nestle, owned all of the outstanding stock of Alexander Cairns &
Sons Ltd. (ACS), which in turn owned all of the outstanding stock of A.C.
Wines, Inc. (ACW), which in turn owned all of the outstanding stock of
Beringer Wine Estates Company (formerly Wine World Estates Company). In
December 1995, NOTG, ACS and ACW were merged with and into Beringer Wine
Estates Company. As each of these entities was under the common control of
Nestle, these transfers and exchanges have been accounted for at historical
cost in a manner consistent with that used in pooling of interest accounting.
Consequently, the accompanying consolidated financial statements have been
presented as though these transfers and exchanges occurred on July 1, 1994.
On August 25, 1997, the Board of Directors approved the following: (a) a
change in voting rights of Class A Common Stock from fifty to twenty votes per
share, an exchange offer allowing all holders of Class A Common Stock to
increase their shares of Class A Common Stock by fifty percent by exchanging,
on a one-for-one basis, Class B Common Stock into Class A Common Stock, (b) an
increase in the number of shares which may be issued under the 1996 Stock
Option Plan (Note 11) from 705,604 to 2,205,604, (c) adoption of the Employee
Stock Purchase Plan, and (d) adoption of the 1998 Stock Option Plan (Note 11).
These actions were approved by the Company's stockholders on September 24,
1997. By written consent dated August 27, 1997, a committee of the Board of
Directors approved (1) an amendment of the Certificate of Incorporation to
effect a two-for-one forward stock split of the Class A and Class B Common
Stock and all options and warrants exercisable for such stock then
outstanding, to change the par value of the Class A and Class B Common Stock
from $.001 to $.01 and to provide for mandatory redemption of the Series A
Redeemable Preferred Stock upon the closing of the offering and (2) a restated
Certificate of Incorporation to be filed after the closing of the offering
which, among other things, authorizes 5,000,000 shares of undesignated
Preferred Stock, par value of $.01 per share. All references in the
consolidated financial statements referring to Common Stock shares, share
prices, per share amounts, stock plans, and warrants have been adjusted
retroactively to reflect the stock split and change in par value.
F-8
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation. The consolidated financial statements include the
accounts of BWEH and all of its subsidiaries. All significant intercompany
transactions and balances have been eliminated. The Company's investments in
corporations and partnerships, the more significant of which includes a 33
percent interest in Pressoir Deutz and a 50 percent interest in Calcork, are
accounted for using the equity method as the Company has the ability to
exercise significant influence over the operating and financial policies of
the investees, but does not have the ability to control them. The Company's
equity share of net income (loss) from investees is not significant and is
included in other income (expense), net in the accompanying Consolidated
Statements of Operations.
Unaudited pro forma balance sheet information. The Company currently intends
to use a portion of the proceeds from its planned initial public offering
(IPO) to redeem all of the then outstanding shares of Preferred Stock. The
outstanding Preferred Stock was issued at a discount to its liquidation value
and since its issuance has been accumulating dividends to be paid in
additional shares of Preferred Stock (Note 9). The redemption of the Preferred
Stock at its liquidation value on the assumed IPO date of October 15, 1997
will result in the payment of non-accreted discount of approximately $2.7
million and the payment of dividends of approximately $1.5 million. Upon
redemption, this $4.2 million will be charged to additional paid-in-capital.
The unaudited pro forma column reflected on the Balance Sheets presents
redeemable preferred stock and common stock and other stockholders' equity at
June 30, 1997 assuming the Company's redemption of the Preferred Stock had
taken place on that date, but excluding the effects of the IPO proceeds.
Use of estimates. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures 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 could differ from those estimates.
Revenue recognition. The Company recognizes revenue when the product is
shipped, at which time title passes to the customer. Revenue on product sold
at the Company's retail locations is recognized at the time of sale. The
Company generally allows thirty days from the date of shipment for its
customers to make payment. The Company provides no cash discounts and
customers do not have the right to return product. No products are sold on
consignment.
Inventories. Inventories are valued at the lower of cost or market.
Inventory costs for wine and supplies are determined using the first-in,
first-out (FIFO) method. Costs associated with growing crops are recorded as
inventory and are recognized as wine inventory in the year in which the
related crop is harvested. In accordance with general practice in the wine
industry, wine inventories are included in current assets, although a portion
of such inventories may be aged for periods longer than one year.
Property, plant and equipment. Property, plant and equipment is stated at
the lower of cost or, if impaired, the fair value at date of impairment.
Property, plant and equipment, including vineyards infested with phylloxera,
are deemed to be impaired if, on an undiscounted basis, the sum of the
estimated future cash flows is less than the carrying amount of the asset.
Maintenance and repairs are expensed as incurred. Costs incurred in developing
vineyards, including related interest costs, are capitalized until the
vineyards become commercially productive.
Depreciation and amortization is computed using the straight-line method
over the estimated useful lives of the assets amounting to 15 to 25 years for
vineyards, 40 years for buildings, and 5 to
F-9
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
30 years for machinery and equipment. Estimated useful lives of vineyards
infested with phylloxera are adjusted to the Company's estimate of the
remaining productive life of the vineyards, and currently range from 1 to 5
years. Leasehold improvements are amortized over the estimated useful lives of
the improvements or the terms of the related lease, whichever is shorter.
Allowance for doubtful accounts. Accounts receivable-trade are presented net
of an allowance for doubtful accounts totaling $174,000 and $251,000 at June
30, 1996 and 1997, respectively.
Goodwill. Through December 31, 1995, Goodwill was amortized on a straight-
line basis over 17 years. The Goodwill was eliminated in connection with the
acquisition of the Company on January 1, 1996 (Note 2).
Other assets. Other assets include loan fees and long-term prepaid lease
costs. Loan fees are amortized over the terms of the related loans. Prepaid
lease costs will be offset against future operating lease obligations.
Income taxes. Income taxes are recorded using the liability method. Under
this method, deferred taxes are determined by applying current tax rates to the
differences between the tax and financial reporting bases of the Company's
assets and liabilities. In estimating future tax consequences, all expected
future events are considered, except for potential income tax law or rate
changes.
Advertising costs. The Company expenses costs relating to advertising either
as the costs are incurred or the first time the advertising takes place. Point
of sale materials are accounted for as prepaid expenses and charged to
advertising expense as utilized. Advertising expense, including point of sale
materials charged to expense, totaled $11,305,000, $15,616,000, $6,655,000 and
$4,518,000 for the years ended June 30, 1995 and 1997, and for the six months
ended December 31, 1995 and June 30, 1996, respectively.
Major customers. The Company sells the majority of its wines through
distributors in the United States and through brokers and agents in export
markets. There is a common ownership in several distributorships in different
states that, when considered to be one entity, represented 17.8%, 29.8%, 17.0%
and 18.6%, respectively, of net revenues for the years ended June 30, 1995 and
1997 and for the six months ended December 31, 1995 and June 30, 1996. Trade
accounts receivable from these distributors at June 30, 1996 and 1997 totaled
$4,636,000 and $7,396,000, respectively. There is another distributor whose
purchases accounted for 15.9%, 16.2% and 13.9% of net revenues for the year
ended June 30, 1995 and for the six months ended December 31, 1995 and June 30,
1996. Trade accounts receivable from this distributor at June 30, 1996 totaled
$4,547,000.
Fair value of financial instruments. The fair value of the Company's long-
term debt and line of credit is estimated based on the current rates offered to
the Company for financings of the same remaining maturities. The carrying
amount of the Company's long-term debt and line of credit approximates fair
value. It is not practicable to estimate the fair value of notes receivable
from affiliate or amounts due to Nestle at June 30, 1996, due to the related
party relationships involved. It is also not practicable to estimate the fair
value of the redeemable preferred stock because it is not traded in the open
market and hence its value is not readily determinable.
Forward Exchange Contracts. The Company has only a limited involvement with
forward exchange contracts and does not use them for trading purposes. Forward
exchange contracts are used to manage exchange rate risks on certain purchase
commitments, generally French oak barrels, denominated in foreign currencies.
Gains and losses relating to firm purchase commitments are deferred and are
recognized as adjustments of carrying amounts or in income when the hedged
F-10
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
transaction occurs. The Company had no forward exchange contracts outstanding
at June 30, 1996 or 1997.
Stock based compensation. On July 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 123 (FAS 123), Accounting for Stock-Based
Compensation, which allows companies to measure compensation cost in connection
with their employee stock compensation plans either using a fair value based
method or to continue to use an intrinsic value based method. The Company will
continue to use the intrinsic value based method prescribed by Accounting
Principles Board Opinion No. 25 (APB 25) and its related Interpretations, which
generally does not result in compensation cost. The Company's stock option
plans are discussed in Note 11.
Loss per share. Loss per common share is computed using the weighted average
number of Class A and B common and common equivalent shares, if dilutive,
outstanding during each period. Common equivalent shares consist of stock
options and warrants (using the "treasury stock" method). Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83, such
computations include all common and common equivalent shares issued within the
twelve months preceding the initial filing date of the Company's Registration
Statement as if they were outstanding for all periods presented, using the
treasury stock method and an assumed initial public offering price, regardless
of their anti-dilutive impact. Earnings per share for Old Beringer have not
been presented as they are not considered meaningful in light of the
significant changes in capital structure resulting from the Company's
acquisition of Old Beringer. All share, per share and common stock amounts used
for purposes of calculating primary earnings per share have been adjusted
retroactively to give effect to the stock split described above.
For the supplemental loss per common and common equivalent share calculation,
common shares anticipated to be sold by the Company to the public pursuant to a
public offering contemplated in October 1997 were added to the weighted average
number of common shares computed for primary loss per share to determine the
supplemental weighted average number of common shares outstanding. Supplemental
net income was determined assuming the public offering took place on July 1,
1996 and generated net proceeds of $22.68 per share. It was also assumed that
the net proceeds, estimated to be $110,003,000, were used to repurchase all of
the outstanding shares of preferred stock, repay all of the outstanding senior
subordinated notes, including a prepayment penalty (Note 6), and $27,353,000
and $6,000,000 of the line of credit and long-term debt, respectively. The
resulting reduction in net loss from adding back the preferred stock dividend
and accretion of discount and interest expense, and the additional net loss
from the extraordinary loss on the early redemption of the subordinated notes,
net of income taxes, were $4,920,000, $4,358,000 and $2,833,000, respectively,
for the year ended June 30, 1997 was added to net income to determine
supplemental net income. Supplemental net income was divided by the
supplemental weighted average number of common shares outstanding to determine
supplemental earnings per share.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 (FAS 128), Earnings per Share. This Statement establishes new
accounting standards for the computation and manner of presentation of the
Company's earnings per share. The Company will be required to adopt the
provisions of FAS 128 for the quarter ending December 31, 1997. Earlier
application is not permitted. The Company does not believe the adoption of FAS
128 will have a material impact on earnings per share data.
F-11
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2.ACQUISITIONS
On January 1, 1996, pursuant to a Stock Purchase Agreement among the Company,
Nestle, and TPG Partners, L.P. (TPG), the Company acquired all of the then
outstanding common stock of Beringer Wine Estates Company from Nestle (the
"Beringer Acquisition"). The Company financed the acquisition through the
issuance of common and preferred stock (Notes 9 and 10), the issuance of senior
subordinated notes and the incurrence of long-term indebtedness under the
Company's credit agreement (Note 6) which eliminated short-term mezzanine
financing provided by the seller.
On April 1, 1996, pursuant to an Asset Purchase Agreement between the Company
and Suntory International Corporation (Suntory), the Company acquired the net
assets of Chateau St. Jean from Suntory (the "CSJ Acquisition"). On February
28, 1997, pursuant to a Stock and Asset Purchase Agreement between the Company
and Stags' Leap Winery, Inc., Stags' Leap Associates, and various individuals,
the Company acquired all of the outstanding common stock of Stags' Leap Winery,
Inc. and certain assets from Stags' Leap Associates and the various individuals
(the "SLW Acquisition").
Each acquisition has been accounted for using the purchase method of
accounting. The total cost of each acquisition follows (in thousands):
<TABLE>
<CAPTION>
BERINGER CSJ SLW
ACQUISITION ACQUISITION ACQUISITION
----------- ----------- -----------
<S> <C> <C> <C>
Cash paid, net of cash purchased............ $258,262 $29,312 $19,197
Amount due to seller........................ 95,762 -- 2,850
Acquisition costs........................... 17,036 1,864 1,154
-------- ------- -------
Total purchase price....................... $371,060 $31,176 $23,201
======== ======= =======
</TABLE>
The allocation of purchase price to the assets acquired and liabilities
assumed has been made using estimated fair values at the applicable dates of
acquisition based on independent appraisals and on studies performed by
management. The purchase price allocations are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
BERINGER CSJ SLW
ACQUISITION ACQUISITION ACQUISITION
----------- ----------- -----------
<S> <C> <C> <C>
Fair market value of assets acquired, net
of cash purchased:
Accounts receivable..................... $ 20,169 $ 2,627 $ 813
Inventories............................. 231,489 23,057 20,046
Property, plant and equipment........... 178,557 10,942 12,300
Other................................... 17,153 2,360 740
-------- ------- -------
447,368 38,986 33,899
Fair value in excess of purchase price
offset against
non-current assets acquired.............. -- (5,750) (7,388)
Liabilities assumed....................... (21,436) (400) (173)
Deferred tax liabilities.................. (54,872) (1,660) (3,137)
-------- ------- -------
$371,060 $31,176 $23,201
======== ======= =======
</TABLE>
Results of operations of the CSJ Acquisition and SLW Acquisition are included
in the Consolidated Statements of Operations since their respective acquisition
dates. The following pro forma unaudited
F-12
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
information has been prepared assuming that the CSJ Acquisition had taken place
on July 1, 1995 and the SLW Acquisition had taken place on July 1, 1996 (in
thousands, except per share data):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED SIX MONTHS YEAR ENDED
DECEMBER 31, ENDED JUNE JUNE 30,
1995 30, 1996 1997
------------ ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net revenues............ $118,072 $133,312 $273,730
Operating income (loss). 15,574 (6,310) 11,790
Net loss allocable to
common stockholders.... 6,120 (13,734) (11,486)
Loss per share.......... -- $ (1.25) $ (0.94)
</TABLE>
The pro forma results have been prepared for comparative purposes only and
include adjustments for increased costs of sales as a result of the step-up to
fair value in the basis of the inventory acquired, increased interest expense
on acquisition debt, and adjustments to depreciation based on the fair market
value of the property, plant and equipment acquired. This pro forma financial
information is not necessarily indicative of the results of operations that
would have occurred had the transactions been effected on the assumed dates.
3.INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1996 1997
-------- --------
<S> <C> <C>
Bulk wine.................................................... $114,882 $ 89,890
Cased goods and retail....................................... 77,867 104,485
Crop costs and supplies...................................... 15,320 19,722
-------- --------
$208,069 $214,097
======== ========
</TABLE>
Included in inventories at June 30, 1996 and 1997 is $76,199,000 and
$47,468,000, respectively, of step-up remaining from the acquisitions (Notes 2
and 14). During the six month period ended June 30, 1996 and the year ended
June 30, 1997, inventories at their respective acquisition dates that had
absorbed $32,131,000 and $43,308,000, respectively, of step-up were sold and
recorded in cost of goods sold.
4.PROPERTY, PLANT AND EQUIPMENT
The cost and accumulated depreciation of property, plant and equipment
consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------------
1996 1997
-------- --------
<S> <C> <C>
Land........................................................ $ 58,736 $ 66,562
Vineyards................................................... 37,517 56,462
Machinery and equipment..................................... 47,138 51,920
Buildings................................................... 25,809 27,856
Leasehold improvements...................................... 7,455 7,676
Furniture and fixtures...................................... 1,491 1,668
Vineyards under development................................. 7,168 10,648
Construction in progress.................................... 1,466 2,783
-------- --------
186,780 225,575
Less accumulated depreciation............................... (4,260) (13,197)
-------- --------
$182,520 $212,378
======== ========
</TABLE>
F-13
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Included in fixed assets are $1,081,000, $636,000, $603,000 and $306,000 of
interest capitalized for the years ended June 30, 1995 and 1997, and for the
six months ended December 31, 1995 and June 30, 1996, respectively. All
property, plant and equipment is pledged as collateral for amounts owing under
the Credit Agreement and Notes Agreement (Note 6).
5.OTHER ASSETS
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------
1996 1997
------ ------
<S> <C> <C>
Loan fees....................................................... $4,844 $5,240
Prepaid lease costs and other................................... 839 2,579
------ ------
5,683 7,819
Less accumulated amortization................................... (249) (742)
------ ------
$5,434 $7,077
====== ======
</TABLE>
6.LONG-TERM DEBT AND LINE OF CREDIT AGREEMENT
In connection with the acquisition of the Company in January 1996, the
Company entered into a Credit Agreement with several financial institutions and
sold senior subordinated notes (Notes Agreement) to certain investors. In
connection with the sale of the senior subordinated notes, the investors also
received 308,294 and 123,318 Class A and Class B Stock Warrants, respectively
(Note 11).
The Credit Agreement provides for a senior secured credit facility consisting
of a term loan with two separate tranches and a secured revolving line of
credit for working capital advances and standby letters of credit. The line of
credit expires on January 16, 2001 and has a maximum credit available of
$150,000,000. The maximum credit available will be reduced if the value or
amount of certain assets of the Company which determine the borrowing base for
the line of credit fall below specified levels. The maximum credit available
will also be reduced to the extent of any outstanding amounts due to growers.
At June 30, 1996 and 1997, the Company had drawn $86,000,000 and $104,000,000
on the credit line. Also, at June 30, 1997, the Company had an outstanding
letter of credit related to a vineyard lease for $3,500,000. Unused
availability under the credit line was therefore $42,500,000 at June 30, 1997.
Interest under the credit line, which is payable quarterly, accrues at a rate
determined under various bank interest programs (7.94% to 8.69% at June 30,
1997). The Company may, at its option, elect to convert all or any portion of
outstanding indebtedness under the line of credit to a fixed interest rate. The
Company must pay a quarterly commitment fee equal to 0.50% per annum of the
average daily amount by which the maximum credit available exceeds the
outstanding balance on the credit line.
F-14
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1997
--------- ---------
<S> <C> <C>
Term loan, Tranche B; secured by all properties;
interest rates determined under various bank interest
programs (7.61% to 8.38% at June 30, 1997); interest
payable quarterly; principal payable quarterly
commencing April 1, 1997; due July 16, 2005........... $150,000 $161,684
Term loan, Tranche A; secured by all properties;
interest rates determined under various bank interest
programs (7.41% to 8.32% at June 30, 1997); interest
payable quarterly; principal payable quarterly
commencing April 1, 1999; due July 16, 2005........... 20,000 20,000
Senior subordinated notes, less unamortized original
issue discount of $1,756,000 and $1,572,000 at June
30, 1996 and 1997, respectively; secured by all
properties; subordinated to both term loans and
amounts outstanding under the line of credit; interest
at 12.50%; interest payable quarterly; due January 10,
2006.................................................. 33,244 33,428
--------- ---------
203,244 215,112
Less current portion................................... (816) (3,714)
--------- ---------
$202,428 $211,398
========= =========
</TABLE>
Aggregate annual maturities of long-term debt at June 30, 1997 are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
- -----------
<S> <C>
1998.................................................................. $ 3,714
1999.................................................................. 4,155
2000.................................................................. 4,926
2001.................................................................. 5,330
2002.................................................................. 5,766
Thereafter............................................................ 192,793
--------
216,684
Less unamortized original issue discount.............................. (1,572)
--------
$215,112
========
</TABLE>
The terms of the Credit Agreement and the Notes Agreement contain, among
other provisions, requirements for maintaining certain working capital and
other financial ratios, and limit the Company's ability to pay dividends,
merge, alter the existing capital structure, incur indebtedness and acquire or
sell assets. The Credit Agreement contains provisions requiring prepayment of
a portion of the outstanding principal balance based on certain defined excess
cash flow calculations. The bank has waived this provision as it relates to the
June 30, 1996 and 1997 calculations.
Prior to January 16, 2000, the Company may at its option redeem the Senior
Subordinated Notes (Notes), in whole or in part, at a redemption price equal to
the sum of the aggregate principal amount of the Notes being redeemed plus
accrued and unpaid interest to the date of redemption, plus a penalty equal to
the present value of the originally scheduled principal and related interest
thereon, through the original maturity date, in excess of the amount of
principal being redeemed. Between January 16, 2000 and 2005, the Company may at
its option redeem the Notes, in whole or in part, at
F-15
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
a redemption price equal to the sum of the aggregate principal amount of the
Notes being redeemed multiplied by a redemption price factor which declines
from 106.9% at January 16, 2000 to 100.0% at January 16, 2005, plus accrued and
unpaid interest to the date of redemption. Additionally, within thirty days
after the closing of an initial public offering, the Company at its option may
redeem up to 50% of the outstanding Notes at a redemption price equal to the
sum of the aggregate principal amount of the Notes being redeemed multiplied by
a redemption price factor which declines from 110% to 107% from January 16,
1996 to 2000, plus accrued and unpaid interest to the date of redemption.
7.EMPLOYEE BENEFIT PLANS
Through December 31, 1995, the Company participated in Nestle's defined
benefit pension plan and 401(k) savings plan. Costs (charged by Nestle)
relating to participation in the defined benefit pension plan totaled $543,000
and $271,000 for the year ended June 30, 1995 and the six months ended December
31, 1995. Contributions by the Company for the year ended June 30, 1995 and the
six months ended December 31, 1995 to the 401(k) savings plan totaled $338,000
and $175,000, respectively. These plans were terminated on January 1, 1996 in
connection with the acquisition of the Company (Note 2).
On January 1, 1996, the Company established a new 401(k) savings plan which
covers substantially all employees of the Company. Under this plan, employees
can elect to contribute up to 15% (subject to certain limits prescribed by tax
law) of their annual pay to the plan. The Company makes a matching contribution
of $.50 for every dollar the employees contribute to the plan up to 6% of the
employee's pay. The Company may also make an annual contribution to the plan
solely at the discretion of the Board of Directors of the Company. Employees
are immediately 100% vested in the Company's matching contributions and vest
ratably over four service years in any discretionary contributions made by the
Company. Contributions by the Company for the six months ended June 30, 1996
and for the year ended June 30, 1997 totaled $616,000 and $910,000,
respectively, including discretionary contributions of $384,000 and $500,000,
respectively.
8.INCOME TAXES
The Company has recorded its provision for income taxes and deferred tax
balances as if it were a stand alone entity for the year ended June 30, 1995
and the six months ended December 31, 1995. Prior to the sale of the Company on
January 1, 1996, the Company's accounts were included with Nestle for tax
filing purposes. Accordingly, the Company's current income taxes at June 30,
1995 and December 31, 1995 are payable to Nestle. Nestle has indemnified the
Company for any future liabilities arising from prior year tax returns.
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31, 1995 JUNE 30, 1996 JUNE 30, 1997
------------- ----------------- ---------------- -------------
<S> <C> <C> <C> <C>
Current provision:
Federal................ $ 9,223 $4,269 $ 741 $ 6,617
State.................. 2,624 1,144 196 1,903
------- ------ ------- -------
11,847 5,413 937 8,520
------- ------ ------- -------
Deferred provision (ben-
efit):
Federal................ 1,134 657 (6,936) (12,100)
State.................. 388 311 (1,994) (3,496)
------- ------ ------- -------
1,522 968 (8,930) (15,596)
------- ------ ------- -------
$13,369 $6,381 $(7,993) $(7,076)
======= ====== ======= =======
</TABLE>
F-16
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income tax provision (benefit) differs from the amount computed by
multiplying the statutory federal income tax rate times income (loss) before
income taxes, due to the following:
<TABLE>
<CAPTION>
SIX
YEAR SIX MONTHS MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, JUNE 30,
1995 1995 1996 1997
-------- ------------ -------- --------
<S> <C> <C> <C> <C>
Federal statutory tax (benefit) rate... 35.0% 35.0% (35.0%) (35.0%)
State income taxes, net of federal ben-
efit.................................. 6.7% 6.3% (6.7%) (8.3%)
Amortization of tax basis goodwill..... -- -- (5.3%) (14.7%)
Amortization of book basis goodwill.... 2.2% 2.3% -- --
Other.................................. 0.5% 0.5% 0.9% 1.5%
----- ----- ------ ------
44.4% 44.1% (46.1%) (56.5%)
===== ===== ====== ======
</TABLE>
The approximate effect of temporary differences that give rise to deferred
tax balances are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------------
1996 1997
-------- --------
<S> <C> <C>
Gross deferred tax assets
Liabilities and accruals................................... $ 560 $ 4,338
State taxes................................................ 69 150
-------- --------
629 4,488
-------- --------
Gross deferred tax liabilities
Property, plant and equipment.............................. (32,189) (29,368)
Inventories................................................ (14,371) (8,592)
-------- --------
(46,560) (37,960)
-------- --------
Net deferred tax liabilities................................ $(45,931) $(33,472)
======== ========
</TABLE>
9.REDEEMABLE PREFERRED STOCK
The Company has authorized 2,000,000 shares of Series A Preferred Stock
(Preferred Stock) with a par value of $0.0001 per share. The Preferred Stock is
non-voting and senior to all other classes and series of the Company's stock.
The Preferred Stock has a semi-annual dividend rate per share of 7% of the
liquidation value of $100 per share. Dividends are cumulative and are accrued
and payable semi-annually from the date of issuance. All dividends on the
Preferred Stock are paid in additional shares of Preferred Stock for the first
ten payment dates. Thereafter, dividends shall be paid in cash to the extent
they do not cause an event of default under the Company's credit agreements.
The liquidation value of the Preferred Stock, in the event of an involuntary
conversion, is equal to the previously stated liquidation value of $100 per
share.
In January and September 1996, the Company issued 300,000 shares and 3,548
shares, respectively, of Preferred Stock, resulting in net proceeds to the
Company of $27,049,000 and $318,000, respectively. During the period ended June
30, 1996 and the year ending June 30, 1997 dividends to be paid in additional
shares of Preferred Stock amounting to 19,389 and 46,703 shares were accrued.
The Company may, at its option, redeem the Preferred Stock, in whole or in
part, at a redemption price per share equal to the liquidation value of $100
per share plus accrued and unpaid dividends to the date of redemption. The
Company is required to redeem all outstanding Preferred Stock in
F-17
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
January 2008 at a price per share equal to the liquidation value of $100 per
share plus accrued and unpaid dividends to the date of redemption.
10.COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
The Company has authorized 2,000,000 shares of Class A Common Stock, par
value $0.01 per share, and 38,000,000 shares of Class B Common Stock, par value
$0.01 per share. Each share of Class A Common Stock is entitled to twenty votes
and each share of Class B Common Stock is entitled to one vote on all matters
submitted to a vote of the stockholders of the Company. Generally, all matters
to be voted upon by stockholders must be approved by a majority of the votes
entitled to be cast by all shares of Class A Common Stock and Class B Common
Stock, voting together as a single class. Holders of Class A Common Stock and
Class B Common Stock are entitled to receive ratably such dividends, if any, as
may be declared by the Board of Directors, subject to preferences applicable to
any then outstanding preferred stock. In the event of liquidation, dissolution
or winding up of the Company, holders of the Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities and the
liquidation preference of any then outstanding preferred stock (Note 9).
The Class A Common Stock is convertible at the option of the holder, on a
one-for-one basis, into shares of Class B Common Stock. Additionally, in the
event the Company completes a public offering of not less than $50,000,000 and
is listed on a nationally recognized stock exchange, and upon the approval of a
majority of the shares of Class A Common Stock, the Class A stockholders can be
required to convert their shares into shares of Class B Common Stock on a one-
for-one basis.
In January 1996, the Company issued 938,000 shares and 9,058,590 shares,
respectively, of Class A Common Stock and Class B Common Stock, resulting in
net proceeds to the Company of $49,692,000, net of notes receivable from
stockholders of $340,000. In March 1996, the Company issued 945,000 shares of
Class B Common Stock, resulting in net proceeds to the Company of $4,725,000.
In September 1996, the Company issued 11,980 shares and 224,380 shares,
respectively, of Class A Common Stock and Class B Common Stock, resulting in
net proceeds to the Company of $825,000, net of notes receivable from
stockholders of $356,000. In March 1997, the Company issued 833,334 shares of
Class B Common Stock, resulting in net proceeds to the Company of $4,955,000,
net of notes receivable from stockholders of $46,000.
In lieu of cash compensation, the Company has also issued 6,000 and 18,908
shares of Class B Common Stock to Directors for the six month period ended
June 30, 1996 and the year ended June 30, 1997, respectively.
Notes receivable from stockholders, who are also employees of the Company,
bear interest at the prime rate (8.25% and 8.50% at June 30, 1996 and 1997,
respectively), are due ten years from their date of issuance, and are secured
by the underlying security. The notes become due upon termination of the
holders' employment or upon sale of the underlying security.
11. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
The Company has a stock option plan and two option agreements and is in the
process of formalizing an employee stock purchase plan that are described
below. The Company applies APB 25 and related Interpretations in accounting for
its plans. No compensation cost has been recognized for its stock option plans
because grants have been made at exercise prices at or above estimated fair
market value of the common stock.
F-18
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The fair value of the common stock on the date of grant for 1,264,000 of the
1,434,000 total options granted under its stock option plan and option
agreements approximated $5-$6 per share, which was determined based on the
approximate purchase value for the Company on January 1, 1996 (Note 2). The
remaining options were granted at exercise prices ranging from $6 to $30 per
share. Had the minimum value of the options been calculated in accordance with
FAS 123, net loss allocable to common stockholders would have been $11,786,000
and $10,594,000, respectively, and loss per share would have been $(1.07) and
$(0.87), respectively, for the period ended June 30, 1996 and the period ended
June 30, 1997.
For purposes of calculating compensation cost under FAS 123, the minimum fair
value of each option grant is estimated on the date of grant using the Black-
Scholes option-pricing model with the following weighted-average assumptions
used for grants in fiscal 1996 and 1997, respectively: dividend yield of 0% for
all years; expected volatility of 0% for all years; risk-free interest rates of
5.56% and 6.66%; and, expected lives of three to seven years for all years.
STOCK OPTION PLANS
The Company has one option plan and two option agreements: the 1996 Stock
Option Plan, the MAR Stock Option Agreement and the Silverado Stock Option
Agreement. Each was approved in 1996.
Under the 1996 Stock Option Plan, the Company is authorized to grant both
incentive and non-qualified stock options for up to 705,604 shares of Class B
Common Stock. Options vest over five years and expire after ten years from the
date of grant. The vested portion of each option may only be exercised during
the one-month period from December 15 of the applicable calendar year through
January 15 of the next calendar year. The Company has granted 676,446 stock
options under this plan at June 30, 1997.
Under the MAR Stock Option Agreement, the Company is authorized to grant
stock options for up to 60,000 shares of Class B Common Stock. Each option is
immediately vested from the date of grant and no option will be exercisable
after ten years from the date of grant. The Company has granted 60,000 stock
options under this agreement at June 30, 1997. In August 1997, all 60,000 of
the outstanding stock options were exercised.
Under the Silverado Stock Option Agreement, the Company is authorized to
grant both incentive and non-qualified stock options for up to 697,980 shares
of Class B Common Stock. Each option is immediately vested from the date of
grant and will expire after ten years from the date of grant. Each option may
only be exercised during the one-month period from December 15 of the
applicable calendar year through January 15 of the next calendar year. The
Company has granted 697,980 stock options under this agreement at June 30,
1997.
F-19
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Information regarding these option plans for the fiscal years 1996 and 1997
is as follows:
<TABLE>
<CAPTION>
OPTION SHARES OUTSTANDING
------------------------------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE OPTIONS EXERCISE OPTIONS
FOR GRANT GRANTED PRICE EXERCISABLE
---------- --------- -------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1996........... -- -- --
Options authorized................... 1,263,584 --
Options granted...................... (1,203,584) 1,203,584 $5.58
---------- ---------
Balance at June 30, 1996............. 60,000 1,203,584 $5.58 697,980
Options authorized................... 200,000
Options granted...................... (230,842) 230,842 $9.71
---------- ---------
Balance at June 30, 1997............. 29,158 1,434,426 $6.25 875,134
========== =========
</TABLE>
The weighted average exercise price of options exercisable at June 30, 1996
and 1997 was $6.00, and $5.80 per share, respectively. Since inception of the
option plans, through June 30, 1997, no options have been exercised or
forfeited or have expired. At June 30, 1997, a total of approximately 1,463,584
shares of Class B Common Stock have been reserved for issuance under the
Company's stock option plans.
The following table summarizes information about options outstanding at June
30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTURAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
-------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
$5-$6 1,394,426 8.7 $ 5.35 875,134 $5.80
$30 40,000 9.9 $30.00 --
--------- -------
1,434,426 875,134
========= =======
</TABLE>
Pending approval by the stockholders, the Company has adopted the 1998 Stock
Option Plan and has reserved 200,000 shares of Class B Common Stock for
issuance thereunder. The plan provides the Board of Directors the authorization
to grant both incentive and non-qualified stock options to selected employees
at an exercise price not less than 100% of the fair market value on the date of
grant. The options will vest over a period determined on the date of grant and
will expire after ten years from the date of grant.
STOCK WARRANTS
In connection with the sale of the senior subordinated notes (Note 6), the
Company issued 308,294 and 123,318, respectively, of detachable Series A and
Series B Stock Warrants to the senior subordinated note holders. The warrants
were allocated an imputed fair value of $1,848,000 on the date of issuance,
resulting in a discount in face amount of the senior subordinated notes, using
the Black--Scholes Option pricing model with the following weighted average
assumptions: dividend yield of 0%; expected volatility of 45%; risk free
interest rate of 5.23%; and an expected life of 10 years. Each Series A and
Series B Stock Warrant provides the holder the right to purchase one share of
Class B Common Stock in exchange for one Series A or Series B Stock Warrant
plus one cent. The Series A and Series B Stock Warrants are exercisable at any
time through January 2006, with the right
F-20
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
to exercise terminating in the event the Company completes a public offering of
not less than $50,000,000 and is listed on a nationally recognized stock
exchange.
EMPLOYEE STOCK PURCHASE PLAN
Pending approval by the stockholders, the Company has adopted the 1997
Employee Stock Purchase Plan (ESPP) and has reserved 200,000 shares of Class B
Common Stock for issuance under the ESPP. The ESPP allows eligible employees
the right to purchase Class B Common Stock at the lower of 85% of the fair
value on the date the Company grants the right to purchase or 85% of the fair
value on the date of purchase. Employees, through payroll deductions of no more
than 15% of their base compensation, subject to certain other limits, may
exercise their rights to purchase for the period specified in the related
offering. All expenses incurred in connection with the implementation and
administration of the ESPP will be paid by the Company.
12.RELATED PARTY TRANSACTIONS
The Company regularly enters into transactions with related parties on terms
which management believes are similar to like transactions with third parties.
The Company recorded rent expense of $768,000, $948,000, $384,000 and
$384,000 for the years ended June 30, 1995 and 1997, and for the six months
ended December 31, 1995 and June 30, 1996, respectively, related to the lease
of warehouse space from a partnership consisting of directors and employees of
the Company.
Minimum rental payments under this non-cancelable operating lease at June 30,
1997 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- --------------------
<S> <C>
1998..................................................................... $ 948
1999..................................................................... 948
2000..................................................................... 948
2001..................................................................... 948
2002..................................................................... 1,152
Thereafter............................................................... 4,608
------
$9,552
======
</TABLE>
The Company had a note receivable due upon demand from Pressoir Deutz
totaling $930,000 at June 30, 1996, bearing interest at 9%. By mutual
agreement, the amount was offset against the Company's trade payable to
Pressoir Deutz for purchased sparkling wine during fiscal 1997.
During the years ended June 30, 1995 and 1997, and for the six months ended
December 31, 1995 and June 30, 1996, the Company purchased sparkling wine from
Pressoir Deutz totaling $1,271,000, $2,563,000, $1,137,000 and $458,000,
respectively. The amount due to Pressoir Deutz for these purchases at June 30,
1996 totaled $240,800 and is included in accounts payable-trade in the
consolidated balance sheets. No amount was due at June 30, 1997.
During the years ended June 30, 1995 and 1997, and for the six months ended
December 31, 1995 and June 30, 1996, the Company incurred fees for cork
processing to Calcork totaling $298,000, $466,000, $169,000 and $88,000,
respectively. No amounts are due to Calcork at June 30, 1996 and 1997 for these
services.
F-21
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During its ownership, Nestle provided management, legal, tax and other
services to its subsidiaries. These services were allocated by Nestle to its
subsidiaries, including Beringer Wine Estates Company, based on estimated
annual usage. Management believes that the basis of allocation was reasonable
and does not believe that expenses that would have been incurred on a stand-
alone basis would be materially different from the allocated amount. These
expenses are included in general and administrative expense and totaled
$1,934,000 and $950,000 for the year ended June 30, 1995 and the six months
ended December 31, 1995, respectively.
In addition to the aforementioned services, the Company also regularly
borrowed monies from Nestle for capital and operating requirements. The amount
due Nestle at December 31, 1995 totaled $95,762,000, bearing interest at 7% per
annum, and was due upon demand. This amount was repaid as part of the purchase
price paid to Nestle. At June 30, 1996, there was $4,024,000 of purchase price
remaining outstanding which was paid in August 1996.
13.COMMITMENTS AND CONTINGENCIES
In addition to the related party leases disclosed in Note 11, the Company
leases some of its office space, warehousing facilities, vineyards and
equipment under non-cancelable and month-to-month operating leases. Certain of
these leases have options to renew. Rental cost under these operating leases
amounted to $5,862,000, $9,578,000, $3,434,000 and $4,111,000, respectively,
for the years ended June 30, 1995 and 1997, and for the six months ended
December 31, 1995 and June 30, 1996. Minimum rental payments under non-
cancelable operating leases at June 30, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- --------------------
<S> <C>
1998.................................................................... $ 7,929
1999.................................................................... 7,396
2000.................................................................... 7,370
2001.................................................................... 7,400
2002.................................................................... 6,491
Thereafter.............................................................. 21,119
-------
$57,705
=======
</TABLE>
The Company has contracted with various growers and certain wineries to
supply a significant portion of its future grape requirements and a portion of
its future bulk wine requirements. While most of these contracts call for
prices to be determined by market conditions, several contracts provide for
minimum grape purchase prices.
The Company is subject to litigation in the ordinary course of business. In
the opinion of management, after consultation with legal counsel, the ultimate
outcome of existing litigation will not have a material adverse effect on the
Company's consolidated financial condition, results of operations, or cash
flows.
F-22
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14.SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for income taxes were $4,516,000, $9,287,000, $2,297,000 and
$45,000 for the years ended June 30, 1995 and 1997, and for the six months
ended December 31, 1995 and June 30, 1996, respectively. Cash payments for
interest, net of amounts capitalized, were $4,322,000, $24,128,000, $3,421,000
and $7,160,000 for the years ended June 30, 1995 and 1997, and for the six
months ended December 31, 1995 and June 30, 1996, respectively.
During the year ended June 30, 1997, the Company and Pressoir Deutz agreed to
offset the remaining balance ($930,000) of the note receivable from Pressoir
Deutz against the Company's payable to Pressoir Deutz for purchased sparkling
wine (Note 11). During the six months ended June 30, 1996, in connection with
the acquisition (Note 2), the Company extinguished a liability for acquisition
costs of $3,500,000 through the issuance of shares of common stock. The Company
declared a dividend of $5,000,000 to Nestle during the six months ended
December 31, 1995. The dividend was added to the amount due to Nestle. During
the year ended June 30, 1995, the Company and Nestle agreed to reclassify a
note payable to it totalling $693,000 to additional paid-in-capital.
F-23
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company has agreed to sell to each of the U.S. Underwriters named below,
and each of such U.S. Underwriters for whom Goldman, Sachs & Co., Donaldson,
Lufkin & Jenrette Securities Corporation, Hambrecht & Quist LLC and Smith
Barney Inc. are acting as representatives (the "Representatives"), has
severally agreed to purchase from the Company, the respective number of shares
of Class B Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
CLASS B
UNDERWRITER COMMON STOCK
----------- ------------
<S> <C>
Goldman, Sachs & Co. ...........................................
Donaldson, Lufkin & Jenrette Securities Corporation.............
Hambrecht & Quist LLC...........................................
Smith Barney Inc. ..............................................
---------
Total......................................................... 3,400,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered
through them hereby, if any are taken.
The U.S. Underwriters propose to offer such shares of Class B Common Stock
in part directly to the public at the initial public offering price set forth
on the cover page of this Prospectus and in part to certain securities dealers
at such price less a concession of $ per share. The U.S. Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to certain brokers and dealers. After the shares of Class B Common Stock
are released for sale to the public, the offering price and other selling
terms may from time to time be varied by the Representatives.
The Company has entered into an underwriting agreement (the "International
Underwriting Agreement") with the underwriters of the international offering
(the "International Underwriters") providing for the concurrent offer and sale
of 850,000 shares of Class B Common Stock in an international offering outside
the United States. The initial public offering price and aggregate
underwriting discounts and commissions per share for the two offerings are
identical. The closing of the offering made hereby is a condition to the
closing of the international offering, and vice versa. The representatives of
the International Underwriters are Goldman Sachs International, Donaldson,
Lufkin & Jenrette International, Hambrecht & Quist LLC and Smith Barney Inc.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of
the U.S. Underwriters named herein has agreed that, as a part of the
distribution of the shares of Class B Common Stock offered by them as part of
the U.S. offering and subject to certain exceptions, it will offer, sell or
deliver the shares of Class B Common Stock, directly or indirectly, only in
the United States of America (including the States and the District of
Columbia), its territories, its possessions and other areas subject to its
jurisdiction
U-1
<PAGE>
(the "United States") and to U.S. persons, which term shall mean, for purposes
of this paragraph, (i) any individual who is a resident of the United States
or (ii) any corporation, partnership or other entity organized in or under the
laws of the United States or any political subdivision thereof and whose
office most directly involved with the purchase is located in the United
States. Each of the International Underwriters has agreed pursuant to the
Agreement Between that, as a part of the distribution of the shares offered as
a part of the international offering, and subject to certain exceptions, it
will (i) not, directly or indirectly, offer, sell or deliver shares of Class B
Common Stock (a) in the United States or to any U.S. persons or (b) to any
person who it believes intends to reoffer, resell or deliver the shares in the
United States or to any U.S. persons, and (ii) cause any dealer to whom it may
sell such shares at any concession to agree to observe a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Class B Common Stock as may be mutually agreed. The price of any shares so
sold shall be the initial public offering price, less an amount not greater
than the selling concession.
The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of
336,000 additional shares of Class B Common Stock solely to cover over-
allotments, if any. If the U.S. Underwriters exercise their over-allotment
option, the U.S. Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares to be purchased by each of them, as shown in the foregoing
table, bears to the 3,400,000 shares of Class B Common Stock offered by the
U.S. Underwriters to the public hereby. The Company has granted the
International Underwriters a similar option to purchase up to an aggregate of
84,000 additional shares of Class B Common Stock.
The Company and certain stockholders who own in the aggregate 1,529,970
shares of Class A Common Stock and 11,697,837 shares of Class B Common Stock
have agreed that, during the period beginning from the date of this Prospectus
and continuing to and including the date 180 days after the date of this
Prospectus, they will not offer, sell, contract to sell or otherwise dispose
of any shares of Class A or Class B Common Stock or other securities of the
Company which are substantially similar to the shares of Class A or Class B
Common Stock or securities which are convertible or exchangeable into Class A
or Class B Common Stock or securities which are substantially similar to the
shares of Class A or Class B Common Stock without the prior written consent of
the Representatives, except for the shares of Class B Common Stock offered in
connection with the concurrent U.S. and international offerings.
In addition to the 4,250,000 shares of Class B Common Stock offered by the
U.S. and International Underwriters to the public, the Company is hereby
offering 600,000 shares of Class B Common Stock directly to holders of the
Series A Preferred Stock. The Underwriters will not participate in, or receive
any discount or commission on, any sale of such shares being sold by the
Company directly to such holders. The closing of the U.S. and international
offerings through the Underwriters is conditioned upon the closing of the
Company's direct offering of such 600,000 shares.
The Representatives have informed the Company that they do not expect sales
to accounts over which the Underwriters have discretionary authority to exceed
five percent of the total number of shares of Class B Common Stock offered by
them.
Prior to this offering, there has been no public market for the shares of
Class B Common Stock. The initial public offering price will be negotiated
among the Company, the Representatives and the representatives of the
International Underwriters. Among the factors to be considered in determining
the initial public offering price of the Class B Common Stock, in addition to
prevailing market conditions, are the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
U-2
<PAGE>
The Class B Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "BERW".
The Company has agreed to indemnify the several Underwriters against certain
liabilities including liabilities under the Securities Act of 1993.
In connection with this offering, the Underwriters may purchase and sell
shares of Class B Common Stock in the open market. These transactions may
include over-allotment and stabilizing transactions and purchases to cover
syndicate short positions created in connection with this offering.
Stabilizing transactions consist of certain bids or purchases for the purpose
of preventing or retarding a decline in the market price of the Class B Common
Stock; and syndicate short positions involve the sale by the Underwriters of a
greater number of shares of Class B Common Stock than they are required to
purchase from the Company in this offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the shares of Class B Common Stock sold in this
offering may be reclaimed by the syndicate if such shares are repurchased by
the syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Class B Common
Stock, which may be higher than the price that might otherwise prevail in the
open market; and these activities, if commenced, may be discontinued at any
time. These transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise.
Certain of the Underwriters have provided from time to time investment
banking services to TPG and certain of its affiliates (other than the
Company), for which such Underwriters have received customary fees and
commissions. Certain of the Underwriters expect to provide in the future
investment banking services to the Company and such affiliates, for which such
Underwriters will receive customary fees and commissions.
This Prospectus may be used by Underwriters and dealers in connection with
offers and sales of the Class B Common Stock, including shares initially sold
in the international offering to persons located in the United States.
U-3
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Dividend Policy........................................................... 13
The Company............................................................... 14
Use of Proceeds........................................................... 15
Capitalization............................................................ 16
Dilution.................................................................. 17
Selected Consolidated Financial Data...................................... 18
Supplemental Consolidated Financial Data.................................. 19
Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 20
Business.................................................................. 30
Management................................................................ 44
Certain Transactions...................................................... 49
Principal Stockholders.................................................... 52
Description of Capital Stock.............................................. 54
Description of Credit Agreement........................................... 57
Shares Eligible for Future Sale........................................... 60
Legal Matters............................................................. 62
Experts................................................................... 62
Additional Information.................................................... 62
Index to Consolidated Financial Statements................................ F-1
Underwriting ............................................................. U-1
</TABLE>
---------------
UNTIL , 1997 (THE 25TH DAY AFTER THE DATE OF THIS PROSPECTUS), ALL DEAL-
ERS EFFECTING TRANSACTIONS IN THE CLASS B COMMON STOCK, WHETHER OR NOT PARTIC-
IPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS OR WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,850,000 SHARES
BERINGER WINE
ESTATES HOLDINGS, INC.
CLASS B COMMON STOCK
(PAR VALUE $.01 PER SHARE)
--------------
[LOGO]
--------------
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
HAMBRECHT & QUIST
SMITH BARNEY INC.
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions. All amounts are estimated except the Securities and Exchange
Commission registration fee, the National Association of Securities Dealers,
Inc. filing fee and the Nasdaq Stock Market listing fee.
<TABLE>
<CAPTION>
PAYABLE BY
REGISTRANT
----------
<S> <C>
SEC registration fee............................................. $ 41,521
National Association of Securities Dealers, Inc. filing fee...... 12,621
Nasdaq Stock Market listing fee.................................. 50,000
Blue Sky fees and expenses....................................... 5,000
Accounting fees and expenses..................................... 400,000
Legal fees and expenses.......................................... 350,000
Printing and engraving expenses.................................. 200,000
Registrar and Transfer Agent's fees.............................. 15,000
Miscellaneous fees and expenses.................................. 19,602
----------
Total ......................................................... $1,100,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents for actions
taken by reason of that the fact that such person is or was an officer,
director or other corporate agent, if such person acted in good faith and in a
manner reasonably believed to be in, or not opposed to the best interests of
the Corporation and had no reason to believe the conduct to be unlawful. These
terms are sufficiently broad to indemnify such persons under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act of 1933, as amended (the "Act"). Article VII
of the Registrant's Restated Certificate of Incorporation (Exhibit 3.(i)1
hereto) and Article V of the Registrant's Bylaws (Exhibit 3.(ii)2 hereto)
provide for indemnification of the Registrant's directors, officers, employees
and other agents to the extent and under the circumstances permitted by the
Delaware General Corporation Law. The Registrant has also entered into
agreements with its directors and officers that will require the Registrant,
among other things, to indemnify them against certain liabilities that may
arise by reason of their status or service as directors or officers to the
fullest extent not prohibited by law.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by the
Underwriters of the Registrant, its directors and officers, and by the
Registrant of the Underwriters, for certain liabilities, including liabilities
arising under the Act, and affords certain rights of contribution with respect
thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since May 1995, the Registrant has sold and issued the following
unregistered securities (share numbers and dollar amounts do not reflect the
two-for-one split to be effected in connection with this offering):
(a) In May 1995, the Registrant sold 5,000 shares of Common Stock to
accredited investors for an aggregate consideration of $5,000 in cancellation
of indebtedness. The Registrant relied on the exemption provided by Rule 506
under Regulation D and Section 4(2) of the Act. In December 1995, these shares
were converted into an aggregate of 35,000 shares of Class A Common and
315,000 shares of Class B Common Stock in connection with the Acquisition.
II-1
<PAGE>
(b) In January 1996, the Registrant sold to accredited investors (i) 50,000
shares of Series A Preferred Stock at a price of $89.70 per share and 147,000
shares of Series A Preferred Stock at a price of $90.31 per share, (ii)
385,000 shares of Class A Common Stock at a price of $10.00 per share and
78,960 shares of Class A Common Stock at a price of $10.04 per share and (iii)
3,721,930 shares of Class B Common Stock at a price of $10.00 per share and
758,940 shares of Class B Common Stock at a price of $10.04 per share, for an
aggregate consideration of $67,242,301. The Registrant relied on the exemption
provided by Rule 506 under Regulation D and Section 4(2) of the Act.
(c) In January 1996, the Registrant sold to certain employees (i) 3,000
shares of Series A Preferred Stock at a price of $90.31 per share, (ii) 5,040
shares of Class A Common Stock at a price of $10.04 per share and (iii) 48,443
of Class B Common Stock at a price of $10.04 per share, for an aggregate
consideration of $807,850. The Registrant relied on the exemption provided for
by Rule 701 under the Act and Section 4(2) of the Act.
(d) In January 1996, the Registrant issued warrants to purchase 215,806
shares of Class B Common Stock to accredited investors at an exercise price of
$.01, in partial consideration for such accredited investors' lending
$35,000,000 to the Registrant in exchange for subordinated notes of equal
value. The Registrant relied on the exemption provided by Rule 506 under
Regulation D and Section 4(2) of the Act.
(e) In January 1996, the Registrant sold an option to purchase 348,990
shares of Class B Common Stock, at an exercise price of $12.00 to accredited
investors at a price of $.05 per share, for an aggregate consideration of
$17,450. The Registrant relied on the exemption provided by Section 4(2) of
the Act.
(f) In March 1996, the Registrant sold a total of 472,500 shares of Class B
Common Stock to accredited investors at a price of $10.00 per share, for an
aggregate consideration of $4,725,000. The Registrant relied on the exemption
provided by Rule 506 under Regulation D and Section 4(2) of the Act.
(g) In September 1996, the Registrant sold to certain employees (i) 3,548
shares of Series A Preferred Stock at a price of $89.70 per share, (ii) 5,990
shares of Class A Common Stock at a price of $10.00 per share and (iii)
112,190 shares of Class B Common Stock at a price of $10.00 per share, for an
aggregate consideration of $1,500,000. The Registrant relied on the exemption
provided for by Rule 701 under the Act and Section 4(2) of the Act.
(h) In February 1997, the Registrant sold 389,717 shares of Class B Common
Stock to accredited investors at a price of $12.00 per share, for an aggregate
consideration of $4,676,604. The Registrant relied on the exemption provided
by Rule 506 under Regulation D and Section 4(2) of the Act.
(i) In February 1997, the Registrant sold 26,950 shares of Class B Common
Stock to employees at a price of $12.00 per share, for an aggregate
consideration of $323,400. The Registrant relied on the exemption provided for
by Rule 701 under the Act and Section 4(2) of the Act.
(j) On August 15, 1997, the Registrant issued 30,000 shares of Class B
Common Stock pursuant to the exercise of an option granted to a consultant of
the Company. The Company relied on the exemption provided for by Section 4(2)
of the Act. The option was exercised at $10.00 per share for aggregate
consideration of $300,000.
The recipients of the above-described securities represented their intention
to acquire the securities for investment only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock
certificates and warrants issued in such transactions. All recipients had
adequate access, through employment or other relationships, to information
about the Registrant.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1** Form of Underwriting Agreement.
2.1** Stock Purchase Agreement by and among Nestle Holdings, Inc., NOTG
Holdings, Inc., Silverado Partners Acquisition Corp. and TPG
Partners, L.P., dated as of November 17, 1995, as amended on
December 28, 1995.
3.(i)1** Certificate of Incorporation.
3.(i)2** Certificate of Amendment of Certificate of Incorporation as filed
with the Secretary of State of the State of Delaware on October 2,
1997.
3.(i)3** Form of Restated Certificate of Incorporation, to be filed upon the
closing of the offering to which this Registration Statement
relates.
3.(ii)1** Bylaws of the Registrant.
4.1** Form of Common Stock Certificate.
5.1** Legal opinion of Pillsbury Madison & Sutro LLP.
10.1** Registrant's 1996 Stock Option Plan ("1996 Stock Plan").
10.2** Form of Incentive Stock Option Agreement under the 1996 Stock Plan.
10.3** Form of Nonstatutory Stock Option Agreement under the 1996 Stock
Plan.
10.4** Registrant's Employee Stock Purchase Plan.
10.5** Registrant's 1998 Stock Option Plan.
10.6** Form of Indemnity Agreement between the Registrant and its officers
and directors.
10.7** Second Amended and Restated Credit Agreement between Beringer Wine
Estates Company and Pacific Coast Farm Credit Services, ACA, as
agent on behalf of several lenders, dated as of February 28, 1997.
10.7(a)** First Amendment, dated as of October 1, 1997, to Second Amendment
and Restated Credit Agreement dated as of October 1, 1997 between
Beringer Wine Estates Company and Pacific Coast Farm Credit
Services, ACA, as agent on behalf of several lenders, dated as of
February 28, 1997.
10.8** Amended and Restated Stockholders Rights Agreement and Voting
Agreement by and between the Registrant and certain holders of the
Registrant's Common Stock, dated as of June 7, 1996.
10.9** Wine Distributorship Agreement between Registrant and Southern Wine
& Spirits of America, Inc. effective as of October 1, 1996, as
amended.+
10.10** Grape, Juice and Wine Purchase Agreement between Delicato Vineyards
and the Registrant dated December 31, 1996.+
10.11** Five Year Evergreen Contract for White Zinfandel Wine from Lodi
between Registrant and Bronco Wine Company dated May 15, 1997, as
revised June 3, 1997.+
10.12** Form of Silverado Option Agreement.
11.1** Statement Regarding Computation of Per Share Earnings.
21.1** Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP (included on page II-7 of this
Registration Statement).
23.2** Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 5.1).
23.3 Consent of Gomberg, Fredrikson & Associates.
23.4 Consent of the Wine Spectator magazine.
23.5 Consent of Information Resources, Inc.
24.1** Power of Attorney.
27.1** Financial Data Schedule.
</TABLE>
- --------
+ Confidential Treatment requested with respect to certain portion of these
agreements.
** Previously filed.
II-3
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II Valuation and Qualifying Accounts
Schedules other than those referred to above have been omitted because they
are not applicable or not required or because the information is included
elsewhere in the Financial Statements or the notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Act shall be deemed to be part of this registration statement as of the time
it was declared effective.
(2) For the purpose of determining any liability under the Act, each post-
effective amendment that contains a form of prospectus shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) It will provide to the underwriters at the closing(s) specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of St.
Helena, State of California, on the 15th day of October, 1997.
BERINGER WINE ESTATES HOLDINGS, INC.
/s/ Douglas W. Roberts
By __________________________________
Douglas W. Roberts
Vice President, General Counsel
and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
* President and Chief October 15, 1997
____________________________________ Executive Officer
Walter T. Klenz (Principal Executive
Officer) and Chairman of
the Board
* Senior Vice President, October 15, 1997
____________________________________ Finance and Operations and
Peter F. Scott Chief Financial Officer
(Principal Financial
Officer and Accounting
Officer)
* Director October 15, 1997
____________________________________
James G. Coulter
* Director October 15, 1997
____________________________________
William S. Price III
* Director October 15, 1997
____________________________________
Richard Adams
* Director October 15, 1997
____________________________________
David Bonderman
* Director October 15, 1997
____________________________________
Randy Christofferson
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
* Director October 15, 1997
____________________________________
Timm F. Crull
* Director October 15, 1997
____________________________________
William A. Franke
* Director October 15, 1997
____________________________________
E. Michael Moone
* Director October 15, 1997
____________________________________
Jesse Rogers
* Director October 15, 1997
____________________________________
George A. Vare
*By: /s/ Douglas W. Roberts
______________________________
Douglas W. Roberts
</TABLE>
II-6
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of
Amendment No. 3 to this Registration Statement on Form S-1 (No. 333-34443) of
our report dated September 24, relating to the financial statements of
Beringer Wine Estates Holding, Inc., which appears in such Prospectus. We also
consent to the application of such report to the Financial Statement Schedules
for the years ended June 30, 1995 and 1997 and the six month periods ended
December 31, 1995 and June 30, 1996 listed under Item 16(b) of Amendment No. 3
to this Registration Statement when such schedules are read in conjunction
with the financial statements referred to in our report. The audits referred
to in such report also included these schedules. We also consent to the
references to us under the headings "Experts" and "Selected Consolidated
Financial Data" in such Prospectus. However, it should be noted that Price
Waterhouse LLP has not prepared or certified such "Selected Consolidated
Financial Data."
PRICE WATERHOUSE LLP
San Francisco, California
October 14, 1997
II-7
<PAGE>
CONSENT OF GOMBERG, FREDRIKSON & ASSOCIATES
Gomberg, Fredrikson & Associates hereby consents to the references to it in
the Prospectus of Beringer Wine Estates Holdings, Inc. constituting part of the
Registration Statement.
Gomberg, Fredrikson & Associates
/s/ Jon A. Fredrikson
-------------------------------------
Jon A. Fredrikson
October 13, 1997
<PAGE>
CONSENT OF WINE SPECTATOR
The Wine Spectator Magazine hereby consents to the references to it in the
Prospectus of Beringer Wine Estates Holdings, Inc. at pages 3, 14, 30, 31, 36,
37 and 38.
Wine Spectator
/s/ Niki Singer
-------------------------------------
Niki Singer
Senior Vice President
October 13, 1997
<PAGE>
Exhibit 23.5
CONSENT OF INFORMATION RESOURCES, INC.
Information Resources, Inc. ("IRI") hereby consents to the inclusion of the
market information attached provided by IRI to Beringer Wine Estates, Co. (the
"Company") in the Registration Statement of the Company relating to the public
offering of common stock which also constitutes the prospectus included as part
of the Registration Statement, including all amendments thereto.
The Company acknowledges that IRI compiles the data received by it from
supermarkets and other retail outlets. As a result, IRI cannot guarantee the
accuracy or completeness of such data. IRI MAKES NO REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, AS TO THE MERCHANTIBILITY OR FITNESS FOR A
PARTICULAR PURPOSE OF THE DATA OR RESULTS TO BE OBTAINED BY THE COMPANY OR
OTHERS FROM THE USE OF THE DATA.
The Company hereby agrees to indemnify IRI for any third party claims that may
arise out of the use of the Data in the Registration Statement. IN NO EVENT
SHALL IRI BE LIABLE TO THE COMPANY FOR ANY DAMAGES, WHETHER DIRECT, INDIRECT,
SPECIAL OR CONSEQUENTIAL, ARISING OUT OF OR IN CONNECTION WITH THE FURNISHING BY
IRI OF THE DATA TO COMPANY AS SET FORTH HEREIN.
This Consent will not be valid unless signed by both parties
INFORMATION RESOURCES, INC.
BY: /s/ Jenny DuBrucq
-----------------------------------
TITLE: VP - Client Services
BERINGER WINE ESTATES, CO.
BY: /s/ Douglas W. Roberts
-----------------------------------
TITLE: VICE PRESIDENT, GENERAL COUNSEL
& SECRETARY
Dated as of: October 14, 1997
