<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
----------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 000-23175
BERINGER WINE ESTATES HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 68-0370340
(State of Incorporation) (I.R.S. Employer Identification)
</TABLE>
610 Airpark Road
P.O. Box 4500
Napa, California 94558
(Address of principal executive offices)
(707) 259-4500
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
As of April 30, 2000, the Registrant's Common Stock outstanding was:
<TABLE>
<CAPTION>
Title Outstanding
----- -----------
<S> <C>
Class A Common Stock........................................... 1,337,962
Class B Common Stock........................................... 18,387,445
</TABLE>
- --------------------------------------------------------------------------------
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<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
PART I: FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets at June 30, 1999 and March 31,
1999 and 2000................................................ 1
Consolidated Statements of Operations for the three and nine
month periods ended March 31, 1999 and 2000.................. 2
Consolidated Statements of Cash Flows for the three and nine
month periods ended March 31, 1999 and 2000.................. 3
Notes to Consolidated Financial Statements.................... 4
Item 2 Management's Discussion and Analysis of Results of Operations
and Financial Condition...................................... 6
Item 3 Quantitative and Qualitative Disclosures About Market Risks... 10
PART II: OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K.............................. 11
</TABLE>
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30, March March
1999 31, 1999 31, 2000
-------- -------- --------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................ $ 18 $ 19 $ 20
Accounts receivable, net of allowance of $255,
$249 and $323.................................. 45,388 49,983 58,384
Inventories..................................... 285,635 290,102 343,994
Deferred tax assets............................. 11,293 10,230 15,485
Prepaids and other current assets............... 2,768 3,635 10,097
-------- -------- --------
Total current assets.......................... 345,102 353,969 427,980
Property, plant and equipment, net of accumulated
depreciation of $35,779, $32,604 and $45,007.... 289,824 270,419 322,269
Other assets, net................................ 9,390 9,232 8,804
-------- -------- --------
Total assets.................................. $644,316 $633,620 $759,053
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 23,301 $ 21,997 $ 15,362
Book overdraft.................................. 3,416 5,726 8,191
Accrued trade discounts......................... 9,258 8,934 16,083
Accrued payroll, bonuses and benefits........... 9,447 7,691 8,248
Accrued interest................................ 4,572 4,861 4,212
Other accrued expenses.......................... 7,597 3,483 5,137
Income taxes payable............................ 2,270 3,250 16,401
Line of credit.................................. 102,100 104,800 143,700
Current portion of long-term debt............... 2,695 3,041 2,862
-------- -------- --------
Total current liabilities..................... 164,656 163,783 220,196
Long-term debt, less current portion............. 223,162 223,554 232,994
Deferred tax liabilities......................... 36,065 35,275 37,922
Other liabilities................................ 2,333 2,833 833
-------- -------- --------
Total liabilities............................. 426,216 425,445 491,945
-------- -------- --------
Stockholders' equity:
Class A Common Stock, $0.01 par value; 2,000,000
shares authorized; 1,312,326, 1,342,558 and
1,337,962 shares issued and outstanding........ 13 13 13
Class B Common Stock, $0.01 par value;
38,000,000 shares authorized; 18,242,071,
18,165,344 and 18,359,623 shares issued and
outstanding.................................... 182 182 182
Notes receivable from stockholders.............. (306) (306) (166)
Additional paid-in-capital...................... 191,192 190,855 192,740
Retained earnings............................... 27,019 17,431 74,338
-------- -------- --------
Total stockholders' equity.................... 218,100 208,175 267,108
-------- -------- --------
Total liabilities and stockholders' equity.... $644,316 $633,620 $759,053
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Three months
ended Nine months ended
March 31, March 31,
---------------- -----------------
1999 2000 1999 2000
------- -------- -------- --------
<S> <C> <C> <C> <C>
Gross revenues............................. $97,578 $111,019 $294,202 $342,981
Less excise taxes.......................... 4,374 4,931 13,405 15,204
------- -------- -------- --------
Net revenues............................... 93,204 106,088 280,797 327,777
Cost of goods sold......................... 49,252 54,562 149,790 167,998
------- -------- -------- --------
Gross profit............................... 43,952 51,526 131,007 159,779
Selling, general and administrative
expenses.................................. 26,605 27,844 85,179 91,272
Gain on sale of Napa Ridge brand........... -- 26,427 -- 26,427
------- -------- -------- --------
Operating income........................... 17,347 50,109 45,828 94,934
Interest expense........................... 5,768 6,450 16,016 18,434
Other income, net.......................... 540 547 1,931 1,297
------- -------- -------- --------
Income before income taxes................. 12,119 44,206 31,743 77,797
Provision for income taxes................. 4,484 17,479 11,745 30,478
------- -------- -------- --------
Net income................................. $ 7,635 $ 26,727 $ 19,998 $ 47,319
======= ======== ======== ========
Income per share:
Basic EPS................................. $ 0.39 $ 1.36 $ 1.03 $ 2.40
======= ======== ======== ========
Diluted EPS............................... $ 0.38 $ 1.31 $ 0.99 $ 2.33
======= ======== ======== ========
Weighted average number of common shares
and equivalents outstanding:
Basic..................................... 19,508 19,698 19,508 19,698
======= ======== ======== ========
Diluted................................... 20,281 20,332 20,271 20,293
======= ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Three months
ended Nine months ended
March 31, March 31,
------------------ ------------------
1999 2000 1999 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 7,635 $ 26,727 $ 19,998 $ 47,319
Adjustments to reconcile net income to
net cash used in operating
activities:
Deferred taxes....................... 59 (2,229) (2,733) (2,335)
Depreciation and amortization........ 3,330 3,487 9,761 10,617
Other................................ (1) -- 48 48
Change in assets and liabilities:
Accounts receivable................. (4,239) (971) (19,459) (12,792)
Inventories......................... (81) 19,090 (38,433) (46,745)
Prepaids and other assets........... (859) (10,285) (2,497) (11,838)
Accounts payable.................... (26,431) (61,082) 4,541 (8,018)
Book overdraft...................... 5,726 8,191 4,519 4,775
Accrued trade discounts............. (341) (155) 4,407 6,825
Accrued payroll, bonuses and
benefits........................... 1,319 114 985 (1,199)
Accrued interest.................... 53 (229) 318 (360)
Other accrued expenses.............. 748 594 (3,032) (2,460)
Income taxes payable................ (3,193) 9,505 1,564 14,131
Other liabilities................... (500) (500) (1,500) (1,500)
-------- -------- -------- --------
Net cash used in operating
activities........................ (16,775) (7,743) (21,513) (3,532)
-------- -------- -------- --------
Cash flows from investing activities:
Acquisitions of property, plant and
equipment............................ (13,199) (10,473) (34,285) (35,123)
Business acquisitions................. -- -- -- (14,608)
Decrease (increase) in investments.... -- 30 (660) 25
-------- -------- -------- --------
Net cash used in investing
activities........................ (13,199) (10,443) (34,945) (49,706)
-------- -------- -------- --------
Cash flows from financing activities:
Net change in line of credit.......... 29,900 19,000 (500) 41,600
Net proceeds from (repayment of) long-
term debt............................ (1,113) (1,681) 54,728 9,999
Issuance of common stock.............. 540 819 2,086 1,501
Proceeds from notes receivable from
stockholders......................... 46 1 142 140
-------- -------- -------- --------
Net cash provided by financing
activities........................ 29,373 18,139 56,456 53,240
-------- -------- -------- --------
Net increase in cash................... (601) (47) (2) 2
Cash at beginning of the period........ 620 67 21 18
-------- -------- -------- --------
Cash at end of the period.............. $ 19 $ 20 $ 19 $ 20
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly our
financial position at June 30, 1999 and March 31, 1999 and 2000, and our
results of operations and cash flows for the three and nine month periods ended
March 31, 1999 and 2000. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. For further information,
refer to our Form 10-K for the year ended June 30, 1999. Operating results for
the three and nine month periods ended March 31, 2000 are not necessarily
indicative of future results.
Note 2--Acquisition of St. Clement Vineyards
On August 31, 1999, we completed the acquisition of substantially all of the
assets of St. Clement Vineyards. Assets acquired consisted primarily of
inventories and property, plant and equipment. The acquisition has been
accounted for using the purchase method of accounting.
Note 3--Sale of Napa Ridge Brand
On January 7, 2000, we sold the Napa Ridge brand and related inventory to
the Bronco Wine Company for approximately $40 million in cash. The sale
included the Napa Ridge trademarked brand name and all cased goods in
inventory. For the quarter ending March 31, 2000 a pre-tax gain of $26.4
million was realized on the sale.
Note 4--Inventories
We use the "first in, first out" (FIFO) method of accounting for all
inventories. Inventories at June 30, 1999 and March 31, 1999 and 2000 are as
follows:
<TABLE>
<CAPTION>
March March
June 30, 31, 31,
1999 1999 2000
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Bulk wine......................................... $124,105 $159,659 $204,929
Cased goods and retail............................ 135,429 110,997 121,975
Crop costs and supplies........................... 26,101 19,446 17,090
-------- -------- --------
Total........................................... $285,635 $290,102 $343,994
======== ======== ========
</TABLE>
Included in inventory at June 30, 1999 and March 31, 1999 and 2000 were $3.2
million, $4.4 million and $6.7 million, respectively, of inventory cost step-up
remaining from applying purchase accounting to the acquisitions of Chateau St.
Jean, Stags' Leap Winery and St. Clement Vineyards.
4
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
Note 5--Earnings Per Share Computation
The table below presents the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Nine months
Three months ended ended
March 31, March 31,
------------------ ---------------
1999 2000 1999 2000
------------------ ------- -------
(in thousands, except per share
data)
<S> <C> <C> <C> <C>
Numerator--Income
Net income.............................. $ 7,635 $ 26,727 $19,998 $47,319
======== ========= ======= =======
Denominator--Basic shares
Average common shares outstanding....... 19,508 19,698 19,508 19,698
======== ========= ======= =======
Basic EPS............................... $ 0.39 $ 1.36 $ 1.03 $ 2.40
======== ========= ======= =======
Denominator--Diluted shares
Average common shares outstanding....... 19,508 19,698 19,508 19,698
Dilutive effect of common stock
equivalents............................ 773 634 763 595
-------- --------- ------- -------
Total diluted shares.................. 20,281 20,332 20,271 20,293
======== ========= ======= =======
Diluted EPS............................. $ 0.38 $ 1.31 $ 0.99 $ 2.33
======== ========= ======= =======
</TABLE>
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Summary
Third quarter fiscal 2000 operating results reflect continued sales volume
growth and higher average unit revenue compared to the third quarter of the
prior fiscal year. During the third quarter ended March 31, 2000, sales volume
grew 12% and net revenues increased 14% driven primarily by growth in the
Beringer Vineyards brand. Gross profit expanded 17%. During the quarter, the
Company sold the Napa Ridge brand, cased goods and other miscellaneous brand
related assets. The Company realized a pre-tax gain of $26.4 million which is
reflected in operating income. Operating income increased by 189% over the same
period in the prior fiscal year. Net income and diluted earnings per share
increased over the third quarter of fiscal 1999 to $26.7 million and $1.31,
respectively. Adjusted gross profit increased 10% and adjusted operating income
increased 17% over the same period in the prior fiscal year. Adjusted net
income and adjusted diluted earnings per share increased 17% and 16%,
respectively over the third quarter of fiscal 1999. Adjusted amounts exclude
the non-cash charge related to inventory step-up and exclude the gain on the
sale of Napa Ridge brand.
Sales volume increased 13% for the first nine months of fiscal 2000 while
net revenues increased 17% over the same period in the prior fiscal year. Gross
profit and operating income increased 22% and 107%, respectively, over the same
period in the prior fiscal year. Net income increased 137% and diluted earnings
per share increased 135% from the same period in the prior fiscal year.
Adjusted gross profit for the first nine months of fiscal 2000 increased 13%
and adjusted operating income increased 20% over the same period in the prior
fiscal year. Adjusted net income and adjusted diluted earnings per share
increased 19% and 18%, respectively, over the same period in the prior fiscal
year.
The following table shows net income per share for the first three quarters
of fiscal 2000 and for each of the quarters in fiscal 1999.
Net Income and Per Share Amounts
<TABLE>
<CAPTION>
Three months ended
-----------------------------------------------------------------
June
Sept. 30, Dec. 31, March 31, 30, Sept. 30, Dec. 31, March 31,
1998 1998 1999 1999 1999 1999 2000
--------- -------- --------- ------- --------- -------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
As reported
Net income.. $4,004 $ 8,359 $7,635 $ 9,587 $7,691 $12,901 $26,727
Diluted
EPS........ 0.20 0.41 0.38 0.47 0.38 0.64 1.31
Adjusted (1)
Net income.. $7,017 $12,203 $9,867 $10,239 $8,482 $14,449 $11,550
Diluted
EPS........ 0.35 0.60 0.49 0.50 0.42 0.71 0.57
</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 and
the after-tax effect of the gain on the sale of Napa Ridge brand.
Net income in the third quarter of fiscal 2000 increased to $26.7 million
from $7.6 million in the third quarter of the prior year. Third quarter fiscal
2000 diluted earnings per share grew to $1.31 from $0.38 in the third quarter
of the prior year. Adjusted net income for the quarter ended March 31, 2000
increased $1.7 million, or 17%, to $11.6 million from $9.9 million in the same
period in the prior year. Adjusted earnings per share in the third quarter rose
16% over third quarter of fiscal 1999 to $0.57.
Net income for the nine months ended March 31, 2000 increased to $47.3
million from $20.0 million for the same period of the prior fiscal year.
Diluted earnings per share for the nine months ended March 31, 2000 rose to
$2.33 from $0.99 in the prior fiscal year. Adjusted net income for the nine
months ended March 31, 2000 increased $5.4 million or 19% over the same period
of the prior fiscal year. Adjusted earnings per share for the nine months ended
March 31, 2000 increased to $1.70, 18% higher than the nine months ended
March 31, 1999.
6
<PAGE>
Results of Operations
Net Revenues
<TABLE>
<CAPTION>
Three months ended
-----------------------------------------------------------------
June
Sept. 30, Dec. 31, March 31, 30, Sept. 30, Dec. 31, March 31,
1998 1998 1999 1999 1999 1999 2000
--------- -------- --------- ------- --------- -------- ---------
(dollars and volume in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Beringer Vineyards...... $42,786 $ 68,568 $54,818 $58,106 $54,456 $ 84,092 $ 67,003
Meridian Vineyards...... 14,085 21,552 17,773 16,571 16,975 22,916 18,683
All other California
brands................. 14,505 17,498 16,029 15,975 15,153 19,159 15,451
Imports................. 3,644 4,955 4,584 4,705 3,873 5,065 4,951
------- -------- ------- ------- ------- -------- --------
Total net revenue..... $75,020 $112,573 $93,204 $95,357 $90,457 $131,232 $106,088
======= ======== ======= ======= ======= ======== ========
Volume (9-liter case
equivalents)........... 1,328 2,073 1,685 1,701 1,532 2,337 1,893
Net revenue per case.... $ 56.49 $ 54.30 $ 55.31 $ 56.06 $ 59.05 $ 56.15 $ 56.04
</TABLE>
Net revenues for the third quarter ended March 31, 2000 increased 22% for
Beringer Vineyards and 5% for Meridian Vineyards. We shipped 1.9 million nine-
liter case equivalents during the third quarter of fiscal 2000, 12% higher than
the 1.7 million cases shipped in the third quarter of the prior fiscal year.
The average net revenue per nine-liter case increased to $56.04 per case
from $55.31 per case in the third quarter of fiscal 2000. This increase
primarily reflects the positive mix change resulting from increased Beringer
Founders' Estate sales volume at unit revenues higher than the company average.
Net revenues for the nine months ended March 31, 2000 increased 24% for the
Beringer Vineyards brand and 10% for the Meridian Vineyards brand over the same
period in the prior fiscal year. For the nine months ended March 31, 2000,
nine-liter case volume expanded 18% and 11% for Beringer Vineyards and Meridian
Vineyards, respectively, over the same period in the prior fiscal year. Volume
growth continues to be driven primarily by the Beringer Vineyards brand,
(Beringer Founders' Estate product line) and the continued expansion of the
Meridian Vineyards brand.
Net revenues for all brands for the nine months ended March 31, 2000
increased $47.0 million, or 17%, over the same period in the prior fiscal year.
Our shipments for the nine months ended March 31, 2000 grew 13% over the same
period last fiscal year to 5.8 million nine-liter case equivalents. The average
net revenue per nine-liter case equivalent for the first nine months of fiscal
2000 rose 3% over the same period in fiscal 1999 to $56.89. We expect this
trend of increasing unit revenue to continue as we pursue the opportunities in
the $7.00 to $10.00 per bottle retail price category with Beringer Founders'
Estate and Meridian Vineyards.
Gross Profit
<TABLE>
<CAPTION>
Three months ended
-----------------------------------------------------------------
June
Sept. 30, Dec. 31, March 31, 30, Sept. 30, Dec. 31, March 31,
1998 1998 1999 1999 1999 1999 2000
--------- -------- --------- ------- --------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue............. $75,020 $112,573 $93,204 $95,357 $90,457 $131,232 $106,088
Cost of goods sold...... 40,642 59,896 49,252 48,240 45,977 67,459 54,562
------- -------- ------- ------- ------- -------- --------
Gross profit............ 34,378 52,677 43,952 47,117 44,480 63,773 51,526
Inventory step-up....... 4,939 6,473 3,820 1,216 1,312 2,563 1,005
------- -------- ------- ------- ------- -------- --------
Adjusted gross profit... $39,317 $ 59,150 $47,772 $48,333 $45,792 $ 66,336 $ 52,531
======= ======== ======= ======= ======= ======== ========
</TABLE>
Third quarter cost of goods sold increased $5.3 million, or 11%, over the
same period in the prior fiscal year, to $54.6 million. Our third quarter cost
of goods sold included $1.0 million of non-cash charges resulting
7
<PAGE>
from the inventory step-up, compared to $3.8 million for the same period in
fiscal 1999. Adjusted third quarter cost of goods sold increased $8.1 million
or 18% over the same period in the prior fiscal year, to $53.6 million. Third
quarter average unit cost (cost per nine-liter equivalent case), excluding
inventory step-up, increased $1.33, or 5%, to $28.29 over the same period in
the prior fiscal year. This change is primarily due to changes in product mix
and changes in raw materials costs, particularly as new vintages are
introduced.
Gross profit for the third fiscal quarter ended March 31, 2000 grew by $7.6
million, or 17% over the same period in the prior fiscal year, to $51.5
million. Third quarter adjusted gross profit, excluding the inventory step-up,
rose $4.8 million, or 10%, over the same period in the last fiscal year, to
$52.5 million.
Cost of goods sold for the nine months ended March 31, 2000 increased $18.2
million, or 12%, over the same period in the prior year, to $168.0 million.
Cost of goods sold for the nine months of fiscal 2000 included $4.9 million of
inventory step-up compared to $15.2 million for the same period in fiscal 1999.
Adjusted cost of goods sold for the first nine months of fiscal 2000 increased
$28.6 million, or 21%, over the prior fiscal year, to $163.1 million.
Gross profit for the nine months ended March 31, 2000 increased 22% from the
same period last fiscal year to $159.8 million. Adjusted gross profit,
excluding the inventory step-up, for the nine months ended March 31, 2000 grew
$18.4 million, or 13% over the same period last fiscal year, to $164.7 million.
Gross Margin
<TABLE>
<CAPTION>
Three months ended
------------------------------------------------------------------
Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31,
1998 1998 1999 1999 1999 1999 2000
--------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...... 54.2 53.2 52.8 50.6 50.8 51.4 51.4
----- ----- ----- ----- ----- ----- -----
Gross margin............ 45.8 46.8 47.2 49.4 49.2 48.6 48.6
Inventory step-up....... 6.6 5.7 4.1 1.3 1.4 1.9 0.9
----- ----- ----- ----- ----- ----- -----
Adjusted gross margin... 52.4% 52.5% 51.3% 50.7% 50.6% 50.5% 49.5%
===== ===== ===== ===== ===== ===== =====
</TABLE>
Gross margin for the third quarter increased to 48.6% from 47.2% in the same
period in the last fiscal year. Third quarter adjusted gross margin was 49.5%
compared to 51.3% for the same period in the prior fiscal year.
Gross margin for the first nine months of fiscal 2000 rose to 48.8%, from
46.7% for the same period last fiscal year. Our adjusted gross margin,
excluding the inventory step-up, for the nine months ended March 31, 2000
decreased to 50.2% from 52.1% for the same period last fiscal year.
Operating Expenses, Operating Income and Interest Expense
Operating Income
<TABLE>
<CAPTION>
Three months ended
--------------------------------------------------------------------
June
Sept. 30, Dec. 31, March 31, 30, Sept. 30, Dec. 31, March 31,
1998 1998 1999 1999 1999 1999 2000
--------- -------- --------- ------- --------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating income........ $10,922 $17,559 $17,347 $20,704 $18,168 $26,657 $ 50,109
Add back inventory
step-up................ 4,939 6,473 3,820 1,216 1,312 2,563 1,005
Less gain on sale of
Napa Ridge............. -- -- -- -- -- -- (26,427)
------- ------- ------- ------- ------- ------- --------
Adjusted operating
income................. $15,861 $24,032 $21,167 $21,920 $19,480 $29,220 $ 24,687
======= ======= ======= ======= ======= ======= ========
Operating margin ....... 14.6% 15.6% 18.6% 21.7% 20.1% 20.3% 47.2%
Adjusted operating
margin................. 21.1% 21.3% 22.7% 23.0% 21.5% 22.3% 23.3%
</TABLE>
8
<PAGE>
Third quarter operating expenses increased to $27.8 million, an increase of
$1.2 million or 4.7% over the same period in the prior fiscal year. This
increase reflects additional spending on non-product specific expenses compared
to the third quarter of fiscal 1999. Third quarter operating expenses decreased
to 26.3% of net revenue from 28.5% in the same period in the prior fiscal year.
Third quarter operating income rose $32.8 million over the same period in
the prior fiscal year to $50.1 million. Adjusted operating income for the third
quarter, excluding the inventory step-up and the gain on the sale of Napa
Ridge, increased $3.5 million, or 17%, over the same period in the prior fiscal
year, to $24.7 million. Third quarter interest expense increased $0.7 million,
or 12%, from the third quarter of fiscal 1999.
Operating expenses for the nine months ended March 31, 2000 increased $6.1
million, or 7%, over the same period in the last fiscal year. Operating
expenses for the first nine months of fiscal 2000 decreased to 27.9% of net
revenue from 30.3% of net revenue during the same period in the prior fiscal
year.
Operating income for the nine months ended March 31, 2000 grew $49.1 million
from the same period in the last fiscal year to $94.9 million. Adjusted
operating income for the nine months of fiscal 2000 increased $12.3 million, or
20%, over the same period in the last fiscal year, to $73.4 million. Interest
expense for the nine months ended March 31, 2000 increased $2.4 million, or
15%, from the same period in the last fiscal year, due primarily to increased
debt needed to fund the acquisition of St. Clement Vineyards, increased working
capital needs, and continued investment in vineyard development and winery
infrastructure required to support anticipated growth.
Acquisition of St. Clement Vineyards
On August 31, 1999, we completed the acquisition of substantially all of the
assets of St. Clement Vineyards. Assets acquired consisted primarily of
inventories and property, plant and equipment. The acquisition has been
accounted for using the purchase method of accounting.
Sale of Napa Ridge
On January 7, 2000, we sold the Napa Ridge brand and related inventory to
the Bronco Wine Company for approximately $40 million in cash. The sale
included the Napa Ridge trademarked brand name and all cased goods in
inventory. For the quarter ending March 31, 2000 a pre-tax gain of $26.4
million was realized on the sale. The adjusted income statement for the three
and nine months ended March 31, 2000 excludes this gain due to its one time
nature.
Financial Condition
Assets. Total assets increased $114.7 million, or 18%, from June 30, 1999 to
$759.1 million on March 31, 2000. Inventories grew $58.4 million from June 30,
1999 to $344.0 million on March 31, 2000. This growth primarily reflects an
increase in inventory quantities on hand, including inventory acquired through
the acquisition of St. Clement Vineyards. Although inventory and receivable
levels will be impacted by seasonal patterns, we expect total assets to
continue to increase as inventory and property, plant and equipment expand to
support anticipated future growth.
Liabilities. Total liabilities increased $65.7 million, or 15%, from June
30, 1999 to $491.9 million at March 31, 2000. At March 31, 2000, long-term debt
outstanding was $235.9 million, of which $2.9 million is payable in the next
twelve months. In addition, we had $143.7 million outstanding under our line of
credit. At March 31, 2000, $123.0 million was available under the terms of our
credit agreement.
Liquidity and Capital Resources
Operating activities, impacted significantly by the decrease of accounts
payable offset by the proceeds of the Napa Ridge sale, used $7.7 million of
cash during the third quarter of fiscal 2000. Third quarter net cash
9
<PAGE>
used in investing activities of $10.4 million consisted of expenditures for
property, plant and equipment. Our financing activities provided net cash of
$18.1 million, primarily from our bank credit agreement.
Operating activities for the nine months ended March 31, 2000 used cash of
$3.5 million. Net cash used in investing activities for the first nine months
of fiscal 2000 of $49.7 million consisted primarily of expenditures for
property, plant and equipment of $35.1 million and the acquisition of St.
Clement Vineyards for $14.7 million. Net cash provided by our financing
activities for the nine months ended March 31, 2000 of $53.2 million was
provided primarily from our bank credit agreement. We anticipate that current
capital, combined with cash from operations and the availability of cash from
additional financing under our credit facilities, will be sufficient to meet
our liquidity and capital expenditures requirements for the remainder 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 enter into interest rate swap agreements. We do not use financial
instruments for trading purposes and we are not a party to any leveraged
derivatives.
At March 31, 2000, our total debt was $379.6 million, of which $141.8
million will re-price during the next twelve months. At March 31, 2000, we had
interest rate swap agreements that converted a notional amount of $90 million
of LIBOR based variable-rate debt to a fixed rate.
Assuming a 1% increase in interest rates, annual interest expense would be
expected to increase approximately $1.2 million. Our credit exposure under
these agreements is limited to the cost of replacing an agreement in the event
of non-performance by our counterparty. To minimize this risk, we select high
credit quality counterparties.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133, 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 at March 31, 2000, we would have recorded a $716,000 gain in
other comprehensive income for the fair value, after-tax, of our swap
agreements, determined as the estimated receipt or payment that would be made
to terminate the agreements.
Forward-Looking Statements
This Form 10-Q and other information provided from time to time by the
Company contains historical information as well as forward-looking statements
about the Company, the premium wine industry and general economic conditions.
Actual results may differ materially from the Company's current projections. A
shift in consumer preferences and demand for premium wine, competition from
other premium wine companies, and agricultural risks, among other conditions,
may adversely affect the Company's operating results.
For additional cautionary statements and risks which could cause results to
differ materially from the Company's forward-looking statements, please refer
to the Company's Annual Report and Form 10-K for the year ended June 30, 1999.
These forward-looking statements speak only as of the date of this Form 10-Q.
The Company expressly disclaims any obligation to publicly release any updates
or revisions of any such forward-looking statements to reflect any changes in
the Company's expectations or any change in events, conditions or circumstances
on which any such statement is based.
10
<PAGE>
PART II
ITEM 1 through 3 and 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1) Exhibits:
27 Financial Data Schedule
2) Form 8-K:
No reports on Form 8-K were filed during the quarter ended March 31,
2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Beringer Wine Estates Holdings, Inc.
May 15, 2000
By: /s/ Peter F. Scott
---------------------------------
Peter F. Scott
Executive Vice President, Chief
Financial and Administrative Officer
11
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