-----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, KRlY/XR0W1t+qFxymrmidiOWR7pqHPJ8z1yqXGDg6gvutI8SUX6spP/FidI7c0Lp x9Gvyu0e0lDBp4ryRPNRdg== 0000950149-99-001715.txt : 19990928 0000950149-99-001715.hdr.sgml : 19990928 ACCESSION NUMBER: 0000950149-99-001715 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990927 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: 99717965 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 ROBERT MONDAVI FORM 10-K405 PERIOD END 6/30/99 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, 1999 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, 1999 there were issued and outstanding (i) 8,172,414 shares of the Registrant's Class A Common Stock and (ii) 7,306,012 shares of the Registrant's Class B Common Stock. The aggregate market value of the Registrant's voting stock held by non-affiliates was $293,185,352 as of September 15, 1999. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's annual report to security holders for the fiscal year ended June 30, 1999 are incorporated by reference into Part II of this report. Portions of the registrant's definitive proxy statement dated September 28, 1999 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 produces and markets fine wines worldwide under the following labels: Robert Mondavi Winery, Robert Mondavi Coastal, Woodbridge, Byron Vineyard & Winery, Io, Vichon Mediterranean and La Famiglia di Robert Mondavi. The Company also produces Opus One, in partnership with the Baroness Philippine de Rothschild of Bordeaux, France; Caliterra and Sena, in partnership with the Eduardo Chadwick family of Vina Errazuriz in Chile; and Luce, Lucente and Danzante, in partnership with the Marchesi de' Frescobaldi of Tuscany, Italy. 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 9% of net revenues in fiscal 1999. 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 750 ml. bottle are considered premium wines. The Company produces and sells only premium table wines. The premium category is generally divided by the trade into four 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; ultra premium wines that retail at $14.01 to 25.00 per bottle; and luxury premium wines that retail at over $25.00 per bottle. The Company sells wines in each price segment of the premium table wine market. 2 3 PRODUCT LINES The Company's business began in 1966 at the Robert Mondavi Winery in Oakville, California, where the Company produces its flagship products, the Robert Mondavi Winery reserve, district and varietal wines. The principal varietals include Cabernet Sauvignon, Merlot, Pinot Noir, Chardonnay and Fume' Blanc. The Robert Mondavi Coastal line of wines was introduced in 1994 to take advantage of growth opportunities in the super premium segment. The Coastal wines reflect a unique wine style with fruit-intense flavors that are characteristic of grapes grown in the cooler climates near the California Coast. The principal varietals include Cabernet Sauvignon, Merlot, Pinot Noir, Zinfandel, Chardonnay and Sauvignon Blanc. 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, Merlot, Zinfandel, Chardonnay and Sauvignon Blanc wines. All of the Woodbridge wines are vintage-dated and sold under varietal names. Byron Vineyard and Winery, located in the Santa Maria Valley in Santa Barbara County, primarily produces Pinot Noir and Chardonnay utilizing the traditional Burgundian style of winemaking. Byron is expanding its portfolio of luxury premium wines with its upcoming release of a Chardonnay and Pinot Noir from the Company's Sierra Madre estate vineyard that was purchased in 1996. Io, introduced in 1999, is a unique, limited production blend of Syrah, Mourvedre and Grenache that represents the Company's first release of Rhone-style wines. These unique luxury premium wines will be sold exclusively to the Company's top accounts, with a focus on fine wine shops. Vichon Mediterranean sources its wines from the Languedoc region of France. The principal varietals include Cabernet Sauvignon, Merlot, Chardonnay and Sauvignon Blanc. La Famiglia di Robert Mondavi, located in Oakville, California, offers limited quantities of Italian-style, California-grown varietal wines. The principal varietals include Barbera, Sangiovese and Pinot Grigio. 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. The Company, through a joint venture with its Italian partner, the Marchesi de' Frescobaldi, produces and markets luxury premium, ultra premium and super premium wines from Italy, under the Luce, Lucente and Danzante labels. The Company also acts as the exclusive United States importer of Luce, Lucente and Danzante wines. The Company, through a joint venture with its partner, the Chadwick family of Chile, produces and markets luxury premium, ultra premium and super premium wines from Chile under the Sena and Caliterra labels. The Company also acts as the exclusive United States importer of Sena and Caliterra wines, as well as the Chadwick family's Errazuriz brand. 3 4 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 wine 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. The Company's wines are distributed in California, Florida, Pennsylvania, Hawaii and Nevada by Southern Wine and Spirits, a large national beverage distributor. Sales to Southern Wine and Spirits nationwide represented approximately 29%, 30% and 29% of the Company's gross revenues for the fiscal years ended June 30, 1999, 1998 and 1997, respectively. Sales to the Company's 15 largest distributors represented 67% of the Company's gross revenues in fiscal 1999. 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 23%, 23% and 22% of the Company's gross revenues for the fiscal years ended June 30, 1999, 1998 and 1997, respectively. Other major domestic markets include Florida, New York, Texas, New Jersey, Massachusetts and Pennsylvania where annual sales represented collectively 29%, 30% and 30% of the Company's gross revenues for the fiscal years ended June 30, 1999, 1998 and 1997, respectively. GRAPE SUPPLY In fiscal 1999, approximately 10% of the Company's total grape supply came from Company-owned or leased vineyards, including approximately 41% 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 1999 PLANTABLE ACREAGE(1) -------------------------------- LOCATION PLANTED FALLOW TOTAL - --------- ------- ------ ----- NAPA VALLEY 758 153 911 CARNEROS 455 -- 455 MENDOCINO 418 9 427 MONTEREY 1,129 31 1,160 SAN JOAQUIN 91 -- 91 SAN LUIS OBISPO 434 -- 434 SANTA BARBARA 1,270 249 1,519 ----- --- ----- Total 4,555 442 4,997 ===== === =====
- ---------- (1) Includes 1,467 acres held pursuant to long-term leases. Excludes vineyards owned by the Company's joint ventures. 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 over 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 The Company employs approximately 750 regular, full-time employees. The Company also employs part-time and seasonal workers for its vineyard, production and hospitality operations. 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 Winery 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 Chilean and Italian joint ventures 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. 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, 7.6 million cases at Woodbridge, 70,000 cases at La Famiglia di Robert Mondavi, 100,000 cases at Byron and 35,000 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 490,000 square feet of administrative and warehouse space under various leases expiring between September 2000 and July 2024. The Company believes that its current facilities, leased and owned, are adequate for their current needs. 5 6 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, 1999. 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 44, "Common Stock Information," of the registrant's annual report to security holders for the fiscal year ended June 30, 1999, 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 22, "Selected Consolidated Financial and Operating Data," of the registrant's annual report to security holders for the fiscal year ended June 30, 1999, 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 23-27, "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, 1999, 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 pages 33-34, "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, 1999, 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 28-43, "Consolidated Financial Statements," of the registrant's annual report to security holders for the fiscal year ended June 30, 1999, 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 28, 1999, 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 28, 1999, 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 28, 1999, 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 28, 1999, 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 43 Consolidated Balance Sheets as of June 30, 1999 and 1998 28 Consolidated Statements of Income for the years ended June 30, 1999, 1998 and 1997 29 Consolidated Statements of Changes in Shareholders' Equity for the years ended June 30, 1999, 1998 and 1997 30 Consolidated Statements of Cash Flows for the years ended June 30, 1999, 1998 and 1997 31 Notes to Consolidated Financial Statements 32-42
- ---------- * Incorporated by reference to the indicated pages of the registrant's annual report to security holders for the fiscal year ended June 30, 1999, 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. (5) Exhibit 10.38 Amended and Restated 1993 Equity Incentive Plan. Exhibit 13 Those portions of the Registrant's Annual Report to Security Holders for the Fiscal Year Ended June 30, 1999 that are incorporated by reference into this Annual Report on Form 10-K. (1) Exhibit 21 Subsidiaries of the Registrant Exhibit 23 Consent of PricewaterhouseCoopers LLP Exhibit 27 Financial Data Schedule (not considered to be filed)
(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. (5) Incorporated by reference to Annual Report on Form 10-K for the annual period ended June 30, 1998. (b) No reports on Form 8-K were filed during the quarter ended June 30, 1999. 10 11 ROBERT MONDAVI CORPORATION SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED JUNE 30, 1999 (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, 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 YEAR ENDED JUNE 30, 1998: Allowance for uncollectible accounts 500 9 -- 9(1) 500 Inventory reserves for write down to net realizable value 1,162 1,662 -- 705 2,119 YEAR ENDED JUNE 30, 1999: Allowance for uncollectible accounts 500 5 -- 5(1) 500 Inventory reserves for write down to net realizable value 2,119 5,220 -- 4,318 3,021
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/ STEPHEN A. McCARTHY ---------------------------------- Stephen A. McCarthy, 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 Chairman of the Board September 27, 1999 - ------------------------------ Robert G. Mondavi /s/ R. MICHAEL MONDAVI President and Director September 27, 1999 - ------------------------------ (Principal Executive Officer) R. Michael Mondavi /s/ TIMOTHY J. MONDAVI Managing Director, Winegrower September 27, 1999 - ------------------------------ and Director Timothy J. Mondavi /s/ GREGORY M. EVANS Chief Operating Officer September 27, 1999 - ------------------------------ Gregory M. Evans /s/ STEPHEN A. McCARTHY Chief Financial Officer September 27, 1999 - ------------------------------ (Principal Financial and Stephen A. McCarthy Accounting Officer) /s/ JAMES L. BARKSDALE Director September 27, 1999 - ------------------------------ James L. Barksdale /s/ MARCIA MONDAVI BORGER Director September 27, 1999 - ------------------------------ Marcia Mondavi Borger /s/ FRANK E. FARELLA Director September 27, 1999 - ------------------------------ Frank E. Farella /s/ PHILIP GREER Director September 27, 1999 - ------------------------------ Philip Greer /s/ BARTLETT R. RHOADES Director September 27, 1999 - ------------------------------ Bartlett R. Rhoades
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 27, 1999, appearing in the 1999 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/ PRICEWATERHOUSECOOPERS LLP - ----------------------------------- PricewaterhouseCoopers LLP San Francisco, California July 27, 1999 13 14 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ----------------- ------------ (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 (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. (5) Exhibit 10.38 Amended and Restated 1993 Equity Incentive Plan. Exhibit 13 Those portions of the Registrant's Annual Report to Security Holders for the Fiscal Year Ended June 30, 1999 that are incorporated by reference into this Annual Report on Form 10-K. (1) Exhibit 21 Subsidiaries of the Registrant Exhibit 23 Consent of PricewaterhouseCoopers LLP Exhibit 27 Financial Data Schedule (not considered to be filed)
(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. (5) Incorporated by reference to Annual Report on Form 10-K for the annual period ended June 30, 1998.
EX-13 2 SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA 1 EXHIBIT 13 SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
YEAR ENDED JUNE 30, --------------------------------------------------------------------- 1999 1998 1997 1996 1995 --------------------------------------------------------------------- (In thousands, except per share data and net revenues per case) INCOME STATEMENT DATA Gross revenues $ 387,950 $ 341,059 $ 315,998 $ 253,540 $ 210,361 Less excise taxes 17,373 15,900 15,224 12,710 10,892 --------------------------------------------------------------------- Net revenues 370,577 325,159 300,774 240,830 199,469 Cost of goods sold 205,401 173,815 149,760 122,929 106,452 --------------------------------------------------------------------- Gross profit 165,176 151,344 151,014 117,901 93,017 Operating expenses 104,550 90,043 79,831 70,707 64,160 --------------------------------------------------------------------- Operating income 60,626 61,301 71,183 47,194 28,857 Other income (expense): Interest (14,217) (12,298) (10,562) (8,814) (8,675) Other 3,631 441 1,880 1,543 215 --------------------------------------------------------------------- Income before income taxes 50,040 49,444 62,501 39,923 20,397 Provision for income taxes 19,257 19,282 24,376 15,808 8,118 --------------------------------------------------------------------- Net income $ 30,783 $ 30,162 $ 38,125 $ 24,115 $ 12,279 ===================================================================== Earnings per share--Diluted $ 1.94 $ 1.90 $ 2.43 $ 1.59 $ .96 ===================================================================== Pro forma* Earnings per share--Diluted $ 2.17 $ 1.90 $ 2.43 $ 1.59 $ .96 =====================================================================
* A total of $6.0 million, or $0.23 per diluted share, of reorganization and other one-time charges were recorded during the second quarter of fiscal 1999. Of this amount, $4.5 million was included in cost of goods sold and $1.5 million was included in operating expenses. BALANCE SHEET DATA Working capital $297,765 $275,977 $203,065 $160,012 $124,477 Long-term debt, less current portion 243,758 222,557 158,067 123,713 113,017 Total debt 254,010 233,541 173,607 127,828 119,088 Total liabilities 324,859 304,225 233,676 177,641 163,244 Shareholders' equity 304,406 271,602 238,326 195,510 132,140 Total assets 629,265 575,827 472,002 373,151 295,384 OPERATING DATA (UNAUDITED) Cases sold (9-liter equivalent) 7,647 6,766 6,450 5,437 4,550 Net revenues per case $ 48.46 $ 48.06 $ 46.63 $ 44.29 $ 43.84
22 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. The Company posted strong financial results in fiscal 1999. It was able to regain and increase Woodbridge market share with the support of its wholesalers and retailers after the Chardonnay supply shortage experienced in the prior fiscal year. The Company also trimmed its administrative expenses, appointed a Chief Operating Officer to streamline decision making, and adopted the FIFO method of inventory accounting to improve the predictability of earnings. In addition, the Company increased its marketing and sales focus on its two largest-volume brands, Woodbridge and Robert Mondavi Coastal, and on its flagship Robert Mondavi Winery. 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, the Company's anticipated future investment in vineyards and other capital projects and possible costs and operational risks associated with the Year 2000 issue. 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 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 change 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 Effective July 1, 1998, the Company changed its wine inventory costing method from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method. The change has been applied to prior periods by retroactively restating the financial statements. For a further discussion of the impact of this accounting change, see Note 1 of Notes to Consolidated Financial Statements. 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. 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, especially reserve, district and vineyard-designated wines, can also 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. 23 3 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 1999 QUARTER ENDED FISCAL 1998 QUARTER ENDED ---------------------------------------------- --------------------------------------------- SEP. 30 DEC. 31 MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31 JUN. 30 ---------------------------------------------- --------------------------------------------- (Dollars in millions) Net revenues $ 71.3 $104.9 $ 89.2 $105.2 $ 65.6 $ 93.0 $ 76.0 $ 90.6 % of annual net revenues 19.2% 28.3% 24.1% 28.4% 20.1% 28.6% 23.4% 27.9% Net income $ 8.0 $ 6.5 $ 7.5 $ 8.8 $ 7.7 $ 11.3 $ 6.1 $ 5.1 % of annual net income 26.0% 21.1% 24.3% 28.6% 25.5% 37.4% 20.2% 16.9%
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 1999 QUARTER ENDED FISCAL 1998 QUARTER ENDED ------------------------------------------ ------------------------------------------ SEP. 30 DEC. 31 MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31 JUN. 30 ------------------------------------------ ------------------------------------------ (in millions) Total borrowings, net of cash $224.2 $259.1 $277.0 $249.5 $166.9 $202.2 $234.7 $230.9
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 FISCAL YEAR ENDED JUNE 30, ---------------------------------- 1999 1998 1997 ---------------------------------- Gross revenues 104.7% 104.9% 105.1% Less excise taxes 4.7 4.9 5.1 ---------------------------------- Net revenues 100.0 100.0 100.0 Cost of goods sold 55.4 53.5 49.8 ---------------------------------- Gross profit 44.6 46.5 50.2 Operating expenses 28.2 27.7 26.5 ---------------------------------- Operating income 16.4 18.8 23.7 Other income (expense): Interest (3.8) (3.8) (3.5) Other 0.9 0.1 0.6 ---------------------------------- Income before income taxes 13.5 15.1 20.8 Provision for income taxes 5.2 5.9 8.1 ---------------------------------- Net income 8.3% 9.2% 12.7% ==================================
24 4 YEAR 2000 The Year 2000 issue, which is common to most companies, relates to the inability of computer systems, including information technology (IT) and non-IT systems, to properly recognize and process date sensitive information with respect to dates in the Year 2000 and thereafter. The Company believes that it will be able to achieve Year 2000 compliance by the end of 1999 and it does not expect any material disruption of its operations as a result of any failure by the Company to achieve Year 2000 compliance. However, to the extent the Company is not able to resolve any Year 2000 issues, the Company's business and results of operations could be materially affected. This could result from computer related failures in the Company's financial systems, manufacturing and warehouse management systems, phone systems and electrical supply. The Company has assessed its internal computer systems and software and is in the process of modifying or replacing portions of its software so that its operating systems will function properly with respect to dates in the Year 2000 and thereafter. The Company is also evaluating its non-IT systems with respect to the Year 2000 issue. The Company's non-IT systems include phones, voicemail, electricity, heating and air conditioning and security systems. The cost to the Company of evaluating and modifying its own systems is not expected to be material, nor does the Company believe that, with these modifications, the Year 2000 issue will pose significant operational problems for its computer and non-IT systems. However, as testing of Year 2000 functionality of the Company's systems must occur in a simulated environment, the Company will not be able to test full system Year 2000 interfaces and capabilities prior to the Year 2000. To the extent the Company is not able to address any of its Year 2000 issues, the Company believes that it could revert to manual processes previously employed or outsource work with minimal incremental cost. The Company is also in the process of evaluating system interfaces with third-party systems, such as those with key suppliers, distributors and financial institutions, for Year 2000 functionality. If the systems of other companies with which the Company does business do not address any Year 2000 issues on a timely basis, the Company may experience a variety of problems which may have a material adverse effect on the Company. These problems may include, but are not limited to, loss of electronic data interchange capability with the Company's customers and vendors, and failure of the Company's vendors to deliver and bill for materials and products ordered by the Company. As a result, the Company may experience inventory shortages or surpluses. Should these problems arise, the Company expects to utilize voice, facsimile and/or mail communication to place orders with vendors, receive customer orders and process customer billings. In addition, the Company could utilize alternate sources of supply should its vendors not resolve their Year 2000 issues on a timely basis. RESULTS OF OPERATIONS Fiscal 1999 Compared to Fiscal 1998 REORGANIZATION AND OTHER ONE-TIME CHARGES During the second quarter of fiscal 1999, the Company implemented a series of operational and organizational changes aimed at improving its competitiveness and resources for investing in vineyards and wineries and providing stronger marketing support for its wines. As a result of these changes, the Company recorded one-time charges totaling $6.0 million, or $0.23 per diluted share, in fiscal 1999. Of this total, $4.5 million, or $0.17 per diluted share, related to asset impairment charges and $1.5 million, or $0.06 per diluted share, related to employee separation expenses. For a further discussion of these operational and organizational changes, see Note 10 of Notes to Consolidated Financial Statements. NET REVENUES Net revenues increased by 14.0% due primarily to a 13.0% increase in sales volume. Net revenues per case increased by 0.8% to $48.46 per case in fiscal 1999 compared to $48.06 per case in fiscal 1998. COST OF GOODS SOLD Cost of goods sold increased by 18.2%, reflecting the increase in sales volume, the $4.5 million in asset impairment charges discussed above and a shift in sales mix to wines with a higher average cost per case. Excluding the one-time charges, cost of goods sold increased by 15.6%. 25 5 GROSS PROFIT As a result of the factors discussed above, gross profit increased by 9.1% and the Company's gross profit percentage was 44.6% in fiscal 1999 compared to 46.5% in fiscal 1998. Excluding the one-time asset impairment charges, the gross profit percentage was 45.8% in fiscal 1999. OPERATING EXPENSES Operating expenses increased by 16.1% due mainly to an increase in sales and marketing expenses associated with increased sales volume. The ratio of operating expenses to net revenues increased to 28.2% in fiscal 1999 from 27.7% in fiscal 1998, reflecting the $1.5 million in employee separation expenses discussed above combined with higher promotional spending per case, primarily in advertising, that was partially offset by a decrease in general and administrative expenses. Excluding the one-time employee separation charges, operating expenses increased by 14.4% and the ratio of operating expenses to net revenues was 27.8% in fiscal 1999. INTEREST Interest expense increased by 15.6%, reflecting an increase in the Company's average borrowings that was partially offset by an increase in capitalized interest and a decrease in the Company's average interest rate. The increase in capitalized interest was due to increased vineyard development and winery expansion projects. The Company's average interest rate was 7.06% in fiscal 1999 compared to 7.45% in fiscal 1998. EQUITY IN NET INCOME OF JOINT VENTURES Equity in net income of joint ventures increased by 91.1% due mainly to improved income from Opus One. OTHER "Other" primarily consists of miscellaneous non-operating income and expense items. "Other" totaled $1.3 million in fiscal 1999 compared to $2.2 million in fiscal 1998. PROVISION FOR INCOME TAXES The Company's effective tax rate was 38.5% in fiscal 1999 compared to 39.0% in fiscal 1998. The lower effective rate was primarily the result of an increase in the benefit derived from manufacturing tax credits. NET INCOME AND EARNINGS PER SHARE As a result of the above factors, net income totaled $30.8 million, or $1.94 per diluted share, in fiscal 1999 compared to $30.2 million, or $1.90 per diluted share, in fiscal 1998. Excluding the reorganization and other one-time charges discussed above, net income totaled $34.5 million, or $2.17 per diluted share, in fiscal 1999. Fiscal 1998 Compared to Fiscal 1997 NET REVENUES Net revenues increased by 8.1%, reflecting a 4.9% increase in sales volume combined with a shift in sales mix to wines with higher net revenues per case. Net revenues per case increased by 3.1% to $48.06 per case in fiscal 1998 compared to $46.63 per case in fiscal 1997. COST OF GOODS SOLD Cost of goods sold increased by 16.1%, reflecting higher wine costs associated with new vintages introduced during the year, increased sales volume and a shift in sales mix to wines with a higher average cost per case. GROSS PROFIT As a result of the factors discussed above, gross profit increased by 0.2% and the Company's gross profit percentage decreased to 46.5% in fiscal 1998 compared to 50.2% in fiscal 1997. The lower gross profit percentage was primarily attributable to higher wine costs. OPERATING EXPENSES Operating expenses increased by 12.8% due mainly to an increase in sales and marketing expenses. The ratio of operating expenses to net revenues increased to 27.7% in fiscal 1998 compared to 26.5% in fiscal 1997 due to increased promotional spending per case. INTEREST Interest expense increased by 16.4% due primarily to an increase in the Company's average borrowings that was partially offset by an increase in capitalized interest and a decrease in the Company's average interest rate. The increase in capitalized interest was due to increased vineyard development. The Company's average interest rate was 7.45% in fiscal 1998 compared to 7.83% in fiscal 1997. 26 6 EQUITY IN NET INCOME OF JOINT VENTURES Equity in net income of joint ventures increased by 3.3% due mainly to improved income from Opus One. OTHER "Other" primarily consists of miscellaneous non-operating income and expense items. "Other" totaled $2.2 million in fiscal 1998 compared to $0.6 million in fiscal 1997. PROVISION FOR INCOME TAXES The Company's effective tax rate remained unchanged at 39.0%. NET INCOME AND EARNINGS PER SHARE As a result of the above factors, net income totaled $30.2 million, or $1.90 per diluted share, in fiscal 1998 compared to $38.1 million, or $2.43 per diluted share, in fiscal 1997. LIQUIDITY AND CAPITAL RESOURCES Working capital as of June 30, 1999, was $297.8 million compared to $276.0 million at June 30, 1998. The $21.8 million increase in working capital was primarily attributable to a $13.4 million increase in accounts receivable, a $6.4 million decrease in current deferred taxes and a $5.7 million increase in inventories. Borrowings under the Company's credit lines totaled $61.9 million at June 30, 1999, compared to $30.5 million at June 30, 1998. The Company had a cash balance of $4.5 million at June 30, 1999, compared to a balance of $2.7 million at June 30, 1998. 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 1999, the Company's primary uses of capital have been to finance the following: a $50.8 million increase in property, plant and equipment (including vineyard development, expansion of the Woodbridge facility, renovation of the Robert Mondavi Winery facility and purchases of new oak barrels); a $13.4 million increase in accounts receivable; $11.0 million in repayments of long-term debt; and a $5.7 million increase in inventories. The primary sources of funds during fiscal 1999 were from the following: $30.8 million in net income, as well as the non-cash impact on pre-tax income of $15.8 million in depreciation and amortization; $31.5 million in net additions of credit line borrowings; a $5.2 million increase in accounts payable; and $3.3 million in joint venture distributions. 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 capital spending requirements will total approximately $125.0 million for the two year period ending June 30, 2001. The Company currently has credit lines that provide both short-term and long-term borrowings. The short-term credit lines expire on December 24, 1999, and have maximum credit available of $71.5 million. The long-term credit lines expire on December 31, 2001, and have maximum credit available of $80.0 million. The annual interest rates on these lines are based on various bank programs and ranged from 5.20% to 8.50% during fiscal 1999. 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 2000. 27 7 CONSOLIDATED BALANCE SHEETS (In thousands, except share data) ASSETS
JUNE 30, ------------------------- 1999 1998 ------------------------- Current assets: Cash $ 4,544 $ 2,683 Accounts receivable--trade, net 82,037 68,656 Inventories 262,377 256,770 Prepaid expenses and other current assets 4,893 8,239 ------------------------- Total current assets 353,851 336,348 Property, plant and equipment, net 249,572 215,301 Investments in joint ventures 20,124 18,666 Other assets 5,718 5,512 ------------------------- Total assets $ 629,265 $ 575,827 -------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities: Accounts payable--trade $ 19,416 $ 18,888 Employee compensation and related costs 11,605 9,881 Other accrued expenses 10,231 7,800 Current portion of long-term debt 10,252 10,984 Deferred income taxes 3,827 10,200 Deferred revenue 755 2,618 ------------------------- Total current liabilities 56,086 60,371 Long-term debt, less current portion 243,758 222,557 Deferred income taxes 17,355 14,245 Deferred executive compensation 7,425 6,713 Other liabilities 235 339 ------------------------- Total liabilities 324,859 304,225 ------------------------- Commitments and contingencies (Note 11) 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--8,151,664 and 8,050,126 shares 80,483 79,040 Class B Common Stock, without par value: Authorized--12,000,000 shares Issued and outstanding--7,306,012 11,732 11,732 Paid-in capital 5,266 4,776 Retained earnings 207,520 176,737 Accumulated other comprehensive income: Cumulative translation adjustment (595) (683) ------------------------- 304,406 271,602 ------------------------- Total liabilities and shareholders' equity $ 629,265 $ 575,827 =========================
See Notes to Consolidated Financial Statements. 28 8 CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data)
YEAR ENDED JUNE 30, ----------------------------------------- 1999 1998 1997 ----------------------------------------- Gross revenues $ 387,950 $ 341,059 $ 315,998 Less excise taxes 17,373 15,900 15,224 ----------------------------------------- Net revenues 370,577 325,159 300,774 Cost of goods sold 205,401 173,815 149,760 ----------------------------------------- Gross profit 165,176 151,344 151,014 Selling, general and administrative expenses 104,550 90,043 79,831 ----------------------------------------- Operating income 60,626 61,301 71,183 Other income (expense): Interest (14,217) (12,298) (10,562) Equity in net income of joint ventures 4,956 2,593 2,510 Other (1,325) (2,152) (630) ----------------------------------------- Income before income taxes 50,040 49,444 62,501 Provision for income taxes 19,257 19,282 24,376 ----------------------------------------- Net income $ 30,783 $ 30,162 $ 38,125 ========================================= Earnings per share--Basic $ 2.00 $ 1.98 $ 2.53 ----------------------------------------- Earnings per share--Diluted $ 1.94 $ 1.90 $ 2.43 ----------------------------------------- Weighted average number of shares outstanding--Basic 15,414 15,264 15,057 ----------------------------------------- Weighted average number of shares outstanding--Diluted 15,865 15,847 15,670 -----------------------------------------
See Notes to Consolidated Financial Statements. 29 9 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (In thousands)
ACCUMULATED CLASS A CLASS B OTHER TOTAL COMMON COMMON PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS' STOCK STOCK CAPITAL EARNINGS INCOME (LOSS) EQUITY --------------------------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------------- Balance at June 30, 1996 7,282 $ 73,402 7,676 $ 12,324 $ 1,334 $108,450 $ -- $195,510 Net income 38,125 Comprehensive income 38,125 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 3,289 146,575 -- 238,326 Net income 30,162 Cumulative translation adjustment, net of tax of $(426) (683) Comprehensive income 29,479 Conversion of Class B Common Stock to Class A Common Stock 370 592 (370) (592) Exercise of Class A Common Stock Options including related tax benefits 163 1,831 1,487 3,318 Issuance of Class A Common Stock through Employee Stock Purchase Plan 18 479 479 ----------------------------------------------------------------------------------------------- Balance at June 30, 1998 8,050 79,040 7,306 11,732 4,776 176,737 (683) 271,602 Net income 30,783 Cumulative translation adjustment, net of tax of $55 88 Comprehensive income 30,871 Exercise of Class A Common Stock Options including related tax benefits 85 907 490 1,397 Issuance of Class A Common Stock through Employee Stock Purchase Plan 17 536 536 ----------------------------------------------------------------------------------------------- Balance at June 30, 1999 8,152 $ 80,483 7,306 $ 11,732 $ 5,266 $207,520 $ (595) $304,406 ===============================================================================================
See Notes to Consolidated Financial Statements. 30 10 CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
YEAR ENDED JUNE 30, ------------------------------------ 1999 1998 1997 ------------------------------------ Cash flows from operating activities: Net income $ 30,783 $ 30,162 $ 38,125 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Deferred income taxes (2,892) 3,675 7,125 Depreciation and amortization 15,758 13,665 12,534 Equity in net income of joint ventures (4,956) (2,593) (2,510) Other 1,067 283 213 Changes in assets and liabilities: Accounts receivable--trade (13,381) (9,434) (19,727) Inventories (5,695) (60,009) (42,258) Other assets 3,346 (2,646) (4,753) Accounts payable--trade and accrued expenses 5,173 7,233 8,265 Deferred revenue (1,863) 554 382 Deferred executive compensation 712 1,318 (703) Other liabilities (104) (678) (85) ------------------------------------ Net cash provided by (used in) operating activities 27,948 (18,470) (3,392) ------------------------------------ Cash flows from investing activities: Acquisitions of property, plant and equipment (50,827) (49,525) (42,552) Proceeds from sale of assets -- 7,440 -- Distributions from joint ventures 3,251 2,362 1,657 Contributions to joint ventures (36) (218) (359) ------------------------------------ Net cash used in investing activities (47,612) (39,941) (41,254) ------------------------------------ Cash flows from financing activities: Book overdraft -- -- (403) Net additions (repayments) under credit lines 31,450 (28,300) 18,750 Proceeds from issuance of long-term debt -- 95,000 50,000 Principal repayments of long-term debt (10,981) (6,766) (22,971) Proceeds from issuance of Class A Common Stock 536 479 289 Exercise of Class A Common Stock Options 907 1,831 2,447 Other (387) (1,300) (3,316) ------------------------------------ Net cash provided by financing activities 21,525 60,944 44,796 ------------------------------------ Net increase in cash 1,861 2,533 150 Cash at the beginning of the year 2,683 150 -- ------------------------------------ Cash at the end of the year $ 4,544 $ 2,683 $ 150 ====================================
See Notes to Consolidated Financial Statements. 31 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 9% 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 1998 and 1997 balances have been reclassified to conform with the 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 Effective July 1, 1998, the Company changed its wine inventory costing method from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method. The primary reasons for the change in accounting method are: management's belief that the FIFO method of accounting better matches revenues and expenses of the Company's wines sold, and therefore provides a better method of reporting the Company's results of operations; the FIFO method of accounting will reduce intra-year cost of sales volatility; and the FIFO method of accounting will provide improved financial comparability to other publicly-traded companies in the industry. The accounting change has been applied to prior years by retroactively restating the financial statements. As a result of this restatement, current assets, current liabilities and retained earnings increased by $28,502,000, $10,200,000 and $18,302,000, respectively, at June 30, 1998. The restatement increased net income for the year ended June 30, 1998, by $1,147,000, or $0.07 per diluted share, and increased net income for the year ended June 30, 1997, by $9,900,000, or $0.63 per diluted share. 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. 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. These assets are amortized using the straight-line method over their estimated useful lives or terms of their related loans, not exceeding 40 years. ADVERTISING COSTS Advertising costs are expensed as incurred or the first time the advertising takes place. Point of sale materials are accounted for as inventory and charged to expense as utilized. Advertising expense, including point of sale materials charged to expense, totaled $14,662,000, $10,688,000 and $8,714,000, respectively, for the year ended June 30, 1999, 1998 and 1997. 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. 32 12 OTHER COMPREHENSIVE INCOME Effective July 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130 (SFAS 130), Reporting Comprehensive Income. This statement establishes standards for reporting and displaying comprehensive income and its components. Comprehensive income includes revenues, expenses, gains and losses that are excluded from net income under current accounting standards, including foreign currency translation adjustments and unrealized gains and losses on certain investments in debt and equity securities. The adoption of SFAS 130 did not have a material impact on the Company's consolidated financial statements and the amounts have been reclassified for prior periods in order to conform with this statement. The Company has presented the information required by SFAS 130 in the accompanying consolidated statements of shareholders' equity. SEGMENT REPORTING The Company adopted Statement of Financial Accounting Standards No. 131 (SFAS 131), Disclosures about Segments of an Enterprise and Related Information, for the fiscal year ended June 30, 1999. SFAS 131 establishes standards for reporting certain information about operating segments of an enterprise. Operating segments are defined based upon the way that management organizes financial information within the enterprise for making operating decisions and assessing performance. Management organizes financial information primarily by product line for purposes of making operating decisions and assessing performance. The Company has determined that its product line operating segments share similar long-term financial performance, production processes, customer types, distribution methods and other economic characteristics. Accordingly, as permitted by SFAS 131, these operating segments have been aggregated as a single operating segment in the consolidated financial statements. 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%, 30% and 29%, respectively, of gross revenues for the year ended June 30, 1999, 1998 and 1997. Trade accounts receivable from these distributors at June 30, 1999 and 1998 totaled $29,376,000 and $23,873,000, respectively. 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 The Company measures compensation cost for employee stock options and similar equity instruments using the intrinsic value-based method of accounting. The Company's stock option plans are discussed in Note 9. EARNINGS PER SHARE Earnings per share has 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. In computing basic earnings per share for the year ended June 30, 1999, 1998 and 1997, no adjustments have been made to net income (numerator) or weighted-average shares outstanding (denominator). The computation of diluted earnings per share for the same periods is identical to the computation of basic earnings per share except that the weighted-average shares outstanding (denominator) has been increased by 451,000, 583,000 and 613,000, respectively, for the year ended June 30, 1999, 1998 and 1997 to include the dilutive effect of stock options outstanding. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the Company's debt is estimated based on the current market rates available to the Company for debt of the same remaining maturities. At June 30, 1999, the carrying amount and estimated fair value of the Company's debt was $254,010,000 and $251,690,000, respectively. At June 30, 1998, the carrying amount and estimated fair value of the Company's debt was $233,541,000 and $244,394,000, 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. 33 13 In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging Activities. SFAS 133 is effective for years beginning after June 15, 2000. The statement requires all derivatives to be recorded on the balance sheet at fair value and establishes "special accounting" for the different types of hedges. The Company plans to adopt this statement in fiscal 2001 and does not expect it to have a material effect on the consolidated financial statements. At June 30, 1999, the Company had outstanding forward exchange contracts to purchase various foreign currencies through April 2000 for the U.S. dollar equivalent of $9,517,000. Using exchange rates outstanding as of June 30, 1999, the U.S. dollar equivalent of the contracts was $8,943,000. NOTE 2 INVENTORIES Inventories consist of the following (in thousands):
JUNE 30, --------------------------- 1999 1998 --------------------------- Wine in production $183,825 $170,708 Bottled wine 66,682 70,572 Crop costs and supplies 11,870 15,490 --------------------------- $262,377 $256,770 ===========================
Wine inventories are valued at the lower of cost or market and inventory costs are determined using the 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. NOTE 3 PROPERTY, PLANT AND EQUIPMENT The cost and accumulated depreciation of property, plant and equipment consist of the following (in thousands):
JUNE 30, ---------------------------- 1999 1998 ---------------------------- Land $ 44,711 $ 40,903 Vineyards 32,790 32,939 Machinery and equipment 152,026 125,270 Buildings 39,578 33,222 Vineyards under development 46,275 31,818 Construction in progress 31,441 39,577 ---------------------------- 346,821 303,729 Less--accumulated depreciation (97,249) (88,428) ---------------------------- $ 249,572 $ 215,301 ============================
Included in property, plant and equipment are assets leased under capital leases with cost and accumulated depreciation totaling $6,514,000 and $2,878,000, respectively, at June 30, 1999 and $6,514,000 and $2,313,000, respectively, at June 30, 1998. Depreciation expense for machinery and equipment under capital leases was $565,000, $723,000 and $917,000 for the year ended June 30, 1999, 1998 and 1997, respectively. Included in property, plant and equipment is $3,513,000, $2,645,000 and $1,343,000 of interest capitalized for the year ended June 30, 1999, 1998 and 1997, respectively. 34 14 NOTE 4 INVESTMENTS IN JOINT VENTURES 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, --------------------------- 1999 1998 --------------------------- Opus One (50%) $11,720 $10,054 Caliterra (50%) 6,418 6,798 LDV (50%) 1,482 1,270 Other 504 544 --------------------------- $20,124 $18,666 ===========================
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, ------------------- ------------------- 1999 1998 1999 1998 ------------------- ------------------- Current assets $41,268 $35,912 $20,634 $17,956 Other assets 47,566 44,167 23,783 22,084 ------------------- ------------------- Total assets $88,834 $80,079 $44,417 $40,040 =================== =================== Current liabilities $24,874 $27,055 $12,437 $13,527 Other liabilities 23,350 15,633 11,675 7,817 Venturers' equity 40,610 37,391 20,305 18,696 ------------------- ------------------- Total liabilities and venturers' equity $88,834 $80,079 $44,417 $40,040 =================== ===================
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. STATEMENTS OF OPERATIONS
COMBINED PROPORTIONATE SHARE ------------------------------- ------------------------------- YEAR ENDED JUNE 30, YEAR ENDED JUNE 30, ------------------------------- ------------------------------- 1999 1998 1997 1999 1998 1997 ------------------------------- ------------------------------- Net revenues $40,040 $37,417 $28,271 $20,020 $18,671 $14,089 Cost of goods sold 14,624 15,267 11,479 7,312 7,634 5,740 ------------------------------- ------------------------------- Gross profit 25,416 22,150 16,792 12,708 11,037 8,349 Other expenses 15,670 16,817 9,753 7,835 8,356 4,784 ------------------------------- ------------------------------- Net income $ 9,746 $ 5,333 $ 7,039 $ 4,873 $ 2,681 $ 3,565 =============================== ===============================
35 15 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 $2,219,000, $2,411,000 and $2,108,000 for the year ended June 30, 1999, 1998 and 1997, 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 related to this plan totaled $1,377,000 and $1,192,000 at June 30, 1999 and 1998, respectively. The Company has a deferred compensation plan with certain key executives, officers and directors. Under the provisions of this plan, participants may elect to defer up to 100% of their eligible compensation and earn a guaranteed interest rate on their deferred amounts, which was approximately 8.5% and 9.1% for the year ended June 30, 1999 and 1998, respectively. The Company's liability under this plan totaled $1,544,000 and $1,050,000 at June 30, 1999 and 1998, respectively. Amounts deferred are held within a Rabbi Trust for the benefit of the participants. These funds and the accumulated interest are included in other assets. The Company also 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 unfunded liability related to this plan totaled $6,138,000 and $5,836,000 at June 30, 1999 and 1998, respectively. NOTE 6 LONG-TERM DEBT AND NOTES PAYABLE TO BANKS Long-term debt consists of the following (in thousands):
JUNE 30, ------------------------ 1999 1998 ------------------------ Long-term unsecured credit lines $ 61,900 $ 30,450 Fixed rate secured term loans; interest rates 8.06% to 10.00% at June 30, 1999; principal and interest payable monthly; due 1999--2005 15,520 17,597 Fixed rate unsecured term loans; interest rate 8.92% at June 30, 1999; principal and interest payable quarterly; due 2004 31,300 35,167 Fixed rate unsecured term loans; interest rate 7.39% at June 30, 1999; principal and interest payable semiannually; due 2006 45,589 50,000 Fixed rate unsecured term loans; interest rate 6.71% at June 30, 1999; interest payable semiannually through July 29, 2006; principal and interest payable semiannually from January 29, 2007; due 2013 95,000 95,000 Capitalized lease obligations; interest rates 6.96% to 8.00% at June 30, 1999; principal and interest payable monthly; due 2002--2010 4,701 5,327 ------------------------ 254,010 233,541 Less--current portion (10,252) (10,984) ------------------------ $ 243,758 $ 222,557 ========================
36 16 Aggregate annual maturities of long-term debt at June 30, 1999, are as follows (in thousands):
YEAR ENDING JUNE 30, ----------- 2000 $ 10,252 2001 72,003 2002 15,761 2003 12,501 2004 8,695 Thereafter 134,798 -------- $254,010 ========
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 24, 1999, and have maximum credit available of $71,500,000. The long-term credit lines expire on December 31, 2001, and have maximum credit available of $80,000,000. The credit lines bear interest, which is payable monthly, at rates determined under various bank interest programs, ranging from 5.61% to 7.75% at June 30, 1999. There were no borrowings outstanding under the Company's short-term credit lines as of June 30, 1999 and 1998. On January 29, 1998, the Company entered into unsecured term loans totaling $95,000,000 that bear interest, payable semiannually, at a fixed rate of 6.71%. Semiannual principal payments commence on January 29, 2007. The proceeds from these loans were used to pay down long-term credit line borrowings. Property, plant and equipment with a net book value of approximately $28,400,000 at June 30, 1999, 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, 1999. NOTE 7 INCOME TAXES The provision for income taxes consists of the following (in thousands):
YEAR ENDED JUNE 30, --------------------------------------------- 1999 1998 1997 --------------------------------------------- Current: Federal $ 19,684 $ 13,377 $ 14,763 State 2,465 2,230 2,488 --------------------------------------------- 22,149 15,607 17,251 --------------------------------------------- Deferred: Federal (2,428) 3,136 6,049 State (464) 539 1,076 --------------------------------------------- (2,892) 3,675 7,125 --------------------------------------------- $ 19,257 $ 19,282 $ 24,376 =============================================
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, ------------------------------- 1999 1998 1997 ------------------------------- Federal statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal benefit 2.6 3.6 3.9 Permanent differences 0.5 0.5 0.3 Other 0.4 (0.1) (0.2) ------------------------------- 38.5% 39.0% 39.0% ===============================
37 17 The approximate effect of temporary differences and carryforwards that give rise to deferred tax balances are as follows (in thousands):
JUNE 30, -------------------------- 1999 1998 -------------------------- GROSS DEFERRED TAX ASSETS Liabilities and accruals $ (2,374) $ (2,070) Deferred compensation (3,159) (3,828) Tax credits (692) (692) -------------------------- Gross deferred tax assets (6,225) (6,590) -------------------------- GROSS DEFERRED TAX LIABILITIES Property, plant and equipment 20,042 17,331 Retirement plans 766 677 Inventories 4,555 10,610 Receivables 326 435 Investments in joint ventures 1,384 1,623 State taxes 334 359 -------------------------- Gross deferred tax liabilities 27,407 31,035 -------------------------- Net deferred tax liability $ 21,182 $ 24,445 ==========================
The Company has foreign tax credits at June 30, 1999 that can be utilized upon repatriation of foreign source earnings and can be carried forward five years thereafter. During the year ended June 30, 1999 and 1998, the Company recognized certain tax benefits related to stock option plans in the amount of $490,000 and $1,487,000, respectively. 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. During the second quarter of fiscal 1998, 370,000 shares of Class B Common Stock, owned by a major shareholder, were converted into 370,000 shares of Class A Common Stock. The conversion of the shares represents a non-cash financing activity for purposes of the consolidated statements of cash flows. 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, 1999, is $5,266,000 of undistributed income from joint ventures that has been accounted for using the equity method. 38 18 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 accounts for its plans using the intrinsic value-based method of accounting 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, net income would have been $28,738,000, $28,840,000 and $37,628,000, respectively, and earnings per diluted share would have been $1.81, $1.82, and $2.40, respectively, for the year ended June 30, 1999, 1998 and 1997. For purposes of calculating compensation cost under SFAS 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in fiscal 1999, 1998 and 1997, respectively: dividend yield of 0% for all years; expected volatility of 50%, 49% and 46%; risk-free interest rates of 4.79%, 6.26% and 6.78%; and expected lives of three to six years for all years. 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). Under the Equity Incentive Plan, the Company is authorized to grant both incentive stock options and non-qualified stock options for up to 2,585,294 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. 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. 39 19 A summary of the Company's stock option plans is presented below:
JUNE 30, 1999 JUNE 30, 1998 ------------------------------ ------------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE ------------------------------ ------------------------------- Outstanding at beginning of year 1,315,733 $ 21.73 1,279,834 $ 15.74 Granted 419,425 23.98 205,000 51.03 Exercised (84,916) 10.68 (163,283) 11.22 Forfeited (11,521) 13.89 (5,818) 21.03 --------------------------- --------------------------- Outstanding at end of year 1,638,721 $ 22.89 1,315,733 $ 21.73 =========================== =========================== Options exercisable at end of year 1,140,183 $ 20.43 1,074,338 $ 18.84 =========================== ===========================
The following table summarizes information about stock options outstanding at June 30, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------- ------------------------ WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE RANGE OF CONTRACTUAL EXERCISE EXERCISE EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE -------------------------------------------------------------------------------------------- $38.01 to $52.00 200,900 8.2 years $ 51.03 123,936 $ 50.97 15.01 to 38.00 743,345 8.2 years 26.02 331,240 27.58 11.01 to 15.00 575,217 3.7 years 12.08 575,217 12.08 7.00 to 11.00 119,259 5.2 years 8.07 109,790 8.09 -------------------------------------------------------------------------------------------- 7.00 to 52.00 1,638,721 6.4 years $ 22.89 1,140,183 $ 20.43 ============================================================================================
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, 1999, 1998 and 1997, shares totaling 16,622, 17,819 and 10,344, respectively, were issued under the Employee Stock Purchase Plan at average prices of $32.27, $26.90 and $27.98, respectively. NOTE 10 REORGANIZATION AND OTHER ONE-TIME CHARGES During the second quarter of fiscal 1999, the Company implemented a series of operational and organizational changes aimed at improving its competitiveness and resources for investing in vineyards and wineries and providing stronger marketing support for its wines. These changes included the reduction of approximately 4% of the Company's workforce; the centralization of various support functions; the write-down of excess imported wine inventory; and the write-off of certain vineyard assets. As a result of these operational and organizational changes, the Company recorded one-time charges totaling $6.0 million, or $0.23 per diluted share, during the second quarter of fiscal 1999. The Company eliminated 36 positions, primarily in Napa Valley winery operations and in the administrative areas. These job eliminations, combined with the centralization of finance, logistics, purchasing and customer service, are intended to make the Company more efficient without affecting wine quality or service levels. As a result of these organizational changes, the Company incurred $1.5 million of employee separation expenses for the fiscal year. All severance payments were made prior to June 30, 1999. 40 20 The Company also completed a strategic review of its product portfolio and decided to focus more of its resources on the Company's core brands: Robert Mondavi Winery, Robert Mondavi Coastal and Woodbridge. As a result, the Company lowered its sales growth expectations for its Vichon Mediterranean brand. Based on revised sales forecasts, the Company determined it had approximately 475,000 gallons of excess imported wine inventory. Accordingly, the Company wrote down the excess inventory to its fair market value based on current market prices and recent sales of similar wine inventory. The resulting $4.0 million write-down was included in cost of goods sold. At June 30, 1999, the Company had $1.0 million remaining as a reserve related to this write-down that the Company expects will be utilized during fiscal 2000 as it sells its remaining excess imported wine inventory. The Company also decided to prioritize the replanting of its internal vineyards. As a result, the Company accelerated the removal of certain vineyards for replant. The net book value of the vineyards removed totaled $0.5 million, which was included in cost of goods sold. NOTE 11 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 $4,163,000, $3,789,000 and $2,739,000, respectively, for the year ended June 30, 1999, 1998 and 1997. 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, 1999 are as follows (in thousands):
YEAR ENDING CAPITAL OPERATING JUNE 30, LEASES LEASES ----------- -------- --------- 2000 $ 1,011 $ 2,819 2001 1,011 2,503 2002 1,011 2,211 2003 906 2,139 2004 144 1,517 Thereafter 2,736 13,639 -------- -------- 6,819 $ 24,828 ======== Less amount representing interest (2,118) -------- Present value of minimum lease payments $ 4,701 ========
Interest expense on capital lease obligations was $385,000, $431,000 and $470,000 for the year ended June 30, 1999, 1998 and 1997, 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, results of its operations, or cash flows. 41 21 NOTE 12 SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest, net of amounts capitalized, was $14,382,000, $9,853,000 and $8,974,000 for the year ended June 30, 1999, 1998 and 1997, respectively. Cash paid for income taxes was $22,149,000, $16,800,000 and $14,771,000 for the year ended June 30, 1999, 1998 and 1997, respectively. Non-cash financing activities not included in the statements of cash flows include the conversions of stock in fiscal 1998 (Note 8) and the tax benefits related to stock option plans in fiscal 1999, 1998 and 1997 (Note 7). NOTE 13 QUARTERLY HIGHLIGHTS (UNAUDITED) Selected highlights for each of the fiscal quarters during the year ended June 30, 1999 and 1998 are as follows (in thousands, except per share data):
1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER -------------------------------------------------- YEAR ENDED JUNE 30, 1999: Net revenues $ 71,361 $104,871 $ 89,161 $105,184 Gross profit 32,473 42,752 40,816 49,135 Net income 7,996 6,455 7,505 8,827 Earnings per share--Basic .52 .42 .49 .57 Earnings per share--Diluted .51 .41 .47 .55 YEAR ENDED JUNE 30, 1998: Net revenues $ 65,550 $ 93,002 $ 76,009 $ 90,598 Gross profit 31,532 43,749 35,180 40,883 Net income 7,654 11,336 6,051 5,121 Earnings per share--Basic .50 .74 .40 .33 Earnings per share--Diluted .48 .71 .38 .32
42 22 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE ROBERT MONDAVI CORPORATION In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, 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, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1999, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for inventories in the first quarter of fiscal 1999. /s/ PRICEWATERHOUSECOOPERS LLP PRICEWATERHOUSECOOPERS LLP SAN FRANCISCO, CALIFORNIA JULY 27, 1999 43 23 CORPORATE INFORMATION BOARD OF DIRECTORS Robert G. Mondavi Marcia Mondavi Borger Philip Greer(1)(2) Chairman of the Board Director Senior Managing Director The Robert Mondavi Corporation The Robert Mondavi Corporation Weiss, Peck and Greer, L.L.C., Investment Managers R. Michael Mondavi James Barksdale President and Chief President and Chief Bartlett R. Rhoades(1)(2) Executive Officer Executive Officer President and Chief The Robert Mondavi Corporation The Barksdale Group Executive Officer Healthtrac, Inc. Timothy J. Mondavi Frank E. Farella(1) Managing Director and Winegrower Partner (1) Member Audit Committee The Robert Mondavi Corporation Farella, Braun & Martel, Attorneys (2) Member Compensation Committee OFFICERS R. Michael Mondavi Michael K. Beyer Peter Mattei President and Chief Executive Senior Vice President, Senior Vice President, Officer General Counsel and Secretary Production and Vineyards Timothy J. Mondavi Mitchell J. Clark Alan E. Schnur Managing Director and Senior Vice President, Senior Vice President, Winegrower Sales Human Resources Gregory M. Evans Martin C. Johnson Steven R. Soderberg Executive Vice President and Senior Vice President, Senior Vice President, Chief Operating Officer Marketing Information Systems Stephen A. McCarthy Senior Vice President and Chief Financial Officer
SHAREHOLDER INFORMATION REGISTRAR AND TRANSFER AGENT ChaseMellon Shareholder Services, L.L.C. Shareholder Relations P.O. Box 3315 South Hackensack, NJ 07606 (800) 356-2017 (800) 231-5469 (TDD) (201) 328-8450 (Outside U.S.) www.chasemellon.com INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP San Francisco, California ANNUAL MEETING The annual meeting of shareholders will be held on Friday, November 5, 1999 at the Woodbridge Winery in Acampo, California. INQUIRIES Communications concerning stock transfer requirements, lost certificates and changes of address should be directed to the Transfer Agent. Other written shareholder or investor inquiries should be directed to: Investor Relations, The Robert Mondavi Corporation, P.O. Box 106, Oakville, California 94562. We can also be contacted by telephone at (707) 251-4850 and e-mail at mond@robertmondavi.com. 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, 1999 HIGH LOW - ------------------------------------------------------------- FOURTH QUARTER $38 1/4 $31 1/2 THIRD QUARTER $40 15/16 $31 3/16 SECOND QUARTER $41 3/8 $21 1/4 FIRST QUARTER $30 5/16 $20 7/8
YEAR ENDED JUNE 30, 1998 HIGH LOW - ------------------------------------------------------------- FOURTH QUARTER $41 9/16 $28 3/8 THIRD QUARTER $50 1/4 $36 3/16 SECOND QUARTER $56 3/8 $46 1/2 FIRST QUARTER $55 3/4 $42 13/16
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 1,635 shareholders of record as of June 30, 1999. 44
EX-23.1 3 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT 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 27, 1999 appearing on page 43 of the 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/ PRICEWATERHOUSECOOPERS LLP - ---------------------------------- PricewaterhouseCoopers LLP San Francisco, California September 27, 1999 EX-27.1 4 FINANCIAL DATA SCHEDULE
5 1,000 YEAR JUN-30-1999 JUL-01-1998 JUN-30-1999 4,544 0 82,037 0 262,377 353,851 346,821 97,249 629,265 56,086 243,758 0 0 92,215 212,191 629,265 370,577 370,577 205,401 205,401 104,550 0 14,217 50,040 19,257 30,783 0 0 0 30,783 2.00 1.94 Represents Basic EPS, calculated in accordance with SFAS No. 128. Represents Diluted EPS, calculated in accordance with SFAS No. 128.
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