<PAGE>
- -------------------------------------------------------------------------------
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
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[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 1999
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to _______________________
Commission file number: 000-23175
----------------
BERINGER WINE ESTATES HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 68-0370340
(State of Incorporation) (I.R.S. Employer Identification)
</TABLE>
610 Airpark Road
P.O. Box 4500
Napa, California 94558
(Address of principal executive offices)
(707) 259-4500
(Registrant's telephone number, including area code)
----------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by 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 requirements for the past 90 days. Yes [X] No [_]
As of May 3, 1999, the Registrant's Common Stock outstanding was:
<TABLE>
<CAPTION>
Title Outstanding
----- -----------
<S> <C>
Class A Common Stock............................................. 1,342,400
Class B Common Stock............................................. 18,168,652
</TABLE>
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<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
----
PART I: FINANCIAL INFORMATION
<C> <S> <C>
Item 1 Financial Statements
Consolidated Balance Sheets at June 30, 1998 and March 31, 1998
and 1999....................................................... 1
Consolidated Statements of Operations for the three and nine
month periods ended March 31, 1998 and 1999.................... 2
Consolidated Statements of Cash Flows for the three and nine
month periods ended March 31, 1998 and 1999.................... 3
Notes to Consolidated Financial Statements...................... 4
Management's Discussion and Analysis of Results of Operations
Item 2 and Financial Condition......................................... 5
</TABLE>
PART II: OTHER INFORMATION
Item 6Exhibits and Reports on Form 8-K
1. Exhibits:
Exhibit 27 Financial Data Schedule
2 Form 8-K:
No reports on Form 8-K were filed during the quarter ended March 31,
1999
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30, March 31, March 31,
1998 1998 1999
-------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash....................................... $ 21 $ 106 $ 19
Accounts receivable, net of allowance of
$249...................................... 30,524 28,226 49,983
Inventories................................ 251,669 254,547 290,102
Deferred tax assets........................ 5,781 961 10,230
Prepaids and other current assets.......... 3,214 5,921 3,635
-------- -------- --------
Total current assets..................... 291,209 289,761 353,969
Property, plant and equipment, net of
accumulated depreciation of $24,041, $21,406
and $32,604................................. 244,697 230,776 270,419
Other assets, net............................ 7,694 7,802 9,232
-------- -------- --------
Total assets............................. $543,600 $528,339 $633,620
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable........................... $ 17,456 $ 16,259 $ 21,997
Book overdraft............................. 1,207 -- 5,726
Accrued trade discounts.................... 4,527 3,982 8,934
Accrued payroll, bonuses and benefits...... 6,706 4,922 7,691
Accrued interest........................... 4,543 4,639 4,861
Other accrued expenses..................... 6,515 5,612 3,483
Income taxes payable....................... 1,686 1,866 3,250
Current portion of line of credit.......... 6,800 1,200 11,300
Current portion of long-term debt.......... 4,406 4,012 3,041
-------- -------- --------
Total current liabilities................ 53,846 42,492 70,283
Line of credit, less current portion......... 98,500 101,500 93,500
Long-term debt, less current portion......... 167,461 168,904 223,554
Deferred tax liabilities..................... 33,559 31,512 35,275
Other liabilities............................ 4,333 4,833 2,833
-------- -------- --------
Total liabilities........................ 357,699 349,241 425,445
-------- -------- --------
Stockholders' equity:
Class A Common Stock, $0.01 par value;
2,000,000 shares authorized; 1,377,652,
1,416,962 and 1,342,558 shares issued and
outstanding............................... 14 14 13
Class B Common Stock, $0.01 par value;
38,000,000 shares authorized; 18,037,025,
17,663,954 and 18,165,344 shares issued
and outstanding........................... 180 177 182
Notes receivable from stockholders......... (448) (477) (306)
Additional paid-in-capital................. 188,721 188,218 190,855
Retained earnings (accumulated deficit).... (2,566) (8,834) 17,431
-------- -------- --------
Total stockholders' equity............... 185,901 179,098 208,175
======== ======== ========
Total liabilities and stockholders'
equity.................................. $543,600 $528,339 $633,620
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Three months Nine months ended
ended March 31, March 31,
---------------- ------------------
1998 1999 1998 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Gross revenues........................... $81,271 $97,578 $249,121 $294,202
Less excise taxes........................ 4,103 4,374 11,766 13,405
------- ------- -------- --------
Net revenues............................. 77,168 93,204 237,355 280,797
Cost of goods sold....................... 43,409 49,252 138,314 149,790
------- ------- -------- --------
Gross profit............................. 33,759 43,952 99,041 131,007
Selling, general and administrative
expenses................................ 22,030 26,605 69,828 85,179
------- ------- -------- --------
Operating income......................... 11,729 17,347 29,213 45,828
Interest expense......................... 5,094 5,768 18,049 16,016
Other expense (income), net.............. (821) (540) (1,982) (1,931)
------- ------- -------- --------
Income before income taxes............... 7,456 12,119 13,146 31,743
Provision for income taxes............... 2,208 4,484 3,847 11,745
------- ------- -------- --------
Net income before extraordinary item and
preferred stock dividends and discount
accretion............................... 5,248 7,635 9,299 19,998
Less preferred stock dividends and
accretion of discount................... -- -- 4,365 --
------- ------- -------- --------
Income before extraordinary item
available to common stockholders........ 5,248 7,635 4,934 19,998
Extraordinary loss, net of tax........... -- -- 3,317 --
------- ------- -------- --------
Net income available to common
stockholders.......................... $ 5,248 $ 7,635 $ 1,617 $ 19,998
======= ======= ======== ========
Income per share:
Basic EPS before extraordinary item.... $ 0.28 $ 0.39 $ 0.30 $ 1.03
Less extraordinary loss per share...... -- -- 0.20 --
------- ------- -------- --------
Basic EPS after extraordinary item..... $ 0.28 $ 0.39 $ 0.10 $ 1.03
======= ======= ======== ========
Diluted EPS before extraordinary item.. $ 0.26 $ 0.38 $ 0.28 $ 0.99
Less extraordinary loss per share...... -- -- 0.19 --
------- ------- -------- --------
Diluted EPS after extraordinary item... $ 0.26 $ 0.38 $ 0.09 $ 0.99
======= ======= ======== ========
Weighted average number of common shares
and equivalents outstanding:
Basic.................................. 19,081 19,508 16,344 19,508
======= ======= ======== ========
Diluted................................ 20,187 20,281 17,472 20,271
======= ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Three months Nine months ended
ended March 31, March 31,
------------------ ------------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................... $ 5,248 $ 7,635 $ 5,982 $ 19,998
Adjustments to reconcile net income
to net cash used in operating
activities:
Deferred taxes..................... (1,367) 59 (2,921) (2,733)
Depreciation and amortization...... 2,734 3,330 8,501 9,761
Extraordinary loss on early
extinguishment of debt............ -- -- 1,509 --
Other.............................. -- (1) 85 48
Change in assets and liabilities:
Accounts receivable.............. 8,820 (4,239) -- (19,459)
Inventories...................... 4,014 (81) (40,450) (38,433)
Prepaids and other assets........ (2,713) (859) (2,113) (2,497)
Accounts payable................. (16,622) (26,431) 6,145 4,541
Book overdraft................... (2,386) 5,726 (2,001) 4,519
Accrued trade discounts.......... (2,047) (341) 1,521 4,407
Accrued payroll, bonuses and
benefits........................ 17 1,319 1,261 985
Accrued interest................. (79) 53 (1,359) 318
Other accrued expenses........... 675 748 (86) (3,032)
Income taxes payable............. 531 (3,193) 1,866 1,564
Other liabilities................ (500) (500) (1,500) (1,500)
-------- -------- -------- --------
Net cash used in operating
activities.................... (3,675) (16,775) (23,560) (21,513)
-------- -------- -------- --------
Cash flows from investing activities:
Acquisitions of property, plant and
equipment........................... (9,571) (13,199) (25,914) (34,285)
Decrease (increase) in investments... (194) -- (165) (660)
-------- -------- -------- --------
Net cash used in investing
activities.................... (9,765) (13,199) (26,079) (34,945)
-------- -------- -------- --------
Cash flows from financing activities:
Net (repayments of) proceeds from
line of credit...................... 14,000 29,900 (1,300) (500)
Proceeds from (repayment of) long-
term debt........................... (940) (1,113) (43,767) 54,728
Proceeds from initial public
offering............................ -- -- 132,476 --
Issuance of common stock............. 467 540 767 2,086
Redemption of preferred stock........ -- -- (38,705) --
Proceeds from notes receivable from
stockholders........................ -- 46 159 142
-------- -------- -------- --------
Net cash provided by financing
activities.................... 13,527 29,373 49,630 56,456
-------- -------- -------- --------
Net increase (decrease) in cash........ 87 (601) (9) (2)
Cash at beginning of the period........ 19 620 115 21
-------- -------- -------- --------
Cash at end of the period.............. $ 106 $ 19 $ 106 $ 19
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly our
financial position at June 30, 1998 and March 31, 1998 and 1999, and our
results of operations and cash flow for the three and nine month periods ended
March 31, 1998 and 1999. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. For further
information, refer to our Form 10-K for the year ended June 30, 1998.
Operating results for the three and nine month periods ended March 31, 1999
are not necessarily indicative of future results.
Note 2--Inventories
We utilize the "first in, first out" (FIFO) method of accounting for all
inventories. Inventories at June 30, 1998 and March 31, 1998 and 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
June 30, March March
1998 31, 1998 31, 1999
-------- -------- --------
<S> <C> <C> <C>
Bulk wine......................................... $ 96,779 $128,590 $159,659
Cased goods and retail............................ 133,668 111,582 110,997
Crop costs and supplies........................... 21,222 14,375 19,446
-------- -------- --------
Total........................................... $251,669 $254,547 $290,102
======== ======== ========
</TABLE>
Included in inventory at June 30, 1998 and March 31, 1998 and 1999 were
$19.6 million, $24.7 million and $4.4 million, respectively, of inventory cost
step-up remaining from applying purchase accounting to the acquisitions of
Beringer Wine Estates Company, Chateau St. Jean and Stags' Leap Winery.
Note 3--Earnings Per Share Computation
The table below presents the computation of basic and diluted earnings per
share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three months Nine months
ended ended
March 31, March 31,
--------------- ---------------
1998 1999 1998 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator--Income
Income before extraordinary item available
to common stockholders.................... $ 5,248 $ 7,635 $ 4,934 $19,998
======= ======= ======= =======
Denominator--Basic shares
Average common shares outstanding.......... 19,081 19,508 16,344 19,508
------- ------- ------- -------
Basic EPS.................................. $ 0.28 $ 0.39 $ 0.30 $ 1.03
======= ======= ======= =======
Denominator--Diluted shares
Average common shares outstanding.......... 19,081 19,508 16,344 19,508
Dilutive effect of common stock
equivalents............................... 1,106 773 1,128 763
------- ------- ------- -------
Total diluted shares..................... 20,187 20,281 17,472 20,271
------- ------- ------- -------
Diluted EPS................................ $ 0.26 $ 0.38 $ 0.28 $ 0.99
======= ======= ======= =======
</TABLE>
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Summary
<TABLE>
<CAPTION>
Three months ended:
----------------------------------------------------------------------------------
September 30, December 31, March 31, June 30, September 30, December 31, March 31,
1997 1997 1998 1998 1998 1998 1999
------------- ------------ --------- -------- ------------- ------------ ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income (Loss) and
Per Share Amounts
As Reported
Net income (loss)
available to common
stockholders.......... $(2,040) $(1,591) $5,248 $6,266 $4,004 $ 8,359 $7,635
Diluted EPS............ (0.16) (0.09) 0.26 0.31 0.20 0.41 0.38
Adjusted(1)
Net income available to
common stockholders... $ 3,123 $ 8,916 $8,801 $8,697 $7,017 $12,203 $9,867
Diluted EPS............ 0.22 0.50 0.44 0.43 0.35 0.60 0.49
</TABLE>
- --------
(1) Net income available to common stockholders is adjusted to exclude the
after-tax effect of the non-cash charge related to inventory step-up, the
extraordinary loss from the early redemption of debt recorded in the
quarter ended December 31, 1997, and the non-recurring charge for the
accelerated accretion of the preferred stock discount resulting from the
redemption of Series A Preferred Stock in the quarter ended December 31,
1997.
Our net income in the third quarter of fiscal 1999 increased to $7.6
million from $5.2 million in the third quarter of the prior year. Our third
quarter fiscal 1999 diluted earnings per share grew to $0.38 from $0.26 in the
third quarter of the prior year. Adjusted net income for the quarter ended
March 31, 1999 increased $1.1 million, or 12%, to $9.9 million from $8.8
million in the same period in the prior year. Adjusted earnings per share in
the third quarter rose $.05 per diluted share, or 11% over third quarter 1998
adjusted earnings per share to $0.49.
Our net revenues for the third quarter ended March 31, 1999 increased 21%,
as compared to the same period last year, to $93.2 million. Sales volume for
the third quarter increased over 16% while average unit revenue increased over
4% from the third quarter of the prior year. Third quarter gross profit rose
$10.2 million or 30% over the same quarter in 1998 to $44.0 million. Adjusted
gross profit for the third quarter grew $7.3 million or 18% over the third
quarter of the prior year to $47.8 million. Operating expenses for the third
quarter grew by $4.6 million, or 21%, over the same period in the prior fiscal
year to $26.6 million. Third quarter operating income rose $5.6 million from
the same period last year to $17.3 million. Third quarter adjusted operating
income increased $2.7 million or 15% over the prior fiscal year's third
quarter to $21.2 million. Third quarter adjusted operating income represented
22.7% of net revenues.
For the nine months ended March 31, 1999, net income available to common
stockholders increased to $20.0 million from $1.6 million for the same period
of the prior fiscal year. Diluted earnings per share for the nine months ended
March 31, 1999 rose to $0.99 from $0.09 in the prior fiscal year. Adjusted net
income for the nine months ended March 31, 1999 increased $8.2 million or 40%
over the same period of the prior fiscal year. Adjusted earnings per share for
the nine months ending March 31, 1999 grew to $1.43, 24% higher than the nine
months ending March 31, 1998. We anticipate that full year adjusted earnings
per share growth will approximate full year revenue growth.
Our net revenues for the nine months ended March 31, 1999 grew 18% over the
same period in the prior fiscal year to $280.8 million. Nine-liter case
shipments for the first nine months of fiscal 1999 increased 13% while average
unit revenue increased 5%. Gross profit for the nine months ended March 31,
1999 rose $32.0 million to $131.0 million, 32% higher than the same period
last fiscal year. Adjusted gross profit for the first nine months of fiscal
1999 increased $24.4 million or 20% over the same period last year to $146.2
million.
5
<PAGE>
Operating expenses for the nine months ending March 31, 1999 increased $15.4
million from the same period the prior year to $85.2 million. Operating income
for the first nine months of fiscal 1999 increased $16.6 million or 57% from
the same period last year to $45.8 million. Adjusted operating income for the
nine months ending March 31, 1999 rose $9.1 million or 18% over the same
period in the prior year to $61.1 million.
Results of Operations
<TABLE>
<CAPTION>
Three months ended:
----------------------------------------------------------------------------------
September 30, December 31, March 31, June 30, September 30, December 31, March 31,
1997 1997 1998 1998 1998 1998 1999
------------- ------------ --------- -------- ------------- ------------ ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Profit
Net Revenue............. $65,810 $94,377 $77,168 $81,093 $75,020 $112,573 $93,204
Cost of Goods Sold...... 39,166 55,738 43,409 44,243 40,642 59,896 49,252
------- ------- ------- ------- ------- -------- -------
Gross Profit............ 26,644 38,639 33,759 36,850 34,378 52,677 43,952
Inventory Step-up....... 7,852 8,219 6,694 5,079 4,939 6,473 3,820
------- ------- ------- ------- ------- -------- -------
Adjusted Gross Profit... $34,496 $46,858 $40,453 $41,929 $39,317 $ 59,150 $47,772
======= ======= ======= ======= ======= ======== =======
</TABLE>
Our net revenue for the third quarter of fiscal 1999 increased $16.0
million or 21% over the same period in the prior fiscal year to $93.2 million.
This revenue increase reflects over 16% volume growth and over 4% growth in
per unit revenue. Third quarter shipments grew to 1.7 million nine-liter case
equivalents and third quarter average net revenue per nine-liter case
equivalent grew to $55.31. We expect future revenue growth to continue
primarily from increases in sales volume and a shift to higher-priced product
mix rather than price increases.
Our third fiscal quarter revenue growth was led by the Beringer and
Meridian Vineyards brands. Third quarter net revenue increased 21% for
Beringer and 22% for Meridian Vineyards over the same period last year. Nine-
liter equivalent case shipments increased 16% and 24% for Beringer and
Meridian Vineyards respectively, over the third quarter of fiscal 1998. The
Beringer and Meridian Vineyards brands contributed approximately 58% and 19%
of third quarter revenue, respectively. We expect our growth to continue to be
driven by the Beringer and Meridian Vineyards brands.
Our unit revenue for the third quarter increased 4% due primarily to a
higher-priced product mix. This was driven by the continued growth of the
Meridian Vineyards brand and selected price increases on several of our super-
premium and ultra-premium products during the fiscal year.
Our net revenue for the nine months ended March 31, 1999 increased $43.4
million or 18% over the same period in the prior fiscal year to $280.8
million. Our shipments for the nine months ending March 31, 1999 grew 13% over
the same period last fiscal year to 5.1 million nine-liter case equivalents.
Our average net revenue per case for the first nine months of fiscal 1999 rose
4% over the same period in fiscal 1998 to $55.21. Our net revenue for the nine
months ended March 31, 1999 grew 17% from the Beringer brand and 36% from
Meridian Vineyards over the same period in the prior fiscal year. For the nine
months ended March 31, 1999, our case volume expanded 13% and 37% for Beringer
and Meridian Vineyards, respectively, over the same period in the prior fiscal
year.
Our third quarter cost of goods sold increased $5.8 million or 13% over the
same period in the prior fiscal year to $49.3 million. Our third quarter cost
of goods sold included $3.8 million of non-cash charges resulting from
inventory step-up, compared to $6.7 million for the same period in fiscal
1998. Our adjusted third quarter cost of goods sold increased $8.7 million or
24% over the same period in the prior fiscal year to $45.4 million.
Our cost of goods sold for the nine months ending March 31, 1999 increased
$11.5 million or 8% over the same period in the prior year to $149.8 million.
Our cost of goods sold for the first nine months of fiscal 1999 included $15.2
million of non-cash charges resulting from inventory step-up compared to $22.3
million for the
6
<PAGE>
same period in fiscal 1998. Adjusted cost of goods sold for the first nine
months of fiscal 1999 increased $19.0 million or 17% over the prior fiscal
year to $134.6 million.
<TABLE>
<CAPTION>
Three months ended:
----------------------------------------------------------------------------------
September 30, December 31, March 31, June 30, September 30, December 31, March 31,
1997 1997 1998 1998 1998 1998 1999
------------- ------------ --------- -------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Margin
Net Revenue............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold...... 59.5 59.1 56.3 54.6 54.2 53.2 52.8
----- ----- ----- ----- ----- ----- -----
Gross Margin............ 40.5 40.9 43.7 45.4 45.8 46.8 47.2
Inventory Step-up....... 11.9 8.7 8.7 6.3 6.6 5.7 4.1
----- ----- ----- ----- ----- ----- -----
Adjusted Gross Margin... 52.4% 49.6% 52.4% 51.7% 52.4% 52.5% 51.3%
===== ===== ===== ===== ===== ===== =====
</TABLE>
Our gross profit for the third fiscal quarter ended March 31, 1999 grew by
$10.2 million or 30%, over the same period in the prior fiscal year to $44.0
million. Our third quarter adjusted gross profit, excluding the inventory
step-up, rose $7.3 million or 18% over the same period in the last fiscal year
to $47.8 million. Our gross margin for the third quarter grew to 47.2% from
43.7% in the same period in the last fiscal year. Our third quarter adjusted
gross margin was 51.3% compared to 52.4% for the same period in the last
fiscal year.
Our gross profit for the nine months ended March 31, 1999 rose $32.0
million or 32% from the same period last fiscal year to $131.0 million. Our
adjusted gross profit, excluding the inventory step-up, for the nine months
ending March, 1999 grew $24.4 million or 20% over last fiscal year to $146.2
million. Our gross margin for the first nine months of fiscal 1999 rose to
46.7%, from 41.7% for the same period last fiscal year. Our adjusted gross
margin, excluding the inventory step-up, for the nine months ended March 31,
1999 increased to 52.1% from 51.3% for the same period last fiscal year.
Operating Expenses, Operating Income and Interest Expense
<TABLE>
<CAPTION>
Three months ended:
-----------------------------------------------------------------------------------
September 30, December 31, March 31, June 30, September 30, December 31, March 31,
1997 1997 1998 1998 1998 1998 1999
------------- ------------ --------- -------- ------------- ------------ ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Income
Operating Income ....... $ 5,449 $12,036 $11,729 $13,430 $10,922 $17,559 $17,347
Add back Inventory
Step-up................ 7,852 8,219 6,694 5,079 4,939 6,473 3,820
------- ------- ------- ------- ------- ------- -------
Adjusted Operating
Income................. $13,301 $20,255 $18,423 $18,509 $15,861 $24,032 $21,167
======= ======= ======= ======= ======= ======= =======
Operating Margin........ 8.3% 12.8% 15.2% 16.6% 14.6% 15.6% 18.6%
Adjusted Operating
Margin................. 20.2% 21.5% 23.9% 22.8% 21.1% 21.3% 22.7%
</TABLE>
Our third quarter operating expenses increased to $26.6 million, an
increase of $4.6 million or 21% over the same period in the prior fiscal year.
This increase reflects additional spending on advertising, merchandising,
other direct product promotional activities offset partially by a decrease in
non-product specific expenses. Marketing support, such as Meridian Vineyards
television and Beringer White Zinfandel radio adverstising campaigns during
the Easter holiday period, accounted for the largest increase in promotional
spending. Our operating expenses for the third quarter were equal to those in
the prior year's quarter at 28.5% of net revenues.
Our third quarter operating income rose $5.6 million over the same period
in the prior fiscal year to $17.3 million. Our adjusted operating income for
the third quarter increased $2.7 million or 15% over the same period in the
prior fiscal year to $21.2 million. Our third quarter interest expense
increased $0.7 million or 13% from third quarter of fiscal 1998, due primarily
to our increased debt needed to fund the continued investment in inventory,
vineyard development, and winery infrastructure required to support
anticipated growth.
7
<PAGE>
Our operating expenses for the nine months ended March 31, 1999 increased
$15.4 million or 22% over the same period in the last fiscal year to $85.2
million. This increase reflects additional spending on advertising,
merchandising, other direct product promotional activities and increased non-
product specific expenses. Operating expenses for the first nine months of
fiscal 1999 increased to 30.3% of net revenue compared to 29.4% during the
same period in the last fiscal year.
Our operating income for the nine months ended March 31, 1999 grew $16.6
million from the same period in the last fiscal year to $45.8 million. Our
adjusted operating income for the nine months of fiscal 1999 increased $9.1
million or 18% over the same period in the last fiscal year to $61.0 million.
Our interest expense for the nine months ended March 31, 1999 decreased $2.0
million or 11% from the same period in the last fiscal year as we retired debt
with the proceeds from our October 1997 initial public offering.
Financial Condition
Assets
Our total assets increased $90.0 million or 17% from June 30, 1998 to
$633.6 million on March 31, 1999. Our inventory grew $38.4 million from June
30, 1998 to $290.1 million on March 31, 1999. This increase reflects a $53.7
million increase in inventory quantities on hand, offset by a $15.3 million
reduction in inventory step-up remaining in inventory at March 31, 1999.
Although our inventory and receivable levels will be impacted by seasonal
patterns, we expect total assets to continue to increase as inventory and
property, plant and equipment expand to support anticipated future growth.
Liabilities
Our total liabilities increased $67.7 million or 19% from June 30, 1998 to
$425.4 million at March 31, 1999. At March 31, 1999, our long-term debt
outstanding was $223.6 million and the long-term portion of our line of credit
was $93.5 million. At March 31, 1999, $191.7 million was available under the
terms of our credit agreement.
Liquidity and Capital Resources
Operating activities used $16.8 million of cash during the third quarter of
fiscal 1999 primarily reflecting the payment of grape grower obligations.
Third quarter net cash used in investing activities of $13.2 million consisted
of expenditures for property, plant and equipment. Our financing activities
provided net cash of $29.4 million, primarily from our bank credit agreement.
Our operating activities for the nine months ended March 31, 1999 used cash
of $21.5 million primarily to fund growth in inventory. Net cash used in
investing activities for the first nine months of fiscal 1999 of $34.9 million
consisted primarily of expenditures for property, plant and equipment of $34.3
million. Our capital spending included $18.0 million for vineyard development
and $16.3 million for facilities development. We expect to continue to have
significant cash requirements in the fourth quarter to fund capital spending
on vineyards and facilities.
Net cash provided by our financing activities for the nine months ended
March 31, 1999 of $56.5 million was provided primarily from our bank credit
agreement. We anticipate that current capital, combined with cash from
operations and the availability of cash from financing under our credit
facilities, will be sufficient to meet our liquidity and capital expenditures
requirements into fiscal 2000. However, as a result of our expected growth and
planned capital investments, we expect to increase the utilization of our
credit facilities and potentially access alternative financing sources.
8
<PAGE>
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in interest rates. To manage
this exposure, we have entered into interest rate swap agreements. We do not
use financial instruments for trading purposes and we are not a party to any
leveraged derivatives.
At March 31, 1999, our total debt was $331.4 million, of which $181.1
million will re-price during the next twelve months. At March 31, 1999, we had
interest rate swap agreements that converted a notional amount of $90 million
of LIBOR based variable-rate debt to a fixed rate.
Assuming a 1% increase in interest rates, annual interest expense would be
expected to increase approximately $0.5 million. Our credit exposure under
these agreements is limited to the cost of replacing an agreement in the event
of non-performance by our counterparty. To minimize this risk, we select high
credit quality 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. We plan to adopt this statement in fiscal 2000.
Had we adopted the statement at March 31, 1999, we would have reported a pre-
tax charge to other comprehensive income of approximately $2.3 million. This
is because the current market rates were lower than the fixed rates of the
swap agreements at March 31, 1999.
We may be affected by the Year 2000 problem
Many computer programs have 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
our computer processes and systems, and those of our suppliers and customers,
in the year 2000 is uncertain. This could result in one or more failures of
our computer systems that would disrupt our operations. These disruptions
could include, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
We do not know if the systems of companies with which we have material
outside business relationships will be year 2000 compliant in time. We have
not completed contingency plans to minimize disruption in our operations
caused by failure to achieve year 2000 compliance. We expect to complete these
contingency plans by June 30, 1999.
We have not formulated a reasonably likely worst case scenario with regard
to year 2000 failures. If ours, or others', year 2000 compliance is not
completed by December 31, 1999 our business could be materially and adversely
affected.
Forward-Looking Statements
This Form 10-Q 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.
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 Company's Annual Report and Form 10-K for the year ended June 30, 1998.
These forward-looking statements speak only as of the date of this Form 10-Q.
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.
9
<PAGE>
PART II
ITEM 1 through 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1) Exhibits:
Exhibit 27 Financial Data Schedule.
2) Form 8-K:
No reports on Form 8-K were filed during the quarter ended March 31,
1999.
10
<PAGE>
SIGNATURES
Pursuant to the requirements 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/ Peter F. Scott
By: _________________________________
Peter F. Scott, Senior Vice
President, Finance,
Operations and CFO
May 11, 1999
11
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