<PAGE>
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998 COMMISSION FILE NUMBER: 000-
23175
BERINGER WINE ESTATES HOLDINGS, INC.
INCORPORATED IN DELAWARE I.R.S. EMPLOYER IDENTIFICATION:
68-0370340
PRINCIPAL EXECUTIVE OFFICES:
1000 PRATT AVENUE
ST. HELENA, CALIFORNIA 94574
(707) 963-7115
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
CLASS B COMMON STOCK
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed under Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirement for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or informational
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [X]
As of August 31, 1998 there were issued and outstanding (i) 1,373,420 shares
of Class A Common Stock and (ii) 18,044,606 shares of Class B Common Stock.
The aggregate market value of the registrant's voting stock held by non-
affiliates was $242,596,756 as of August 31, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for its Annual
Meeting of Shareholders to be held on November 5, 1998, including Item 10 (as
to Directors), 11, 12 and 13 are incorporated by reference into Part III of
this report.
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<PAGE>
PART I
ITEM 1. BUSINESS INTRODUCTION
Beringer Wine Estates Holdings, Inc. ("we", "us" and "our" below) is a
leading producer of premium California varietal table wines. These wines are
marketed under the Beringer, Meridian Vineyards, Chateau St. Jean, Napa Ridge,
Chateau Souverain and Stags' Leap brand names. We also import wines from
France, Italy and Chile. These wines are marketed under the Gabbiano,
Tarapaca, Rivefort of France, Campanile and Travaglini brands. Led by our
highly popular Beringer White Zinfandel, we have achieved a well-established
competitive position in chain stores, club stores and other retail stores and
restaurants. Our wines are widely recognized for quality and value. We are
focused exclusively on the 750 ml size bottle premium wine category.
Beringer was founded in 1876 and is the oldest continuously operating winery
in Napa Valley. Beringer was family-owned until 1971, when it was acquired by
a subsidiary of Nestle S.A. We launched the Napa Ridge brand in 1986 and also
acquired Chateau Souverain that year. We acquired Meridian Vineyards in 1988.
On January 1, 1996, we were acquired by Silverado Partners Acquisition Corp.,
which was controlled by an investment group led by TPG Partners, L.P.
Subsequently we acquired Chateau St. Jean in April 1996 and Stags' Leap Winery
in February 1997. We have assembled extensive strategic vineyard acreage in
the prime growing regions of Napa, Sonoma, Lake, Santa Barbara and San Luis
Obispo Counties. Our principal executive offices are located at 1000 Pratt
Avenue, St. Helena, California 94574. Our telephone number is (707) 963-7115.
INDUSTRY BACKGROUND
The wine industry can be separated into three segments: (1) premium wines
selling in a 750ml bottle, (2) "jug" wines selling in large size bottles
(1.5L, 3L, 4L, 5L), and (3) other wine products, including sparkling and
fortified wines, wine coolers and flavored wines. We compete in the premium
wine category, which has grown faster than the other two segments over the
past 18 years. We believe this category will also continue to outperform the
other segments. The premium wine category is often further broken down into
three segments: the popular premium ($3-$7 per 750ml); super-premium ($7-$14
per 750ml); and ultra-premium (over $14 per 750ml) segments. We compete in all
three premium wine segments.
Our largest distributor is Southern Wine and Spirits of America, Inc. They
represent our brands in California, Florida, Nevada and South Carolina. Our
combined sales to them in fiscal 1998 represented approximately 32% of our
gross revenues. Sales to our ten largest distributors combined, represented
approximately 58% of our gross revenues during fiscal 1998. Sales to these ten
largest distributors are expected to continue to represent a substantial
majority of our net revenues in the future.
MARKETING AND DISTRIBUTION
We employ branded consumer advertising, merchandising, brand management and
public relations to differentiate our products, build brand loyalty and
broaden our potential markets.
We sell our wines primarily to distributors, who then sell to retailers and
restaurateurs. Our multi-brand portfolio has permitted us to develop strong
relationships with our distributors and retailers.
GRAPE SUPPLY AND VINEYARD OWNERSHIP
We currently control approximately 9,500 acres of California coastal
vineyard land. Approximately 7,990 acres are currently planted and we plan to
plant the balance within two years. During the 1997 harvest these vineyards
supplied us with approximately 47% of our grape requirements, excluding
Beringer White Zinfandel. The remaining 53% was supplied by outside growers
and purchases of bulk wine. The grapes used in our Beringer White Zinfandel
are almost completely sourced through long term contracts with well-
established growers. Our strategy permits us to help control the quality and
supply of the more expensive varietals. It also permits us to manage an
important cost component of our wines.
2
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WINEMAKING
Our strategic focus is to produce high quality wines throughout our product
portfolio. We use talented winemakers, high quality grapes and state of the
art equipment to produce these wines. Our winemakers blend the best new
technology with traditional practices, such as barrel aging to produce wines
that have been consistently recognized for quality over the last decade. We
are also dedicated to our research programs that include experimental
winemaking and grape growing studies.
EMPLOYEES
We employ approximately 625 regular, full-time employees. We also employ
part-time and seasonal workers for our vineyard, production and hospitality
operations. Approximately 100 production, bottling and warehouse employees at
Beringer Vineyards are covered by a collective bargaining agreement. Since
1972, there have been no labor stoppages or strikes. We are not aware of any
material disputes with employees. We believe our relations with our employees
are good.
TRADEMARKS
We maintain U.S. Federal trademark registrations for our brands, proprietary
products and certain vineyard names. We also maintain international trademark
registrations where it is appropriate to do so.
ITEM 2. PROPERTIES
We operate six wineries in California, including the Beringer Vineyards,
Meridian Vineyards, Chateau St. Jean, Chateau Souverain, Stags' Leap and Asti
wineries.
Please see the discussion above, Grape Supply and Vineyard Ownership,
regarding our vineyard properties.
We lease a distribution facility in Napa, California. We lease office space
in Napa, in several cities throughout the U.S. and in Switzerland. We store
wines in a warehouse operated by an independent third party. We also lease
barrel aging facilities in Templeton and in Santa Maria, California.
ITEM 3. LEGAL PROCEEDINGS
We are a party to a lawsuit involving environmental contamination at our
Asti Winery. Our former owner, Nestle, retained full responsibility for the
prosecution and defense of this lawsuit. They also retained all liability for
this lawsuit and any claims connected with it.
We are not a party to any other material legal proceedings.
3
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EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Walter T. Klenz............. 53 President, Chief Executive Officer and Chairman
of the Board of Directors
Robert E. Steinhauer........ 57 Senior Vice President-Vineyard Operations
Edward B. Sbragia........... 49 Senior Vice President and Winemaster
Peter F. Scott.............. 45 Senior Vice President, Finance and Operations
and
Chief Financial Officer
Janelle E. Thompson......... 49 Vice President, Marketing and Hospitality
Richard G. Carter........... 54 Vice President, Sales
Martin L. Foster............ 52 Vice President, Treasury and Investor Relations
A. Tor Kenward.............. 50 Vice President, Winery Communications
Thomas W. Peterson.......... 46 Vice President-Sonoma Operations and Winemaking
Gregory M. Delaney.......... 34 Vice President, Controller and Chief Accounting
Officer
Douglas W. Roberts.......... 46 Vice President, General Counsel and Secretary
</TABLE>
Walter T. Klenz has been a director since January 1996 and became Chairman
of the Board in August 1997. Mr. Klenz joined us in 1976 as director of
marketing for the Beringer brand, and has served as our President and Chief
Executive Officer since 1990. From 1984 until 1990, he served as Senior Vice
President, Finance/Operations.
Robert E. Steinhauer joined us in 1979 and has served as our Senior Vice
President-Vineyard Operations since 1989.
Edward B. Sbragia joined us in 1976 and has served as our Senior Vice
President and Winemaster since 1989.
Peter F. Scott joined us in June 1997 as our Senior Vice President, Finance
and Operations and Chief Financial Officer. He served as Chief Financial
Officer of Kendall-Jackson Winery, Ltd. from 1990 until he joined us.
Janelle E. Thompson joined us in 1982 and has served as our Vice President,
Marketing and Hospitality since 1987.
Richard G. Carter joined us in 1975 and has served as our Vice President,
Sales since 1984.
Martin L. Foster joined us in 1992 as Vice President and Treasurer. In 1997
he assumed executive responsibility for Investor Relations.
A. Tor Kenward joined us in 1977 and has served as our Vice President,
Winery Communications since 1986.
Thomas W. Peterson joined us in 1986 and has served as our Vice President-
Sonoma Operations and Winemaking since 1996.
Gregory M. Delaney joined us in 1998 as our Vice President-Controller and
Chief Accounting Officer. From 1990 until he joined us he held the same
position with Barnett Banks, Inc.
Douglas W. Roberts joined us in 1976 and has served as our Secretary since
1990. He was appointed Vice President and General Counsel in 1997.
4
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our Class A Common Stock is not publicly traded. Our Class B Common Stock is
traded on the Nasdaq National Market under the symbol "BERW". The table below
states the high and low closing sale prices on the Nasdaq National Market from
our initial public offering on October 29, 1997 through the fiscal year ending
June 30, 1998:
<TABLE>
<CAPTION>
1998 HIGH LOW
---- ------- -----
<S> <C> <C>
January 1-March 31.......................................... $51.375 $36
April 1-June 30............................................. $54.062 $39.5
<CAPTION>
1997 HIGH LOW
---- ------- -----
<S> <C> <C>
October 29-December 31...................................... $38 $30
</TABLE>
As of June 30, 1998, there were 374 holders of record of our Class A and
Class B Common Stock. We have not paid dividends since our inception and we do
not anticipate paying cash dividends in the foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected financial data for fiscal years 1996 through 1998 are presented
on page 1 of this Annual Report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information for this item is presented on pages 31 through 37 of this
Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information is presented on page 35 of this Annual Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The index to Financial Statements, Supplementary Data and Management's
Discussion and Analysis of Financial Condition and Results of Operations is
presented on page 7 of this Annual Report on Form 10-K.
5
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference from
pages 7, 8 and 18 of the registrant's definitive proxy statement for its
Annual Meeting of shareholders to be held on November 5, 1998, as filed with
the Securities and Exchange Commission, and Item 4 and page 57 of this Form
10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
pages 14 through 16 of the registrant's definitive proxy statement for its
Annual Meeting of shareholders to be held on November 5, 1998, as filed with
the Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from page
11 of the registrant's definitive proxy statement for its Annual Meeting of
shareholders to be held on November 5, 1998, as filed with the Securities and
Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from page
13 of the registrant's definitive proxy statement for its Annual Meeting of
shareholders to be held on November 5, 1998, as filed with the Securities and
Exchange Commission.
6
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1 and 2--Index to Consolidated Financial Statements and Schedules:
The following documents are filed as part of this report:
<TABLE>
<CAPTION>
PAGE IN
ANNUAL REPORT*
--------------
<S> <C>
Report of Independent Accountants............................... 56
Consolidated Balance Sheets as of June 30, 1997 and 1998........ 38
Consolidated Statements of Operations for the six months ended
December 31, 1995 and June 30, 1996 and for the years ended
June 30, 1997 and 1998......................................... 39
Consolidated Statement of Changes in Common Stock and Other
Stockholders' Equity for the six months ended December 31,
1995........................................................... 39
Consolidated Statements of Changes in Common Stock and Other
Stockholders' Equity for the six months ended June 30, 1996 and
the years ended June 30, 1997 and 1998......................... 40
Consolidated Statements of Cash Flows for the six months ended
December 31, 1995 and June 30, 1996 and for the years ended
June 30, 1997 and 1998......................................... 41
Notes to Consolidated Financial Statements...................... 42
</TABLE>
(a) 3--Exhibits: Filed with this report:
EXHIBIT INDEX
<TABLE>
<C> <S>
10.4 Beringer Wine Estates Holdings, Inc. 1998 Incentive Stock Plan.
13 Beringer Wine Estates Holdings, Inc. Annual Report to Shareholders for
the year ended June 30, 1998, but only to the extent set forth in Items
1, 5, 6, 7 and 8 of this Annual Report on Form 10-K for the year ended
June 30, 1998.
21 Subsidiaries of the registrant.
22 Consent of PricewaterhouseCoopers LLP independent accountants.
27 Financial Data Schedule (not considered to be filed).
</TABLE>
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* Incorporated by reference to the indicated pages of the registrant's annual
report to security holders for the fiscal year ended June 30, 1998,
furnished to the Securities and Exchange Commission pursuant to Rule 14a-
3(b).
7
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PREVIOUSLY FILED:
EXHIBIT INDEX
The following documents, except as noted, were filed as exhibits to the
registrant's Registration Statement on Form S-1 (No. 333-34443), dated October
28, 1997:
<TABLE>
<C> <S>
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. (1)
3.(i)3 Form of Restated Certificate of Incorporation, as filed with the
Secretary of State of the State of Delaware on November 4, 1997.
(2)
3.(ii)1 Bylaws of the registrant. (2)
10.1 Registrant's 1996 Stock Option Plan and Incentive Stock Option and
Non-Qualified Stock Option Agreements. (1)
10.5 Registrant's 1998 Stock Option Plan and Incentive Stock Option
Agreement. (1)
10.6 Form of Indemnity Agreement between the Registrant and its officers
and directors. (1)
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 itself and CoBank, ACB; Bank of America NT & SA;
General Electric Capital Corporation, Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A. Rabobank Nederland, New York Branch;
and BankBoston, N.A., dated as of February 28, 1997. (1)
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 itself and CoBank, ACB; Bank
of America NT & SA; General Electric Capital Corporation,
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. Rabobank
Nederland, New York Branch; and BankBoston, N.A., dated as of
February 28, 1997. (1)
10.8 Wine Distributorship Agreement between Registrant and Southern Wine
& Spirits of America, Inc. effective as of October 1, 1996, as
amended. (Confidential treatment granted for part of this
document.) (1)
10.9 Grape, Juice and Wine Purchase Agreement between Delicato Vineyard
and the Registrant dated December 31, 1996. (Confidential treatment
granted for part of this document.) (1)
10.10 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. (Confidential treatment granted for part of
this document.) (1)
</TABLE>
- --------
(1) Incorporated by reference to Registration Statement on Form S-1 (No. 333-
34443).
(2) Incorporated by reference to Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1997 (File No. 000-23175).
8
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SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
----------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year.................................. $175 $174 $251
Provision for uncollectable accounts.......................... -- 210 --
Net charge-offs............................................... (1) (133) (2)
---- ---- ----
Balance at end of year........................................ $174 $251 $249
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Beringer Wine Estates Holdings, Inc.
/s/ Walter T. Klenz
By: _________________________________
WALTER T. KLENZ CHIEF EXECUTIVE
OFFICER, PRESIDENT AND CHAIRMAN OF
THE BOARD
9
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Walter T. Klenz, Peter F. Scott and Douglas W.
Roberts, and each of them, his or her true and lawful attorneys-in-fact and
agents, each with full power of substitution and re-substitution, for him or
her and in his or her name, place and stead, in any and all capacities, to
sign any and all amendments to this Annual Report on Form 10-K, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents or
their substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the Requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/ Walter T. Klenz Chairman of the September 25,
- ------------------------------------- board, President & 1998
WALTER T. KLENZ Chief Executive
Officer
/s/ Peter F. Scott Senior Vice September 25,
- ------------------------------------- President--Finance 1998
PETER F. SCOTT & Operations &
Chief Financial
Officer
/s/ Gregory M. Delaney Vice President-- September 25,
- ------------------------------------- Controller and 1998
GREGORY M. DELANEY Chief Accounting
Officer
/s/ Richard L. Adams Director September 25,
- ------------------------------------- 1998
RICHARD L. ADAMS
/s/ David Bonderman Director September 25,
- ------------------------------------- 1998
DAVID BONDERMAN
/s/ Randy Christofferson Director September 25,
- ------------------------------------- 1998
RANDY CHRISTOFFERSON
/s/ James G. Coulter Director September 25,
- ------------------------------------- 1998
JAMES G. COULTER
10
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SIGNATURES TITLE DATE
/s/ Timm F. Crull Director September 25,
- ------------------------------------- 1998
TIMM F. CRULL
/s/ Willilam A. Franke Director September 25,
- ------------------------------------- 1998
WILLIAM A. FRANKE
/s/ E. Michael Moone Director September 25,
- ------------------------------------- 1998
E. MICHAEL MOONE
/s/ William S. Price III Director September 25,
- ------------------------------------- 1998
WILLIAM S. PRICE III
/s/ Jesse Rogers Director September 25,
- ------------------------------------- 1998
JESSE ROGERS
/s/ George A. Vare Director September 25,
- ------------------------------------- 1998
GEORGE A. VARE
/s/ Emily Woods Director September 25,
- ------------------------------------- 1998
EMILY WOODS
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 7 present fairly, in all
material respects, the financial position of Beringer Wine Estates Holdings,
Inc. and its subsidiaries at June 30, 1997 and 1998, and the results of their
operations and their cash flows for each of the six month periods ended
December 31, 1995 and June 30, 1996 and the years ended June 30, 1997 and 1998
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.
PricewaterhouseCoopers LLP
San Francisco, CA
September 25, 1998
11
<PAGE>
EXHIBIT 10.4
BERINGER WINE ESTATES
1998 INCENTIVE STOCK PLAN
1. Purpose
The purpose of the Beringer Wine Estates 1998 Incentive Stock Plan is to
motivate employees of Beringer Wine Estates Holdings, Inc. and its
Participating Subsidiaries through added incentives to make a maximum
contribution to Company objectives.
2. Definitions
As used in this Plan, the following words shall have the following meanings:
(a) "Benefits" means the benefits awarded to participants as described in
Sections 5 through 9 of the Plan. Benefits may be awarded individually or in
any combination
(b) "Board of Directors" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended. Reference to
a section of the Code shall include that section and any comparable section or
sections of any future legislation that amends, supplements or supersedes that
section.
(d) "Committee" means a committee appointed by the Board of Directors to
administer this Plan, which committee is composed solely of two or more Non-
Employee Directors.
(e) "Common Stock" means the Class B Common Stock of the Company.
(f) "Company" means Beringer Wine Estates Holdings, Inc.
(g) "Date of Grant" has the meaning set forth in Section 8(b) of this Plan.
(h) "Effective Date" means November 1, 1998.
(i) "Eligible Employee" has the meaning set forth in Section 4(a) of this
Plan.
(j) "Employee" means any common-law employee of the Company or a
Participating Subsidiary who (i) is classified as a regular employee, (ii) is
customarily employed for more than twenty (20) hours per week and more than
(5) five months in a calendar year and (iii) has completed at least six (6)
months of Service; provided, however, that an Employee on November 1, 1998 who
has met the requirement of paragraphs (i) and (ii) of this Section 2(j) but
who has not met the requirements of paragraph (iii) of this Section 2(j) on
November 1, 1998 shall be eligible to enroll in the Plan on such date or any
subsequent enrollment date.
(k) "Employee Stock Purchase Plan" has the meaning set forth in Section 8(a)
of this Plan.
(l) "Incentive Stock Option" has the meaning set forth in Section 5 of this
Plan.
(m) "Fair Market Value" means the fair market value of one share of Common
Stock as of a particular day, which shall generally be the last transaction
price of Common Stock as reported on the Nasdaq National Market.
(n) "Non-Employee Directors" means any director of the Company who meets the
definition of that term as set forth in Rule 16b-3(b)(3)(i) promulgated under
the Securities Exchange Act
1
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(o) "Nonqualified Stock Option" has the meaning set forth in Section 5 of
this Plan.
(p) "Offering" has the meaning set forth in Section 8 of this Plan.
(q) "Options" means Incentive Stock Options and Nonqualified Stock Options.
(r) "Participant" means each eligible Employee who receives an amount of
Benefit under the Plan.
(s) "Participating Subsidiary" means a Subsidiary that is participating in
the Plan. A Subsidiary of the Company as of the Effective Date will be deemed
to have adopted the Plan for its eligible Employees as of the Effective Date
and any corporation that becomes a Subsidiary after the Effective Date will be
deemed to have adopted the Plan for its eligible Employees immediately upon
becoming a Subsidiary, unless the Company acts to exclude the Subsidiary and
its eligible Employees from participation in the Plan.
(t) "Plan" means the Beringer Wine Estates 1998 Incentive Stock Plan, as
amended from time to time.
(u) "Reporting Person" means any person who is a director or officer (as
defined in Rule 16a-l(f) promulgated under the Securities Exchange Act), of
the Company or any Participant who is the beneficial owner, directly or
indirectly of more than ten percent of the Common Stock of the Company.
(v) "Section 423 Options" has the meaning set forth in Section 8 of this
Plan.
(w) "Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(x) "Service" means the period of time that has elapsed from the date an
Employee first performs duties for the Company or a Subsidiary for which such
Employee is paid or entitled to payment by the Company or a Subsidiary and
ending on the date such Employee terminates employment, is discharged, retires
or dies; provided, however, that only the period of time during which an
Employee meets the requirements of paragraphs (i) and (ii) of Section 2(j)
shall be counted in determining such Employee's Service. The Service of an
Employee who terminates employment, is discharged or retires and is re-
employed by the Company or Subsidiary within twelve (12) consecutive months
after such termination, discharge or retirement shall include the time which
elapsed between the date of such a termination, discharge or retirement and
the date of re-employment. Service with a predecessor employer may be included
in an Employee's Service at the discretion of the Committee.
(y) "Subsidiary" means any corporation that is a member of a controlled
group of corporations (as defined in section 414(b) of the Code) which
includes the Company; any trade or business (whether or not incorporated)
which is under common control (as defined in section 414(c) of the Code) with
the Company; and any organization (whether or not incorporated) which is a
member of an affiliated service group (as defined in section 414(m) of the
Code) which includes the Company; and any other entity required to be
aggregated with the Company under section 414(o) of the Code. Anything
contained herein to the contrary notwithstanding, for the purpose of Incentive
Stock Options and options granted pursuant to the Employee Stock Purchase
Plan, "Subsidiary" shall have the same meaning as the term "subsidiary
corporation" as defined in Section 425 of the Code.
3. Administration
(a) General. The Plan shall be administered by the Committee. Subject to the
provisions of the Plan, the Committee shall have exclusive authority to
interpret and administer the Plan, to establish appropriate rules relating to
the Plan, to select the Participants under the Plan, to make awards of the
Benefits provided by the Plan, to determine the terms and conditions to which
such awards are subject, to delegate its authority and duties under the Plan,
and to take such steps and make all such determinations in connection with the
Plan and any of the Benefits provided by the Plan as it may deem necessary or
advisable.
2
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The Committee may from time to time award any of the Benefits described in
the Plan either individually, or in any combination, to Eligible Employees.
Each Participant shall enter into an agreement with the Company in the form
specified by the Committee agreeing to the terms and conditions of the award
and such other matters consistent with the Plan as the Committee in its sole
discretion shall determine.
(b) Committee's Discretion. The award of any Benefit under the Plan may be
subject to any provision (whether or not applicable to a Benefit awarded any
other similarly situated Participant) that the Committee determines
appropriate which is consistent with the terms and conditions specifically
provided for in the Plan, including, without limitation, (i) provisions for
the purchase of shares of Common Stock under Options in installments, (ii)
provisions for the payment of the purchase of price of shares under Options by
delivery of Common Stock, (iii) restrictions on resale or other disposition,
(iv) provisions as may be appropriate to comply with federal or state
securities laws and stock exchange requirements, (v) provisions regarding
understandings or conditions with respect to the Participant's employment,
(vi) provisions for making the grant of Benefits conditional upon election by
a Participant to defer payment of a portion of his salary, (vii) provisions
for giving a Participant a choice between two Benefits or combinations of
Benefits, (viii) provisions regarding the award of Benefits in the alternative
so that the acceptance or exercise of one Benefit cancels the right of a
Participant to another; and (ix) provisions regarding the award of Benefits in
any combination or combinations. Any election by a Reporting Person to receive
compensation in the form of Common Stock or credits therefor shall be made
prior to the time the Benefit is awarded or at such other time or times so as
to comply with Rule 16b-3(f) promulgated under the Securities Exchange Act.
4. Eligibility
(a) General. Any individual who is an Employee of the Company or a
Participating Subsidiary, at the time the Benefits under the Plan are awarded
shall be eligible to receive an award of Benefits in accordance with the terms
of the Plan ("Eligible Employee").
(b) Benefits Awarded in Accordance Under Sections 5, 6, 7 and 9. In making
any award of Benefits under Sections 5, 6, 7 or 9 of the Plan (or any
combination of such Sections), the Committee may take into account the nature
of services rendered by an Eligible Employee, the capacity of the Eligible
Employee to contribute to the success of the Company, and other factors that
the Committee may consider relevant.
5. Stock Options
The Committee from time to time may grant Options to Eligible Employees to
purchase shares of Common Stock from the Company. Options may be granted in
the form of an "Incentive Stock Option", which are intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code, or in
the form of a "Nonqualified Stock Option," which are not intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
Each Option agreement between the Company and a Eligible Employee shall be in
such form and shall contain such provisions as the Committee from time to time
shall deem appropriate. Option agreements need not be identical, but each
Option agreement by appropriate language shall include the substance of all of
the provisions set forth in subsections (a) through (e) below:
(a) The purchase price shall be payable in full in cash upon exercise of the
Option. In lieu of cash Participant may, to the extent permitted by and
subject to the conditions contained in the terms of his Option agreement, make
payment in whole or in part by tendering shares of Common Stock valued at Fair
Market Value on the date of exercise.
(b) An Option shall not be transferable by the Participant to whom granted
except by will or by the laws of descent and distribution and only such
Participant may exercise such an Option during the lifetime of such
Participant.
(c) The Committee in its discretion may provide in any Option agreement that
the Option shall be exercisable in full at any time or from time to time
during the term of the Option, or may provide for the exercise
3
<PAGE>
of the Option in such installments and at such times during the term of the
Option as the Committee may determine.
(d) The maximum term of an Option shall be ten years from the date it was
granted.
(e) The purchase price of the shares covered by each Incentive Stock Option
shall be not less than 100% of the Fair Market Value of the Common Stock
subject to the Option at the time the Option is granted; and the purchase
price of any other Option shall not be less than 85% of the Fair Market Value
of the Common Stock subject to the Option at the time such Option is granted.
The aggregate Fair Market Value (as determined by the Committee as of the
time an Incentive Stock Option is granted) of the Common Stock covered by any
Incentive Stock Option or Incentive Stock Option awarded a Participant under
the Plan or any plan of a parent corporation or Subsidiary which become
exercisable for the first time during any calendar year shall not exceed One
Hundred Thousand Dollars ($100,000.00) or such other maximum applicable to
Incentive Stock Options as may be in effect from time to time under the Code.
No Incentive Stock Option shall be awarded after the day preceding the tenth
anniversary of the effective date of the Plan.
No person entitled to exercise any Option granted under the Plan shall have
any of the rights or privileges of a shareholder of the Company with respect
to shares issuable upon exercise of such Option until certificates
representing such shares shall have been issued and delivered to such person.
6. Stock Appreciation Rights
A Stock Appreciation Right entitles the holder to receive upon surrender of
such right an amount in cash or Common Stock, measured in whole or in part by
the Common Stock's appreciation in value during a specified period as
determined by the Committee.
A Stock Appreciation Right may be satisfied in cash or in shares of Common
Stock of the Company, as determined by the Committee. Each Participant who is
awarded Stock Appreciation Rights shall enter into an agreement with the
Company in a form specified by the Committee agreeing to the terms and
conditions of the award and such other matters consistent with the Plan as the
Committee in its sole discretion shall determine.
7. Restricted Shares
A Restricted Share consists of Common Stock that is subject to certain
restrictions on the disposition of such share and rights of the Company to
reacquire the share upon specified terms upon the occurrence of certain events
during a specified period, as determined by the Committee. Each Participant
who is awarded Restricted Shares shall enter into an agreement with the
Company in a form specified by the Committee agreeing to the terms and
conditions of the award and such other matters consistent with the Plan as the
Committee in its sole discretion shall determine.
Restricted Shares may not be sold, transferred, pledged or otherwise
encumbered during a Restricted Period. A Restricted Period shall commence on
the date of the award and end at such later date as the Committee may
designate at the time of the award. During such Restricted Period, a
Participant shall have the entire beneficial ownership and most of the rights
and privileges of a shareholder with respect to Restricted Shares awarded to
him, including the right to receive dividends and the right to vote such
Restricted Shares.
The Committee in its sole discretion from time to time may establish the
terms and conditions under which Restricted Stock shall be forfeited by the
Participant during the Restricted Period.
Notwithstanding anything in this Section to the contrary, the Company may
make an award of "phantom stock credits" to any Participant which shall serve
as a basis for an award of shares of Restricted Stock at a later point in
time.
4
<PAGE>
The Participant shall not be entitled to delivery of the certificate
representing shares of Common Stock until the expiration of the Restricted
Period applicable to such Restricted Shares.
8. Employee Stock Purchase Plan
Solely for purposes of the Code, this Section 8 shall be treated as a
separate plan and referred to as the Beringer Wine Estates Employee Stock
Purchase Plan ("Employee Stock Purchase Plan"). Notwithstanding anything to
the contrary in the Plan, the following provisions shall apply to any options
awarded Participants ("Offering") in accordance with this Section 8 ("Section
423 Options"):
(a) Section 423 Options awarded in accordance with the Employee Stock
Purchase Plan shall be granted only to Employees.
(b) Section 423 Options granted pursuant to an Offering made under the
Employee Stock Purchase Plan shall be granted to each individual who is an
Employee on the Date of Grant of the Offering. For purposes of this Section 8
"Date of Grant" shall have the same meaning as set forth in Treasury
Regulation 1.421-7(c). However, one or more of the following categories of
Employees may be excluded from the grant of a Section 423 Option under the
Employee Stock Purchase Plan: (1) Employees who have been employed by the
Company or Subsidiary for less than two (2) years; (2) Employees whose
customary employment is for not more than five (5) months in any calendar
year; (3) Employees whose customary employment is twenty (20) hours or less
per week; and (4) officers or persons whose principal duties consist of
supervising the work of other Employees, or highly compensated Employees.
Irrespective of any other provision of the Plan or the Employee Stock
Purchase Plan, no Section 423 Option may be granted to an Employee who owns
stock possessing 5% or more of the total combined voting power or value of all
classes of the Company or a Subsidiary as determined in accordance with
Section 423(b)(3) of the Code; and no Section 423 Option may be granted to any
Employee if such option permits the Employee's rights to purchase stock under
all employee stock purchase plans (as defined in Section 423 of the Code) of
the Company or any Subsidiary to accrue at a rate that exceeds Twenty-Five
Thousand Dollars ($25,000.00) of the Fair Market Value of such stock
(determined at the time the Section 423 Option is granted) for each calendar
year in which such option is outstanding at any time.
(c) All Employees granted Section 423 Options under the Employee Stock
Purchase Plan shall have the same rights and privileges, as required by
Section 423(b)(5) of the Code.
(d) No Section 423 Option awarded in accordance with the provisions of the
Employee Stock Purchase Plan shall be exercisable after the expiration of the
five (5) year period beginning on the Date of Grant of such option.
(e) The price per share at which the Common Stock subject to a Section 423
Option awarded under the Employee Stock Purchase Plan may be purchased
("Purchase Price") shall not be less than the lesser of (1) 85% of the fair
market value of a share of Common Stock on the Date of Grant and (2) 85% of
the fair market value of a share of Common Stock on the date the Section 423
Option is exercised.
(f) No Section 423 Option awarded in accordance with the terms of the
Employee Stock Purchase Plan shall be transferable otherwise than by will or
by the laws of descent and distribution and shall be exercisable only by the
Participant to whom it is granted during the lifetime of the Participant.
9. Other Benefits
The Committee may award Common Stock or the right to acquire Common Stock to
any Eligible Employee upon such terms and conditions as the Committee in its
discretion shall determine. Such awards may consist of a combination of the
Benefits described in the preceding sections, or any other right to acquire
Common Stock subject to any conditions the Committee may prescribe, such as a
right of first refusal by the Company to repurchase the shares; provided,
however, that any Benefit awarded in accordance with the provisions of this
5
<PAGE>
Plan which grants the right to purchase shares of Common Stock, except any
Benefit which is subject to restrictions that in the aggregate would amount to
a substantial risk of forfeiture for purposes of Section 83 of the Code, shall
require that the price at which the Participant may purchase such shares shall
be at least 85% of the Fair Market Value of such shares as determined by the
Committee at the time such benefit is awarded.
10. Shares Subject to Plan
Subject to the provisions of Section 11 (relating to adjustment for changes
in capital stock), the maximum number of shares that may be issued under the
Plan (including shares to be issued under the Employee Stock Purchase Plan)
shall not exceed in the aggregate 300,000 shares of Common Stock. Such shares
may be unissued shares or treasury shares.
If there is a lapse, expiration, termination or cancellation of any Benefit
without the issuance of shares, or if shares are issued in connection with any
Benefit and later are reacquired by the Company pursuant to rights reserved on
issuance, the shares subject to or reserved for such Benefit may again be used
in connection with the grant of any of the Benefits described in this Plan;
provided that in no event may the number of shares of Common Stock issued
under this Plan exceed 300,000, subject to adjustment as described in Section
11.
11. Adjustment Upon Changes in Stock
If any change is made in the shares of Common Stock by reason of any merger,
consolidation, reorganization, recapitalization, stock dividend, split up,
combination of shares, exchange of shares, change in corporate structure, or
otherwise, appropriate adjustments shall be made by the Committee to the kind
and maximum number of shares subject to the Plan and the kind and number of
shares and price per share of stock to each outstanding Benefit. Any increase
in the shares, or the right to acquire shares, as the result of such an
adjustment shall be subject to the same terms and conditions that apply to the
Benefit for which such increase was received. No fractional shares of Common
Stock shall be issued under the Plan on account of any such adjustment, and
rights to shares always shall be limited after such an adjustment to the lower
full share.
12. Amendment of the Plan
The Board of Directors may at any time amend the Plan (including the
provisions of the Employee Stock Purchase Plan), provided that the Board of
Directors may not, without approval (within twelve months before or after the
date of such change) of such number of the stockholders as may be required by
either federal income tax or securities law for any particular amendment: (a)
increase the maximum number of shares of Common Stock in the aggregate which
may be issued under the Plan, except as may be permitted under the adjustment
provisions of Section 11, or (b) adopt any other amendment for which
shareholder approval is required by federal income tax or securities laws and
regulations, including the regulations of the stock exchange or other market
upon which the Common Stock may be listed at the time of the amendment. The
Board of Directors may not alter or impair any Benefit previously granted
under the Plan without the consent of the person to whom the Benefit was
granted.
13. Termination of the Plan
The Board of Directors may terminate or suspend the Plan (including the
Employee Stock Purchase Plan) at any time. No Benefit shall be awarded after
termination of the Plan.
Rights and obligations under a Benefit awarded while the Plan is in effect
shall not be altered or impaired by termination or suspension of the Plan
except by consent of the person to whom the Benefit was awarded.
14. Withholding Tax
The Company shall have the right to withhold with respect to any payments
made to Participants under the Plan any taxes required by law to be withheld
because of such payments.
6
<PAGE>
15. Rules of Construction
The terms of the Plan shall be construed in accordance with the laws of the
State of California, provided that the terms of the Plan as they relate to
Incentive Stock Options shall be construed first in accordance with the
meaning under and in a manner that will result in the Plan satisfying the
requirements of the provisions of the Code governing incentive stock options;
and provided further that the terms of Section 8 of the Plan shall be
construed first in accordance with the meaning under and in a manner that will
result in the Employee Stock Purchase Plan satisfying the requirements of the
Code governing such plans.
16. Nontransferability
Each Option or similar right (including a Stock Appreciation Right) granted
under this Plan shall not be transferable other than by will or the laws of
descent and distribution, and shall be exercisable during the holder's
lifetime only by the holder or the holder's guardian or legal representative.
17. Effective Date
The Plan shall become effective as of November 1, 1998.
7
<PAGE>
BERINGER WINE ESTATES
FINANCIAL
HIGHLIGHTS
<TABLE>
<CAPTION>
Fiscal year ended June 30 ($ in millions, except per share data) 1994 1995 1996 1997 1998
================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net sales $ 180.8 $ 202.0 $ 231.7 $ 269.5 $ 318.4
Sales growth 13.6% 11.7% 14.7% 16.3% 18.2%
Pro forma gross profit $ 90.8 $ 100.7 $ 116.1 $ 134.9 $ 163.7
Gross profit margin 50.2% 49.9% 50.1% 50.1% 51.4%
Pro forma operating income $ 25.4 $ 34.8 $ 43.9 $ 56.3 $ 70.5
Operating income margin 14.1% 17.2% 18.9% 20.9% 22.1%
Pro forma net income to
common stockholders $ 10.5 $ 16.8 $ 15.6 $ 15.1 $ 29.5
Net income margin 5.8% 8.3% 6.7% 5.6% 9.3%
Pro forma net income per share -- -- -- $ 1.12 $ 1.63
Total assets $ 286.5 $ 289.9 $ 438.7 $ 467.2 $ 540.5
Total shareholders' equity $ 140.9 $ 158.3 $ 48.4 $ 78.3 $ 185.9
</TABLE>
1
<PAGE>
BERINGER WINE ESTATES
MANAGEMENT'S
DISCUSSION AND ANALYSIS
INTRODUCTION
Beringer Wine Estates, through its operating unit Beringer Vineyards, has
continuously operated since its founding in 1876. On January 1, 1996, an
investment group led by Texas Pacific Group acquired Beringer Wine Estates
Holdings, Inc. (the Company), in a leveraged transaction. Thereafter, the
Company expanded with the acquisitions of Chateau St. Jean in April 1996 and
Stags' Leap Winery in February 1997.
Each of these transactions was recorded using the purchase accounting
method. Under this method, the purchase price was 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. This allocation of purchase price is referred to as inventory
step-up throughout this document. Subsequent acquisitions have resulted in
additional inventory step-up. 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 associated with 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 current
results are not indicative of the Company's future performance. This discussion
reflects adjusted results excluding the impact of inventory step-up.
In October 1997, the Company sold 4,920,000 shares of Class B Common Stock
to the public (the IPO) and 600,000 shares of Class B Common Stock directly to
holders of the Series A Preferred Stock. Net proceeds from the public offering
were $132.5 million which was used to retire all of the outstanding subordinated
notes, redeem all outstanding shares of the Series A Preferred Stock and retire
$49.9 million and $6.0 million of the Company's line of credit and long-term
senior debt, respectively. The early retirement of the subordinated notes
resulted in a pre-tax extraordinary charge of $4.7 million that included a
$3.2 million prepayment penalty and a $1.5 million write-off of unamortized
discount. The early redemption of the Series A Preferred Stock resulted in a
$2.5 million reduction of net income allocable to common stockholders, which
represented the accelerated accretion of the original issue discount remaining
on the redemption date.
YEAR IN SUMMARY
Operating results continued to improve in fiscal 1998 as sales volume was up
12%, net revenues rose 18%, and net income and earnings per share increased
significantly from fiscal 1997 levels. The Company's success as a leading
producer of premium varietal wines continues to be due to an emphasis on quality
products, brand strength, consumer focused marketing and experienced and
dedicated employees.
<TABLE>
<CAPTION>
Net Income (Loss) and Per Share Amounts
Fiscal year ended June 30 (in thousands, except per share data) 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
As Reported
Net Income (loss) to Common $ (10,369) $ 7,883
Diluted EPS (0.86) 0.43
Adjusted/(1)/
Net Income to Common $ 15,089 $ 29,537
Diluted EPS 1.12 1.63
</TABLE>
/(1)/ Net income adjusted to exclude the non-cash charge related to inventory
step-up, extraordinary item and the non-recurring charge for accelerated
accretion of the preferred dividend discount resulting from the redemption
of Series A Preferred Stock.
31
<PAGE>
BERINGER WINE ESTATES
MANAGEMENT'S
DISCUSSION AND ANALYSIS
Beringer Wine Estates' net income available to common stockholders was
$7.9 million or $0.43 per diluted share for fiscal 1998 compared to a loss of
$10.4 million or $(0.86) per diluted share for fiscal 1997. Adjusted net income
available to common stockholders was $29.5 million for the year compared to
$15.1 million for fiscal 1997. Adjusted earnings per share, on a diluted basis,
grew 46% to $1.63 for fiscal 1998 from $1.12 last year. Adjusted net income
represents net income adjusted to exclude the non-cash charge related to
inventory step-up, the extraordinary item and the non-recurring charge for
accelerated accretion of the preferred dividend discount resulting from the
redemption of Series A Preferred Stock.
Net revenues grew $49.0 million or 18% in fiscal 1998 to $318.4 million.
Fiscal 1998 gross profit increased $44.3 million or 48% over fiscal 1997 to
$135.9 million. Adjusted gross profit, excluding the non-cash charge related to
inventory step-up, for fiscal 1998 grew 21% over fiscal 1997 to $163.7 million.
Selling, general and administrative expenses for fiscal 1998 grew $14.6 million
or 19% over fiscal 1997. Fiscal 1998 operating income increased $29.7 million
over fiscal 1997 to $42.6 million. Adjusted operating income for fiscal 1998,
excluding inventory step-up, increased $14.2 million or 25% to $70.5 million
compared to fiscal 1997.
Total assets at June 30, 1998 were $543.6 million, 16% higher than at
June 30, 1997 and inventories were $251.7 million, 18% higher than the June 30,
1997 balances. Total debt at June 30, 1998 was $277.2 million, down $41.9
million from June 30, 1997.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal 1998 vs Fiscal 1997
Net Revenues
Fiscal year ended June 30 (dollars and volume in thousands) 1996 1997 1998
==============================================================================================================================
<S> <C> <C> <C>
Beringer $ 149,719 $ 160,336 $ 190,441
Meridian 24,726 39,009 53,782
All Other California Brands 48,834 59,413 59,698
Imports 8,451 10,702 14,527
----------------------------------------
Total Net Revenue $ 231,730 $ 269,460 $ 318,448
========================================
Volume (total 9-liter case equivalents) 4,997 5,411 6,063
Net Revenue Per Case $ 46.37 $ 49.80 $ 52.52
</TABLE>
Fiscal 1996 represents the summation of the six month periods ended December 31,
1995 and June 30, 1996
Fiscal 1998 net revenues were $318.4 million, an 18% increase over fiscal 1997.
Net revenue for fiscal 1998 grew from fiscal 1997 by 19% for Beringer, 38% for
Meridian and 36% for Imports. Fiscal 1998 shipments of nine-liter case
equivalents were 6.1 million cases, 12% higher than the 5.4 million cases in the
fiscal 1997. Volume growth was primarily driven by Beringer, Meridian and the
Import brands.
The average revenue per nine-liter case increased 6% to $52.52 per case from
$49.68 per case in fiscal 1997. This increase reflects the positive mix change
resulting from increased Meridian volume and higher per unit revenue from other
California brands. The Company expects revenue growth in the future will result
primarily from volume growth as the impact of price increases, if any, are
expected to be less than those taken in the past two years.
Cost of Goods Sold Cost of goods sold for fiscal 1998 increased from fiscal
1997 by $4.7 million to $182.6 million. Included in cost of goods sold are $43.3
and $27.8 million of non-cash charges resulting from the inventory step-up for
years ended June 30, 1997 and 1998,
32
<PAGE>
BERINGER WINE ESTATES
respectively. Cost of goods sold, excluding the non-cash charge related to
inventory step-up, was $154.7 million for fiscal 1998, a $20.2 million increase
from fiscal 1997. The average cost per nine-liter case (excluding step-up)
increased $0.72 or 3% to $25.52 for fiscal 1998. These changes are primarily due
to price changes in raw materials as new vintages are introduced.
<TABLE>
<CAPTION>
Gross Profit
Fiscal year ended June 30 (in thousands) 1996 1997 1998
==============================================================================================================================
<S> <C> <C> <C>
Net Revenue $ 231,730 $ 269,460 $ 318,448
Cost of Goods Sold 147,740 177,829 182,557
------------------------------------------
Gross Profit 83,990 91,631 135,891
------------------------------------------
Inventory Step-up 32,131 43,308 27,845
Adjusted Gross Profit $ 116,121 $ 134,939 $ 163,736
==========================================
</TABLE>
Fiscal 1996 represents the summation of the six month periods ended December 31,
1995 and June 30, 1996
Gross profit for fiscal 1998 was $135.9 million, an increase of $44.3 million,
or 48% over fiscal 1997. Adjusted gross profit, excluding the non-cash charge
related to inventory step-up, for fiscal 1998 increased $28.8 million, or 21%
over fiscal 1997, to $163.7 million. The increase in adjusted gross profit was a
result of 12% volume growth and 9% growth in per unit profits.
<TABLE>
<CAPTION>
Gross Margin
Fiscal year ended June 30 1996 1997 1998
==============================================================================================================================
<S> <C> <C> <C>
Net Revenue 100.0% 100.0% 100.0%
Cost of Goods Sold 63.8% 66.0% 57.3%
------------------------------------------
Gross Margin 36.2% 34.0% 42.7%
Inventory Step-up 13.9% 16.1% 8.7%
------------------------------------------
Adjusted Gross Margin 50.1% 50.1% 51.4%
==========================================
</TABLE>
Fiscal 1996 represents the summation of the two six month periods ended
December 31, 1995 and June 30, 1996
Fiscal 1998 gross margin improved to 42.7% from 34.0% for fiscal 1997. Adjusted
gross margin, excluding the non-cash charge associated with inventory step-up,
grew from 50.1% in fiscal 1997 to 51.4% in fiscal 1998. On a per unit basis, the
gross margin improvement was due to an increase of $2.84 in average net revenues
per case partially offset by a $0.72 increase in average cost per case.
Selling, General and Administrative Expenses (SG&A) SG&A consists of product
specific selling and marketing expenses such as trade discounts, advertising and
product merchandising, and non-product specific expenses such as sales and
marketing staff, and general and administrative expenses. For fiscal 1998
compared to fiscal 1997, SG&A increased $14.6 million or 19% to $93.2 million.
Fiscal 1998 SG&A rose to 29.3% of net revenue from 29.2% in fiscal 1997. This
increase reflects additional advertising and promotional spending and increased
non-product specific expenses.
The Company expects SG&A to continue to increase as it expands its
advertising campaigns and continues to test market potential of new product
lines.
33
<PAGE>
BERINGER WINE ESTATES
MANAGEMENT'S
DISCUSSION AND ANALYSIS
<TABLE>
<CAPTION>
Operating Income
Fiscal year ended June 30 1996 1997 1998
==============================================================================================================================
<S> <C> <C> <C>
Operating Income $ 11,773 $ 12,984 $ 42,643
Inventory Step-up 32,131 43,308 27,845
-----------------------------------------
Adjusted Operating Income $ 43,904 $ 56,292 $ 70,488
=========================================
Operating Margin 5.1% 4.8% 13.4%
Adjusted Operating Margin 18.9% 20.9% 22.1%
</TABLE>
Fiscal 1996 represents the summation of the six month periods ended December 31,
1995 and June 30, 1996
Operating income for the year was $42.6 million, a $29.7 million increase from
fiscal 1997. Excluding inventory step-up, adjusted operating income for fiscal
1998 was $70.5 million, a $14.2 million or 25% increase over fiscal 1997.
Adjusted operating margin improved to 22.1% from 20.9% in the prior fiscal year.
Interest Expense and Other Income/Expense Interest expense for fiscal 1998 was
$23.0 million, a decrease of $3.4 million or 13% from fiscal 1997 due to a $41.9
million reduction in total debt outstanding. The debt reduction was a result of
the retirement of debt with the proceeds from the IPO.
Income Tax Provision (Benefit) The fiscal 1998 income tax provision was based
on an effective tax rate of approximately 30%, which is lower than the federal
statutory rate due to the effect of state taxes and the amortization of tax
basis goodwill. Management anticipates that the Company's effective tax rate
will increase as income increases, approaching the Company's statutory rate of
approximately 41%.
Preferred Stock Dividends During the second quarter of fiscal 1998, the Company
redeemed all of its Series A Preferred Stock with proceeds from the IPO. As a
result of this redemption, the Company recorded $2.5 million of accelerated
accretion of the remaining original issue discount. In addition, prior to
redemption, the Company recorded dividends and normal accretion of $1.9 million
in fiscal 1998.
Extraordinary Items During the second quarter of fiscal 1998, the Company
retired all of its outstanding subordinated debt with proceeds from the IPO. The
prepayment penalty and accelerated accretion of the remaining original issue
discount resulted in an extraordinary charge of $4.7 million. The extraordinary
item is shown net of $1.4 million in taxes.
Fiscal 1997 vs. Fiscal 1996 Pro forma fiscal 1996 represents the summation of
the six month periods ended December 31, 1995 and June 30, 1996.
Net revenues increased 16% to $269.4 million from pro forma fiscal 1996 to
fiscal 1997. The Company's case volume grew by 8% to 5.4 million 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 case increased 7% to $49.68 in fiscal 1997.
Gross profit for fiscal 1997 increased $7.6 million, or 9%, to
$91.6 million from pro forma fiscal 1996. Adjusted gross profit in fiscal 1997,
excluding the non-cash charge associated with inventory step-up, grew
$18.8 million or 16% over pro forma fiscal 1996, to $134.9 million. Included in
cost of goods sold were $43.3 million and $32.1 million of inventory step-up for
fiscal 1997 and pro forma fiscal 1996, respectively. Selling, general and
administrative expenses (including amortization of goodwill) for fiscal 1997
increased from $72.2 million in pro forma fiscal 1996 to $78.6 million in fiscal
1997, a 9% increase.
Fiscal 1997 operating income increased 10% to $13.0 million from $11.8
million in pro forma fiscal 1996. Adjusted operating income, excluding inventory
step up, was up $12.4 million, or 28% from pro forma fiscal 1996 to fiscal 1997.
The net loss for fiscal 1997 was $5.4 million, compared to a $1.3 million loss
for pro forma fiscal 1996. Adjusted net income, excluding the effect of
inventory step-up, for the fiscal 1997 was $20.1 million, an increase of 14%
over pro forma fiscal 1996's $17.6 million.
34
<PAGE>
BERINGER WINE ESTATES
FINANCIAL CONDITION
Total assets increased $76.4 million or 16% over June 30, 1997 to $543.6 million
on June 30, 1998. June 30, 1998 inventory grew $37.6 million from June 30, 1997
to $251.7 million. This increase reflects the cost of increased quantities on
hand partially offset by a reduction of $27.8 million in inventory step-up
balances from June 30, 1997. The $32.3 million increase in property, plant and
equipment over the past year primarily consists of vineyard development costs
and winery expansion, partially offset by depreciation of $10.9 million.
Total liabilities of $357.7 million at June 30, 1998 decreased
$31.2 million from June 30, 1997. At June 30, 1998 long-term debt outstanding
was $171.9 million and the line of credit balance was $105.3 million compared to
$215.1 million and $104.0 million at June 30, 1997. At June 30, 1998 $41.2
million remained available under the terms of the credit agreement. The
revolving line of credit is classified as long-term debt due to its expiration
date of January 2001.
LIQUIDITY AND CAPITAL RESOURCES
In October 1997 the Company used the net proceeds of its initial public
offering to retire all of its outstanding Subordinated Notes, including
prepayment penalties and interest, in the amount of $39.1 million; repay
$49.9 million of its line of credit; repay $6.0 million of its long-term senior
debt; and redeem all of its Series A Preferred Stock, at a redemption value of
$38.7 million.
Working capital at June 30, 1998 was $237.4 million, compared to
$209.7 million at June 30, 1997.
Management believes the Company's capital, combined with cash from
operations and the availability of cash from additional financing under the
Company's credit facilities, will be sufficient to meet its liquidity and
capital expenditures requirements for fiscal 1999. However, as a result of the
Company's expected future growth and planned capital investments, management
expects to increase its use of its existing credit facilities and potentially
access alternative financing sources in the future.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates. To manage
this exposure, the Company enters into interest rate exchange agreements. The
Company does not use financial instruments for trading purposes and is not party
to any leveraged derivatives.
At June 30, 1998, the Company's debt was $277.2 million, of which
$194.5 million will reprice during the year ended June 30, 1999 under various
bank programs. Additionally, the Company had interest rate exchange agreements
that converted a notional amount of $25 million of variable-rate debt to fixed
rate. These interest rate exchange agreements will increase to a notional amount
of $90 million in fiscal 1999 and $130 million in fiscal 2000. Assuming a 1%
increase in interest rates, annual interest expense would be expected to
increase approximately $68,000. Assuming a 1% increase in interest rates, the
fair value of these financial instruments would be expected to decrease in value
by approximately $13.8 million.
The Company's credit exposure under these agreements is limited to the cost
of replacing an agreement in the event of non-performance by its counterparty.
To limit this risk, the Company selects high credit quality counterparties.
YEAR 2000 COMPLIANCE
As a result of many computer programs having been written using two digits for
the year fields rather than four, time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. Therefore, the
performance of the Company's computer systems, and those of its suppliers and
customers, in the Year 2000 is uncertain. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has an established program in place, with executive
sponsorship, to address Year 2000 issues. During calendar 1997, the Company
replaced its financial and administrative computer programs. These new systems
are all Year 2000 compliant. The Company
35
<PAGE>
BERINGER WINE ESTATES
MANAGEMENT'S
DISCUSSION AND ANALYSIS
is still in the process of reviewing and replacing or modifying processes and
systems within its production operations. The cost of this review and
modification is expected to be immaterial and the timeline for achieving Year
2000 compliance is June 30, 1999.
Additionally, the Company is contacting all material outside business
relationships to confirm Year 2000 compliance, or if not yet compliant, plans
and timelines to achieve compliance. This survey is being conducted during the
fall of 1998, with a completion date of June 30, 1999. However, there can be no
guarantee that the systems of other companies, with which the Company has
material outside business relationships, will be timely converted and not have
an adverse effect on the Company's operations. In the event that one or more
material business relationships identifies failure reaching Year 2000
compliance, the Company is ready to develop contingency plans to minimize
disruption in the Company's operations. A contingency plan will be completed by
June 30, 1999.
FACTORS THAT MAY AFFECT RESULTS
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,
1998, approximately 25% of the Company's gross wine sales were concentrated in
California. Another approximately 25% were concentrated in the states of New
Jersey, Texas, Illinois, 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, 1998 were concentrated in its top
three selling varietal wines. Sales of White Zinfandel, Chardonnay and Cabernet
Sauvignon accounted for 38%, 26% and 14% of the Company's fiscal 1998 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, non-alcoholic beverages for shelf space in retail
stores and for marketing focus by the Company's independent distributors, many
of which carry extensive brand portfolios. 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
revenue, 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 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. 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.
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, pests, and extreme weather conditions can
materially, and adversely, affect the quality and quantity of grapes available
to the Company. This could, therefore, materially
36
<PAGE>
BERINGER WINE ESTATES
and adversely effect the quality and supply of the Company's wines and,
consequently, its business, financial condition and results of operations. The
Company has approximately 600 acres of phylloxera-infested vineyards that need
to be replanted over the next three years.
Risks from Fluctuations in Quantity and Quality of Grape Supply 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.
New vineyards are 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 that 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.
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 32% and 58%, respectively, of the Company's gross revenues during
fiscal 1998. 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. 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.
Risks from Capital Requirements of the Wine Business and the Company's Leverage
The premium wine industry is a capital-intensive business that 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 reduced its indebtedness so that at June 30, 1998, the Company's total
long-term debt was approximately $266 million. 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.
The Company's substantial leverage has several important consequences to
holders of its Common Stock, including the following: (1) the Company has
significant interest and principal repayment obligations requiring the
expenditure of substantial amounts of cash; and, (2) 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. The Company's
leverage could also have a material adverse effect on the Company's business,
financial condition and results of operations.
FORWARD-LOOKING STATEMENTS
This Annual Report and other information provided from time to time by the
Company contains historical information as well as forward-looking statements
about the Company, the premium wine industry, and general economic conditions.
These forward-looking statements include, for example, projections about the
Company's planned capital and other expenditures, projections relating to
estimates of sales and earnings growth, and costs of labor and grapes.
Actual results may differ materially from the Company's current projections. A
shift in consumer preferences and demand for premium wine, competition from
other premium wine companies, and agricultural risks, among other conditions,
may adversely affect the Company's operating results.
For additional cautionary statements and risks which could cause results to
differ materially from the Company's forward-looking statements, please refer to
the "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's Annual Report on Form 10-K
for the year ending June 30, 1998. These forward-looking statements speak only
as of the date of this Annual Report. The Company expressly disclaims any
obligation to publicly release any updates or revisions of any such forward-
looking statements to reflect any changes in the Company's expectations or any
change in events, conditions or circumstances on which any such statement is
based.
37
<PAGE>
BERINGER WINE ESTATES
CONSOLIDATED
BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands, except per share data) June 30, 1997 June 30, 1998
==========================================================================
<S> <C> <C>
ASSETS
Current assets:
Cash $ 115 $ 21
Accounts receivable-trade, net 28,226 30,524
Inventories 214,097 251,669
Deferred tax asset -- 5,781
Prepaids and other current assets 5,024 3,214
---------------------------
Total current assets 247,462 291,209
Property, plant and equipment, net 212,378 244,697
Investments 267 432
Other assets, net 7,077 7,262
---------------------------
Total assets $ 467,184 $ 543,600
===========================
LIABILITIES, REDEEMABLE PREFERRED STOCK,
PREFERRED AND COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade $ 10,114 $ 17,456
Book overdraft liability 2,001 1,207
Accrued trade discounts 2,461 4,527
Accrued payroll, bonuses and benefits 3,661 6,706
Accrued interest 5,998 4,543
Other accrued expenses 5,698 6,515
Income taxes payable -- 1,686
Deferred tax liabilities 4,104 --
Current portion of long-term debt 3,714 4,406
Current portion of line of credit -- 6,800
---------------------------
Total current liabilities 37,751 53,846
Line of credit, less current portion 104,000 98,500
Long-term debt, less current portion 211,398 167,461
Deferred tax liabilities 29,368 33,559
Other liabilities 6,333 4,333
---------------------------
Total liabilities 388,850 357,699
---------------------------
Redeemable preferred stock:
Redeemable Series A Preferred Stock, $0.01 par
value; stated at redemption value at
June 30, 1997, less non-accreted discount of
$2,623,000 including cumulative dividends in
arrears; 2,000,000 shares authorized; 369,640
shares issued and outstanding at
June 30, 1997 34,341 --
---------------------------
Preferred and Common stock and other
stockholders' equity:
Preferred Stock, $0.01 par value; 5,000,000
shares authorized -- --
Class A Common Stock, $0.01 par value;
2,000,000 shares authorized; 1,377,652 and
1,019,980 shares issued and outstanding 10 14
Class B Common Stock, $0.01 par value;
38,000,000 shares authorized; 18,037,025 and
11,716,212 shares issued and outstanding 117 180
Notes receivable from stockholders (636) (448)
Warrants 1,848 --
Additional paid-in-capital 57,470 188,721
Accumulated deficit (14,816) (2,566)
---------------------------
Total preferred and common stock and other
stockholders' equity 43,993 185,901
---------------------------
Total redeemable preferred stock, preferred
and common stock and other stockholders'
equity 78,334 185,901
---------------------------
Total liabilities, redeemable preferred
stock, preferred and common stock and
other stockholders' equity $ 467,184 $ 543,600
===========================
</TABLE>
(1) See notes to consolidated financial statements.
38
<PAGE>
BERINGER WINE ESTATES
CONSOLIDATED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
OLD BERINGER NEW BERINGER
------------- ---------------------------------------
Six Months Six Months
Ended Ended
December 31, June 30, Fiscal Year Ended June 30,
(in thousands, except per share data) 1995 1996 1997 1998
===============================================================================================
<S> <C> <C> <C> <C>
Gross revenues $ 113,057 $ 131,227 $ 282,801 $ 334,398
Less excise taxes 6,190 6,364 13,341 15,950
------------------------------------------------------
Net revenues 106,867 124,863 269,460 318,448
Cost of goods sold 54,114 93,626 177,829 182,557
------------------------------------------------------
Gross profit 52,753 31,237 91,631 135,891
Selling, general and
administrative expenses 35,241 36,020 78,647 93,248
Amortization of goodwill 956 -- -- --
------------------------------------------------------
Operating income 16,556 (4,783) 12,984 42,643
Other income (expense):
Interest expense (2,214) (12,830) (26,401) (23,00)
Other, net 125 255 892 2,465
------------------------------------------------------
Income (loss) before income taxes 14,467 (17,358) (12,525) 22,108
Provision for (benefit of) income
taxes 6,381 (7,993) (7,076) 6,543
------------------------------------------------------
Net income (loss) before
extraordinary item 8,086 (9,365) (5,449) 15,565
Less preferred stock dividends and
accretion of discount 2,054 4,920 4,365
------------------------------------------------------
Income (loss) before extraordinary
item available
to common stockholders (11,419) (10,369) 11,200
Extraordinary loss, net of tax -- -- 3,317
------------------------------------------------------
Net income (loss) available to common
stockholders $ 8,086 $ (11,419) $ (10,369) $ 7,883
======================================================
Income (loss) per share:
Basic EPS before extraordinary item $ (1.04) $ (0.86) $ 0.65
Less extraordinary loss per share -- -- (0.19)
---------------------------------------
Basic EPS after extraordinary item $ (1.04) $ (0.86) $ 0.46
=======================================
Diluted EPS before extraordinary item $ (1.04) $ (0.86) $ 0.62
Less extraordinary loss per share -- -- (0.19)
---------------------------------------
Diluted EPS after extraordinary item $ (1.04) $ (0.86) $ 0.43
=======================================
Weighted average number of common shares
and equivalents outstanding:
Basic 10,978 12,071 17,108
---------------------------------------
Diluted 10,978 12,071 18,170
---------------------------------------
</TABLE>
See notes to consolidated financial statements.
39
<PAGE>
BERINGER WINE ESTATES
CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
--------------- Paid in Retained
(in thousands, except shares) Shares Amount Capital Earnings Total
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995 51 $ 51 $126,274 $ 32,001 $158,326
Net income 8,086 8,086
Contribution 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
=================================================================================================================================
<CAPTION>
Notes
Class A Common Class B Common Receivable Additional
------------------ ------------------ From Paid in Accumulated
(in thousands, except shares) Shares Amount Shares Amount 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 warrants 1,848 1,848
Preferred stock dividend
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
receivable from stockholders 106 106
Preferred stock dividend
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
Net income 12,248 12,248
Issuance of stock 666,873 7 1,054 1,061
Proceeds from IPO 5,520,000 55 132,421 132,476
Exercise of warrants 431,612 5 (1,848) 1,843 --
Exercise of stock options 60,000 300 300
Repayment of notes
receivable from stockholders 188 188
Conversion Class B to
Class A, Common Stock 356,228 4 (356,228) (4) --
Other (2) 2 --
Preferred stock dividend
and accretion of discount (4,365) (4,365)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1998 1,376,208 $ 14 18,038,469 $ 180 $ (448) $ -- $188,721 $ (2,566) $185,901
=================================================================================================================================
</TABLE>
See notes to consolidated financial statements
40
<PAGE>
BERINGER WINE ESTATES
CONSOLIDATED STATEMENT OF
CASH FLOWS
<TABLE>
<CAPTION>
OLD BERINGER NEW BERINGER
------------ ---------------------------------------
Six Months Six Months
Ended Ended
December 31, June 30, Fiscal Year Ended June 30,
(in thousands) 1995 1996 1997 1998
==============================================================================================
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ 8,086 $ (9,365) $ (5,449) $ 12,248
Adjustments to reconcile
net income (loss) to net
cash provided by
operating activities:
Deferred taxes 968 (8,930) (15,596) (5,694)
Depreciation and amortization 5,234 2,270 6,399 12,226
Provision for doubtful accounts -- -- 210 --
Extraordinary loss on early
extinguishment of debt -- -- -- 1,509
Other (189) 33 (17) 160
Change in assets and liabilities:
Accounts receivable-trade (91) (688) (4,139) (2,298)
Inventories (24,536) 48,864 17,412 (37,572)
Prepaids and other assets (463) (95) (2,786) 323
Accounts payable-trade 4,427 (4,938) 1,991 7,342
Book overdraft liability -- -- 2,001 (794)
Accrued trade discounts (228) 234 1,032 2,066
Accrued payroll, bonuses and
benefits 608 1,236 (398) 3,045
Accrued interest (1,810) 5,034 964 (1,455)
Other accrued expenses 1,219 (900) 1,137 817
Income taxes payable 3,114 946 (946) 1,686
Other liabilities -- -- 6,333 (2,000)
------------------------------------------------------
Net cash provided by operating
activities (3,661) 33,701 8,148 (8,391)
------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property, plant and
equipment (7,082) (3,031) (33,956) (43,199)
Business acquisition -- (302,974) (20,351)
Other 997 436 187 (147)
------------------------------------------------------
Net cash used in investing activities (6,085) (305,569) (54,120) (43,346)
------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from line of credit $ -- $ 86,000 $ 18,000 $ 1,300
Proceeds from long-term debt -- 203,152 12,500 --
Repayment of long-term debt -- -- (816) (44,816)
Net change in amount due to Nestle 11,606 (91,738) (4,024) --
Issuance of common stock -- 54,417 5,780 133,676
Issuance (redemption) of preferred
stock -- 27,049 318 (38,705)
Issuance of stock warrants -- 1,848 -- --
Proceeds from notes receivable from
stockholders -- -- 106 188
------------------------------------------------------
Net cash provided by financing
activities 11,606 280,728 31,864 51,643
------------------------------------------------------
Net increase (decrease) in cash 1,860 8,860 (14,108) (94)
Cash at beginning of the period 3,503 5,363 14,223 115
------------------------------------------------------
Cash at end of the period $ 5,363 $ 14,223 $ 115 $ 21
======================================================
</TABLE>
See notes to consolidated financial statements
SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for income taxes were $2,297,000, $45,000, $9,287,000 and
$9,045,000 for the six months ended December 31, 1995 and June 30, 1996 and for
the years ended June 30, 1997 and 1998, respectively. Cash payments for
interest, net of amounts capitalized, were $3,421,000, $7,160,000, $24,128,000,
and $23,749,000 for the six months ended December 31, 1995 and June 30, 1996 and
for the years ended June 30, 1997 and 1998, respectively.
During the six months ended June 30, 1996, the Company extinguished a
liability for acquisition costs of $3,500,000 through the issuance of shares of
common stock.
41
<PAGE>
BERINGER WINE ESTATES
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 Jersey, Texas, Illinois, and Florida. Export sales for
all periods presented account for approximately 3% of net revenues.
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, 1995.
Summary of Significant Accounting Policies
Basis of presentation The consolidated financial statements include the
accounts of BWEH and all of its subsidiaries. Intercompany transactions and
balances have been eliminated. 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.
Revenue recognition The Company recognizes revenue when the product is shipped.
Revenue from 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. No products are sold on consignment.
Inventories Inventories are valued at the lower of cost or market. Inventory
and cost of inventory sold are determined using the first-in, first-out (FIFO)
method. Costs associated with growing crops, winemaking and other costs
associated with the manufacturing of product for resale are recorded as
inventory. 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 added to asset cost until the vineyards become commercially
productive.
Depreciation and amortization is generally computed using the straight-line
method over the estimated useful life of the assets, generally 15 to 25 years
for vineyards, 40 years for buildings, and 5 to 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
42
<PAGE>
BERINGER WINE ESTATES
range from 1 to 4 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 $251,000 and $249,000 at June 30,
1997 and 1998, respectively.
Goodwill For periods ending prior to 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. See Note 2
for a summary of the purchase price allocation.
Other assets Other assets include loan fees, long-term prepaid lease costs and
other prepaid 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 advertising costs 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 merchandising and point of sale materials charged to expense, totaled
$6,655,000, $4,518,000, $15,616,000 and $16,118,000 for the six months ended
December 31, 1995 and June 30, 1996, and for the years ended June 30, 1997 and
1998, 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 17.0%, 18.6%, 29.8%
and 31.6%, respectively, of revenues for the six months ended December 31, 1995
and June 30, 1996 and for the years ended June 30, 1997 and 1998. Trade accounts
receivable from these distributors at June 30, 1997 and 1998 totaled $7,396,000
and $6,972,000, respectively. There is another distributor whose purchases
accounted for 16.2% and 13.9% of revenues for the six months ended December 31,
1995 and June 30, 1996 and 0% for the fiscal years ended June 30, 1997 and 1998.
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 the redeemable preferred stock at
June 30, 1997 because it was not traded in the open market and hence its value
was not readily determinable.
Forward Exchange Contracts Forward exchange contracts and options are used to
manage foreign currency exchange rate risk on certain purchase commitments,
generally French oak barrels. Gains and losses relating to firm purchase
commitments are deferred and are recognized as adjustments of carrying amounts.
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 12.
Earnings Per Share In February 1997, the Financial Accounting Standards Board
issued Statement No. 128 (FAS 128), Earnings per Share. This Statement
established new accounting standards for the computation and manner of
presentation of the Company's earnings per share. The Company adopted the
provisions of FAS 128 for all periods presented (see Note 15).
43
<PAGE>
BERINGER WINE ESTATES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 10 and 11), 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:
Beringer CSJ SLW
(in thousands) Acquisition Acquisition Acquisition
- --------------------------------------------------------------------------------
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
=============================================
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:
Beringer CSJ SLW
(in thousands) Acquisition Acquisition Acquisition
- --------------------------------------------------------------------------------
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
=============================================
44
<PAGE>
BERINGER WINE ESTATES
Results of operations from Chateau St. Jean and Stags' Leap are included in
the Consolidated Statements of Operations since their respective acquisition
dates. The following pro forma unaudited 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
Six months Six months
ended ended Year ended
December 31, June 30, June 30,
1995 1996 1997
(in thousands, except per share data -
unaudited)
================================================================================
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) $ (0.95)
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:
June 30,
(in thousands) 1997 1998
================================================================================
Bulk wine $ 89,890 $ 96,779
Cased goods and retail 104,485 133,668
Crop costs and supplies 19,722 21,222
-----------------------
$ 214,097 $ 251,669
=======================
Each of the acquisitions described in Note 2 resulted in an allocation of
purchase price in excess of book value to inventory on hand at the date of
purchase. This allocation of purchase price in excess of book value is referred
to as inventory step-up. The Beringer, Chateau St. Jean and Stags' Leap Winery
acquisitions resulted in $101.9 million, $6.4 million and $14.6 million in
inventory step-up, respectively.
Included in inventories at June 30, 1997 and 1998 is $47,468,000 and
$19,623,000, respectively, of step-up remaining from the acquisitions (Note 2).
During the six month period ended June 30, 1996 and the years ended June 30,
1997 and 1998, inventories that had absorbed $32,131,000, $43,308,000 and
$27,845,000, respectively, of step-up were sold and recorded in cost of goods
sold.
45
<PAGE>
BERINGER WINE ESTATES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
4. PROPERTY, LAND AND EQUIPMENT
The cost and accumulated depreciation of property, plant and equipment consist
of the following:
June 30,
(in thousands) 1997 1998
================================================================================
Land $ 66,562 $ 77,812
Vineyards 56,462 57,315
Machinery and equipment 51,920 61,627
Buildings 27,856 31,503
Leasehold improvements 7,676 7,677
Furniture and fixtures 1,668 1,902
Vineyards under development 10,648 26,339
Construction in progress 2,783 4,563
----------------------
225,575 268,738
Less accumulated depreciation (13,197) (24,041)
----------------------
$212,378 $244,697
======================
Included in fixed assets are $603,000, $306,000, $636,000 and $1,356,000 of
interest capitalized for the six months ended December 31, 1995 and June 30,
1996, and the years ended June 30, 1997 and 1998, 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:
June 30,
(in thousands) 1997 1998
================================================================================
Loan fees $ 5,240 $ 5,240
Prepaid lease costs and other (742) (1,271)
---------------------
4,498 3,969
Less accumulated amortization 2,579 3,293
---------------------
$ 7,077 $ 7,262
=====================
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 issued
senior subordinated notes to certain investors. In connection with the issuance
of the senior subordinated notes, the investors also received 308,294 and
123,318 of the Company's Class A and Class B Stock Warrants, respectively (Note
12).
The Credit Agreement provides for a senior secured credit facility consisting
of a term loan and a secured revolving line 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 are used in determining 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, 1997 the Company had drawn $104,000,000 on the credit line. At June 30,
1998, the Company had drawn $105,300,000 on the credit line. At June 30, 1998,
the Company had an outstanding letter of credit related to a vineyard lease for
46
<PAGE>
BERINGER WINE ESTATES
$3,500,000. Unused availability under the credit line was $41,200,000 at June
30, 1998. Interest under the line of credit, which is payable quarterly, accrues
at a rate determined under various bank interest programs ranging from 6.81% to
8.69% for the periods ended June 30, 1997 and 1998. 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 0.30% per annum of the average daily amount by which the
maximum credit available exceeds the outstanding balance on the credit line.
Long-term debt consists of the following:
June 30,
(in thousands) 1997 1998
================================================================================
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 and 6.97% to 7.29% at June 30, 1998);
interest payable quarterly; principal payable
quarterly commencing April 1, 1997; due
July 16, 2005 $ 20,000 $ 13,897
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 and 6.97% to 8.02% at June 30, 1998);
interest payable quarterly; principal payable
quarterly commencing April 1, 1999; due
July 16, 2005 161,684 157,970
Senior subordinated notes, less unamortized original
issue discount of $1,572,000 at June 30, 1997;
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 33,428 --
--------------------
Total Debt 215,112 171,867
Less current portion (3,714) (4,406)
--------------------
$211,398 $167,461
===================
Aggregate annual maturities of long-term debt at June 30, 1998 are as follows
Year ending June 30 (in thousands)
================================================================================
1999 $ 4,406
2000 4,764
2001 5,153
2002 5,572
2003 6,027
Thereafter 145,945
--------
$171,867
========
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 certain
assets.
In November 1997, the Company used the proceeds from the public offering to
retire $6,000,000 of senior term debt and all of the outstanding senior
subordinated notes. The early retirement of the subordinated notes resulted in a
pre-tax extraordinary charge of $4,659,000 that included a $3,150,000 prepayment
penalty and a $1,509,000 write-off of unamortized discount.
47
<PAGE>
BERINGER WINE ESTATES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
7. DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are summarized as follows:
Notional Amount Effective Date Termination Date Fixed Rate
================================================================================
$ 5,000,000 4/1/98 10/1/01 6.38%
10,000,000 4/1/98 1/2/02 6.38%
10,000,000 3/2/98 2/1/01 6.33%
The Company had interest rate swaps with a total notional amount of
$25,000,000 at June 30, 1998 and no interest rate swaps at June 30, 1997. These
derivative securities exchange a variable rate of interest paid on the Company's
long-term debt for a fixed rate of interest shown in the table above. These
interest rate swap agreements increase to a notional amount of $90,000,000 in
fiscal 1999 and $130,000,000 in fiscal 2000.
The Corporation's credit exposure under these agreements is limited to the
cost of replacing an agreement in the event of non-performance by its
counterparty. To minimize this risk, the Corporation selects high quality
financial institution counterparties.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 is effective for years beginning after
June 15, 1999. The statement requires all derivative securities to be recorded
on the balance sheet at fair value and establishes "special accounting" for the
different types of hedges. The Company plans to adopt this statement in fiscal
2000. Had the Company adopted the statement in fiscal 1998, it would have
reported a pre-tax loss of approximately $1,526,000, as the variable rates on
the Company's debt instruments were lower than the fixed rates of the swap
agreements on June 30, 1998.
The Company purchases forward exchange contracts to reduce the effect of
fluctuating foreign currencies on certain foreign currency denominated purchase
commitments. At June 30, 1998, the Company had outstanding forward exchange
contracts to purchase 14,035,000 French francs through September 15, 1998 for
the U.S. dollar equivalent of $2,338,000. Using exchange rates as of June 30,
1998, the U.S. dollar equivalent of the contracts was $2,317,000. The Company
had no forward exchange contracts outstanding at June 30, 1997.
8. EMPLOYER 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 $271,000 for the six
months ended December 31, 1995. Contributions by the Company for the six months
ended December 31, 1995 to the 401(k) savings plan totaled $175,000. 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. Employees with
less than four years of service vest ratably in any discretionary contributions
made by the Company. Contributions by the Company for the six months ended June
30, 1996 and for the years ended June 30, 1997 and 1998 totaled $616,000,
$910,000 and $1,257,000, respectively, including discretionary contributions of
$384,000, $500,000 and $734,000, respectively.
9. 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 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
48
<PAGE>
BERINGER WINE ESTATES
tax filing purposes. Accordingly, the Company's current income taxes at 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:
<TABLE>
<CAPTION>
Six months Six months
ended ended Year ended Year ended
June 30, December 31, June 30, June 30,
(in thousands) 1995 1996 1997 1998
==================================================================================
<S> <C> <C> <C> <C>
Current provision:
Federal $ 4,269 $ 741 $ 6,617 $ 8,568
State 1,144 196 1,903 2,327
---------------------------------------------------
5,413 937 8,520 10,895
---------------------------------------------------
Deferred provision (benefit):
Federal 657 (6,936) (12,100) (4,539)
State 311 (1,994) (3,496) (1,155)
---------------------------------------------------
968 (8,930) (15,596) (5,694)
---------------------------------------------------
6,381 (7,993) (7,076) 5,201
Tax impact of extraordinary
item -- -- -- 1,342
Total provision (benefit) $ 6,381 $ (7,993) $ (7,076) $ 6,543
===================================================
</TABLE>
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 months ended Six months ended Year ended Year ended
December 31, June 30, June 30, June 30,
1995 1996 1997 1998
===============================================================================================================
<S> <C> <C> <C> <C>
Federal statutory tax (benefit) rate 35.0% (35.0%) (35.0%) 35.0%
State income taxes, net of federal benefit 6.3% (6.7%) (8.3%) 4.4%
Amortization of tax basis goodwill -- (5.3%) (14.7%) (10.6%)
Amortization of book basis goodwill 2.3% -- -- --
Other 0.5% 0.9% 1.5% 1.0%
------------------------------------------------------------
44.1% (46.1%) (56.5%) 29.8%
============================================================
</TABLE>
The approximate effect of temporary differences that give rise to deferred tax
balances are as follows:
June 30,
(in thousands) 1997 1998
================================================================================
Gross deferred tax assets:
Liabilities and accruals $ 4,338 $ 3,130
State taxes 150 714
---------------------
4,488 3,844
---------------------
Gross deferred tax liabilities:
Property, plant and equipment (29,368) (33,559)
Inventories (8,592) 1,937
---------------------
(37,960) (31,622)
Net deferred tax liabilities $(33,472) $(27,778)
=====================
49
<PAGE>
BERINGER WINE ESTATES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
10. REDEEMABLE PREFERRED STOCK
Prior to its initial public offering, the Company authorized 2,000,000 shares of
Series A Preferred Stock (Preferred Stock) with a par value of $0.0001 per
share. The Preferred Stock was non-voting and senior to all other classes and
series of the Company's stock. The Preferred Stock had a semi-annual dividend
rate per share of 7% of the liquidation value of $100 per share. Dividends were
cumulative and were accrued and payable semi-annually from the date of issuance.
Dividends on the Preferred Stock issued in 1996 were paid in additional shares
of Preferred Stock. The liquidiation value of the Preferred Stock, in the event
of an involuntary conversion was 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 six month period
ended June 30, 1996 and the years ending June 30, 1997 and 1998, dividends
accrued and paid in additional shares of Preferred Stock amounted to 19,389,
46,703 and 18,034 shares, respectively.
In November 1997, the Company used net proceeds from its initial public
offering to redeem all outstanding shares of the Preferred Stock. The early
redemption of the Preferred Stock resulted in a $2,500,000 reduction of net
income allocable to common stockholders, which represented the accelerated
accretion of the original issue discount remaining on the redemption date.
11. 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 10).
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, 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 October 1997, the Company issued, in an initial public offering, 4,920,000
shares of Class B Common Stock and issued 600,000 shares of Class B Common Stock
directly to holders of the Series A Preferred Stock. These issuances of
common stock resulted in net proceeds to the Company of $132,476,000. All
outstanding warrants were exercised resulting in issuance of 431,612 shares of
Class B common stock.
During the year ended June 30, 1998, current and past directors of the Company
exercised options resulting in the issuance of 757,980 shares of Class B Common
Stock. The Company issued 40,759 Class B Common Stock shares in connection with
the Employee Stock Purchase Plan (See Note 12).
50
<PAGE>
BERINGER WINE ESTATES
In lieu of cash compensation, the Company has also issued 6,000, 18,908 and
10,072 shares of Class B Common Stock to Directors for the six month period
ended June 30, 1996 and the years ended June 30, 1997 and 1998, respectively.
Notes receivable from stockholders, who are also employees of the Company,
bear interest at the prime rate (8.25% at June 30, 1996 and 8.50% at June 30,
1997 and 1998), are due ten years from their date of issuance, and are secured
by shares of Company stock. The notes become due upon termination of the
holders' employment or upon sale of the underlying security.
12. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
The Company has two stock option plans, two option agreements and 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 fair market value of the common stock on the date of
grant.
The fair value of the common stock on the date of grant for 1,263,584 of the
2,103,226 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 $41 per
share. Had the minimum value of the options been calculated in accordance with
FAS 123, net loss available to common stockholders would have been $11,786,000,
$10,594,000, and loss per diluted share would have been $(1.07), $(0.88),
respectively, for the periods ended June 30, 1996, and 1997. Net income
available to common stockholders would have been $6,739,000 or $0.37 per diluted
share for the period ended June 30, 1998.
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, 1997 and 1998, respectively: dividend yield of
0% for all years; expected volatility of 0% for years prior to fiscal 1998 and
42% for fiscal 1998; risk-free interest rates of 5.56%, 6.66% and 5.95%; and,
expected lives of three to seven years for all years.
Stock Option Plans The Company has two option plans and two option agreements:
the 1996 Stock Option Plan, the 1998 Option Plan, the MAR Stock Option Agreement
and the Silverado Stock Option Agreement.
Under the 1996 Stock Option Plan, the Company is authorized to grant both
incentive and non-qualified stock options for up to 2,205,604 shares of Class B
Common Stock. Options vest over five years and expire after ten years from the
date of grant. The Company has granted 1,163,446 stock options under this plan
at June 30, 1998.
Under the 1998 Stock Option Plan, the Company is authorized to grant both
incentive and non-qualified stock options for up to 200,000 shares of Class B
Common Stock 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. The Company has granted 181,800 stock options under this plan at June 30,
1998.
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. The Company has granted
697,980 stock options under this agreement at June 30, 1997. At June 30, 1998
all outstanding options had been exercised.
51
<PAGE>
BERINGER WINE ESTATES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Information regarding these option plans for the fiscal years 1997 and 1998 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 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
Options authorized 1,700,000
Options granted (671,700) 671,700 $26.40
Options cancelled 4,400 (4,400) $22.00
Options exercised (757,980) $ 5.92
--------------------------------------------------------
Balance at June 30, 1998 1,061,858 1,343,746 $16.46 285,537
========================================================
</TABLE>
The weighted average exercise price of options exercisable at June 30, 1997
and 1998 was $5.80 and $5.11 per share, respectively. At June 30, 1998, the
1,345,246 options outstanding had a range of exercise price from $5 to $41 and a
range of expiration dates from January 2006 to February 2008.
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. All warrants were exercised during the year ended June 30, 1998.
Employee Stock Purchase Plan 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.
13. 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 $384,000, $384,000, $948,000 and $948,000
for the six months ended December 31, 1995 and June 30, 1996 and the years ended
June 30, 1997 and 1998, respectively, related to the lease of warehouse space
from a partnership consisting of directors and officers of the Company.
52
<PAGE>
BERINGER WINE ESTATES
Minimum rental payments under this non-cancelable operating lease at June 30,
1997 are as follows:
Year ending June 30 (in thousands)
================================================================================
1999 $ 948
2000 948
2001 948
2002 1,152
2003 1,152
Thereafter 3,456
----------
$ 8,604
==========
Pressoir Deutz is a partnership that produced sparkling wine in California. In
periods ending prior to June 30, 1998, the Company held a 33% interest in
Pressoir Deutz. At June 30, 1998, the Company no longer had any ownership in
Pressoir Deutz. During the six months ended December 31, 1995 and June 30, 1996
and the years ended June 30, 1997 and 1998, the Company purchased sparkling wine
from Pressoir Deutz totaling $1,137,000, $458,000, $2,563,000 and $153,000,
respectively. No amount was due to Pressoir Deutz at June 30, 1997 or 1998.
The Company owns a 50% interest in Calcork, a cork processing company. At June
30, 1998, the $125,000 investment in Calcork was included in investments in the
consolidated balance sheets. During the six months ended December 31, 1995 and
June 30, 1996 and the years ended June 30, 1997 and 1998, the Company incurred
fees for cork processing to Calcork totaling $169,000, $88,000, $466,000 and
$279,000, respectively. No amount was due to Calcork at June 30, 1997 for these
services. At June 30, 1998, a balance of $36,000 was due Calcork and is included
in accounts payable-trade in the consolidated balance sheet.
14. COMMITMENTS AND CONTINGENCIES
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 $3,434,000, $4,111,000, $9,578,000 and $10,830,000, respectively,
for the six months ended December 31, 1995 and June 30, 1996 and for the years
ended June 30, 1997 and 1998. Minimum rental payments under non-cancelable
operating leases at June 30, 1998 are as follows:
Year ending June 30 (in thousands)
================================================================================
1999 $ 11,194
2000 10,809
2001 10,407
2002 8,975
2003 7,677
Thereafter 13,078
-----------
$ 62,140
===========
53
<PAGE>
BERINGER WINE ESTATES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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.
15. EARNINGS PER SHARE COMPUTATION
During the quarter ended December 31, 1997, the Company adopted Financial
Accounting Standard No. 128 - Earnings Per Share. This standard replaces the
previously reported primary and fully diluted EPS calculations with basic and
diluted EPS calculations. Basic EPS represents the income available to common
stockholders divided by the weighted average number of common shares outstanding
during the measurement period. Diluted EPS represents the income available to
common stockholders divided by the weighted average number of common shares
outstanding during the measurement period while also giving effect to all
potentially dilutive common shares that were outstanding during the period.
Basic EPS is computed using the weighted average number of Class A and Class B
common shares outstanding. Diluted EPS is computed using the weighted average
number of Class A and Class B common shares outstanding while giving effect to
all potentially dilutive common shares that were outstanding during the period.
Potential common shares consist primarily of stock options and warrants
(dilutive impact calculated applying the "treasury stock method").
The table below is a summary of both the numerator and denominator for the
basic and diluted EPS calculations:
<TABLE>
<CAPTION>
Six months ended Year ended Year ended
(in thousands, except per share data) June 30, 1996 June 30,1997 June 30,1998
=================================================================================================================
<S> <C> <C> <C>
Numerator--Income (loss)
Net income (loss) before extraordinary item $ (9,365) $ (5,449) $ 7,408
Less: Preferred stock dividends 2,054 4,920 4,365
Extraordinary item -- -- 3,317
----------------------------------------------------
Net income (loss) available to common stockholders $ (11,419) $ (10,369) $ 7,883
====================================================
Denominator--Basic shares
Average common shares outstanding 10,978 12,071 17,108
Basic EPS $ (1.04) $ (0.86) $ 0.46
Denominator--Diluted shares
Average common shares outstanding 10,978 12,071 17,108
Dilutive effect of common stock equivalents -- -- 1,062
----------------------------------------------------
Total diluted shares 10,978 12,071 18,170
====================================================
Diluted EPS $ (1.04) $ (0.86) $ 0.43
</TABLE>
54
<PAGE>
BERINGER WINE ESTATES
16. QUARTERLY FINANCIAL DATA
Unaudited quarterly financial data for the fiscal years ended June 30, 1997 and
1998 are as follows:
<TABLE>
<CAPTION>
(in thousands, except per share data) Quarter 1 Quarter 2 Quarter 3 Quarter 4
==========================================================================================================
<S> <C> <C> <C> <C>
Year Ended June 30, 1998
Net revenues $ 65,810 $ 94,377 $ 77,168 $ 81,093
Gross Profit 26,644 38,639 33,759 36,849
Net Income (loss) (673) 1,407 5,248 6,266
Net Income (loss) available to common stockholders (2,040) (1,591) 5,248 6,266
Basic EPS (0.16) (0.09) 0.28 0.32
Diluted EPS (0.16) (0.09) 0.26 0.31
Year Ended June 30, 1997
Net revenues $ 55,961 $ 77,125 $ 67,444 $ 68,930
Gross Profit 12,725 29,084 25,036 24,786
Net Income (loss) (4,818) (398) 46 (279)
Net Income (loss) available to common stockholders (6,011) (1,600) (1,209) (1,549)
Basic EPS (0.51) (0.13) (0.10) (0.12)
Diluted EPS (0.51) (0.13) (0.10) (0.12)
</TABLE>
55
<PAGE>
BERINGER WINE ESTATES
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 presents fairly, in all material respects, the financial position of
Beringer Wine Estates Holdings, Inc. and its subsidiaries at June 30, 1997 and
1998, and the results of their operations, and their cash flows for the six
month periods ended December 31, 1995 and June 30, 1996 and the years ended June
30, 1997 and 1998 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.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Francisco, California
August 11, 1998
56
<PAGE>
BERINGER WINE ESTATES
CORPORATE
INFORMATION
DIRECTORS
Walter T. Klenz
Chairman of the Board and CEO
Executive Committee
Richard L. Adams
Partner, Worsham, Forsythe
& Woodridge, L.L.P.
Audit Committee
David Bonderman
Principal, Texas Pacific Group
Nominating Committee
Randy Christofferson
President, First USA Bank
Audit Committee
James G. Coulter
Principal, Texas Pacific Group
Chairman of the Executive, Compensation and
Nominating Committees
Timm F. Crull
Retired Chairman of Netold USA
Compensation Committee
William A. Franke
Chairman and CEO,
America West Airlines
Compensation Committee
E. Michael Moone
Chairman, Silverado Equity Partners, L.P.
Member Executive, Nominating and
Compensation Committees
William S. Price III
Principal, Texas Pacific Group
Executive Committee
Jesse Rogers
Director, Bain & Company, Inc.
Compensation Committee
George A. Vare
Managing Partner,
Silverado Equity Partners, L.P.
Chairman of the Audit Committee
Emily Woods
Chairman and CEO, J. Crew Group, Inc.
OFFICERS
Richard R. Carter
Vice President, Sales
Gregory M. Delancy
Vice President, Controller
Martin L. Foster
Vice President, Investor Relations
and Treasurer
A. Tor Kenward
Vice President, Winery Communications
Thomas W. Peterson
Vice President, Sonoma Operations
Douglas W. Roberts
Vice President, General Counsel
and Secretary
Edward G. Sbrogia
Senior Vice President and Winemaster
Peter F. Scott
Senior Vice President, Finance and Operations
and Chief Financial Officer
Robert E. Steinhauer
Senior Vice President, Marketing and Hospitality
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
San Francisco, CA
TRANSFER AGENT
AND REGISTRAR
Boston EquiServe
Canton, Massachusetts
CORPORATE HEADQUARTERS
1000 Pratt Avenue
St. Helena, CA 94574
ANNUAL MEETING
Thursday, November 5, 1998, at 10:30 a.m.
Beringer Vineyards, St. Helena, California
FORM 10-K
A copy of form 10-K filed with the Securities
and Exchange Commission, is available upon
request to:
Martin Foster, V.P. Investor Relations
Beringer Wine Estates
610 Airpark Road, Box 4500
Napa, California 94558
e-mail to: [email protected]
COMMON STOCK ACTIVITY
Beringer Wine Estates Holdings, Inc., Class B
Common Stock is traded on the Nasdaq National
Market under the symbol "BERW". The table below
sets forth the high and low sales prices for the
common stock for the three quarters that the
Company was traded on the Nasdaq National
Market during the fiscal year ended June 30, 1998.
Fiscal 1998 High Low
Second Quarter $ 38.00 $ 30.00
Third Quarter $ 51.38 $ 36.00
Fourth Quarter $ 54.06 $ 39.50
As of June 30, 1998, there were 374 holders
of record of the Company's common stock. The
Company has not paid cash dividends since its
inception and does not anticipate paying cash
dividends in the foreseeable future.
This Annual Report contains forward-looking
statements. Actual results could vary from those
expected due to a variety of risk factors set forth
from time to time in the Company's SEC filings,
including, but not limited to, its reports on Form
10-K for the year ended June 30, 1998. The
Company undertakes no obligation to publicly
release the results of any revisions to these forward-
looking statements which may be made to reflect
events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
57
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
Subsidiaries as of September 15, 1998:
Beringer Vineyards (Europe) S.A. (Swiss Corp.)
Beringer Wine Estates Sales Co. (California Corp.)
Beringer Foreign Sales Corporation (Barbados Corp.)
Cork Processors, Inc. (Delaware Corp.)
North Napa Land Co. (Delaware Corp.)
Premium Land, Inc. (Delaware Corp.)
And the Operating Company:
Beringer Wine Estates Company (Delaware Corp.)
<PAGE>
EXHIBIT 22
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-347653, No. 33-347655, No. 33-347657) for
Beringer Wine Estates Holdings, Inc. of our report dated August 11, 1998
appearing on page 56 of this Form 10-K.
PricewaterhouseCoopers LLP
San Francisco, CA
September 25, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 21
<SECURITIES> 0
<RECEIVABLES> 30,773
<ALLOWANCES> (249)
<INVENTORY> 251,669
<CURRENT-ASSETS> 291,209
<PP&E> 268,738
<DEPRECIATION> (24,041)
<TOTAL-ASSETS> 543,600
<CURRENT-LIABILITIES> 53,846
<BONDS> 0
0
0
<COMMON> 194
<OTHER-SE> 185,707
<TOTAL-LIABILITY-AND-EQUITY> 543,600
<SALES> 318,448
<TOTAL-REVENUES> 318,448
<CGS> 182,557
<TOTAL-COSTS> 182,557
<OTHER-EXPENSES> 93,248
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,000
<INCOME-PRETAX> 22,108
<INCOME-TAX> 6,543
<INCOME-CONTINUING> 15,565
<DISCONTINUED> 0
<EXTRAORDINARY> 3,317
<CHANGES> 0
<NET-INCOME> 12,248
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.43
</TABLE>
