<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: December 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 000-23175
BERINGER WINE ESTATES HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 68-0370340
---------------------------- -------------------------------
(State of Incorporation) (I.R.S. Employer Identification)
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 January 31, 2000, the Registrant's Common Stock outstanding was:
Title Outstanding
- ----- -----------
Class A Common Stock 1,338,120
Class B Common Stock 18,298,992
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets at June 30, 1999 and December 31, 1998 and 1999..................... 1
Consolidated Statements of Operations for the three and six month periods ended
December 31, 1998 and 1999................................................................... 2
Consolidated Statements of Cash Flows for the three and six month periods ended
December 31, 1998 and 1999................................................................... 3
Notes to Consolidated Financial Statements...................................................... 4
Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition........... 6
PART II: OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders............................................. 11
Item 6 Exhibits and Reports on Form 8-K................................................................ 11
</TABLE>
<PAGE>
Consolidated Balance Sheets
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30, December 31, December 31,
1999 1998 1999
-------------- ------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................................... $ 18 $ 620 $ 67
Accounts receivable, net of allowance of $255, $249 and $255............ 45,388 45,744 57,413
Inventories............................................................. 285,635 290,021 363,084
Deferred tax assets..................................................... 11,293 9,720 12,420
Prepaids and other current assets....................................... 2,768 3,195 2,477
-------- -------- --------
Total current assets................................................. 345,102 349,300 435,461
Property, plant and equipment, net of accumulated depreciation
of $35,779, $29,762 and $41,883.......................................... 289,824 260,062 312,568
Other assets, net......................................................... 9,390 9,301 8,884
-------- -------- --------
Total assets......................................................... $644,316 $618,663 $756,913
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................ $ 23,301 $ 48,428 $ 76,444
Book overdraft.......................................................... 3,416 -- --
Accrued trade discounts................................................. 9,258 9,275 16,238
Accrued payroll, bonuses and benefits................................... 9,447 6,372 8,134
Accrued interest........................................................ 4,572 4,808 4,441
Other accrued expenses.................................................. 7,597 2,735 4,543
Income taxes payable.................................................... 2,270 6,443 6,896
Line of credit.......................................................... 102,100 74,900 125,700
Current portion of long-term debt....................................... 2,695 4,582 2,805
-------- -------- --------
Total current liabilities............................................ 164,656 157,543 245,201
Long-term debt, less current portion...................................... 223,162 223,126 233,732
Deferred tax liabilities.................................................. 36,065 34,706 37,086
Other liabilities......................................................... 2,333 3,333 1,333
-------- -------- --------
Total liabilities.................................................... 426,216 418,708 517,352
-------- -------- --------
Stockholders' equity:
Class A Common Stock, $0.01 par value; 2,000,000 shares
authorized; 1,312,326, 1,351,662 and 1,338,120 shares issued
and outstanding....................................................... 13 14 13
Class B Common Stock, $0.01 par value; 38,000,000 shares
authorized; 18,242,071, 18,136,833 and 18,272,131 shares issued
and outstanding....................................................... 182 181 183
Notes receivable from stockholders...................................... (306) (352) (167)
Additional paid-in-capital.............................................. 191,192 190,315 191,921
Retained earnings....................................................... 27,019 9,797 47,611
-------- -------- --------
Total stockholders' equity........................................... 218,100 199,955 239,561
-------- -------- --------
Total liabilities and stockholders' equity........................... $644,316 $618,663 $756,913
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
Beringer Wine Estates Holdings, Inc. 1
<PAGE>
Consolidated Statements of Operations
(unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
---------------------------- ----------------------------
1998 1999 1998 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Gross revenues............................................... $118,035 $137,400 $196,624 $231,962
Less excise taxes............................................ 5,462 6,168 9,031 10,273
-------- -------- -------- --------
Net revenues................................................. 112,573 131,232 187,593 221,689
Cost of goods sold........................................... 59,896 67,459 100,538 113,436
-------- -------- -------- --------
Gross profit................................................. 52,677 63,773 87,055 108,253
Selling, general and administrative expenses................. 35,118 37,116 58,574 63,428
-------- -------- -------- --------
Operating income............................................. 17,559 26,657 28,481 44,825
Interest expense............................................. 5,214 6,147 10,248 11,984
Other expense (income), net.................................. (864) (524) (1,391) (750)
-------- -------- -------- --------
Income before income taxes................................... 13,209 21,034 19,624 33,591
Provision for income taxes................................... 4,850 8,133 7,261 12,999
-------- -------- -------- --------
Net income................................................... $ 8,359 $ 12,901 $ 12,363 $ 20,592
======== ======== ======== ========
Income per share:
Basic EPS.................................................. $0.43 $0.66 $0.63 $1.05
======== ======== ======== ========
Diluted EPS................................................ $0.41 $0.64 $0.61 $1.02
======== ======== ======== ========
Weighted average number of common shares and
equivalents outstanding:
Basic...................................................... 19,488 19,610 19,488 19,600
======== ======== ======== ========
Diluted.................................................... 20,245 20,274 20,237 20,283
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
Beringer Wine Estates Holdings, Inc. 2
<PAGE>
Consolidated Statements of Cash Flows
(unaudited, in thousands)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
---------------------------- ----------------------------
1998 1999 1998 1999
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................................. $ 8,359 $ 12,901 $ 12,363 $ 20,592
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Deferred taxes.......................................... (2,893) (1,426) (2,792) (106)
Depreciation and amortization........................... 3,038 3,570 6,431 7,130
Other................................................... 22 26 49 48
Change in assets and liabilities:
Accounts receivable.................................. (10,638) (9,344) (15,220) (11,821)
Inventories.......................................... (29,257) (46,424) (38,352) (65,835)
Prepaids and other assets............................ (1,036) 3,127 (1,638) (1,553)
Accounts payable..................................... 28,872 36,511 30,972 53,064
Book overdraft....................................... (3,188) (7,823) (1,207) (3,416)
Accrued trade discounts.............................. 3,705 5,564 4,748 6,980
Accrued payroll, bonuses and benefits................ 1,887 327 (334) (1,313)
Accrued interest..................................... (140) 118 265 (131)
Other accrued expenses............................... (2,114) (1,521) (3,780) (3,054)
Income taxes payable................................. 2,311 1,193 4,757 4,626
Other liabilities.................................... (500) (500) (1,000) (1,000)
-------- -------- -------- --------
Net cash (used in) provided by
operating activities............................. (1,572) (3,701) (4,738) 4,211
-------- -------- -------- --------
Cash flows from investing activities:
Acquisitions of property, plant and equipment.............. (4,956) (8,796) (21,086) (24,650)
Business acquisitions...................................... -- -- -- (14,608)
Decrease (increase) in investments......................... 266 (30) (660) (5)
-------- -------- -------- --------
Net cash used in investing activities............. (4,690) (8,826) (21,746) (39,263)
-------- -------- -------- --------
Cash flows from financing activities:
Net change in line of credit............................... (51,300) 700 (30,400) 23,600
Net proceeds from (repayment of) long-term debt............ 56,910 11,333 55,841 10,680
Issuance of common stock................................... 1,192 435 1,546 682
Proceeds from notes receivable from stockholders........... 62 106 96 139
-------- -------- -------- --------
Net cash provided by financing activities......... 6,864 12,574 27,083 35,101
-------- -------- -------- --------
Net increase in cash......................................... 602 47 599 49
Cash at beginning of the period.............................. 18 20 21 18
-------- -------- -------- --------
Cash at end of the period.................................... $ 620 $ 67 $ 620 $ 67
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
Beringer Wine Estates Holdings, Inc. 3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly our
financial position at June 30, 1999 and December 31, 1998 and 1999, and our
results of operations and cash flows for the three and six month periods ended
December 31, 1998 and 1999. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. For further
information, refer to our Form 10-K for the year ended June 30, 1999. Operating
results for the three and six month periods ended December 31, 1999 are not
necessarily indicative of future results.
Note 2--Business Acquisition
On August 31, 1999, we completed the acquisition of substantially all of the
assets of St. Clement Vineyards, a division of Sapporo U.S.A., Inc. operating a
winery in St. Helena, California. We acquired assets consisting primarily of
inventories and property, plant and equipment. The acquisition has been
accounted for using the purchase method of accounting. The purchase price was
allocated to assets acquired using estimated fair values at the date of
acquisition. The entire purchase price was assigned to tangible assets acquired.
Note 3--Inventories
We utilize the ''first in, first out'' (FIFO) method of accounting for all
inventories. Inventories at June 30, 1999 and December 31, 1998 and 1999 are as
follows:
<TABLE>
<CAPTION>
June 30, December 31, December 31,
(in thousands) 1999 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Bulk wine................................................ $124,105 $165,558 $205,684
Cased goods and retail................................... 135,429 111,640 133,706
Crop costs and supplies.................................. 26,101 12,823 23,694
-------- -------- --------
Total................................................. $285,635 $290,021 $363,084
======== ======== ========
</TABLE>
Included in inventory at June 30, 1999 and December 31, 1998 and 1999 were
$3.2 million, $8.2 million and $7.7 million, respectively, of inventory cost
step-up remaining from applying purchase accounting to the acquisitions of
Beringer Wine Estates Company, Chateau St. Jean, Stags' Leap Winery and St.
Clement Vineyards.
Note 4--Earnings Per Share Computation
The table below presents the computation of basic and diluted earnings per
share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three months ended Six months ended
(in thousands, except per share data) December 31, December 31,
-------------------------- --------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Numerator--Income
Net income................................................ $ 8,359 $12,901 $12,363 $20,592
======= ======= ======= =======
Denominator--Basic shares
Average common shares outstanding......................... 19,488 19,610 19,488 19,600
------- ------- ------- -------
Basic EPS................................................. $ 0.43 $ 0.66 $ 0.63 $ 1.05
======= ======= ======= =======
Denominator--Diluted shares
Average common shares outstanding......................... 19,488 19,610 19,488 19,600
Dilutive effect of common stock equivalents............... 757 664 749 683
------- ------- ------- -------
Total diluted shares................................... 20,245 20,274 20,237 20,283
------- ------- ------- -------
Diluted EPS............................................... $ 0.41 $ 0.64 $ 0.61 $ 1.02
======= ======= ======= =======
</TABLE>
Beringer Wine Estates Holdings, Inc. 4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5--Subsequent Event
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 includes the
Napa Ridge trademarked brand name and all cased goods in inventory.
Beringer Wine Estates Holdings, Inc. 5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Summary
Second quarter fiscal 2000 operating results reflect continued sales volume
growth and higher average unit revenue compared to second quarter of the prior
year. During the second quarter ended December 31, 1999, sales volume grew 13%
and net revenues increased 17% driven primarily by growth in the Beringer
Vineyards brand. Gross profit expanded 21% and operating income increased by 52%
over the same period in the prior fiscal year. Net income and diluted earnings
per share increased significantly over the second quarter of fiscal 1999 to
$12.9 million and $0.64, respectively. Adjusted gross profit increased 12% and
adjusted operating income increased 22% over the same period in the prior fiscal
year. Adjusted net income and adjusted diluted earnings per share increased 18%
over the second quarter of fiscal 1999. Adjusted amounts exclude the non-cash
charge related to inventory step-up.
Sales volume increased 14% for the first six months of fiscal 2000 while net
revenues increased 18%. Gross profit and operating income increased 24% and 57%,
respectively, over the same period in the prior fiscal year. Net income
increased 67% and diluted earnings per share increased 66% from the same period
in the prior fiscal year. Adjusted gross profit for the first six months of
fiscal 2000 increased 14% and adjusted operating income increased 22% over the
same period in the prior fiscal year. Adjusted net income and adjusted diluted
earnings per share increased 19% over the same period in the prior fiscal year.
The following table shows net income per share for the first two quarters of
fiscal 2000 and for each of the quarters in fiscal 1999.
Net Income (Loss) and Per Share Amounts
<TABLE>
<CAPTION>
Three months ended September 30 December 31, March 31, June 30, September 30, December 31,
(in thousands, except per share data) 1998 1998 1999 1999 1999 1999
------------ ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
As reported
Net income................................ $4,004 $ 8,359 $7,635 $ 9,587 $7,691 $12,901
Diluted EPS............................... 0.20 0.41 0.38 0.47 0.38 0.64
Adjusted (1)
Net income................................ $7,017 $12,203 $9,867 $10,239 $8,482 $14,449
Diluted EPS............................... 0.35 0.60 0.49 0.50 0.42 0.71
</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.
Net income in the second quarter of fiscal 2000 increased to $12.9 million
from $8.4 million in the second quarter of the prior year. Second quarter fiscal
2000 diluted earnings per share grew to $0.64 from $0.41 in the second quarter
of the prior year. Adjusted net income for the quarter ended December 31, 1999
increased $2.2 million, or 18% to $14.4 million from $12.2 million in the same
period in the prior year. Adjusted earnings per share in the second quarter rose
18% over second quarter of fiscal 1999 to $0.71.
Net income for the six months ended December 31, 1999 increased to $20.6
million from $12.4 million for the same period of the prior fiscal year. Diluted
earnings per share for the six months ended December 31, 1999 rose to $1.02 from
$0.61 in the prior fiscal year. Adjusted net income for the six months ended
December 31, 1999 increased $3.7 million or 19% over the same period of the
prior fiscal year. Adjusted earnings per share for the six months ended December
31, 1999 increased to $1.13, 19% higher than the six months ended December 31,
1998.
Beringer Wine Estates Holdings, Inc. 6
<PAGE>
Results of Operations
Net Revenues
<TABLE>
<CAPTION>
Three months ended September 30 December 31, March 31, June 30, September 30, December 31,
(dollars and volume in thousands) 1998 1998 1999 1999 1999 1999
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Beringer Vineyards......................... $42,786 $ 68,568 $54,818 $58,106 $54,456 $ 84,092
Meridian Vineyards......................... 14,085 21,552 17,773 16,571 16,975 22,916
All other California brands................ 14,505 17,498 16,029 15,975 15,153 19,159
Imports.................................... 3,644 4,955 4,584 4,705 3,873 5,065
------- -------- ------- ------- ------- --------
Total net revenue $75,020 $112,573 $93,204 $95,357 $90,457 $131,232
======= ======== ======= ======= ======= ========
Volume (9-liter case equivalents).......... 1,328 2,073 1,685 1,701 1,532 2,337
Net revenue per case....................... $ 56.49 $ 54.30 $ 55.31 $ 56.06 $ 59.05 $ 56.15
</TABLE>
Net revenues for the second quarter ended December 31, 1999 increased 23% for
Beringer Vineyards and 6% for Meridian Vineyards. We shipped 2.3 million nine-
liter case equivalents during the second quarter of fiscal 2000, 13% higher than
the 2.1 million cases shipped in the second quarter of the prior fiscal year.
The average net revenue per nine-liter case increased 3% to $56.15 per case
from $54.30 per case in the second quarter of fiscal 2000. This increase
primarily reflects the positive mix change resulting from increased Beringer
Founders' Estate and Meridian Vineyards sales volume at unit revenues higher
than the company average.
Net revenues for the six months ended December 31, 1999 increased 24% from
Beringer Vineyards and 12% for Meridian Vineyards over the same period in the
prior fiscal year. For the six months ended December 31, 1999, nine-liter case
volume expanded 17% and 13% for Beringer Vineyards and Meridian Vineyards,
respectively, over the same period in the prior year. Volume growth continues to
be driven primarily by the Beringer Vineyards brand (particularly with the
Beringer Founders' Estate product line) and the continued expansion of the
Meridian Vineyards brand.
Net revenues for the six months ended December 31, 1999 increased $34.1
million or 18% over the same period in the prior fiscal year. Our shipments for
the six months ended December 31, 1999 grew 14% over the same period last fiscal
year to 3.9 million nine-liter case equivalents. The average net revenue per
nine-liter case equivalent for the first six months of fiscal 2000 rose 4% over
the same period in fiscal 1999 to $57.30. 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>
September 30 December 31, March 31, June 30, September30, December 31,
Three months ended (in thousands) 1998 1998 1999 1999 1999 1999
------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue................................ $75,020 $112,573 $93,204 $95,357 $90,457 $131,232
Cost of goods sold......................... 40,642 59,896 49,252 48,240 45,977 67,459
------- -------- ------- ------- ------- --------
Gross profit............................... 34,378 52,677 43,952 47,117 44,480 63,773
Inventory step-up.......................... 4,939 6,473 3,820 1,216 1,312 2,563
------- -------- ------- ------- ------- --------
Adjusted gross profit...................... $39,317 $ 59,150 $47,772 $48,333 $45,792 $ 66,336
======= ======== ======= ======= ======= ========
</TABLE>
Second quarter cost of goods sold increased $7.6 million or 13% over the same
period in the prior fiscal year to $67.5 million. Our second quarter cost of
goods sold included $2.6 million of non-cash charges resulting from the
inventory step-up, compared to $6.5 million for the same period in fiscal 1999.
Adjusted second quarter cost of goods sold increased $11.5 million or 22% over
the same period in the prior fiscal year to $64.9 million. Second quarter
average unit cost (cost per nine-liter equivalent case), excluding inventory
step-up, increased $2.00 or 8% to $27.77 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 second fiscal quarter ended December 31, 1999 grew by
$11.1 million or 21% over the same period in the prior fiscal year to $63.8
million. Second quarter adjusted gross profit, excluding the inventory step-up,
rose $7.2 million or 12% over the same period in the last fiscal year to $66.3
million.
Beringer Wine Estates Holdings, Inc. 7
<PAGE>
Cost of goods sold for the six months ended December 31, 1999 increased $12.9
million or 13% over the same period in the prior year to $113.4 million. Cost
of goods sold for the first six months of fiscal 2000 included $3.9 million of
inventory step-up compared to $11.4 million for the same period in fiscal 1999.
Adjusted cost of goods sold for the first six months of fiscal 2000 increased
$20.4 million or 23% over the prior fiscal year to $109.6 million.
Gross profit for the six months ended December 31, 1999 increased 24% from the
same period last fiscal year to $108.3 million. Adjusted gross profit,
excluding the inventory step-up, for the six months ended December 31, 1999 grew
$13.7 million or 14% over the same period of last fiscal year to $112.1 million.
Gross Margin
<TABLE>
<CAPTION>
September 30 December 31, March 31, June 30, September 30, December 31,
Three months ended 1998 1998 1999 1999 1999 1999
------------- ------------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue................................. 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
----- ----- ----- ----- ----- -----
Gross margin................................ 45.8 46.8 47.2 49.4 49.2 48.6
Inventory step-up........................... 6.6 5.7 4.1 1.3 1.4 1.9
----- ----- ----- ----- ----- -----
Adjusted gross margin....................... 52.4% 52.5% 51.3% 50.7% 50.6% 50.5%
===== ===== ===== ===== ===== =====
</TABLE>
Gross margin for the second quarter increased to 48.6% from 46.8% in the same
period in the last fiscal year. Second quarter adjusted gross margin was 50.5%
compared to 52.5% for the same period in the prior fiscal year.
Gross margin for the first six months of fiscal 2000 rose to 48.8%, from 46.4%
for the same period last fiscal year. Our adjusted gross margin, excluding the
inventory step-up, for the six months ended December 31, 1999 decreased to 50.6%
from 52.5% for the same period last fiscal year.
Operating Expenses, Operating Income and Interest Expense
Operating Income
<TABLE>
<CAPTION>
September 30 December 31, March 31, June 30, September 30, December 31,
Three months ended (in thousands) 1998 1998 1999 1999 1999 1999
------------- ------------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Operating income............................ $10,922 $17,559 $17,347 $20,704 $18,168 $26,657
Add back inventory step-up.................. 4,939 6,473 3,820 1,216 1,312 2,563
------- ------- ------- ------- ------- -------
Adjusted operating income................... $15,861 $24,032 $21,167 $21,920 $19,480 $29,220
======= ======= ======= ======= ======= =======
Operating margin............................ 14.6% 15.6% 18.6% 21.7% 20.1% 20.3%
Adjusted operating margin................... 21.1% 21.3% 22.7% 23.0% 21.5% 22.3%
</TABLE>
Second quarter operating expenses increased to $37.1 million, an increase of
$2.0 million or 6% over the same period in the prior fiscal year. This increase
reflects additional spending on direct product promotional activities and an
increase in non-product specific expenses compared to the second quarter of
fiscal 1999. Operating expenses were 28.3% of net revenues for the second
quarter compared to 31.2% for the same period in the last fiscal year.
Second quarter operating income rose $9.1 million over the same period in the
prior fiscal year to $26.7 million. Adjusted operating income for the second
quarter increased $5.2 million or 22% over the same period in the prior fiscal
year to $29.2 million. Second quarter interest expense increased $0.9 million
or 18% from second quarter of fiscal 1999.
Operating expenses for the six months ended December 31, 1999 increased $4.9
million or 8% over the same period in the last fiscal year to $63.4 million.
This increase reflects additional spending on advertising and other direct
product promotional activities. Operating expenses for the first six months of
fiscal 2000 decreased to 28.6% of net revenue from 31.2% during the same period
in the last fiscal year.
Operating income for the six months ended December 31, 1999 grew $16.3 million
from the same period in the last fiscal year to $44.8 million. Adjusted
operating income for the six months of fiscal 2000 increased $8.8 million or 22%
over the same period in the last fiscal year to $48.7 million. Interest expense
for the six months ended December 31, 1999 increased $1.7 million or 17% from
the same period in the last fiscal year, due primarily to increased debt
Beringer Wine Estates Holdings, Inc. 8
<PAGE>
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, a division of Sapporo U.S.A. Inc. operating an
ultra-premium winery in St. Helena, California. We acquired assets consisting
primarily of inventories and property, plant and equipment. St. Clement
Vineyards Napa Valley appellation wines are an excellent addition to our current
ultra-premium wine portfolio.
Sale of Napa Ridge
On January 7, 2000, we sold the Napa Ridge brand asset and related inventory
to the Bronco Wine Company for approximately $40 million in cash. The sale
includes the Napa Ridge trademarked brand name and all cased goods in inventory.
Incremental wine supply and production capacity will be used to support the
anticipated future growth of Beringer Founders' Estate and Meridian Vineyards.
Financial Condition
Assets Total assets increased $112.6 million or 17% from June 30, 1999 to
$756.9 million on December 31, 1999. Inventories grew $77.4 million from June
30, 1999 to $363.1 million on December 31, 1999. 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 $91.1 million or 21% from June 30,
1999 to $517.4 million at December 31, 1999. At December 31, 1999, long-term
debt outstanding was $236.5 million, of which $2.8 million is payable in the
next twelve months. In addition, we had $125.7 million outstanding under our
line of credit. At December 31, 1999, $120.8 million was available under the
terms of our credit agreement.
Liquidity and Capital Resources
Operating activities, impacted significantly by the growth of inventory, used
$3.7 million of cash during the second quarter of fiscal 2000. Second quarter
net cash used in investing activities of $8.8 million consisted primarily of
expenditures for property, plant and equipment. Our financing activities
provided net cash of $12.6 million, primarily from our bank credit agreement.
Operating activities for the six months ended December 31, 1999 provided cash
of $4.2 million. Net cash used in investing activities for the first six months
of fiscal 2000 of $39.3 million consisted primarily of expenditures for
property, plant and equipment of $24.7 million and the acquisition of St.
Clement Vineyards for $14.7 million. Net cash provided by our financing
activities for the six months ended December 31, 1999 of $35.1 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 December 31, 1999, our total debt was $362.2 million, of which $123.8
million will re-price during the next twelve months. At December 31, 1999, we
had interest rate swap agreements that converted a notional amount of $90
million of LIBOR based variable-rate debt to a fixed rate.
Beringer Wine Estates Holdings, Inc. 9
<PAGE>
Assuming a 1% increase in interest rates, annual interest expense would be
expected to increase approximately $1.1 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 December 31, 1999, we would have recorded a $212,000 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, 1998.
These forward-looking statements speak only as of the date of this Form 10-Q.
The Company expressly disclaims any obligation to publicly release any updates
or revisions of any such forward-looking statements to reflect any changes in
the Company's expectations or any change in events, conditions or circumstances
on which any such statement is based.
Beringer Wine Estates Holdings, Inc. 10
<PAGE>
PART II
ITEM 1 through 3 and 5. OTHER INFORMATION
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The company's Annual Meeting of Shareholders was held on November 4, 1999 at
the Mandarin Oriental Hotel, San Francisco, California. Two matters were
submitted to a vote of shareholders: election of directors and ratification of
PricewaterhouseCoopers LLP as the Company's independent auditors for the fiscal
year ending June 30, 2000.
Richard L. Adams, David Bonderman, Randy Christofferson, James G. Coulter,
Timm F. Crull, William A. Franke, Walter T. Klenz, E. Michael Moone, William S.
Price III, Jesse Rogers, and George A. Vare were nominated as directors.
41,805,686 votes were cast for Richard L. Adams and 60,077 votes were withheld.
41,799,128 votes were cast for David Bonderman and 66,635 votes were withheld.
41,806, 076 votes were cast for Randy Christofferson and 59,687 votes were
withheld. 41,799,226 votes were cast for James G. Coulter and 66,537 votes were
withheld. 41,799,638 votes were cast for Timm F. Crull and 66,125 votes were
withheld. 41,799,378 votes were cast for William A. Franke and 66,385 votes were
withheld. 41,799,986 votes were cast for Walter T. Klenz and 65,777 votes were
withheld. 41,800,286 votes were cast for E. Michael Moone and 65,477 votes were
withheld. 41,797,476 votes were cast for William S. Price III and 68,287 votes
were withheld. 41,805,586 votes were cast for Jesse Rogers and 60,177 votes ere
withheld. 41,806,186 votes were cast for George A. Vare and 59,577 votes were
withheld.
41,820,720 votes were cast in favor of the ratification of
PricewaterhouseCoopers LLP, 42,611 votes were cast against, and 2,432 votes
abstained.
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 December 31,
1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Beringer Wine Estates Holdings, Inc.
February 14, 2000
By: Peter F. Scott
Peter F. Scott, Executive Vice President,
Chief Financial and Administrative Officer
Beringer Wine Estates Holdings, Inc. 11
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