-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BfIEJUYOo/AV988DhYBsXrNPS1W3VpVQFAm92zUhNec1c14q82aabA1LXAIIObqo IzSMdNKf2i54fnxu8Jo+1g== 0000950149-97-001777.txt : 19970930 0000950149-97-001777.hdr.sgml : 19970930 ACCESSION NUMBER: 0000950149-97-001777 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970929 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MONDAVI ROBERT CORP CENTRAL INDEX KEY: 0000902276 STANDARD INDUSTRIAL CLASSIFICATION: BEVERAGES [2080] IRS NUMBER: 942765451 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-21624 FILM NUMBER: 97686887 BUSINESS ADDRESS: STREET 1: 7801 ST HELENA HWY STREET 2: PO BOX 106 CITY: OAKVILLE STATE: CA ZIP: 94562 BUSINESS PHONE: 7072599463 MAIL ADDRESS: STREET 1: 7801 ST HELENA HWY CITY: OAKVILLE STATE: CA ZIP: 94562 10-K405 1 FORM 10-K FOR THE PERIOD ENDED JUNE 30, 1997 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended Commission File Number: June 30, 1997 33-61516 THE ROBERT MONDAVI CORPORATION Incorporated under the laws I.R.S. Employer Identification: of the State of California 94-2765451 Principal Executive Offices: 7801 St. Helena Highway Oakville, CA 94562 Telephone: (707) 259-9463 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Class A 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 No -------- -------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X -------- As of September 15, 1997 there were issued and outstanding (i) 7,527,174 shares of the Registrant's Class A Common Stock and (ii) 7,676,012 shares of the Registrant's Class B Common Stock. The aggregate market value of the Registrant's voting stock held by non-affiliates was $406,305,396 as of September 15, 1997. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's annual report to security holders for the fiscal year ended June 30, 1997 are incorporated by reference into Part II of this report. Portions of the registrant's definitive proxy statement dated September 29, 1997 are incorporated by reference into Part III of this report. 2 PART I ITEM 1. BUSINESS INTRODUCTION The Company is a leading producer of premium table wines. The Company markets wines worldwide under the following labels: Robert Mondavi Napa Valley, Robert Mondavi Coastal, Woodbridge, Vichon Mediterranean, La Famiglia di Robert Mondavi, Byron, Opus One, Luce and Caliterra. The Company's products are available through all principal retail channels for premium table wine, including fine restaurants, hotels, specialty shops, supermarkets and club stores in all fifty states and 90 countries throughout the world. Sales of the Company's products outside the United States accounted for approximately 8% of net revenues in fiscal 1997. The Robert Mondavi Winery was incorporated under the laws of California in 1966, and the Company was incorporated under the laws of California in 1981 as a holding company for the various business interests of the Robert Mondavi Winery. The Company's principal executive offices are located at 7801 St. Helena Highway, Oakville, California 94562. Its telephone number is (707) 259-9463. As used herein, unless the context indicates otherwise, the "Company" shall mean The Robert Mondavi Corporation and its consolidated subsidiaries. INDUSTRY BACKGROUND "Table" wines are those with 7%-14% alcohol by volume and which are traditionally consumed with food. Other wine products, such as sparkling wines, wine coolers, pop wines and fortified wines, are not sold in commercial quantities by the Company. To have a vintage date, a table wine must be made at least 95% from grapes harvested, crushed and fermented in the calendar year shown on the label and must use an appellation of origin (e.g., Napa Valley). Table wines that retail at less than $3.00 per 750 ml. bottle are generally considered to be generic or "jug" wines, while those that retail at $3.00 or more per bottle are considered premium wines. The Company produces and sells only premium table wines. The premium category is generally divided by the trade into three segments: popular premium wines that retail at $3.00 to $7.00 per bottle; super premium wines that retail at $7.01 to $14.00 per bottle; and ultra premium wines that retail at over $14.00 per bottle. The Company also recognizes a fourth segment, not generally recognized by the trade, consisting of super-ultra premium wines that retail at above $20.00 per bottle. The Company sells wines in each price segment of the premium table wine market. PRODUCT LINES The Company's business began in 1966 at the Robert Mondavi Winery in Oakville where the Company produces its flagship products, the Robert Mondavi Napa Valley reserve, district and varietal wines. The Napa Valley wines are marketed under the prestigious "Robert Mondavi" label. The principal Napa Valley offerings include Cabernet Sauvignon, Pinot Noir, Chardonnay and Fume Blanc. In May 1994 the Robert Mondavi Coastal line of wines was introduced in California. Distribution has since been expanded to additional markets and the Coastal wines now include Cabernet Sauvignon, Merlot, Pinot Noir, Zinfandel, Chardonnay and Sauvignon Blanc. 2 3 The Woodbridge Winery, located in the Northern San Joaquin Valley in Acampo, California, produces popular premium wines for sale under the "Woodbridge" label. Although competitively priced, Woodbridge wines are made in the Robert Mondavi tradition of quality, including oak barrel aging of its Cabernet Sauvignon, Zinfandel, Chardonnay and Sauvignon Blanc wines. All of the Woodbridge wines are vintage-dated and sold under varietal names, including Cabernet Sauvignon, Chardonnay, Sauvignon Blanc and red and white Zinfandel. During fiscal 1997, Vichon began sourcing all of its wines from the Languedoc region of France, selling them under the new Vichon Mediterranean line. The initial release included Cabernet Sauvignon, Chardonnay, Merlot and Sauvignon Blanc, as well as three traditional Mediterranean varietals: Viognier, Chasan and Syrah. La Famiglia di Robert Mondavi, introduced in limited quantities beginning in 1995, offers Italian-style, California-grown varietal wines. The Company purchased the Byron Winery located near Santa Maria in 1990. Byron Pinot Noir and Chardonnay are made in the traditional Burgundian style of winemaking. To date, the Byron wines have been offered in only a few prominent markets due to limited supply. The Company intends to broaden distribution as production capacity increases. Construction of a new 32,000 square foot winery at Byron was completed in August 1996. The Opus One Winery, located in Oakville across from the original Robert Mondavi Winery, is a joint venture between the Company and a corporation owned by members of the family of Baron Philippe de Rothschild, the owners of Chateau Mouton-Rothschild, one of the first-growth wines of Bordeaux, France. At Opus One, the Company and its partner employ unique production techniques that balance the newest technology with traditional methods in a manner designed to minimize mechanical handling of the grapes and the finished wine. In June 1997 the Company and its Italian partners, Marchesi de' Frescobaldi, introduced Luce to the international wine trade. Luce is grown, produced and bottled in the Montalcino region of Italy. The 1993 and 1994 vintages are available in small quantities in select U.S. and European markets. In March 1996 the Company and the Chadwick family of Chile formed a joint venture, Vina Caliterra S.A., to produce and market the Caliterra brand of Chilean premium wines. The Company also acts as the exclusive United States importer of the Caliterra wines and the Chadwick family's Errazuriz brand. MARKETING AND DISTRIBUTION The Company sells its products through a wide variety of "on-sale" retail establishments (meaning the wine is consumed on the premises), and "off-sale" retail establishments (meaning the wine is purchased for consumption off the premises). On-sale retailers include restaurants and hotels and off-sale retailers include bottle shops, grocery stores, supermarkets and club stores. Substantially all of the Company's wines are sold through a three-tier system: the Company sells to wholesalers for resale to retailers, such as restaurants and supermarkets, who sell the products to the consumer. Domestic sales of the Company's wines are made through more than 100 independent wine and spirits distributors. International sales are made through independent importers and brokers. 3 4 The Company's wines are distributed in California, Florida, Pennsylvania and Southern Nevada by Southern Wine and Spirits, a large national beverage distributor. Sales to Southern Wine and Spirits nationwide represented approximately 29%, 28% and 29% of the Company's net revenues for the fiscal years ended June 30, 1997, 1996 and 1995, respectively. Sales to the Company's 15 largest distributors represented 66% of the Company's net revenues in fiscal 1997. The Company's distributors also offer table wines of other companies that directly compete with the Company's products. Sales of the Company's wines in California accounted for approximately 22%, 22% and 23% of the Company's net revenues for the fiscal years ended June 30, 1997, 1996 and 1995, respectively. Other major domestic markets include New York, New Jersey, Texas, Pennsylvania, Florida and Massachusetts where annual sales represented 30% of the Company's net revenues in each of the same fiscal periods. GRAPE SUPPLY In fiscal 1997, approximately 10% of the Company's total grape supply came from Company-owned or leased vineyards, including approximately 36% of the grape supply for wines produced at the Robert Mondavi Winery in Oakville. The Company owns and leases vineyards throughout California as described in the table below.
APPROXIMATE 1997 PLANTABLE ACREAGE ----------------- LOCATION (1) PLANTED FALLOW TOTAL - ------------ ----- ----- ----- NAPA VALLEY 694 302 996 CARNEROS 452 -- 452 MENDOCINO 260 170 430 MONTEREY 549 618 1,167 SAN JOAQUIN 93 -- 93 SAN LUIS OBISPO 434 -- 434 SANTA BARBARA 1,295 300 1,595 ----- ----- ----- Total 3,777 1,390 5,167 ===== ===== =====
(1) Excludes vineyards owned by the Opus One, Twin Oaks, Caliterra and Luce joint ventures, in each of which the Company owns a 50% interest. Includes 1,370 acres held pursuant to long-term leases. In addition to the grapes it grows in its own vineyards, the Company purchases grapes in California from approximately 300 independent growers, including approximately 100 growers in Napa Valley. The grower contracts range from one-year spot market purchases to intermediate and long-term agreements. 4 5 WINEMAKING The Company's winemaking philosophy is to make wines in the traditional manner by starting with high quality fruit and handling it as gently and naturally as possible all the way to the bottle. Each of the Company's wineries is equipped with modern equipment and technology that is appropriate for the style and scale of the wines being produced. Examples include barrel fermentation and aging and handling methods that allow the Company to produce wines with elegance, body and complexity at high volumes. The Company emphasizes traditional barrel aging as a cornerstone of its winemaking approach. The Company has approximately 100,000 French and American oak barrels in its statewide barreling system. The barrels vary in terms of age, forest source and "toast" level. The Company views its barrels as key winemaking assets and its substantial annual investment in new oak barrels enables it to consistently produce premium quality wines and to accomplish both its economic and stylistic objectives within its statewide system of wineries. EMPLOYEES As of June 30, 1997, the Company had 890 employees, 870 of whom were full-time employees and 20 of whom were part-time. In addition, a significant number of seasonal hourly employees are hired during each autumn harvest. None of the Company's employees is represented by a labor union and the Company believes that its relationship with its employees is good. TRADEMARKS The Company has federal trademark registrations for wine of the marks "ROBERT MONDAVI," "WOODBRIDGE," "LA FAMIGLIA DI ROBERT MONDAVI" and the "Arch and Tower" motif used on the Robert Mondavi Napa Valley label. Through its wholly-owned subsidiaries, the Company has also federally registered the trademarks "VICHON and design" and "BYRON" for wine. The Company also has foreign registrations of the trademarks "MONDAVI," "ROBERT MONDAVI," and "WOODBRIDGE" for goods covering wine in those countries it considers to be the major winemaking countries of the world. The Opus One joint venture has federal trademark registrations for wine of the mark "OPUS ONE" and the "Silhouette Logo" used on the Opus One label. Opus One also has foreign registrations of the trademarks "OPUS" and/or "OPUS ONE" for goods covering wine in those countries it considers to be the major winemaking countries of the world. The Luce and Caliterra partnerships have registered their respective marks in the United States and certain other jurisdictions. Each of the United States trademark registrations is renewable indefinitely so long as the Company is making a bona fide usage of the trademark. 5 6 ITEM 2. PROPERTIES The Company operates five wineries, including Opus One, which is co-managed with the owners of Chateau Mouton-Rothschild. The current available annual production capacity is up to 500,000 cases at the Robert Mondavi Winery in Oakville, 6.0 million cases at Woodbridge, 80,000 cases at the former Vichon facility in Oakville, 80,000 cases at Byron and 30,000 cases at Opus One. The Woodbridge winery serves as a central warehouse and distribution point for all of the Company's wines. For information regarding the Company's vineyards, see "Grape Supply" under Item 1 above. The Company also leases approximately 426,000 square feet of administrative and warehouse space under various leases expiring between January 1998 and September 2012. The Company believes that its current facilities, leased and owned, are adequate for their current uses. ITEM 3. LEGAL PROCEEDINGS The Company is subject to litigation in the ordinary course of its business. In the opinion of management, the ultimate outcome of existing litigation will not have a material adverse effect on the Company's consolidated financial condition or the results of its operations. 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, 1997. 6 7 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The information required by this item is incorporated by reference from page 40, "Common Stock Information," of the registrant's annual report to security holders for the fiscal year ended June 30, 1997, furnished to the Securities and Exchange Commission pursuant to Rule 14a-3(b). ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA The information required by this item is incorporated by reference from page 18, "Selected Consolidated Financial and Operating Data," of the registrant's annual report to security holders for the fiscal year ended June 30, 1997, furnished to the Securities and Exchange Commission pursuant to Rule 14a-3(b). 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 19-23, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of the registrant's annual report to security holders for the fiscal year ended June 30, 1997, furnished to the Securities and Exchange Commission pursuant to Rule 14a-3(b). ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is incorporated by reference from page 29, "Fair Value of Financial Instruments" and "Derivative Financial Instruments," of the registrant's annual report to security holders for the fiscal year ended June 30, 1997, furnished to the Securities and Exchange Commission pursuant to Rule 14a-3(b). ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is incorporated by reference from pages 24-39, "Consolidated Financial Statements," of the registrant's annual report to security holders for the fiscal year ended June 30, 1997, furnished to the Securities and Exchange Commission pursuant to Rule 14a-3(b). ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 7 8 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated by reference from pages 2-4 of the registrant's definitive proxy statement dated September 29, 1997, as filed with the Commission. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference from pages 7-11 of the registrant's definitive proxy statement dated September 29, 1997, as filed with the Commission. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference from pages 5-6 of the registrant's definitive proxy statement dated September 29, 1997, as filed with the Commission. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference from page 12 of the registrant's definitive proxy statement dated September 29, 1997, as filed with the Commission. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: PAGE IN ANNUAL 1) FINANCIAL STATEMENTS: REPORT* Report of Independent Accountants 39 Consolidated Balance Sheets as of June 30, 1997 and 1996 24 Consolidated Statements of Income for the years ended June 30, 1997, 1996 and 1995 25 Consolidated Statements of Changes in Shareholders' Equity for the years ended June 30, 1997, 1996 and 1995 26 Consolidated Statements of Cash Flows for the years ended June 30, 1997, 1996 and 1995 27 Notes to Consolidated Financial Statements 28-38 - -------------------------------------------------------------------------------- * Incorporated by reference to the indicated pages of the registrant's annual report to security holders for the fiscal year ended June 30, 1997, furnished to the Securities and Exchange Commission pursuant to Rule 14a-3(b). 8 9 2) FINANCIAL STATEMENT SCHEDULES: PAGE Schedule II Valuation and Qualifying Accounts 11 3) EXHIBITS: (1) Exhibit 3.1 Restated Articles of Incorporation (2) Exhibit 3.2 Certificate of Amendment of Articles of Incorporation filed on June 4, 1993. (2) Exhibit 3.3 Restated Bylaws. (1) Exhibit 10.1 Form of Registrant's Indemnification Agreement for Directors and Officers (1) Exhibit 10.2 Stock Buy-Sell Agreement between Registrant and the holders of Class B Common Stock, dated as of March 1, 1982 (1) Exhibit 10.3 First Amendment to Stock Buy-Sell Agreement between Registrant and the holders of Class B Common Stock, dated as of March 8, 1993 (1) Exhibit 10.4 Registration Rights Agreement between Registrant and the holders of Class B Common Stock, dated as of February 26, 1993 (1) Exhibit 10.7 1993 Employee Stock Purchase Plan, and form of plan offering document thereunder (1) Exhibit 10.8 Second Amended and Restated Executive Incentive Compensation Plan, dated July 1, 1988, as amended effective June 30, 1992 and April 20, 1993 (1) Exhibit 10.9 Retirement Restoration Plan, effective as of April 1, 1992 (1) Exhibit 10.11 Form of Supplemental Long Term Disability Income Plan for certain Executive Officers of Registrant (1) Exhibit 10.12 Personal Services Agreement, dated as of February 26, 1993, between Registrant and Robert Mondavi (1) Exhibit 10.14 Grape Purchase Agreement, dated August 7, 1992, between Registrant and Frank E. Farella (1) Exhibit 10.20 $9,400,000 Promissory Note, Deed of Trust, Security Agreement and Fixture Filing, with Assignment of Rents as amended and Agreement Concerning Special Requirements, dated December 15, 1989, between Registrant and John Hancock Mutual Life Insurance Company (1) Exhibit 10.21 $4,900,000 Promissory Note, Deed of Trust, Security Agreement and Fixture Filing, with Assignment of Rents as amended and Agreement Concerning Special Requirements between Registrant and John Hancock Mutual Life Insurance Company 9 10 (1) Exhibit 10.24 $5,600,000 Promissory Note, Deed of Trust, Security Agreement and Fixture Filing, with Assignment of Rents as amended and Agreement Concerning Special Requirements, dated December 29, 1989, between Registrant and John Hancock Mutual Life Insurance Company (1) Exhibit 10.28 Third Restatement of Joint Venture Agreement of Opus One dated January 1, 1991, between Robert Mondavi Investments and B.Ph.R. (California), Inc. (3) Exhibit 10.34 Note Agreement dated December 1, 1994. (4) Exhibit 10.36 Amended and Restated 1993 Non-Employee Directors' Stock Option Plan. (4) Exhibit 10.37 Note Agreement dated July 8, 1996. Exhibit 10.38 Amended and Restated 1993 Equity Incentive Plan. Exhibit 11 Statement re Computation of Per Share Earnings Exhibit 13 Those portions of the Registrant's Annual Report to Security Holders for the Fiscal Year Ended June 30, 1997 that are incorporated by reference into this Annual Report on Form 10-K (1) Exhibit 21 Subsidiaries of the Registrant Exhibit 23 Consent of Price Waterhouse LLP Exhibit 27 Financial Data Schedule (1) Incorporated by reference to Registration Statement on Form S-1 filed on April 23, 1993. (2) Incorporated by reference to Amendment No. 3 to Registration Statement on Form S-1 filed on June 7, 1993. (3) Incorporated by reference to Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1994. (4) Incorporated by reference to Annual Report on Form 10-K for the annual period ended June 30, 1996. (b) No reports on Form 8-K were filed during the quarter ended June 30, 1997. 10 11 ROBERT MONDAVI CORPORATION SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED JUNE 30, 1997 (IN THOUSANDS)
ADDITIONS --------------------- BALANCE AT CHARGED TO CHARGED BALANCE BEGINNING COSTS AND TO OTHER AT END OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR ------- -------- -------- ---------- ------- YEAR ENDED JUNE 30, 1995: Allowance for uncollectible accounts $ 200 $ 127 $ -- $ 27(1) $ 300 Inventory reserves for write down to net realizable value 932 348 -- 535 745 YEAR ENDED JUNE 30, 1996: Allowance for uncollectible accounts 300 219 -- 19(1) 500 Inventory reserves for write down to net realizable value 745 755 -- 402 1,098 YEAR ENDED JUNE 30, 1997: Allowance for uncollectible accounts 500 45 -- 45(1) 500 Inventory reserves for write down to net realizable value 1,098 402 -- 338 1,162
Notes: (1) Balances written off as uncollectible. 11 12 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. THE ROBERT MONDAVI CORPORATION By /s/ GREGORY M. EVANS --------------------------- Gregory M. Evans, Senior Vice President and Chief Financial Officer 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.
SIGNATURE TITLE DATE - --------- ----- ---- /s/ ROBERT G. MONDAVI - ------------------------ Robert G. Mondavi Chairman of the Board September 29, 1997 /s/ R. MICHAEL MONDAVI - ------------------------ R. Michael Mondavi President and Director (Principal Executive Officer) September 29, 1997 /s/ TIMOTHY J. MONDAVI - ------------------------ Timothy J. Mondavi Managing Director, Winegrower and Director September 29, 1997 /s/ GREGORY M. EVANS - ------------------------ Gregory M. Evans Chief Financial Officer (Principal Financial and Accounting Officer) September 29, 1997 /s/ CLIFFORD S. ADAMS - ------------------------ Clifford S. Adams Director September 29, 1997 /s/ JAMES L. BARKSDALE - ------------------------ James L. Barksdale Director September 29, 1997 /s/ MARCIA MONDAVI BORGER - ------------------------ Marcia Mondavi Borger Director September 29, 1997 /s/ FRANK E. FARELLA - ------------------------ Frank E. Farella Director September 29, 1997 /s/ PHILIP GREER - ------------------------ Philip Greer Director September 29, 1997 /s/ BARTLETT R. RHOADES - ------------------------ Bartlett R. Rhoades Director September 29, 1997
12 13 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of The Robert Mondavi Corporation Our audits of the consolidated financial statements referred to in our report dated July 25, 1997 appearing on page 39 of the 1997 Annual Report to Shareholders of The Robert Mondavi Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PRICE WATERHOUSE LLP Price Waterhouse LLP San Francisco, CA July 25, 1997 13
EX-10.38 2 AMENDED AND RESTATED 1993 EQUITY INCENTIVE PLAN 1 EXHIBIT 10.38 THE ROBERT MONDAVI CORPORATION AMENDED AND RESTATED 1993 EQUITY INCENTIVE PLAN 1. PURPOSE. (a) The purpose of this Plan is to provide a means by which selected key Employees of and Consultants to the Company and its Affiliates may be given an opportunity to benefit from increases in value of the stock of the Company through the granting of Stock Awards including (i) Stock Options, (ii) Stock Appreciation Rights, (iii) Performance Grants, (iv) Stock Bonuses and (v) Restricted Stock or Restricted Stock Units, all as defined below. (b) The Company, by means of the Plan, seeks to retain the services of persons who are now Employees of or Consultants to the Company or its Affiliates, to secure and retain the services of new Employees and Consultants, and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. (c) In the discretion of the Committee to which responsibility for administration of the Plan is delegated pursuant to Section 3, an Employee or Consultant may be granted any Stock Award permitted under the provisions of the Plan, and more than one Stock Award may be granted to a participant. Stock Awards may be granted as alternatives to or replacements of Stock Awards outstanding under the Plan or any other awards outstanding under another plan or arrangement of the Company or an Affiliate. All Stock Awards which are granted as Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and a separate certificate or certificates will be issued for shares purchased on exercise of each type of Option. 2. DEFINITIONS. (a) "AFFILIATE" means any parent corporation, subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code or a partnership, joint venture or other entity in which the Company owns a substantial equity interest. (b) "BOARD" means the Board of Directors of the Company. (c) "CODE" means the Internal Revenue Code of 1986, as amended. (d) "COMMITTEE" means the Compensation Committee of the Board of Directors or another committee appointed by the Board in accordance with subsection 3(c) of the Plan. (e) "COMPANY" means The Robert Mondavi Corporation, a California corporation. (f) "CONSULTANT" means any person, including an advisor, engaged by the Company or an Affiliate to render services and who is compensated for such services, provided that the term "Consultant" shall not include Directors who are paid only a director's fee by the Company or who are not compensated by the Company for their services as Directors. (g) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means the employment or the relationship as a Consultant is not interrupted or terminated. The Committee, in its sole discretion, may determine whether Continuous Status as an Employee or Consultant shall be considered interrupted in the case of (i) any approved leave of absence, including sick leave, military leave, or any other personal 2 leave, or (ii) transfers between locations of the Company or between the Company and its Affiliates or their successors. (h) "DIRECTOR" means a member of the Board. (i) "DISABILITY" means total and permanent disability as defined in Section 22(e)(3) of the Code. (j) "EMPLOYEE" means any person, including Officers and Directors, employed by the Company or any Affiliate of the Company. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (k) "EXCHANGE ACT" means the Securities and Exchange Act of 1934, as amended from time to time. (l) "FAIR MARKET VALUE" means the value of the Company's Class A Common Stock as determined from time to time in good faith by the Committee. (m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (n) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option. (o) "OFFICER" means a person who is an "executive officer" of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (p) "OPTION" means a stock option granted pursuant to the Plan. (q) "OPTION AGREEMENT" means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (r) "OPTIONED SHARES" means that number of shares of Class A Common Stock of the Company subject to an Option. (s) "OPTIONEE" means an Employee or Consultant who holds an outstanding Option. (t) "PERFORMANCE CRITERIA" means the various business criteria set forth in Section 8(b). (u) "PERFORMANCE GRANT" means a grant of shares of Class A Common Stock or of a right to receive shares of Class A Common Stock (or their cash equivalent or a combination of both) based on such performance goals, factors or other conditions, restrictions or contingencies as may be fixed by the Committee and as set forth herein. (v) "PLAN" means this 1993 Equity Incentive Plan. (w) "RESTRICTED STOCK" AND "RESTRICTED STOCK UNITS" means Optioned Shares awarded and held subject to the restrictions set forth in Section 9, and rights to receive Restricted Stock, respectively. In lieu of Restricted Stock, the Company may grant Restricted Stock Units. 2 3 (x) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3 as in effect when discretion is being exercised with respect to the Plan. (y) "STOCK APPRECIATION RIGHT" or "SAR" means the right of a participant to receive, in cash, Class A Common Stock or Optioned Shares, the excess of (A) the Fair Market Value of a specified number of shares of Class A Common Stock at the time of exercise, over (B) an exercise price established by the Committee. (z) "STOCK AWARD" means any right granted under the Plan, including any Option, Stock Appreciation Right, Performance Grant, any Stock Bonus, an award of Restricted Stock or Restricted Stock Units, and any other incentive-based awards adopted pursuant to Section 15 of this Plan. (aa) "STOCK AWARD AGREEMENT" means a written agreement between the Company and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan. (bb) "STOCK BONUS" means current or deferred Optioned Shares granted pursuant to Section 9. 3. ADMINISTRATION. (a) The Plan shall be administered by a Committee, unless the Board, in its discretion, assumes administration of the Plan, whereupon the Board shall have all powers herein conferred on the Committee. (b) The Committee shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (1) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; the provisions of each such Stock Award (which need not be identical); and the number of shares with respect to which Stock Awards shall be granted to each such person. The maximum number of Optioned Shares that may be covered by Options, Stock Appreciation Rights, Performance Grants, Stock Bonuses and Restricted Stock granted to any one individual shall be 100,000 shares during any single calendar year. (2) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Committee, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (3) Generally, to exercise such powers and to perform such acts as the Committee deems necessary or expedient to promote the best interests of the Company. (c) The Committee shall consist of not fewer than two (2) members of the Board. The Committee's powers enumerated above shall be subject to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. (d) All judgments, determinations, and actions of every kind and nature with respect to the Plan and its administration undertaken by the Committee or the Board shall be made in the sole discretion of the Committee or Board as the case may be. 3 4 4. SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of Section 14 below, the maximum number of Optioned Shares that may be issued to participants and their beneficiaries under the Plan shall not exceed in the aggregate two million five hundred eighty five thousand two hundred ninety four (2,585,294). If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the Optioned Shares not acquired shall revert to and again become available for issuance under the Plan. In the event of payment for Optioned Shares or settlement of an SAR by delivery to the Company of other shares of its Class A Common Stock, only the net shares issued shall be considered toward the maximum number of Optioned Shares. In the event of an exercise of an SAR for cash, or payment of cash for Restricted Stock Units, no Optioned Shares shall be deemed to have been utilized. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 5. ELIGIBILITY. (a) Incentive Stock Options may be granted only to key Employees. Stock Awards other than Incentive Stock Options may be granted only to key Employees or Consultants. (b) No person shall be eligible for the grant of an Incentive Stock Option if, at the time of grant, such person owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates, unless the exercise price of such Incentive Stock Option is at least one hundred ten percent (110%) of the Fair Market Value of such stock at the date of grant and the Incentive Stock Option is not exercisable after the expiration of five (5) years from the date of grant. 6. OPTION PROVISIONS. An Option represents the right to purchase a specified number of shares during a specified period at a price per share that is no less than that required by Section 6(b). Each Option shall be in such form and shall contain such terms and conditions as the Committee shall deem appropriate. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option Agreement or otherwise) the substance of each of the following provisions: (a) No Option shall be exercisable after the expiration of ten (10) years from the date it was granted. (b) The exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. The exercise price of each Nonstatutory Stock Option shall be not less than fifty percent (50%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. The foregoing not withstanding, the Committee may provide that the date of grant of any Nonstatutory Stock Option is the date on which the Optionee was hired or promoted (or similar event) if the grant of the Option occurs not more than 90 days after the date of such hiring, promotion or other event. The exercise price of each Option shall be specified in the Option Agreement. (c) The purchase price of stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised, or (ii) at the discretion of the Committee, exercised either at the time of the grant or exercise of the Option, 4 5 (A) by delivery to the Company (including by attestation) of other Class A Common Stock of the Company, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other Class A Common Stock of the Company) with the person to whom the Option is granted or to whom the Option is transferred pursuant to subsection 6(d), (C) by cashless exercise methods which are permitted by law, including, without limitation, methods whereby a broker sells the Optioned Shares to which the exercise relates or holds them as collateral for a margin loan, delivers the Option Price to the Company, and delivers the remaining proceeds to the Optionee (and in connection therewith, the Company may establish a cashless exercise program including a program where the commissions on the sale of Optioned Shares to which the exercise relates are paid by the Company), or (D) in any other form of legal consideration that may be acceptable to the Committee. In the case of any deferred payment arrangement, interest shall be payable at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. (d) Except as may be permitted by the Committee in any particular Option Agreement, an Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the person to whom the Option is granted only by such person. (e) The total number of Optioned Shares may, but need not, be allotted in periodic installments (which may, but need not, be equal). The Option Agreement may provide that from time to time during each of such installment periods, the Option may become exercisable ("vest") with respect to some or all of the shares allotted to that period, and may be exercised with respect to some or all of the shares allotted to such period and/or any prior period as to which the Option became vested but was not fully exercised. During the remainder of the term of the Option (if its term extends beyond the end of the installment periods), the Option may be exercised from time to time with respect to any Optioned Shares then remaining subject to the Option. The provisions of this subsection 6(e) are subject to any Option provisions in the Option Agreement governing the minimum number of shares as to which an Option may be exercised. (f) In the event an Optionee's Continuous Status as an Employee or Consultant terminates (other than upon Disability or death), the Optionee may exercise his or her Option, but only within such period of time as is determined by the Committee and specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). (g) In the event an Optionee's Continuous Status as an Employee or Consultant terminates as a result of Disability, the Optionee may exercise his or her Option, but only within such period of time as is determined by the Committee and specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). (h) In the event an Optionee's Continuous Status as an Employee or Consultant terminates as a result of death, the Option may be exercised, but only within such period of time as is determined by the Committee and specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement), by the Optionee's estate or by a person who acquired the right to exercise the Options by bequest or inheritance, but only to the extent the Optionee was entitled to exercise the Option at the time of death. (i) The Option Agreement may, but need not, include a provision whereby the Optionee may elect at any time while an Employee or Consultant to exercise the Option as to any part or all of the shares subject to the Option prior to the full vesting of the Option. Any unvested shares so purchased may be 5 6 subject to a repurchase right in favor of the Company or to any other restriction the Committee determines to be appropriate. 7. STOCK APPRECIATION RIGHTS ("SARs"). (a) A Stock Appreciation Right or SAR is a right to receive a payment, in cash, Class A Common Stock, Optioned Shares or a combination of the foregoing, equal to the excess of the Fair Market Value at time of exercise of a specified number of shares over the aggregate exercise price of the SARs being exercised. The aggregate exercise price of SARs shall not be less than fifty percent (50%) of the Fair Market Value of the specified number of shares subject to the SARs. Subject to the other applicable provisions of the Plan, the Committee shall have the authority to grant SARs to a Plan participant either separately or in tandem with other Stock Awards. The exercise of a tandem Stock Award shall result in an immediate cancellation of its corresponding SAR, and the exercise of a tandem SAR shall cause an immediate cancellation of its corresponding Stock Award. SARs shall be subject to such other terms and conditions as the Committee may specify. (b) Upon the exercise of an SAR, the participant shall be entitled to receive an amount equal to the difference between the Fair Market Value of a share of Class A Common Stock of the Company on the date of exercise and the exercise price of the SAR. The Committee shall decide whether such payment shall be in cash, Class A Common Stock, Optioned Shares or in a combination thereof. 8. PERFORMANCE GRANTS. (a) A Performance Grant is a grant, subject to the attainment of the Performance Criteria, of shares of stock or of the right to receive shares of stock (or their cash equivalent or a combination of both) in the future. Subject to the other applicable provisions of the Plan, Performance Grants may be awarded to Employees or Consultants at any time and from time to time as determined by the Committee. The Committee shall have complete discretion in determining the size and composition of Performance Grants so issued to a participant and the appropriate period over which performance is to be measured ("performance cycle"). (b) The value of each Performance Grant may be fixed or it may be permitted to fluctuate based on the Performance Criteria selected by the Committee. The Committee shall establish Performance Criteria that, depending on the extent to which they are met, will determine the ultimate value of the Performance Grant or the portion of such Performance Grant earned by participants, or both. The Committee shall establish performance goals and objectives for each performance cycle and shall identify one or more of the following business criteria or objectives that is to be monitored during the performance cycle in determining the Performance Grant: return on assets, operating ratios, cash flow, shareholder return, revenue growth, net income, earnings per share, debt reduction, return on investment, revenue and attainment of budgets. (c) The Committee shall determine the portion of each Performance Grant that is earned by a participant on the basis of the achievement of the Performance Criteria during the performance cycle in relation to the performance goals for such cycle. The earned portion of a Performance Grant may be paid out in restricted or non-restricted shares, cash or a combination of both as the Committee may determine. (d) A participant must be an Employee or Consultant of the Company at the end of the performance cycle in order to be entitled to payment of a Performance Grant issued in respect of such cycle; provided, however, that, except as otherwise determined by the Committee, if a participant ceases to be an Employee or Consultant of the Company upon the occurrence of his or her death, retirement, Disability or other reasons determined by the Committee prior to the end of the performance cycle, the 6 7 participant shall earn a proportionate portion of the Performance Grant based upon the elapsed portion of the performance cycle and the Company's performance over that portion of such cycle. 9. STOCK BONUSES AND RESTRICTED STOCK. The Committee may at any time and from time to time award a Stock Bonus, Restricted Stock or Restricted Stock Units to such participants and in such amounts as it determines. An award of Restricted Stock or Restricted Stock Units may specify, in the Stock Award Agreement, the applicable restrictions, if any, on the shares subject thereto, the duration of such restrictions, and the time or times at which the restrictions shall lapse with respect to all or part of the shares that are part of the award. Each Stock Bonus or Stock Award Agreement shall be in such form and shall contain such terms and conditions as the Committee shall deem appropriate. The terms and conditions of Stock Bonuses or grants of Restricted Stock or Restricted Stock Units may change from time to time, and the terms and conditions of separate agreements need not be identical, but each Stock Bonus or Stock Award Agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions as appropriate: (a) The Committee may determine that eligible participants in the Plan may be awarded Optioned Stock pursuant to a Stock Bonus in consideration for past services actually rendered to the Company or for its benefit. (b) Except as permitted by the Committee in any particular Stock Award Agreement, no rights under a Stock Bonus or Stock Award Agreement shall be transferable except by will or by the laws of descent and distribution so long as Optioned Shares awarded under such agreement remain subject to the terms of the agreement. (c) The purchase price of Optioned Shares acquired pursuant to a Stock Award Agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the discretion of the Committee, according to a deferred payment or other arrangement with the person to whom the stock is sold; or (iii) in any other form of legal consideration that may be acceptable to the Committee in its discretion. 10. CANCELLATION AND RE-GRANT OF OPTIONS. The Committee shall have the authority to effect, at any time and from time to time, with the consent of the affected holders of Options (i) the repricing of any outstanding Options under the Plan and/or (ii) the cancellation of any outstanding Options under the Plan and the grant in substitution therefor of new Options under the Plan covering the same or different numbers of shares of stock but having an exercise price per share of not less than fifty percent (50%) of the Fair Market Value (one hundred percent (100%) of the Fair Market Value in the case of an Incentive Stock Option or, in the case of a 10% stockholder (as described in subsection 5(c)), not less than one hundred ten percent (110%) of the Fair Market Value) per share of stock on the new grant date. 11. COVENANTS OF THE COMPANY. (a) During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of stock required to satisfy such Stock Awards. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of Stock Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act of 1933 (the "Securities Act") either the Plan, any Stock Awards or any stock 7 8 issued or issuable pursuant to any such Stock Awards. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of Stock Awards unless and until such authority is obtained. 12. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to Stock Awards shall constitute general funds of the Company. 13. MISCELLANEOUS. (a) The Committee shall have the power to accelerate the time at which a Stock Award may first be exercised, or the time during which a Stock Award or any part thereof will vest, notwithstanding the vesting conditions of the original grant. (b) Neither a Plan participant nor any person to whom a Stock Award may be transferred under the applicable restrictions of the Plan shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Stock Award unless and until such person has satisfied all requirements for exercise of the Option pursuant to its terms or the reservations, conditions and contingencies applicable to each other form of Stock Award shall have been satisfied. (c) Nothing in the Plan or any instrument executed or Stock Award granted pursuant hereto shall confer upon any Employee, Consultant, Optionee or other holder of Stock Awards any right to continue in the employ or service of the Company or any Affiliate or shall affect the right of the Company or any Affiliate to terminate the employment or relationship as a Consultant of any Employee, Consultant, Optionee or other holder of Stock Awards with or without cause. (d) To the extent that the aggregate Fair Market Value (determined at the time of grant) of stock with respect to which Incentive Stock Options granted after 1986 are exercisable for the first time by any Optionee during any calendar year under all plans of the Company and its Affiliates exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options. (e) The Company may require any recipient of a Stock Award, or any person to whom a Stock Award is transferred in accordance with the applicable terms of the Plan, as a condition of exercising any such Stock Award, (1) to give written assurances satisfactory to the Company as to such person's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award, and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the Stock Award for such person's own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise of or acquisition of stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act, or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under 8 9 the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock. (f) To the extent provided by the terms of a Stock Award Agreement, the person to whom a Stock Award is granted may satisfy any federal, state or local tax withholding obligation relating to the exercise of or acquisition of stock under a Stock Award by any of the following means or by a combination of such means: (1) withholding from compensation; (2) tendering a cash payment; (3) authorizing the Company to withhold shares from the shares of Class A Common Stock otherwise issuable to the participant as a result of the exercise of or acquisition of stock under the Stock Award; or (4) delivering to the Company owned and unencumbered shares of the Class A Common Stock of the Company owned by such person. 14. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan or subject to any Stock Award (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Plan and outstanding Stock Awards will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan and the class(es) and number of shares and price per share of stock subject to outstanding Stock Awards. (b) In the event of: (1) a dissolution or liquidation of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which the company is the surviving corporation but the shares of the Company's Class A Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) any other capital reorganization in which more than fifty percent (50%) of the shares of the Company entitled to vote are exchanged, then at the sole discretion of the Committee and to the extent permitted by applicable law: (i) any surviving corporation shall assume any Stock Awards outstanding under the Plan or shall substitute similar Stock Awards for those outstanding under the Plan, (ii) the time during which such Stock Award may be exercised shall be accelerated and the Stock Awards terminated if not exercised prior to such event, or (iii) such Stock Awards shall continue in full force and effect. 15. AMENDMENT OF THE PLAN. (a) The Board at any time, and from time to time, may amend the Plan in any manner. However, except as provided in Section 14 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the shareholders of the Company within twelve (12) months before or after the adoption of the amendment where the amendment will: (1) Increase the number of shares reserved for Stock Awards under the Plan; (2) Modify the requirements as to eligibility for participation in the Plan (to the extent such modification requires shareholder approval in order for the Plan to satisfy the requirements of Section 162(m) or Section 422 of the Code); or (3) Modify the Plan in any other way if such modification requires shareholder approval in order for the Plan to satisfy the requirements of Section 162(m) or Section 422 of the Code, of Rule 16b-3 under the Exchange Act, or of the Nasdaq National Market or any exchange on which the Company's shares may be listed. 9 10 (b) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees or Consultants with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith; provided, however, shares covered by any Stock Awards in excess of the maximum number of Optioned Shares provided for in Section 4(a) above shall be deemed awarded on the date of the Initial Stock Award if shareholders approve the increase pursuant to this Section 15. (c) Rights and obligations under any Stock Award granted before amendment of the Plan shall not be altered or impaired by any amendment of the Plan unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing. 16. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on February 25, 2003. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any Stock Award granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except with the consent of the person to whom the Stock Award was granted. 10 EX-11 3 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 THE ROBERT MONDAVI CORPORATION STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) COMPUTATION OF PRIMARY EARNINGS PER SHARE
YEAR ENDED JUNE 30, ----------------------------- 1997 1996 1995 ------- ------- ------- Weighted average number of common shares outstanding during the year 15,057 14,613 12,749 Common Stock equivalents considered to be outstanding for years presented: Options 613 590 38 Preferred shares -- -- -- ------- ------- ------- 15,670 15,203 12,787 ======= ======= ======= Net Income $28,225 $24,438 $17,820 ======= ======= ======= Primary earnings per share $ 1.80 $ 1.61 $ 1.39 ======= ======= =======
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
YEAR ENDED JUNE 30, ----------------------------- 1997 1996 1995 ------- ------- ------- Weighted average number of common shares outstanding during the year 15,057 14,613 12,749 Common Stock equivalents considered to be outstanding for years presented: Options 715 668 370 Preferred shares -- -- -- ------- ------- ------- 15,772 15,281 13,119 ======= ======= ======= Net Income $28,225 $24,438 $17,820 ======= ======= ======= Fully Dilutive earnings per share $ 1.79 $ 1.60 $ 1.36 ======= ======= =======
EX-13 4 PORTIONS OF ANNUAL REPORT FOR YEAR ENDED 6/30/97 1 EXHIBIT 13 SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
YEAR ENDED JUNE 30, ------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------------------------------------------------------------------- (In thousands, except per share data) INCOME STATEMENT DATA Gross revenues .............................. $315,998 $253,540 $210,361 $176,236 $177,748 Less excise taxes ........................... 15,224 12,710 10,892 9,209 9,608 ------------------------------------------------------------------------- Net revenues ................................ 300,774 240,830 199,469 167,027 168,140 Cost of goods sold .......................... 165,988 122,385 97,254 88,102 92,979 ------------------------------------------------------------------------- Gross profit ................................ 134,786 118,445 102,215 78,925 75,161 Operating expenses .......................... 79,831 70,707 64,160 56,198 52,191 ------------------------------------------------------------------------- Operating income ............................ 54,955 47,738 38,055 22,727 22,970 Other income (expense): Interest .................................. (10,562) (8,814) (8,675) (6,698) (7,486) Other ..................................... 1,880 1,543 215 (305) (1,020) ------------------------------------------------------------------------- Income before income taxes .................. 46,273 40,467 29,595 15,724 14,464 Provision for income taxes .................. 18,048 16,029 11,775 6,212 5,801 ------------------------------------------------------------------------- Net income .................................. $ 28,225 $ 24,438 $ 17,820 $ 9,512 $ 8,663 ========================================================================= Earnings per share .......................... $ 1.80 $ 1.61 $ 1.39 $ .75 $ .83 ========================================================================= Weighted average number of common shares and equivalents outstanding(1) ..... 15,670 15,203 12,787 12,731 10,385 ========================================================================= BALANCE SHEET DATA Working capital ............................. $185,910 $152,757 $116,899 $ 59,493 $ 90,075 Long-term debt, less current portion ........ 158,067 123,713 113,017 55,902 84,203 Total debt .................................. 173,607 127,828 119,088 107,409 95,237 Total liabilities ........................... 223,754 172,940 157,752 137,884 127,558 Shareholders' equity(2) ..................... 221,171 188,255 124,562 106,352 96,775 Total assets ................................ 444,925 361,195 282,314 244,236 224,333 OPERATING DATA (UNAUDITED) Cases sold(3) ............................... 6,450 5,437 4,550 3,873 3,991 Average net selling price(4) ................ $ 46.22 $ 43.86 $ 43.42 $ 42.70 $ 41.73
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation of the determination of shares used in computing earnings per share. (2) The Company has never paid or declared dividends on its common stock. (3) Case information based on industry standard 9-liter case. (4) Average net selling price is reported on a per-case basis and represents net revenues, excluding net revenues from bulk wine and grape sales, divided by the total number of cases sold during the period. ROBERT MONDAVI 18 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW INTRODUCTION The Company was founded in 1966 to make quality premium table wines that would compete with the finest wines of the world. The Company's strategy is to sell its wines across all principal price segments of the premium wine market. Fiscal 1997 was an outstanding year for Robert Mondavi. Despite an industry-wide shortage of premium wine grapes, the Company achieved record sales and earnings which reflect the quality and strength of its brands. The revenue growth in fiscal 1997 reflects strong consumer demand for the Company's brands which helped offset the cost impact of the California grape shortage. Although the Company expects the grape shortage to continue during fiscal 1998, the Company has already begun to see the results of steps it has taken to improve its global wine supply. During fiscal 1997, the Company introduced its first imported wines: Caliterra, produced by the Company's joint venture in Chile; and Vichon Mediterranean, wines sourced from the Languedoc-Roussillon region of France. Sales of these imported wines accounted for 27.4% of the sales volume growth for the fiscal year. In addition, the Company continued to increase its vineyard and land holdings, adding more than 1,000 acres during the fiscal year, and the Company continues to evaluate new opportunities to improve its long-term wine supply. FORWARD-LOOKING STATEMENTS This discussion, the President's letter printed above and other information provided from time to time by the Company contain historical information as well as forward-looking statements about the Company, the premium wine industry and general business and economic conditions. Such forward-looking statements include, for example, projections or predictions about the Company's future growth, consumer demand for its wines, including new brands and brand extensions, margin trends, the premium wine grape market and the Company's anticipated future investment in vineyards and other capital projects. Actual results may differ materially from the Company's present expectations. Among other things, reduced consumer spending or a change in consumer preferences could reduce demand for the Company's wines. Similarly, competition from numerous domestic and foreign vintners could affect the Company's ability to sustain volume and revenue growth. The price of grapes, the Company's single largest product cost, is beyond the Company's control and higher grape costs may put more pressure on the Company's gross profit margin than is currently forecast. Interest rates and other business and economic conditions could increase significantly the cost and risks of projected capital spending. For these and other reasons, no forward-looking statement by the Company can nor should be taken as a guarantee of what will happen in the future. KEY ACCOUNTING MATTERS The Company uses the last-in, first-out (LIFO) method of valuing its wine inventories. The LIFO method attempts to match the most current inventory cost with sales for the period. LIFO adjustments can increase or decrease the Company's cost of goods sold as determined under alternative valuation methods, and such variances can be significant and unpredictable since LIFO adjustments depend on many interrelated factors not all of which are within the Company's control. In the premium wine business, the difference between LIFO and FIFO (first-in, first-out) inventory costs can be significant due to the extended period of time that wines remain in inventory, typically from one to three years or longer depending on the style and variety of wine. The use of the LIFO method has led, and will continue to lead, to volatility in quarterly and annual financial results. For example, the Company's LIFO provision resulted in an increase in FIFO cost of goods sold of approximately $16.2 million in fiscal 1997 and reductions in FIFO cost of goods sold of approximately $545,000 and $9.2 million in fiscal 1996 and 1995, respectively. The Company's joint venture interests are accounted for as investments under the equity method. Accordingly, the Company's share of their results is reflected in "equity in net income of joint ventures" and "investments in joint ventures" on the Consolidated Statements of Income and Consolidated Balance Sheets, respectively. The Company also imports wines under importing and marketing agreements with certain of its joint ventures and their affiliates. Under the terms of these agreements the Company purchases wine for resale in the United States. Revenues and expenses related to importing and selling these wines are included in the appropriate sections of the Consolidated Statements of Income. ROBERT MONDAVI 19 3 SEASONALITY AND QUARTERLY RESULTS The Company has historically experienced and expects to continue experiencing seasonal and quarterly fluctuations in its net revenues, cost of goods sold, and net income. Sales volume tends to increase in advance of holiday periods, before price increases go into effect, and during promotional periods, which generally last for one month. Sales volume tends to decrease if distributors begin a quarter with larger than standard inventory levels. The timing of releases for certain wines, such as Cabernet Sauvignon Reserve futures, which may be shipped in either the third or fourth fiscal quarter, depending on the aging requirements of the vintage, also can have a significant impact on quarterly results. Additionally, the Company may schedule price increases on July 1, which, when combined with June promotions and intensive sales force efforts to meet fiscal year goals, can result in increased sales in the Company's fourth fiscal quarter and lower than average sales in the Company's first fiscal quarter. Significant fluctuations in quarterly financial results have also historically resulted and are expected to continue to result from adjustments that are required by the Company's LIFO method of valuing inventories. The following table sets forth certain information regarding the Company's net revenues and net income for each of the last eight fiscal quarters:
Fiscal 1997 Quarter Ended Fiscal 1996 Quarter Ended ------------------------- ------------------------- Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31 Mar. 31 Jun. 30 ------- ------- ------- ------- ------- ------- ------- ------- (Dollars in millions) Net revenues $59.0 $87.2 $70.9 $83.7 $45.5 $70.8 $58.4 $66.1 % of annual net revenues 19.6% 29.0% 23.6% 27.8% 18.9% 29.4% 24.3% 27.4% Net income $ 5.3 $ 9.2 $ 6.3 $ 7.4 $ 4.5 $ 8.1 $ 5.9 $ 5.9 % of annual net income 18.8% 32.6% 22.3% 26.3% 18.4% 33.2% 24.2% 24.2%
Seasonal cash requirements increase just after harvest in the fall as a result of contract grape payments and, to a lesser degree, due to the large seasonal work force employed in both the vineyards and wineries during harvest. Also, many grape contracts include a deferral of a portion of the payment obligations until April 1st of the following calendar year, resulting in significant cash payments on March 31 of each year. As a result of harvest costs and the timing of its contract grape payments, the Company's borrowings, net of cash, generally peak during December and March of each year. Cash requirements also fluctuate depending on the level and timing of capital spending and joint venture investments. The following table sets forth the Company's total borrowings, net of cash, at the end of each of its last eight fiscal quarters:
Fiscal 1997 Quarter Ended Fiscal 1996 Quarter Ended ------------------------- ------------------------- Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31 Mar. 31 Jun. 30 ------- ------- ------- ------- ------- ------- ------- ------- (Dollars in millions) Total borrowings, net of cash $134.1 $152.8 $174.6 $173.5 $ 81.4 $105.1 $134.1 $128.2
ROBERT MONDAVI 20 4 PERIOD TO PERIOD COMPARISON The following table sets forth, for the periods indicated, selected income statement data expressed as a percentage of net revenues:
As a Percentage of Net Revenues for the Year Ended June 30, ----------------------------- 1997 1996 1995 ----- ----- ----- Gross revenues 105.1% 105.3% 105.5% Less excise taxes 5.1 5.3 5.5 ----- ----- ----- Net revenues 100.0 100.0 100.0 Cost of goods sold 55.2 50.8 48.8 ----- ----- ----- Gross profit 44.8 49.2 51.2 Operating expenses 26.5 29.4 32.1 ----- ----- ----- Operating income 18.3 19.8 19.1 Other income (expense): Interest (3.5) (3.6) (4.3) Other 0.6 0.6 ----- ----- ----- Income before income taxes 15.4 16.8 14.8 Provision for income taxes 6.0 6.7 5.9 ----- ----- ----- Net income 9.4% 10.1% 8.9% ===== ===== =====
THREE YEARS ENDED JUNE 30, 1997 GROSS REVENUES Gross revenues increased by 24.6% to $316.0 million in fiscal 1997 from fiscal 1996, and by 20.5% to $253.5 million in fiscal 1996 from $210.4 million in fiscal 1995. In fiscal 1997, sales volume increased by 18.6% to 6,450,000 cases from fiscal 1996, and by 19.5% to 5,437,000 cases in fiscal 1996 from 4,550,000 cases in fiscal 1995. The increase in gross revenues in fiscal 1997 and 1996 was primarily attributable to the increase in sales volume, particularly in the Woodbridge and Robert Mondavi Coastal wines. In addition, the introduction of Caliterra and Vichon Mediterranean wines during fiscal 1997 accounted for 27.4% of the total sales volume growth. During the past three fiscal years, many of the Company's wines were in limited supply, resulting in wines being allocated to customers. The Company expects many of its wines will remain on allocation during fiscal 1998. EXCISE TAXES The Company's federal and state excise taxes increased by 19.8% to $15.2 million in fiscal 1997 from fiscal 1996, and by 16.5% to $12.7 million in fiscal 1996 from $10.9 million in fiscal 1995. The dollar increase in excise taxes in fiscal 1997 and 1996 generally correlates to an increase in domestic sales volume, since the excise tax is assessed on a per gallon basis and the excise tax rate remained unchanged during these periods. Excise taxes as a percentage of net revenues decreased in the 1997 and 1996 periods as a result of higher net average selling prices per case during these periods. NET REVENUES As a result of the above factors, net revenues increased by 24.9% to $300.8 million in fiscal 1997 from fiscal 1996, and by 20.7% to $240.8 million in fiscal 1996 from $199.5 million in fiscal 1995. Net revenues per case increased by 5.4% to $46.22 per case in fiscal 1997 from fiscal 1996, and by 1.0% to $43.86 per case in fiscal 1996 from $43.42 per case in fiscal 1995. COST OF GOODS SOLD Cost of goods sold increased by 35.6% to $166.0 million in fiscal 1997 from fiscal 1996, and by 25.8% to $122.4 million in fiscal 1996 from $97.3 million in fiscal 1995. The increase in fiscal 1997 reflects increased sales volume and increased grape and bulk wine prices. The increase in fiscal 1996 reflects increased sales volume, increasing grape and bulk wine prices and lower grape yields on the Company's vineyards. If inventories valued at LIFO cost had been valued at FIFO cost, then cost of goods sold would have been $16.2 million lower in fiscal 1997 and $545,000 and $9.2 million higher in fiscal 1996 and 1995, respectively. The Company expects the trend of increasing grape and bulk wine costs to continue in fiscal 1998. ROBERT MONDAVI 21 5 GROSS PROFIT As a result of the factors discussed above, gross profit increased by 13.8% to $134.8 million in fiscal 1997 from fiscal 1996, and by 15.9% to $118.4 million in fiscal 1996 from $102.2 million in fiscal 1995. The Company's gross profit margins were 44.8%, 49.2% and 51.2% of net revenues for fiscal 1997, 1996 and 1995, respectively. OPERATING EXPENSES Operating expenses increased by 12.9% to $79.8 million in fiscal 1997 from fiscal 1996, and by 10.1% to $70.7 million in fiscal 1996 from $64.2 million in fiscal 1995. The ratio of operating expenses to net revenues was 26.5% in fiscal 1997, 29.4% in fiscal 1996 and 32.1% in fiscal 1995. The dollar increase in operating expenses in fiscal 1997 and 1996 was primarily attributable to an increase in sales and marketing expenses and employee compensation associated with increased sales volume and improved profitability. The decrease in operating expense ratio in fiscal 1997 was due to economies of scale in personnel and overhead costs achieved as a result of increased net revenues. The decrease in operating expense ratio in fiscal 1996 was due to an 8.0% decrease in the average promotional dollars spent per case combined with economies of scale in personnel and overhead costs achieved as a result of increased net revenues. OPERATING INCOME As a result of the factors discussed above, operating income increased by 15.1% to $55.0 million in fiscal 1997 from fiscal 1996, and by 25.2% to $47.7 million in fiscal 1996 from $38.1 million in fiscal 1995. Operating income constituted 18.3% of net revenues in fiscal 1997, 19.8% in fiscal 1996, and 19.1% in fiscal 1995. INTEREST Interest expense increased by 19.8% to $10.6 million in fiscal 1997 from fiscal 1996, and by 1.1% to $8.8 million in fiscal 1996 from $8.7 million in fiscal 1995. The Company's average interest rates were 7.83%, 8.61% and 8.60% in fiscal 1997, 1996 and 1995, respectively. The increase in interest expense in fiscal 1997 was primarily attributable to increases in the Company's average borrowing levels that were partially offset by an increase in capitalized interest and a decrease in the Company's average interest rate. OTHER "Other" primarily consists of the Company's equity income in its joint ventures and miscellaneous non-operating income and expense items. In fiscal 1997, "Other" was $1.9 million compared to $1.5 million in fiscal 1996 and $215,000 in fiscal 1995. The improvement in "Other" in fiscal 1997 compared to fiscal 1996 was mainly due to increased income from the Caliterra and Opus One joint ventures. The improvement in "Other" in fiscal 1996 compared to fiscal 1995 was mainly due to tax refunds. INCOME BEFORE INCOME TAXES As a result of the factors discussed above, income before income taxes increased by 14.3% to $46.3 million in fiscal 1997 from fiscal 1996, and by 36.8% to $40.5 million in fiscal 1996 from $29.6 million in fiscal 1995. PROVISION FOR INCOME TAXES The provision for income taxes and the Company's effective tax rates were $18.0 million and 39.0%, $16.0 million and 39.6%, and $11.8 million and 39.8% in fiscal 1997, 1996 and 1995, respectively. NET INCOME AND EARNINGS PER SHARE As a result of the above factors, net income increased by 15.5% to $28.2 million in fiscal 1997 from fiscal 1996, and by 37.1% to $24.4 million in fiscal 1996 from $17.8 million in fiscal 1995. Earnings per share were $1.80, $1.61 and $1.39 in fiscal 1997, 1996 and 1995, respectively. Fiscal 1997 and 1996 earnings per share reflect the dilutive impact of the increase in the weighted average shares outstanding resulting from the Company's second public offering of stock in August 1995. During February 1997, Statement of Accounting Standards No. 128 (SFAS 128), Earnings Per Share, was issued. For a further discussion of the impact of SFAS 128 upon the Company's results of operations, see Note 1 of Notes to Consolidated Financial Statements. ROBERT MONDAVI 22 6 LIQUIDITY AND CAPITAL RESOURCES Working capital as of June 30, 1997, was $185.9 million compared to $152.8 million at June 30, 1996. The $33.1 million increase in working capital was primarily attributable to a $26.0 million increase in inventories. Borrowings under the Company's credit lines totaled $58.8 million at June 30, 1997, compared to $40.0 million at June 30, 1996. The Company had a cash balance of $150,000 at June 30, 1997, compared to a book overdraft of $403,000 at June 30, 1996. The Company has historically financed its growth through increases in borrowings and cash flow from operations. In addition, the Company received $32.3 million in net proceeds from its initial public offering of stock in June 1993 and an additional $35.3 million in net proceeds from its second public offering of stock in August 1995. During fiscal 1997, the Company's primary uses of capital have been to finance the following: a $42.6 million increase in property, plant and equipment (including vineyard development and land acquisitions, expansion of the Woodbridge facility and purchases of new oak barrels), a $26.0 million increase in inventories, $23.0 million in repayments of term debt and a $19.7 million increase in accounts receivable. The primary sources of funds during fiscal 1997 were from the following: $50.0 million in new term debt, $28.2 million in net income, as well as the non-cash impact on pre-tax income of $12.5 million in depreciation and amortization and $18.8 million in net additions under the Company's credit lines. Management expects that the Company's working capital needs will grow significantly to support expected future growth in sales volumes. Due to the lengthy aging and processing cycles involved in premium wine production, expenditures for inventory and fixed assets need to be made one to three years or more in advance of anticipated sales. The Company currently expects its fiscal 1998 capital spending requirements will be at least equal to the fiscal 1997 level. The Company currently has credit lines that provide both short-term and long-term borrowings. The short-term credit lines expire on December 26, 1997, and have maximum credit available of $41.2 million. The long-term credit lines expire on December 31, 1999, and have maximum credit available of $50.0 million. The annual interest rates on these lines are based on various bank programs and ranged from 5.69% to 8.50% during fiscal 1997. The Company anticipates that current capital combined with cash from operating activities and the availability of cash from additional borrowings will be sufficient to meet its liquidity and capital expenditure requirements at least through the end of fiscal 1998. ROBERT MONDAVI 23 7 CONSOLIDATED BALANCE SHEETS (In thousands, except share data) ASSETS
June 30, -------------------- 1997 1996 -------- -------- Current assets: Cash $ 150 $ -- Accounts receivable -- trade, net 59,222 39,495 Inventories 167,695 142,565 Prepaid income taxes -- 2,370 Deferred income taxes 1,677 570 Prepaid expenses and other current assets 5,593 840 -------- -------- Total current assets 234,337 185,840 Property, plant and equipment, net 186,990 156,754 Investments in joint ventures 19,212 17,100 Other assets 4,386 1,501 -------- -------- Total assets $444,925 $361,195 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Book overdraft $ -- $ 403 Notes payable to banks 8,750 -- Accounts payable -- trade 14,769 13,733 Employee compensation and related costs 10,608 10,322 Other accrued expenses 5,446 2,828 Current portion of long-term debt 6,790 4,115 Deferred revenue 2,064 1,682 -------- -------- Total current liabilities 48,427 33,083 Long-term debt, less current portion 158,067 123,713 Deferred income taxes 10,848 8,944 Deferred executive compensation 5,395 6,098 Other liabilities 1,017 1,102 -------- -------- Total liabilities 223,754 172,940 ======== ======== Commitments and contingencies (Note 10) Shareholders' equity: Preferred Stock: Authorized -- 5,000,000 shares Issued and outstanding -- no shares -- -- Class A Common Stock, without par value: Authorized -- 25,000,000 shares Issued and outstanding -- 7,499,024 and 7,281,529 shares 76,138 73,402 Class B Common Stock, without par value: Authorized -- 12,000,000 shares Issued and outstanding -- 7,676,012 shares 12,324 12,324 Paid-in capital 3,289 1,334 Retained earnings 129,420 101,195 -------- -------- 221,171 188,255 -------- -------- Total liabilities and shareholders' equity $444,925 $361,195 ======== ========
See Notes to Consolidated Financial Statements. ROBERT MONDAVI 24 8 CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data)
Year Ended June 30, ------------------------------------- 1997 1996 1995 --------- --------- --------- Gross revenues $ 315,998 $ 253,540 $ 210,361 Less excise taxes 15,224 12,710 10,892 --------- --------- --------- Net revenues 300,774 240,830 199,469 Cost of goods sold 165,988 122,385 97,254 --------- --------- --------- Gross profit 134,786 118,445 102,215 Selling, general and administrative expenses 79,831 70,707 64,160 --------- --------- --------- Operating income 54,955 47,738 38,055 Other income (expense): Interest (10,562) (8,814) (8,675) Equity in net income of joint ventures 2,510 1,751 1,547 Other (630) (208) (1,332) --------- --------- --------- Income before income taxes 46,273 40,467 29,595 Provision for income taxes 18,048 16,029 11,775 --------- --------- --------- Net income $ 28,225 $ 24,438 $ 17,820 ========= ========= ========= Earnings per share: $ 1.80 $ 1.61 $ 1.39 ========= ========= ========= Weighted average number of common shares and equivalents outstanding 15,670 15,203 12,787 ========= ========= =========
See Notes to Consolidated Financial Statements. ROBERT MONDAVI 25 9 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (In thousands)
Class A Class B Total Common Common Paid-in Retained Shareholders' Stock Stock Capital Earnings Equity ---------------------------------------------------------------------------------- Shares Amount Shares Amount --------------------------------------------- -------------------------------- Balance at June 30, 1994 4,408 $ 34,050 8,327 $ 13,365 $ -- $ 58,937 $106,352 Net income 17,820 17,820 Conversion of Class B Common Stock to Class A Common Stock 1 1 (1) (1) Exercise of Class A Common Stock Options 18 208 208 Issuance of Class A Common Stock through Employee Stock Purchase Plan 22 182 182 -------- -------- -------- -------- -------- -------- -------- Balance at June 30, 1995 4,449 34,441 8,326 13,364 -- 76,757 124,562 Net income 24,438 24,438 Conversion of Class B Common Stock to Class A Common Stock 650 1,040 (650) (1,040) Exercise of Class A Common Stock Options including related tax benefits 215 2,401 1,334 3,735 Issuance of Class A Common Stock through public offering 1,955 35,323 35,323 Issuance of Class A Common Stock through Employee Stock Purchase Plan 13 197 197 -------- -------- -------- -------- -------- -------- -------- Balance at June 30, 1996 7,282 73,402 7,676 12,324 1,334 101,195 188,255 Net income 28,225 28,225 Exercise of Class A Common Stock Options including related tax benefits 207 2,447 1,955 4,402 Issuance of Class A Common Stock through Employee Stock Purchase Plan 10 289 289 -------- -------- -------- -------- -------- -------- -------- Balance at June 30, 1997 7,499 $ 76,138 7,676 $ 12,324 $ 3,289 $129,420 $221,171 ======== ======== ======== ======== ======== ======== ========
See Notes to Consolidated Financial Statements. ROBERT MONDAVI 26 10 CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year Ended June 30, ---------------------------------- 1997 1996 1995 -------- -------- -------- Cash flows from operating activities: Net income $ 28,225 $ 24,438 $ 17,820 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Deferred income taxes 797 (489) 710 Depreciation and amortization 12,534 10,263 8,854 Equity in net income of joint ventures (2,510) (1,751) (1,547) Other 213 178 687 Changes in assets and liabilities: Accounts receivable -- trade (19,727) (6,894) (501) Inventories (26,030) (29,319) (17,230) Prepaid income taxes 1,036 (1,036) -- Other assets (4,753) 148 (353) Accounts payable -- trade and accrued expenses 3,830 6,239 6,625 Income taxes payable 3,399 (1,160) 733 Deferred revenue 382 189 (366) Deferred executive compensation (703) 259 516 Other liabilities (85) 437 (29) -------- -------- -------- Net cash provided by (used in) operating activities (3,392) 1,502 15,919 -------- -------- -------- Cash flows from investing activities: Acquisitions of property, plant and equipment (42,552) (40,084) (27,823) Distributions from joint ventures 1,657 4,102 482 Contributions to joint ventures (359) (7,530) (458) -------- -------- -------- Net cash used in investing activities (41,254) (43,512) (27,799) -------- -------- -------- Cash flows from financing activities: Book overdraft (403) 403 -- Net additions (repayments) under notes payable to banks 8,750 -- (18,050) Proceeds from issuance of long-term debt 60,000 40,368 43,547 Principal repayments of long-term debt (22,971) (37,572) (13,818) Proceeds from issuance of Class A Common Stock 289 35,520 182 Exercise of Class A Common Stock options 2,447 2,401 208 Other (3,316) (10) 318 -------- -------- -------- Net cash provided by financing activities 44,796 41,110 12,387 -------- -------- -------- Net increase (decrease) in cash 150 (900) 507 Cash at the beginning of the year -- 900 393 -------- -------- -------- Cash at the end of the year $ 150 $ -- $ 900 ======== ======== ========
See Notes to Consolidated Financial Statements. ROBERT MONDAVI 27 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Robert Mondavi Corporation (RMC) and its consolidated subsidiaries (the Company) are primarily engaged in the production and sale of premium table wine. The Company also sells wine under importing and marketing agreements. The Company sells its products principally to distributors for resale to restaurants and retail outlets in the United States. A substantial part of the Company's wine sales is concentrated in California and, to a lesser extent, the states of New York, New Jersey, Texas, Pennsylvania, Florida and Massachusetts. Export sales account for approximately 8% of net revenues, with major markets in Canada, Europe and Asia. A summary of significant accounting policies follows: BASIS OF PRESENTATION The consolidated financial statements include the accounts of RMC and all its subsidiaries. All significant intercompany transactions and balances have been eliminated. Investments in joint ventures are accounted for using the equity method. Certain fiscal 1996 and 1995 balances have been reclassified to conform with current year presentation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. INVENTORIES Inventories are valued at the lower of cost or market. Wine inventory costs are determined using the dollar value last-in, first-out (LIFO) method, applying the double extension pricing method to natural business units. Inventory costs for bottling and other supplies are determined using the first-in, first-out (FIFO) method. Costs associated with growing crops are recorded as inventory and are recognized as wine inventory costs in the year in which the related crop is harvested. In accordance with the general practice in the wine industry, wine inventories are included in current assets, although a portion of such inventories may be aged for periods longer than one year. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost. Maintenance and repairs are expensed as incurred. Costs incurred in developing vineyards, including related interest costs, are capitalized until the vineyards become commercially productive. Depreciation and amortization is computed using the straight-line method, with the exception of barrels which are depreciated using an accelerated method, over the estimated useful lives of the assets amounting to 20 years for vineyards, 45 years for buildings and 3 to 12 years for machinery and equipment. Leasehold improvements are amortized over the estimated useful lives of the improvements or the terms of the related lease, whichever is shorter. OTHER ASSETS Other assets include goodwill, loan fees and label design costs. Goodwill, loan fees and label design costs are amortized on a straight-line basis over 40 years, the terms of the related loans, and 5 years, respectively. ADVERTISING COSTS Advertising costs are expensed as incurred. Advertising expense totaled $2,180,000, $3,073,000 and $451,000, respectively, for the year ended June 30, 1997, 1996 and 1995. INCOME TAXES Deferred income taxes are computed using the liability method. Under the liability method, taxes are recorded based on the future tax effects of the difference between the tax and financial reporting bases of the Company's assets and liabilities. In estimating future tax consequences, all expected future events are considered, except for potential income tax law or rate changes. MAJOR CUSTOMERS The Company sells the majority of its wines through distributors in the United States and through brokers and agents in export markets. There is a common ownership in several distributorships in different states that, when considered to be one entity, represented 29%, 28% and 29%, respectively, of gross revenues for the year ended June 30, 1997, 1996 and 1995. Trade accounts receivable from these distributors at June 30, 1997 and 1996 totaled $12,549,000 and $11,498,000, respectively. ROBERT MONDAVI 28 12 WINE FUTURES PROGRAM The Company has a wine futures program whereby contracts to buy cased wine are sold to distributors prior to the time the wine is available for shipment. The agreement to deliver the wine in the future is recorded when the Company receives the distributor's deposit representing the total purchase price. Revenue relating to this program is deferred and recognized when the wine is shipped. STOCK-BASED COMPENSATION During July 1996, the Company adopted Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation, which allows companies either to measure compensation cost in connection with their employee stock compensation (options) plans using a fair value based method or to continue to use an intrinsic value based method. The Company will continue to use the intrinsic value based method in accordance with Accounting Principles Board Opinion No. 25 (APB25) and its related Interpretations, which generally does not result in compensation cost. The Company's stock option plans are discussed in Note 9. EARNINGS PER SHARE Earnings per share have been computed by dividing net income by the sum of the weighted average number of Class A and Class B common shares outstanding plus the dilutive effect, if any, of common share equivalents for stock option awards. During February 1997, Statement of Financial Accounting Standards No. 128 (SFAS 128), Earnings per Share was issued. This statement supersedes Accounting Principles Board Opinion No. 15, Earnings per Share, and its related Interpretations and establishes new accounting standards for the computation and manner of presentation of the Company's earnings per share. The Company is required to adopt SFAS 128 for the quarter ending December 31, 1997. Early adoption is not permitted. When adopted, the Company will be required to restate previously reported earnings per share for all periods presented. The table below reflects the proforma impact to earnings per share to conform with SFAS 128 for the following periods:
Year Ended June 30, ------------------- 1997 1996 1995 ---- ---- ---- Earnings per share as previously reported $1.80 $1.61 $1.39 Proforma earnings per share Basic 1.87 1.67 1.40 Diluted 1.80 1.61 1.39
FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the Company's notes payable to banks and long-term debt is estimated based on the current market rates available to the Company for debt of the same remaining maturities. At June 30, 1997, the carrying amount and estimated fair value of notes payable to banks and long-term debt are $173,607,000 and $176,856,000, respectively. At June 30, 1996, the carrying amount and estimated fair value of notes payable to banks and long-term debt are $127,828,000 and $132,141,000, respectively. DERIVATIVE FINANCIAL INSTRUMENTS The Company has only a limited involvement with derivative financial instruments and does not use them for trading purposes. Forward exchange contracts are used to manage exchange rate risks on certain purchase commitments denominated in foreign currencies. Gains and losses relating to firm purchase commitments are deferred and are recognized as adjustments of carrying amounts or in income when the hedged transaction occurs. At June 30, 1997, the Company has outstanding forward exchange contracts to purchase 25,213,000 French Francs through September 1997 for the U.S. dollar equivalent of $4,635,000. Using exchange rates outstanding as of June 30, 1997, the U.S. dollar equivalent of the contracts is $4,287,000. ROBERT MONDAVI 29 13 NOTE 2 -- INVENTORIES Inventories consist of the following (in thousands):
June 30, --------------------------- 1997 1996 --------- --------- Wine in production $ 127,922 $ 95,747 Bottled wine 53,734 46,247 Crop costs and supplies 14,793 13,097 Inventories stated at FIFO cost 196,449 155,091 Reserve for LIFO valuation method (28,754) (12,526) --------- --------- $ 167,695 $ 142,565 ========= =========
Wine inventory costs are determined using the LIFO method, which attempts to match the most current inventory cost with sales for the period. Information related to the FIFO method may be useful in comparing operating results to those of companies not on LIFO. If inventories valued at LIFO cost had been valued at FIFO cost, net income would have increased by approximately $9,899,000 and decreased by approximately $329,000 and $5,537,000, respectively, for the year ended June 30, 1997, 1996 and 1995. NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT The cost and accumulated depreciation of property, plant and equipment consist of the following (in thousands):
June 30, --------------------------- 1997 1996 --------- --------- Land $ 42,405 $ 38,235 Vineyards 31,413 29,716 Machinery and equipment 112,884 99,211 Buildings 38,105 31,739 Vineyards under development 19,738 7,461 Construction in progress 22,447 21,429 --------- --------- 266,992 227,791 Less -- accumulated depreciation (80,002) (71,037) --------- --------- $ 186,990 $ 156,754 ========= =========
Included in property, plant and equipment are assets leased under capital leases with cost and accumulated depreciation totaling $6,514,000 and $1,590,000, respectively, at June 30, 1997 and $6,514,000 and $673,000, respectively, at June 30, 1996. Depreciation expense for machinery and equipment under capital leases was $917,000, $793,000 and $366,000 for the year ended June 30, 1997, 1996 and 1995, respectively. Included in property, plant and equipment is $1,343,000, $532,000 and $687,000 of interest capitalized for the year ended June 30, 1997, 1996 and 1995, respectively. ROBERT MONDAVI 30 14 NOTE 4 -- INVESTMENTS IN JOINT VENTURES During March 1996, the Company and Vina Errazuriz S.A. (Errazuriz), Santiago, Chile, completed the formation of Vina Caliterra S.A. (Caliterra), a 50/50 joint venture created to produce and market wines from Chile. During April 1996, the Company and Marchesi de' Frescobaldi S.P.A., Florence, Italy, completed the formation of Solaria S.R.L., a 50/50 joint venture created to produce and market wines from Italy. The joint venture changed its name to Luce during fiscal 1997. Investments in joint ventures are summarized below (in thousands). The Company's interest in income and losses for each joint venture is stated within parentheses.
JUNE 30, --------------------------- 1997 1996 ------- ------- Opus One (50%) $ 9,749 $ 9,238 Caliterra (50%) 7,582 6,010 Luce (50%) 1,339 1,365 Other 542 487 ------- ------- $19,212 $17,100 ======= =======
The condensed combined balance sheets and statements of operations of the joint ventures, along with the Company's proportionate share, are summarized as follows (in thousands): BALANCE SHEETS
COMBINED PROPORTIONATE SHARE ------------------ ------------------ JUNE 30, JUNE 30, ------------------ ------------------ 1997 1996 1997 1996 ------------------ ------------------ Current assets $27,072 $22,136 $13,530 $11,038 Other assets 35,628 33,440 17,713 16,623 ------- ------- ------- ------- Total assets $62,700 $55,576 $31,243 $27,661 ======= ======= ======= ======= Current liabilities $ 8,147 $ 6,084 $ 4,074 $ 3,042 Other liabilities 16,612 16,057 8,306 8,029 Venturers' equity 37,941 33,435 18,863 16,590 ------- ------- ------- ------- Total liabilities and venturers' equity $62,700 $55,576 $31,243 $27,661 ======= ======= ======= =======
The Company's investments in joint ventures differ from the amount that would be obtained by applying the Company's ownership interest to the venturers' equity of these entities due to preferred capital accounts and capital account differences specified in the joint venture agreements. ROBERT MONDAVI 31 15 STATEMENTS OF OPERATIONS
COMBINED PROPORTIONATE SHARE ----------------------------- ----------------------------- YEAR ENDED JUNE 30, YEAR ENDED JUNE 30, ----------------------------- ----------------------------- 1997 1996 1995 1997 1996 1995 ----------------------------- ----------------------------- Net revenues $28,271 $17,171 $11,773 $14,089 $ 8,511 $ 5,887 Cost of goods sold 11,479 7,179 4,017 5,740 3,590 2,009 ----------------------------- ----------------------------- Gross profit 16,792 9,992 7,756 8,349 4,921 3,878 Other expenses 9,753 6,588 5,101 4,784 3,184 2,550 ----------------------------- ----------------------------- Net income $ 7,039 $ 3,404 $ 2,655 $ 3,565 $ 1,737 $ 1,328 ============================= =============================
NOTE 5 -- EMPLOYEE COMPENSATION AND RELATED COSTS The Company has a tax-qualified defined contribution retirement plan (the Plan) which covers substantially all of its employees. Company contributions to the Plan are 7% of eligible compensation paid to participating employees. Company contributions to the Plan were $2,108,000, $1,925,000 and $1,797,000 for the year ended June 30, 1997, 1996 and 1995, respectively. Contributions to the Plan are limited by the Internal Revenue Code. The Company has a non-qualified supplemental executive retirement plan to restore contributions limited by the Plan. This plan is administered on an unfunded basis. The unfunded liability relating to this plan totaled $839,000 and $623,000 at June 30, 1997 and 1996, respectively. The Company has a deferred executive incentive compensation plan with certain present and past key officers. Under the provisions of this plan, units are awarded to participants at the discretion of the Board of Directors. The units each earn a percentage of Company profits as defined by the plan over a five year vesting period. In February 1993, the Board of Directors determined that no future units will be awarded under the plan; however, the plan remains in place with respect to existing units. Subject to participant election for deferral of payments and payment terms for participants no longer in the plan, the accrued amounts are distributable in cash when fully vested. The compensation earned on the units and accumulated interest on fully vested amounts not distributed, are accrued but unfunded. The current portion of this liability is $1,950,000 and $1,400,000 at June 30, 1997 and 1996, respectively. NOTE 6 -- LONG-TERM DEBT AND NOTES PAYABLE TO BANKS Long-term debt consists of the following (in thousands):
JUNE 30, 1997 1996 --------- --------- Long-term unsecured credit lines $ 50,000 $ 40,000 Fixed rate secured term loans; interest rates 6.33% to 10.00% at June 30, 1997; principal and interest payable monthly; due 1997 -- 2005 19,917 41,380 Fixed rate unsecured term loans; interest rate 8.92% at June 30, 1997; principal and interest payable quarterly; due 2004 39,033 40,000 Fixed rate unsecured term loans; interest rate 7.39% at June 30, 1997; interest payable semiannually through January 8, 1998; principal and interest payable semiannually from July 8, 1998; due 2006 50,000 -- Capitalized lease obligations; interest rates 6.96% to 8.00% at June 30, 1997; principal and interest payable monthly; due 2002 -- 2010 5,907 6,448 --------- --------- 164,857 127,828 Less -- current portion (6,790) (4,115) --------- --------- $ 158,067 $ 123,713 ========= =========
ROBERT MONDAVI 32 16 Aggregate annual maturities of long-term debt at June 30, 1997 are as follows (in thousands):
YEAR ENDING JUNE 30, -------- 1998 $ 6,790 1999 60,166 2000 9,458 2001 9,309 2002 14,967 Thereafter 64,167 -------- $164,857 ========
The Company has unsecured credit lines with two banks that provide for both short-term and long-term borrowings. The short-term credit lines expire on December 26, 1997, and have maximum credit available of $41,150,000. The long-term credit lines expire on December 31, 1999, and have maximum credit available of $50,000,000. The credit lines bear interest, which is payable monthly, at rates determined under various bank interest programs, ranging from 6.18% to 8.50% at June 30, 1997. At June 30, 1997, there was $8,750,000 outstanding under the Company's short-term credit lines. There were no borrowings outstanding under the Company's short-term credit lines as of June 30, 1996. On July 8, 1996, the Company entered into unsecured term loans totaling $50,000,000 that bear interest, payable semiannually, at a fixed rate of 7.39%. Semiannual principal payments commence on July 8, 1998. The proceeds from these loans were used to refinance secured term loans that matured in July 1996 and to pay down long-term credit line borrowings. The fixed rate secured term loans totaling $18,856,000 that were refinanced during July 1996 are classified as long-term at June 30, 1996. Property, plant and equipment with a net book value of approximately $35,000,000 at June 30, 1997 is pledged as collateral for long-term debt. The terms of the unsecured credit lines and certain long-term debt agreements include covenants that require the maintenance of various minimum financial ratios and other covenants. The most restrictive of these covenants requires the ratio of net tangible assets to debt maturing in excess of one year to be 1.75 to 1 or greater. The Company was in compliance with all such covenants during the year ended June 30, 1997. NOTE 7 -- INCOME TAXES The provision for income taxes consists of the following (in thousands):
YEAR ENDED JUNE 30, ---------------------------------------------- 1997 1996 1995 -------- -------- -------- Current: Federal $ 14,763 $ 14,760 $ 9,182 State 2,488 1,758 1,883 -------- -------- -------- 17,251 16,518 11,065 -------- -------- -------- Deferred: Federal 768 (824) 874 State 29 335 (164) -------- -------- -------- 797 (489) 710 -------- -------- -------- $ 18,048 $ 16,029 $ 11,775 ======== ======== ========
ROBERT MONDAVI 33 17 Income tax expense differs from the amount computed by multiplying the statutory federal income tax rate times income before taxes, due to the following:
YEAR ENDED JUNE 30, 1997 1996 1995 ---- ---- ---- Federal statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal benefit 3.8 3.4 4.6 Permanent differences 0.4 0.5 0.7 Other (0.2) 0.7 (0.5) ---- ---- ---- 39.0% 39.6% 39.8% ==== ==== ====
The approximate effect of temporary differences and carryforwards that give rise to deferred tax balances at June 30, 1997 and 1996 are as follows (in thousands):
JUNE 30, 1997 1996 -------- -------- GROSS DEFERRED TAX ASSETS Liabilities and accruals $ (1,735) $ (1,388) Deferred compensation (3,679) (3,797) Inventories (1,228) -- Tax credits (692) (45) -------- -------- Gross deferred tax assets (7,334) (5,230) -------- -------- GROSS DEFERRED TAX LIABILITIES Property, plant and equipment 13,602 11,431 Retirement plans 625 583 Receivables 350 -- Inventories -- 340 Investments in joint ventures 1,620 1,144 State taxes 308 106 -------- -------- Gross deferred tax liabilities 16,505 13,604 -------- -------- Net deferred tax liability $ 9,171 $ 8,374 ======== ========
The Company has foreign tax credits at June 30, 1997, that can be carried forward five years. During the year ended June 30, 1997, the Company recognized certain tax benefits related to stock option plans in the amount of $1,955,000. These benefits were recorded as a decrease in income taxes payable and an increase in paid-in capital. NOTE 8 -- SHAREHOLDERS' EQUITY The authorized capital stock of the Company consists of Preferred Stock, Class A Common Stock and Class B Common Stock. On July 17, 1995, 649,769 shares of Class B Common Stock, owned by a major shareholder, were converted into 649,769 shares of Class A Common Stock. The conversion of the shares represents a non-cash financing activity for purposes of the consolidated statement of cash flows. On August 3, 1995, the Company completed a public offering of 1,955,000 shares of Class A Common Stock, resulting in net proceeds to the Company of $35,323,000. ROBERT MONDAVI 34 18 Each share of Class A Common Stock is entitled to one vote and each share of Class B Common Stock is entitled to ten votes on all matters submitted to a vote of the shareholders. The holders of the Class A Common Stock, voting as a separate class, elect 25% of the total Board of Directors of the Company and the holders of the Class B Common Stock, voting as a separate class, elect the remaining directors. All shares of common stock share equally in dividends, except that any stock dividends are payable only to holders of the respective class. If dividends or distributions payable in shares of stock are made to either class of common stock, a pro rata and simultaneous dividend or distribution payable in shares of stock must be made to the other class of common stock. Upon liquidation, dissolution or winding up of the Company, after distributions as required to the holders of outstanding Preferred Stock, if any, all shares of Class A and Class B Common Stock share equally in the remaining assets of the Company available for distribution. The holders of the outstanding shares of Class B Common Stock and the Company are parties to a Stock Buy-Sell Agreement. Subject to the provisions of the Buy-Sell Agreement, each share of Class B Common Stock is convertible at the option of the holder into Class A Common Stock on a share-for-share basis. The Class A Common Stock is not convertible. Included in retained earnings at June 30, 1997, is $3,500,000 of undistributed income from joint ventures that has been accounted for using the equity method. NOTE 9 -- STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS The Company has stock option plans and an employee stock purchase plan that are described below. The Company applies APB 25 and related Interpretations in accounting for its plans and no compensation cost has been recognized for its stock option plans or its employee stock purchase plan. Had compensation cost for the Company's stock option plans and employee stock purchase plan been determined based on the fair value at the grant date for awards under those plans, consistent with the method prescribed under SFAS 123, the effect on the Company's net income and earnings per share would not have been material. STOCK OPTION PLANS The Company has two stock option plans: the 1993 Equity Incentive Plan for key employees and the 1993 Non-Employee Directors' Stock Option Plan for non-employee members of the Company's Board of Directors (the Board). EQUITY INCENTIVE PLAN Under the Equity Incentive Plan, the Company is authorized to grant both incentive stock options and non-qualified stock options for up to 1,835,294 shares of Class A Common Stock. Incentive stock options may not be granted for less than the fair market value of the Class A Common Stock at the date of grant. Non-qualified stock options may not be granted for less than 50% of the fair market value of the Class A Common Stock at the date of grant. The stock options are exercisable over a period determined by the Board at the time of grant, but no longer than ten years after the date they are granted. NON-EMPLOYEE DIRECTOR'S STOCK OPTION PLAN Under the Non-Employee Directors' Stock Option Plan the Company is authorized to grant options for up to 100,000 shares of Class A Common Stock. These options may not be granted for less than the fair market value of the Class A Common Stock at the date of grant. Non-employee directors are granted options when they are elected for the first time to the Board. These options become exercisable over five years from the date of grant and expire ten years after the date of grant. Incumbent non-employee directors are granted options annually on the date of the Annual Meeting of Shareholders. These options vest in twelve equal monthly installments and expire ten years after the date of grant. ROBERT MONDAVI 35 19 A summary of the Company's stock option plans is presented below:
JUNE 30, 1997 JUNE 30, 1996 --------------------------- ---------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE ------- -------------- ------- -------------- Outstanding at beginning of year 1,287,188 $ 12.86 1,388,825 $ 11.28 Granted 212,172 29.10 120,345 27.89 Exercised (207,151) 11.81 (215,182) 11.16 Forfeited (12,375) 10.40 (6,800) 10.24 --------- -------- --------- ------- Outstanding at end of year 1,279,834 $ 15.74 1,287,188 $ 12.86 ========= ======== ========= ======= Options exercisable at year end 969,709 $ 15.31 859,398 $ 13.81
The following table summarizes information about stock options outstanding at June 30, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE -------------------------------------------- -------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED RANGE OF REMAINING AVERAGE AVERAGE EXERCISE PRICES OPTIONS CONTRACTUAL LIFE EXERCISE PRICE OPTIONS EXERCISE PRICE --------------- --------------------------- -------------- -------------------------- $15.01 to $38.00 332,517 9.0 years $ 28.67 218,761 $ 28.19 11.01 to 15.00 750,642 5.7 years 12.04 652,542 12.06 7.00 to 11.00 196,675 7.2 years 8.04 98,406 8.20 - ---------------- --------- --------- -------- ------- -------- 7.00 to 38.00 1,279,834 6.8 years $ 15.74 969,709 $ 15.31 ================ ========= ========= ======== ======= ========
EMPLOYEE STOCK PURCHASE PLAN Under the Employee Stock Purchase Plan the Board will from time to time grant rights to eligible employees to purchase Class A Common Stock. Under this plan, the Company is authorized to grant rights to purchase up to 300,000 shares of Class A Common Stock. The purchase price is the lower of 85% of the fair market value on the date the Company grants the right to purchase or 85% of the fair market value on the date of purchase. Employees, through payroll deductions of no more than 15% of their base compensation, may exercise their rights to purchase for the period specified in the related offering. During the year ended June 30, 1997, 1996 and 1995, shares totaling 10,344, 12,725 and 22,258, respectively, were issued under the Employee Stock Purchase Plan at average prices of $27.98, $15.47 and $8.13, respectively. ROBERT MONDAVI 36 20 NOTE 10 -- COMMITMENTS AND CONTINGENCIES The Company leases some of its office space, warehousing facilities, vineyards and equipment under non-cancelable leases accounted for as operating leases. Certain of these leases have options to renew. Rental expense amounted to $2,739,000, $2,126,000 and $1,781,000, respectively, for the year ended June 30, 1997, 1996 and 1995. The Company also leases land, machinery and equipment under capital leases. The minimum rental payments under non-cancelable operating and capital leases at June 30, 1997 are as follows (in thousands):
YEAR ENDING CAPITAL OPERATING JUNE 30, LEASES LEASES ----------- ------- --------- 1998 $ 1,011 $ 2,014 1999 1,011 1,635 2000 1,011 1,254 2001 1,011 975 2002 1,011 697 Thereafter 3,786 7,602 ------ ------- 8,841 $14,177 ======= Less amount representing interest (2,934) ------- Present value of minimum lease payments $ 5,907 =======
Interest expense on capital lease obligations was $470,000, $176,000 and $50,000 for the year ended June 30, 1997, 1996 and 1995, respectively. The Company has contracted with various growers and certain wineries to supply a large portion of its future grape requirements and a smaller portion of its future bulk wine requirements. While most of these contracts call for prices to be determined by market conditions, several long-term contracts provide for minimum grape or bulk wine purchase prices. The Company is subject to litigation in the ordinary course of business. In the opinion of management, the ultimate outcome of existing litigation will not have a material adverse effect on the Company's consolidated financial condition or the results of its operations. NOTE 11 -- SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest, net of amounts capitalized, was $8,974,000, $7,999,000 and $8,614,000 for the year ended June 30, 1997, 1996 and 1995, respectively. Cash paid for income taxes was $14,771,000, $20,048,000 and $10,322,000 for the year ended June 30, 1997, 1996 and 1995, respectively. Non-cash investing activities not included in the statements of cash flows include capital lease obligations incurred during the year ended June 30, 1996 and 1995, totaling $5,944,000 and $570,000, respectively. Non-cash financing activities not included in the statements of cash flows include the conversions of stock in fiscal 1996 (Note 8) and the tax benefits related to stock option plans in fiscal 1997 and 1996 (Note 7). ROBERT MONDAVI 37 21 NOTE 12 -- QUARTERLY HIGHLIGHTS (UNAUDITED) Selected highlights for each of the fiscal quarters during the year ended June 30, 1997 and 1996 are as follows (in thousands, except per share data):
1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- YEAR ENDED JUNE 30, 1997: Net revenues $58,984 $87,197 $70,889 $83,704 Gross profit 25,616 38,040 31,925 39,205 Net income 5,323 9,215 6,333 7,354 Earnings per share .34 .59 .40 .47 YEAR ENDED JUNE 30, 1996: Net revenues $45,561 $70,786 $58,389 $66,094 Gross profit 22,093 34,142 28,304 33,906 Net income 4,557 8,059 5,881 5,941 Earnings per share .31 .52 .38 .38
ROBERT MONDAVI 38 22 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE ROBERT MONDAVI CORPORATION In our opinion, the accompanying balance sheets and related consolidated statements of income, of changes in shareholders' equity and of cash flows present fairly, in all material respects, the financial position of The Robert Mondavi Corporation and its subsidiaries at June 30, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1997, 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/ Price Waterhouse LLP - ------------------------------ PRICE WATERHOUSE LLP SAN FRANCISCO, CALIFORNIA JULY 25, 1997 ROBERT MONDAVI 39 23 CORPORATE INFORMATION BOARD OF DIRECTORS Robert G. Mondavi Chairman of the Board The Robert Mondavi Corporation R. Michael Mondavi President and Chief Executive Officer The Robert Mondavi Corporation Timothy J. Mondavi Managing Director and Winegrower The Robert Mondavi Corporation Marcia Mondavi Borger Director The Robert Mondavi Corporation Clifford S. Adams Director The Robert Mondavi Corporation James Barksdale President and Chief Executive Officer Netscape Communications Corporation Frank E. Farella (1) Partner Farella, Braun & Martel, Attorneys Philip Greer (1) Senior Managing Principal Weiss, Peck and Greer, L.L.C., Investment Managers Bartlett R. Rhoades (1) Chief Executive Officer Medical Data International, Inc. (1) Member Audit and Compensation Committees OFFICERS R. Michael Mondavi President and Chief Executive Officer Timothy J. Mondavi Managing Director and Winegrower Gregory M. Evans Chief Financial Officer Michael K. Beyer Senior Vice President, General Counsel and Secretary Mitchell J. Clark Senior Vice President, Sales Martin C. Johnson Senior Vice President, Marketing Peter Mattei Senior Vice President, Production and Vineyards Alan E. Schnur Senior Vice President, Human Resources Steven R. Soderberg Senior Vice President, Information Systems SHAREHOLDER INFORMATION REGISTRAR AND TRANSFER AGENT ChaseMellon Shareholder Services, L.L.C. Shareholder Relations P.O. Box 469 Washington Bridge Station New York, NY 10033 (800) 356-2017 (800) 231-5469 (TDD) (212) 613-7247 (Outside U.S.) INDEPENDENT ACCOUNTANTS Price Waterhouse LLP San Francisco, California ANNUAL MEETING The annual meeting of shareholders will be held on Monday, November 3, 1997 at the Robert Mondavi Winery in Oakville, California. INQUIRIES Communications concerning stock transfer requirements, lost certificates and changes of address should be directed to the Transfer Agent. Other shareholder or investor inquiries should be directed to: Investor Relations, The Robert Mondavi Corporation, P.O. Box 106, Oakville, California 94562, (707) 259-9463 ext. 3587. FORM 10-K A copy of the Company's Form 10-K as filed with the Securities and Exchange Commission is available, without charge, by writing or calling the Company at the address under Inquiries. COMMON STOCK INFORMATION The Company's Class A Common Stock trades on the NASDAQ National Market System under the symbol "MOND." There is no established trading market for the Company's Class B Common Stock. The following table sets forth the high and low closing prices of the Class A Common Stock for the periods indicated.
YEAR ENDED JUNE 30, 1997 HIGH LOW - ------------------------ ---- --- Fourth Quarter $47-3/8 $36 Third Quarter $43-3/4 $36 Second Quarter $38-1/4 $28-1/2 First Quarter $33-1/2 $26-1/2
YEAR ENDED JUNE 30, 1996 HIGH LOW - ------------------------ ---- --- Fourth Quarter $33-3/4 $24-3/4 Third Quarter $31 $25-3/4 Second Quarter $32-1/2 $22-5/8 First Quarter $26 $17-5/8
The Company has never declared or paid dividends on its common stock and anticipates that all earnings will be retained for use in its business. The payment of any future dividends will be at the discretion of the Board of Directors and will continue to be subject to certain limitations and restrictions under the terms of the Company's indebtedness to various institutional lenders, including a prohibition on the payment of dividends without the prior written consent of such lenders. There were approximately 1,300 shareholders of record as of June 30, 1997. ROBERT MONDAVI 40
EX-23 5 CONSENT OF PRICE WATERHOUSE LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-61516) of The Robert Mondavi Corporation of our report dated July 25, 1997 appearing on page 39 of the 1997 Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page 13 of this Form 10-K. /s/ PRICE WATERHOUSE LLP Price Waterhouse LLP San Francisco, CA September 29, 1997 EX-27 6 FINANCIAL DATA SCHEDULE
5 1,000 U.S.DOLLARS YEAR JUN-30-1997 JUL-01-1996 JUN-30-1997 1 150 0 59,222 0 167,695 234,337 266,992 80,002 444,925 48,427 158,067 0 0 88,462 132,709 444,925 300,774 300,774 165,988 165,988 79,831 0 10,562 46,273 18,048 28,225 0 0 0 28,225 1.80 1.79
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