<PAGE>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: June 30, 1999
Commission file number: 000-23175
BERINGER WINE ESTATES HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 68-0370340
-------------------------- ----------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
610 Airpark Road
P.O. Box 4500
Napa, California 94558
(707) 259-4500
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 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]
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 information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of August 31, 1999, there were issued and outstanding (i) 1,310,436 shares of
Class A Common Stock and (ii) 18,276,902 shares of Class B Common Stock. The
aggregate market value of the registrant's voting stock held by non-affiliates
was $343,679,102 as of August 31, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's annual report to security holders for the fiscal
year ended June 30, 1999 are incorporated by reference into Part II of this
report. Portions of the registrant's definitive proxy statement for its annual
meeting of shareholders to be held on November 4, 1999 are incorporated by
reference into Part III of this report.
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PART I
ITEM 1. BUSINESS
This report contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about us and our industry.
These forward-looking statements involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors, as more fully described in the
"Risk Factors" section incorporated by reference from our annual report to
security holders for the fiscal year ended June 30, 1999, as filed under exhibit
13 to this Annual Report on Form 10-K. We undertake no obligation to update
publicly any forward-looking statements for any reason, even if new information
becomes available or other events occur in the future.
Business Introduction. Beringer Wine Estates Holdings, Inc. is a leading
producer of premium California varietal table wines. These wines are marketed
under the Beringer Vineyards, Meridian Vineyards, Chateau St. Jean, Napa Ridge,
Chateau Souverain and Stags' Leap brand names. We compete in each of the premium
wine market categories. Our largest entry in the popular premium category is our
Beringer Vineyards White Zinfandel product. Our largest entries in the super-
premium category are our Meridian Vineyards brand, which sold nearly one million
cases in fiscal 1999, and our new Beringer Founders Estates product line. We are
also represented across each of our brands with high quality products in the
ultra-premium category.
We also have a growing import portfolio of premium brands from Italy, France and
Chile. These wines are marketed under the Gabbiano, Campanile, Travaglini,
Tarapaca and Rivefort de France brands. We sell our wine principally in the
United States to distributors for resale and 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. A
substantial portion of our sales are concentrated in California and, to a lesser
extent, the states of New Jersey, Texas, Illinois and Florida. Export sales
accounted for approximately 4% of net revenues for fiscal 1999.
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 in a leveraged transaction 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 control extensive
strategic vineyard acreage in the prime growing regions of Napa, Sonoma, Lake,
Santa Barbara and San Luis Obispo Counties.
Industry Background. The wine industry can be separated into three categories:
(1) premium wines selling primarily in 750ml bottles, (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 categories
over the past 19 years. We believe this category will continue to outperform the
other categories. The premium wine category is often further broken down into
three categories: the popular premium ($3-$7 per 750ml); super-premium ($7-$14
per 750ml); and ultra-premium (over $14 per 750ml) categories. We compete in all
three premium wine categories.
Our largest distributor is Southern Wine and Spirits of America, Inc. They
distribute our brands in California, Florida, Nevada, Hawaii and South Carolina.
Our combined sales to them in fiscal 1999 represented approximately 31% of our
gross revenues. Sales to our ten largest distributors combined, represented
approximately 59% of our gross revenues during fiscal 1999. 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.
2
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Grape Supply and Vineyard Ownership. We currently control approximately 10,300
acres of California coastal vineyard land. Approximately 9,055 acres are
currently planted and we plan to plant the balance within three years. During
the 1998 harvest these vineyards supplied us with approximately 39% of our grape
requirements, excluding Beringer White Zinfandel. The remaining 61% was supplied
through contracted arrangements with independent grape 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 grape growers. Our
strategy enables us to control the quality and supply of the grapes used in more
expensive wines. It also permits us to manage an important cost component of our
wines.
Winemaking. Our strategic focus is to produce high quality wines throughout our
product portfolio. We employ 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 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 800 regular, full-time employees. We also
employ part-time and seasonal workers for our vineyard, production and
hospitality operations. 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 also lease office space
in Napa, in several cities throughout the U.S. and in Switzerland. We contract
with an independent third party for finished goods warehouse storage. We also
lease barrel aging facilities in Santa Rosa, Templeton and 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
Company's fourth quarter ended June 30, 1999.
3
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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, 1999:
<TABLE>
<CAPTION>
Fiscal 1999 High Low
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<S> <C> <C>
Fourth Quarter $41.88 $36.00
Third Quarter 46.38 36.00
Second Quarter 46.00 33.50
First Quarter 45.63 30.00
Fiscal 1998 High Low
- ----------------------------------
Fourth Quarter $54.06 $39.50
Third Quarter 51.38 36.00
Second Quarter 38.00 30.00
</TABLE>
As of June 30, 1999, there were 461 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 FINANCIAL DATA
We were incorporated for the purpose of acquiring Beringer Wine Estates Company
and its subsidiaries from Nestle on January 1, 1996. We are the successor
company ("New Beringer") as is reflected in the historical results of operations
beginning on January 1, 1996. The historical results of operations through
December 31, 1995 are the results of Beringer Wine Estates Company and its
consolidated subsidiares ("Old Beringer").
<TABLE>
<CAPTION>
Old Beringer New Beringer
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Fiscal
Year Fiscal Year Ended
Ended Six Months Ended June 30,
-----------------------------------
June 30, Dec 31, June 30,
(in thousands, except per share data) 1995 1995 1996 1997 1998 1999
- ------------------------------------- ----------- ----------- ------------ ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Volume (total 9-liter case equivalents).............. 4,574 2,440 2,557 5,411 6,063 6,787
Net revenues......................................... $202,010 $106,867 $124,863 $269,460 $318,448 $376,154
Gross profit (1)..................................... $100,723 $ 52,753 $ 31,237 $ 91,631 $135,891 $178,124
Gross margin......................................... 49.9% 49.4% 25.0% 34.0% 42.7% 47.4%
Operating income (loss) (2).......................... $ 34,805 $ 16,556 $ (4,783) $ 12,984 $ 42,643 $ 66,532
Operating margin..................................... 17.2% 15.5% (3.8)% 4.8% 13.4% 17.7%
Net income (loss) available to
common stockholders (3)(4)......................... $ 16,753 $ 8,086 $(11,419) $(10,369) $ 7,883 $ 29,585
Total assets......................................... $289,922 $318,022 $438,742 $467,184 $543,600 $644,316
Long-term obligations (5)............................ -- -- $202,428 $217,731 $171,794 $225,495
</TABLE>
(1) In accordance with purchase accounting rules applied to our acquisitions,
inventory was increased to fair market value. Gross profit, excluding the
impact of inventory step-up, would have been $63,368 for the six months
ended June 30, 1996, and $134,939, $163,736 and $194,572 for the years
ended June 30, 1997, 1998 and 1999, respectively.
(2) Excluding the impact of inventory step-up, operating income would have been
$27,348 for the six months ended June 30, 1996, and $56,292, $70,488 and
$82,980 for the years ended June 30, 1997, 1998 and 1999, respectively.
4
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(3) Net income (loss) available to common stockholders includes preferred
dividends and discount accretion of $2,054 for the six months ended June
30, 1996, and $4,920 and $4,365 for the years ended June 30, 1997 and 1998.
Also included for the year ended June 30, 1997 is a $3,317 extraordinary
loss, net of tax, related to an early extinguishment of debt.
(4) Net income available to common stockholders, adjusted to exclude the
inventory step-up, the extraordinary loss from the early redemption of debt
recorded in the December 31, 1997 quarter, 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 December 31, 1997
quarter, would have been $7,539 for the six months ended June 30, 1996, and
$15,166, $29,537 and $39,326 for the years ended June 30, 1997, 1998 and
1999, respectively
(5) Includes long-term debt, less current portion; other liabilities and the
redeemable Series A Preferred Stock.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is incorporated by reference from pages
27-35, "Management's Discussion and Analysis" of the registrant's annual report
to security holders for the fiscal year ended June 30, 1999, as filed under
exhibit 13 to this Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated by reference from page 32,
"Management's Discussion and Analysis" of the registrant's annual report to
security holders for the fiscal year ended June 30, 1999, as filed under exhibit
13 to this Annual Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference from pages
36-55 of the registrant's annual report to security holders for the fiscal year
ended June 30, 1999, as filed under exhibit 13 to this Annual Report on Form 10-
K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
5
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information for Directors required by this item is incorporated by reference
from pages 7, 8, 12 and 13 of the registrant's definitive proxy statement for
its annual meeting of shareholders to be held on November 4, 1999, as filed with
the Securities and Exchange Commission. The information for executive officers
required by this item follows:
<TABLE>
<CAPTION>
Name Age Position
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Walter T. Klenz 54 President, Chief Executive Officer and Chairman of
the Board of Directors
Peter F. Scott 46 Executive Vice President, Chief Financial and
Administrative Officer
James W. Watkins 43 Executive Vice President, Chief Operating Officer
Robert E. Steinhauer 58 Senior Vice President, Vineyard Operations
Edward B. Sbragia 50 Senior Vice President, Winemaster
Janelle E. Thompson 50 Vice President, Marketing and Hospitality
Richard G. Carter 55 Vice President, Sales
Martin L. Foster 53 Vice President, Treasury and Investor Relations
A. Tor Kenward 51 Vice President, Winery Communications
Thomas W. Peterson 47 Vice President, Sonoma Operations and Winemaking
Gregory M. Delaney 35 Vice President, Controller and Chief Accounting Officer
Douglas A. Walker 43 Vice President, Corporate Planning
Douglas W. Roberts 47 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 and Operations.
Peter F. Scott joined us in June 1997 as our Senior Vice President, Finance and
Operations and Chief Financial Officer. Mr. Scott was promoted to Executive Vice
President, Chief Financial and Administrative Officer in August 1999. He served
as Chief Financial Officer of Kendall-Jackson Winery, Ltd. from 1990 until he
joined us.
James W. Watkins joined us in August 1999 as our Executive Vice President, Chief
Operating Officer. From 1997 to 1999 he served as Senior Vice President of North
America Marketing at Burger King Corporation and from 1994 to 1997 he served as
Vice President and General Manager of Colgate's Hill's Pet Nutrition Division.
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,
Winemaster since 1989.
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, 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.
6
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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 A. Walker joined us in 1996 as our Vice President, Corporate Planning.
From 1993 to 1996, he served as the President of Chateau St. Jean winery.
Douglas W. Roberts joined us in 1976 and has served as our Secretary since 1990.
He was appointed Vice President, General Counsel in 1997.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from pages 11
through 16 of the registrant's definitive proxy statement for its annual meeting
of shareholders to be held on November 4, 1999, 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 4, 1999, 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 pages 12
through 13 of the registrant's definitive proxy statement for its annual meeting
of shareholders to be held on November 4, 1999, as filed with the Securities and
Exchange Commission.
7
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements:
<TABLE>
<CAPTION>
Page in
Annual
Report*
---------
<S> <C>
Report of Independent Accountants.......................................................... 55
Consolidated Balance Sheets at June 30, 1998 and 1999...................................... 36
Consolidated Statements of Operations for the years ended June 30, 1997, 1998 and 1999..... 37
Consolidated Statements of Stockholders' Equity for the years ended June 30, 1997,
1998 and 1999........................................................................... 38
Consolidated Statements of Cash Flows for the years ended June 30, 1997, 1998 and 1999..... 39
Notes to Consolidated Financial Statements................................................. 40-54
</TABLE>
* Incorporated by reference to the indicated pages of the registrant's
annual report to security holders for the fiscal year ended June 30,
1999, as filed under exhibit 13 to this Annual Report on Form 10-K.
(2) Financial Statement Schedules.
Financial statement schedules I through V are not submitted because
they are not applicable or not required under the rules of Regulation
S-X.
(3) Exhibits: filed with this report:
3(ii) Bylaws of the registrant, amended May 11, 1999
13 Those portions of the registrant's Annual Report to Shareholders
for the year ended June 30, 1999 that are incorporated by
reference into this Annual Report on Form 10-K.
23 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule (not considered to be filed).
Exhibits: previously filed
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) Form of Restated Certificate of Incorporation, as filed with the
Secretary of State of the State of Delaware on November 4, 1997.
(2)
10.1 Registrant's 1996 Stock Option Plan and Incentive Stock Option
and Non-Qualified Stock Option Agreements. (1)
10.4 Beringer Wine Estates Holdings, Inc. 1997 Employee Stock Purchase
Plan. (1)
10.5 Registrant's 1998 Incentive Stock Plan. (4)
10.6 Form of Indemnity Agreement between the Registrant and its
officers and directors. (1)
10.7 Third Amended and Restated Credit Agreement between Beringer Wine
Estates Company and Pacific Coast Farm Credit Services, ACA, as
agent on behalf of several lenders dated as of December 10, 1998.
(5)
8
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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
Vineyards 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)
21 Subsidiaries of the registrant. (3)
(1) Incorporated by reference to Registration Statement on Form S-1
filed October 28,1997.
(2) Incorporated by reference to Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1997.
(3) Incorporated by reference to Annual Report on Form 10-K for the
fiscal year ended June 30, 1998.
(4) Incorporated by reference to Definitive 14A filed September 25,
1998.
(5) Incorporated by reference to Quarterly Report on Form 10-Q for the
quarterly period ended December 31, 1998.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended June 30, 1999.
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.
September 28, 1999
By: /s/ Walter T. Klenz
Walter T. Klenz, Chief Executive Officer,
President and Chairman of the Board
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.
9
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<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Walter T. Klenz Chairman of the Board, President &
- --------------------------
Walter T. Klenz Chief Executive Officer September 28, 1999
/s/ Peter F. Scott Executive Vice President, Chief Financial &
- --------------------------
Peter F. Scott Administrative Officer September 28, 1999
/s/ Gregory M. Delaney Vice President, Controller and
- --------------------------
Gregory M. Delaney Chief Accounting Officer September 28, 1999
/s/ Richard L. Adams Director September 28, 1999
- --------------------------
Richard L. Adams
/s/ David Bonderman Director September 28, 1999
- --------------------------
David Bonderman
/s/ Randy Christofferson Director September 28, 1999
- --------------------------
Randy Christofferson
/s/ James G. Coulter Director September 28, 1999
- --------------------------
James G. Coulter
/s/ Timm F. Crull Director September 28, 1999
- --------------------------
Timm F. Crull
/s/ William A. Franke Director September 28, 1999
- --------------------------
William A. Franke
/s/ E. Michael Moone Director September 28, 1999
- --------------------------
E. Michael Moone
/s/ William S. Price III Director September 28, 1999
- --------------------------
William S. Price III
/s/ Jesse Rogers Director September 28, 1999
- --------------------------
Jesse Rogers
/s/ George A. Vare Director September 28, 1999
- --------------------------
George A. Vare
</TABLE>
10
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Exhibit 3(ii)
BERINGER WINE ESTATES HOLDINGS, INC.
(a Delaware corporation)
BYLAWS
(Amended as of May 11, 1999)
ARTICLE I
Offices
-------
SECTION 1.01 Registered Office. The registered office of Beringer
------------------
Wine Estates Holdings, Inc. (hereinafter called the Corporation) in the State of
Delaware shall be at 1209 Orange Street, Wilmington, New Castle County, Delaware
19801, and the name of the registered agent in charge thereof shall be The
Corporation Trust Company.
SECTION 1.02 Other Offices. The Corporation may also have an office
--------------
or offices at such other place or places, either within or without the State of
Delaware, as the Board of Directors (hereinafter called the Board) may from time
to time determine or as the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
------------------------
SECTION 2.01 Annual Meetings. Annual meetings of the stockholders
----------------
of the Corporation for the purpose of electing directors and for the transaction
of such other proper business as may come before such meetings may be held at
such time, date and place as the Board shall determine by resolution.
Nominations of persons for election to the Board and the proposal of
business to be transacted by the stockholders may be made at an annual meeting
of stockholders (a) pursuant to the Corporation's notice with respect to such
meeting, (b) by or at the direction of the Board or (c) by any stockholder of
record of the Corporation who was a stockholder of record at the time of the
giving of the notice provided for in the following paragraph, who is entitled to
vote at the meeting and who has complied with the notice procedures set forth in
this section.
For nominations or other business to be properly brought before an annual
meeting by a stockholder pursuant to clause (c) of the foregoing paragraph, (1)
the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation, (2) such business must be a proper matter for
stockholder action under the General Corporation Law of the State of Delaware,
(3) if the
<PAGE>
stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the Corporation with a Solicitation Notice, as
that term is defined in subclause (c)(iii) of this paragraph, such stockholder
or beneficial owner must, in the case of a proposal, have delivered a proxy
statement and form of proxy to holders of at least the percentage of the
Corporation's voting shares required under applicable law to carry any such
proposal, or, in the case of a nomination or nominations, have delivered a proxy
statement and form of proxy to,holders of a percentage of the Corporation's
voting shares reasonably believed by such stockholder or beneficial holder to be
sufficient to elect the nominee or nominees proposed to be nominated by such
stockholder, and must, in either case, have included in such materials the
solicitation Notice and (4) if no Solicitation Notice relating thereto has been
timely provided pursuant to this section, the stockholder or beneficial owner
proposing such business or nomination must not have solicited a number of
proxies sufficient to have required the delivery of such a Solicitation Notice
under this Section 2.01.
To be timely, a stockholder's notice shall be delivered to the Secretary at
the principal executive offices of the Corporation not less than 45 or more than
75 days prior to the first anniversary (the "Anniversary") of the date on which
the Corporation first mailed its proxy materials for the preceding year's annual
meeting of stockholders; provided, however, that if the date of the annual
meeting is advanced more than 30 days prior to or delayed by more than 30 days
after the anniversary of the preceding year's annual meeting, notice by the
stockholder to be timely must be so delivered not later than the close of
business on the later of (i) the 90th day prior to such annual meeting or (ii)
the 10th clay following the clay on which public announcement of' the date of
such meeting is first made. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or reelection
as a director -all information relating to such person as would be required to
be disclosed in solicitations of proxies for the election of such nominees as
directors pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and such person's written consent to serve as a
director if elected; (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of such business, the reasons
for conducting such business at the meeting and any material interest in such
business of such stockholder and the beneficial owner, if any, on whose behalf
the proposal is made; (c) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made (i)
the name and address of such stockholder, as they appear on the Corporation's
books, and of such beneficial owner, (ii)
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the class and number of shares of the Corporation that are owned beneficially
and of record by such stockholder and such beneficial owner, and (iii) whether
either such stockholder or beneficial owner intends to deliver a proxy statement
and form of proxy to holders of, in the case of a proposal, at least the
percentage! of the Corporation's voting shares required under applicable law to
carry the proposal or, in the case of a nomination or nominations, a sufficient
number of holders of the Corporation's voting shares to elect. such nominee or
nominees (an affirmative statement of such intent, a "Solicitation Notice").
Notwithstanding anything in the second sentence of the third paragraph of
this Section 2.01 to the contrary, in the event that the number of directors to
be elected to the Board is increased and there is no public announcement naming
all of the nominees for director or specifying the size of the increased Board
made by the Corporation at least 55 days prior to the Anniversary, a
stockholder's notice required by this Bylaw shall also be considered timely, but
only with respect to nominees for any new positions created by such increase, if
it shall be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 10th day following the
day on which such public announcement is first made by the Corporation.
Only persons nominated in accordance with the procedures set forth in this
Section 2.01 shall be eligible to serve as directors and only such business
shall be conducted at an annual meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
section. The chair of the meeting shall have the power and the duty to determine
whether a nomination or any business proposed to be brought before the meeting
has been made in accordance with the procedures set forth in these Bylaws and,
if any proposed nomination or business is not in compliance with these Bylaws,
to declare that such defective proposed business or nomination shall not be
presented for stockholder action at the meeting and shall be disregarded.
For purposes of this Section 2.01 and Section 2.02, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or a comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 25(d) of the Exchange Act.
Notwithstanding the foregoing provisions of this Section 2.01 or Section
2.02, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to
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matters set forth in this Section 2.01 or Section 2.02. Nothing in this Section
2.01 or Section 2.02 shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Exchange Act.
SECTION 2.02 Special Meetings. A special meeting of the
-----------------
stockholders for the transaction of any proper business may be called at any
time only: (i) by a majority of the authorized number of directors (ii) by the
Chairman of the Board, (iii) by a committee of the Board that has been duly
designated by the Board and whose power and authority, as provided in a
resolution by the Board or in these Bylaws, includes the power to call such
meetings or (iv) one or more stockholders holding, in the aggregate, no less
than ten percent (10%) of the voting power of the Corporation.
Only such business shall be conducted at a special meeting of stockholders
as shall have been brought before the meeting pursuant to the Corporation's
notice of meeting. Nominations of persons for election to the Board may be made
at a special meeting of the stockholders at which directors are to be elected
pursuant to the Corporation's notice of meeting (a) by or at the direction of
the Board or (b) by any stockholder of record of the Corporation who is a
stockholder of record at the time of giving of notice provided for in this
paragraph, who shall be entitled to vote at the meeting and who complies with
the notice procedures set forth in Section 2.01 and this Section 2,02.
Nominations by stockholders of persons for election to the Board may be made at
such a special meeting of stockholders if the stockholder's notice required by
the third paragraph of Section 2.01 shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the later of the 90th day prior to such special meeting or the 10th
day following the day on which public announcement is first made of the date of
the special meeting and of the nominees proposed by the Board to be elected at
such meeting.
SECTION 2.03 Place of Meetings. All meetings of the stockholders
------------------
shall be held at such places, within or without the State of Delaware, as may
from time to time be designated by the person or persons calling the respective
meeting and specified in the respective notices or waivers of notice thereof.
SECTION 2.04 Notice of Meetings. Except as otherwise required by
-------------------
law, notice of each meeting of the stockholders, whether annual or special,
shall be given not less than ten (10) nor more than sixty (60) days before the
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date of the meeting to each stockholder of record entitled to vote at such
meeting by delivering a typewritten or printed notice thereof to him personally,
or by depositing such notice in the United States mail, in a postage prepaid
envelope, directed to him at his post office address furnished by him to the
Secretary of the Corporation for such purpose or, if he shall not have furnished
to the Secretary his address for such purpose, then at his post office address
last known to the Secretary, or by transmitting a notice thereof to him at such
address by telegraph, cable, or wireless. Except as otherwise expressly
required by law, no publication of any notice of a meeting of the stockholders
shall be required. Every notice of a meeting of the stockholders shall state
the place, date and hour of the meeting, and, in the case of a special meeting,
shall also state the purpose or purposes for which the meeting is called.
Notice of any meeting of stockholders shall not be required to be given to any
stockholder who shall have waived such notice and such notice shall be deemed
waived by any stockholder who shall attend such meeting in person or by proxy,
except a stockholder who shall attend such meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Except as otherwise
expressly required by law, notice of any adjourned meeting of the stockholders
need not be given if the time and place thereof are announced at the meeting at
which the adjournment is taken.
SECTION 2.05 Quorum. Except in the case of any meeting for the
-------
election of directors summarily ordered as provided by law, the holders of
record of a majority in voting interest of the shares of stock of the
Corporation entitled to be voted thereat, present in person or by proxy, shall
constitute a quorum for the transaction of business at any meeting of the
stockholders of the Corporation or any adjournment thereof. In the absence of a
quorum at any meeting or any adjournment thereof, a majority in voting interest
of the stockholders present in person or by proxy and entitled to vote thereat
or, in the absence therefrom of all the stockholders, any officer entitled to
preside at, or to act as secretary of, such meeting may adjourn such meeting
from time to time. At any such adjourned meeting at which a quorum is present
any business may be transacted which might have been transacted at the meeting
as originally called.2.08
SECTION 2.06 Voting.
-------
(a) Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors in such other corporation is held, directly or indirectly, by the
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Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary capacity
shall be entitled to vote such stock. Persons whose stock is pledged shall be
entitled to vote, unless in the transfer by the pledgor on the books of the
Corporation he shall have expressly empowered the pledgee to vote thereon, in
which case only the pledgee, or his proxy, may represent such stock and vote
thereon. Stock having voting power standing of record in the names of two or
more persons, whether fiduciaries, members of a partnership, joint tenants in
common, tenants by entirety or otherwise, or with respect to which two or more
persons have the same fiduciary relationship, shall be voted in accordance with
the provisions of the General Corporation Law of the State of Delaware.
(b) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by his proxy. To the extent permitted by law, any
stockholder of record may appoint a person or persons to act as the
stockholder's proxy or proxies at any stockholder meeting for the purpose of
representing and voting the stockholder's shares. The stockholder may make this
appointment by any means the General Corporation Law of the State of Delaware
specifically authorizes, and by any other means the Secretary of the Corporation
may permit.. Prior to any vote, and subject to any contract rights of the proxy
holder, the stockholder may revoke the proxy appointment either directly or by
the creation of a new appointment, Which will automatically revoke the former
one. The inspector of Elections appointed for the meeting may establish
requirements; concerning such proxy appointments or revocations, that the
Inspector considers necessary or appropriate to assure the integrity of the vote
and to comply with law.
The attendance at any meeting of a stockholder who may theretofore have given a
proxy shall not have the effect of revoking the same unless he shall in writing
so notify the secretary of the meeting prior to the voting of the proxy. At any
meeting of the stockholders all matters, except as otherwise provided in the
Certificate of Incorporation, in these Bylaws or by law, shall be decided by the
vote of a majority in voting interest of the stockholders present in person or
by proxy and entitled to vote thereat and thereon, a quorum being present. The
vote at any meeting of the stockholders on any question need not be by ballot,
unless so directed by the chairman of the meeting. On a vote by ballot each
ballot shall be signed by the stockholder voting, or by his proxy, if there be
such proxy, and it shall state the number of shares voted. Except as otherwise
provided by law or as otherwise provided in the Certificate of Incorporation,
each outstanding share of Class A Common Stock shall be entitled to twenty (20)
votes and each
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outstanding share of Class B Common Stock shall be entitled to one (1) vote on
each matter submitted to a vote of the stockholders.
SECTION 2.07 List of Stockholders. The Secretary of the Corporation
---------------------
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
SECTION 2.08 Voting Procedures and Inspectors of Elections. The
----------------------------------------------
Corporation shall, in advance of any meeting of the stockholders, appoint one or
more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate inspectors is able
to act at a meeting of stockholders, the person presiding at the meeting shall
appoint one or more inspectors to act at the meeting. Each inspector, before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his ability.
SECTION 2.09 Action Without Meeting. Any action required to be
-----------------------
taken at any annual or special meeting of stockholders of the Corporation, or
any action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the Corporation by delivery to its registered office
in Delaware, its principal place of business or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Every written consent shall bear the date of
signature of each stockholder who signs the consent and no written consent shall
be effective to take the corporate action referred to
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therein unless, within sixty days of the earliest dated consent signed by a
sufficient number of holder to take action are delivered to the Corporation.
Delivery made to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE III
Board of Directors
------------------
SECTION 3.01 General Powers. The property, business and affairs of
---------------
the Corporation shall be managed by the Board.
SECTION 3.02 Number and Term of Office. The number of directors
--------------------------
shall be twelve (12). Directors need not be stockholders. Each of the
directors of the Corporation shall hold office until his successor shall have
been duly elected and shall qualify or until he shall resign or shall have been
removed in the manner hereinafter provided.
SECTION 3.03 Election of Directors. The directors shall be elected
----------------------
annually by the stockholders of the Corporation and the persons receiving the
greatest number of votes, up to the number of directors to be elected, shall be
the directors.
SECTION 3.04 Resignations. Any director of the Corporation may
-------------
resign at any time by giving written notice to the Board or to the Secretary of
the Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified, it shall take effect immediately upon
its receipt; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 3.05 Vacancies. Except as otherwise provided in the
----------
Certificate of Incorporation, any vacancy in the Board, whether because of
death, resignation, disqualification, an increase in the number of directors, or
any other cause, may be filled by vote of the majority of the remaining
directors, although less than a quorum, or by the sole remaining director. Each
director so chosen to fill a vacancy shall hold office until his successor shall
have been elected and shall qualify or until he shall resign or shall have been
removed in the manner hereinafter provided.
SECTION 3.06 Place of Meeting, Etc. The Board
----------------------
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may hold any of its meetings at such place or places within or without the State
of Delaware as the Board may from time to time by resolution designate or as
shall be designated by the person or persons calling the meeting or in the
notice or a waiver of notice of any such meeting. Directors may participate in
any regular or special meeting of the Board by means of conference telephone or
similar communications equipment pursuant to which all persons participating in
the meeting of the Board can hear each other, and such participation shall
constitute presence in person at such meeting.
SECTION 3.07 First Meeting. The Board shall meet as soon as
--------------
practicable after each annual election of directors and notice of such first
meeting shall not be required.
SECTION 3.08 Regular Meetings. Regular meetings of the Board may be
-----------------
held at such times as the Board shall from time to time by resolution determine.
If any day fixed for a regular meeting shall be a legal holiday at the place
where the meeting is to be held, then the meeting shall be held at the same hour
and place on the next succeeding business day not a legal holiday. Except as
provided by law, further notice of regular meetings need not be given.
SECTION 3.09 Special Meetings. Special meetings of the Board shall
-----------------
be held whenever called by the Chairman of the Board or a majority of the
authorized number of directors. Except as otherwise provided by law or by these
Bylaws, notice of the time and place of each such special meeting shall be
mailed to each director, addressed to him at his residence or usual place of
business, at least five (5) days before the day on which the meeting is to be
held, or shall be sent to him at such place by telegraph, telecopy or cable or
be delivered personally not less than forty-eight (48) hours before the time at
which the meeting is to be held. Except where otherwise required by law or by
these Bylaws, notice of the purpose of a special meeting need not be given.
Notice of any meeting of the Board shall be deemed to be waived as to any
director who is present at such meeting, except a director who shall attend such
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
SECTION 3.10 Quorum and Manner of Acting. Except as otherwise
----------------------------
provided in these Bylaws or by law, the presence of a majority of the authorized
number of directors shall be required to constitute a quorum for the transaction
of business at any meeting of the Board, and all matters shall be decided at any
such meeting, a quorum being present, by the affirmative votes of a majority of
the directors present. In the absence of a quorum, a majority
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of directors present at any meeting may adjourn the same from time to time until
a quorum shall be present. Notice of any adjourned meeting need not be given.
The directors shall act only as a Board, and the individual directors shall have
no power as such.
SECTION 3.11 Action by Consent. Any action required or permitted to
------------------
be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.
SECTION 3.12 Removal of Directors. Subject to the provisions of the
---------------------
Certificate of Incorporation, any director may be removed at any time, either
with or without cause, by the affirmative vote of the stockholders having a
majority of the voting power of the Corporation given at a special meeting of
the stockholders called for the purpose.
SECTION 3.13 Compensation. The directors shall receive only such
-------------
compensation for their services as directors as may be allowed by resolution of
the Board. The Board may also provide that the Corporation shall reimburse each
such director for any expense incurred by him on account of his attendance at
any meetings of the Board or Committees of the Board. Neither the payment of
such compensation nor the reimbursement of such expenses shall be construed to
preclude any director from serving the Corporation or its subsidiaries in any
other capacity and receiving compensation therefor.
SECTION 3.14 Committees.
-----------
(a) Executive Committee. The Executive Committee, to the extent
--------------------
permitted by law, shall have and may exercise when the Board is not in session
all powers of the Board in the management of the business and affairs of the
Corporation, including, without limitation, the power and authority to call a
special meeting of stockholders, to declare a dividend or to authorize the
issuance of stock, except such committee shall not have the power or authority
to amend the Certificate of Incorporation (except that a committee may, to the
extent authorized in the resolution or resolutions providing for the issuance of
shares of stock adopted by the Board as provided in subsection (a) of (S) 151 of
the Delaware General Corporation Law, fix the designations and any preferences
or rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the Corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes or stock of
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the Corporation or fix the number of shares of any series of stock or authorize
the increase or decrease of the shares of any series), to adopt an agreement of
merger or consolidation, to recommend to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
to recommend to the stockholders of the Corporation a dissolution of the
Corporation or a revocation of a dissolution or to amend these Bylaws; provided,
--------
however, that upon the effectiveness of a proposed amendment to Section 141(c)
- -------
of the General Corporation Law of the State of Delaware to permit a committee of
a board of directors to exercise powers not permitted by this section if a
corporation so elects, the corporation shall be governed by the provision or
provisions of Section 141(c) as so amended, which permit the exercise of such
additional powers and any limitations of the powers of the Executive Committee
set forth in this Section 3.14 that are not required by such provisions of
Section 141(c), as so amended, shall have no further force or effect and the
Executive Committee shall have all of the powers permitted by such provision or
provisions of Section 141 (c) as so amended. The Executive Committee shall
consist of five (5) members, all of whom shall be directors of the Corporation.
The members of the Executive Committee shall not be designated by the Board but
shall, instead, consist of: (i) the Chief Executive Officer of the Corporation;
(ii) one (1) member appointed by the Silverado Directors (as that term is
defined in the Amended and Restated Stockholders Rights Agreement and Voting
Agreement among the Corporation and the Stockholders of the Corporation, as
amended from time to time (the "Stockholders Agreement")), and (iii) three (3)
members appointed by the TPG Directors (as that term is defined in the
Stockholders Agreement).
(b) Other Committees. The Board may, by resolution passed by a
-----------------
majority of the Board, from time to time appoint such other committees as may be
permitted by law. Such other committees appointed by the Board shall consist of
one (1) or more members of the Board and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees.
(c) Term. The members of all committees of the Board shall serve a
-----
term coexistent with that of the Board which shall have appointed such
committee. The Board, subject to the provisions of subsections (a) or (b) of
this Section 3.14, may at any time increase or decrease the number of members of
a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board. Subject to the provisions of
Section 3.14 (a), the Board may at any time for any reason remove any individual
committee member and
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the Board may fill any committee vacancy created by death, resignation, removal
or increase in the number of members of the committee. Subject to Section 3.14
(a), the Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member.
(d) Meetings. Unless the Board shall otherwise provide, regular
---------
meetings of the Executive Committee or any other committee appointed pursuant to
this Section 3.14 shall be held at such times and places as are determined by
the Board, or by any such committee, and when notice thereof has been given to
each member of such committee, no further notices of such regular meetings need
be given thereafter. Special meetings of any such committee may be held at any
place which has been determined from time to time by such committee, and may be
called by any director who is a member of such committee, upon written notice to
the members of such committee of the time and place of such special meeting
given in the manner provided for the giving of written notice to members of the
Board of the time and place of special meetings of the Board. Notice of any
special meeting of any committee may be waived in writing at any time before or
after the meeting and will be waived by any director by attendance thereat,
except when the director attends such special meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. A majority of the
authorized number of members of any such committee shall constitute a quorum for
the transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of such committee.
ARTICLE IV
Officers
--------
SECTION 4.01 Number. The officers of the Corporation shall be the
-------
Chairman of the Board (or Co-Chairmen of the Board), the President, one or more
Vice Presidents (the number thereof and their respective titles to be determined
by the Board), a Secretary and a Treasurer.
SECTION 4.02 Election, Term of Office and Qualifications. The
--------------------------------------------
officers of the Corporation, except such officers as may be appointed in
accordance with Section 4.03, shall be elected annually by the Board at the
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first meeting thereof held after the election thereof. Each officer shall hold
office until his successor shall have been duly chosen and shall qualify or
until his resignation or removal in the manner hereinafter provided.
SECTION 4.03 Assistants, Agents and Employees, Etc. In addition to
--------------------------------------
the officers specified in Section 4.01, the Board may appoint other assistants,
agents and employees as it may deem necessary or advisable, including one or
more Assistant Secretaries, and one or more Assistant Treasurers, each of whom
shall hold office for such period, have such authority, and perform such duties
as the Board may from time to time determine. The Board may delegate to any
officer of the Corporation or any committee of the Board the power to appoint,
remove and prescribe the duties of any such assistants, agents or employees.
SECTION 4.04 Removal. Any officer, assistant, agent or employee of
--------
the Corporation may be removed, with or without cause, at any time: (i) in the
case of an officer, assistant, agent or employee appointed by the Board, only by
resolution of the Board; and (ii) in the case of any other officer, assistant,
agent or employee, by any officer of the Corporation or committee of the Board
upon whom or which such power of removal may be conferred by the Board.
SECTION 4.05 Resignations. Any officer or assistant may resign at
-------------
any time by giving written notice of his resignation to the Board or the
Secretary of the Corporation. Any such resignation shall take effect at the
time specified therein, or, if the time be not specified, upon receipt thereof
by the Board or the Secretary, as the case may be; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
SECTION 4.06 Vacancies. A vacancy in any office because of death,
----------
resignation, removal, disqualification, or other cause, may be filled for the
unexpired portion of the term thereof in the manner prescribed in these Bylaws
for regular appointments or elections to such office.
SECTION 4.07 The Chairman of the Board. A Chairman of the Board,
--------------------------
when present, shall preside at all meetings of the stockholders and the Board.
A Chairman of the Board shall perform other duties commonly incident to this
office and shall also perform such other duties and have such other powers as
the Board shall designate from time to time. If there is no President, then a
Chairman of the Board shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in Section 4.08.
SECTION 4.08 The President. The President of
--------------
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the Corporation shall be the chief executive officer of the Corporation and
shall have, subject to the control of the Board, general and active supervision
and management over the business of the Corporation and over its several
officers, assistants, agents and employees.
SECTION 4.09 The Vice Presidents. Each Vice President shall have
--------------------
such powers and perform such duties as the Board may from time to time
prescribe. In case of the absence or inability to act of the President and the
Chairman of the Board, upon the request of the Board, a Vice President shall
perform the duties of the President and when so acting, shall have all the
powers of, and be subject to all the restrictions upon, the President.
SECTION 4.10 The Secretary. The Secretary shall, if present, record
--------------
the proceedings of all meetings of the Board, of the stockholders, and of all
committees of which a secretary shall not have been appointed in one or more
books provided for that purpose; he shall see that all notices are duly given in
accordance with these Bylaws and as required by law; he shall be custodian of
the seal of the Corporation and shall affix and attest the seal to all documents
to be executed on behalf of the Corporation under its seal; and, in general, he
shall perform all the duties incident to the office of Secretary and such other
duties as may from time to time be assigned to him by the Board.
SECTION 4.11 The Treasurer. The Treasurer shall have the general
--------------
care and custody of the funds and securities of the Corporation, and shall
deposit all such funds in the name of the Corporation in such banks, trust
companies or other depositories as shall be selected by the Board. He shall
receive, and give receipts for, moneys due and payable to the Corporation from
any source whatsoever. He shall exercise general supervision over expenditures
and disbursements made by officers, agents and employees of the Corporation and
the preparation of such records and reports in connection therewith as may be
necessary or desirable. He shall, in general, perform all other duties incident
to the office of Treasurer and such other duties as from time to time may be
assigned to him by the Board.
SECTION 4.12 Compensation. The compensation of the officers of the
-------------
Corporation shall be fixed from time to time by the Board. None of such
officers shall be prevented from receiving such compensation by reason of the
fact that he is also a director of the Corporation. Nothing contained herein
shall preclude any officer from serving the Corporation, or any subsidiary
corporation, in any other capacity and receiving such compensation by reason of
the fact that he is also a director of the Corporation. Nothing contained herein
shall preclude any officer from serving the Corporation, or any subsidiary
corporation, in any other
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capacity and receiving proper compensation therefor.
ARTICLE V
Contracts, Checks, Drafts, Bank Accounts, Etc.
----------------------------------------------
SECTION 5.01 Execution of Contracts. The Board, except as in these
-----------------------
Bylaws otherwise provided, may authorize any officer or officers, agent or
agents, to enter into any contract or execute any instrument in the name of and
on behalf of the Corporation, and such authority may be general or confined to
specific instances; and unless so authorized by the Board or by these Bylaws, no
officer, agent or employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or in any amount.
SECTION 5.02 Checks, Drafts, Etc. All checks, drafts or other
--------------------
orders for payment of money, notes or other evidence of indebtedness, issued in
the name of or payable to the Corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board. Each such officer, assistant, agent or attorney
shall give such bond, if any, as the Board may require.
SECTION 5.03 Deposits. All funds of the Corporation not otherwise
---------
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board may select, or
as may be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. For the purpose of deposit and for the
purpose of collection for the account of the Corporation, the President, any
Vice President or the Treasurer (or any other officer or officers, assistant or
assistants, agent or agents, or attorney or attorneys of the Corporation who
shall from time to time be determined by the Board) may endorse, assign and
deliver checks, drafts and other orders for the payment of money which are
payable to the order of the Corporation.
SECTION 5.04 General and Special Bank Accounts. The Board may from
----------------------------------
time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board may
select or as may be selected by any officer or officers, assistant or
assistants, agent or agents, or attorney or attorneys of the Corporation to whom
such power shall have been delegated by the Board. The Board may make such
special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of these
15
<PAGE>
Bylaws, as it may deem expedient.
ARTICLE VI
Shares and Their Transfer
-------------------------
SECTION 6.01 Certificates for Stock. Every owner of stock of the
-----------------------
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe, certifying the number and class of
shares of the stock of the Corporation owned by him. The certificates
representing shares of such stock shall be numbered in the order in which they
shall be issued and shall be signed in the name of the Corporation by the
President or a Vice President, and by the Secretary or an Assistant Secretary or
by the Treasurer or an Assistant Treasurer. Any of or all of the signatures on
the certificates may be a facsimile. In case any officer, transfer agent or
registrar who has signed, or whose facsimile signature has been placed upon, any
such certificate, shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, such certificate may nevertheless
be issued by the Corporation with the same effect as though the person who
signed such certificate, or whose facsimile signature shall have been placed
thereupon, were such officer, transfer agent or registrar at the date of issue.
A record shall be kept of the respective names of the persons, firms or
corporations owning the stock represented by such certificates, the number and
class of shares represented by such certificates, respectively, and the
respective dates thereof, and in case of cancellation, the respective dates of
cancellation. Every certificate surrendered to the Corporation for exchange or
transfer shall be canceled, and no new certificate or certificates shall be
issued in exchange for any existing certificate until such existing certificate
shall have been so canceled, except in cases provided for in Section 6.04.
SECTION 6.02 Transfers of Stock. Transfers of shares of stock of
-------------------
the Corporation shall be made only on the books of the Corporation by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary, or with a transfer clerk or
a transfer agent appointed as provided in Section 6.03, and upon surrender of
the certificate or certificates for such shares properly endorsed and the
payment of all taxes thereon. The person in whose name shares of stock stand on
the books of the Corporation shall be deemed the owner thereof for all purposes
as regards the Corporation. Whenever any transfer of shares shall be made for
collateral security, and not absolutely, such fact shall be so expressed in the
entry of transfer if, when the certificate or certificates shall be presented to
the
16
<PAGE>
Corporation for transfer, both the transferor and the transferee request the
Corporation to do so.
SECTION 6.03 Regulations. The Board may make such rules and
------------
regulations as it may deem expedient, not inconsistent with these Bylaws,
concerning the issue, transfer and registration of certificates for shares of
the stock of the Corporation. It may appoint, or authorize any officer or
officers to appoint, one or more transfer clerks or one or more transfer agents
and one or more registrars, and may require all certificates for stock to bear
the signature or signatures of any of them.
SECTION 6.04 Lost, Stolen, Destroyed, and Mutilated Certificates.
----------------------------------------------------
In any case of loss, theft, destruction, or mutilation of any certificate of
stock, another may be issued in its place upon proof of such loss, theft,
destruction, or mutilation and upon the giving of a bond of indemnity to the
Corporation in such form and in such sum as the Board may direct; provided,
however, that a new certificate may be issued without requiring any bond when,
in the judgment of the Board, it is proper so to do.
SECTION 6.05 Fixing Date for Determination of Stockholders of
------------------------------------------------
Record. In order that the Corporation may determine the stockholders entitled
- -------
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which record date shall not be more than sixty (60)
nor less than ten (10) days before the date of such meeting. If no other record
is fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of the stockholders shall be at
the close of business on the date next preceding the date on which notice is
given, or, if notice is waived, at the close of business on the date next
preceding the date on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of such meeting; provided, however,
that the Board may fix a new record date for the adjourned meeting.
17
<PAGE>
ARTICLE VII
Indemnification
---------------
SECTION 7.01 Directors and Officers. The Corporation shall
-----------------------
indemnify to the fullest extent permitted by the Delaware General Corporation
Law any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a director or
officer of the Corporation or is or was serving at the request of the
Corporation as a director or officer of another corporation or of a partnership,
joint venture, limited liability company, trust or other enterprise (including
services with respect to an employee benefit plan), against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, that he had reasonable cause to believe that his
conduct was unlawful. The provisions of this section shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth by the Delaware
General Corporation Law.
SECTION 7.02 Derivative Claims Against Directors and Officers. The
-------------------------------------------------
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director or officer of the Corporation, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the Corporation unless and only to the extent that the Court
18
<PAGE>
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper. The provisions of this section shall not be
deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth by
the Delaware General Corporation Law.
SECTION 7.03 Employees and Agents. The Corporation may indemnify
---------------------
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was an employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as an, employee or agent of another corporation, partnership, joint venture,
limited liability company, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, that he had reasonable cause to believe that his
conduct was unlawful.
Section 7.04 Derivative Claims Against Agents. The Corporation may
---------------------------------
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was an employee or agent of the Corporation, or is or was serving at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, limited liability company, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, except that no indemnification
shall be made in
19
<PAGE>
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the Corporation unless and only to the extent that the Court of Chancery
or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
SECTION 7.05 Determination of Right to Indemnification. Any
------------------------------------------
indemnification under Sections 7.01, 7.02, 7.03 or 7.04 of this Article VII
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director
or officer, is proper in the circumstances because he has met the applicable
standard of conduct set forth in Sections 7.01, 7.02, 7.03 and 7.04 of this
Article. Such determination shall be made by (i) a majority of the directors
who are not parties to such action, suit or proceeding, even though less than a
quorum, or (ii) if there are no such directors or if such directors so direct,
by independent legal counsel in a written opinion,
SECTION 7.06 Expenses. Notwithstanding the other provisions of this
---------
Article VII, to the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 7.01, 7.02, 7.03 or 7.04 of
this Article VII, or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
SECTION 7.07 Advancement of Expenses. Expenses incurred by an
------------------------
officer or director of the Corporation in defending a civil or criminal action,
suit or proceeding described in Sections 7.01 or 7.02 shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt, if required by Delaware law, of an undertaking by or on
behalf of the director or officer to repay such amount unless it shall be
determined ultimately that he is entitled to be indemnified by the Corporation
as authorized in this Article VII. Such expenses incurred by other employees
and agents may be so paid upon such terms and conditions, if any, as the Board
deems appropriate.
Notwithstanding the foregoing, unless otherwise determined pursuant to
Section 7.08 of this Article VII, no advance shall be made by the Corporation if
a determination is reasonably and promptly made (1) by the Board by a
20
<PAGE>
majority vote of a quorum consisting of directors who were not parties to the
proceeding, or (2) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the Corporation.
SECTION 7.08 Enforcement. Without the necessity of entering into an
------------
express contract, all rights to indemnification and advances to directors and
officers under this Article VII shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
Corporation and the director or officer. Any right to indemnification or
advances granted by this Article VII to a director or officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. The Corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the Delaware General Corporation Law for
the Corporation to indemnify the claimant for the amount claimed. Neither the
failure of the Corporation (including its Board, independent legal counsel or
its stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the Corporation
(including the Board, independent legal counsel or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that claimant has not met the applicable
standard of conduct.
SECTION 7.09 Non-Exclusivity. The indemnification provided by this
----------------
Article VII shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any Bylaws, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors administrators of such a
21
<PAGE>
person.
SECTION 7.10 Insurance. Upon resolution passed by the Board, the
----------
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article VII.
SECTION 7.11 Successors. For the purposes of this Article VII,
-----------
references to "the Corporation" include constituent corporations absorbed in a
consolidation or merger as well as the resulting or surviving corporation, so
that any person who is or was a director, officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another constituent corporation,
partnership, joint venture, limited liability company, trust or other enterprise
shall stand in the same position under the provisions of this Article VII with
respect to the resulting or surviving corporation as he would if he had served
the resulting or surviving corporation in the same capacity.
SECTION 7.12 Certain Definitions. For purposes of this Article VII,
--------------------
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee
or agent of the corporation which imposes duties on, or involves services by,
such director, officer, employee, or agent with respect to an employee benefit
plan, its participants, or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article VII.
SECTION 7.13 Saving Clause. If this Article VII or any portion
--------------
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each director
and executive officer to the full extent not prohibited by any applicable
portion of this Article VII that shall not have been invalidated, or by any
other applicable law.
22
<PAGE>
ARTICLE VIII
Miscellaneous
-------------
SECTION 8.01 Seal. The Board shall provide a corporate seal, which
-----
shall be in the form of a circle and shall bear the name of the Corporation and
words and figures showing that the Corporation was incorporated in the State of
Delaware and the year of incorporation.
SECTION 8.02 Waiver of Notices. Whenever notice is required to be
------------------
given by these Bylaws or the Certificate of Incorporation or by law, the person
entitled to said notice may waive such notice in writing, either before or after
the time stated therein, and such waiver shall be deemed equivalent to notice.
SECTION 8.03 Amendments. These Bylaws, or any of them except
-----------
Section 3.02, may be altered, amended or repealed, and new Bylaws may be made,
(i) by the Board, by vote of a majority of the number of directors then in
office as directors, acting at any meeting or pursuant to a written consent of
the Board, or (ii) by the stockholders, at any annual meeting or pursuant to a
written consent of stockholders, without previous notice, or at any special
meeting of stockholders, provided that notice of such proposed amendment,
modification, repeal or adoption is given in the notice of special meeting. Any
Bylaws made or altered by the stockholders may be altered or repealed by either
the Board or the stockholders.
23
<PAGE>
CERTIFICATE OF SECRETARY
The undersigned, being the duly elected Secretary of Beringer Wine
Estates Holdings, Inc., a Delaware corporation, hereby certifies that the Bylaws
to which this Certificate is attached were duly adopted by the Board of
Directors of said Corporation on December 5, 1997.
_______________________________
Douglas W. Roberts,
Secretary
<PAGE>
Exhibit 13
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management's Discussion and Analysis.................................................................... 27-35
Consolidated Balance Sheets at June 30, 1998 and 1999................................................... 36
Consolidated Statements of Operations for the years ended June 30, 1997, 1998 and 1999.................. 37
Consolidated Statements of Stockholders' Equity for the years ended June 30, 1997,
1998 and 1999.......................................................................................... 38
Consolidated Statements of Cash Flows for the years ended June 30, 1997, 1998 and 1999.................. 39
Notes to Consolidated Financial Statements.............................................................. 40-54
Report of Independent Accountants....................................................................... 55
</TABLE>
BERINGER WINE ESTATES HOLDINGS, INC. 26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
This report contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about us and our industry.
These forward-looking statements involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors, as more fully described in the
"Risk Factors" section and elsewhere in this report. We undertake no obligation
to update publicly any forward-looking statements for any reason, even if new
information becomes available or other events occur in the future.
Introduction
We have operated continuously since our founding in 1876. On January 1,
1996, we were acquired by an investment group led by the Texas Pacific Group, in
a leveraged transaction. In October 1997, we sold 4,920,000 shares of Class B
Common Stock to the public in an initial public offering ("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. We used these
net proceeds to retire all of our outstanding subordinated notes, redeem all
outstanding shares of the Series A Preferred Stock and retire $49.9 million of
our line of credit and $6.0 million of long-term senior debt. 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 available to
common stockholders, which represented the accelerated accretion of the original
issue discount remaining on the redemption date.
We acquired Chateau St. Jean in April 1996 and Stags' Leap Winery in
February 1997. Each of the Beringer, Chateau St. Jean and Stags' Leap
transactions were 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 we were acquired in
January 1996, $101.9 million of the purchase price in excess of book value was
allocated to our inventory on hand at the transaction date. This allocation of
purchase price is referred to in this report as inventory step-up. 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.
We use 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, the cost of producing the wine
sold is charged to cost of goods sold. These costs include 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 our gross profit, operating income,
and net income. The charges to cost of goods sold resulting from the inventory
step-up are non-cash items and are expected to affect our reported performance
at decreasing levels through fiscal year 2000. As the inventory step-up will
affect our reported financial results only in the near term, the current results
are not indicative of our future performance. This report includes discussion of
adjusted results excluding the impact of inventory step-up.
BERINGER WINE ESTATES HOLDINGS, INC. 27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Summary of Fiscal 1999
Fiscal 1999 operating results reflect continued sales volume growth,
increasing average unit price and stable gross margins. During the twelve months
ended June 30, 1999, sales volume grew 12% and net revenues rose 18% driven by
growth in the Beringer Vineyards and Meridian Vineyards brands. Gross profit
expanded 31% and operating profit increased 56% over the same period in the
prior fiscal year. Net income and diluted earnings per share increased
significantly over fiscal 1998 levels to $29.6 million and $1.46, respectively.
Our success as a leading producer of premium varietal wines is due to an
emphasis on quality products, brand strength and consumer focused marketing.
The following table shows net income per share for the fiscal years ended
June 30, 1997, 1998 and 1999. Adjusted net income excludes 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 Income (Loss) and Per Share Amounts
<TABLE>
<CAPTION>
Fiscal year ended June 30 (in thousands, except per share data) 1997 1998 1999
------------ ----------- -----------
<S> <C> <C> <C>
As Reported
Net income (loss) available to
common stockholders................................................ $(10,369) $ 7,883 $29,585
Diluted EPS.............................................................. (0.86) 0.43 1.46
Adjusted (1)
Net income available to
common stockholders................................................ $ 15,089 $29,537 $39,326
Diluted EPS.............................................................. 1.12 1.63 1.94
</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 fiscal
1998, and the non-recurring charge for the accelerated accretion of the
preferred stock discount resulting from the redemption of Series A
Preferred Stock recorded in fiscal 1998.
Net income available to common stockholders expanded to $29.6 million or
$1.46 per diluted share for fiscal 1999 compared to $7.9 million or $.43 per
diluted share in fiscal 1998. Adjusted net income available to common
stockholders grew 33% to $39.3 million for the year compared to $29.5 million
for fiscal 1998. Fiscal 1999 adjusted diluted earnings per share rose 19% to
$1.94 from $1.63 the same period the prior year.
Fiscal 1999 net revenues grew $57.7 million or 18% to $376.2 million. Gross
profit increased $42.2 million or 31% over fiscal 1998 to $178.1 million
reflecting increased sales volume and an $11.4 million reduction in the non-cash
charge associated with inventory step-up. Adjusted gross profit for fiscal 1999,
excluding inventory step-up, grew 19% over fiscal 1998 to $194.6 million.
Selling, general and administrative expenses for fiscal 1999 grew $18.3 million
or 20% over fiscal 1998 due primarily to increased advertising and product
promotion expense. Fiscal 1999 operating income increased $23.9 million over
fiscal 1998 to $66.5 million. Adjusted operating income for fiscal 1999,
excluding inventory step-up, increased $12.5 million or 18% to $83.0 million.
Total assets grew $100.7 million to $644.3 million at June 30, 1999.
Inventories rose $34.0 million to $285.6 million, 13% higher than the June 30,
1998 balances. Property, plant and equipment, net of accumulated depreciation,
grew $45.1 million to $289.8 million at June 30, 1999. Partially funding growth
in assets, total debt expanded $50.8 million to $328.0 million at June 30, 1999,
from June 30, 1998.
BERINGER WINE ESTATES HOLDINGS, INC. 28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Fiscal 1998 vs. Fiscal 1999
The following table shows our brands contribution to consolidated net
revenues for the fiscal years ended June 30, 1997, 1998 and 1999.
Net Revenues
<TABLE>
<CAPTION>
Fiscal year ended June 30 (dollars and volume in thousands) 1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Beringer Vineyards....................................................... $160,336 $190,441 $224,278
Meridian Vineyards....................................................... 39,009 53,782 69,981
All Other California Brands.............................................. 59,413 59,698 64,007
Imports.................................................................. 10,702 14,527 17,888
-------- -------- --------
Total Net Revenues.................................................... $269,460 $318,448 $376,154
======== ======== ========
Volume (total 9-liter case equivalents).................................. 5,411 6,063 6,787
Net Revenue Per Case..................................................... $49.80 $ 52.52 $ 55.42
</TABLE>
Fiscal 1999 net revenues increased 18% over fiscal 1998 to $376.2 million.
Net revenues in fiscal 1999 grew 18% for the Beringer Vineyards brand and 30%
for Meridian Vineyards. In fiscal 1999, we shipped 6.8 million nine-liter case
equivalents, 12% higher than the 6.1 million cases shipped in fiscal 1998.
Volume growth continues to be driven primarily by the Beringer Vineyards brand
with the introduction of the new Beringer Founders' Estate product line and the
continued expansion of Meridian Vineyards.
The average net revenue per nine-liter case increased 6% to $55.42 per case
from $52.52 per case in fiscal 1998. This increase primarily reflects the
positive mix change resulting from increased Beringer Founders' Estate and
Meridian Vineyards sales volume at higher than company average per case revenue.
We expect this trend of increasing unit revenue to continue as we pursue the
opportunities in the $7.00 to $12.00 per bottle retail price category with
Beringer Founders' Estate and Meridian Vineyards.
Based on the growth of Beringer Founders' Estate within the Beringer
Vineyards brand and continued growth of Meridian Vineyards, Beringer White
Zinfandel has been reduced to 31% of our total net revenues in fiscal 1999 from
37% in fiscal 1998. Meridian Vineyards has increased its contribution to total
net revenues from 17% in fiscal 1998 to 19% in fiscal 1999
Cost of Goods Sold Cost of goods sold in fiscal 1999 increased $15.5 million
to $198.0 million. Included in cost of goods sold are $27.8 and $16.4 million of
non-cash charges resulting from the inventory step-up for years ended June 30,
1998 and 1999, respectively. Cost of goods sold, excluding inventory step-up,
grew $26.9 million to $181.6 million in fiscal 1999. The average cost per nine-
liter case, excluding inventory step-up, increased $1.24 or 5% to $26.75 for
fiscal 1999. These changes are primarily due to changes in product mix sold and
changes in raw materials costs, particularly as new vintages are introduced.
BERINGER WINE ESTATES HOLDINGS, INC. 29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Gross Profit The following table shows consolidated gross profit for the
fiscal years ended June 30, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
Fiscal year ended June 30 (in thousands) 1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net Revenues.......................................................... $269,460 $318,448 $376,154
Cost of Goods Sold.................................................... 177,829 182,557 198,030
-------- -------- --------
Gross Profit.......................................................... 91,631 135,891 178,124
Inventory Step-Up..................................................... 43,308 27,845 16,448
-------- -------- --------
Adjusted Gross Profit................................................. $134,939 $163,736 $194,572
======== ======== ========
</TABLE>
Gross profit for fiscal 1999 increased $42.2 million, or 31% over fiscal
1998 to $178.1 million. Adjusted gross profit, excluding inventory step-up, for
fiscal 1999 increased $30.8 million over fiscal 1998, to $194.6 million. This
19% increase in adjusted gross profit reflects 12% growth in the number of cases
sold and 7% growth in per case profit.
Gross Margin The following table shows gross margin for the fiscal years ended
June 30, 1997, 1998 and 1999, reflecting gross profit expressed as a percentage
of net revenues.
<TABLE>
<CAPTION>
Fiscal year ended June 30 1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net Revenues.......................................................... 100.0% 100.0% 100.0%
Cost of Goods Sold.................................................... 66.0% 57.3% 52.7%
----- ----- -----
Gross Margin.......................................................... 34.0% 42.7% 47.3%
Inventory Step-Up..................................................... 16.1% 8.7% 4.4%
----- ----- -----
Adjusted Gross Margin................................................. 50.1% 51.4% 51.7%
===== ===== =====
</TABLE>
Fiscal 1999 gross margin improved to 47.3% from 42.7% for fiscal 1998
primarily related to the reduced non-cash charge associated with the inventory
step-up. Adjusted gross margin, excluding inventory step-up, remained stable in
fiscal 1999 at 51.7% compared with 51.4% in fiscal 1998.
Selling, General and Administrative Expenses Selling general and
administrative expenses consist of product-specific selling and marketing
expenses such as advertising, product merchandising and trade discounts, and
non-product specific expenses such as sales and marketing staff, and general and
administrative expenses. In fiscal 1999 these expenses increased $18.3 million
or 20% over fiscal 1998 to $111.6 million primarily reflecting higher product
promotion expenses.
Fiscal 1999 selling, general and administrative expenses rose to 29.7% of
net revenue from 29.3% in fiscal 1998. This increase reflects a 26% increase in
advertising and promotional spending, and a 12% increase in non-product specific
expenses.
We expect selling, general and administrative expenses to continue to
increase generally at the rate of sales growth as we continue to promote our
brands, expand our advertising campaigns and continue to test the market
potential of new products.
BERINGER WINE ESTATES HOLDINGS, INC. 30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Operating Income and Margin The following table shows operating income and
adjusted operating income expressed as a percentage of revenue for the fiscal
years ended June 30, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
Fiscal year ended June 30 (dollars in thousands) 1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Operating Income.................................................... $12,984 $42,643 $66,532
Inventory Step-Up................................................... 43,308 27,845 16,448
------- ------- -------
Adjusted Operating Income........................................... $56,292 $70,488 $82,980
======= ======= =======
Operating Margin.................................................... 4.8% 13.4% 17.7%
Adjusted Operating Margin........................................... 20.9% 22.1% 22.1%
</TABLE>
Operating income for the fiscal year rose $23.9 million or 56% over fiscal
1998 to $66.5 million. Excluding inventory step-up, adjusted operating income
for fiscal 1999 increased $12.5 million or 18% over fiscal 1998 to $83.0
million. The adjusted operating margin remained stable at 22.1%.
Interest Expense and Other Income/Expense Interest expense for fiscal 1999
decreased $1.1 million to $21.9, as we used the proceeds from our October 1997
IPO to pay down higher interest rate debt during the second quarter of fiscal
1998. During 1999 we increased our average debt outstanding by $22.3 million but
benefited from lower market interest rates.
Income Tax Provision (Benefit) The fiscal 1999 income tax provision was based
on an effective tax rate of approximately 37% compared to 30% in fiscal 1998.
Our effective tax rate is lower than the federal statutory rate due to the
effect of state taxes and the amortization of tax basis goodwill. We anticipate
that our effective tax rate will increase as taxable income increases,
approaching the statutory rate of approximately 41%.
Preferred Stock Dividends During the second quarter of fiscal 1998, we
redeemed all of our Series A Preferred Stock with proceeds from the IPO. As a
result of this redemption, we recorded a $2.5 million charge for the accelerated
accretion of the remaining original issue discount. In addition, prior to
redemption, we recorded dividends and normal accretion of $1.9 million in fiscal
1998.
Extraordinary Items During the second quarter of fiscal 1998, we retired all
of our 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.
Financial Condition
Assets. Our total assets increased $100.7 million or 19% from June 30, 1998 to
$644.3 million on June 30, 1999. Inventories rose $34.0 million to $285.6
million, 13% higher than the June 30, 1998 balances. This increase reflects a
$50.4 million increase in inventory quantities on hand, offset by a $16.4
million reduction in inventory step-up. Although our inventory and receivable
levels will be affected 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 $68.5 million or 19% from June
30, 1998 to $426.2 million at June 30, 1999. At June 30, 1999, our long-term
debt outstanding was $225.9 million and the line of credit was $102.1 million.
At June 30, 1999, $191.9 million was available under the terms of our credit
agreement.
BERINGER WINE ESTATES HOLDINGS, INC. 31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Capital Resources Our operating activities for the fiscal year
ended June 30, 1999 provided net cash of $4.2 million. Net cash used in
investing activities in fiscal 1999 of $57.5 million consisted primarily of
$56.9 million of expenditures for property, plant and equipment. Our capital
spending included $27.0 million for vineyard development and $29.9 million for
facilities development. We expect to continue to have significant cash
requirements, primarily for growth in inventory and capital spending on
vineyards and winery facilities.
Net cash provided by our financing activities during the fiscal year ended
June 30, 1999 of $53.3 million was provided primarily through our bank credit
agreement. We anticipate that current capital, combined with cash from
operations and the availability of cash from additional financing under our
existing credit facilities, will be sufficient to meet our liquidity and capital
expenditure requirements through the end of 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 in the future.
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 exchange agreements. We do not use financial
instruments for trading purposes and we are not a party to any leveraged
derivatives.
At June 30, 1999, our debt was $328.0 million, of which $178.3 million will
re-price during the next twelve months. At June 30, 1999, we had interest rate
exchange agreements that converted a notional amount of $90 million of our
variable-rate debt to a fixed rate.
Assuming a 1% increase in interest rates, we would expect our annual
interest expense to increase approximately $838,000. 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.
Fiscal 1997 vs. Fiscal 1998
Fiscal 1998 operating results improved over fiscal 1997 as sales volume
grew 12%, net revenues rose 18%, and net income and earnings per share increased
significantly from fiscal 1997 levels. Our 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
fiscal 1998 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 for
fiscal 1997.
Fiscal 1998 net revenues grew $49.0 million or 18% over fiscal 1997 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 inventory step-
up, for fiscal 1998 grew 21% over 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 the
prior year, 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.
BERINGER WINE ESTATES HOLDINGS, INC. 32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RISK FACTORS
Year 2000 compliance 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 other normal business activities.
We do not know if the systems of companies with which we have significant
business relationships will be timely converted. We have completed contingency
plans to minimize disruption in our operations caused by failure to achieve Year
2000 compliance.
We have not formulated a reasonably likely worst case scenario with regard
to Year 2000 failures. If our customers or suppliers Year 2000 compliance is not
completed by December 31, 1999 our business could be materially and adversely
affected.
Our dependence on sales of three varietals could adversely affect our
profitability if consumer preferences were to change Approximately 76% of our
net revenues for the fiscal year ended June 30, 1999 were concentrated in our
top three selling varietal wines, White Zinfandel, Chardonnay and Cabernet
Sauvignon. A shift in consumer preferences that results in a reduction in sales
of wine generally, or in any of these three varietals, could cause a significant
decline in our revenues and earnings.
We face significant competition which could adversly affect our profitability
The premium wine industry is highly competitive which could adversly impact our
profit margins and growth prospects. Several of our competitors have greater
financial resources than we do. Our wines compete in all of the premium wine
market segments with many other premium wines produced throughout the world. Our
wines also compete with popular-priced generic wines and with other alcoholic
and, to a lesser degree, non-alcoholic beverages. We compete for shelf space in
retail stores and for marketing focus by our independent distributors, most of
whom carry extensive product portfolios.
If our largest customers and distribution channels perform poorly our
profitability would be adversly affected We sell our products principally to
distributors for resale to restaurants and retail outlets. Sales to our largest
distributor, Southern Wine and Spirits of America, Inc., represented 31% of our
net revenues for fiscal year ended June 30, 1999. Sales to our ten largest
distributors combined represented 59% of our net revenues during fiscal year
ended June 30, 1999. Sales to our ten largest distributors are expected to
continue to represent a substantial majority of our net revenues in the future.
Poor sales performance from our major distributors or our inability to collect
accounts receivable from them when due could significantly reduce our earnings.
If sales in California and other key markets decline, our profits and revenues
may be adversly affected For the fiscal year ended June 30, 1999,
approximately 25% of our sales were concentrated in California, while another
approximately 24% were concentrated in New Jersey, Texas, Illinois, and Florida
combined. A reduction in consumer confidence and spending in these and other
regions could reduce demand for our products, which would adversely affect our
business and financial results.
BERINGER WINE ESTATES HOLDINGS, INC. 33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Fluctuations in quantity and quality of grape supply could adversely affect us
Grape supply shortages generally result in higher grape prices. Grape prices are
the single largest component of our costs of production. We are most susceptible
to grape price increases with White Zinfandel because we purchase the majority
of these grapes. Most of our farming costs are fixed, so a decline in the yields
from our own vineyards results in higher costs for our wines. If we cannot
increase prices because of competitive pressure, increased grape supply costs
could lead to lower earnings.
Planting new vineyards and replanting old vineyards may result in increased
wine supplies. If this increased supply is not offset by increased consumer
demand for premium wines, we may be unable to maintain or increase our prices.
Consequently, this could significantly reduce our earnings.
If the quality of our grape supply declines, one or more of our wines could
be adversely affected, and this could have an adverse impact on our business.
Disease, pestilence and bad weather could reduce the quality and quantity of our
grape supply Winemaking and grape growing are subject to a variety of
agricultural risks. Various diseases, pests, and extreme weather conditions can
substantially reduce the quality and quantity of our grape supply. If our wine
quality or supply is reduced, it can hurt our financial results. In recent
years, floods have damaged several of our vineyards. While this damage was
limited, and did not materially impact our financial results, future flooding or
other extreme weather conditions may do so. Our vineyards are also susceptible
to various insect pests, along with various grapevine diseases and viruses.
We have experienced Pierce's Disease in some of our vineyards located near
riparian vegetation. This disease destroys individual vines. There is no cure
for Pierce's Disease but its incidence has been reduced by removing vines from
problem areas. A new carrier of Pierce's disease, the glassy winged
sharpshooter, has reportedly infected vineyard acreage in San Diego County. If
this pest migrates north to our Central and North Coast vineyards it could
greatly increase the incidence of Pierce's Disease and reduce the quantity of
our grape supply. We cannot guarantee Pierce's Disease or other diseases,
infestations or pests will not become more widespread in the future. These
problems could result in increased prevention, remedial and other costs, and
consequently lower future earnings.
Phylloxera is a louse that feeds on the vine roots and usually destroys the
vine over a period of time. We have experienced Phylloxera in most of our North
Coast vineyards. We have replanted most of these vineyards using rootstocks that
are generally believed to be resistant to phylloxera. However, we cannot assure
you that these rootstocks will be resistant to existing or new strains of
phylloxera.
Our debt and capital requirements could adversely affect us Our total bank
debt was $328.0 million at June 30, 1999, representing approximately 60% of our
total capitalization. We project the need for significant capital spending and
increased working capital requirements over the next several years. This will
require additional borrowing or other financing.
Our leverage has several important consequences to our stockholders. These
include:
. significant interest and principal repayment obligations; and
. restrictive debt covenants that limit, among other things, our ability
to pay dividends and to incur additional indebtedness.
BERINGER WINE ESTATES HOLDINGS, INC. 34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The premium wine industry is a capital-intensive business. It involves
substantial capital expenditures to acquire and develop vineyards and to improve
and expand wine production. Farming of vineyards and the acquisition of grapes
and bulk wine require substantial amounts of working capital.
Our quarterly results fluctuate because of the seasonality of the wine business
. We typically experience seasonal and quarterly fluctuations in net revenues,
cost of goods sold and net income.
. Our sales volume tends to increase during holiday periods and prior to the
effective dates of price increases.
. Our sales volume is also sensitive to distributor inventories. If they begin
a period with higher than normal inventories, their purchases may decline in
that period.
. Our timing of releases for our higher priced wines can also affect our
quarterly results.
. Our sales volume historically declines during the summer months. This
seasonality results in lower earnings during our first fiscal quarter.
. Our level of borrowing and related interest expense fluctuates throughout
the year based on the incurrance of harvest costs, and the timing of grape
grower payments and capital expenditures.
Increased regulation could adversely affect us The wine industry is regularly
targeted for increased regulation of marketing practices and distributor
relationships. It is also susceptible to trade barriers erected by countries
with competitive wine industries. Increased trade regulation or trade barriers
could restrict the ability of our industry to compete with other beverages.
Our largest stockholder exercises significant control We have two classes of
Common Stock: Class A Common Stock, which is entitled to 20 votes per share, and
Class B Common Stock, which is entitled to one vote per share. Texas Pacific
Group, and its related partnerships, own 1,259,902 shares of Class A Common
Stock and 8,861,493 shares of Class B Common. This represents approximately 96%
of all the outstanding Class A Common Stock and 49% of all the outstanding Class
B Common Stock, and 77% of the combined voting power of both classes of Common
Stock. Consequently, they are able to elect all members of our Board of
Directors and control us. This concentration of ownership may have the effect of
delaying or preventing someone else from acquiring control of us. This could
affect the market price of our Class B Common Stock.
The price of our Class B Common Stock is volatile The market price of our
Class B Common Stock has fluctuated significantly in the past and is likely to
fluctuate significantly in the future. If our financial performance in any
fiscal quarter fails to meet the investment community's expectations, the market
price of our stock could fall. Also, the securities markets have experienced
significant price and volume fluctuations that are unrelated to our operating
results. Future trading prices of our stock may depend on factors beyond our
influence, such as perceptions of our business and the premium wine industry
generally. Prevailing interest rates and the market for similar securities may
influence our stock price. Our stock price may also react to domestic and
international economic and political conditions.
BERINGER WINE ESTATES HOLDINGS, INC. 35
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, June 30,
(in thousands, except share and per share data) 1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................................ $ 21 $ 18
Accounts receivable, net............................................................ 30,524 45,388
Inventories......................................................................... 251,669 285,635
Deferred tax assets................................................................. 5,781 11,293
Prepaids and other current assets................................................... 3,214 2,768
-------- --------
Total current assets............................................................. 291,209 345,102
Property, plant and equipment, net.................................................... 244,697 289,824
Other assets, net..................................................................... 7,694 9,390
-------- --------
Total assets..................................................................... $543,600 $644,316
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 17,456 $ 23,301
Book overdraft...................................................................... 1,207 3,416
Accrued trade discounts............................................................. 4,527 9,258
Accrued payroll, bonuses and benefits............................................... 6,706 9,447
Accrued interest.................................................................... 4,543 4,572
Other accrued expenses.............................................................. 6,515 7,597
Income taxes payable................................................................ 1,686 2,270
Line of credit...................................................................... 105,300 102,100
Current portion of long-term debt................................................... 4,406 2,695
-------- --------
Total current liabilities........................................................ 152,346 164,656
Long-term debt, less current portion.................................................. 167,461 223,162
Deferred tax liabilities.............................................................. 33,559 36,065
Other liabilities..................................................................... 4,333 2,333
-------- --------
Total liabilities................................................................ 357,699 426,216
-------- --------
Stockholders' equity:
Class A Common Stock, $0.01 par value; 2,000,000 shares authorized;
1,376,208 and 1,312,326 shares issued and outstanding............................. 14 13
Class B Common Stock, $0.01 par value; 38,000,000 shares authorized;
18,038,469 and 18,242,071 shares issued and outstanding........................... 180 182
Notes receivable from stockholders.................................................. (448) (306)
Additional paid-in-capital.......................................................... 188,721 191,192
Retained earnings (accumulated deficit)............................................. (2,566) 27,019
-------- --------
Total stockholders' equity....................................................... 185,901 218,100
-------- --------
Total liabilities and stockholders' equity....................................... $543,600 $644,316
======== ========
</TABLE>
See notes to consolidated financial statements.
BERINGER WINE ESTATES HOLDINGS, INC. 36
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------
(in thousands, except per share data) 1997 1998 1999
------------ ------------- -------------
<S> <C> <C> <C>
Gross revenues......................................................... $282,801 $334,398 $393,986
Less excise taxes...................................................... 13,341 15,950 17,832
-------- -------- --------
Net revenues........................................................... 269,460 318,448 376,154
Cost of goods sold..................................................... 177,829 182,557 198,030
-------- -------- --------
Gross profit........................................................... 91,631 135,891 178,124
Selling, general and administrative expenses........................... 78,647 93,248 111,592
-------- -------- --------
Operating income....................................................... 12,984 42,643 66,532
Interest expense....................................................... 26,401 23,000 21,899
Other expense (income), net............................................ (892) (2,465) (2,471)
-------- -------- --------
Income (loss) before income taxes...................................... (12,525) 22,108 47,104
Provision for (benefit of) income taxes................................ (7,076) 6,543 17,519
-------- -------- --------
Net income (loss) before extraordinary item and preferred stock
dividends and discount accretion.................................... (5,449) 15,565 29,585
Less preferred stock dividends and discount accretion.................. 4,920 4,365 --
-------- -------- --------
Income (loss) before extraordinary item available to common
stockholders.......................................................... (10,369) 11,200 29,585
Extraordinary loss, net of tax......................................... -- 3,317 --
-------- -------- --------
Net income (loss) available to common stockholders................... $(10,369) $ 7,883 $ 29,585
======== ======== ========
Income (loss) per share:
Basic EPS before extraordinary item.................................. $ (0.86) $ 0.65 $ 1.51
Extraordinary loss per share......................................... -- 0.19 --
-------- -------- --------
Basic EPS after extraordinary item................................... $ (0.86) $ 0.46 $ 1.51
======== ======== ========
Diluted EPS before extraordinary item................................ $ (0.86) $ 0.62 $ 1.46
Extraordinary loss per share......................................... -- 0.19 --
-------- -------- --------
Diluted EPS after extraordinary item................................. $ (0.86) $ 0.43 $ 1.46
======== ======== ========
Weighted average number of common shares and
equivalents outstanding:
Basic................................................................ 12,071 17,108 19,554
======== ======== ========
Diluted.............................................................. 12,071 18,170 20,300
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
BERINGER WINE ESTATES HOLDINGS, INC. 37
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Notes
Class A Class B Receivable Additional
Common Stock Common Stock From Paid in
------------------ ------------------
(in thousands, except share data) Shares Amount Shares Amount Stockholders Warrants Capital
------ ------ ------ ------ ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1996.............. 1,008,000 $10 10,639,590 $106 $(340) $ 1,848 $ 56,124
Net loss...........................
Issuance of stock.................. 11,980 -- 1,076,622 11 (402) 6,266
Repayment of notes receivable
from stockholders................. 106
Preferred stock dividend and
discount accretion................ (4,920)
--------- ----- ---------- ----- -------- ------- --------
Balance at June 30, 1997............. 1,019,980 10 11,716,212 117 (636) 1,848 57,470
Net income.........................
Issuance of stock.................. 50,831 -- 1,061
Proceeds from initial public
offering.......................... 5,520,000 55 132,421
Exercise of warrants............... 431,612 5 (1,848) 1,843
Exercise of stock options, net of
repurchase and retirements........ 676,042 7 293
Repayment of notes receivable
from stockholders................. 188
Conversion, Class B to Class A
Common Stock...................... 356,228 4 (356,228) (4)
Other............................ (2)
Preferred stock dividend and
discount accretion................ (4,365)
--------- ----- ---------- ----- -------- ------- --------
Balance at June 30, 1998............. 1,376,208 14 18,038,469 180 (448) -- 188,721
Net income.........................
Issuance of stock.................. 82,658 1 2,027
Exercise of stock options, net of
repurchase and retirements........ 57,062 -- 444
Repayment of notes receivable
from stockholders................. 142
Conversion, Class A to Class B
Common Stock...................... (63,882) (1) 63,882 1
--------- ----- ---------- ----- -------- ------- --------
Balance at June 30, 1999............. 1,312,326 $13 18,242,071 $182 $(306) $ -- $191,192
========= ===== ========== ===== ======== ======= ========
<CAPTION>
Retained
Earnings/
(Accumulated
(in thousands, except share data) Deficit) Total
------- -----
<S> <C> <C>
Balance at July 1, 1996.............. $ (9,367) $ 48,381
Net loss........................... (5,449) (5,449)
Issuance of stock.................. 5,875
Repayment of notes receivable
from stockholders................. 106
Preferred stock dividend and
discount accretion................ (4,920)
-------- --------
Balance at June 30, 1997............. (14,816) 43,993
Net income......................... 12,248 12,248
Issuance of stock.................. 1,061
Proceeds from initial public
offering.......................... 132,476
Exercise of warrants............... --
Exercise of stock options, net of
repurchase and retirements........ 300
Repayment of notes receivable
from stockholders................. 188
Conversion, Class B to Class A
Common Stock...................... --
Other............................ 2 --
Preferred stock dividend and
discount accretion................ (4,365)
-------- --------
Balance at June 30, 1998............. (2,566) 185,901
Net income......................... 29,585 29,585
Issuance of stock.................. 2,028
Exercise of stock options, net of
repurchase and retirements........ 444
Repayment of notes receivable
from stockholders................. 142
Conversion, Class A to Class B
Common Stock...................... --
-------- --------
Balance at June 30, 1999............. $ 27,019 $218,100
======== ========
</TABLE>
See notes to consolidated financial statements.
BERINGER WINE ESTATE HOLDINGS, INC. 38
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------------------
(in thousands) 1997 1998 1999
------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................................... $ (5,449) $ 12,248 $ 29,585
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Deferred taxes.................................................. (15,596) (5,694) (3,006)
Depreciation and amortization................................... 6,399 12,226 13,408
Provision for doubtful accounts................................. 210 -- --
Extraordinary loss on early extinguishment of debt.............. -- 1,509 --
Other........................................................... (17) 160 97
Change in assets and liabilities:
Accounts receivable.......................................... (4,139) (2,298) (14,864)
Inventories.................................................. 17,412 (37,572) (33,966)
Prepaids and other assets.................................... (2,786) 323 (2,260)
Accounts payable............................................. 1,991 7,342 5,845
Book overdraft............................................... 2,001 (794) 2,209
Accrued liabilities.......................................... 2,735 4,473 8,583
Income taxes payable......................................... (946) 1,686 584
Other liabilities............................................ 6,333 (2,000) (2,000)
-------- -------- --------
Net cash provided by (used in) operating activities........ 8,148 (8,391) 4,215
-------- -------- --------
Cash flows from investing activities:
Acquisitions of property, plant and equipment........................... (33,956) (43,199) (56,865)
Business acquisition.................................................... (20,351) -- --
Other................................................................... 187 (147) (660)
-------- -------- --------
Net cash used in investing activities...................... (54,120) (43,346) (57,525)
-------- -------- --------
Cash flows from financing activities:
Net proceeds from (repayments of) line of credit........................ 18,000 1,300 (3,200)
Proceeds from long-term debt............................................ 12,500 -- 58,000
Repayment of long-term debt............................................. (816) (44,816) (4,010)
Repayment of amount due to Nestle....................................... (4,024) -- --
Issuance of common stock................................................ 5,780 133,676 2,375
Issuance (redemption) of preferred stock................................ 318 (38,705) --
Proceeds from notes receivable from stockholders........................ 106 188 142
-------- -------- --------
Net cash provided by financing activities.................. 31,864 51,643 53,307
-------- -------- --------
Net decrease in cash...................................................... (14,108) (94) (3)
Cash at beginning of the period........................................... 14,223 115 21
-------- -------- --------
Cash at end of the period................................................. $ 115 $ 21 $ 18
======== ======== ========
Supplemental cash flow information:
Cash payments of income taxes............................................. $ 9,287 $ 9,045 $ 20,129
Cash payments of interest................................................. 24,128 23,749 23,867
</TABLE>
See notes to consolidated financial statements.
BERINGER WINE ESTATES HOLDINGS, INC. 39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 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).
We are engaged in the operation of vineyards and wineries, and the production
and sale of premium bottled wine. The majority of our operations are carried out
in California. We sell our wine principally in the United States to distributors
for resale to retail outlets and restaurants. A substantial portion of our 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 4% of net revenues.
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. We recognize revenue when the product is shipped and
title passes to the customer. Revenue from product sold at our retail locations
is recognized at the time of sale. We generally allow thirty days from the date
of shipment for our customers to make payment. No products are sold on
consignment.
Major customers. We sell the majority of our wines through distributors in
the United States and through brokers and agents in export markets. Receivables
arising from these sales are not collateralized; however, credit risk is
minimized as a result of the large and diverse nature of our customer base.
There is common ownership in several distributorships in different states that,
when considered to be one entity, represented 29.8%, 31.6% and 31.2% of revenues
for the years ended June 30, 1997, 1998 and 1999, respectively. Trade accounts
receivable from these distributors at June 30, 1998 and 1999 totaled $6,972,000
and $13,230,000, respectively. Our accounts receivable are presented net of an
allowance for doubtful accounts totaling $249,000 and $255,000 at June 30, 1998
and 1999, respectively.
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.
BERINGER WINE ESTATES HOLDINGS, INC. 40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, June 30,
(in thousands) 1998 1999
----------- -----------
<S> <C> <C>
Bulk wine....................................................................... $ 96,779 $124,105
Cased goods and retail.......................................................... 133,668 135,429
Crop costs and supplies......................................................... 21,222 26,101
-------- --------
$251,669 $285,635
======== ========
</TABLE>
Each of the acquisitions described below 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 inventory at June 30, 1998 and 1999 were $19.6 million and $3.2
million, respectively, of inventory step-up remaining from applying purchase
accounting to the acquisitions of Beringer Wine Estates Company, Chateau St.
Jean and Stags' Leap Winery (Note 2).
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 is 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 are genarally 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, 5 to 30 years for machinery and
equipment, and 3 to 5 for office furniture and fixtures. Leasehold improvements
are amortized over the estimated useful lives of the improvements or the terms
of the related lease, whichever is shorter.
The cost and accumulated depreciation of property, plant and equipment consist
of the following:
<TABLE>
<CAPTION>
June 30, June 30,
(in thousands) 1998 1999
------------ ------------
<S> <C> <C>
Land............................................................................... $ 77,812 $ 77,812
Vineyards.......................................................................... 57,315 62,713
Machinery and equipment............................................................ 61,627 69,680
Buildings.......................................................................... 31,503 35,609
Leasehold improvements............................................................. 7,677 8,865
Furniture and fixtures............................................................. 1,902 2,187
Vineyards under development........................................................ 26,339 47,911
Construction in progress........................................................... 4,563 20,826
-------- --------
268,738 325,603
Less accumulated depreciation and amortization..................................... (24,041) (35,779)
-------- --------
$244,697 $289,824
======== ========
</TABLE>
BERINGER WINE ESTATES HOLDINGS, INC. 41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Included in property, plant and equipment are $636,000, $1,356,000 and
$2,609,000 of interest capitalized for the years ended June 30, 1997, 1998 and
1999, respectively. All property, plant and equipment is pledged as collateral
for amounts owed under our credit agreement (Note 3).
Other assets. Other assets include loan fees, long-term prepaid lease costs,
and miscellaneous other assets. 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 our 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. We expense costs relating to advertising either as the
costs are incurred or the first time the advertising takes place. Point of sale
materials are accounted for as prepaid expenses and charged to advertising
expense as utilized. Advertising expense, including merchandising and point of
sale materials charged to expense, totaled $15,616,000, $16,118,000 and
$19,433,000 for the years ended June 30, 1997, 1998 and 1999, respectively.
Financial instruments. We utilize financial instruments to reduce interest
rate and foreign currency exchange risks. We do not enter into financial
instruments for trading or speculative purposes. Payments or receipts on
interest rate swap agreements are recorded in interest expense. Gains and losses
on forward foreign exchange contracts, which are used to manage foreign currency
exchange risk on certain oak barrel purchase commitments, are deferred and
recognized as adjustments of carrying amounts of assets purchased when the
hedged transaction occurs.
Stock based compensation. We use an intrinsic value based method to measure
compensation cost in connection with our employee stock compensation plans,
which has not historically resulted in compensation cost. Our stock option plans
are discussed in Note 9.
Earnings Per Share. Basic EPS represents the income available to common
stockholders divided by the weighted average number of Class A and Class B
common shares outstanding during the measurement period. Diluted EPS represents
the income available to common stockholders divided by the weighted average
number of Class A and Class B common shares outstanding during the measurement
period while also giving effect to all dilutive potential 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").
BERINGER WINE ESTATES HOLDINGS, INC. 42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below presents the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------
(in thousands, except per share data) 1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Numerator--Income (loss)
Income (loss) before extraordinary item available to
common stockholders................................................ $(10,369) $11,200 $29,585
======== ======= =======
Denominator--Basic shares
Average common shares outstanding................................... 12,071 17,108 19,554
-------- ------- -------
Basic EPS before extraordinary item................................. $ (0.86) $ 0.65 $ 1.51
======== ======= =======
Denominator--Diluted shares
Average common shares outstanding................................... 12,071 17,108 19,554
Dilutive effect of common stock equivalents......................... -- 1,062 746
-------- ------- -------
Total diluted shares......................................... 12,071 18,170 20,300
======== ======= =======
Diluted EPS before extraordinary item............................... $ (0.86) $ 0.62 $ 1.46
======== ======= =======
</TABLE>
Segment Reporting. We adopted Statement of Financial Accounting Standards No.
131 ("SFAS 131") , "Disclosure about Segments of an Enterprise and Related
Information" for the year ended June 30, 1999. SFAS 131 establishes standards
for reporting certain information about operating segments of an enterprise.
Operating segments are defined based upon the way that management organizes
financial information within the enterprise for making operating decisions and
assessing performance. We organize financial information by brands and product
lines. These brands and product lines have been aggregated for financial
reporting purposes due to similarities in economic characteristics of the brands
and product lines and the similar nature of the products, production processes,
customers and distribution methods. Substantially all of our revenues and assets
are within the United States.
Note 2--Acquisitions
On January 1, 1996, pursuant to a Stock Purchase Agreement among the Company,
Nestle, and TPG Partners, L.P. (TPG), we acquired all of the then outstanding
common stock of Beringer Wine Estates Company from Nestle (the "Beringer
Acquisition"). We financed the acquisition through the issuance of common and
preferred stock (Notes 7 and 8), the issuance of senior subordinated notes and
the incurrence of long-term indebtedness under our credit agreement (Note 3)
which eliminated short-term mezzanine financing provided by the seller.
BERINGER WINE ESTATES HOLDINGS, INC. 43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On April 1, 1996, pursuant to an Asset Purchase Agreement between the
Company and Suntory International Corporation (Suntory), we 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,
we 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:
<TABLE>
<CAPTION>
Beringer CSJ SLW
(in thousands) Acquisition Acquisition Acquisition
----------- ----------- -----------
<S> <C> <C> <C>
Cash paid, net of cash purchased....................................... $258,262 $29,312 $19,197
Amount due to seller................................................... 95,762 -- 2,850
Acquisition costs...................................................... 17,036 1,864 1,154
-------- ------- -------
Total purchase price................................................ $371,060 $31,176 $23,201
======== ======= =======
</TABLE>
The allocation of purchase price to the assets acquired and liabilities
assumed has been made using estimated fair values at the applicable dates of
acquisition based on independent appraisals and on studies performed by
management.
The purchase price allocations are summarized as follows:
<TABLE>
<CAPTION>
Beringer CSJ SLW
(in thousands) Acquisition Acquisition Acquisition
------------ ------------ -------------
<S> <C> <C> <C>
Fair market value of assets acquired, net of cash purchased:
Accounts receivable.................................................. $ 20,169 $ 2,627 $ 813
Inventories.......................................................... 231,489 23,057 20,046
Property, plant and equipment........................................ 178,557 10,942 12,300
Other................................................................ 17,153 2,360 740
-------- ------- -------
447,368 38,986 33,899
Fair value in excess of purchase price offset against
non-current assets acquired........................................... -- (5,750) (7,388)
Liabilities assumed.................................................... (21,436) (400) (173)
(54,872) (1,660) (3,137)
-------- ------- -------
Deferred tax liabilities............................................... $371,060 $31,176 $23,201
======== ======= =======
</TABLE>
BERINGER WINE ESTATES HOLDINGS, INC. 44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Results of operations of the SLW Acquisition are included in the Consolidated
Statements of Operations since its acquisition date. Our pro forma unaudited
results of operations, prepared assuming that the SLW Acquisition took place on
July 1, 1996, follows:
<TABLE>
<CAPTION>
(in thousands, except per share data, unaudited) Year ended June 30, 1997
------------------------
<S> <C>
Net revenues...................................................................... $273,730
Operating income (loss)........................................................... 11,790
Net loss allocable to common stockholders......................................... (11,486)
Loss per share.................................................................... $ (0.95)
</TABLE>
The pro forma results have been prepared for comparative purposes only and
include adjustments for increased costs of sales as a result of the step-up to
fair value in the basis of the inventory acquired, increased interest expense on
acquisition debt, and adjustments to depreciation based on the fair market value
of the property, plant and equipment acquired. This pro forma financial
information is not necessarily indicative of the results of operations that
would have occurred had the transaction been effected on the assumed date.
Note 3--Long-Term Debt and Line of Credit Agreement
In connection with the acquisition of the Company in January 1996, we 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
our Class A and Class B Stock Warrants, respectively (Note 9).
The credit agreement, which was amended in December 1998, provides for a
senior secured credit facility consisting of term credit and a secured revolving
line of credit. The line of credit expires on January 1, 2003 and has a maximum
credit available of $300.0 million. The maximum credit available will be reduced
if the value or amount of certain of our assets 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, 1998, we had drawn $105.3 million on the
line of credit. At June 30, 1999, we had drawn $102.1 million on the line of
credit. At June 30, 1999, we had two outstanding letters of credit related to
building and vineyard leases for a total of $6.0 million. The letter of credit
related to the vineyard lease, totaling $3.5 million, was canceled on July 7,
1999. Unused availability under the credit line was $191.9 million at June 30,
1999. Interest under the line of credit, which is payable quarterly, accrues at
a rate determined under various bank interest programs ranging from 6.06% to
8.69% for the periods ended June 30, 1998 and 1999. We may, at our option, elect
to convert all or any portion of outstanding indebtedness under the line of
credit to a fixed interest rate. We must pay a quarterly commitment fee equal to
0.25% per annum of the average daily amount by which the maximum credit
available exceeds the outstanding balance on the credit line.
BERINGER WINE ESTATES HOLDINGS, INC. 45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, June 30,
(in thousands) 1998 1999
------------ ------------
<S> <C> <C>
Term loan, Tranche A; secured by all properties; interest rates determined under
various bank interest programs (6.97% to 7.29% at June 30, 1998 and 6.43% to 7.25%
at June 30, 1999); interest payable quarterly; principal payable monthly and
quarterly commencing April 1,1997; due July 16, 2005.................................. $ 13,897 $ 13,508
Term loan, Tranche B; secured by all properties; interest rates determined under
various bank interest programs (6.97% to 8.02% at June 30, 1998 and 6.43% to 7.95%
at June 30, 1999); interest payable quarterly; principal payable quarterly
commencing January 1, 1998; due July 16, 2005......................................... 157,970 154,349
Term loan, Tranche C; secured by all properties; interest rates determined under
various bank interest programs (fixed at 6.86% under these programs at June 30, 1999
and through December 17, 2005); interest payable quarterly; principal payable
quarterly commencing January 1, 2004, due October 1, 2008............................. -- 58,000
-------- --------
Total debt 171,867 225,857
Less current portion.................................................................. (4,406) (2,695)
-------- --------
Total long-term debt $167,461 $223,162
======== ========
</TABLE>
Aggregate annual maturities of long-term debt at June 30, 1999 are as follows:
<TABLE>
<CAPTION>
(in thousands) Year ending June 30,
--------------------
<S> <C>
2000................................................................................... $ 2,695
2001................................................................................... 2,920
2002................................................................................... 3,659
2003................................................................................... 5,505
2004................................................................................... 6,636
Thereafter............................................................................. 204,442
--------
$225,857
========
</TABLE>
BERINGER WINE ESTATES HOLDINGS, INC. 46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The terms of the credit agreement contain, among other provisions,
requirements for maintaining certain working capital and other financial ratios,
and limit our ability to pay dividends, merge, alter the existing capital
structure, incur indebtedness and acquire or sell assets.
In November 1997, we used the proceeds from our IPO to retire 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.
Note 4--Financial Instruments
We do not enter into financial instruments for trading purposes and are not
party to any leveraged derivatives. Financial instruments are used to reduce the
impact of changes in interest rates and foreign currency exchange rates. The
principal financial instruments used are interest rate swaps and forward foreign
exchange contracts. Our credit exposure under these agreements is limited to the
cost of replacing an agreement in the event of non-performance by the
counterparty. To minimize this risk, we select high-quality financial
institution counterparties.
Interest rate swaps. We enter into interest rate swap agreements to manage
our exposure to interest rate changes. The swaps involve the exchange of fixed
and variable interest rate payments without exchanging the notional principal
amount. At June 30, 1998 and 1999, we had outstanding interest rate swap
agreements, maturing at various dates from February 1, 2001 through January 2,
2002, with a total notional amount of $25.0 million and $90.0 million,
respectively. Under these agreements, we receive a variable rate of interest, or
a weighted average rate of 5.67% and 5.22% at June 30, 1998 and 1999,
respectively, and pay a weighted average fixed interest rate of 6.36% at June
30, 1998 and 1999.
The fair value of these interest rate swap agreements represents the estimated
receipts or payments that would be made to terminate the agreements. At June
30, 1998 and 1999, we would have paid $1,526,000 and $733,000, respectively, to
terminate the agreements. The fair value is based on dealer quotes, considering
current interest rates. 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, which was
deferred from its original effective date, is now effective for years beginning
after June 15, 2000. 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
2001. Had we adopted the statement in fiscal 1999, we would have recorded a
$450,000 charge to other comprehensive income for the fair value of our swap
agreements, as described above.
Forward foreign exchange contracts. We enter into forward foreign exchange
contracts to reduce the effect of fluctuating foreign currencies on certain
foreign currency denominated purchase commitments. At June 30, 1999, we had
outstanding forward exchange contracts to purchase 14,492,000 French francs for
the U.S. dollar equivalent of $2,364,000 with maturities ranging from July 15,
1999 to August 31, 1999, with a weighted average maturity of 47 days. At June
30, 1998, we had oustanding forward exchange contracts to purchase 14,035,000
French francs for the the U.S. dollar equivalent of $2,338,000 with maturities
ranging from August 15, 1998 to September 15, 1998,
BERINGER WINE ESTATES HOLDINGS, INC. 47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
with a weighted average maturity of 71 days. The estimated fair value of our
forward foreign exchange contracts represents the amount required to enter into
offsetting contracts with similar remaining maturities based on quoted market
prices. At June 30, 1998 and 1999, the difference between the contract amounts
and the fair values was not significant.
Fair value of other financial instuments. The fair value of our long-term
debt and line of credit is estimated based on current rates we are offered for
financings of the same remaining maturities. The carrying amount of our long-
term debt and line of credit approximates fair value.
Note 5--Employee Benefit Plans
We maintain a 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. We make a matching contribution of $0.50 for every dollar the employees
contribute to the plan up to 6% of the employee's pay. We 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 our matching
contributions. Employees with less than four years of service vest ratably in
any discretionary contributions we make. Our contributions for the years ended
June 30, 1997, 1998 and 1999 totaled $910,000, $1,257,000 and $1,598,000,
respectively, including discretionary contributions of $500,000, $734,000 and
$1,062,000, respectively.
Note 6--Income Taxes
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------
(in thousands) 1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Current tax provision:
Federal............................................................. $ 6,617 $ 8,568 $16,153
State............................................................... 1,903 2,327 4,560
-------- ------- -------
8,520 10,895 20,713
-------- ------- -------
Deferred tax provision (benefit):
Federal............................................................. (12,100) (4,539) (2,676)
State............................................................... (3,496) (1,155) (518)
-------- ------- -------
(15,596) (5,694) (3,194)
-------- ------- -------
(7,076) 5,201 17,519
Tax impact of extraordinary item....................................... -- 1,342 --
-------- ------- -------
Total tax provision (benefit).......................................... $ (7,076) $ 6,543 $17,519
======== ======= =======
</TABLE>
BERINGER WINE ESTATES HOLDINGS, INC. 48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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>
Year Ended June 30,
-----------------------------------------------------
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Federal statutory tax (benefit) rate................................... (35.0%) 35.0% 35.0%
State income taxes, net of federal benefit............................. (8.3%) 4.4% 5.6%
Amortization of tax basis goodwill..................................... (14.7%) (10.6%) (4.0%)
Other.................................................................. 1.5% 1.0% 0.6%
------ ----- ----
(56.5%) 29.8% 37.2%
====== ===== ====
</TABLE>
The approximate effect of temporary differences that give rise to deferred tax
balances are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1999
------------ ------------
<S> <C> <C>
Gross deferred tax assets
Liabilities and accruals........................................................... $ 3,130 $ 2,620
Inventories........................................................................ -- 7,077
State taxes........................................................................ 714 1,596
-------- --------
3,844 11,293
-------- --------
Gross deferred tax liabilities
Property, plant and equipment...................................................... (33,559) (36,065)
Inventories........................................................................ 1,937 --
-------- --------
(31,622) (36,065)
-------- --------
Net deferred tax liabilities.......................................................... $(27,778) $(24,772)
======== ========
</TABLE>
Note 7--Redeemable Preferred Stock
We have authorized 2,000,000 shares of Series A Preferred Stock (Preferred
Stock) with a par value of $0.0001 per share. The Preferred Stock is non-voting
and senior to all other classes and series of our stock. The Preferred Stock has
a semi-annual dividend rate per share of 7% of the liquidation value of $100 per
share. 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 is equal to the previously stated
liquidation value of $100 per share.
In January and September 1996, we 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 years ending June 30, 1997
and 1998, dividends accrued and paid in additional shares of Preferred Stock
amounted to 46,703 and 18,034 shares, respectively.
In November 1997, we used net proceeds from our IPO 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.
BERINGER WINE ESTATES HOLDINGS, INC. 49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8--Common Stock and Other Stockholders' Equity
We have 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 7).
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 September 1996, we 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, we 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, we 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 excercised 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
excercised options resulting in the issuance of 757,980 shares of Class B Common
Stock, resulting in proceeds of $300,000 to the Company and the retirement of
81,938 shares of Class B Common Stock. During the year ended June 30, 1999,
63,348 options were exercised resulting in proceeds of $444,672 to the Company
and the retirement of 6,286 shares of Class B Common Stock. We also issued
40,759 and 80,243 Class B Common Stock shares during the years ended June 30,
1998 and 1999, respectively, in connection with the Employee Stock Purchase Plan
(Note 9).
In lieu of cash compensation, we have also issued 18,908, 10,072 and 2,415
shares of Class B Common Stock to Directors for the years ended June 30, 1997,
1998 and 1999, respectively.
Notes receivable from stockholders, who are also our employees, bear interest
at the prime rate (8.50% at June 30, 1997 and 1998, and 7.75% at June 30, 1999),
are due ten years from their date of issuance, and are secured by shares of our
stock. The notes become due upon termination of the holders' employment or upon
sale of the underlying security.
BERINGER WINE ESTATES HOLDINGS, INC. 50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9--Stock Option and Employee Stock Purchase Plans
We have two stock option plans, two option agreements and an employee stock
purchase plan that are described below. We apply APB 25 and related
Interpretations in accounting for our plans. No compensation cost has been
recognized for our 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
2,491,425 total options granted under our stock option plans 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 $43 per
share. Had the minimum value of the options been calculated in accordance with
FAS 123, net income (loss) allocable to common stockholders would have been
$(10,594,000), $6,739,000, and $27,661,000, respectively, and net income (loss)
per diluted share would have been $(0.87), $0.37 and $1.36, respectively, for
the year ended June 30, 1997, 1998 and 1999.
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 1997, 1998 and 1999, respectively: dividend yield of
0% for all years; expected volatility of 0% for fiscal 1997, 42% for fiscal 1998
and 54% for fiscal 1999; risk-free interest rates of 6.66%, 5.95% and 4.22%;
and, expected lives of three to seven years for all years.
Stock Option Plans
We have two option plans and had 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, we are authorized to grant both incentive
and non-qualified stock options for up to 2,205,604 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. Options vest over five years and expire after
ten years from the date of grant. We have granted 1,548,745 stock options under
this plan at June 30, 1999.
Under the 1998 Stock Option Plan, we are 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 184,700 stock options under this plan at June 30, 1999.
Under the MAR Stock Option Agreement, we were authorized to grant stock
options for up to 60,000 shares of Class B Common Stock. Each option was
immediately vested from the date of grant and no option was exercisable after
ten years from the date of grant. All options under this agreement have been
granted and were exercised during fiscal 1998.
Under the Silverado Stock Option Agreement, we were authorized to grant both
incentive and non-qualified stock options for up to 697,980 shares of Class B
Common Stock. Each option was immediately vested from the date of grant and no
option was exercisable after ten years from the date of grant. All options under
this agreement have been granted and were exercised during fiscal 1998.
BERINGER WINE ESTATES HOLDINGS, INC. 51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information regarding these option plans for the fiscal years 1998 and 1999
are 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, 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
Options granted...................................... (385,300) 385,300 41.20
Options cancelled.................................... 35,700 (35,700) 31.13
Options exercised.................................... (63,348) 10.88
--------- ---------
Balance at June 30, 1999............................. 712,258 1,629,998 22.21 530,122
========= =========
</TABLE>
The weighted average exercise price of options exercisable at June 30, 1998
and 1999 was $5.11, and $9.41 per share, respectively. At June 30, 1999, the
1,629,998 options outstanding had a range of exercise price from $5 to $43 and a
range of expiration dates from January 2006 to March 2009.
Stock Warrants
In connection with the sale of the senior subordinated notes (Note 3), we
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 excercised during fiscal 1998.
Employee Stock Purchase Plan
We have adopted the 1997 Employee Stock Purchase Plan (ESPP) and have 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. We pay all of the administrative expenses of
the ESPP.
BERINGER WINE ESTATES HOLDINGS, INC. 52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10--Related Party Transactions
We regularly enter into transactions with related parties on terms which we
believe are similar to like transactions with third parties.
We recorded rent expense of $948,000, $948,000 and $948,000 for the years
ended June 30, 1997, 1998 and 1999, respectively, related to the lease of
warehouse space from a partnership consisting of certain directors of the
Company.
Minimum rental payments under this non-cancelable operating lease at June 30,
1999 are as follows:
<TABLE>
<CAPTION>
(in thousands) Year ending June 30,
--------------------
<S> <C>
2000................................................................................... $ 948
2001................................................................................... 1,050
2002................................................................................... 1,152
2003................................................................................... 1,152
2004................................................................................... 1,152
Thereafter............................................................................. 2,304
------
$7,758
======
</TABLE>
Note 11--Commitments and Contingencies
We lease some of our 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 costs under these operating leases
amounted to $9,578,000, $10,830,000 and $16,540,000, respectively, for the years
ended June 30, 1997, 1998 and 1999. Minimum rental payments under non-cancelable
operating leases at June 30, 1999 are as follows:
<TABLE>
<CAPTION>
(in thousands) Year ending June 30,
--------------------
<S> <C>
2000................................................................................... $ 18,176
2001................................................................................... 18,032
2002................................................................................... 17,121
2003................................................................................... 15,363
2004................................................................................... 14,221
Thereafter............................................................................. 126,494
--------
$209,407
========
</TABLE>
BERINGER WINE ESTATES HOLDINGS, INC. 53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We have contracted with various growers and certain wineries to supply a
significant portion of our future grape requirements and a portion of our 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.
We are subject to litigation in the ordinary course of business. In our
opinion, after consultation with legal counsel, the ultimate outcome of existing
litigation will not have a material adverse effect on our consolidated financial
condition, results of operations, or cash flows.
Note 12--Quarterly Financial data
Unaudited quarterly financial data for the fiscal years ended June 30, 1998
and 1999 are as follows:
<TABLE>
<CAPTION>
(in thousands, except per share data, unaudited) Quarter 1 Quarter 2 Quarter 3 Quarter 4
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended June 30, 1999
Net revenues................................................ $75,020 $112,573 $93,204 $95,357
Gross profit................................................ 34,378 52,677 43,952 47,117
Net income.................................................. 4,004 8,359 7,635 9,587
Basic EPS................................................... 0.21 0.43 0.39 0.49
Diluted EPS................................................. 0.20 0.41 0.38 0.47
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
</TABLE>
BERINGER WINE ESTATES HOLDINGS, INC. 54
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of Beringer Wine Estates Holdings,
Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Beringer
Wine Estates Holdings, Inc. and its subsidiaries at June 30, 1998 and 1999, and
the results of their operations and their cash flows for each of the three years
in the period ended June 30, 1999, 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
July 30, 1999
BERINGER WINE ESTATES HOLDINGS, INC. 55
<PAGE>
Exhibit 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-76925, No. 333-47657, No. 333-47655, No. 333-
47653) of Beringer Wine Estates Holdings, Inc. of our report dated July 30, 1999
relating to the financial statements, which appears in the annual report to
security holders, which is incorporated in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
San Francisco, California
September 28, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 18
<SECURITIES> 0
<RECEIVABLES> 45,643
<ALLOWANCES> (255)
<INVENTORY> 285,635
<CURRENT-ASSETS> 345,102
<PP&E> 325,603
<DEPRECIATION> (35,779)
<TOTAL-ASSETS> 644,316
<CURRENT-LIABILITIES> 62,556
<BONDS> 327,957
0
0
<COMMON> 195
<OTHER-SE> 217,905
<TOTAL-LIABILITY-AND-EQUITY> 644,316
<SALES> 376,154
<TOTAL-REVENUES> 376,154
<CGS> 198,030
<TOTAL-COSTS> 198,030
<OTHER-EXPENSES> 111,592
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,428
<INCOME-PRETAX> 47,104
<INCOME-TAX> 17,519
<INCOME-CONTINUING> 29,585
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,585
<EPS-BASIC> 1.51
<EPS-DILUTED> 1.46
</TABLE>
